Legislature(1995 - 1996)
04/24/1995 01:45 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 92
"An Act requiring that, in addition to its operating
budget, all activities of the Alaska Housing Finance
Corporation are subject to the Executive Budget Act."
JOHN BITNEY, STAFF, REPRESENTATIVE MARTIN testified on
behalf of HB 92. He explained that the legislation was
sponsored at the unanimous request of the Legislative Budget
and Audit Committee. He explained that the legislation
attempts to bring all the activities of the Alaska Housing
Finance Corporation (AHFC) under the review procedures of
the Executive Budget Act. He observed that the Committee
was concerned that the Corporation had undertaken a fairly
substantial program with the use of arbitrage funds. Loans
were made with arbitrage funds at a 5 percent interest rate.
He noted that the legislation was amended in the House State
Affairs Committee. The State Affairs Committee placed three
items in the bill on page 2, lines 8 - 16, that would be
exempted from the review procedures. He explained that
financing through the sale of bonds, multi-family loans and
projects not to exceed 10 million dollars, and any loan
program for which a subsidy is not required would be exempt
from review procedures under the Executive Budget Act. He
stressed that the intent is to craft language to be added to
what is provided for the Corporation in the front section of
the operating budget. He explained that AHFC functions
approved in the front section of the budget receive open-
ended authorization. He stressed that the front section
language would be expanded to give the Corporation open-
ended authority for the programs which are being brought
under the review procedures of the legislature.
In response to a question by Representative Brown, Mr.
Bitney explained that the legislation varies from the status
quo by listing the three exemptions that are not covered by
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the Executive Budget Act instead of listing the specific
areas in which the review of the Executive Budget Act
applies. He noted that loan programs and use of arbitrage
funds to set up programs and bonding authority were
previously exempted. The legislation would require the
Corporation to seek approval for grants, any arbitrage
program and any subsidized project or program that exceeds
10 million dollars.
TOM WILLIAMS, STAFF, SENATOR FRANK asserted that the House
State Affairs Committee Substitute for SB 92 may make Alaska
Housing Finance Corporation less subject to the Executive
Budget Act than it is under current statute. He referred to
section (B), page 2, line 12 regarding multi-family loans.
He stated that Senator Frank would prefer that the previous
version be adopted.
CYNTHIA PARKER, EXECUTIVE DIRECTOR, ANCHORAGE NEIGHBORHOOD
HOUSING SERVICES testified in support of HCS CSSB 92 (STA).
She expressed concern that if all of AHFC's activities were
brought under the Executive Budget Act that AHFC could not
take advantage of quick changing financial market
activities. She discussed the bond issuance capacity of
AHFC. She referred to (B) on page 2, line 12. She noted
that most multi-family housing projects in Alaska involve
subsidy layering from the federal government. She stressed
that the complexity of the projects could require up to five
different funding sources to make a project work.
JAN SIEBERTS, NATIONAL BANK OF ALASKA (NBA) stressed that
NBA has been a good partner in supplying financing for
housing in the State. He testified in support of HCS CSSB
92 (STA). He expressed concern that AHFC be given
flexibility to accomplish complex financing needed for
senior and low income housing projects. He reviewed a
senior citizen project in Fairbanks. He observed that the
project includes federal grants, the use of arbitrage funds,
federal tax credits, and other forms of assistance. He
stressed that AIDEA has a $10.0 million dollar loan
authority. He suggested that AHFC be also given a $10.0
million dollar level of authority.
In response to a question by Representative Parnell, Ms.
Parker stated that she interpreted page 2, line 12 as a
$10.0 million dollar cap on the project not AHFC's portion
of the financing.
Representative Martin stated that the problem came to the
attention of the Legislative Budget and Audit Committee when
the 5 percent arbitrage program was initiated. He stressed
that the Legislative Budget and Audit Committee is charged
with the financial well being of the State. He emphasized
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the responsibility of the Legislative Budget and Audit
Committee to oversee the welfare of the State.
Representative Kohring stated that the State will not be
encumbered on the part of the Legislation given the strong
financial status of AHFC.
In response to a question by Representative Kohring, Ms.
Parker noted that the addition of "programs" on page 2, line
12 after "loans" would be advisable. She explained that the
intent during the drafting was that there be a $10.0 million
dollar cap. Legislative oversight would remain under the
Executive Budget Act. She suggested that "multi-family"
loans may be too restricted. She discussed projects that
would be affected by the insertion of "multi-family".
Representative Kohring questioned if language should be
inserted to clarify that the $10.0 million dollar cap refers
to AFHC's participation as opposed to the entire project.
Ms. Parker stated that the language suggested by
Representative Kohring would be consistent with AIDEA's
authority.
In response to a question by Representative Mulder, Ms.
Parker stated that $10.0 million dollars would equate to a
82 unit building. She noted that "multi-family" units would
primarily be low income or special needs units. She
explained that tax credits are sometimes allocated to
projects to reduce debt.
Representative Parnell questioned the intent by the House
State Affairs Committee in providing a $10.0 million dollar
cap. He asked how often AHFC reaches $10.0 million dollars
in contribution for low income projects. She noted that
other funding sources are usually involved. She noted that
AHFC contributed $4.5 million dollars of a $11.0 million
dollar multi-family project in Anchorage. She stressed that
some Anchorage projects under AHFC's for profit equity
extraction and refinancing could require a $10.0 million
dollar involvement by AHFC. She conceded that $10.0 million
dollars is a upper limit that is would be reached for multi-
family loans and programs.
Representative Martin emphasized the importance of AHFC's
influence. He stressed the need for legislative oversight.
Mr. Sieberts asserted that the legislation substantially
brings AHFC under control of abuses previously discussed.
He emphasized that the legislation is a compromise that
allows AHFC to continue to do business without jeopardizing
projects. He asserted that government is involved in all
housing loans.
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Representative Therriault pointed out that AIDEA provides
funding for larger projects such as port facilities. He
expressed concern with allowing the $10.0 million dollar
contribution to refer to only AHFC's portion of a multi-
family project.
Representative Kohring stressed that AHFC steps in to
provide loans when other governmental housing loans are not
available. He stated that the entire banking and mortgage
lending industry is concerned about the restrictions that
the legislation poses.
Representative Navarre questioned what portion of AHFC's
activity would be available through other markets. Ms.
Parker stressed that changing interest rates and market
activities effect the availability of secondary market
sources. She pointed out that rural areas were
disadvantaged until the merger. She stressed that AHFC is
able to make rural loans at competitive rates.
(Tape Change, HFC 95-96, Side 2)
Ms. Parker emphasized that AHFC is the primary lender for
multi-family loans. She noted that outside capital may be
available for some larger multi-family projects.
Mr. Siebert added that NBA services approximately $2.1
billion dollars in loans. He noted that $900.0 million of
these loans represent AHFC loans. He stressed that AHFC is
probably the only source of money in rural Alaska. He
pointed out that mortgage companies take the top third of
the market. He noted that conduit marketing representatives
are not interested in the Alaska market place. He stressed
that HUD projects can take up to a year to arrange lending.
He emphasized that AHFC has a rural housing program that
works well for up to 12 units.
Representative Navarre asked how much of AHFC's rural
lending could be displaced with other sources. He asserted
that the State has driven up the housing economy by
providing financing to the lower two-thirds of the market.
He suggested that the financial security of AHFC could be at
risk with another down turn in the economy. He stressed
that most of the risk falls on AHFC. He stated that the
government absorbs most of the loses.
Ms. Parker stated that the distortion in the market occurred
as a result of single family loans when interest rates were
high. She stressed that the issue is AHFC's ability to
access normal capital markets in a market driven economy
without subsidy. She stated that there is not as high a
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foreclosure risk in rural Alaska since there is no where for
residents to go.
Mr. Siebert stressed that the rural portfolio has the lowest
default and delinquency rates. He asserted that the rural
portfolio carried the rest of Alaska during the last
recession. He maintained that the reason that the National
Bank of Alaska survived the recession was because the
nucleus of its power was in Southeast Alaska. He estimated
that it would be difficult to displace rural AHFC loans to
other sources. He stressed that AHFC's mortgage standing
has aged and is in a better position to withstand another
downturn.
Representative Brown clarified that the Alaska Railroad is
not under the Executive Budget Act. She noted that the
merger is three years old. She noted that she introduced
the original legislation to make the merger. She emphasized
that the level of oversight was discussed in detail. She
stressed that there is still a shortage of affordable
housing. She noted that up to 25 percent of the housing
available is not energy efficient. She spoke in support of
HCS CSSB 92 (STA).
Co-Chair Hanley noted that SB 92 would be assigned to a
subcommittee consisting of Representative Martin as Chair
and Representatives Kohring and Navarre.
Representative Martin questioned whether the rural portfolio
is carrying the rest of Alaska's housing market. He
stressed that homes are over priced.
Mr. Siebert clarified that the delinquency rates and the
portfolio served by the National Bank of Alaska for AHFC in
rural Alaska out performs urban centers.
SB 92 was assigned to a subcommittee consisting of
Representative Martin as Chair and Representatives Kohring
and Navarre.
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