Legislature(2011 - 2012)HOUSE FINANCE 519
02/22/2011 01:30 PM House FINANCE
Audio | Topic |
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Start | |
HB7 | |
HB3 | |
HB119 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
+ | HB 3 | TELECONFERENCED | |
+ | HB 7 | TELECONFERENCED | |
+ | HB 19 | TELECONFERENCED | |
+ | HB 119 | TELECONFERENCED | |
+ | TELECONFERENCED |
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." 3:11:54 PM MARK DAVIS, ECONOMIC DEVELOPMENT OFFICER, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY, discussed that HB 119 worked to modernize the Alaska Industrial Development and Export Authority (AIDEA). The bill allowed the agency to have the same procurement provisions as other public corporations in the state, including the Alaska Housing Finance Corporation. The agency would also be permitted to own a percentage of a project it developed through the means of a corporation or a limited liability company (LLC). The previous year the legislature had allowed AIDEA to own a percentage of a project; however, DOL determined that the percentage did not clearly provide the agency with the power to be a member of an LLC. Mr. Davis discussed that the agency also sought to expand the types of projects it could undertake. Currently AIDEA could do natural resources, energy, tourism infrastructure, and industrial development projects. The agency was provided the opportunity to invest in a health care facility that would be leased to the federal government; however, DOL determined that AIDEA was not authorized to invest in a health clinic. Additionally, AIDEA was asked to construct a facility that it would build and lease to the Coast Guard, but it was denied the ability to build a federal facility. Other expansions would be for community public purpose, transportation, and prototype commercial applications. The agency had conducted a survey of other economic development authorities throughout the U.S. and had discovered that most of the agencies had the ability to support new technologies or new prototypes as a way to use state development capital to promote the diversification of the state economy. The legislation added clarification that AIDEA could build roads. The current statute allowed the agency to build a road to a natural resource development, such as the DeLong Mountain Transportation System for the Red Dog Mine; however, it was not clear whether it could build a road that was not directly lined up with a project. He explained that if the agency could get revenues from the road it would do so. The caveat was that anything built on the transportation of roads would need to pay for itself, be a project that was bondable, and would have to meet economic development goals; therefore it could not be used for general transportation. 3:15:24 PM Vice-Chair Fairclough moved CSHB 119 (EDT) 27-GH1745\M. Representative Gara asked whether the legislation would allow AIDEA to underwrite and fund something like the Knik Arm crossing. Mr. Davis did not believe that it would. The agency's current reserves limited bonding for any particular project to between $250 million and $300 million. He believed that the bridge would be much more expensive. The agency's intent was to build economic development projects; therefore, the transportation of the roads it would build would lead to an economic development project that would be tied to one of the agency's stated purposes. Representative Gara referred to the "omnibus energy" bill passed in the previous session that created a revolving loan fund to help private businesses upgrade their energy efficiencies. He believed that the fund had been placed under AIDEA but not under the Alaska Energy Authority (AEA) that governed energy efficiency matters. He wondered whether AIDEA would have any objection to moving the revolving loan fund over to AEA. Mr. Davis replied that the fund belonged under AEA and that AIDEA was not concerned with the energy conservation efforts that were conducted by its sister agency. Representative Gara wondered why AIDEA should be exempt from the state procurement code. Mr. Davis replied that the agency was not looking for a total exemption. The board could adopt regulations through a public process when the agency worked on a development project with another entity like the Alaska Housing Finance Corporation. A person who had a disagreement with the procurement would be required to file a protest with the board of AIDEA and not with the Departments of Transportation and Public Facilities or Administration. The process would be faster given that the board would have the expertise on what it wished to purchase. He believed that the streamlined system was better for the agency and for protestors. MR. TED LEONARD, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (via teleconference), discussed that the bill worked to provide AIDEA with more tools that would help it to be effective when it worked on development projects with the private sector. Representative Neuman liked the type of legislation. He referenced the Alaska Administrative Procedure Act and procurement codes. He wondered about the "basic sideboards" of the maximum funding that was available. Mr. Davis responded that AS 36.30.170(b) referenced on Page 2, Line 11, would require a bidder to have business license as proof that they conducted business in the state. The bill dealt with procurement for development finance and required an agency to request bids when they wanted to purchase items such as computers or desks. He relayed that there would not be changes to the prevailing wage requirements. Representative Neuman asked whether there was a maximum amount of money that AIDEA could spend to develop a corporation. Mr. Davis replied that the limits were based on the amount of available cash for a project and could vary depending upon the amount of reserve cash. He discussed that there was an open process and the board was required to approve spending. The current buying authority was approximately $250 million. Additionally, the agency was required to seek legislative approval for any bond over $10 million and approval from local communities for any bond over $6 million. There was a $400 million annual limit on the number of bonds AIDEA could issue. Representative Neuman was glad to hear AIDEA had at least $150 million. He asked whether manufacturing would fall under the "project" definition on Page 3, Section 6, which read "a plant or facility used or intended for use in connection with making, processing, preparing, transporting or producing…" He wondered whether manufacturing was a factor when AIDEA looked at different development plants and the development of Alaska's resources. Mr. Davis responded that AIDEA was formed as an industrial development authority and had always been focused on job development under AS 44.88.010. He expressed that manufacturing was one of the agency's goals when it was available. 3:24:31 PM Representative Doogan asked about the cash limit of the agency. Mr. Davis replied that there were two ways to look at the cash limit. First, under AIDEA's Loan Participation Program, loans were capped at a maximum of $20 million per loan. The amount the agency could invest in a particular project was based on its cash reserves and it was required to seek legislative approval for any bond over $10 million. Additionally, the agency was required to obtain board approval, hold a public hearing, file a finance plan, and to obtain the approval of local communities for any bond exceeding $6 million. Representative Doogan understood that there were legal definitions about how the LLCs would work. He was concerned about the state's legal and factual liability in the event that a project under one of AIDEA's LLCs went "belly-up." Mr. Davis replied that AIDEA's bonds for a project were not moral obligations of the state by statute. Any recourse on a bond would go to AIDEA or to the project itself if it were a revenue bond. The use of an LLC to effectuate a development project would mean that anyone seeking recourse would go against the assets of the LLC first and would have to show there was an ability to go beyond that by "piercing the corporate veil." Usually when an LLC went bankrupt the assets were those of the LLC. The agency was seeking to coordinate with other investors to leverage its funds and as they looked at determining what percentage of a project they would undertake, the developers notified AIDEA that they would need a legal structure in order to conduct business with the agency. The LLC would be the same as any other LLC on the market and the intention of the agency was to work with other investors. He elaborated that there would also be insurance on an LLC, therefore, there would be various pots of money available to potential creditors. Representative Doogan remarked that there was a fish plant in his district that had been substantially financed by state funds and had essentially gone through the same process. He wasn't certain what the project cost the State of Alaska. Mr. Davis responded that the fish plant cost the state approximately $50 million and was liquidated. He explained that the occurrence was exactly the reason for the legislation. The purpose of private partners in a development project was to determine whether other people in the industry were interested in investing their own capital in a project because they believed there would be a financial gain. The agency was required by statute to make a return on the invested capital and an LLC structure would ensure that AIDEA would be working with other partners. He opined that one of the reasons the seafood plant had been unsuccessful was due to the absence of sufficient partners. Representative Doogan wondered whether it would still be possible for AIDEA to venture into operations like the fish plant or whether the legislation would require the participation by private individuals under an LLC. Mr. Davis answered that under the legislation AIDEA would retain the ability to build a development project on its own. The agency's strategic plan also called for it to work with private capital. The legislation would allow AIDEA to create an LLC in order for it to own a percentage of a project with other private capital. The goal of the agency was to leverage its funds to do the most that it could. He believed the ability for AIDEA to work with private partners moved in the direction that Representative Doogan wanted. Representative Doogan was trying to ensure that there would not be an eventuality in which the same mistake or enhanced mistakes were made by the introduction of other financial structures. He did not believe that was being offered in the legislation. He believed that AIDEA had specified that although it had the ability to work alone that it would prefer to work with other partners. Mr. Davis responded that it was necessary to look each particular financial situation. For example, the board could discern that it was good for the economy and that a partnership was not necessary for it to invest in a small and inexpensive development project that had new technology. As the risk level and cost went up it was prudent to use another legal vehicle such as a corporation or an LLC and to have other partners as well. He believed the safety valve was in the seven-member board. The tool would help to mitigate risk, increase leverage, and achieve results. 3:31:48 PM Representative Edgmon asked whether the AIDEA board would always be the board of directors in a partnership situation. Mr. Davis replied that members could be in control of the LLC or they could elect a managing partner that would make them more passive investors. In most cases the agency would take on a more passive roll and would elect a managing member from the private sector that had expertise in the specific type of project. Corporate governance would allow members to place managing restraints on the managing member related to spending caps, what could be done on the project, and any major structural change to the project. Representative Joule discussed that Alaska was in a relatively good financial position compared to the rest of the U.S. He referenced potential military and coastal infrastructure that may need to happen through the Department of Defense or other. He wondered whether the state's strong financial position encouraged the federal government and other businesses to look to Alaska as a good business opportunity. Mr. Davis responded that AIDEA floated some bonds in December 2010 for $60 million and he had received calls from several interested brokers in other states. He explained that AIDEA's bonds had a AA rating, which was currently rare. Secondly, AIDEA had been in contact with a bank in New York the prior week that was potentially interested in doing business with the agency. He believed that the interest demonstrated that Alaska was a good place to do business based on the national landscape. Co-Chair Thomas provided a hypothetical example of a mine that was unable to afford an access road. He wondered whether financing through an AIDEA LLC would entitle it to partial ownership of the mine. Mr. Davis responded that AIDEA would need to determine what the appropriate structure would be for the project. The bill would provide more options, however, the project could potentially be structured like the public Red Dog Mine road that was controlled and owned by the agency. In other cases it may have been prudent to share the risk of the entire project. The bill provided the agency with the flexibility to make the appropriate decision for public policy and financial reasons. Co-Chair Thomas noted that there were always "political monsters in the closet" that had undisclosed interests. He opined that under the guise of good public policy a road could be built that just happened to go directly by a mine that was unable to afford to build its own road. Mr. Davis replied that AIDEA's goal was to look for financial return, therefore, when it built a road that was used by other people it was important to determine how they would contribute to the cost in a way that was consistent with what the agency helped them with. Co-Chair Thomas hoped that people would be honest with the agency. He saw the potential for there to be the state funded development of roads that led to resources that may provide no benefit to the state. He opined that there were legislators that thought mineral royalties were low and that the state should build "road favors." He was concerned about the potential for a similar scenario to occur. Mr. Davis discussed that AIDEA would have to be certain that a road could pay the bonds or they would not build the road. Co-Chair Thomas appreciated the upfront detail. He referred to a Department of Transportation (DOT) road development that had a "golden goose" in the form of a mine along the road. 3:38:26 PM Representative Guttenberg could see the benefits that could come as a result of the legislation. He asked whether there was potential for conflict to occur with the existing planning processes of DOT, STIP [Statewide Transportation Improvement Program], or a local community. He wondered whether the bill required AIDEA to ensure that it would not interfere or be in conflict with another statewide planning process for an energy project, road, or other. Mr. Davis responded that there were three constraints. First, statute required the agency to obtain the consent of a local community. Secondly, the board of AIDEA had to meet and agree on a project in a public process. Thirdly, bond investors wanted to make certain that a project had support and that it was not in conflict with any other plans that would cause the bond market to react negatively. Representative Doogan referred to an earlier comment related to financing roads. He wondered what was meant by "a road that might not line up." Mr. Davis explained that the DeLong Mountain Transportation System supported a specific development project because it was directly connected to the Red Dog Mine. Without the legislation it was unclear whether AIDEA would be allowed to build a road that supported an oil drilling area that did not connect directly with each rig. Vice-Chair Fairclough MOVED to report CSHB 119 (EDT) out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 119 (EDT) was REPORTED out of committee with a "do pass" recommendation and with previously published zero impact note: FN 1 (DCCED).
Document Name | Date/Time | Subjects |
---|---|---|
HB 3 Explanation of Changes.doc |
HFIN 2/22/2011 1:30:00 PM SSTA 4/12/2012 9:00:00 AM |
HB 3 |
HB 3 State by State Analysis.doc |
HFIN 2/22/2011 1:30:00 PM SSTA 4/11/2012 9:00:00 AM SSTA 4/12/2012 9:00:00 AM |
HB 3 |
HB 3 Legal Opinion dated 012811.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 3 |
HB 3 Sponsor Statement.doc |
HFIN 2/22/2011 1:30:00 PM |
HB 3 |
HB7.supporting testimony.2.10.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB7.Support Letters.2.10.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB7.NCSL Research Report.10.5.10.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB7.Memo regarding changes to CS.2.11.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB7.Leg Research Report.Other states penalities.2.8.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB7.Article.K2 and Spice_Straight Tox.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB7.Article.DEA Press Release on Synthetic Materials.11.24.10.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB7.Article.ADN Article.Assembly outlaws chemical.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
CS HB 7 (JUD) Sponsor Statement.2.10.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB 19 Sponsor Statement.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 19 |
HB 19 Sample License Plates.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 19 |
HB 19 Legal Research.doc |
HFIN 2/22/2011 1:30:00 PM |
HB 19 |
HB 119 Sectional Analysis CS EDT.pdf |
HFIN 2/22/2011 1:30:00 PM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
HB 119 AIDEA Bill Information Sheet and letter.pdf |
HFIN 2/22/2011 1:30:00 PM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
HB7CS(JUD)NEWFN-LAW-02-18-11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB 7 Support Letter.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
HB3 ACLU Letter.pdf |
HFIN 2/22/2011 1:30:00 PM SSTA 4/11/2012 9:00:00 AM SSTA 4/12/2012 9:00:00 AM |
HB 3 |