Legislature(2003 - 2004)
03/08/2004 09:05 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. 274
"An Act relating to the housing assistance loan fund in the
Alaska Housing Finance Corporation; creating the housing
assistance loan program; repealing loans for teacher housing
and providing for loans for multi-family housing; making
conforming amendments; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated this bill "replaces the Housing Assistance
Loan Fund with a new Housing Assistance Loan Program."
Mr. Fauske read testimony explaining this legislation into the
record as follows.
Senate Bill 274 will make two changes to the rural loan
program. It will replace the Housing Assistance Loan Fund,
known as the HALF, with a Housing Assistance Loan Program, and
it will replace the Rural Teacher Housing Loan Program with
the Rural Multi-Family Loan Program.
Changing the Housing Assistance Loan Fund (the HALF) from a
fund to a program is necessary as a result of liquidity
concerns of the Corporation. The current revolving nature of
the fund limits the fund to being used only to purchase new
loans under this program. For fiscal year 2003, over a third
of the Corporation's net income was in this fund. With the
Corporation paying a dividend of $103 million to the State,
the funds paid to the State have continued to come entirely
out of our working capital because of the restriction of the
rural loan fund. This has resulted in the liquid assets of the
Corporation declining at an accelerated rate.
In addition, the revolving fund hasn't really revolved for
several years. The new loans made in the program have exceeded
the cash available in the fund causing the Corporation to use
its working capital to purchase and hold loans for
reimbursement from the fund.
This legislation will allow the program to operate in the same
way our other loan programs do. Other than this change, the
program will continue to operate in the same way.
Now, the next is the Rural Multi-Family Loan Program. The
other change SB 274 will make is to change the Rural Teacher
Loan Program to the Rural Multi-Family Loan Program. The
passage of SB 181 in 2002 changed our rural multi-family non-
owner occupied loan program into the Rural Teacher Loan
Program. This change required anyone using the program to fill
their duplex, four-plex, or any other multi-family building
with at least one teacher in every unit. As a result of this
restriction, in the year and a half that the program has
existed, there has not been a single loan made. Before this
change, the multi-family program made up to two and three
percent of our rural business.
This bill will change the program back into a rural multi-
family program available to anyone including teachers. It will
also allow an owner to occupy one of the unit if they so
chose.
The changes that SB 274 will make will be good not only for
the Corporation but for Alaskans, especially in our rural
areas and around the state.
Co-Chair Wilken asked the link between SB 279 and SB 274. He
understood that SB 279 authorizes the sale of bonds.
Mr. Fauske responded that the changes proposed in SB 274 are
necessary to "generate the liquidity to pay for 279." He relayed
that the Corporation had proposed to the Murkowski Administration
the concept of purchasing $40 million State assets to generate cash
flow for the State. He stated that this did not occur although the
need for cash remained and the Corporation suggested selling debt,
taking advantage of low interest rates and "running the debt
service out of the capital budget." He updated that the decision
was made to sell $20 million in bonds as reflected in the proposed
amendment.
Senator Bunde recalled the need for teacher housing was addressed
three years prior and expressed concern of repealing a program so
recently established. He asked if there was no longer a need for
teacher housing.
Mr. Fauske replied these changes would continue to provide
opportunities for teacher housing. He explained that the current
provisions exclude this program from individuals constructing a
multi family housing unit, residing in one unit and renting other
units to teachers, if the owner is not a teacher. He said this
practice is common in rural communities. He furthered that the
Corporation also has to "reassert on an annual basis, the
qualifications"; explaining that as teacher tenants moved out of a
unit, and non-teachers moved in, the interest rates on the loans
must be reassessed and increased. He stated this is a hardship on
lending institutions. He predicted the proposed changes to this
program would be successful in conjunction with other existing
programs in creating housing for teachers.
Senator Bunde recalled the current program requires that a teacher
occupy one unit of a multi-family unit complex.
Mr. Fauske corrected that current requirements stipulate that at
least one teacher must occupy every unit. This legislation, he
explained would eliminate that requirement.
Senator Bunde asked if different interest rates would be available
for the proposed changed program as are available for teacher
housing.
Mr. Fauske affirmed and described the separate program that offers
interest rates at one percent below the taxable rate on the first
$250,000 of a loan.
Co-Chair Wilken clarified this legislation maintains the $250,000
limitation instituted in the HALF program three years prior.
Co-Chair Wilken asked about the replacement of regions established
in AS 18.56 with "small communities" on page 4, line 26.
BRIAN BUTCHER, Legislative Liaison, Alaska Housing Finance
Committee, Department of Revenue, deferred to Mr. Kapansky.
PAUL KAPANSKY, Mortgage Operations Director, Alaska Housing Finance
Corporation, Department of Revenue, testified via teleconference
from an offnet location that this language unified the definition
of the population served by the rural program. He defined small
community as having a population of 6,500 or fewer and is not
connected by road or rail to Anchorage or Fairbanks.
Co-Chair Wilken asked the regions established in AS 18.56.
Mr. Kapansky was unsure and stated he would provide the
information.
Co-Chair Wilken next referenced Section 8 on page 5, line 7, which
repeals AS 18.56.420(b) and 15.56.570 and asked what these statues
pertain to and the effect of their repeal.
Mr. Fauske replied that AS 18.56.420(b) relates to the HALF fund
and that 15.56.570 relates to the Rural Teacher Housing Program.
Mr. Kapansky affirmed.
Co-Chair Wilken understood that AS 18.56.420 relates to how the
Legislature uses the funds of the HALF program to administer the
program.
JOE DUBLER, Chief Financial Officer, Alaska Housing Finance
Corporation, Department of Revenue, explained that AS 18.56.420(b)
allowed the Legislature to appropriate funds for the hiring of
personnel to administer the revolving fund. He noted that because
this legislation would change the fund into "just another mortgage
program" within the Corporation, it would be subject to the
separate statutes governing the entire corporation in which the
Legislature appropriates funds for operation.
Co-Chair Wilken asked for further explanation of the regional
allocation referenced in AS 15.56.570.
Mr. Kapansky responded that in the past, the Corporation allocated
funds from the revolving loan fund according to regions. He
surmised this occurred because the Corporation had limited
resources. However, he stated that since the Corporation merged
with the rural loan program in 1992, additional resources were
available for the program and the regional allocations were no
longer necessary.
Co-Chair Wilken clarified that the language change to "small
communities" in Section 6 of the bill allows for the repeal of AS
15.56.570.
Mr. Kapansky affirmed.
Senator B. Stevens referenced Sec. 18.56.580(b)(2) in Section 7 on
page 5, lines 5 and 6, which reads as follows.
(2) "multi-family housing" means a multi-family
residence containing two or more dwelling units that may be
nonowner-occupied or owner-occupied.
Senator B. Stevens asked about programs available for nonowner-
occupied housing and the definition of nonowner-occupied.
Mr. Fauske deferred to Mr. Kapansky.
Mr. Kapansky told of the history of the program, prior to passage
of SB 181, in which owners could not occupy units of multi-family
housing. Currently, he was unaware of any program of the
Corporation that allows nonowner occupancy. He defined "nonowner
occupied" as housing at which the borrower does not live and all
the units are leased or rented.
Senator B. Stevens asked the criteria required of the borrower of
nonowner occupied housing, whether the borrower must be a Native
corporation, a school district or similar entity. He surmised this
legislation would extend the program to anyone, and exampled that
he could borrow money and build rental units in a community of less
than 6,500. He asked how broad this provision would be.
Mr. Kapansky defined those eligible, as "anyone or any entity that
can enter into a legal contract and qualify otherwise, can be a
borrower under the rural loan program."
Co-Chair Wilken furthered that those eligible could "enjoy"
discounted interest rate for the first $250,000 of the loan.
Mr. Kapansky affirmed.
Mr. Fauske noted that legislation adopted the previous session, SB
25, extended a no down payment requirement to Rural Education
Attendance Areas (REAA) and school districts.
Senator B. Stevens understood, but questioned the extension of the
proposed program to any applicants as broadening the intent and
would allow any party to become property owners of nonowner-
occupied housing in small communities.
Co-Chair Wilken clarified Senator B. Stevens's concern with the
inclusion of a nonowner-occupied provision in this legislation.
SFC 04 # 33, Side B 09:55 AM
Senator B. Stevens remarked that under the proposed provisions he
could build units in a village, such as St. Paul and become the
landlord utilizing an AHFC loan. He wanted this understood in the
discussion on this bill.
Mr. Butcher explained that prior to passage of SB 181 in 2002, the
program was specifically a rural nonowner-occupied loan program.
Senator Hoffman noted that the lower interest rate could only be
garnered for the first $250,000 of the loan, which could be
translated into two units of a six-unit housing facility.
Mr. Fauske affirmed.
Senator Hoffman commented that although this proposal might seem to
be extending the program significantly, only a limited number of
borrowers could take advantage of it. He spoke of housing
difficulties and the benefits of encouraging investment in rural
communities.
Mr. Dubler clarified that AHFC has nonowner-occupied loan programs
for housing located in urban areas and that this program would only
apply to rural areas. He emphasized this program is the only
funding source that has typically been available for rural multi-
family housing, and since enactment of SB 181 no loans have been
issued.
Senator B. Stevens wanted to clarify this proposal would not only
allow for construction, but also would provide loans for the
purchase or refinance of existing multi-family housing. He stressed
this would provide State funding for nonowner- occupied ventures.
He did not oppose this, provided it was fully understood.
Senator Bunde asked if currently these loans are limited to
nonowner-occupied housing, unless the borrower is a teacher.
Mr. Butcher explained that both owner-occupied and nonowner-
occupied are allowed.
Senator Bunde asked if the intent is to amend the program to allow
owner occupancy.
Mr. Butcher replied that the original program applied to nonowner-
occupied housing; the changes implemented in 2002 limited occupancy
to teachers, whether owner-occupied or nonowner-occupied; and the
proposed change would retain the owner and nonowner-occupied
provision although eliminate the teacher occupancy requirement.
Senator Bunde ascertained this change could result in increased
participation in the program.
Mr. Fauske affirmed.
Co-Chair Wilken added that the $250,000 limit was imposed in
conjunction with the changes made in 2002.
Senator Olson asked if the reason no applications were received for
the existing program was because only a limited number of rural
residents had adequate collateral on loans for multifamily housing.
Mr. Fauske replied that no loans were made under this program, in
part because some who would have participated were excluded because
they were not a teacher. He stated the program placed restrictions
on lenders for interest rate compliance and therefore lenders did
not promote the program.
Senator Olson asked if the proposed changes would therefore
encourage investors to construct multi-family residences in rural
Alaska.
Mr. Fauske answered it could.
Senator Bunde expressed concern with removing the teacher occupied
requirement, since the original legislation was intended to "apply
some gentle pressure" to borrowers that to participate, they must
assist in meeting a need. He could understand that it would be
burdensome to require every unit be teacher occupied and suggested
a requirement that at least one unit must be occupied by a teacher.
Co-Chair Wilken asked if the current provisions stipulate that a
teacher must occupy one unit.
Mr. Fauske corrected that at least one teacher must occupy every
unit.
Mr. Fauske predicted that the goal of providing teacher housing
would be reached. He noted the current program offering loans with
no down payment to school districts and REAAs is expanding. He also
told of $4.1 million for the teacher housing loan program included
in the proposed FY 05 capital budget. He further described efforts
of the Corporations underwriters to ensure the success of these
programs.
Mr. Fauske pointed out the difficulties in operating a multi-family
housing facility in which every unit must be occupied by at least
one teacher. He informed that many teachers remain in the rural
community only nine months of the year and the owner must either
find temporary occupants or absorb the lost rental revenue.
Co-Chair Wilken recalled discussion prompted by a Division of
Legislative Audit report of three to four years ago about abuses in
the HALF system. He noted the problems were repaired and that now
those repairs are being adjusted. He asked whether the proposed
changes could result in a return to the situation in which the
abused first existed.
Mr. Fauske assured the proposed changes would not. He opined that
some of the identified abuses were the result of misunderstandings.
He exampled a loan to a doctor in Dillingham. He stated that the
limit of the reduced interest rates to the first $250,000 of a loan
would address the Committee's concern.
Senator Olson surmised that the number of rural residents able to
participate would become fewer due to less funding to rural
communities, such as revenue sharing and longevity bonus payments,
as well as the State's fiscal problems. He expressed that this
"pessimistic financial attitude" has affected businesses and asked
whether AHFC shared this observation.
Mr. Fauske replied that the combination of housing programs to
assist teachers and nurses have "created an opportunity for more
optimism instead of pessimism." He explained that education funding
is allocated to rural communities, some of which is used to pay
salaries and miscellaneous expenses. He stated that if AHFC could
leverage some of those funds to ensure housing is developed, the
overall economy would benefit. He admitted that funding reductions
in other areas would have impacts, although these efforts would be
helpful. He also noted the changes in this legislation would
promote investment from funding sources other than education
funding.
Senator Olson commented that as a businessman from rural Alaska, he
has "reined in" his optimism because of the "dismal" forecast.
Co-Chair Wilken opined that money is always available for "good
mortgages" based on sound lending principles.
Co-Chair Wilken ordered the bill HELD in Committee.
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