Legislature(2017 - 2018)SENATE FINANCE 532
04/04/2017 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB97 | |
| HB16 | |
| SB6 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 6 | TELECONFERENCED | |
| + | HB 16 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 97 | TELECONFERENCED | |
SENATE BILL NO. 97
"An Act relating to pension obligation bonds."
9:06:35 AM
Co-Chair MacKinnon noted that the bill had been heard
previously. She CLOSED public testimony.
Senator von Imhof MOVED to ADOPT Amendment 1, 30-LS0486\D.1
(Wallace, 3/30/17) (copy on file):
Page 2, line 3, following "Committee":
Insert "or obtaining legislative approval by law"
Page 2, lines 15 - 18:
Delete "shall again review the proposal and, if the
subsidiary corporation decides to issue the bonds, the
subsidiary corporation shall provide the Legislative
Budget and Audit Committee with a statement of the
subsidiary corporation's reasons for doing so before
issuance under this section"
Insert "may not issue bonds without first obtaining
legislative approval by law"
Page 2, line 25, following "Committee":
Insert "or obtaining legislative approval by law" 13
Page 3, lines 8 - 11:
Delete "shall again review the proposal and, if the
committee decides to issue and sell the bonds, the
committee shall provide the Legislative Budget and
Audit Committee with a statement of the committee's
reasons for doing so before issuance under this
section"
Insert "may not issue bonds without first obtaining
legislative approval by law"
Page 3, line 24, following "Committee":
Insert "or obtaining legislative approval by law"
Page 4, lines 6 - 9:
Delete "shall again review the proposal and, if the
corporation decides to issue and sell the bonds, the
corporation shall provide the Legislative Budget and
Audit Committee with a statement of the corporation's
reasons for doing so before issuance under this
section"
Insert "may not issue bonds without first obtaining
legislative approval by law"
Page 5, line 7, following "Committee":
Insert "or obtaining legislative approval by law"
Page 5, line 23, following "Committee":
Insert "or obtaining legislative approval by law"
Page 6, lines 9 - 13:
Delete "shall again review the proposal and, if the
subsidiary corporation decides to issue the bonds, the
subsidiary corporation shall provide the Legislative
Budget and Audit Committee with a statement of the
subsidiary corporation's reasons for doing so before
issuance under this section"
Insert "may not issue bonds without first obtaining
legislative approval by law"
Page 6, line 23, following "Committee":
Insert "or obtaining legislative approval by law" 21
Page 7, line 21, following "Committee":
Insert "or obtaining legislative approval by law" 24
Page 7, line 31, through page 8, line 3:
Delete "shall again review the proposal and, if the
bond bank authority decides to issue the bonds, the
bond bank authority shall provide the Legislative
Budget and Audit Committee with a statement of the
bond bank authority's reasons for doing so before
issuance under this section"
Insert "may not issue bonds without first obtaining
legislative approval by law"
Co-Chair MacKinnon OBJECTED for discussion.
9:07:20 AM
AT EASE
9:07:49 AM
RECONVENED
Senator von Imhof explained that the purpose of the
amendment was to provide oversight by the legislature prior
to the issuance of the bonds. The amendment provided a last
course of action - a stop gap measure. Generally, when the
administration brought forward a pension obligation bond
issuance, it was presented to the Legislative Budget and
Audit Committee (LB&A). If the committee did not approve,
it could request additional information and could write a
letter, which was public record. She detailed that
typically, the public document triggered a market reaction
causing rates to rise to cover the risk associated, making
the arbitrage ineffective. Under normal circumstances it
meant the administration would not move forward with the
deal and would not issue the bonds because the interest
rate spread would close.
Senator von Imhof elaborated that if the administration
decided to continue forward against the recommendation of
LB&A or if the market did not respond, the legislature
would have a fallback option to meet as an entire body and
vote on the proposal. She continued that if the issue
occurred during the interim it would trigger a special
session, which was costly and problematic.
Senator Micciche wanted the committee to understand that
existing law did not require the governor to go to LB&A to
move forward with a GO [general obligation] bond. The bill
would change that process. He explained that the bill would
reduce the $5 billion authority in half to $2.5 billion. He
stated that he would normally support the amendment, but he
was concerned there was a good chance it would prevent the
legislation from moving forward.
9:10:27 AM
Senator Dunleavy was supportive of the amendment. He stated
that his concerns were on the record in past discussions.
He continued that GO bonds had to go to a vote of the
people. He remarked that it was a large sum of money and he
appreciated efforts to whittle it down and box it in a bit.
He thought legislators should all be concerned about the
state's debt load. He reasoned that the amendment provided
another check and left the door open if legislators all
agreed they needed to move forward on something. He
believed the amendment would require the administration to
have a conversation with the legislature to determine where
the representatives of the public were on a future bond.
Senator Olson asked if the amendment allowed another avenue
to get approval for a bond to go through. He surmised that
if LB&A was not there, the legislature could have its own
hearings and approve the bonds.
Senator von Imhof provided a scenario where LB&A wrote a
public letter [that disagreed with a bond issuance proposal
by the administration] and it impacted the markets. The
amendment would enable the legislature to meet as a whole
and draft a bill to stop the issuance of the bond.
Senator Olson asked if the legislature could approve moving
forward with the bond.
Senator von Imhof replied in the affirmative. However, she
assumed that if LB&A approved the bond there would be no
need for the entire legislature to meet on the issue,
unless the majority disagreed with LB&A.
Senator Olson noted it had happened in the past. He
supported the amendment.
9:12:38 AM
Co-Chair MacKinnon MAINTAINED her OBJECTION. She explained
that all of the options provided by the amendment were
currently open to the legislature. The amendment was a
compromise between a $5 billion potential liability that
had already been provided to the governor. The issue was
about power distribution - she believed supporters of the
amendment would like the legislature to regain that power.
She believed there was a greater risk and that the
legislature already had that power. She reasoned that
committee members understood that the legislature could
call itself into special session any time to take up
legislation to approve or disapprove of anything that
happened within state government. The bill would reduce the
administration's ability to go out for a $5 billion bond
issuance to $2.5 billion. The amendment took away authority
that the governor would have to agree to. She believed half
of the authority was reasonable. She recalled the
governor's proposal the previous fall had been $2.1 billion
to $2.3 billion. She stated that the legislation was a
balance. There were members in both bodies that believed
the option should be eliminated.
Co-Chair MacKinnon continued that if the bill eliminated
the funding entirely the legislature could send it to the
governor's desk. She communicated that she was not opposed
to the discussion. She pointed to the risk associated with
arbitrage. She had heard opposition to the proposal from
constituents during the administration's last cycle. She
reiterated that the bill represented a balance, which she
believed was a step in the right direction. She requested a
withdrawal of the amendment.
9:14:58 AM
Senator Micciche reiterated his earlier comments that he
would strongly support the amendment if he believed the
bill would pass with it included. He thought giving the
governor the authority to move forward with $5 billion in
pension obligation bonds had been a mistake. He recounted
that the previous summer the governor had a team dispersed
around the world, actively setting up for a bond sale. In
response, the Senate Finance Committee had written a letter
to the governor and he appreciated that the administration
had pulled back and had not gone through with the bond
sale.
Senator Micciche explained that the bill would cut the
governor's authority in half [to $2.5 billion], which would
protect the state by $2.5 billion in potential exposure for
a pension obligation bond that may or may not be under
water in the future. The bill would also require a bond
proposal to go to LB&A, which had not been the case in the
past. He believed the bill was a balance and had a high
probability of passing, whereas eliminating the
[administration's] authority had a higher probability of
being vetoed [by the governor]. He supported the concept of
the amendment but believed it would reduce the chance the
bill would pass. He clarified that without formal
intervention the committee had been able to turn back the
bond issuance the past summer.
9:17:01 AM
Co-Chair MacKinnon acknowledged that there were many
members of the legislature that had been uncomfortable with
the administration moving forward [with a bond issuance].
She had a conversation with the governor and the Department
of Revenue (DOR). She believed if pension obligation bonds
had been passed in 2007, according to some people, the
state could potentially have had billions more dollars in
the system to help buy down the pension obligation
liability. It had been noted in the current session that if
the administration would have advanced forward with bonds
under current market conditions, for the short period of
time, there would have been additional money to help with
the cash flow of the unfunded liability. However, pension
obligation bonds were a debt against the state for longer
periods of time than experienced thus far. She noted they
had seen a positive for ten years and one year.
Co-Chair MacKinnon detailed that Deven Mitchell [Executive
Director, Alaska Municipal Bond Bank Authority, Department
of Revenue] had communicated that the administration had
brought forward a much more conservative pension obligation
bond than other cities that had experienced negative
arbitrage over a bond period. She explained that under the
administration's proposal the state would not realize the
benefits during current financial struggles, but later on
in the life of the loan. She continued that it had been a
much more conservative approach, but Alaskans had still
been very uncomfortable. Therefore, the committee had
entered into a conversation with the governor and asking
them not to proceed. She had been asked to reduce the
authority to zero. The bill was a compromise. She had
communicated to the governor there were legislators in
opposition to pension obligation bonds and the associated
risk. The amendment proposed to strike a balance for
Alaskans who opposed pension obligation bonds. She relayed
the amendment could be offered as a standalone bill. She
had proposed a bill she believed would make it through the
current legislative process.
9:20:11 AM
Senator von Imhof thanked the committee for considering her
amendment. She stated that pension obligation bonds were a
risky venture and hindsight was always 20/20. She detailed
that it was possible to look back and identify market
trends that may work; however, over the long-term it was
proven to be nonperforming. She believed those who tried to
time the market ended up getting burned. She thought that
Co-Chair MacKinnon had made a good point that amendment was
somewhat redundant because the legislature already had the
ability to convene a special session at any time for any
purpose. She agreed with Senator Micciche on the desire to
see the legislation pass the other body. She supported the
bill's stopgap measure requiring proposals to go to LB&A
for review.
Senator von Imhof WITHDREW Amendment 1. There being NO
OBJECTION, it was so ordered.
Vice-Chair Bishop was amenable to the $2.5 billion
compromise. He remarked that when there was cash in the
bank, he supported taking the cash and getting 100 percent
value on buying down the debt instead of taking the 50/50
option. He supported the bill.
Vice-Chair Bishop MOVED to report SB 97 out of Committee
with individual recommendations and the accompanying fiscal
note. There being NO OBJECTION, it was so ordered.
SB 97 was REPORTED out of committee with a "do pass"
recommendation and with one new zero fiscal note from the
Department of Revenue.
9:22:38 AM
AT EASE
9:24:48 AM
RECONVENED
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB97 Sectional Analysis.pdf |
SFIN 4/4/2017 9:00:00 AM |
SB 97 |
| SB97 Sponsor Statement.pdf |
SFIN 4/4/2017 9:00:00 AM |
SB 97 |
| HB 16 Sponsor Response to Concerns of Senate State Affairs Committee from Mtg on 3-23-17.pdf |
SFIN 4/4/2017 9:00:00 AM |
HB 16 |
| SCS HB 16- Legal Memo - Concerns from SSA Committee.pdf |
SFIN 4/4/2017 9:00:00 AM |
HB 16 |
| HB 57 Public Testimony Packet 040317.pdf |
SFIN 4/4/2017 9:00:00 AM |
HB 57 |
| SB 97 Von Imhof Amendment D.1.pdf |
SFIN 4/4/2017 9:00:00 AM |
SB 97 |
| SB 6 Carter Testimony.pdf |
SFIN 4/4/2017 9:00:00 AM |
SB 6 |