Legislature(2003 - 2004)
01/20/2004 02:31 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HJR 26 | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
January 20, 2004
2:31 PM
TAPE HFC 04-7, Side A
CALL TO ORDER
Co-Chair Harris called the House Finance Committee meeting
to order at 2:31 PM.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Mike Chenault
Representative Eric Croft
Representative Hugh Fate
Representative Richard Foster
Representative Mike Hawker
Representative Bill Stoltze
MEMBERS ABSENT
Representative Carl Moses
Representative Reggie Joule
ALSO PRESENT
Linda Hall, Director, Division of Insurance, Department of
Community & Economic Development; Paul Lisankie, Director,
Division of Workers Compensation, Department of Labor &
Workforce Development; Edward Fisher, Deputy Commissioner,
Department of Labor; Alaska Housing Finance Corporation; Dan
Fauske, Executive Director, Alaska Housing Finance
Corporation, Department of Revenue; Diane Barrans, Executive
Officer, Alaska Student Loan Corporation, Alaska Commission
on Postsecondary Education, Department of Education; Sheila
King, Finance Officer, Postsecondary Education Commission.
PRESENT VIA TELECONFERENCE
None
GENERAL SUBJECT(S):
OVERVIEW: WORKERS COMPENSATION/INCREASED COSTS/
SALARY ADJUSTMENTS
BONDING:
ALASKA HOUSING FINANCE CORPORATION (AHFC)
ALASKA STUDENT LOAN CORPORATION
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 23rd Legislative Session, contact 465-
2156. After the 23rd Legislative Session they will be
available through the Legislative Library at 465-3808.
LOG SPEAKER DISCUSSION
TAPE HFC 04-07
SIDE A
000 Co-Chair Harris Convened the House Finance Committee
meeting at 2:31 p.m.
WORKERS COMPENSATION
0012 LINDA HALL, Discussed the insurance marketplace, the
DIRECTOR, assigned risk market, profitability of
DIVISION OF insurance companies, the rate increases
INSURANCE, receiving publicity, and the current
DEPARTMENT OF prices in Alaska's guaranty associations.
COMMUNITY & ECONOMIC
DEVELOPMENT
226 Ms. Hall Stated the assigned risk plan has been
losing money for about four years. The
expenses become a major burden to
businesses.
305 Ms. Hall Discussed the expense and loss ratios
range and the Alaska loss ratio for a
six-year period.
428 Ms. Hall Reviewed rate increases since 1988 and
stated the cost of claims has gone up.
531 Ms. Hall Discussed the number of claims, and the
cost of individual claims and rate
increases that affect employers across
the state. Pointed to crisis in
insurance guaranty association formed
under statute as a safety net to minimize
financial loss to claimants or
policyholders because of the insolvency
of the insurer. Noted that the costs are
passed on. Described the Fremont
Indemnity Company insolvency. Offered to
provide a cash flow model.
743 Ms. Hall Talked about three other insolvent
insurance carriers whose claims are being
handled through the guaranty association.
Stated that the claims affect about 700
injured workers and approximately 400
employers.
828 Ms. Hall Discussed the prorating of claim
payments, "an unacceptable solution for
everyone involved." Explained that
injured workers receive lower weekly wage
checks and partial payment for medical
expenses.
913 Ms. Hall Explained that when a carrier becomes
insolvent, claims are transferred to the
guaranty fund of the state, or to the
employer. This additional, unanticipated
cost could force small companies out of
business.
1006 Ms. Hall Continued discussing the Alaska Guaranty
Fund and the potential for prorating
claims, which was averted through 2003
and for the next few months.
1100 Ms. Hall Emphasized need for a stable environment
to attract new markets, and for a
solution to the funding crisis.
1128 Co-Chair Harris Asked about forthcoming legislation from
the Administration.
1148 Ms. Hall Described proposed sources of funding
involving additional assessments and a
guaranty of loans. Stated that new
legislation will include streamlining the
appeals processes.
1309 Ms. Hall Continued answering questions relating to
the first substantial rate increase since
1988, the assumptions that go into rate-
making, and losses in the operation of
the insurance industry.
1546 Vice-Chair Meyer Asked if insurance companies prefer lump
sum payments rather than paying for job
rehabilitation of claimants.
1604 PAUL LISANKIE, Offered to research the question and
DIRECTOR, DIVISION provide a response.
OF WORKERS
COMPENSATION,
DEPARTMENT OF LABOR
& WORKFORCE
DEVELOPMENT
1713 Vice-Chair Meyer Expressed concern that an insurance
company might prefer a lump sum payment
that wouldn't help train the worker to
reenter the workforce.
1757 Co-Chair Williams Asked the cost to the state to cover the
loss.
1815 Ms. Hall Responded that it will not be a general
fund request in the bills to be
introduced this week.
1859 Ms. Hall Continued to answer questions posed by
the members of the Committee.
3151 Representative Croft Asked, in relation to the data presented
from 1997, how much loss is attributable
to stock market performance versus
inadequate premium levels.
3241 Ms. Hall Replied that historically and in the mid-
1990s there was an ability by insurance
companies to offset underwriting losses
with investment income.
2252
ALASKA HOUSING FINANCE CORPORATION (AHFC)
3508 DAN FAUSKE, Referenced AHFC's bonding authority and
EXECUTIVE DIRECTOR, capacity to generate money. Explained
ALASKA HOUSING that the State has proposed [in SB 279]
FINANCE CORPORATION, that AHFC issue two additional bond
DEPARTMENT OF series to fund state capital projects
REVENUE totaling $45 million. In the housing
loan fund, $480 million are not currently
leveraged with debt, and the equity in
that fund will be transferred to the
general account. The AHFC made a proposal
to long-term bond for $25 million at low-
interest rates for the Village Safe Water
Program. There is potential use of AHFC
general obligation for an additional $20
million, increasing the total commitment
to $45 million.
3749 Mr. Fauske Continued, the three major rating
agencies were agreeable to the $20
million proposal but not with going
further until the State comes to terms
with its current fiscal situation.
Stated that he believes the State can
maintain its credit rating.
3900 Mr. Fauske Continued discussing the proposal to
replace the bonds with $45 million in 10-
year serial bonds. Mr. Fauske referred to
HB 256 [Passed in 2003] that arrived at a
formula-driven dividend plan that led to
the AHFC being upgraded. He asserted
that AHFC would want to protect that and
its core mission in the housing market
across the state.
3952 Mr. Fauske Explained that the nature of the
revolving loan fund program will remain
the same and should be made bondable.
The size of the program has grown and now
represents $19-20 million of net income
to the corporation. The Corporation must
be able to sell bonds to assist in its
liquidity position from a working capital
position. For AHFC to function, it must
have significant working capital to buy
the loans as they come in and then
recycle them with loan proceeds as it
goes to market.
4039 Mr. Fauske Continued, AHFC is currently doing well
but it is now even more important to have
an informative debate on SB 279, which
will assist AHFC in generating these
additional monies.
4107 Representative Questioned why the rating agencies were
Hawker hesitant to provide good ratings for the
$45 million package in light of AHFC's
$278 million unrestricted net asset
balance as of June 30, 2003.
4253 Mr. Fauske Replied that it is due to the rating
agencies' concerns that for years AHFC
has been paying out more than it earns,
as well as the length of debt service in
conjunction with net income.
4327 Mr. Fauske Further explained that the fund equity
balance that has been maintained at $1.7-
1.8 billion is a key number examined by
the rating agencies. If the number falls,
the rating agency takes necessary steps.
4356 JOE DUBLER, DIRECTOR Pointed out that different schedules in
OF FINANCE, ALASKA the financial statements have bond issues
HOUSING FINANCE that rely solely on AHFC's general
CORPORATION obligations without specific assets
pledged to them. The fund deficits that
reside in those funds would have to be
made up by the general account of the
revolving fund. After backing all those
out, the result is the $103 million
dividend for FY 04 and a balance of $100
million in unrestricted money. The AHFC
mortgage loan activity in FY 03 was
nearly $1 billion. In FY 05, another $100
million will go out from the Corporation
without returning. The rate agencies
project outward when cash flows out from
the Corporation instead of strictly
looking at present balances.
4523 Representative Croft Regarding the two bonding proposals, he
asked how much would be incurred in
annual obligation for the $45 million
bond and how much the dividend would be
reduced.
4602 Mr. Dubler Replied that the debt service is
approximately $5.5 million on a 10-year
bond.
4631 Representative Croft Asked about the other proposal involving
buildings and maintenance.
4640 Mr. Fauske Replied that from the perspective of
AHFC, purchasing a working asset is a
viable business.
TAPE HFC 04-07, Side B
4606 Mr. Fauske Explained that significant capital would
be raised for maintenance on the
buildings. Spoke to the purchase of the
Atwood Building.
4543 Representative Croft Commented that he had understood that the
State had purchased the Atwood Building
to save paying rent while, in fact, AHFC
collects rent on the building.
4509 Representative Croft Asked if, in effect, these bonds involve
some money obligation now, and future
payments over the next 10-20 years. Mr.
Fauske affirmed.
4433 Co-Chair Harris Asked if there is anything in the
Governor's proposal [SB 279] involving
AHFC that they would prefer not to do in
terms of their portfolio.
4417 Mr. Fauske Replied that AHFC did not want to go
beyond $45 million.
4332 Mr. Fauske Continued that AHFC has $1 billion
dollars of variable rate debt. The AHFC
is now at a point that makes proceeding
further potentially detrimental.
4238 Mr. Fauske Commented on making progress in solving
the issues of debt.
4201 Co-Chair Harris Referred to the anticipated $103 million
dollar dividend this year and asked the
amount that would be available in
unrestricted general funds.
4141 Mr. Fauske Replied that of the $103 million, $50
million will go to debt service. General
Obligation Bonds were sold, leaving $53
million of which $20-25 million went to
the Village Safe Water Program with
another $18-20 million in AHFC matching
money for federal dollars.
POSTSECONDARY EDUCATION: ASLC
3941 DIANE BARRANS, Stated that over the past ten years, the
EXECUTIVE OFFICER, Legislature has played a key role in
ALASKA STUDENT LOAN improving the Alaska Student Loan
CORPORATION; Corporation's (ASLC) financial health.
EXECUTIVE DIRECTOR,
ALASKA COMMISSION ON Discussed commitments of the Corporation
POSTSECONDARY and optimizing assets.
EDUCATION,
DEPARTMENT OF Discussed Capital Project Revenue Bonds.
EDUCATION
Referred to handout, "Return of
Contributed Assets to State," (copy on
file.)
3606 Ms. Barrans Explained a new master trust indenture,
the 2002 indenture, in "Recent Management
Enhancements," (copy on file.)
3353 Ms. Barrans Referred to two bar charts, "Cumulative
State Contributions to ASLC," and "ASLC
Fund Equity by Fiscal Year," (copies on
file.) Explained that these illustrate
that between 1988-1992 ASLC received
assets and cash just over $306 million
and will return some of the contributed
capital to the State when the Corporation
can do so without impairing its ability
to offer low-interest loans.
3237 Representative Croft Asked about the $260 million seed fund to
ASLC, and questioned if there were also
infusions of general fund dollars during
the period 1988-1992.
3214 Ms. Barrans Confirmed that through 1992, an
additional $47 million in cash was
provided. Stated that $260 million in
loan assets were transferred at the time
the Corporation was created.
3152 Representative Croft Asked if $307 million can be returned to
the State over time, or if the $260
million are secured assets for student
loans.
3139 Ms. Barrans Stated that ASLC intends to return
approximately $250-260 million over the
next three years, including $75 million
intended for capital projects in FY 05.
Discussed the continuation of annual
dividends, and the restructuring of
underlying assets in 1994.
3038 Ms. Barrans Discussed federal guaranteed loans and
payment to ASLC of a special subsidy by
the federal government as a lender.
2932 Representative Croft Responded to Representative Croft's
comment regarding a better fiscal outlook
due to several factors including
elimination of student loan forgiveness,
better collection including garnishing
Permanent Fund dividends, and federal
subsidies. Ms. Barrans agreed and
also noted the low rate issuing bonds in
the market in the last few years.
2850 Representative Croft Asked if ASLC is under undue pressure.
2828 Ms. Barrans Responded that ASLC feels assured it can
continue to offer an attractive education
loan package and also return these assets
to the State.
2817 Ms. Barrans Discussed the return of $260 million over
the next three years and the annual
dividend.
2720 Representative Asked how the $306 million in
Hawker contributions were included and reported
in ASLC financial statements.
2627 SHEILA KING, FINANCE Explained that net equity is on the
OFFICER, ALASKA balance sheet as net assets, and ASLC is
STUDENT LOAN wrapped in with other programs. Offered
CORPORATION, to provide financial statements.
POSTSECONDARY
EDUCATION COMMISSION
2544 Representative Requested the 2003 annual report.
Hawker
2456 Ms. Barrans Explained that ASLC created a new
consolidated loan program allowing
borrowers at 8-9% to consolidate at lower
interest, and the Corporation used assets
through those programs to issue and
leverage bonds.
2339 ADJOURNMENT The meeting was adjourned at 3:43 PM.
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