Legislature(1997 - 1998)
03/05/1997 01:33 PM Senate CRA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SSSB 37 EDUCATION FACILITIES FINANCING AUTHORITY
SB 111 APPROP: EDUCATION FACILITIES FUND
CHAIRMAN MACKIE called the Senate Community & Regional Affairs
Committee meeting to order at 1:33 p.m. All committee members were
in attendance.
CHAIRMAN MACKIE brought SSSB 37 and SB 111 before the committee
and, as prime sponsor of the legislation, turned the gavel over to
Vice Chairman Wilken before presenting an overview on the bill.
Chairman Mackie explained the original SB 37 was a general
obligation bonding bill, which would allow for the sale of g.o.
bonds for school construction in the state. However, because there
wasn't a lot of interest being generated in the g.o. bonding
concept, he decided to go to the facilities financing authority
concept contained in the sponsor substitute.
SSSB 37 would take $1.2 billion from the Constitutional Budget
Reserve Fund (CBR) and create the Education Facilities Financing
Authority, which is similar to AIDEA and AHFC. The $1.2 billion
from the CBR would be managed by the Permanent Fund Corporation.
He emphasized that the principal of $1.2 billion would not be
spent, but would be used to generate interest earnings through the
management of the permanent fund to finance and repay revenue bonds
that would be issued and sold by the authority to construct schools
throughout the state of Alaska. He stressed this is not a raid on
the CBR -- it is what he believes to be a creative option that's
out there. It is an option he believes the Legislature should take
a look at to deal with the ever growing major maintenance and new
construction needs throughout the schools in Alaska as well as the
University of Alaska, which has major deferred maintenance problems
and new construction needs as well.
Chairman Mackie advised that the legislation authorizes the
following $500 million worth of school construction and repair
projects: (1) $285 million in projects selected from the DOE
priority list for small schools and rural areas of the state; (2)
$135 million for projects selected from priority lists submitted by
large municipal school districts; and (3) $80 million for
University of Alaska projects and a large backlog of deferred
maintenance needs.
He has felt from the start that unless there was fairness that was
applied to any effort, regardless of who introduces a bill, nothing
is going to happen unless there is equity in both the urban and the
rural areas of the state. He added that all of the projects would
be funded 100 percent and would not require a local match.
In closing, Chairman Mackie pointed out that revenues from the CBR
are factored into the long-term budget plan, and this legislation
would take from that, so it is a policy question that will need to
be debated further as the bill goes through the process.
Number 155
SENATOR HOFFMAN asked if because the legislation takes the money
from the Constitutional Budget Reserve Fund, it would require a
three-quarters vote for passage, and CHAIRMAN MACKIE acknowledged
that it would.
Number 160
Vice Chairman Wilken returned the gavel to Chairman Mackie.
Number 170
STEVE MCPHETRES , Executive Director, Alaska Council of School
Administrators, expressed appreciation for the introduction of the
legislation, which, he said, is an effort to put another idea on
the table to bring about a solution for a long-term problem: school
projects that have been listed year in and year out, and they
continue to become more and more of a problem.
Mr. McPhetres said g.o. bonds do not allow for a good long-term
plan for addressing the long-term needs of school facilities across
the state of Alaska. He said in their efforts to come up with a
possible solution to present to the Legislature this year, they
came up with this concept of establishing the Educational
Facilities Fund. He also pointed out that the control of the fund
and the control of the projects still maintain themselves in the
power of the Legislature.
The school administrators believe that this legislation is a good
effort in not only addressing one issue, but three issues that are
there: (1) the municipal school districts who have continued to
have growth problems; (2) the long-term needs of rural Alaska that
have been out there and have not been addressed; and (3) the
University of Alaska's tremendous major maintenance that needs to
be addressed.
Concluding, Mr. McPhetres said his organization is fully supportive
of SSSB 37 and he expressed their willingness to continue to work
with the committees in seeing that it becomes a reality.
Number 230
BOB LERESCHE , an investment banker representing Cominco Alaska,
said Senator Mackie, himself and others have been working in trying
to figure out the best way to meet the great need that exists for
school construction and major maintenance projects. He said there
are four or five other alternatives, but he believes this new
alternative is the best way to meet the present needs while neither
draining the CBRF nor busting the budget plan. In addition, it
provides the advantage of establishing an agency that would last
for a long time and allow a really organized, measured way to meet
these school needs as they arise, and to meet them under strict
criteria and legislative authorization for each one.
Presenting a brief overview on the legislation, Mr. LeResche said
the bill establishes the Educational Facilities Finance Authority
within the Department of Education. Sitting on the three-member
board of directors would be the commissioner of education,
commissioner of revenue and the commissioner of transportation and
public facilities. The bill also establishes an Educational
Facilities Fund, which is an asset of the authority.
The authority would be authorized to do three things:
1. Sell their bonds directly and finance the schools
directly. This could be done only upon approval of the specific
projects by the Legislature. This method would be used primarily
for rural jurisdictions and small municipalities which don't have
sufficient tax bases to issue their own bonds;
2. It could contract with municipalities who could sell their
bonds, to pay a designated percentage of net debt service on
municipal bonds issued to finance schools; and
3. It could contract with the University of Alaska to
reimburse up to 100 percent of university bonds issued.
Mr. LeResche said this concept sounds similar to what has gone on
in the past, but there is an important difference. Under this bill
the municipalities would actually have a contracted reimbursement
obligation from this authority, which would greatly improve the
credit of their bonds and thereby lower the interest rate. He said
that really firms up without an annual argument over what level of
debt service to appropriate.
Other highlights of the bill outlined by Mr. LeResche were:
-- Some of the earnings of the fund would be applied to debt
service and the reimbursement agreements.
-- The fund would be managed by the Permanent Fund Corporation
under its basic statute.
-- The bill would initially authorize $500 million worth of
school construction and repair projects.
-- Future legislatures could continue to authorize more bonds
and reimbursement agreements within the financial capabilities of
the education facilities fund. The fund would have bonding
capacity equal to or exceeding the initial $1.2 billion
capitalization, without risking the original $1.2 billion corpus.
-- Under reasonable projections of future demands on the fund,
the fund would continue to grow if its investments yielded more
than they had to pay on the bonds they issue. He said he is quite
sure this would occur with proper management of the authority.
Mr. LeResche said when people start talking about the fine points
of arbitrage and tax law, this is not that complicated. It is
something that has been done for years for the private sector
through AHFC and AIDEA.
Mr. LeResche noted that there has been criticism of this concept
relating to tax law, and it is a question as to whether or not the
yield from the fund would have to be restricted to match the
interest rate of the bonds. He said he quite certain that his bill
has been drafted around that problem and there is a high level of
probability that a large portion of the fund will escape this yield
restriction problem.
Number 382
SENATOR HOFFMAN said the bill provides putting $1.2 billion into
the fund and spending $500 million in 1997, and he asked what how
much would be available in subsequent years. CHAIRMAN MACKIE
clarified that if the $500 million is spent initially and $60
million a year for the next 15 years, the earnings would sustain
that. If only the $500 million worth of projects is done right
now, the fund would actually grow from $1.2 billion to $1.5 billion
at that end of that term.
CHAIRMAN MACKIE noted the King Salmon, Anchorage, Cordova, Kenai
and Kodiak teleconference sites were listening in to the meeting
and that testimony would be taken from witnesses waiting to testify
at the Fairbanks, Mat-Su, Tok and Sitka sites.
Number 414
JOHN HOLST , Superintendent of the Sitka School District testifying
in Sitka, commended Senator Mackie for sponsoring the bill. He
said he is particularly pleased because the legislation contains
two renovation projects for the Sitka School District that have
been on the list for nearly 10 years, as well as the completion of
UAS Sitka classrooms.
Number 445
CARL ROSE , Executive Director, Association of Alaska School Boards,
noted he had offered written testimony in support of SSSB 37 and SB
111. He said this solution to address school construction and
major maintenance needs has come of age. He said we have deferred
maintenance for some period of time and our inability to address it
through our capital budget and other means available through
municipal bonding, etc., has not met our needs.
Mr. Rose said we've built these schools, and the question is if we
can't adequately maintain them, what is the end result. Right now,
school districts are looking at the issue of insurability. The
ability to continue to insure the schools throughout Alaska with
the loss rate of $1.5 million per year over the last year in terms
of fire loss is a major issue, and the inability to maintain these
facilities in such a fashion that they become susceptible to fire
and loss. He cautioned the failure to maintain insurability
statewide passes the issue on to the Legislature; if these schools
are uninsurable, the Legislature stands fully accountable for any
loss that takes place.
Number 475
DARROL HARGRAVES , testifying from Tok, noted that other states that
have attempted to use their oil wealth and resources in a similar
manner have been very happy with it over the decades. He said
this may be one of the finest things that has been done for a
permanent basis with oil reserve revenues that have come to the
state.
Mr. Hargraves said he does have some concerns from a local and a
statewide perspective. He said with a half billion dollars being
thrown on the street at one time, there will be a rush of design
people coming back into the state, as has happened in the past.
He suggested it would better to set up a way to maintain a steady
stream in smaller increments which would provide much more
stability and consistency across the state. He also suggested
looking at putting two additional people from the private sector on
the board of directors, as well as including in the legislation a
CIP list for picking priorities for funding that has gone through
some kind of approval process.
Number 520
WENDY REDMAN , Vice President, Statewide University of Alaska
System, expressed appreciation that the Legislature is putting the
issue of deferred maintenance back on the table in a big and
significant way. She noted approximately 45 percent of the state
facilities are university facilities, and that this has been the
number one priority for the Board of Regents.
The problem that the university is looking at today is about $165
million for housing and non-housing. The issue requires a two-
pronged approach: one is to make sure that the maintenance
accounts in their operating budget are brought up to par at the
same time they are trying to do the deferred maintenance. At the
same time that the university has been taking reductions from the
Legislature, in the last two years they have moved about $3.5
million out of programs into the maintenance budget. By the end of
FY 98, they will move another $3.5 out of program into maintenance
to bring those budgets up to par.
Ms. Redman pointed out that the majority of deferred maintenance
projects are small projects that are done with local hire. She
agreed with Mr. Hargraves comments about the importance of having
a plan on how those projects will hit the street.
In closing, Ms. Redman suggested that since the university does
have nearly half of all of the state facilities, the committee may
want to consider putting a representative from the Board of Regents
on the authority's board of directors.
Number 570
DON MOORE , Manager of the Matanuska-Susitna Borough, said in a
borough with perhaps the fastest growing school district in the
state of Alaska, they have a pressing need for new construction of
facilities. They have approximately 70 temporary portable
classrooms spread throughout their district housing a large portion
of their students.
TAPE 97-8, SIDE B
Number 001
Mr. Moore commented that there is something to be said for the idea
about including and requiring a local match in the funding for
these projects either through local government bonded indebtedness
or by whatever means. A local election on the project would help
to authenticate that the project is question is indeed something
that the people want. The local government would then have a stake
in the ownership of the facility. Also, it would provide
additional leverage to the funds that are available.
Number 030
AL WEINBERG , representing the Kashunamiut School District and the
Citizens for the Educational Advancement of Alaska's Children, said
as far as the K-12 public schools are concerned, the Department of
Education has identified in the first year of six-year plans that
are presently on the table about $615 million worth of new
construction or major maintenance that needs to be done at some
time. He said with $615 million it takes about $17 million a year
just to keep up with the inflationary growth of construction and
maintenance cost on that amount of money. The biggest problem that
has faced the state in terms of getting rid of this backlog, or at
least addressing the backlog, is the lack of a long-term, stable
source of funds so these projects can be systematically taken off
the books and in some kind of a reasonable priority order.
Mr. Weinberg related the groups he represents are concerned about
equity in the way the state spends future funds and their concern
is in many ways based on the way the state has spent its funds
recently for capital projects for public schools. In the last nine
years, the state has spent $1.3 billion for capital projects in the
public schools, but 93 percent of that money has gone to municipal
districts leaving only about seven percent that has gone to REAA's,
which have no capacity to bond, no capacity to raise and collect
taxes.
In closing, Mr. Weinberg encouraged creating a long-term stable
source of revenue to deal with these problems and then to address
the problems on the basis of demonstrated need as opposed to
geography, community wealth, or political power.
Number 126
LEN MACKLER , Facilities Director of the Fairbanks School District,
said he was testifying as the statewide president of the Council of
Education and Facilities Planners. He related a calculation done
for the bond reimbursement committee two years ago showed that in
just new students coming into the state the construction needs for
new seats and new classrooms was around $100 million a year.
However, the maintenance and renewal needs of the existing
facilities in the state just keeps on going and going. He stressed
the need to come up with a solution to this problem and his group
thinks this is an excellent start, an excellent vehicle that's
being proposed to solve this problem in the short term and the long
term.
Number 158
CHAIRMAN MACKIE asked Mr. Mackler if he was comfortable with the
manner in which the Fairbanks projects were listed in the bill in
terms of the priorities of his school district. MR. MACKLER
acknowledged he was, and he added the district has a consistent
six-year plan that the board reviews and agrees to every year, and
the projects in the bill are the first year of their six-year plan.
Number 170
KEVIN RITCHIE , representing the Alaska Municipal League (AML) and
the Alaska Conference of Mayors, thanked Senator Mackie for his
sponsorship of SSSB 37, which he said is a top AML and Alaska
Conference of Mayors priority. He said this is a critical part of
the state budget problem because if we don't fix what we currently
have and expand what we need to it turns into a health safety
problem. In the longer term, the cost of deterioration and the
cost of inflation team up to significantly increase the costs that
are being deferred to the future each year. He urged the
committee's support and consideration of the legislation.
Number 210
LARRY WIGET , Director of Government Relations for the Anchorage
School District, voiced the district's support for the concept of
creating the Educational Facilities Financing Authority and the
Educational Facilities Fund, which he said is a responsible,
innovative way to address the needs of schools now and in the
future.
Number 230
SAM TOWARAK , speaking on behalf of the Bond Reimbursement & Grant
Committee, said the major issue facing the education facilities is
the need to establish a stable long-term source of funding for K -
12 facility projects, which is an integral part of a comprehensive
plan for statewide capital needs. To implement this, projects
should be funded in the priority order established in the statutory
ranking system, and the committee and the Department of Education
should continue to develop, review and adopt facility related
standards.
Number 355
CHAIRMAN MACKIE asked Mr. Towarak his thoughts on the Legislature
identifying some standards for the distribution of these monies and
MR. TOWARAK suggested charging the Educational Facilities Authority
with managing the dollars so that it has a maximum impact on the
local economy.
Number 336
SENATOR WILKEN said he thinks the concept of the legislation is
exciting, but the thing that bothers him the most about it is that
it's a initial policy statement on how the Legislature is going to
deal with the CBR, now at $3.4 billion with the possibility of
being up to close to $5 billion by the end of the year. There are
now three plans on what to do with the CBR, and he said the worst
thing we could do is piecemeal it to death and to find out some
years down the path that we don't have a CBR anymore and we're back
to the permanent fund. He wants to give careful consideration to
a policy statement that will have to be made about what to do with
the CBR.
CHAIRMAN MACKIE stated it was his intention to hold the legislation
over to the Friday meeting. He then adjourned the meeting at 3:10
p.m.
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