Legislature(1993 - 1994)

04/22/1993 08:35 AM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
  SENATE BILL NO. 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."                          
                                                                               
  JOHN  OLSON,   ALASKA  INDUSTRIAL  DEVELOPMENT   AND  EXPORT                 
  AUTHORITY (AIDEA) clarified, in regards  to a question asked                 
  by Representative Brown during the 4/21/93 meeting, that the                 
  amount of gas which would be used by the proposed iron plant                 
  is 50 million cubic foot per day.  He stated that  long term                 
  contracts have been  put in place  for consumer use.   There                 
  would be no change in consumer prices for 10 to 15 years.                    
                                                                               
  Representative  Hoffman  provided members  with  Amendment 1                 
  (Attachment 1).  The amendment would require the AIDEA Board                 
  to make available for  rural development initiative  grants,                 
  $5  million  dollars  from  the  unobligated and  unreserved                 
  balance of the AIDEA Revolving Fund.                                         
                                                                               
  Representative Hoffman  noted that  AIDEA expects  the Rural                 
  Development Initiative Program (RDI) to be short funded.  He                 
  stressed that the Program has only been in existence for one                 
  year and that  the demand  for the  program is great.     He                 
  asserted that the Program  has only touched the "tip  of the                 
  iceberg"  in terms of need for economic development in rural                 
  areas.  He stressed the lack of jobs in rural areas.                         
                                                                               
  Co-Chair Larson asked if the funding will be used for loans.                 
  Representative Hoffman replied that the funding would be for                 
  repayable loans.   Co-Chair Larson asked why the program was                 
  not  working.  Representative  Hoffman emphasized  that  the                 
  program is working,  but that  there is a  great demand  for                 
  additional funding.                                                          
                                                                               
                                                                               
  Co-Chair Larson asked why  AIDEA would be used to  float the                 
  bonds.  Representative  Hoffman replied that it  makes sense                 
  to  use  the  expertise  of  AIDEA.   He  pointed  out  that                 
  administration costs  could be  saved by  allowing AIDEA  to                 
  operate  the bonds  rather than  duplicating efforts  within                 
  RDI.                                                                         
                                                                               
  WILLIAM (RILEY) SNELL, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL                 
  DEVELOPMENT AND EXPORT AUTHORITY agreed that there is a need                 
  for capitalization in  rural Alaska.   He stated that  AIDEA                 
  has  the  authority  to  assist in  leveraging  money.    He                 
  explained the bond/loan process used by AIDEA.   He stressed                 
  that  there would be a double  drain on AIDEA if amendment 1                 
  is adopted.                                                                  
                                                                               
  Mr. Snell emphasized that AIDEA projects have focused on the                 
  needs of rural Alaska.  He stated that the source of funding                 
  is his only concern with amendment 1.                                        
                                                                               
  Representative Hoffman  stressed  that  the  amendment  will                 
  address the needs  of small businesses.   He noted that  the                 
  previous projects developed  through AIDEA have not  gone to                 
  small businesses.   He pointed  out that there  is a  $100.0                 
  thousand dollar  cap on  project eligibility.   He  observed                 
  that there are over  200 villages that need assistance.   He                 
  asserted that rural Alaska has the highest unemployment with                 
  the fewest job opportunities.                                                
                                                                               
  Representative Hanley observed that AIDEA can only use money                 
  which has been appropriated to the Authority.  He noted that                 
  the amendment states that money is authorized to be reserved                 
  for  the use of RDI.   He noted that no  new bonding will be                 
  used.    He  asked  if the  amendment  would  limit  AIDEA's                 
  authority to issue bonds approved by SB 171.                                 
                                                                               
  Mr.  Snell stated  that AIDEA  has  $137 million  dollars in                 
  unrestricted surplus funds  available.    He stated that  an                 
  appropriation from these funds would  reduce funds for other                 
  program participation.  He referred  to a Legislative Budget                 
  and Audit Committee advisor's report,  issued March 1, 1993,                 
  that reduction of AIDEA assets could affect bond ratings.                    
                                                                               
  Representative Hanley expressed  concern that the  amendment                 
  does not  fit under  the title  of SB  171.   Representative                 
  Hoffman  assured  him that  there  is  no need  for  a title                 
  change.                                                                      
                                                                               
  Representative  Hanley   reiterated  his  concern   that  an                 
  appropriation is needed.  Representative Hoffman assured him                 
  that amendment 1 is not an appropriation.                                    
                                                                               
  Co-Chair Larson noted that the  amendment would require that                 
  Board approval of  the $5 million  for RDI before the  other                 
  projects contained in  SB 171 can be begun.   Representative                 
                                                                               
                                                                               
  Brown  asked  if AIDEA  could  be  asked to  approve  the $5                 
  million dollars for RDI without  tying the other projects to                 
  the Board's approval.                                                        
                                                                               
  Co-Chair MacLean suggested that  funding be provided through                 
  reappropriation legislation.   Mr. Snell did not  think that                 
  the  Board  would  have to  approve  the  reappropriation of                 
  funds.                                                                       
                                                                               
  Members continued  to discuss the option  of reappropriating                 
  funds to RDI.                                                                
                                                                               
  JACK   CHENOWETH,   ATTORNEY,  LEGISLATIVE   AFFAIRS  AGENCY                 
  discussed the drafting of  amendment 1.  He reiterated  that                 
  SB 171 is not  an appropriation bill and that  the amendment                 
  does not appropriate funds.  He  noted that an appropriation                 
  would be  necessary.  He  stressed that the  amendment would                 
  require  that the Board  approve $5 million  dollars for RDI                 
  before  the  other projects  contained  in SB  171  could be                 
  begun.                                                                       
                                                                               
  (Tape Change, HFC 93-116, Side 2)                                            
                                                                               
  Representative Hoffman did not offer Amendment 1.                            
                                                                               
  Co-Chair   Larson  expressed   his  support   for  a   Rural                 
  Development Initiative  in  areas  where  no  economic  base                 
  exists.  The  Co-Chairs indicated that funding for RDI would                 
  be sought through reappropriation.                                           
                                                                               
  Representative  Brown  stated  that   gas  consumed  by  the                 
  proposed  iron  plant  contained  in  SB  171  will  tighten                 
  supplies in  Cook Inlet.  She  referred to page 2,  line 24.                 
  She  noted  that  the original  bill  requested  $30 million                 
  dollars.  Mr. Snell explained  that off-loading systems were                 
  added to increase the project cost to $50 million dollars.                   
                                                                               
  Representative   Brown   provided   members  with   articles                 
  regarding  the proposed  Mat-Su  iron plant  (Attachment 2).                 
  She noted that  line 13, page 2  says for use by  the MIDREX                 
  Company.    She  observed that  according  to  attachment 2,                 
  MIDREX  would not own or operate the facility.  She asked if                 
  alternative language would be needed.                                        
                                                                               
  Mr. Snell stressed that MIDREX  will perform the feasibility                 
  analysis,  be actively  involved  in securing  financing and                 
  would oversee  the construction.   At  some point  ownership                 
  would be  transferred to a new  owner.  He  pointed out that                 
  similar language was  used in legislation regarding  the Red                 
  Dog mine.                                                                    
                                                                               
  Representative  Brown  asked  how   the  language  could  be                 
  modified to  assure that firm  financing is in  place before                 
  the  project  is begun.    Mr.  Snell assured  her  that the                 
                                                                               
                                                                               
  project will not proceed before financing is secured.                        
                                                                               
  Representative  Brown   and  Mr.  Snell   discussed  general                 
  obligation versus revenue bonding.  Mr. Snell stated that if                 
  a  general obligation  bond were  to be used  that corporate                 
  guarantee of subsidiaries would be required.                                 
                                                                               
  Representative  Brown  asked  what  would  occur  if  MIDREX                 
  Corporation did not  use the facility.  Mr.  Snell explained                 
  that  MIDREX  would be  obligated  prior to  any  release of                 
  funds.  A reimbursement agreement will be put in place prior                 
  to  funding release.   Representative  Brown suggested  that                 
  someone else could  provide financial  security.  Mr.  Snell                 
  stated that financial  guarantees by MIDREX would  remain in                 
  place.                                                                       
                                                                               
  Representative Martin MOVED to report CSSB 171 (FIN)  out of                 
  Committee  with  individual  recommendations  and  with  the                 
  accompanying fiscal note.                                                    
                                                                               
  Representative  Navarre  asked   when  the  final  financial                 
  feasibility study would be complete.  Mr. Snell replied that                 
  it is  expected by  Fall, 1993.   Mr.  Snell clarified,  for                 
  Representative  Navarre,  that  it will  be  a  multiple use                 
  facility.  Capacity  will not be expanded  without financial                 
  support.                                                                     
                                                                               
  Representative Navarre noted that, due to budget reductions,                 
  there may not be enough personnel to complete the permitting                 
  process.   He added  that additional  state support  will be                 
  needed due to  the economic development.   He questioned  if                 
  the  state  will receive  increased  revenues to  offset the                 
  additional social cost of development.  He expressed support                 
  for economic development but emphasized  that the state will                 
  not  receive additional revenues.  He  stressed that a state                 
  long range economic plan is needed.                                          
                                                                               
  Co-Chair   Larson  asked   if  there   were  objections   to                 
  Representative Martin's  motion.  There  being NO OBJECTION,                 
  CSSB 171 (FIN) was reported out of committee.                                
                                                                               
  CSSB 171  (FIN) was  reported out  of Committee  with a  "no                 
  recommendation"  and  with   a  zero  fiscal  note   by  the                 
  Department  of  Commerce  and  Economic  Development,  dated                 
  3/24/93.                                                                     

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