04/17/2016 08:00 AM Senate FINANCE

HOUSE BILL NO. 268                                                                                                            
                                                                                                                                
     "An  Act  relating to  the  dividends  from the  Alaska                                                                    
     Industrial Development  and Export  Authority; relating                                                                    
     to  the meaning  of 'mark-to-market  fair value,'  'net                                                                    
     income,'  'project or  development,' and  'unrestricted                                                                    
     net  income'  for  purposes of  the  Alaska  Industrial                                                                    
     Development and Export Authority;  and providing for an                                                                    
     effective date."                                                                                                           
                                                                                                                                
10:00:25 AM                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon noted that the  public hearing for SB 268                                                                    
had been opened and closed on April 12, 2016.                                                                                   
                                                                                                                                
GENE  THERRIAULT, DEPUTY  DIRECTOR, STATEWIDE  ENERGY POLICY                                                                    
DEVELOPMENT,   ALASKA   ENERGY  AUTHORITY,   DEPARTMENT   OF                                                                    
COMMERCE, COMMUNITY AND  ECONOMIC DEVELOPMENT, discussed the                                                                    
intent  of  the  bill.  He specified  that  the  legislation                                                                    
proposed to  fix two  issues with  computation of  the AIDEA                                                                    
dividend. He  explained that  the dividend  was paid  out of                                                                    
AIDEA's net earnings  on a yearly basis, and  there were two                                                                    
issues  which were  starting to  create unpredictability  to                                                                    
the process.  He specified that federal  rules required that                                                                    
AIDEA  make  adjustments  in  order  to  get  its  financial                                                                    
audited  statement.  He  furthered  that  a  number  of  the                                                                    
adjustments needed  were for  non-cash adjustments,  and the                                                                    
adjustments impacted  net income before the  calculation for                                                                    
the dividend  took place. He  specified that one of  the two                                                                    
problems was  mark to market adjustments.  He illustrated an                                                                    
example that  if one had  an investment portfolio  in stocks                                                                    
and bonds,  at the end of  the fiscal year the  market might                                                                    
be up. AIDEA was required to  take a snapshot of the current                                                                    
value, and  unrealized gains  were booked  (as if  they were                                                                    
sold)  and created  an inflated  income  on which  dividends                                                                    
were based.  He noted  that the market  could also  be down,                                                                    
which would  create an artificially reduced  net income. The                                                                    
bill would  back out  the non-cash  adjustments in  order to                                                                    
calculate the dividend with true net income.                                                                                    
                                                                                                                                
Mr.  Therriault  discussed  a  second  issue  pertaining  to                                                                    
calculation  of  the  AIDEA   dividend.  He  recounted  that                                                                    
several years previously, the  authority was instructed that                                                                    
when  it received  money  from an  outside  source (such  as                                                                    
federal funds  or a direct capital  appropriation to support                                                                    
a  project),  the  funds  were   reflected  as  income.  The                                                                    
practice had  artificially inflated AIDEA's income,  and the                                                                    
legislature  had  allowed  for  the outside  funding  to  be                                                                    
disregarded for  the purposes  of calculating  the dividend.                                                                    
The  legislature had  not anticipated  that at  times, funds                                                                    
from outside  sources were spent  to investigate but  not go                                                                    
forward with a project, and  the value of expenditures (such                                                                    
as an environmental  impact study) would have  to be written                                                                    
off   the   books.   The  periodic   adjustments   of   such                                                                    
expenditures  would artificially  suppress the  income in  a                                                                    
particular year.  He qualified  that the  expense write-offs                                                                    
happened very  infrequently, and the AIDEA  accounting staff                                                                    
had  requested a  remedy for  the problem  so that  true net                                                                    
income would be considered when dividends were calculated.                                                                      
                                                                                                                                
Co-Chair MacKinnon  directed attention  to the  fiscal note,                                                                    
FN   1(CED),   and   noted  that   the   fiscal   note   was                                                                    
indeterminate.                                                                                                                  
                                                                                                                                
Co-Chair Kelly MOVED to report  HB 268 out of Committee with                                                                    
individual  recommendations  and   the  accompanying  fiscal                                                                    
note.                                                                                                                           
                                                                                                                                
HB   268   was   REPORTED   out  of   committee   with   "no                                                                    
recommendation"   and   with    one   previously   published                                                                    
indeterminate fiscal note: FN 1 (CED).                                                                                          
                                                                                                                                
10:05:40 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:07:45 AM                                                                                                                   
RECONVENED