Legislature(2011 - 2012)BARNES 124
02/08/2011 10:15 AM House ECON. DEV., TRADE & TOURISM
Audio | Topic |
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Start | |
HB119 | |
HB120 | |
Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
+= | HB 119 | TELECONFERENCED | |
*+ | HB 120 | TELECONFERENCED | |
+ | TELECONFERENCED |
HB 119-AIDEA: PROCUREMENT; PROJECTS 10:19:24 AM CO-CHAIR HERRON announced that the first order of business would be HOUSE BILL NO. 119, "An Act relating to the procurement of supplies, services, professional services, and construction for the Alaska Industrial Development and Export Authority; relating to the definition of 'own' for the economic development account; relating to the definitions of 'development project', 'plant', 'facility', and 'project' for the Alaska Industrial Development and Export Authority; and providing for an effective date." 10:19:42 AM TED LEONARD, Executive Director, Alaska Industrial Development & Export Authority (AIDEA) and Alaska Energy Authority (AEA), Department of Commerce, Community & Economic Development (DCCED), informed the committee Mr. Davis would respond to the four questions submitted by Chair Herron on 2/3/11. 10:20:13 AM MARK DAVIS, Economic Development Officer, Alaska Industrial Development & Export Authority (AIDEA) and Alaska Energy Authority (AEA), Department of Commerce, Community & Economic Development (DCCED), said that Chair Herron's first question asked whether AIDEA's purpose for investing in Limited Liability Companies (LLCs), or other legal entities, is to avoid risk. On the contrary, Mr. Davis assured the committee the purpose of investing in an LLC is not so AIDEA can invest in projects with higher risks, but to allow AIDEA to participate in projects that are currently prohibited. In fact, the primary objective is to strengthen AIDEA's position when investing in a percentage of a project; furthermore, private capital investors have advocated for this change. He stressed that AIDEA is not looking to engage in riskier enterprises, but for a way to leverage funds and to work with the private sector. A facet of AIDEA's strategic plan calls for partnerships with the private sector because, he said, "Working with the private sector is a good way to validate the investment. If private capital is interested in the project, then it probably makes sense for AIDEA to look at it carefully." Chair Herron's second question asked for examples of projects that the proposed legislation would allow. Mr. Davis gave the following examples: Fuel storage at the Ted Stevens Anchorage International Airport is probably authorized under current definitions covering the transportation of natural resources, but the proposed legislation will clarify this authority; Current legislation allows AIDEA to build roads that are directly tied to a particular project, but the proposed legislation will allow AIDEA to build roads otherwise. Again, the purpose of the proposed legislation is "so that we don't get into fine issues of legal interpretation. We felt it better just to seek clarification from the legislature." 10:22:43 AM CHAIR HERRON invited Representative Holmes to speak to the committee about an opportunity for economic development. 10:23:23 AM REPRESENTATIVE LINDSEY HOLMES, Alaska State Legislature, advised the committee that the state's efforts to diversify its economy should look beyond the big industries of oil, gas, and mining. She said the Anchorage and Fairbanks airport systems serve as air cargo hubs and present Alaska with an economic opportunity. In 2004, Alaska and Hawaii were recognized by federal law as the only states in which an international carrier can offload cargo coming into the U. S. "without being considered to have broken their international journey." This means a carrier can land in Anchorage or Fairbanks and in addition to refueling, can offload cargo onto another carrier, transfer it, or exercise other options. Representative Holmes pointed out this is a huge advantage for carriers - and those serving Asia in particular - that are shipping products to the U.S. Two carriers are presently taking advantage of this opportunity, and their operations on the ground support additional jobs in all facets of aviation and related industries. Representative Holmes opined this is an economic opportunity that is not fully utilized. 10:26:06 AM CHAIR HERRON asked for any suggestions on how to take advantage of this opportunity. 10:26:16 AM REPRESENTATIVE HOLMES urged legislators to "spread the word" in any manner possible. 10:26:39 AM CHAIR HERRON suggested that the committee write a letter to appropriate entities. 10:26:55 AM REPRESENTATIVE TUCK remembered that passenger airlines are taking advantage of this law. 10:28:15 AM MR. DAVIS continued with AIDEA's response to Chair Herron's question concerning procurement, and explained that on the issue of procurement AIDEA seeks to be treated like other public corporations such as the Alaska Housing Finance Corporation (AHFC). The changes proposed in HB 119 would provide flexibility so the board of directors, or the executive director, could make more use of business opportunities that arise. Furthermore, the current procurement process is "not commercially reasonable" because AIDEA's projects are generally not related to development projects affiliated with the Department of Transportation & Public Facilities (DOTPF), such as the Alaska Ship & Drydock Inc. project in Ketchikan. He also confirmed that the proposed changes do not have an effect on the Davis-Bacon Act regarding procurement, nor on the business and professional licensing requirements. 10:30:48 AM REPRESENTATIVE P. WILSON asked whether AIDEA reports all of its projects to the legislature annually. 10:31:22 AM MR. LEONARD said AIDEA presents an annual report to the legislature each January that identifies all of AIDEA's projects and gives financial and other information. In further response to Representative P. Wilson, he said copies are sent to all legislators, and he offered to provide additional copies. 10:33:11 AM MR. DAVIS, in response to Representative P. Wilson, said AIDEA would also provide copies of the information regarding the activities of economic development agencies in other states. 10:33:33 AM REPRESENTATIVE P. WILSON then asked whether information on any LLCs created by AIDEA would be included in its reports to the legislature. 10:33:58 AM MR. LEONARD assured the committee that an LLC would be included by AIDEA in its financials and reports to the legislature. 10:34:18 AM MR. DAVIS re-stated that the changes to the procurement code add flexibility, but still include all the award-bid requirements of Alaska businesses, the Davis-Bacon Act, and public processes through regulation. Chair Herron's next question asked about the change in the composition of AIDEA's board of directors from three government officials and two members of the public, to the commissioners of the Department of Revenue (DOR) and DCCED, and five members of the public. Mr. Davis said this change was not sought by AIDEA, but it seems to be working well; in fact, the new board will provide a broader range of geographic and business expertise. The final question asked AIDEA to identify the other groups that were studied before the bill was drafted. In response, he said the states of New Jersey, West Virginia, Wyoming, and North Dakota, and related private organizations, were consulted. Mr. Davis pointed out that other states have changed the responsibilities of their economic development agencies in order to respond to changes in their economies. For example, the Port Authorities in Ohio are now able to engage in housing, recreation, education, government operations, culture, or research. Although this is a broad range of projects, the Port Authorities, like AIDEA, are under the constraint of making a return on investment for each project. Mr. Davis concluded that the survey of other states' agencies revealed a need for the inclusion of research-related and development-related new technologies in the bill. If the bill is enacted, AIDEA can provide financing, or partial financing, through the mechanism of an LLC. 10:38:26 AM REPRESENTATIVE TUCK asked for further explanation of the effect of an LLC on AIDEA's liability in a partnership. 10:39:09 AM MR. DAVIS explained that LLCs were authorized in Alaska in 1997, although they have been used in other states for some time. An LLC acts as a partnership, but the liability of each partner is limited to the assets put into the LLC. In a traditional partnership, all of the partners are liable for all of the assets of the partnership. An LLC can file a partnership return with the Internal Revenue Service (IRS) if desired. The assets AIDEA puts into its business operations are AIDEA's only liability thus if it fails, that investment is the only loss. Also, an LLC can be managed by a managing partner instead of the cumbersome board meetings, shareholder votes, and governance mechanisms required by a corporation. Speaking from his experience, Mr. Davis opined there has been growth in the number of LLCs created, and AIDEA will join this modern trend. 10:41:22 AM REPRESENTATIVE GARDNER asked whether the use of an LLC would encourage AIDEA to enter into risky ventures; in fact, would there still be an incentive for AIDEA to "maintain its prudent and cautious approach to participation and investment." 10:41:53 AM MR. LEONARD affirmed that an LLC is an investment mechanism on governance and AIDEA's mission is to provide economic development and investment, but not risky investments. The agency must still show that an investment will pay back any debt at a rate of return that will allow AIDEA to continue to fund projects. Bad or risky investments will limit AIDEA's resources, in addition to garnering public and legislative pressure. 10:43:39 AM REPRESENTATIVE GARDNER then asked whether the proposed expanded powers could enable AIDEA to bypass the public process, particularly in unorganized areas. 10:44:20 AM MR. LEONARD assured the committee AIDEA would still have to go through its normal procedures. In an unorganized area, or if AIDEA is going to invest in, or issue more than $6 million in bonds, it is required to use a public hearing process. Furthermore, in an unorganized area, the governor's office must set up a task force or committee to take public testimony and report back to the board. He was unsure if certain contracts also require public hearings. 10:45:27 AM REPRESENTATIVE GARDNER said, "So if you hold these public hearings and have the task force and the public objects, does that have the strength to stop the process, or can AIDEA go ahead?" 10:45:37 AM MR. LEONARD expressed his understanding that objections are conveyed to the board, but the board could still proceed with a project over the public's objections. He deferred to Mr. Bjorkquist. 10:46:13 AM BRIAN BJORKQUIST, Senior Assistant Attorney General, Labor and State Affairs Section, Department of Law (DOL), explained that if bonds in excess of $6 million are issued, there would have to be consent for a project by the local governing body. However, if there is not bond financing, and the location of the project is in an unorganized borough, a regional resource advisory council would have to be consulted prior to the execution of contracts, but it would not "have approval process." 10:47:13 AM MR. LEONARD assured the committee that AIDEA would probably bond for a road. In further response to Representative Gardner, he clarified that the current statute allows AIDEA to invest in projects under $10 million. He acknowledged that the proposed legislation could increase the number of projects AIDEA invests in under $10 million; however, he urged the committee to think of the proposed changes as a "tool ... and if the mission for us is to expand and diversify the economy we're asking for the tools that we believe that we need." He opined the annual report and the composition of the board of directors provide safeguards for projects under $10 million, and any project over $10 million would be bonded and would go through the legislature. Mr. Leonard stressed that AIDEA has the internal capacity to invest in any project under $10 million. 10:49:28 AM CHAIR HERRON closed public testimony. 10:49:53 AM REPRESENTATIVE OLSON reminded the committee Amendment 1 permits AIDEA to create subsidiary corporations which complement the proposed provisions in HB 119 that allow the agency to form an LLC as a means of owning and operating a development project. The language in the amendment grants powers equal to those held by AHFC. [Amendment 1 was previously provided and read: Page 1, line 5, following "Authority;": Insert "relating to the Alaska Industrial Development and Export Authority creating subsidiaries regarding projects financed under AS 44.88.172;" Page 2, following line 24; Insert a new bill section to read: "*Sec. 3. AA 44.88 is amended by adding a new section to read: Sec. 44.88.178. Creation of subsidiaries. The authority may create one or more subsidiary corporations for the purpose of acquiring, construction, owning, or financing a project financed under AS 44.88.172. A subsidiary corporation created under this section may be incorporated under AS 10.20.146 - 10.20.166. The authority may transfer assets of the authority to a subsidiary created under this section. A subsidiary created under this section may borrow money and issue bonds as evidence of that borrowing, and has all the powers of the authority that the authority grants to it. Unless otherwise provided by the corporation, the debts, liabilities, and obligations of a subsidiary corporation created under this section are not the debts, liabilities, or obligations of the authority." Renumber the following bill sections accordingly.] 10:50:50 AM MR. LEONARD indicated AIDEA's support for the amendment. 10:51:02 AM REPRESENTATIVE GARDNER asked whether AIDEA requested the amendment. 10:51:08 AM REPRESENTATIVE OLSON said, "To the best of my knowledge." 10:51:33 AM REPRESENTATIVE MUNOZ asked whether a subsidiary corporation could help manage federal receipts that are coupled with a state match and other sources of revenue. 10:52:31 AM MR. LEONARD said AIDEA does have the powers to invest in interties, and deferred the question to Mr. Bjorkquist. 10:52:58 AM MR. BJORKQUIST said yes, a subsidiary corporation could be used for that type of a project. 10:53:16 AM REPRESENTATIVE GARDNER asked for the effective difference between the ability to form an LLC under the proposed bill, and the ability to form a subsidiary corporation. 10:53:37 AM MR. DAVIS explained that a subsidiary corporation would usually be wholly-owned by AIDEA, unlike an LLC with one or more partners. Also, a subsidiary corporation can be set up as a mechanism to accept funds from another source, as in the intertie example. 10:54:41 AM MR. LEONARD added that a subsidiary has broader powers; in fact, AIDEA could transfer the power to issue bonds and incur debt while shielding itself from the debts, liabilities, and obligations of the subsidiary. 10:55:23 AM MR. DAVIS further explained that an LLC is usually an investment mechanism with a partner; however, a subsidiary - as in the intertie example - could take in available federal funds and issue the necessary bonding to provide the financing. 10:55:50 AM REPRESENTATIVE GARDNER asked whether a subsidiary funded by federal funds would still be under AIDEA's authority. 10:56:30 AM MR. DAVIS relayed that subsidiary corporations are controlled by the parent corporation which appoints the subsidiary corporation's board of directors. In addition, the board of governance process requires that meetings are open to the public. 10:56:44 AM REPRESENTATIVE THOMPSON surmised that a subsidiary corporation is still subject to the rules, regulations, and restrictions of its parent company. 10:57:03 AM MR. DAVIS said correct. 10:57:07 AM REPRESENTATIVE TUCK asked what AIDEA is unable to accomplish now that it will be able to accomplish after the formation of subsidiary corporations. 10:57:48 AM MR. DAVIS affirmed that AIDEA has the general powers to accept federal funds and grants, but it cannot place the funds in a subsidiary, or transfer bonding authority to a subsidiary. A separate subsidiary can set up an entity just to accomplish a particular project. The agency will use subsidiary corporations as investment tools to invest and finance in a "more standard commercial manner." 10:58:38 AM CHAIR HERRON removed his objection. There being no further objection, Amendment 1 was adopted. 10:59:03 AM REPRESENTATIVE OLSON moved to report HB 119, as amended, out of committee with individual recommendations and the accompanying fiscal note. There being no objection, CSHB 119(EDT) was reported from the House Special Committee on Economic Development, International Trade and Tourism.
Document Name | Date/Time | Subjects |
---|---|---|
HB119_Bill-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
HB119_FiscalNote-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
HB119_RequestForHearing-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM |
HB 119 |
HB119_SectionalAnalysis-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
HB 119 - 1.21.11 Gov Transmittal LTR.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM |
HB 119 |
HB119_Amendment-Projects.pdf |
HEDT 2/3/2011 10:15:00 AM HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
HB 119 - AIDEA Response to questions.doc |
HEDT 2/8/2011 10:15:00 AM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
HB120_SectionalAnalysis-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
HB120_WhitePaper-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
HB120_Bill-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
HB120_FiscalNote-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
HB120_RequestForHearing-NMTC.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
HB 120 1.21.11 Gov Transmittal LTR.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
HB 120 - AGC Support LTR.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |
HB 120 - LTRs of Support.pdf |
HEDT 2/8/2011 10:15:00 AM |
HB 120 |