03/20/1996 01:30 PM Senate JUD

         SB 207 REVENUE BONDS: WATER & WASTE PROJECTS                         
                                                                              
 KEITH KELTON, representing the Department of Environmental                    
 Conservation (DEC), summarized the legislation as follows.                    
 Congress reauthorized the Clean Water Act (CWA) in 1987.  Prior to            
 that time grants were available for municipal construction of                 
 wastewater treatment facilities.  Since 1987, the grant provision             
 was substituted with a low interest loan program, which has been              
 administered by DEC and expanded to include solid waste landfills.            
 For the first few years of the loan program, state general funds              
 continued to provide grant money, however in the last few years               
 less direct grants have been made, and the demand for loans has               
 increased dramatically.  Twenty other states have programs                    
 providing low-interest loans financed by revenue bonds.                       
                                                                               
 MR. KELTON referred to charts and written material submitted to               
 committee members to explain how the financing program would work.            
 The Alaska Clean Water Fund was created by statute in 1989, and was           
 capitalized by $80 million.  The federal government matches the               
 fund with 20 cents per state dollar.  Of the $80 million, $50                 
 million has gone to 20 year low interest loans.  The remaining $30            
 million can be used as a corpus that can be used as collateral for            
 revenue bonds.  CSSB 207 would set up a bond redemption fund, would           
 draw funds from the ACWF through the state bond committee and their           
 financial trustees, and would allow them to issue bonds to                    
 investors.  Monetary limits of $15 million per year and $150                  
 million over a ten year period were placed on the fund in the                 
 Senate Community and Regional Affairs committee substitute.  The              
 advantage to creating the fund this year is that it allows the                
 corpus, which is currently unobligated, to remain large enough to             
 have a better leveraging effect when selling revenue bonds.  DEC is           
 currently obligating $12 million to $13 million per year so the $30           
 million corpus will be decreased substantially if CSSB 207 does not           
 pass this year.                                                               
                                                                               
 Number 450                                                                    
 LEE SHARP, bond counsel, addressed a proposed amendment related to            
 the cap on the issuance of bonds.  The bond committee can issue               
 revenue bonds for purposes other than the Clean Water Fund, but the           
 committee substitute appears to limit that authority.  The                    
 amendment adds references to clarify that the bonds referred to in            
 the cap are only those issued under the Clean Water Act.  The                 
 amendment also addresses questions about computations on the                  
 $150,000,000 cap such as whether the interest owed during this                
 fiscal year or the interest owing to the payoff of the bond was to            
 be included in the computation.  Additionally, if a bond was issued           
 with a floating interest rate, there would be no way to accurately            
 compute that amount.  The amendment clarifies that the principal              
 amount is used for the computation.  Furthermore the principal of             
 a bond can mean two things: the remaining unpaid principal, or the            
 original principal amount of the bond.  The amendment clarifies the           
 unpaid principal amount is to be used.  It also clarifies whether             
 refunding and refunded bonds are counted in the computations.                 
                                                                               
 MARIE SANSONE, Assistant Attorney General, explained three                    
 technical amendments:                                                         
                                                                               
 on page 4, line 6, insert the word "such" before the word "money;"            
                                                                               
 on page 5, line 8, following "default to" delete "the" and insert             
 "a;"                                                                          
                                                                               
 on page 6, line 23, following "refunding" insert "bonds."                     
                                                                               
 SENATOR TAYLOR entertained a motion to adopt amendments one through           
 four.  SENATOR GREEN so moved.  There being no objection, the                 
 amendments were adopted.                                                      
                                                                               
 Number 528                                                                    
                                                                               
 SENATOR TAYLOR noted a concern expressed by Tam Cook, Legal                   
 Counsel, that CSSB 207 runs significant constitutional risk in that           
 it may violate art.9, sec. 8 of the Alaska Constitution.  That                
 section prohibits any state debt from being contracted unless                 
 authorized.                                                                   
                                                                               
 MS. SANSONE responded that when drafting the bill with the bond               
 counsel, a good deal of time was spent analyzing the constitutional           
 limitations on debt; specifically whether this would be a general             
 obligation or revenue bond and the necessity of voter approval, and           
 other constitutional issues relating to bonds.  The bond counsel              
 prepared a letter which dealt with some of these questions.  She              
 and the bond counsel felt these bonds would be construed as a                 
 public enterprise of the state and would not fall within the                  
 constitutional limitations.                                                   
                                                                               
 SENATOR TAYLOR believed the words "public enterprise" are what Ms.            
 Cook was referring to in her memo.  He stated there is something to           
 be said for the constitutional provision requiring voter approval,            
 and noted that is a policy call separate from whether this bill is            
 in compliance with that provision.                                            
                                                                               
 MS. SANSONE commented under the Clean Water Act, the Clean Water              
 Fund may be leveraged by either general obligation or revenue                 
 bonds.  When designing the program with input from various                    
 agencies, the decision to use revenue bonds was made, and the bill            
 was drafted carefully with full regard for all of the                         
 constitutional arguments.  That policy decision was made by the               
 Administration when designing this program and requesting                     
 legislation.  She added there is a question as to whether voter               
 approval would be required at the municipal level.                            
                                                                               
 SENATOR TAYLOR stated voter approval at the municipal level was his           
 second question.  MS. SANSONE replied it is her understanding that            
 DEC does not currently require voter approval for the loans they              
 are entering into with municipalities.  She added that the bond               
 counsel may disagree and feel a change would have to be made if the           
 loans were funded with bond proceeds.                                         
                                                                               
 SENATOR TAYLOR indicated no one wants to initiate this program only           
 to have it run afoul because of constitutional problems.  He                  
 believed people in most communities would be willing to vote for              
 such things since they will be called upon to repay.                          
                                                                               
 MR. SHARP advised that Section 11 of the finance article of the               
 Constitution provides an exception from the required vote for                 
 obligations of the state and municipalities, where the only                   
 security for the payment of the bonds is to be the revenues of an             
 enterprise.  This typically applies to utility situations.  At the            
 local government level, the water or sewer utility revenues would             
 be pledged to pay the municipality's loan from the state, which               
 does not require a municipal vote.  One caveat is that there are              
 some home rule municipalities that have charter provisions that               
 require a vote even on a revenue issue, but they would be the only            
 exceptions.  On the question of policy, the municipality could put            
 the issue to a vote, but would not be required to.                            
                                                                               
 SENATOR TAYLOR remarked the legislature could put a vote                      
 requirement in the bill.  MR. SHARP stated that is correct.                   
                                                                               
 SENATOR TAYLOR asked if the bond committee is a public corporation.           
 MR. SHARP replied it is not, but that does not keep it from being             
 classified as an enterprise.  The Municipal Bond Bank is a similar            
 operation and falls under Section 11 as a revenue generating                  
 enterprise.  It issues bonds and pledges to bondholders that                  
 repayment will be made from revenues received from making loans to            
 municipalities.                                                               
                                                                               
 SENATOR TAYLOR asked if there is any case authority to establish              
 what is or is not considered an enterprise.  MR. SHARP noted in the           
 early days of statehood when several bond issuing agencies were               
 created their authority was challenged, but he did not recall any             
 cases which focussed on that particular language.                             
                                                                               
 SENATOR TAYLOR believed the inclusion of an intent or purposes                
 provision in the legislation that states the legislature finds, as            
 a matter of fact, that the bond committee is an enterprise, would             
 enhance the likelihood of the bill being found constitutional.  He            
 asked if it would be further enhanced by requiring a ballot.                  
                                                                               
 MR. SHARP replied that generally, a ballot for voter approval of a            
 general obligation bond asks the voter to pledge the full faith and           
 credit and taxing authority.  If a municipality fails to make a               
 payment, the bondholders can get judgment forcing the municipality            
 to levy taxes to pay the bond.   For a water or sewer system, there           
 is no authority to require a municipality to levy any tax, it can             
 look only to the revenues of the water or sewer system.  If a vote            
 was required there may be a question as to whether or not the                 
 legislature intends to make the municipalities issue general                  
 obligation bonds, or whether the legislature just wants voter                 
 approval of ordinary revenue bonds.  He knew of only one                      
 municipality that requires a vote on revenue bonds.  Regarding the            
 inclusion of a policy or findings section, he suggested stating               
 that the legislature views this program as the operation of a                 
 revenue generating enterprise.                                                
                                                                               
 SENATOR TAYLOR asked Ms. Sansone to assist the committee in                   
 drafting such language to be considered at the next hearing.