Legislature(2005 - 2006)
04/22/2005 02:48 PM House FIN
Audio | Topic |
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Start | |
HB275 | |
HB53 | |
HB12 | |
HB7 | |
HB101 | |
Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 275 An Act authorizing financing for certain public transportation projects; giving notice of and approving the entry into, and the issuance of revenue obligations that provide participation in, lease-financing agreements for those transportation projects; and providing for an effective date. PETE ECKLUND, STAFF, REPRESENTATIVE KEVIN MEYER, explained that HB 275 would fund $115 million of highway projects around the State, using Grant Anticipation Revenue Vehicle (GARVEE) bonds. Since 1998, eighteen states have leveraged federal highway money by using GARVEE bonds. Those transactions accounted for more than $12 billion dollars par value. As a result, the GARVEE approach is now an accepted method of financing needed transportation infrastructure projects. To be eligible for inclusion in a GARVEE bond package, projects must qualify for federal highway aid and appear on the Statewide Transportation Improvement Program (STIP). All of the projects listed in HB 275 qualify for federal highway aid. Future federal highway funds would be used to repay the bonds. The interest earnings on the bonds would be used to pay for the federal highway match, saving the State approximately $15 million in general fund match. Mr. Ecklund highlighted the factors taken into consideration when placing a project into GARVEE consideration. · A large project that might take more years to do, could save the inflation costs over time. The average cost for heavy construction projects has risen 15% per year. Before that, rises were between 2-3% per year. · Other states that have GARVEEs have received authorization for 3x coverage, which gives them authorization to pledge up to 33% of there federal highway aid for the repayment of that debt. The current program is at $300 million dollars per year and the State is paying back $13 million per year on current GARVEE. The State has been conservation up to this time and has not leveraged a very large portion of the GARVEE program. 2:56:47 PM Co-Chair Meyer requested an explanation of the fiscal note. Mr. Ecklund explained that if the State bonded for $150 million dollars worth of projects, it would create a payment schedule for 15 years with an interest rate of 5.4%. There are four states recently doing GARVEE issuance. They received a AA rating by pledging their federal highway receipts for repayment. At current rates, a GARVEE could be issued at a 4% rate per day; 5.4% used in preparing the note is high. In order to issue $116 million dollars worth of bonds, the State would be paying back about $11.4 million dollars at the 5.4% interest. Inserting the current 4% interest rate, the annual payment drops by $1 million dollars per year. DEVON MITCHELL, EXECUTIVE DIRECTOR, DEBT MANAGER, ALASKA MUNICIPAL BOND BANK AUTHORITY, DEPARTMENT OF REVENUE, acknowledged that the Department did use the high-end interest rate when preparing the note. Co-Chair Meyer asked if the fiscal note would be adjusted or if the Department anticipated interest rates to increase. Mr. Mitchell explained that the note is an estimate and when the Department prepares a note, they address the worst-case scenario under which they are borrowing. There is uncertainty regarding interest rates and he was reluctant to revise the note. 3:00:15 PM Co-Chair Meyer asked the last time the State sold GARVEE bonds. Mr. Ecklund replied 2002. Mr. Mitchell clarified that they had been authorized in 2002, but sold in 2003. Mr. Ecklund added, the principle amount was $102 million dollars. Co-Chair Meyer pointed out that the roads included in the list, were ones included in the Governor's funding request proposal from the Amerada Hess monies. Representative Kelly asked the anticipated longest term. Mr. Ecklund explained it would make most sense to use the 6- year increments, following similar terms of the federal reauthorization bills. At present time, Alaska is a year and a half into that deal. There are four and half years left on the current reauthorization. Given two more-six year periods, would provide around 16 years. The bill is written for a 15-year repayment. 3:02:23 PM Representative Joule referenced the number of projects transferred from the Amerada Hess component, pointing out that the numbers were different. Co-Chair Meyer interjected that a couple of the projects would not fit into the program. Mr. Ecklund added that the project amounts different from those in the Amerada Hess. If the Department of Transportation & Public Facilities used the Amerada Hess or other State funds, it would cost less for the entire package and would not go through the federal process. Under the GARVEE bond bill, all projects have to fall within federal guidelines. Each has a different requirement, which adds time and cost. Mr. Ecklund anticipated discussion regarding whether or not the GARVEE bonds would affect the State's credit rating. The under-writers believe it could be structured so that it would not be affected. 3:05:32 PM Representative Hawker referenced comments from the sponsor statement indicating that interest earnings on the bonds could be used to pay the federal highway match. He understood that bonds are a debt obligation and that the State would have expense on bonds, not interest earnings. Mr. Ecklund stated that it would result from investing the bond proceeds. Representative Hawker explained what really would be happening is that the State would be investing the unused portion of the bond proceeds and use that interest to off- set the cost of the bonds and pay the highway match. Mr. Mitchell replied that the Federal Highway Administration (FHA) allows the State to use all investment earnings on the construction fund as a State match. The projects would not be completed quickly. All the earnings would accrue to the benefit of the State. Historically, low short-term interest rates have resulted. Representative Hawker asked the possibility of the State saving money on the match. Mr. Mitchell did not know. He expected that with those assumptions, the State could possibly achieve around $13 million dollars. 3:08:46 PM MICHAEL BARTON, (TESTIFIED VIA TELECONFERENCE), COMMISSIONER, DEPARTMENT OF TRANSPORTATION & PUBLIC FACILITIES, ANCHORAGE, testified in opposition to using GARVEE bonds. He pointed out that the State has identified over $10 billion dollars in transportation needs, provided by the Statewide Transportation Improvement Program (STIP). He stated that GARVEE could have a negative impact on future programs and that the GARVEE debt service would need to be subtracted from the annual STIP. GARVEE bonds are federal funds and must follow a federal process, which adds time and dollars. The project time could be extended 1 to 3 years with the project costs increasing 10-30%. Commissioner Barton pointed out that federal funding is not clear at this time given the U.S. Senate reauthorization. It needs to be considered what Alaska can expect to receive from that program in future years. There has been discussion in Washington D.C. regarding continued funding. Future reauthorizations will need to be achieved without the benefit of Congressmen Young and Stevens chairing their respective committees. Commissioner Barton pointed out that the Governor had proposed using the Amerada Hess match for the federal aid program. GARVEEs cannot be used for that. He reiterated his serious concerns with using GARVEE and urged that the Committee look elsewhere for a funding source. 3:13:14 PM Co-Chair Meyer pointed out that the roads already chosen for the GARVEE bond funding are ones currently being recommended by the Governor. Commissioner Barton did not oppose the roads chosen but the vehicle used to fund that construction. Co-Chair Meyer asked if using the GARVEE's could create delays on other projects on the STIP list. Commissioner Barton said yes. The roads listed are all part of the need and those Governor's package deals with getting transportation infrastructure needs addressed. The goal is to have everything in place for the structure of the pipeline by 2009. Currently, there is an effort to expand the transportation needs throughout the State. 3:14:50 PM Co-Chair Meyer noted that the GARVEE proposal was a back up if the Amerada Hess was not possible or did not make it through the Legislative process. Commissioner Barton disagreed with the statement that the roads would never get addressed and acknowledged that it would take longer and require the State to move the timeline further out. 3:15:31 PM Vice-Chair Stoltze asked if Commissioner Barton's position was a "political preference" and requested clarification about the funding source. Commissioner Barton advised that the first priority is not GARVEE bonding and that Amerada Hess would be the logical choice. · The GARVEE bonds would extend the project time from 1 to 3 years. · It would increase the project costs 10-30%. · It would impact the STIP and projects currently on the STIP would be delayed. · The State does not know how much money there will be in the future against which the GARVEE debt payment would be based. 3:17:58 PM In response to comments by Commissioner Barton regarding "anything except GARVEE" for the funding of the projects, Co-Chair Meyer asked if that would include using the general fund. Commissioner Barton replied it does. DICK CATTANACH, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE DIRECTOR, ASSOCIATED GENERAL CONTRACTORS OF ALASKA, ANCHORAGE, testified against the use of GARVEE bonds. GARVEE bonds are not the way to go if building Alaska infrastructure. GARVEE bonds do not increase the number of dollars going into the hiring fund. They will only change the timing. Future projects would be accelerated and there would be fewer. If inflation were under control, there would be fewer projects because interest would need to be paid. It is important to recognize that Alaska currently gets $5.37 for every dollar that they send into the Highway Trust Fund. Mr. Cattanach continued, when our U.S. Congressmen Young and Stevens leave, the likelihood of continued funding at the current level will be greatly diminished. The amount referenced when combined with current GARVEE payments, would indicate that 15% to 20% is used to payoff GARVEE bonds. He recommended that the State look at alternative ways to increase the highway program. That was what initially enticed the State's builders about the Governor's recommendation, using Amerada Hess funds for adding to the highway program. 3:22:04 PM Co-Chair Meyer acknowledged that the Legislature is looking for alternatives for getting the roads built. Mr. Cattanach responded that GARVEE bonds represent $9 dollars of federal money for each dollar the State puts in. That does not add to the road funds because the State would get those same dollars anyway. Considering the needs of the State as addressed by Commissioner Barton with $10 billion dollars worth of projects, would take more than 25 years and does not consider maintenance. Mr. Cattanach stressed that Alaska is the only State without a State road program. Alaska's State road program is entirely supported by the federal government. Every other state supports their roads. 3:24:00 PM Co-Chair Meyer agreed, however, commented that it is difficult to compare Alaska to other states when including aspects as the Alaska Marine Highway System (AMHS). Representative Hawker reaffirmed that Alaska is the wealthiest State in the Nation. Co-Chair Meyer echoed those sentiments, recommending that Alaska come up with a road funding system. Mr. Cattanach concurred that the State does need a program to address infrastructure concerns and that the State can no longer wait for the federal government. 3:25:55 PM AT EASE: 3:27:04 PM RECONVENE: 3:28:18 PM Co-Chair Meyer indicated a new committee substitute would be forthcoming and that HB 275 would be HELD in Committee for further consideration. 3:29:42 PM
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