Legislature(1993 - 1994)
04/06/1993 08:06 AM Senate FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 171
An Act relating to the contracting and financing
authority of the Alaska Industrial Development and
Export Authority, giving approval of the issuance of
the authority's revenue bonds, and delaying the
termination date of the authority's business assistance
program; and providing for an effective date.
Co-chair Pearce directed that SB 171 be brought on for
discussion and pointed to a letter of support from TESORO as
well as information from the Mat-Su Borough (copies on file
in the original Senator Finance bill file for SB 171 at the
Legislative Finance Division).
DON MOORE, Manager, Matanuska-Susitna Borough, came before
committee. Senator Kerttula observed that recently
distributed material relating to the Midrex project
indicates that the borough has already funded $2,095,000.
Mr. Moore responded affirmatively. Senator Kerttula further
noted that when the state provided moneys for the road to
Point MacKenzie, funding was justified not only by the new
lands project, but by expectation of ultimate construction
of a port. With connection via causeway to Anchorage, it
was expected that Pt. MacKenzie would become the industrial
area of Anchorage.
(Senator Kelly arrived at the meeting at this time.)
Senator Sharp also noted a letter of support for the project
from Mayor Jim Sampson of the Fairbanks North Star Borough
(copy on file).
Co-chair Pearce queried members regarding additional
questions on either the fuel consortium project or
continuation of the small business program contained within
SB 171. No questions were raised. Co-chair Pearce directed
that the meeting be briefly recessed.
RECESS - 8:15 a.m.
RECONVENE - 8:20 a.m.
When the meeting was reconvened, Senator Rieger posed a
question regarding AIDEA payment of dividends to the state
similar to those paid by AHFC. Mr. Snell pointed to recent
independent analysis conducted by Bartle Wells Associates on
behalf of the Legislative Budget and Audit Committee. That
analysis indicates that harm might occur to AIDEA's bond
rating should moneys be removed from the authority. Mr.
Snell acknowledged that the legislature has the ability to
appropriate unrestricted surpluses from AIDEA. He
reiterated that such action would have a material affect on
access to capital. Mr. Snell stressed that dividends
provided to the state by AIDEA are in the form of jobs and
economic development. Senator Rieger advised that he had
not come to the same conclusion as the analysis. He
suggested that the appropriate form of a dividend would be a
fraction of the annual earnings of the corporation. This is
particularly true since the authority appears to be moving
in the direction of equity ownership rather than merely
serving as a financier.
In response to a further comment by Senator Rieger, Mr.
Snell acknowledged that last year AIDEA generated revenues
of $40 million. He noted that a portion of the revenue is
restricted by Red Dog Mine bonds, leaving approximately $21
or $22 in unrestricted revenues.
Co-chair Pearce directed attention to revised amendment no.
1 which she explained would add projects and funding amounts
to title language and authorize AIDEA to issue bonds to
finance the Midrex project at Port MacKenzie in the amount
of $50 million. Senator Kerttula MOVED for adoption.
Senator Rieger OBJECTED.
Senator Kelly referred to amendment no. 2 and asked if
funding the Anchorage airport fueling facility via a general
obligation rather than revenue bond would allow the facility
to be taxed by the Municipality of Anchorage. Mr. Snell
explained that development/finance projects where AIDEA
retains ownership include agreements relating to payments in
lieu of taxes. Under those agreements the principal users
must reach agreements with local municipalities. That type
of agreement would be used for this project as well.
(Senator Jacko arrived at the meeting at this time.)
In response to inquiries from Co-chair Frank and the above-
noted objection posed by Senator Rieger, JOHN OLSON, Deputy
Director, Development, AIDEA, Dept. of Commerce and Economic
Development, came before committee. He pointed to a packet
of information (copy on file in the original Senate Finance
file for SB 171) and explained that it attempts to address
three concerns, raised at the previous meeting, relating to:
1. Presentation of the projects in the early stages
of
development.
2. Ownership by AIDEA rather than the rendering of
merely
financial services by the authority.
3. AIDEA's general obligation pledge versus issue of
revenue bonds.
Speaking to the need for authorization while the projects
are in the early stages of development, Mr. Olson pointed to
statutory safeguards enacted by the legislature to guide
AIDEA in the conduct of its business. He noted that private
development projects often reach the point where they must
proceed at a time when the legislature is not in session.
Mr. Olson next outlined safeguards set forth within AS
44.88.095(c and d).
Directing attention to the third item above, Mr. Olson
explained that "general obligation" and "revenue" are terms
used to separate bonds that do or do not have the full faith
and credit of the authority. Buyers view all bond issues as
revenue bonds. AIDEA attempts to place as many projects as
possible under "revenue" status because AIDEA's "general
obligation" credit is finite. It varies depending upon
AIDEA's balance sheet. This credit is used carefully and
when necessary to get a project moving once all statutory
safeguards have been addressed. AIDEA is compensated for
use of its pledge by an interest rate markup and earnings
from the project once the debt is paid off.
Mr. Olson next spoke to ownership status, advising that by
retaining ownership, AIDEA can obtain tax-exempt bonds for
the project. The development/finance program envisioned in
AS 44.88. 172 takes advantage of this provision in the IRS
code for ports, airports, and various utility projects.
These projects are to be operated by the private sector.
Lack of ownership would require issuance of taxable bonds
which would substantially diminish the advantages of AIDEA
and the competitive position of the project. Under those
circumstances the project may not go forward. Funding for
projects is safeguarded by statutory requirements and
prudent use of authority assets.
Mr. Olson further spoke to reimbursement agreements,
feasibility analyses, and user agreements and noted
requirements associated with each.
Discussion followed between Senator Rieger and Mr. Snell
regarding financial consequences of the recently announced
layoffs and closure of the Skagway ore terminal. Mr. Snell
advised that the company remains in full compliance with all
payments to the authority. AIDEA is concerned regarding the
credit worthiness of the company. The company is the victim
of a depressed metals market. AIDEA believes that in the
long term the project will provide anticipated returns.
Senator Rieger maintained his objection to adoption of
revised amendment no. 1. He concurred in legislative action
to demonstrate support for the project, desire to see it go
forward, and intent to approve state participation upon
appropriate terms, but questioned whether approval of $50
million in bonds was an appropriate expression of that
support. Co-chair Frank said that as a policy matter the
legislature must decide whether it has confidence in AIDEA
to make a proper determination of whether or not the project
is feasible. He concurred that if the proposed legislation
contained a loan commitment or granted credit, action would
be premature. Passage of the legislation indicates the
project fits politically and conceptually, and if it meets
all statutory safeguards, it should go forward.
Co-chair Pearce called for additional comments. None were
forthcoming. She then directed that the roll be called on
revised amendment no. 1:
YEA: Sharp, Kerttula, Kelly, Jacko, Frank, Pearce
NAY: Rieger
Revised amendment no. 1 (Midrex) was thus ADOPTED on a vote
of 6 to 1.
Co-chair Pearce next directed attention to amendment no. 2
which she explained would delete the word "revenue" from
language relating to the Anchorage airport fueling facility
project. Senator Sharp MOVED for adoption. No objection
having been raised amendment no. 2 was ADOPTED.
Co-chair Pearce directed that both revised amendment no. 1
and amendment no. 2 be incorporated within a Senate Finance
Committee Substitute for SB 171. She then queried members
regarding disposition of the bill. Senator Kerttula MOVED
that CSSB 171 (Finance) pass from committee with individual
recommendations. Senator Jacko OBJECTED. Co-chair Pearce
directed that the roll be called on passage of CSSB 171
(Finance):
YEA: Kelly, Kerttula, Rieger, Sharp, Frank, Pearce
NAY: Jacko
The motion for passage of CSSB 171 (Finance) CARRIED on a
vote of 6 to 1, and CSSB 171 (Finance) was REPORTED OUT of
committee with a zero fiscal note from the Dept. of Commerce
and Economic Development. Co-chairs Pearce and Frank and
Senators Kelly, Kerttula, and Sharp signed the committee
report with a "do pass" recommendation. Senator Rieger
signed "no recommendation." Senator Jacko signed but made
no recommendation.
[See pages 20-21 for further action on this bill.]
SENATE BILL NO. 171
An Act relating to the contracting and financing
authority of the Alaska Industrial Development and
Export Authority, giving approval of the issuance of
the authority's revenue bonds, and delaying the
termination date of the authority's business assistance
program; and providing for an effective date.
Senator Kerttula MOVED to rescind committee action passing
CSSB 171 (Finance) from committee. No objection having been
raised, IT WAS SO ORDERED. CSSB 171 (Finance) was again
before committee.
SENATOR JOHNNY ELLIS came before committee, asking that the
substance of SB 16 (AIDEA BONDS: ANCHORAGE SEAFOOD FACILITY)
be incorporated within CSSB 171 (Finance). He then offered
an amendment to that effect.
(Recording problem. Minutes relating to action on CSSB 171
(Finance) and testimony on SB 57 reflect transcription of
shorthand notes. There is no recording.)
Co-chair Pearce directed that the amendment be designated
Amendment No. 3 and called for objections. She also advised
of her preference for inclusion of all three projects
contained in CSSB 171 (Finance) within title language.
Senator Kerttula MOVED for adoption of Amendment No. 3 and a
listing of the projects within title language. Senator
Kelly initially OBJECTED and then WITHDREW his OBJECTION.
Senator Rieger reiterated his earlier expressed concern
regarding lack of information associated with projects
within the bill. Co-chair Pearce called for a show of hands
on the motion. The motion CARRIED on a vote of 5 to 1, and
AMENDMENT NO. 3 and the TITLE CHANGE were ADOPTED.
Senator Kerttula then MOVED for passage of CSSB 171
(Finance) with individual recommendations. No objection
having been raised, CSSB 171 (Finance) was REPORTED OUT of
committee with a zero fiscal noted from the Dept. of
Commerce and Economic Development. Co-chair Pearce and
Senators Kelly, Kerttula, and Sharp signed the committee
report with a "do pass" recommendation. Senator Rieger
signed "no recommendation." Senator Jacko signed without
making a recommendation.
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