Legislature(1995 - 1996)

02/20/1996 01:13 PM House CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HB 401 - REVENUE BONDS:  WATER & WASTE PROJECTS                             
 Number 0059                                                                   
 CO-CHAIR IVAN noted that committee packets for HB 401 contained               
 copies of the bill, a bill summary, a sectional analysis, zero                
 fiscal notes from the Department of Environmental Conservation and            
 the Department of Revenue and back-up material.                               
 Number 0140                                                                   
 KEITH KELTON, Director, Division of Facility Construction and                 
 Operation, Department of Environmental Conservation (DEC),                    
 presented HB 401 on behalf of the Administration, saying he was               
 explaining both HB 401 and its companion bill, SB 207.  He offered            
 some background.  In 1987, when the Clean Water Act was                       
 reauthorized, it was mandated to drop the construction grants                 
 program and shift it into a low-interest loan program for the                 
 construction of wastewater facilities.  It also could apply to                
 solid waste facilities where ground water contaminants were being             
 treated, dealing with estuary contamination and controlling                   
 nonpoint source pollution.                                                    
 Number 0213                                                                   
 MR. KELTON explained that since 1989, DEC had administered the                
 Alaska Clean Water Fund, a program set up to make those low-                  
 interest loans.  The loans, which had fluctuating interest rates              
 tied to the municipal bond index, were available to incorporated              
 communities having a dedicated revenue stream to repay the loans.             
 Typically, the loans were for twenty years, with interest rates of            
 4 - 5 percent; currently, they were at 3.75 percent.  The loans               
 were, therefore, a fairly attractive financing alternative as                 
 general fund grants diminished.  To date, the fund had received               
 approximately $80 million, a combination of state and federal                 
 dollars.  Until the last two years, the demand for those funds had            
 been less than the availability.  However, that trend was                     
 Number 0305                                                                   
 MR. KELTON expressed that at the current rate of obligation, the              
 fund would be used up in two years, except for the revolving                  
 portion that would come back.  Twenty-one other states administered           
 this "leveraged program," using the corpus of the fund as                     
 collateral and selling revenue bonds to leverage the account into             
 more dollars.  Mr. Kelton said DEC had worked with the Department             
 of Law, bond counsel and the Department of Revenue to come up with            
 a process that fit Alaska's needs.                                            
 Number 0373                                                                   
 MR. KELTON referred to the top half of a wall chart and said, "This           
 describes the program that we currently have in place, the Alaska             
 Clean Water Fund, which is capitalized 80 percent by federal                  
 dollars, 20 percent by state."  He referred to the blue center                
 portion, representing current funds, and said, "Of that $80                   
 million, approximately $50 million has been loaned to 24                      
 recipients.  In your packets, you will find a list of the                     
 communities that currently have received loans."  He added that the           
 only requirements were being incorporated and having a dedicated              
 revenue stream.  After the fund loaned money to municipal projects,           
 the repayment stream recycled back into the program.  That was what           
 was in place right now, he said.  The $30 million that was left               
 would be gone in two years unless something was done to "leverage"            
 that money, he added.                                                         
 Number 0463                                                                   
 MR. KELTON indicated that HB 401 set up a bond redemption fund,               
 which would then pay the bond issuance costs to the state bond                
 committee.  That committee would issue bonds for purchase by                  
 investors with the proceeds returning to a bigger Alaska Clean                
 Water Fund.  Those funds would recycle back through projects with             
 the repayment stream returning to the bond redemption fund to pay             
 off the bonds, and so forth.  There was the possibility of making             
 that $30 million into a much larger number and funding more                   
 projects statewide.  Although the program was not restricted to any           
 community, by virtue of the fact that it required a dedicated                 
 payment stream, it primarily benefited larger, incorporated                   
 communities.  Mr. Kelton indicated there was a list of                        
 participating communities in the bill packet.                                 
 Number 0570                                                                   
 CO-CHAIR AUSTERMAN referred to the $50 million in loans already               
 made and asked, "When does that cycle back in, so that there's not            
 a need to go out and buy more bonds?"                                         
 MR. KELTON replied that the whole repayment stream, as well as                
 additional federal capitalization, was dedicated to paying off the            
 bonds.  The $50 million already out there was a big incentive to              
 the bond-buying market, he said, since that repayment stream was              
 already dedicated.  That, in addition to the $30 million currently            
 unobligated, would provide the corpus to the fund.                            
 Number 0615                                                                   
 CO-CHAIR AUSTERMAN asked if Mr. Kelton was saying the total $80               
 million of the original fund was going to be the corpus.                      
 MR. KELTON clarified that the $30 million "just sitting there"                
 would be the main collateral.  However, there was money coming back           
 from the original $50 million already loaned to communities; that             
 repayment stream, with interest, returned to the fund and provided            
 assurance to the bond purchasers that the state had the ability to            
 repay those bonds.                                                            
 Number 0675                                                                   
 CO-CHAIR AUSTERMAN asked how big the bonds under discussion were.             
 Specifically, he was curious where the $50 million would go after             
 it was paid back.                                                             
 MR. KELTON replied it would go to new projects.  It would continue            
 to recycle.  This was one of the questions the Senate committee had           
 as well, he said, explaining, "We're working on two amendments                
 right now in their Senate CRA committee that will provide the cap             
 that you're talking about.  The language has not been approved yet            
 in the Senate CRA committee, but we're expecting it to be heard               
 tomorrow, and one of the proposals is that they would establish a             
 $15 million-per-year cap on the amount of revenue bonds that could            
 be sold, up to $100 million total.  This would allow a finite                 
 maximum the state would be able to go in debt on, even though this            
 particular proposal does not require the full faith and credit of             
 the state.  They're revenue bonds and, basically, the communities             
 are the ones who are establishing their full faith and credit."               
 Number 0753                                                                   
 REPRESENTATIVE PETE KOTT asked Mr. Kelton to explain the process as           
 it existed today, without the new legislation.                                
 MR. KELTON expressed that the program currently provided low-                 
 interest loans from the $80 million combination of state and                  
 federal dollars.  As those funds came back as principal and                   
 interest, they were again available for loans.  All HB 401 did was            
 to establish a larger pot of money through the sale of revenue                
 bonds.  The administration of the program would proceed exactly as            
 Number 0828                                                                   
 REPRESENTATIVE KOTT asked whether, as the fund was depleted, money            
 would come back to municipalities, keeping that pool of money at              
 the present level, at least.                                                  
 MR. KELTON replied, "We definitely expect it will revolve.  The               
 level will be somewhat dependent on how many bonds are sold."  He             
 said they expected it to stabilize and be a revolving loan fund,              
 providing a fund in the neighborhood of $10 million to $15 million            
 per year.                                                                     
 Number 0872                                                                   
 REPRESENTATIVE KIM ELTON stated that his understanding was, "At the           
 present time, we have a loan fund that's capitalized with about $80           
 million.  $50 million of that is already out in loans to                      
 municipalities, leaving $30 million yet to be allocated.  Under               
 this bonding proposal, and if we accept the caps that are being               
 discussed on the other side, you would have the authority, over a             
 period of time, to build up your loan fund from the $80 million               
 that you have now to $180 million at some point in the future,                
 assuming that the caps that are being discussed on the other side             
 are imposed."                                                                 
 Number 0872                                                                   
 MR. KELTON said that was correct.                                             
 REPRESENTATIVE ELTON continued, saying, "So that you'd have a                 
 revolving loan fund that was partially capitalized with federal               
 dollars/state dollars/bond dollars, and the pool was $180 million             
 instead of $80 million."                                                      
 MR. KELTON indicated that was also correct.  He added, "We do                 
 expect that the reauthorization of the Clean Water Act, which is up           
 again, will include additional federal appropriations into this, so           
 with a state match, it could ultimately grow above that level."               
 Number 0950                                                                   
 CO-CHAIR AUSTERMAN asked Mr. Kelton what he saw as the dollar need.           
 He said, "If, in the last few years, you've been able to keep the             
 $30 million in there and not have to spend it, but now you say that           
 there's becoming more of a demand, at some point in time, the                 
 revolving aspect of this thing, where the $50 million comes back in           
 and is reloaned, is an ongoing process."  He asked if more than $80           
 million was needed if it was on a revolving loan basis.                       
 Number 0981                                                                   
 MR. KELTON replied that additional loans would be limited to the              
 repayment stream "once the first amount is out there."  With                  
 repayment on a 20-year cycle, only 1/20th of that would come back             
 in any given year.  After the money was cycled once, there would no           
 longer be $80 million until it started coming back.                           
 Number 1018                                                                   
 CO-CHAIR AUSTERMAN said that got back to his original question                
 about how long the cycle time was.                                            
 MR. KELTON responded that they were 20-year loans.  He pointed out            
 that the committee packets contained, in addition to the list of              
 projects where money had been loaned, a list of communities that              
 had expressed interest in receiving loans.  Currently, that list              
 involved approximately $78 million.  He added, "There is no                   
 certainty or an obligation on their part that they would ever need            
 to apply for those loans, but that's an expression of interest at             
 this date.  We do this on an annual basis.  Some of these projects            
 will get grants; some of them will fall by the wayside for other              
 reasons.  But at the current rate, which is $13 million a year, we            
 will be out of that corpus of $30 million within a two-year period.           
 We're trying to expand our capability of providing loan funds to              
 communities while we still have this corpus available.  Once this             
 corpus is loaned, we no longer have the collateral available to               
 sell these revenue bonds.  Passage of this legislation this year              
 will enhance the ability of this legislation to be effective,                 
 because the smaller that gets, the less leveraging we'll have                 
 Number 1126                                                                   
 CO-CHAIR IVAN said he understood there were two situations.                   
 Currently, the Village Safe Water Program made grants to rural                
 water and sewer projects.  In contrast, this program was geared               
 towards those built-up communities like Anchorage that had the                
 necessary payback capability, through property taxes or other                 
 revenue streams.  Co-Chair Ivan asked if this would free up funds             
 for water and sewer projects, especially the Village Safe Water               
 Program, which funded rural areas lacking payback capability.                 
 Number 1180                                                                   
 MR. KELTON replied he would not presume how money might be                    
 appropriated by the legislature.  However, the legislature                    
 certainly had the potential, if part of the capital budget demand             
 were assumed by the loan program, of making additional limited                
 dollars in the capital budget available to other communities.                 
 Number 1215                                                                   
 CO-CHAIR IVAN referred to the 50/50 municipal matching grant and              
 asked if this program would free up funds from the municipal                  
 matching grants as they were today.  For example, he believed the             
 average provided was $25,000 per community for use as a matching              
 grant towards community projects.                                             
 Number 1255                                                                   
 MR. KELTON asked if Co-Chair Ivan was talking about the Governor's            
 matching grants program or DEC's.                                             
 CO-CHAIR IVAN replied, "the current capital matching grant                    
 MR. KELTON thought it best to use the two programs in conjunction             
 with each other.  This would provide the ability to increase the              
 amount of dollars available to local projects.  If a community was            
 short of money after receiving a matching grant, it would certainly           
 be eligible to borrow the balance from the loan program, he said.             
 He thought the main place it saved was in the capital budget that             
 was approved, outside of the matching grants program.                         
 Number 1298                                                                   
 CO-CHAIR IVAN referred to Mr. Kelton's mention of estuary                     
 MR. KELTON clarified that was estuary pollution control or                    
 correction.  Although it was eligible, they had never received an             
 application for estuary enhancement.  However, it was written into            
 the federal law, which the state was mandated to repeat in statute.           
 Number 1335                                                                   
 CO-CHAIR IVAN asked if state agencies were authorized to apply for            
 MR. KELTON replied that federal language authorized state agencies            
 to be eligible for loans.  He noted that was an item that the                 
 Senate CRA committee had also questioned.  As a result of that                
 committee's work, he said, there was an amendment that would be               
 prepared and heard the next day which redefined that to eliminate             
 state agencies.                                                               
 Number 1368                                                                   
 CO-CHAIR IVAN referred to the term "liberally construed" and asked            
 for a definition.                                                             
 MARIE SANSONE, Assistant Attorney General, Natural Resources                  
 Section, Civil Division (Juneau), Department of Law, explained that           
 in terms of statutory construction, the term "liberal construction"           
 meant that this statute should be broadly construed to give effect            
 to its beneficial purposes of providing money for the public                  
 wastewater projects and other pollution projects.  The term was               
 fairly standard in statutes, Ms. Sansone said.  In contrast,                  
 "strict construction" or "narrow construction" would indicate a               
 much more restrictive view of the words of the statute.                       
 Number 1477                                                                   
 REPRESENTATIVE KOTT asked if underground storage tanks would fall             
 within the scope of HB 401.                                                   
 MR. KELTON indicated that would have happened only if they were               
 going to make loans to state agencies.  Some states had dedicated             
 this program to that purpose, he added.  He emphasized the fund               
 primarily would be for new construction.                                      
 Number 1534                                                                   
 REPRESENTATIVE KOTT asked for an explanation of "state aid                    
 MR. KELTON responded that the packet contained a more complete                
 discussion of that issue.  In a nutshell, the bond counsel had                
 informed them that having the "state aid intercept" language in               
 there meant the difference between selling the bonds at a "AA"                
 rating versus an "A" rating.  "It's assurance to the buyers of the            
 bonds that there's less chance of default," he said.  If there was            
 a default by a borrower, the state agency or agencies with control            
 of the funds could intercept undesignated funds to repay the                  
 defaulted loan.  It would apply to specifically appropriated funds,           
 Mr. Kelton said.  He referred to an example in the packet and added           
 that in the nationwide history of the loan program over the past              
 seven years, there had been no defaults.  In Alaska's history,                
 there had not been a single late payment.  They did not view this             
 as a significant problem, he emphasized.  Any community that                  
 defaulted would ruin its own credit rating.                                   
 Number 1651                                                                   
 BERDA WILLSON, Assistant Manager, Nome Joint Utilities, City of               
 Nome, testified via teleconference in favor of HB 401.  She asked             
 that the funds be provided only to communities in need and not to             
 state agencies.                                                               
 Number 1738                                                                   
 DIANA BENNETT, Finance Manager, Anchorage Water and Wastewater                
 Utility (AWWU), Municipality of Anchorage, testified via                      
 teleconference in favor of HB 401 and SB 207, its companion bill.             
 She read from a prepared statement:                                           
 "Although AWWU shares a common work force and management team, it             
 is actually two separate utilities for regulatory purposes,                   
 establishing separate rates for service and incurring separate debt           
 for capital projects.  The wastewater utility relies substantially,           
 in fact, almost entirely, on the Alaska Clean Water loan fund to              
 finance its comprehensive capital improvement plan.  We anticipate            
 borrowing $4-6 million annually from the loan program.  I hope the            
 funds will be available to do so.                                             
 "The low-interest loan program has been extremely popular and well            
 received throughout the country.  The Anchorage Wastewater Utility            
 has borrowed $8.8 million from this low-interest loan program, at             
 rates substantially lower than would be possible in the regular               
 bond market.  We estimate this has saved the ratepayers at least              
 $400,000 over the past four years, in addition to the flexibility             
 the program affords us.  In the years this Alaskan program has been           
 in existence, ADEC has made loans totaling $53 million.  There is             
 still a tremendous need for low-cost funding throughout the state.            
 ADEC received requests for $13 million in loans for the current               
 fiscal year.                                                                  
 "The bill now under discussion will allow what many other states              
 have done and leverage this initial capitalization money from the             
 federal government.  Increasing the amount of funds available                 
 allows projects to be completed sooner than if we have to wait for            
 our projects to move above the `cut line.'  This is a good way to             
 increase the pool of money available for necessary water quality              
 projects, without putting any other programs at risk.  The burden             
 for repayment remains with the communities requiring the funds and            
 there is a strong incentive for them, or for us, to continue to               
 make our repayments.                                                          
 "Without increasing the availability of funds, at the current                 
 request level of $13 million a year, the state is going to run out            
 of money to loan in only two years.  The loans are being repaid,              
 but the repayment stream has not reached equilibrium yet, and when            
 it does, it will still only be, I believe, $4-5 million, which is             
 well below the projected need.  The communities around the state              
 need this source of low-interest money to help finance sorely                 
 needed water quality improvements.                                            
 "The revenue bonds will be backed, not by the full faith and credit           
 of the state, but by the revenue coming from repayment of the                 
 loans.  As you've heard, in the history of the low-interest loan              
 program, there has never been a default -- not in the entire United           
 States.  In fact, in Alaska, there has never even been a late                 
 payment.  These bonds will be extremely safe.  The state will not             
 be required to `bail out' any agency over this.                               
 "You may have seen a Municipality of Anchorage memo listing some              
 recommended changes in this bill.  The Utility is substantially in            
 favor of the bill as was originally written; however, we were asked           
 to comment on the bill, with an eye to any proposed changes.  This            
 Utility works closely with ADEC and we have agreed among our two              
 groups that this bill, with or without any or all of the suggested            
 revisions, is extremely workable and will benefit the whole state             
 of Alaska.  I urge you to pass this bill.  Thank you for your                 
 Number 1930                                                                   
 LEE SHARP, Attorney at Law, Preston, Gates & Ellis, testified via             
 teleconference that his firm had been acting as bond counsel to the           
 state, assisting ADEC with some of the language in HB 401.  He                
 expressed that he was available for questions with respect to the             
 peculiarities of bonding.                                                     
 Number 1954                                                                   
 CO-CHAIR AUSTERMAN asked Mr. Kelton how long ago the loan program             
 had begun.                                                                    
 MR. KELTON replied the program had been in place about six years.             
 CO-CHAIR AUSTERMAN referred to the $15 million per year of maximum            
 bonding, with $50 million being repaid over 20 years.  He suggested           
 there was a time frame for looking at getting that $15 million                
 stream coming back, so that bonding would no longer be needed.                
 Number 1969                                                                   
 MR. KELTON said it depended on the lengths of the loans.  Although            
 most were 20-year loans, some were less.  To come up with a firm              
 figure was difficult.  For example, if all $80 million were already           
 loaned for 20-years, the maximum principal repaid per year would be           
 $5 million.  There may be interest, as well.  That was a long ways            
 from the demand of $15 million, even if all the money were out                
 there and repayments coming back.                                             
 CO-CHAIR IVAN asked if others wished to testify; there were none.             
 Number 2062                                                                   
 REPRESENTATIVE ELTON noted that HB 401 had several other committee            
 referrals.  In light of that, he moved that HB 401 move from the              
 committee with individual recommendations and attached zero fiscal            
 notes.  There being no objection, it was so ordered.                          

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