Legislature(2013 - 2014)HOUSE FINANCE 519

04/16/2014 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
--Delayed to 1:40 p.m. Today--
Heard & Held
Moved Out of Committee
<Bill Hearing Canceled>
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
Moved HCS CSSB 191(FIN) Out of Committee
CS FOR SENATE BILL NO. 140(FIN)                                                                                               
     "An Act creating  the Arctic infrastructure development                                                                    
     program and  fund in the Alaska  Industrial Development                                                                    
     and Export  Authority; and  relating to  dividends from                                                                    
     the   Alaska   Industrial    Development   and   Export                                                                    
3:04:54 PM                                                                                                                    
Co-Chair Stoltze noted the intent  to hear an explanation of                                                                    
the bill, brief questions, and public testimony.                                                                                
JESSEE LOGAN,  STAFF, SENATOR  LESIL MCGUIRE,  addressed the                                                                    
legislation. The bill would  create an Arctic Infrastructure                                                                    
Development  Fund within  the Alaska  Industrial Development                                                                    
and  Export  Authority  (AIDEA) and  addressed  one  of  the                                                                    
principle elements in the  Alaska Arctic Policy Commission's                                                                    
(AAPC) legislative  package. He  detailed that the  AAPC had                                                                    
been   created   to   prepare    the   Arctic   policy   and                                                                    
implementation  plan for  the  state  for the  legislature's                                                                    
consideration. The bill would  attract private investment to                                                                    
pair with  public investment  in Alaska's  infrastructure in                                                                    
the Arctic.  Although AIDEA currently  had the  authority to                                                                    
invest in  many of  the areas, it  had no  specific programs                                                                    
directed to attract private  investment. There were specific                                                                    
limitations  to  the package  financing.  He  asked for  the                                                                    
committee's preference on how to proceed.                                                                                       
Co-Chair Stoltze asked for a  brief description of the goals                                                                    
and aspirations of the bill.                                                                                                    
Mr.  Logan  addressed  the sectional  analysis.  Sections  1                                                                    
through   8   were  boiler   plate   and   put  the   Arctic                                                                    
Infrastructure  Development Fund  in line  with other  funds                                                                    
within AIDEA  (e.g. the revolving  fund and  the Sustainable                                                                    
Energy  Transmission and  Supply  Development Fund  (SETS)).                                                                    
Additionally,  the sections  described net  income, ways  to                                                                    
generate incentive  packages within the funds,  and what the                                                                    
funds consist of. He spoke  to the limitations on financing.                                                                    
For land-based  infrastructure AIDEA would be  authorized to                                                                    
give  loans  for  one-third  of the  capital  cost  or  loan                                                                    
guarantees up  to $20 million.  There was a project  life of                                                                    
up  to  40  years;  AIDEA was  also  authorized  to  provide                                                                    
securities for bond  guarantees. Page 7, lines  9 through 15                                                                    
included a  fisheries provision,  which was limited  to loan                                                                    
guarantees only  (no direct loans) because  the Alaska banks                                                                    
were currently  very active in  the sector; the  sponsor did                                                                    
not  want to  create undo  competition. The  loan guarantees                                                                    
had  a  floor of  $7  million  to  ensure  that it  did  not                                                                    
conflict or  create competition with other  state or federal                                                                    
programs. Additionally, the loan  guarantee could not exceed                                                                    
more  than one-third  of the  project's  capital costs.  The                                                                    
eligibility for  the loan guarantees  would be  the purchase                                                                    
or repair of vessels used  in federally managed fisheries or                                                                    
the purchase of  quota shares or individual  quota shares in                                                                    
federally managed Arctic fisheries.                                                                                             
Co-Chair Stoltze  asked for a  description of  the fisheries                                                                    
in the  Arctic. Mr.  Logan replied  that the  fisheries were                                                                    
primarily  cod  and  pollock   fisheries.  The  bill  looked                                                                    
primarily  at  Bering  Sea fisheries  that  included  mostly                                                                    
large fisher/processor  trolls. He relayed that  most of the                                                                    
fishing  entities   were  located  outside  of   Alaska.  He                                                                    
explained  that  because  AIDEA  was  forbidden  to  operate                                                                    
outside of  Alaska, any fishing  entity taking  advantage of                                                                    
the financing  opportunity would be required  to relocate to                                                                    
Alaska. The purpose of the  provision was to repatriate some                                                                    
of the quotas and vessels to the state.                                                                                         
Co-Chair Stoltze asked  how large the boats  were. Mr. Logan                                                                    
did not know.                                                                                                                   
3:09:30 PM                                                                                                                    
AT EASE                                                                                                                         
3:09:41 PM                                                                                                                    
Mr. Logan replied that the  fund did not specifically choose                                                                    
winners or  losers or look  for specific projects;  it would                                                                    
wait for  private entities to  seek out the funding.  He did                                                                    
not know who would be seeking the funds.                                                                                        
Co-Chair Stoltze  wondered about  the vessel size  and asked                                                                    
if they  would be trawlers  or draggers. Mr.  Logan believed                                                                    
the  vessels would  be trawlers  and processors.  He relayed                                                                    
that Sarah  Lunkin with PT  Capital was available  to answer                                                                    
detailed fishery provision questions.                                                                                           
Co-Chair Stoltze asked for verification  that PT Capital was                                                                    
a private entity. Mr. Logan replied in the affirmative.                                                                         
Representative  Edgmon took  exception  to use  of the  word                                                                    
Arctic because technically  it was the Bering  Sea. He noted                                                                    
that  the federal  definition of  the  Arctic extended  down                                                                    
into  the upper  Bering  Sea. He  asserted  that there  were                                                                    
currently no fisheries in the Arctic  and may not be for the                                                                    
next 50 years.                                                                                                                  
3:11:03 PM                                                                                                                    
Representative Costello asked  for verification that outside                                                                    
companies  would   be  able  to  benefit   from  the  bill's                                                                    
fisheries provision.  Mr. Logan replied in  the affirmative.                                                                    
He added  that the  asset taking advantage  of the  funds or                                                                    
loaned against would be required to remain in Alaska.                                                                           
Representative  Costello asked  if the  asset could  also be                                                                    
repatriated. Mr. Logan answered in the affirmative.                                                                             
Representative  Costello  noted that  geographically  Alaska                                                                    
was  an  Arctic  nation. However,  the  infrastructure  fund                                                                    
would only benefit projects in  one region of the state. She                                                                    
wondered why the fund should not apply to the entire state.                                                                     
Mr. Logan pointed to page 8,  lines 4 through 7 that defined                                                                    
the state's geographical boundary  of the Arctic. He pointed                                                                    
to a  map included in  members' packets that had  been taken                                                                    
from the federal  Arctic Region Policy Act of  1990 (copy on                                                                    
file).  The  map included  all  areas  north of  the  Arctic                                                                    
Circle to the north and west  of the Yukon boundary; it also                                                                    
included the  Bering Sea. He  referred to the  definition of                                                                    
Arctic development  on page  7 of  the bill,  which included                                                                    
the construction, improvement,  rehabilitation, or expansion                                                                    
of a  facility in the Arctic  to aid in development  or meet                                                                    
emergency  response   or  anywhere  in  the   state  if  the                                                                    
construction,  improvement,   rehabilitation,  or  expansion                                                                    
supported  the  further development  of  a  facility in  the                                                                    
Representative Costello asked for  the location in the bill.                                                                    
Mr.  Logan  pointed to  page  8,  lines  8 through  15  that                                                                    
included the  Arctic infrastructure  development definition.                                                                    
In response  to Representative  Edgmon's comment,  he agreed                                                                    
that the bill  pertained mostly to the  Bering Sea; however,                                                                    
because the bill  used the definition of the  Arctic it also                                                                    
used  the language  "federal fisheries  in  the Arctic."  He                                                                    
agreed that  there were  no fisheries  located north  of the                                                                    
Arctic Circle;  there was a  moratorium on any  fisheries in                                                                    
the location for the foreseeable future.                                                                                        
Representative  Costello  surmised  that there  would  be  a                                                                    
hurdle that  would need to  be overcome in lines  13 through                                                                    
15. She wondered if it would  be a substantial hurdle or one                                                                    
that could easily be overcome.                                                                                                  
Mr. Logan  answered that it  would depend on  the individual                                                                    
project. The  purpose of the  bill was to  create incentives                                                                    
for infrastructure in the state's  least developed areas. He                                                                    
elaborated that if development in  other areas would further                                                                    
the development  in the state's least  developed areas (i.e.                                                                    
the Arctic)  they would be  eligible. He provided  the deep-                                                                    
water  draft port  in the  Arctic  as an  example. The  Army                                                                    
Corps of Engineers had identified  Port Clarence as a likely                                                                    
target. He expounded  that for the project to  be built over                                                                    
the course of several years,  staging grounds in other ports                                                                    
would be  necessary due  to the  limited amount  of shipping                                                                    
available  for  the  area. Other  ports  may  include  Dutch                                                                    
Harbor,  Seward, or  Ketchikan.  He stated  that if  storage                                                                    
capacity was increased  in the areas to  provide for staging                                                                    
they would be eligible for the funds.                                                                                           
Representative  Costello  asked   how  the  dividend  aspect                                                                    
worked in the  bill. Mr. Logan referred to page  2, lines 14                                                                    
through  19. The  dividends were  the same  as those  set up                                                                    
from  the  revolving  and  SETS  funds.  He  explained  that                                                                    
between 25 and  50 percent of money the  fund earned through                                                                    
loan  proceeds  would  be  returned   to  the  general  fund                                                                    
annually.  For   example,  in   the  current   year  AIDEA's                                                                    
dividends  provided  approximately   $20.5  million  to  the                                                                    
general fund.                                                                                                                   
3:15:30 PM                                                                                                                    
Co-Chair Stoltze asked if the SETS  fund was a model for the                                                                    
bill's fund. Mr. Logan answered in the affirmative.                                                                             
Co-Chair Stoltze  wondered if the  fund would be  drained in                                                                    
two  years. Mr.  Logan replied  that the  bill did  not seek                                                                    
capitalization at  present; therefore, there was  nothing to                                                                    
Co-Chair  Austerman referenced  the  building  of ports.  He                                                                    
stated that  fisheries was  only a portion  of the  bill. He                                                                    
spoke to  the original intent  of the bill to  develop areas                                                                    
that were not developed in the Arctic.                                                                                          
Representative  Wilson asked  for verification  that one  of                                                                    
the  projects  would  not   qualify  under  AIDEA's  current                                                                    
structure.  Mr. Logan  replied that  AIDEA  could invest  in                                                                    
infrastructure in most  of the areas contained  in the bill;                                                                    
however,  there was  no existing  provision to  specifically                                                                    
attract  outside investment.  The  loan  limitations in  the                                                                    
bill  were a  signal  to outside  investors  that the  state                                                                    
would help  provide capital  at a  slightly reduced  rate if                                                                    
investment was brought to Alaska.                                                                                               
Representative  Wilson  wondered   how  the  commission  was                                                                    
connected  and if  AIDEA would  look for  private investors.                                                                    
Mr. Logan replied  that the commission was  not connected to                                                                    
AIDEA in any way. He assumed  AIDEA could market the fund if                                                                    
it  chose  to  do  so,   but  that  was  not  the  sponsor's                                                                    
intention. The  intention was to provide  AIDEA with another                                                                    
tool and to allow companies to submit proposals.                                                                                
Representative Wilson thought most of  the items in the bill                                                                    
(with   the  exception   of   fisheries  provisions)   could                                                                    
currently  occur  through  AIDEA.  She  wondered  about  the                                                                    
purpose of  the bill.  She remarked that  it made  sense for                                                                    
AIDEA to look for businesses to bring back to Alaska.                                                                           
Mr. Logan could  not speak to AIDEA's  marketing ability. He                                                                    
explained  that the  bill created  an incentive.  Currently,                                                                    
AIDEA's funds  were not  designed to  be limited  to certain                                                                    
portions  of the  capital investment  or  the overall  costs                                                                    
(with the  exception of the SETS  fund). Without legislative                                                                    
approval AIDEA  could not  issue a loan  for more  than one-                                                                    
third of the  capital cost; however, the  loan for one-third                                                                    
of  the capital  cost  could be  significantly below  market                                                                    
value, which  would be  a trigger to  investors. He  did not                                                                    
know whether AIDEA would actively seek the investors.                                                                           
3:19:43 PM                                                                                                                    
Representative  Costello remarked  on Mr.  Logan's testimony                                                                    
that there  was no connection  between AIDEA and  the Arctic                                                                    
Policy Commission. She wondered  whether the commissioner of                                                                    
the   Department  of   Commerce,   Community  and   Economic                                                                    
Development (DCCED) sat on both boards.                                                                                         
Mr. Logan replied  that AIDEA had its own  board; in statute                                                                    
the  participants  were  referred  to  as  members,  but  in                                                                    
practice it was a board of directors.                                                                                           
Representative  Costello asked  whether the  commissioner of                                                                    
DCCED sat on the board. Mr. Logan believed so.                                                                                  
Co-Chair Stoltze replied in the affirmative.                                                                                    
3:20:52 PM                                                                                                                    
RON  LONG, MANAGER,  CITY  OF  SEWARD (via  teleconference),                                                                    
spoke in support of the  legislation. He highlighted his top                                                                    
five   reasons  for   supporting   the   bill.  First,   the                                                                    
legislation did not ask for  capitalization and used AIDEA's                                                                    
authority to guarantee loans and  transfer between funds. He                                                                    
stated that  the Alaska Arctic Policy  Commission identified                                                                    
that needs  and opportunities  in the Arctic  would generate                                                                    
billions in  private capital  that would  go to  the region.                                                                    
Second,  the   bill  would  allow   AIDEA  to   give  Alaska                                                                    
businesses  better-than-market  rates   to  move  the  money                                                                    
through the  state's resources (e.g. oil  and gas, response,                                                                    
search   and  rescue,   tourism,  fisheries,   and  economic                                                                    
sectors).   He    believed   the   definition    of   Arctic                                                                    
infrastructure recognized that  ports outside the geographic                                                                    
arctic would play  a critical logistics and  support role in                                                                    
developing the  Arctic. Third, the  bill made  Alaskan ports                                                                    
more competitive  than outside ports; it  would take several                                                                    
Alaska  ports to  get everything  accomplished. Fourth,  the                                                                    
fisheries component  created an  economic reason for  the 90                                                                    
percent  of  the  federally  managed  Bering  Sea  fisheries                                                                    
currently  monetized out-of-state  to home  port in  Alaska,                                                                    
adding  to the  10 percent  currently allocated  to the  CDQ                                                                    
[Community Development  Quota] programs. Fifth,  he believed                                                                    
the federal  government had done little  to advance Alaska's                                                                    
goals in the  Arctic; however, the bill  would enable Alaska                                                                    
to make the U.S. a participant rather than an observer.                                                                         
Co-Chair Stoltze  referred to a  resolution on  by-catch. He                                                                    
spoke  to   concern  about  bringing  in   by-catch  with  a                                                                    
conflicting   goal  of   bringing  more   by-catch  in   for                                                                    
subsidizing. Mr.  Long replied that  the bill did not  add a                                                                    
new  quota to  fully allocated  fisheries. He  surmised that                                                                    
the bill  may change some  of the quota ownership  from non-                                                                    
Alaskans to Alaskans.                                                                                                           
Co-Chair Stoltze  asked if it  was okay for Alaskans  to by-                                                                    
catch Chinooks. Mr. Long answered in the negative.                                                                              
3:23:24 PM                                                                                                                    
SARAH   LUNKIN,  CEO,   PT   PUBLIC   POLICY,  LLC,   shared                                                                    
information  about  the  company.  She  explained  that  the                                                                    
company was  the only private  equity firm  headquartered in                                                                    
Alaska that was focused  exclusively on deploying capital in                                                                    
the Arctic. The company  expected to deploy approximately 80                                                                    
percent of  the total money  raised in Alaska; the  other 20                                                                    
percent  would  be  deployed   in  Iceland,  Greenland,  and                                                                    
Co-Chair Stoltze appreciated the information.                                                                                   
Ms. Lunkin thanked the sponsors  for their work on the bill.                                                                    
She shared  that PT was  currently in the midst  of speaking                                                                    
with  global investors  about deploying  significant capital                                                                    
in  Arctic Alaska.  She planned  to speak  primarily on  the                                                                    
bill's fisheries provision.                                                                                                     
Co-Chair   Stoltze  asked   for   information  about   other                                                                    
provisions as well.                                                                                                             
Ms.  Lunkin  clarified  that  the  fisheries  provision  was                                                                    
focused  on  AIDEA  financing federally  managed  industrial                                                                    
fisheries  in the  Bering Sea.  The Alaska  fishing industry                                                                    
was  the  largest  employer  in Alaska  and  was  the  third                                                                    
largest industry  in the state; nearly  60,000 Alaskans were                                                                    
employed in  commercial fishing and seafood  processing. She                                                                    
stated  that an  additional 11,000  jobs in  the state  were                                                                    
created  by support  services industries.  She relayed  that                                                                    
most  additional jobs  created  by  Alaska's fisheries  were                                                                    
located outside of  Alaska. She stated that  the company saw                                                                    
the  provision as  bringing some  of  the outside  fisheries                                                                    
jobs  back  to  Alaska.  She detailed  that  jobs  would  be                                                                    
brought back in-state if AIDEA  had the ability to guarantee                                                                    
bank loans for  quota and or vessels used in  the Bering Sea                                                                    
for  fisheries   including  pollock,  crab,  and   cod.  The                                                                    
fisheries  provision also  provided AIDEA  loans for  shore-                                                                    
based plants, facilities, and equipment  within the State of                                                                    
Alaska that were used in  support of the Bering Sea fishery.                                                                    
The  company  believed  the  bill  would  increase  economic                                                                    
development,  infrastructure, opportunities,  and keep  jobs                                                                    
and profits in-state.                                                                                                           
3:27:56 PM                                                                                                                    
Representative  Wilson asked  what  new  authority the  bill                                                                    
would provide to AIDEA.                                                                                                         
TED   LEONARD,   EXECUTIVE   DIRECTOR,   ALASKA   INDUSTRIAL                                                                    
DEVELOPMENT  AND  EXPORT   AUTHORITY  (via  teleconference),                                                                    
answered  that the  bill  would establish  a  new fund  that                                                                    
would  allow  AIDEA  to  move  forward  on  Arctic  projects                                                                    
assisted by the legislature.  He communicated that AIDEA had                                                                    
the ability  to finance  the projects through  its revolving                                                                    
fund,  but  there  were  side  bars for  a  sample  of  loan                                                                    
participation that allowed the  agency to provide investment                                                                    
at its cost  of capital. He noted  that development projects                                                                    
through the  agency's development program were  based on its                                                                    
cost of capital.  The different fund would  allow the agency                                                                    
to assist  the legislature with  projects that it  wanted to                                                                    
fund and allowed the legislature to  set the type of cost of                                                                    
capital for the  project; it also set  limits on investment.                                                                    
Additionally,  the  bill  would  allow  the  legislature  to                                                                    
increase  the  investment  amount  through  legislation.  He                                                                    
provided  the Interior  energy project  funded  by the  SETS                                                                    
program  as   an  example.  Under   the  SETS   program  the                                                                    
legislature  had  instructed  AIDEA  to invest  up  to  $125                                                                    
million  in low-cost  loans  at a  rate of  no  more than  3                                                                    
percent and had  provided a capital appropriation  to use in                                                                    
combination  with the  loans. He  elaborated  that the  fund                                                                    
would   allow  the   same  type   of  flexibility   for  the                                                                    
legislature to  use AIDEA  as a  tool in  financing projects                                                                    
that it wanted  to move forward. Finally, the bill  set up a                                                                    
different  fund; therefore,  it  would not  impact the  bond                                                                    
rating  of the  AIDEA revolving  fund and  funding of  other                                                                    
3:31:40 PM                                                                                                                    
Representative Edgmon spoke  in support of the  bill that he                                                                    
believed  was forward  looking. He  believed the  bill dealt                                                                    
with an  issue that was  not presently  on the radar  of the                                                                    
mainstream  public. He  stated  that  things were  happening                                                                    
quickly associated  to the potential  opening of  the Arctic                                                                    
and issues  pertaining to the  Arctic Policy  Commission. He                                                                    
viewed  the bill  as providing  similar  building blocks  as                                                                    
those  that  had led  the  legislature  to the  current  gas                                                                    
legislation. He opined that the  opening of the Arctic would                                                                    
mean  bigger  things for  Alaska.  He  noted that  the  fund                                                                    
focused on fisheries.                                                                                                           
Co-Chair Stoltze made a remark  about the state's commercial                                                                    
CSSB 140(FIN)  was HEARD and  HELD in committee  for further                                                                    
3:33:45 PM                                                                                                                    
AT EASE                                                                                                                         
3:43:27 PM                                                                                                                    

Document Name Date/Time Subjects
SB 191 CS WORKDRAFT FIN C VERSION.pdf HFIN 4/16/2014 1:30:00 PM
SB 191
CSSB 140 (FIN) Letters of Support.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Sectional Analysis.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Summary of Changes ver U to ver E.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Supporting Document-Planning and Infrastructure Section of AAPC Preliminary Report.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Sponsor Statement.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
CSSB 140 (FIN) Supporting Document-ARPAPolar map.pdf HFIN 4/16/2014 1:30:00 PM
SB 140
SB 138 4.16.14 HFIN Response to Rep Gara Questions.pdf HFIN 4/16/2014 1:30:00 PM
SB 138
SB 138 4.15.14 House Finance 830 AM DOR Notes.pdf HFIN 4/16/2014 1:30:00 PM
SB 138