Legislature(2015 - 2016)HOUSE FINANCE 519
04/18/2015 08:30 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB46 | |
| HB44 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 46 | TELECONFERENCED | |
| + | HB 44 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR SENATE BILL NO. 46(FIN)
"An Act relating to the Alaska Municipal Bond Bank
Authority; authorizing the Alaska Municipal Bond Bank
Authority to issue bonds or notes for a regional
health organization or joint action agency; and
providing for an effective date."
9:04:57 AM
TIM GRUSSENDORF, STAFF, SENATOR LYMAN HOFFMAN, noted that
the bill had been previously before the committee on March
26, 2015. He spoke to the changes in the bill that were
made by the senate, and shared that they were identical to
changes made in HB 101. He walked through the explanation
of changes:
The CS for Senate Bill 46(FIN) makes the following
changes form the Senate Bill 46:
Bill Language Changes
1. The CS lowers the total amount form $250 million to
$205 million that the bond bank can finance for
Regional Health organization.
2. The CS only allows for the bond bank to finance no
more than 49 percent of any one project in the state.
3. The CS states that the 49 percent bond bank
financing is contingent on the balance (51 percent) of
the total project cost being secured/delivered prior
to bonding.
4. The CS states that no single Regional Health
Organization borrower can be access more than 50
percent of the $205,000,000 bonding authority.
5. The CS allows for Joint Action Agencies to utilize
the bond bank.
Co-Chair Thompson noted that Representative Gara had joined
the meeting.
Representative Wilson could not find language pertaining to
the 50 percent bonding authority on page 6.
Mr. Grussendorf replied that $102.5 million was 50 percent
of the $205,000,000 bonding authority.
Representative Wilson assumed that the fund would never
exceed $205 million.
Mr. Grussendorf concurred with the assumption.
Co-Chair Thompson noted that Representative Kawasaki had
joined the meeting.
Vice-Chair Saddler asked whether the $102.5 million was per
project, or for all Regional Health Corporations.
DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE, replied that the
$102.5 million would be the limit per project.
9:09:15 AM
Co-Chair Thompson queried the definition of a "joint action
agency" as it was written in the legislation.
Mr. Mitchell replied that joint action agencies were
entities created by state law that required utilities to
come together and form an agency in instances where
facilities were being acquired from the state
Vice-Chair Saddler noted that the bonds bank had recently
expanded to cover the University. He wondered which entity
the bank would expand to next.
Mr. Mitchell thought that the university had synergy with
the bond bank that had worked well, the Regional Health
Organizations had similar synergy of goals. He said that a
future synergy between the state and a capital need could
result in another expansion. He asserted that there were no
plans for future expansion on the horizon.
9:11:04 AM
Vice-Chair Saddler asked how Mr. Mitchell would respond to
a legislative request to extend the bond bank to tribal
organizations.
Mr. Mitchell replied that is was hard to project what an
extension would entail. He said that tribal organizations
had issues specific to tribal finance. He understood that
there could be challenges associated with dealing with
sovereign entities.
Vice-Chair Saddler asked whether there were limits to bond
authority expansion.
Mr. Mitchell replied that there would be limits on what
could bonded for on a tax exempt basis.
Vice-Chair Saddler asked how the department evaluated,
balanced, compared, and prioritized bonding requests.
Mr. Mitchell answered that the willingness of the bond bank
to consider partnering with regional health organizations
had developed during collaborative talks between the Board
of Directors of the bond bank and the department. He
believed that the partnership would benefit the quality of
care in rural part of the state and ensure that services
were delivered in a financially minimized fashion.
Vice-Chair Saddler asked again how the bond bank
prioritized the bonding capacity for different users.
Mr. Mitchell replied that the financing requests that would
come before the bond bank were prioritized in statute and
in department regulation. He offered to provide further
information.
Co-Chair Thompson noted that Representative Munoz and
Representative Pruitt had joined the meeting.
9:13:55 AM
Representative Edgmon spoke in strong support of the
project. He categorized the project as an innovative and a
responsible financing mechanism. He spoke to the stellar
credit rating of the bond bank. He requested clarification
on Page 6 of the document, and pointed out that the bill
would transfer more risk to the investor, or builder of the
project, and contained additional sideboards.
Mr. Mitchell answered that the bill protected the state's
participation in the proposed financings by requiring
partners in the financing. He explained that the state
would be financing a minority interest of the total funding
and the partner would be expected to provide an additional
51 percent of the project costs. He noted that the
structure would prove to create greater financial security
for the state.
Representative Edgmon observed that the project had been
carefully crafted.
Representative Kawasaki noted that the bill would add non-
profit regional health organizations. He asked whether
joint-action agencies could be for-profit entities, and
whether those agencies were rate regulated.
Mr. Mitchell answered that the entities were non-profit and
were not rate regulated. He added that joint-action
agencies set their power rate based on a break-even
proposition and had no profit motive.
Representative Kawasaki wondered whether the bill should
recommend that someone outside of the municipal bond bank
review requests by examining the need of the requesting
region.
Representative Gara believed the bill was strong and hoped
that it would receive committee support. He queried the
bank's opinion of the policy change found on Line 21 of the
bill; the bond bank would no longer finance more than 49
percent of a project.
Mr. Mitchell asserted that the change made it easier for
the bond bank to support the bill because it mitigated
risk. The change would require the partner to provide
either equity, or alternative funding sources, to share in
the risk.
9:20:36 AM
Mr. Mitchell followed up on an earlier question by Vice-
Chair Saddler. He read from AS 44.85.180:
(d) In deciding to purchase municipal bonds of a
municipality, the bond bank authority shall give
preference to the municipalities referred to in AS
44.85.005. In addition, the following, listed in order
of preference, are preferred purposes of the municipal
bonds that may be considered by the bond bank
authority for purchase: schools, waste water treatment
facilities, fire protection and public safety
facilities, public health facilities, and public
transportation facilities.
Vice-Chair Saddler pointed to Page 3, lines 18 to 19, which
added conditions to the issuance of bonds for regional
health corporations. He asked what form documentation of an
anticipated need the bond bank would require from the
Department of Health and Social Services.
Mr. Mitchell replied that a letter from the commissioner or
a certificate of need analysis would suffice.
Representative Pruitt wondered what the benefit of
increasing the regional quality of care actually meant, and
did it include cost savings.
Mr. Mitchell answered that it was a two-pronged test; the
first would be a recognition that there would be an
improvement of the quality of care in the region, and that
the state expected that the facility would result in a
financial benefit to the state through reduced costs.
Representative Pruitt asked about the moral obligation to
the state.
Mr. Mitchell answered that the bill did not require a full-
faith credit pledge of the state. He listed the tiers of
credit to which an entity could obligate itself. He
believed that if the state saw an opportunity to increase
the quality of healthcare in the state, which would also
benefit the state financially, the benefits were worth the
risk. He relayed that the risk would be minimized to the
extent that the bond bank would be obtaining an
authorization, not a requirement, to lend money. He
stressed that the bank intended to be repaid 100 percent of
the time, questions about an organizations financial
viability could result in impairment of their ability to
access the program.
9:26:43 AM
Representative Kawasaki spoke to the add-on for joint-
action agencies. He understood that the commissioner of
DHSS would detail a significant financial benefit to the
state, but that joint-action agencies would not bear that
burden of proof. He appreciated the sideboards that had
been crafted into the legislation, but expressed concern
that the joint-action agencies could place the bond bank at
risk.
Mr. Mitchell answered that the difference was warranted due
to the different nature of the organizations. He said that
a municipality that owned a utility would not be subject to
the Regulatory Commission of Alaska (RCA) setting its
rates; rates could be adjusted at the city council level
based on need, their loans would be evaluated based on the
merits of the enterprise activity. The joint-action agency,
as was currently provided for in statute, would be similar
in nature.
Vice-Chair Saddler reiterated his concern about the
expansion of the bond bank's authority. He thought that the
bond bank should provide a guideline as to the limitations
of the bank's financing authority expansion.
Mr. Mitchell restated the question for clarification. He
contended that the question was a difficult one because the
state's interest would be the basis of why the bond bank
program would be taking action in the first place. The
bank would be providing an opportunity to borrow at lesser
cost than would otherwise be available.
Vice-Chair Saddler asked if there was a standard for the
state's interests.
9:31:21 AM
Mr. Mitchell replied that the parameters for the standard
were broad.
Vice-Chair Saddler asked whether the Municipal League had
offered a position on the legislation.
Mr. Mitchell replied that he had not heard any concerns
from the Municipal League.
Representative Wilson asked about the difference between
using Alaska Industrial Development and Export Authority
(AIDEA) versus the Alaska Municipal Bond Bank Authority
(AMBBA) to fund projects.
Mr. Mitchell believed that the AMBBA program was more
streamlined than AIDEA, which resulted in a more efficient
program. He added that the bank had a program that was set
up strictly as a credit enhancing program, which allowed
the bank to provide lower costs and better execution. He
thought that having several funding options for projects
was beneficial to local municipalities.
9:35:10 AM
Representative Wilson wondered whether a program could be
funded by both the bond bank at 50 percent, and another
agency in the state for the other 50 percent.
Mr. Mitchell replied it was possible. He said that the
organizations involved would need to be in good
communication with each other.
Representative Wilson thought that it would be good for the
committee to have a better understanding of underutilized
state agencies. She voiced support for the project.
Representative Munoz whether the joint-action agency
language spoke to only municipally owned utilities, or
could it be a combination of a non-profit and a
municipality.
Mr. Mitchell understood that the statute offered a small
window of potential joint-action agencies because they were
required to consist of several utilities that were coming
together to purchase a facility previously owned by a state
agency.
9:38:35 AM
Representative Munoz understood that that joint-agency was
directed specifically to the Southeast Alaska Power Agency
(SEPA) and would not include other organizations, such as
the Inside Passage Electric Cooperative (IPEC).
Mr. Mitchell answered that IPEC would not qualify unless
they were purchasing utilities formerly owned by the state.
Representative Munoz understood that a joint-agency could
apply for up to 100 percent of its financing for a project.
Mr. Mitchell replied in the affirmative.
Representative Pruitt wondered at what point the bank would
reach the limit in its ability to expand bonding capacity.
Mr. Mitchell answered that it would be a moving target. He
likened the bond bank's credit to a form of cosigning
indirectly by the state. He relayed that the state would
have a lesser rating than the current AAplus if the
authority were based on the borrowers in the current pool;
the pool size was limited because the state was small. He
believed that the state's financial strength would inform
the bond bank's expansion limit.
9:42:32 AM
Co-Chair Thompson OPENED public testimony
Co-Chair Thompson CLOSED public testimony.
Vice-Chair Saddler MOVED to REPORT CSSB 46(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes.
There being NO OBJECTION, CSSB 46(FIN) was REPORTED out of
committee with a "do pass" recommendation and with one
previously published indeterminate fiscal note: FN1 (DHS);
and one previously published fiscal impact note: FN2 (DHS).
9:43:26 AM
AT EASE
9:45:37 AM
RECONVEYNED