Legislature(2005 - 2006)
04/22/2005 02:48 PM House FIN
| Audio | Topic |
|---|---|
| Start | |
| HB275 | |
| HB53 | |
| HB12 | |
| HB7 | |
| HB101 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 275
An Act authorizing financing for certain public
transportation projects; giving notice of and approving
the entry into, and the issuance of revenue obligations
that provide participation in, lease-financing
agreements for those transportation projects; and
providing for an effective date.
PETE ECKLUND, STAFF, REPRESENTATIVE KEVIN MEYER, explained
that HB 275 would fund $115 million of highway projects
around the State, using Grant Anticipation Revenue Vehicle
(GARVEE) bonds.
Since 1998, eighteen states have leveraged federal highway
money by using GARVEE bonds. Those transactions accounted
for more than $12 billion dollars par value. As a result,
the GARVEE approach is now an accepted method of financing
needed transportation infrastructure projects.
To be eligible for inclusion in a GARVEE bond package,
projects must qualify for federal highway aid and appear on
the Statewide Transportation Improvement Program (STIP).
All of the projects listed in HB 275 qualify for federal
highway aid.
Future federal highway funds would be used to repay the
bonds. The interest earnings on the bonds would be used to
pay for the federal highway match, saving the State
approximately $15 million in general fund match.
Mr. Ecklund highlighted the factors taken into consideration
when placing a project into GARVEE consideration.
· A large project that might take more years to do,
could save the inflation costs over time. The
average cost for heavy construction projects has
risen 15% per year. Before that, rises were between
2-3% per year.
· Other states that have GARVEEs have received
authorization for 3x coverage, which gives them
authorization to pledge up to 33% of there federal
highway aid for the repayment of that debt. The
current program is at $300 million dollars per year
and the State is paying back $13 million per year on
current GARVEE. The State has been conservation up
to this time and has not leveraged a very large
portion of the GARVEE program.
2:56:47 PM
Co-Chair Meyer requested an explanation of the fiscal note.
Mr. Ecklund explained that if the State bonded for $150
million dollars worth of projects, it would create a payment
schedule for 15 years with an interest rate of 5.4%. There
are four states recently doing GARVEE issuance. They
received a AA rating by pledging their federal highway
receipts for repayment. At current rates, a GARVEE could be
issued at a 4% rate per day; 5.4% used in preparing the note
is high. In order to issue $116 million dollars worth of
bonds, the State would be paying back about $11.4 million
dollars at the 5.4% interest. Inserting the current 4%
interest rate, the annual payment drops by $1 million
dollars per year.
DEVON MITCHELL, EXECUTIVE DIRECTOR, DEBT MANAGER, ALASKA
MUNICIPAL BOND BANK AUTHORITY, DEPARTMENT OF REVENUE,
acknowledged that the Department did use the high-end
interest rate when preparing the note.
Co-Chair Meyer asked if the fiscal note would be adjusted or
if the Department anticipated interest rates to increase.
Mr. Mitchell explained that the note is an estimate and when
the Department prepares a note, they address the worst-case
scenario under which they are borrowing. There is
uncertainty regarding interest rates and he was reluctant to
revise the note.
3:00:15 PM
Co-Chair Meyer asked the last time the State sold GARVEE
bonds. Mr. Ecklund replied 2002. Mr. Mitchell clarified
that they had been authorized in 2002, but sold in 2003.
Mr. Ecklund added, the principle amount was $102 million
dollars.
Co-Chair Meyer pointed out that the roads included in the
list, were ones included in the Governor's funding request
proposal from the Amerada Hess monies.
Representative Kelly asked the anticipated longest term.
Mr. Ecklund explained it would make most sense to use the 6-
year increments, following similar terms of the federal
reauthorization bills. At present time, Alaska is a year
and a half into that deal. There are four and half years
left on the current reauthorization. Given two more-six
year periods, would provide around 16 years. The bill is
written for a 15-year repayment.
3:02:23 PM
Representative Joule referenced the number of projects
transferred from the Amerada Hess component, pointing out
that the numbers were different. Co-Chair Meyer interjected
that a couple of the projects would not fit into the
program. Mr. Ecklund added that the project amounts
different from those in the Amerada Hess. If the Department
of Transportation & Public Facilities used the Amerada Hess
or other State funds, it would cost less for the entire
package and would not go through the federal process. Under
the GARVEE bond bill, all projects have to fall within
federal guidelines. Each has a different requirement, which
adds time and cost.
Mr. Ecklund anticipated discussion regarding whether or not
the GARVEE bonds would affect the State's credit rating.
The under-writers believe it could be structured so that it
would not be affected.
3:05:32 PM
Representative Hawker referenced comments from the sponsor
statement indicating that interest earnings on the bonds
could be used to pay the federal highway match. He
understood that bonds are a debt obligation and that the
State would have expense on bonds, not interest earnings.
Mr. Ecklund stated that it would result from investing the
bond proceeds.
Representative Hawker explained what really would be
happening is that the State would be investing the unused
portion of the bond proceeds and use that interest to off-
set the cost of the bonds and pay the highway match. Mr.
Mitchell replied that the Federal Highway Administration
(FHA) allows the State to use all investment earnings on the
construction fund as a State match. The projects would not
be completed quickly. All the earnings would accrue to the
benefit of the State. Historically, low short-term interest
rates have resulted.
Representative Hawker asked the possibility of the State
saving money on the match. Mr. Mitchell did not know. He
expected that with those assumptions, the State could
possibly achieve around $13 million dollars.
3:08:46 PM
MICHAEL BARTON, (TESTIFIED VIA TELECONFERENCE),
COMMISSIONER, DEPARTMENT OF TRANSPORTATION & PUBLIC
FACILITIES, ANCHORAGE, testified in opposition to using
GARVEE bonds. He pointed out that the State has identified
over $10 billion dollars in transportation needs, provided
by the Statewide Transportation Improvement Program (STIP).
He stated that GARVEE could have a negative impact on future
programs and that the GARVEE debt service would need to be
subtracted from the annual STIP.
GARVEE bonds are federal funds and must follow a federal
process, which adds time and dollars. The project time
could be extended 1 to 3 years with the project costs
increasing 10-30%.
Commissioner Barton pointed out that federal funding is not
clear at this time given the U.S. Senate reauthorization.
It needs to be considered what Alaska can expect to receive
from that program in future years. There has been
discussion in Washington D.C. regarding continued funding.
Future reauthorizations will need to be achieved without the
benefit of Congressmen Young and Stevens chairing their
respective committees.
Commissioner Barton pointed out that the Governor had
proposed using the Amerada Hess match for the federal aid
program. GARVEEs cannot be used for that. He reiterated
his serious concerns with using GARVEE and urged that the
Committee look elsewhere for a funding source.
3:13:14 PM
Co-Chair Meyer pointed out that the roads already chosen for
the GARVEE bond funding are ones currently being recommended
by the Governor. Commissioner Barton did not oppose the
roads chosen but the vehicle used to fund that construction.
Co-Chair Meyer asked if using the GARVEE's could create
delays on other projects on the STIP list. Commissioner
Barton said yes. The roads listed are all part of the need
and those Governor's package deals with getting
transportation infrastructure needs addressed. The goal is
to have everything in place for the structure of the
pipeline by 2009. Currently, there is an effort to expand
the transportation needs throughout the State.
3:14:50 PM
Co-Chair Meyer noted that the GARVEE proposal was a back up
if the Amerada Hess was not possible or did not make it
through the Legislative process. Commissioner Barton
disagreed with the statement that the roads would never get
addressed and acknowledged that it would take longer and
require the State to move the timeline further out.
3:15:31 PM
Vice-Chair Stoltze asked if Commissioner Barton's position
was a "political preference" and requested clarification
about the funding source.
Commissioner Barton advised that the first priority is not
GARVEE bonding and that Amerada Hess would be the logical
choice.
· The GARVEE bonds would extend the project time from
1 to 3 years.
· It would increase the project costs 10-30%.
· It would impact the STIP and projects currently on
the STIP would be delayed.
· The State does not know how much money there will be
in the future against which the GARVEE debt payment
would be based.
3:17:58 PM
In response to comments by Commissioner Barton regarding
"anything except GARVEE" for the funding of the projects,
Co-Chair Meyer asked if that would include using the general
fund. Commissioner Barton replied it does.
DICK CATTANACH, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE
DIRECTOR, ASSOCIATED GENERAL CONTRACTORS OF ALASKA,
ANCHORAGE, testified against the use of GARVEE bonds.
GARVEE bonds are not the way to go if building Alaska
infrastructure. GARVEE bonds do not increase the number of
dollars going into the hiring fund. They will only change
the timing. Future projects would be accelerated and there
would be fewer. If inflation were under control, there
would be fewer projects because interest would need to be
paid. It is important to recognize that Alaska currently
gets $5.37 for every dollar that they send into the Highway
Trust Fund.
Mr. Cattanach continued, when our U.S. Congressmen Young and
Stevens leave, the likelihood of continued funding at the
current level will be greatly diminished. The amount
referenced when combined with current GARVEE payments, would
indicate that 15% to 20% is used to payoff GARVEE bonds. He
recommended that the State look at alternative ways to
increase the highway program. That was what initially
enticed the State's builders about the Governor's
recommendation, using Amerada Hess funds for adding to the
highway program.
3:22:04 PM
Co-Chair Meyer acknowledged that the Legislature is looking
for alternatives for getting the roads built. Mr. Cattanach
responded that GARVEE bonds represent $9 dollars of federal
money for each dollar the State puts in. That does not add
to the road funds because the State would get those same
dollars anyway. Considering the needs of the State as
addressed by Commissioner Barton with $10 billion dollars
worth of projects, would take more than 25 years and does
not consider maintenance.
Mr. Cattanach stressed that Alaska is the only State without
a State road program. Alaska's State road program is
entirely supported by the federal government. Every other
state supports their roads.
3:24:00 PM
Co-Chair Meyer agreed, however, commented that it is
difficult to compare Alaska to other states when including
aspects as the Alaska Marine Highway System (AMHS).
Representative Hawker reaffirmed that Alaska is the
wealthiest State in the Nation. Co-Chair Meyer echoed those
sentiments, recommending that Alaska come up with a road
funding system. Mr. Cattanach concurred that the State does
need a program to address infrastructure concerns and that
the State can no longer wait for the federal government.
3:25:55 PM
AT EASE: 3:27:04 PM
RECONVENE: 3:28:18 PM
Co-Chair Meyer indicated a new committee substitute would be
forthcoming and that HB 275 would be HELD in Committee for
further consideration.
3:29:42 PM
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