Legislature(2009 - 2010)HOUSE FINANCE 519
04/14/2010 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB230 | |
| SB144 | |
| SB269 | |
| SB235 | |
| HB317 | |
| HB69 | |
| SB305 | |
| HB69 | |
| HB421 | |
| SB219 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 230 | TELECONFERENCED | |
| + | SB 144 | TELECONFERENCED | |
| + | SB 219 | TELECONFERENCED | |
| + | SB 235 | TELECONFERENCED | |
| + | SB 269 | TELECONFERENCED | |
| + | SB 305 | TELECONFERENCED | |
| + | HB 69 | TELECONFERENCED | |
| += | HB 317 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 421 | TELECONFERENCED | |
CS FOR SENATE BILL NO. 269(FIN)
"An Act relating to the waiver of volume cap of
recovery zone economic development bonds authorized by
26 U.S.C. 1400U-2 and reallocation by the Alaska
Municipal Bond Bank Authority of the waived volume
cap; relating to the waiver of volume cap of recovery
zone facility bonds authorized by 26 U.S.C. 1400U-3
and reallocation by the Alaska Industrial Development
and Export Authority of the waived volume cap;
increasing the total amount of bonds and notes that
the Alaska Municipal Bond Bank Authority may have
outstanding; relating to revenue bonds and to
obligations secured by lease that are issued by the
Alaska Municipal Bond Bank Authority; relating to
allocations of tax credit and bonding limits imposed
by the federal government; and providing for an
effective date."
9:26:00 AM
DEVIN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND
BANK, DEPARTMENT OF REVENUE, reported that the primary
portion of the bill would use federal allocations to
finance certain recovery zone bonds and other tax credit
structures. There are also aspects that relate specifically
to the bond bank, including an increase in the borrowing
level of the bank from $750 million to $1 billion. He added
that the bond bank issues obligation bonds to the state.
The cap has been increased several times over the past six
years. The revolving balance is currently approximately
$120 million.
Mr. Mitchell explained that the increase is being requested
in light of historical community need as well as projected
need and opportunities. Other changes related to the bond
bank are in the revenue bond allowances. Currently, the
bond bank is not allowed to participate in hydroelectric
project loans; SB 269 would eliminate that restriction.
Restrictions against loaning to the state and participating
in revenue bond loans buying existing buildings would also
be eliminated. He thought the restrictions were put in
place when revenue bond statutes of the corporation were
created and were outdated. The ability of communities to
borrow money would be improved.
Mr. Mitchell spoke to American Recovery and Reinvestment
Act (ARRA) allocations made to the Department of Labor and
Workforce Development (DLWD) for labor statistics. He
explained the Build America Bond Program, which provided an
opportunity for the issuer of tax-exempt debt to benefit
through a direct subsidy from the U.S. Treasury rather than
selling the tax exempt debt to an investor and having the
investor benefit. The rate on the bond program is 35
percent. Billions of dollars have been issued in 2009 and
2010. He explained the structure as a combination of tax-
exempt and taxable bonds; there is a yield curve in every
market that typically starts with lower interest rates and
climbs to higher rates later in the maturity schedule.
There has been a break-over point between years eight and
twelve of the maturity schedule; switching over the Build
America Bond Program during that time is beneficial. The
investor has to pay taxes, but the department gets a 35
percent subsidy. The benefit has been as much as 2 percent
in interest rate reduction. The recovery zone economic
development bond allocation provides for a 45 percent
subsidy rather than 35 percent.
Mr. Mitchell related that the bill would provide ability to
use the allocations. The final portion of the bill is the
allocation of other tax credit structures through the state
bond committee, including qualified school construction
bonds and energy credit bonds. There is a $28.9 million
allocation for the school construction bond program without
a means to allocate the money to communities, who are
eligible for 100 percent reimbursement on interest expense.
9:34:48 AM
Representative Fairclough asked when municipal bank bond
authority was last raised. Mr. Mitchel1 replied two and a
half years ago.
MARK DAVIS, ECONOMIC DEVELOPMENT OFFICER, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, added that
AIDEA would undertake the reallocation of recovery zone
facility bonds. He detailed that the bonds are tax-free
bonds that could cover private activity bonds. He noted
that the problem with the allocation is that some cannot be
used and some are too small. He provided the example of the
Aleutians East Borough receiving a zero allocation because
of unemployment, while the Aleutians West census area
received a $7 million allocation that cannot be used as it
is not a governmental entity. In addition, the City and
Borough of Yakutat received an allocation of only $148,000,
which is too small to use. Senate Bill 269 would allow
AIDEA to reallocate funds to boroughs that could not
otherwise use them.
Mr. Davis stressed that timing is important as the bonds
will expire January 1, 2011; the facility bonds will not be
used without SB 269. He noted that the facility bonds that
AIDEA would acquire are tax exempt and could be used for
any industrial, commercial, retail, or office use (country
clubs and massage parlors are excluded). The bonds would be
used as private activity conduit bonds as AIDEA's bond
authority has sunset. Regulations would be issued; AIDEA is
directed on page 7 to use regulations that would try to
reallocate the bonds back to the areas from which they
came.
Representative Doogan requested more information about the
building segment in Section 4. Mr. Mitchell explained that
the typical issue with the language is the partnering of a
community with a state agency. For example, when a
department rents office space from a municipality the bond
bank is not allowed to provide lower-cost capital to the
community for the project.
9:39:38 AM
Representative Doogan wanted a specific example. Mr.
Mitchell relayed being approached by Bethel regarding a
building that would have accommodated a combination of
state agencies and city agencies; the bond bank was not
able to help.
Representative Doogan queried the issue with equipment. Mr.
Mitchell responded that the intent of the amendment was
that there is no need to exclude equipment. Certificates of
participation can theoretically be issued for equipment, or
a lease for equipment can be entered into. The ability to
help with lower-cost capital for equipment is limited.
Representative Doogan pointed to two possible definitions
of "equipment." The first is buying a fire truck; another
is equipment to finish buildings. He asked whether the
legislation was looking for a way to bond fire trucks or
assist in the expensive process of equipment to get a
project up and running. Mr. Mitchell believed the fire
truck example was more fitting. He alluded to safely checks
that limit the ability to fund anything through the
program. For example, there is a credit review process.
There must be an ability to repay. Secondly, when issuing
tax-exempt debt, an entity is limited in various ways by
the necessity of having an obligation in compliance with
Internal Revenue Service (IRS) rules. For example, what is
financed must be durable; the life of the debt cannot
exceed the life of the assets. He did not think the program
would be used to replace other means of financing equipment
like computers.
9:43:48 AM
Representative Austerman asked for a clearer explanation of
what the legislation would do. Mr. Mitchell replied that
the $750 million borrowing limit could be exceeded, based
on the historical use of the program by communities and the
projected need around the state. He emphasized that the
bond bank is a moral obligation of the state; there is a
statutory requirement for a reserve fund that is pledged to
the bond issue and about one year of debt service. The
pooled reserve is larger than any one bond issue. The bond
bank is required to ask the state for replenishment when
there is a draw on the reserve due to borrower default. The
statutory framework creates a moral obligation or intent to
replenish. He noted that there has never been a need to
replenish.
Representative Gara remarked that the federal proposal
seemed useful. He asked whether there was interest in the
bond projects. Mr. Mitchell believed that the allocations
would be utilized, particularly the economic development
bonds. He noted that there are boroughs that have already
used the bonds: Ketchikan Gateway Borough had a $3,744,000
allocation and Juneau has a $7,586,000 allocation planned
for May. Ketchikan was able to get cost of capital on a 30-
year note at 3.35 percent, for example. He detailed the
financing strategy to get the greatest benefit where
interest rates would be highest. He believed any community
issuing debt would welcome the opportunity.
9:48:24 AM
Representative Foster summarized that the bill would raise
the cap so that local governments could take advantage of
lower interest rate economic development and facility
bonds. He queried the risk of increasing the cap on the
maximum authority of the bond bank. Mr. Mitchell responded
that there were layers of credit in between the state's
general fund and the particular obligation. He believed the
risk was not significant.
Mr. Davis added that AIDEA's bonds would be conduit bonds;
there would be no risk to AIDEA. The bond obligations go
from the bond holder to the bond issuer; AIDEA steps out of
the process.
Representative Austerman spoke of the debt in California
and wondered how high Alaska's guarantee of the bonds
should go. Mr. Mitchell replied that the $750 million cap
has developed over 40 years. Borrowers have become more
self-reliant in recent years as obtaining capital funds
from the state has become more difficult. He stated that
his comfort level was high compared with the alternatives
because communities would be paying more without the
program. For example, the bond bank worked with the City
and Borough of Juneau to fund the Bartlett [Regional
Hospital] expansion; the revenue bond on its own would have
paid about $10 million more in interest over the life of
the bond without the bond bank. The projects would have
been accomplished but at higher cost to the state through
higher interest rates. He emphasized that the program has
already been successful and is an alternative that would
help communities save money.
Co-Chair Stoltze closed public testimony.
9:53:22 AM
Representative Doogan pointed to the density of the
language in the first line of the fiscal note.
Co-Chair Hawker explained that the fiscal note acknowledges
that a legal framework and advisory costs would be needed
in order to accommodate the reallocation of the funds. He
thought the $80,000 was a fair price and that it was worth
the investment to help communities.
Vice-Chair Thomas MOVED to report CSSB 269(FIN) out of
Committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSSB 269(FIN) was REPORTED out of Committee with no
recommendation and previously published fiscal notes: FN 1
(CED), FN2 (REV).
9:55:35 AM AT EASE
10:00:14 AM RECONVENED