Legislature(1999 - 2000)
04/11/2000 03:15 PM House FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 373
"An Act relating to return of contributed capital, or
payment of a dividend, to the state by the Alaska
Student Loan Corporation; and providing for an
effective date."
DIANE BARRANS, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION
COMMISSION, DEPARTMENT OF EDUCATION testified in support of
the legislation. She observed that the legislation reflects
the growing financial stability of a unique, longstanding
and valued Alaskan program "the Alaska Student Loan
Program". She read from a prepared statement:
As you may already be aware, legislative and
administrative changes to the Alaska Student Loan
Programs made in recent years have resulted in the
Alaska Student Loan Corporation transitioning from an
enterprise agency operating with an annual net deficit
to one producing an annual net income. This outcome has
allowed the ASLC board to identify and prioritize
several policy goals. In priority order, these goals
are:
1) Continue in a direction of fiscal strength and good
credit standing;
2) Continue to reduce the costs of borrowing for AK
residents;
3) Continue to reduce the Corporation's equity deficit
of $43 million; and
4) Propose a mechanism that, while subordinate to the
top three priorities, makes possible a return of
contributed capital to the ASLC's original financing
source-the State of Alaska.
The ASLC is already experiencing success in meeting
these goals: in 1999 our improved financial standing
was rewarded by a full ratings upgrade to double-A by
both Moodys and Standard and Poors; the interest rate
on 2000-2001 state student loans has been reduced to
8%, the lowest rate in several years; the interest-free
borrowing while student-borrowers are in school remains
intact; and, the Corporation's equity deficit has been
reduced by almost $7 million over the past two years.
In recommending this bill for your approval, our board
is seeking a mechanism for the ASLC to fulfill its
fourth goal. The bill provides that, in any year that
the Corporation has at least a $2 million net income,
the board will declare a return of capital payment to
the State of between 10% and 35% of that income amount.
This approach was developed and endorsed by the
Corporation as one that is considered reasonable within
the financial community as a conservative method of
meeting this goal. The Corporation's senior staff and
financial advisors met and discussed the proposal with
both rating agencies and bond insurer to avoid any
adverse impact to our credit standing or possible
related increase in the cost of bond issuance. Their
reaction has been positive-under the conditions that
this bill would place in law.
It is important for me to reference current proposals
for the FY200 1 budget year that use ASLC receipts, in
both the House and Senate versions of next year's
budget, that make passage of this bill an imperative
for the Corporation's wellbeing. Approval of this
return of capital approach will pre-empt any concerns
raised by this year's budget structure. Passage of this
bill will insure that the Corporation's capital return
payment is made without putting at risk the financial
and public policy goals of the Alaska Student Loan
Corporation.
I have provided a handout that includes a Statement of
Projected Revenues and Expenses that projects both
current and future, through 2004, payment amounts. Also
included are two graphs that illustrate the income
trend and its impact on the Corporation's fund Equity
Balance over that same time period (copy on file.)
In response to a question by Vice Chair Bunde, Mr. Barrans
reviewed the establishment of interest rates. When the
program was funded through the General Fund there was a
statutory interest rate, which was set at 5 percent and
later increased to 8 percent. A formula was developed
through legislative changes to tie the cost of borrowing to
the cost of funds to the Corporation. The calculation has
two pieces: a weighted average of the cost of bonds in the
prior five years, and cost of the program operations.
Vice Chair Bunde observed that the Commission's philosophy
was, at one time, that the student loan should be the loan
of last resort and that there were lower interest rates
available through the federal government. Ms. Barrans
responded that the program is a close competitor with the
federal student loan program. Subsidized federal loans are
still a better deal for students that qualify. The Alaska
student loan program is close to the unsubsidized federal
student loan and does not require income or asset
qualifications.
In response to a question by Vice Chair Bunde, Ms. Barrans
stated that the best way to reduce the cost of loans to
borrowers is to reduce the cost to run the program by:
reducing losses, reducing administration costs, and to
achieve better rates on bonds. The amount of capital the
bill returns to the state does not materially affect the
ability to reduce rates in the future.
Representative J. Davies questioned if the Corporation had
discussed reinstating credit on loans for returning
students. The Alaska Student Loan Corporation has not
engaged in the discussion. Ms. Barrans clarified that the
focus has been on making up the ground that was loss in
equity investment. She added that if the full equity were
returned that discussions might occur.
In response to a question by Representative J. Davies, Ms.
Barrans observed that in the House version of the operating
budget $1.6 million dollars of Student Loan Corporation
receipts are appropriated to offset the cost of WAMI and a
new program that would provide that would provided National
Guard tuition credit. In the Senate $1.6 million dollars of
Student Loan Corporation receipts are appropriated to fund
the operation of the university.
SHEILA KING, FINANCE OFFICER, ALASKA STUDENT LOAN
CORPORATION explained surplus funds that are recycled into
new loans. The Corporation must keep a level of collateral
to meet their bonds covenants.
Representative J. Davies questioned how much is available in
the current fiscal year that would be used by the
legislature. Ms. Barrans observed that the total
appropriation of corporation receipts is $2 million dollars.
The Senate worked with the Corporation. She observed that
this is slightly less than the 35 percent that the
Corporation would have available.
Representative G. Davis noted that the transmittal letter
from the Governor indicated that some of the earnings would
go to the Alaska Scholars Program. Ms. Barrans acknowledged
that the Governor recommended the use of funds for the
Alaska Scholars Program but pointed out that funds have not
been earmarked in a statutory way. The university on the
Alaska Scholars Program could spend the funds.
Vice Chair Bunde recalled that the University found funding
for the first year of the Alaska Scholars Program and would
look to the legislature to fund it for the next year.
Ms. Barrans voiced strong support for the legislation. She
indicated that this has been a joint effort.
Representative J. Davies MOVED to report HB 373 out of
Committee with the accompanying fiscal note. Vice Chair
Bunde OBJECTED for the purpose of discussion. He pointed
out that it is a twice-removed tuition hike, but that it is
nice that the students support their university. He WITHDREW
his OBJECTION. There being NO OBJECTION, it was so ordered.
HB 373 was REPORTED out of Committee with "no
recommendation" and a zero fiscal note by the Department of
Education and Early Development.
| Document Name | Date/Time | Subjects |
|---|