Legislature(2009 - 2010)SENATE FINANCE 532
02/15/2010 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB269 | |
| SB270 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 269 | TELECONFERENCED | |
| + | SB 270 | TELECONFERENCED | |
SENATE BILL NO. 269
"An Act relating to the waiver of volume cap of
recovery zone economic development bonds authorized by
26 U.S.C. 1400U-2 and reallocation by the Alaska
Municipal Bond Bank Authority of the waived volume
cap; relating to the waiver of volume cap of recovery
zone facility bonds authorized by 26 U.S.C. 1400U-3
and reallocation by the Alaska Industrial Development
and Export Authority of the waived volume cap;
increasing the total amount of bonds and notes that
the Alaska Municipal Bond Bank Authority may have
outstanding; relating to revenue bonds issued by the
Alaska Municipal Bond Bank Authority; and providing
for an effective date."
9:03:45 AM
Co-Chair Stedman brought the meeting to order and thanked
participants for coming on a holiday. He went over today's
schedule.
9:04:56 AM
DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK AUTHORITY, DEPARTMENT OF REVENUE, explained the
different issues in the bill. The first issue deals with the
Alaska Municipal Bond Bank Authority and the need for
statutory revisions in the program and the second issue
deals with temporary opportunities related to the recovery
act. He introduced the PowerPoint presentation, Alaska
Municipal Bond Bank, Alaska Industrial & Export Authority,
February 15, 2010 (copy on file).
Mr. Mitchell reviewed the Alaska Municipal Bond Bank, page
2, which is a public corporation of the state of Alaska
created in 1975 to provide access to capital markets for
Alaska communities through the use of state support. The
summary statistics from FY2001 through FY2009 are presented
with community's savings in the amount the communities would
have otherwise had to pay in addition to their original
obligation payments. He indicated that there are benefits to
Alaska communities from the program. Mr. Mitchell moved to
the Bank Statute Changes, page 3 showing the bond bank
increase borrowing limit by $250 million. He noted there is
a $750 million cap increase from $500 million about four
years ago. He noted that as of June 30, $162.8 million of
the cap remains. There are applications for another $40
million with additional applications expected to total $100
million.
Co-Chair Stedman referred to the list of outstanding loan
amounts for communities around the state totaling $564
million. He requested a time frame when the communities will
pay off this debt. He mentioned that the city of Sitka's $34
million loan will be paid off in seven years and wondered if
there would be the authority to reuse the money on other
projects.
Mr. Mitchell replied that it is a revolving authority that
exists under the borrowing cap. He commented that the
program is mature at this point meaning the debt is level
and will continually step down to a zero balance in thirty
years. The borrowing of the communities has outpaced the
maturity of the outstanding obligations.
Co-Chair Stedman requested additional information showing
how the authorization will step down to give the committee a
better understanding of the incremental increase to $250
million and how much room will be out in five to ten years.
Mr. Mitchell agreed that could be done. Co-Chair Stedman
also asked for the cost of the debt to the communities.
Mr. Mitchell agreed he could put together a schedule showing
the aggregate debt services by community showing how the
maturity looks over time. Mr. Mitchell continued that in
addition to increasing the borrowing limit, the statute
eliminates restrictions on Revenue Bond issues of the
program and eliminates restrictions on leases of the
program. These changes are requested by communities that
currently have opportunities to finance capital projects. If
the bond bank were not available the communities would have
to borrow at higher interest rates. He referred to the Sitka
hydro project that is looking to refinance about $21 million
worth of bonds. The refunding can benefit in gross dollars
of $1.7 million by the bond bank participating in the
transaction.
Co-Chair Stedman explained that the community of Sitka wants
to refinance an old hydro project, lower the debt service,
and use the savings to pay additional debt service for the
next increment of raising a dam face. The local electrical
rates will not change.
Senator Olson questioned what was the anticipated default
expected over the next ten to fifteen years in looking at
the increased borrowing rate. Mr. Mitchell expected a zero
default. He reported that the program is not a grant
program, but a loan program. He declared that in the history
of the bond bank there has never been a default where a
community has not paid. The intent of the program is to
provide lower costs to the communities that need it the
most.
Senator Olson asked if all the communities on page 2 were
into revenue bonds or other types of bonds. Mr. Mitchell
responded that the bonds were primarily general obligation
and revenue. Senator Olson asked for the breakdown of the
bonds. Mr. Mitchell responded that there were more general
obligation bonds than revenue bonds.
9:15:38 AM
Mr. Mitchell continued his presentation with the History and
Applicable Laws for Recovery Zone Bonds, page 4. He
explained that the American Recovery and Reinvestment Act of
2009 created opportunities to provide the incentives for
both public and private partnerships, but within a limited
window. After the end of the calendar year, the allocations
will no longer be available for use.
Mr. Mitchell continued with the Build America Bonds, page 5.
He remarked this is a structure of financing available for
any tax exempt financing. Where otherwise they would sell
tax exempt bonds, now would sell taxable bonds where the
federal government provides a 35 percent subsidy on the
interest expense on those bonds. He informed the committee
there may be an extension to the program, but at a lower
subsidy rate. He moved to the Recovery Zone Bonds, page 6.
He mentioned that the economic development bonds are
identical to the Building American Bonds except it boosted a
45 percent subsidy on the interest expense. This
significantly increases the value on the long end of the
loan. He informed that $90 million has been allocated to the
state of Alaska. Mr. Mitchell explained that the recovery
zone facility bonds provide the opportunity for
municipalities to offer tax exempt financing to businesses
investing in their communities. He stated that $135 million
has been allocated the state of Alaska.
9:19:09 AM
Mr. Mitchell observed that the Recovery Zone, page 7 is for
a community that declares itself a recovery zone with a
required resolution from the local city council.
TED LEONARD, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY, explained that the
original recovery zones were allocated by the U.S. Treasury
based on June 2008 employment declines. The U.S. Treasury
looked at employment populations in cities and counties, but
in the unorganized areas of Alaska the census area was used
to allocate the portion.
Mr. Mitchell referred to the Recovery Zone Allocations on
page 8. The economic development bond total is $90 million
with facility bonds at $135 million based on the employment
statistics.
Co-Chair Stedman asked for more information on why the
Yukon-Koyukuk Census Area and the Wade Hampton Census areas
were zero.
Mr. Mitchell responded that those areas did not have a
decline in employment statistics for the qualifying period.
He referred to page 9, Why Legislation? to explain the
disconnect between allocations and potential projects. The
failure to use the allocation money will result in a loss of
funds on January 1, 2011. He explained that current
allocations will guarantee the loss of a substantial volume
cap. This bill establishes a framework and legal basis to
ensure this limited resource is used.
Mr. Mitchell referred to the Alaska Municipal Bond Bank
Recovery Zone Statutes on page 10 providing for communities
in census areas to receive consideration immediately upon
the bill becoming effective. It provides for boroughs to
waive allocations that are not needed or cannot be used
immediately.
Co-Chair Stedman elaborated with an example on page 8 of
Prince of Wales-Outer Ketchikan Census Area for $1.9 million
in economic development bonds and $2.9 million in facility
bonds. He asked for an explanation on how the mechanism
would work.
9:25:23 AM
Mr. Mitchell responded that upon the bill's passage there
would be an immediate outreach to census communities
querying if there were any planned capital projects. Based
on the response an allocation would be made to those
communities with projects. He explained that if a borough
has not used the allocation then it will be waived
automatically so it can be refocused to other community
projects. There is the concern that areas of increased
unemployment would be penalized, but he reiterated that
although this is not the intent of the bill it would be
allowed to make sure allocations are used.
9:28:38 AM
Mr. Leonard remarked that the Alaska Industrial Development
and Export Authority Recovery Zone Facility Bonds on page 11
are specifically designed to be used with businesses in
conjunction with banks. This can be used for industrial,
commercial, retail, and office. Facility bonds cannot be
used for rental housing, airplanes, health clubs, liquor
stores, race tracks, luxury boxes, gambling facilities, or
massage parlors. There is one allocation of $29 million by
the Fairbanks North Star Borough to the Alaska Port
Authority for the natural gas project.
Co-Chair Stedman asked if these would be available for
community fishing quotas. Mr. Leonard responded he was not
sure, but noted it does not say it cannot be used for that.
Co-Chair Stedman restated it would be used for fishing
permits not the equipment. He added there has been
discussion of using funds to help some communities buy
community quotas to create jobs.
Senator Thomas inquired where this is addressed in the bill.
Mr. Leonard specified that it is in the federal statutes.
Mr. Leonard continued on page 12 with the Features and Uses.
The bonds are issued for private projects with the interest
tax-exempt. These bonds would be issued as a conduit private
activity bond and the debt service is funded by the private
business that owns and uses the property.
9:32:43 AM
Mr. Leonard continued with the Recovery Zone Regulations on
page 13 with the goal of ensuring all the allocations would
be used in recovery zones and areas of high unemployment and
economic distress. One of the benefits of the bill is that
it allows AIDEA and the bond bank to work with other
entities not in the recovery zone.
9:33:40 AM
Senator Huggins inquired if Alaska could have state-wide
projects. Mr. Leonard replied that the area would have to be
designated as a recovery zone. The criteria must be logical
and make sense.
Senator Huggins voiced his concern if this will make sense
later on. Mr. Leonard responded that was a concern of AIDEA
who wanted to be a participant in order to look at the state
as a whole. Based on the criteria and public hearing
process, it should have the mechanism on why the decisions
were made.
9:36:03 AM
Senator Huggins questioned if that did not happen, what was
Mr. Leonard's confidence level in the mechanism to make this
work.
Mr. Leonard responded that if it does not happen then AIDEA
estimates there will be a 50 per cent loss of the cap. He
added that almost every state has a reallocation process. He
noted that the first thing is to be sure that each project
meets the qualifications to be a project. Businesses can not
just ask for money without a firm and verified project that
meets requirements for unemployment. He emphasized that
there are processes in place to verify that the project is
feasible in the area and meets the criteria for unemployment
or distress and also has the resources to monitor it.
Regulations could also state that if it is not being used by
a certain date then it could be pulled back. AIDEA is hoping
to have a list of projects so that if allocations are not
used, then another project could be brought forth to use the
allocation.
Co-Chair Stedman questioned if the allocations not used in
the unorganized areas would flow into Anchorage and Matsu.
Mr. Leonard replied that it could. Co-Chair Stedman believed
that it would most likely flow to areas with the structure
to handle the project, but did not meet the federal
criteria. Mr. Leonard agreed that specific areas within a
larger metropolitan area could be looked at as distressed.
9:38:56 AM
Co-Chair Stedman referred to the Department of Commerce zero
fiscal note and an $80,000 fiscal note from the Department
of Revenue and the Alaska Municipal Bond Bank for legal
counsel, financial advisory service, and travel.
SB 269 was HEARD and HELD in Committee for further
consideration.
9:40:10 AM AT EASE
9:41:13 AM RECONVENED
9:41:23 AM
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 270 AHFC Transfer Plan Sectional Analysis.pdf |
SFIN 2/15/2010 9:00:00 AM |
SB 270 |
| SB 270 AHFC transfer plan Sponsor Statement.pdf |
SFIN 2/15/2010 9:00:00 AM |
SB 270 |
| bondbank09annualreport.pdf |
SFIN 2/15/2010 9:00:00 AM |
SB 269 |
| February 15 2010wAIDEA_Presentation.ppt |
SFIN 2/15/2010 9:00:00 AM |
SB 269 |
| Agenda 021510.docx |
SFIN 2/15/2010 9:00:00 AM |