Legislature(1993 - 1994)
04/21/1993 01:30 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
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SB 171 An Act relating to the contracting and financing authority of the Alaska Industrial Development and Export Authority, giving approval of the issuance of the authority's revenue bonds, and delaying the termination date of the authority's business assistance program; and providing for an effective date. CS SB 171 (FIN) was held in Committee for further consideration. 1 SENATE BILL 171 "An Act relating to the contracting and financing authority of the Alaska Industrial Development and Export Authority, giving approval of the issuance of the authority's revenue bonds, and delaying the termination date of the authority's business assistance program; and providing for an effective date." KEN ERICKSON, AID TO SENATOR PEARCE, offered to answer questions of the Committee. RILEY SNELL, AIDEA, ANCHORAGE, ALASKA, stated that if SB 171 was enacted, it would achieve four things: Section I of the bill gives legislative approval to the Alaska Industrial Development and Export Authority (AIDEA) to authorize the issuance of revenue bonds up to $40 million dollars and to finance the acquisition, design, and construction of public use aircraft fueling facilities located at the Anchorage International Airport. Section II of the bill gives legislative approval to AIDEA to authorize the issuance of bonds up to $50 million dollars to finance the acquisition, design and construction of a port facility located at Point MacKenzie in order to further the development and operation of a direct iron ore processing facility. Section III of the bill gives legislative approval to AIDEA to authorize the issuance of bonds up to $50 million dollars to finance the acquisition, design and construction of a seafood processing, storage, and loading project located in Anchorage. Section IV of the bill extends the sunset date of AIDEA's Business Assistance Fund to July 1, 1996 from the current sunset date of July 1, 1993. Mr. Snell added that all the projects have pay-back provisions during the time in which AIDEA uses their credit to finance these projects. In return for the use of the credit, AIDEA will receive full reimbursement of the cost of the project plus an established interest percentage. 2 Co-Chair MacLean questioned if AIDEA revenue would be used for the legislation. Mr. Snell explained that AIDEA bonds are recognized by rating agencies to be revenue bonds generated by the Authority. Often, these bonds are called general obligation bonds and will be marketable. Co-Chair MacLean asked if these same requests were before the House Finance Committee last year. Mr. Snell noted the legislation did exist last year, although adjournment occurred before it was addressed. He added, there are statutory safeguards to determine if the projects are feasible. 1. Projects must be financially and economically feasible. 2. Participants must have the financial strength to pay back the debt. 3. AIDEA warrants the overall commitment to undertake the project. 4. The Authority is required to undertake an extensive credit analysis of the participant and provide a market analysis. Co-Chair MacLean asked why rural areas rarely receive funds from AIDEA. Mr. Snell pointed out that the Authority has had projects scattered across the State, Red Dog being the largest project located in the North West Arctic Borough. He added, AIDEA is sensitive to the capital needs of rural Alaska and is committed to doing a better out-reach job in rural area. Representative Martin asked why the state owned airports are bonded rather than owned. Mr. Snell explained the structure. AIDEA can issue tax exempt debt. The market has not witnessed current interest rates for many years, which creates a favorable inner trade environment to use the debt capacity. Governmental ownership is important. Representative Brown referenced the MIDREX project and asked the risks AIDEA would assume in underwriting the project. Mr. Snell stated that MIDREX would be obligated to pay their debt payments through their parent company. He added, if the financial strength of an investment is of concern, a parent corporation guarantee is necessary to underwrite the issuance. Currently, the proposed plan is promised to be compatible with land use planning. Mr. Snell reiterated that AIDEA is cooperatively working with the Mat-Su Borough in order to complete the necessary analysis. 3 Co-Chair MacLean recommended that the Anchorage airport improvements be handled through the International Airport Revolving Loan Fund. Mr. Snell noted complications exist with the current debt obligation on the tank farm which was issued by AIDEA. Representative Brown questioned the developer's motivation to bring ore from South America to Alaska. Mr. Snell stated there is a substantial need for natural gas and a concentrate will be produced through the steel mills. Cook Inlett represents a captive market for natural gas. There is a substantial market for the developer. Extensive surveys looking for such a product have been completed. Representative Brown questioned the status of the seafood component. Mr. Snell noted that the developer has signed the first supply contract and is in final negotiations with potential customers. Progress has been made to obtain equity requirements necessary. Representative Brown asked if the project would compete with other Alaska facilities in Dutch Harbor. Mr. Snell commented that the component will compliment the current fishing industry, although there is no information on how the fish tax allocation will occur. Harold Benedict is the principle administrator of the Alaska Seafood Center. He has not had a lot of experience in the industry but has hired professional people to help assemble the project. Representative Brown questioned the long term capacity of AIDEA. Mr. Snell noted that AIDEA should have substantial remaining capacity with the proposed legislation and offered to provide the Committee with that information. Representative Brown understood that AIDEA's capacity was running out. Representative Brown asked for a list of other potential competitors for the AIDEA revenue. Representative Hoffman stated that the Rural Development Initiative Fund (RDIF) does not adequately address the needs of rural Alaska. He asked that more funds be included in that fund so that rural Alaska might receive more economic development incentive. Mr. Snell stated that RDIF has statutory underties to the Department of Community and Regional Affairs (DCRA). In order for AIDEA to participate with DCRA, they are required to use the Business Assistance Program. The $500 thousand dollar initial investment allowed AIDEA to leverage a total loan value of $2.5 million dollars. Representative Hoffman and Representative Brown asked for more time to consider the proposed legislation in order to offer amendments to further assist the RDIF request of $5 million dollars. 4 (Tape Change HFC 93-115, Side 1). Co-Chair Larson noted that SB 171 would be HELD in Committee for further consideration.
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