02/23/2010 08:00 AM House STATE AFFAIRS

          HB 291-GUARANTEED REVENUE BONDS FOR VETERANS                                                                      
                                                                                                                                
8:15:40 AM                                                                                                                    
                                                                                                                                
CHAIR LYNN announced  the first order of business  was HOUSE BILL                                                               
NO. 291,  "An Act  relating to  the issuance  of state-guaranteed                                                               
revenue  bonds  by  the Alaska  Housing  Finance  Corporation  to                                                               
finance mortgages  for qualifying veterans; and  providing for an                                                               
effective date."                                                                                                                
                                                                                                                                
8:16:19 AM                                                                                                                    
                                                                                                                                
BRYAN BUTCHER,  Director, Government Relations &  Public Affairs,                                                               
Alaska Housing  Finance Corporation  (AHFC), presented HB  291 on                                                               
behalf of  the House Rules  Committee, sponsor by request  of the                                                               
governor.   He stated that  the proposed legislation  would place                                                               
on  the 2010  general election  ballot  a vote  asking voters  to                                                               
approve an  additional $600 million of  state-guaranteed bonds to                                                               
be issued by AHFC for the veterans' program.                                                                                    
                                                                                                                                
MR.  BUTCHER  related  his   understanding  that  "the  veterans'                                                               
program" was created in the U.S.  Congress, and there was a small                                                               
window during which states could  take advantage of that program.                                                               
Alaska was  one of  only five states  to sign up,  he said.   The                                                               
other  four   states  were:    Oregon,   California,  Texas,  and                                                               
Wisconsin.    He  indicated  that  prior to  1977,  in  order  to                                                               
qualify, a  veteran could not have  been out of service  for more                                                               
than 30  years.  He  said the veterans'  program is the  only one                                                               
for which AHFC needs a general  obligation pledge of the state in                                                               
order to sell bonds.                                                                                                            
                                                                                                                                
MR. BUTCHER  said AHFC has worked  with the U.S. Congress  for 15                                                               
years to  lift the restrictions and  open the program up  to more                                                               
veterans.   He indicated  the reason for  the lengthy  effort was                                                               
because only five  states were involved.  He  stated, "We thought                                                               
there  might be  interest  in  having all  the  states give  this                                                               
program for  their veterans.   Unfortunately, that's not  the way                                                               
most of  Congress saw it."   The  requirement of 1977  was lifted                                                               
from federal law,  but only through an agreement  that AHFC would                                                               
be  limited in  selling only  $10 million  in bonds  a year.   He                                                               
remarked  that   when  considering  homes  that   cost  $300,000-                                                               
$400,000, $10  million does not  go far.  After  the restrictions                                                               
were lifted, there were more  eligible veterans in the state, but                                                               
there was not much money.                                                                                                       
                                                                                                                                
MR. BUTCHER  reported that two years  ago, the limit on  AHFC was                                                               
increased to  $100 million, and  now the program flourishes.   He                                                               
continued:                                                                                                                      
                                                                                                                                
     And at this point, as  we ran numbers, we realized that                                                                    
     2002 was the  last time we had  it go to a  vote of the                                                                    
     people.   It  was  $500 million  authorized.   Over  70                                                                    
     percent of the  state voted to have it done.   And once                                                                    
     we realized we now had  a more brisk loan portfolio, we                                                                    
     realized that  in all likelihood,  sometime in  2011 we                                                                    
     were going  to run out of  funds for the program.   So,                                                                    
     if  we didn't  get it  on the  general election  ballot                                                                    
     this year,  we may have  to shut the program  down well                                                                    
     before we get to a 2012 general election.                                                                                  
                                                                                                                                
8:20:07 AM                                                                                                                    
                                                                                                                                
CHAIR LYNN  said he  retired from  the military  in 1976,  and he                                                               
asked if he would be eligible today for the program.                                                                            
                                                                                                                                
8:20:22 AM                                                                                                                    
                                                                                                                                
MR. BUTCHER answered no, because  currently a veteran cannot have                                                               
been out of active duty for more than 25 years.                                                                                 
                                                                                                                                
CHAIR LYNN asked what the  rationale was behind choosing 25 years                                                               
as a cut-off  point.  He remarked,  "A veteran is a  veteran is a                                                               
veteran."                                                                                                                       
                                                                                                                                
8:21:04 AM                                                                                                                    
                                                                                                                                
MR.  BUTCHER reemphasized  the challenges  of  working with  U.S.                                                               
Congress  as one  out of  only five  states that  adopted such  a                                                               
program.  He explained that  U.S. Congress was concerned that tax                                                               
exempt bonds would  take money out of the treasury.   He said the                                                               
program from  1977 ended, and  he said  the chair of  the federal                                                               
Ways and  Means Committee  told him  he believes  that everything                                                               
that sunsets  should do so.   Mr. Butcher said that  sentiment is                                                               
frustrating  those   trying  to  keep  this   successful  program                                                               
running.   To illustrate that  success, Mr. Butcher  relayed that                                                               
Standard & Poor's reported a few  weeks ago that AHFC's last bond                                                               
issuance  for its  veterans' program  had the  lowest delinquency                                                               
rate of  any of the  programs across  the country.   He indicated                                                               
that the veterans' program is AHFC's most successful program.                                                                   
                                                                                                                                
CHAIR   LYNN    responded,   "I   understand   that,    but   ...                                                               
philosophically  it's discriminating  against  a  whole bunch  of                                                               
veterans, and  that discrimination really is  age discrimination,                                                               
too."                                                                                                                           
                                                                                                                                
8:22:40 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  said he is  a Vietnam War veteran.   He                                                               
asked if a veteran is only allowed this loan once in a lifetime.                                                                
                                                                                                                                
8:23:02 AM                                                                                                                    
                                                                                                                                
JOE  DUBLER,  Finance  Director, Bonds,  Alaska  Housing  Finance                                                               
Corporation  (AHFC),  answered  no.     He  said  a  veteran  may                                                               
participate multiple times,  but may have only one loan  out at a                                                               
time.                                                                                                                           
                                                                                                                                
REPRESENTATIVE GRUENBERG declared a  conflict of interest related                                                               
to his forthcoming line of questioning.                                                                                         
                                                                                                                                
CHAIR LYNN declared a conflict of interest.                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON noted that  "this definition" is in federal                                                               
law, not  state law;  therefore, the  committee has  no authority                                                               
over it, but may comment on it.                                                                                                 
                                                                                                                                
8:24:25 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if  AHFC could  run a  program at                                                               
the state  level that was  identical to the federal  program, but                                                               
without [the 25-year] requirement.                                                                                              
                                                                                                                                
8:25:12 AM                                                                                                                    
                                                                                                                                
MR.  BUTCHER answered  that the  federal program  allows AHFC  to                                                               
sell tax  exempt bonds,  which in  turn allows  AHFC to  obtain a                                                               
lower interest  rate than it  can through its  "general program."                                                               
Anyone  who  did not  qualify  under  federal  law would  not  be                                                               
eligible  for  tax exempt  bonds,  so  AHFC  would have  to  sell                                                               
taxable bonds.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  GRUENBERG  asked,  "So, is  there  federal  money                                                               
involved in this, or just tax exempt status?"                                                                                   
                                                                                                                                
MR. BUTCHER responded, "Just tax exempt status."                                                                                
                                                                                                                                
REPRESENTATIVE  GRUENBERG  said  that  was  not  clear  from  the                                                               
information provided.   He said he had been  under the impression                                                               
that there was a "federal guarantee or federal money."                                                                          
                                                                                                                                
8:26:04 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  if  the bonds  are  retired or  are                                                               
cycled into AHFC for reissuance of additional mortgage.                                                                         
                                                                                                                                
8:26:33 AM                                                                                                                    
                                                                                                                                
MR. BUTCHER responded that the  payments AHFC gets from borrowers                                                               
are used  to pay off debt.   He explained that  under federal tax                                                               
law and  with certain restrictions,  to the extent AHFC  pays off                                                               
debt, it is able to reissue debt.  He continued:                                                                                
                                                                                                                                
     When we do that, for the  purposes of state law and the                                                                    
     voters' authorization under  the guaranteed program, we                                                                    
     reduce  the amount  of the  voter authorization  by the                                                                    
     refunded amount,  as well.   In other words,  we're not                                                                    
     double counting for the state  purposes.  We do for the                                                                    
     feds because  they allow  it, but  for the  state we're                                                                    
     very conservative and do not.                                                                                              
                                                                                                                                
8:27:24 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  stated  his understanding  that  although                                                               
AHFC can reissue, it has to go  back to voters to get approval to                                                               
guarantee the additional amount.                                                                                                
                                                                                                                                
MR. DUBLER  confirmed that AHFC  cannot issue  general obligation                                                               
bonds without the approval of the voters.                                                                                       
                                                                                                                                
8:28:03 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked Mr.  Butcher if he  foresees AHFC                                                               
having a  similar problem with  U.S. Congress regarding  a sunset                                                               
of the current federal law.                                                                                                     
                                                                                                                                
8:28:24 AM                                                                                                                    
                                                                                                                                
MR.  BUTCHER   answered  that  the   five  states   involved  are                                                               
continually  working  with U.S.  Congress.    Currently, AHFC  is                                                               
working  to get  the 25-year  limit  lifted so  that the  program                                                               
would  apply to  all veterans  and to  obtain permission  to have                                                               
refinancing  "as something  that would  qualify in  the program."                                                               
He credited Congressman Bill Thomas  from California for his work                                                               
on this issue.                                                                                                                  
                                                                                                                                
8:29:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  said he would  like an explanation  of how                                                               
the issue of active duty relates to [the Alaska National Guard].                                                                
                                                                                                                                
8:30:08 AM                                                                                                                    
                                                                                                                                
LAURIE HOLTE, Residential Lending  Officer, Urban and Residential                                                               
Loan Programs, Alaska Housing  Finance Corporation (AHFC), stated                                                               
that if a [National] Guard member  has been called to active duty                                                               
by  the  President for  duty  other  than training,  then  he/she                                                               
becomes  eligible  for  the  program   upon  completion  of  that                                                               
obligation.  Being  called to duty by the State  of Alaska is not                                                               
considered federal duty, she specified.                                                                                         
                                                                                                                                
8:31:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON  offered  his  understanding  that  active                                                               
National Guard members, having completed  their initial period of                                                               
duty,  which  would  entitle  them   to  honorable  discharge  or                                                               
release, would qualify.   He asked if they  would remain eligible                                                               
if they went off active duty status.                                                                                            
                                                                                                                                
MS. HOLTI answered yes.                                                                                                         
                                                                                                                                
8:32:48 AM                                                                                                                    
                                                                                                                                
MR.  DUBLER, in  response  to Representative  Wilson,  said if  a                                                               
borrower does not pay back  his/her mortgage, the corporation has                                                               
options.     In   most   cases,  there   would   be  a   Veterans                                                               
Administration   or   Federal    Housing   Administration   (FHA)                                                               
guarantee, and AHFC would be  able to receive from those entities                                                               
the difference between what AFHC is  able to resell the house for                                                               
and what  the borrower still owes  on the mortgage.   In the mid-                                                               
to  late-'80s,  the  value  of the  homes  being  foreclosed  was                                                               
smaller  than the  balance on  the mortgages;  however, currently                                                               
there  is not  a big  decline  in home  value, so  AHFC does  not                                                               
anticipate that problem in the  current environment.  In response                                                               
to a  follow-up comment from Representative  Wilson, he confirmed                                                               
that  bonds  are  paid  off  using  the  payments  received  from                                                               
veterans.                                                                                                                       
                                                                                                                                
8:34:45 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG shared that  he participated in the Navy                                                               
Reserve Officers'  Training Corps  (ROTC) program, from  which he                                                               
graduated in  1965.   He noted that  those in  military academies                                                               
are  qualified, and  he  stated his  assumption  that is  because                                                               
people attending  those academies are considered  on active duty.                                                               
He  offered his  understanding  that ROTC  participants are  also                                                               
considered  on active  duty during  their college  years, and  he                                                               
asked if any consideration had been  made to include those in the                                                               
ROTC.                                                                                                                           
                                                                                                                                
8:36:38 AM                                                                                                                    
                                                                                                                                
MR. BUTCHER  said he would  bring that  issue up during  the next                                                               
conference call  between the five  aforementioned states  and get                                                               
back to Representative Gruenberg with a response.                                                                               
                                                                                                                                
CHAIR LYNN  offered his understanding  that ROTC  participants do                                                               
not qualify as being on active duty.                                                                                            
                                                                                                                                
8:38:02 AM                                                                                                                    
                                                                                                                                
MS.  HOLTI,  in  response  to  Representative  Petersen,  said  a                                                               
qualified  veteran  could use  the  program  loan for  a  duplex,                                                               
triplex, or  fourplex, as  long as  one unit  is occupied  by the                                                               
borrower.                                                                                                                       
                                                                                                                                
8:38:20 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN offered  his understand  that this  is a                                                               
good time  to have a  bond sale, especially  considering Alaska's                                                               
"credit worthiness."   He said  he supports  HB 291 and  thinks a                                                               
majority  of  Alaskans  will vote  to  continue  supporting  this                                                               
program.                                                                                                                        
                                                                                                                                
8:39:22 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  P.  WILSON questioned  if  the  language in  bill                                                               
should be changed  to reflect that the veteran  who borrows money                                                               
may do so  for a multi-unit dwelling.  She  said, "So, what we're                                                               
really saying is we're helping them start a business."                                                                          
                                                                                                                                
8:40:10 AM                                                                                                                    
                                                                                                                                
MR. DUBLER  responded that  the vast majority  of loans  given in                                                               
this  program are  for single-family  homes.   The definition  of                                                               
residence for this purpose is "less  than a fourplex".  He stated                                                               
his understanding  that that  language is  found also  in federal                                                               
law.   He said AHFC's  first-time homebuyer program  includes the                                                               
same stipulation.   He  concluded, "So, it's  a federal  issue, I                                                               
believe."                                                                                                                       
                                                                                                                                
CHAIR LYNN  proffered that  sometimes the  ability to  get income                                                               
from the other units helps a person qualify for a home loan.                                                                    
                                                                                                                                
MR. DUBLER confirmed that is correct.                                                                                           
                                                                                                                                
8:41:46 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SEATON asked  if there  is any  state subsidy  in                                                               
this program.                                                                                                                   
                                                                                                                                
MR. DUBLER  replied yes.   He relayed  that the  current interest                                                               
rate is 4.625 percent.                                                                                                          
                                                                                                                                
8:42:24 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GRUENBERG  asked if there would  be an explanation                                                               
of the proposed ballot measure in the election pamphlet.                                                                        
                                                                                                                                
MR.  BUTCHER said  he believes  there was  an explanation  in the                                                               
2002 election information.                                                                                                      
                                                                                                                                
REPRESENTATIVE   GRUENBERG  said   he  wants   a  definition   of                                                               
"veterans" and "residences" provided to voters.                                                                                 
                                                                                                                                
8:45:13 AM                                                                                                                    
                                                                                                                                
MR. BUTCHER said AHFC could provide those definitions.                                                                          
                                                                                                                                
8:45:36 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON stated that  even though this is related                                                               
to a  federal program,  the State  of Alaska  will be  funding it                                                               
and, therefore, will be responsible.                                                                                            
                                                                                                                                
MR. BUTCHER  responded that that  is correct.  He  clarified that                                                               
there are federal restrictions.   Federal law allows the state to                                                               
choose whether to participate in the program.                                                                                   
                                                                                                                                
8:46:18 AM                                                                                                                    
                                                                                                                                
CHAIR LYNN,  after ascertaining  that there was  no one  else who                                                               
wished to testify, closed public testimony.                                                                                     
                                                                                                                                
8:46:39 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  moved to  report HB  291 out  of committee                                                               
with  individual  recommendations  and  the  accompanying  fiscal                                                               
notes.  There being no objection,  HB 291 was reported out of the                                                               
House State Affairs Standing Committee.