Legislature(2015 - 2016)CAPITOL 106
03/30/2016 08:00 AM House EDUCATION
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| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearings(s): | |
| Professional Teaching Practices Commission (ptpc) | |
| State Board of Education and Early Development | |
| SJR2 | |
| HB357 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SJR 2 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | HB 357 | TELECONFERENCED | |
SJR 2-CONST. AM: G.O. BONDS FOR STUDENT LOANS
8:23:41 AM
CHAIR KELLER announced that the next order of business would be
SENATE JOINT RESOLUTION NO. 2, Proposing an amendment to the
Constitution of the State of Alaska relating to contracting
state debt for postsecondary student loans.
8:24:38 AM
REPRESENTATIVE VAZQUEZ noted that the corporation has enough
cash to meet its loan obligations. She directed attention to
the committee packet handout titled, "State of Alaska
Comprehensive Annual Financial Report, Fiscal Year Ended June
30, 2015," issued by the Division of Finance, Department of
Administration, and the attached page 252, to review the column
headed, Alaska Student Loan Corporation. The report provides
that the assets of the corporation show cash and investments
totaling $35 million, with a bottom line total net position of
nearly $221 million. Thus, she surmised that the corporation
doesn't appear to be strapped for cash and unable to fund loans.
The costs reported during the previous hearing of SJR 2
[3/23/16], were about $30 million. Thus, having to enter the
bond market and making a change to the constitution to access
that market, is not warranted, she opined. She questioned
whether there might not be another avenue to explore, which
would prove less draconian than changing the constitution.
8:27:48 AM
DIANE BARRANS, Executive Officer, Alaska Student Loan
Corporation, Executive Director, Postsecondary Education
Commission, Department of Education and Early Development (EED),
responded that at issue is whether the commission can meet the
volume of new loans, as well as the refinance requirements of
existing, loans. The estimated volume of the combination for
these two loan categories, in the first year, could exceed $40
million. She reported that, minus operating costs, the
corporation's capacity does not meet this level of demand.
Speaking to the question of possible alternatives to using GO
debt, she said the state, since 2009, has provided two different
types of supports to the corporation. One was to enable the
Department of Revenue (DOR) to serve as a stand-by bond purchase
provider; an agreement whereby the corporation can access the
market using the liquidity support from the state. The
arrangement ensures that, in the event the corporation defaults
on the obligation, the state will buy the outstanding bonds. In
structuring that deal, she reported, the corporation was able
to, at a relatively low cost, secure a liquidity provider letter
of credit, but only on a standby basis. Thus, the loan
structure allows access to the market, but it doesn't afford the
cost reducing benefits that the GO bonds provide. The other
type of assistance that the state offered was authorization in
statute, allowing DOR to extend a $100 million loan, of which
$70 million has been used. It was structured as a bridge loan,
which is not a viable long term strategy for meeting loan
demands or for achieving the low cost interest rates that the
corporation would like to offer to Alaskans.
8:31:18 AM
REPRESENTATIVE COLVER inquired whether the revenue bonds have
been leveraged to finance student loans.
MS. BARRANS responded yes, and added that it has been the
practice since 1988; however, with the change in the market it
has become a costly method.
REPRESENTATIVE COLVER asked about the point spread between the
revenue bonds versus GO financing.
MS. BARRANS answered that, if the state maintains its AAA credit
rating, the spread would be about 120 basis points, but if the
rating drops to AA it would be about 97 basis points.
8:32:51 AM
REPRESENTATIVE DRUMMOND asked for an average amount of an Alaska
student loan.
MS. BARRANS estimated $6,000, and offered to provide further
information. The allowed maximums have recently been raised,
she said, and predicted that the average total will also
increase.
REPRESENTATIVE DRUMMOND opined that, estimating an $11,000 loan
and considering 11,000 students, $220 million doesn't go very
far. She conjectured that, should the Performance Scholarship
fund be jeopardized, the corporation will see an increase in
loan applications.
8:34:20 AM
CHAIR KELLER noted that typically a getting out the vote
investment will be made on either side of a ballot issue and
asked who the corporation anticipates will get behind promoting,
as well as opposing this legislation.
MS. BARRANS explained that when a state agency puts an item on a
ballot the advocacy is not through the agency. Media relations
would allow factual statements to be broadcast, but there is no
expectation for promotional efforts.
CHAIR KELLER asked if there are any groups that might pursue
advertising to advocate for or against the measure.
MS. BARRANS said there is no expectation of any campaigns being
waged.
8:37:01 AM
REPRESENTATIVE VAZQUEZ returned to the testimony predicting a
surge in loan applications and asked what information the
prediction is based on.
MS. BARRANS replied that a number of moving pieces effect loan
demand. The commission expects an increase in enrollment levels
at the university in the coming years, and tuition costs are
also expected to increase.
8:38:21 AM
STERLING GALLAGHER stated opposition to SJR 2, and described a
personal history of financial work within the state, including
commissioner of the DOR and underwriting state bonds. He said
the Student Loan Corporation was designed around cash flow, and
represents the weakest type of loan that the state can make, due
to the lack of collateral. One thing that does make this type
of loan work is the fact that it cannot be discharged through
bankruptcy. The national average student loan is $60,000, with
high end profession graduate debt at about $160,000. Because
the commission is designed around cash flow, he opined, other
means could be implemented for loan purposes and GO bonds
reserved for construction programs and emergency situations.
The loan program has been soundly run, he offered, but a young
person carrying heavy student loan debt can become a socio-
economic burden as their lives change. The national concern for
the level of systemic student debt is on the fore burner, and
there is pressure to change bankruptcy laws in order to
accommodate the fallout, which in turn could affect the states
credit rating. Collateral versus the states moral obligation
would be a better approach, he suggested, and returned to the
figures from the previously cited financial report to state that
the need for further assets is appropriately noted. However,
ways and means should be accomplished by drawing on other,
sufficiently collateralized, state loan balances and programs.
8:45:40 AM
CHAIR KELLER asked about the current debt load carried by the
state and its rating on Standard and Poor's.
MR. GALLAGHER said Alaska has about $600 million in general
obligation debts, and opined that, overall, the state is in good
shape.
8:47:35 AM
REPRESENTATIVE COLVER asked for a general statement of the
outlook for GO bonds in the state, and whether SJR 2 appears to
present any problem. A state/national disaster would require GO
bonds, he noted, and asked about other future needs.
MR. GALLAGHER responded that the state has ample flexibility at
this point and federal matching funds continue to prove helpful.
He suggested that other means could be employed to meet the
current financial crisis in the state.
8:51:32 AM
REPRESENTATIVE SEATON asked what loans could be appropriated to
the commission, without compromise.
MR. GALLAGHER answered that the fishermen loans would be one,
with about $130 million collaterally extended on quality assets.
REPRESENTATIVE SEATON surmised that fishermen loans are
collateralized using fishing vessels and questioned how much
money could actually be made available. If the loans were based
on the payment receipts, it seems that it may be insignificant,
he opined.
MR. GALLAGHER responded that other agency loans may be based
more on cash flow and it's the quality of the cash flow that
should be considered.
8:53:46 AM
REPRESENTATIVE VAZQUEZ asked if there is a link connecting the
fishing loans, as made by the Division of Investments,
Department of Commerce, Community & Economic Development
(DCCED), and the Alaska Student Loan Corporation program.
MR. GALLAGHER responded no; however the fishing program has $60
million in cash, in the till, earning about a half of a percent.
Thus, extending that cash to cover $130 million in loans would
be an appropriate leverage of funds.
REPRESENTATIVE VAZQUEZ clarified that the suggestion is to
direct fishing loan funds to the commission.
MR. GALLAGHER responded that, instead of appropriating cash to
the program, appropriate the loans.
8:55:04 AM
REPRESENTATIVE COLVER stated his understanding of the scenario
being described and said it utilizes the cash flow for
reinvestment.
MR. GALLAGHER answered yes, and said it's a smarter use of money
and doesn't consume the available balances.
8:56:29 AM
The committee took an at-ease from 8:56 a.m. to 8:57 a.m.
8:57:11 AM
REPRESENTATIVE COLVER commented that amending the constitution
is a weighty affair. He said he does not object to advancing
the bill for further scrutiny and debate in the next committee
of referral.
8:58:42 AM
REPRESENTATIVE TALERICO clarified that the members are not
casting a vote to amend the constitution by passing this
legislation out of committee. He said many facets will come
into play as the bill advances forward. The voting public may
be called upon for the final determination and opined that GO
bonds may be the best financing alternative. He said he is
neutral on the bill, but appreciates opportunities to put
decisions before the voters.
9:00:24 AM
REPRESENTATIVE SEATON said student loan debt is a big problem
nationwide, primarily due to the high interest rates that
accumulate and compound debt, even as graduates enter the work
force. Lowering the student loan interest rate could be very
beneficial, he opined, however, using money from other programs,
such as the fishing vessel program, presents a concern.
9:02:10 AM
CHAIR KELLER opined that the committee has done its due
diligence.
9:02:42 AM
REPRESENTATIVE VAZQUEZ commented that the student loan program
is critical, especially in light of the tuition rate increases
that may be imposed. She maintained her concern for amending
the constitution, Article 9, and said that other mechanisms
would be more appropriate.
9:04:40 AM
REPRESENTATIVE TALERICO moved to report SJR 2, 29-LS0010\W out
of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, SJR 2 was
reported from the House Education Standing Committee.
9:05:02 AM
The committee took a brief at-ease at 9:05 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SJR2 version A.pdf |
HEDC 3/30/2016 8:00:00 AM |
SJR 2 |
| SJR 2 Sponsor Statement.pdf |
HEDC 3/30/2016 8:00:00 AM |
SJR 2 |
| SJR2 Fiscal Note OOG-DOE 3-18-2016.pdf |
HEDC 3/30/2016 8:00:00 AM |
SJR 2 |
| SJR 2 Letter of Support-University of Alaska.pdf |
HEDC 3/30/2016 8:00:00 AM |
SJR 2 |
| SJR 2 Letter of Support-Juneau Chamber of Commerce.pdf |
HEDC 3/30/2016 8:00:00 AM |
SJR 2 |