Legislature(2015 - 2016)HOUSE FINANCE 519

03/24/2015 01:30 PM FINANCE

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01:33:45 PM Start
01:34:56 PM Confirmation Hearings: Alaska Mental Health Trust Authority Board of Trustees
02:25:55 PM HB136
03:00:46 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation Hearing: TELECONFERENCED
Alaska Mental Health Trust Authority Board of
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 136                                                                                                            
     "An Act relating to school bond debt reimbursement;                                                                        
     and providing for an effective date."                                                                                      
Co-Chair Thompson indicated that he  would not be moving the                                                                    
bill out of committee today.                                                                                                    
REPRESENTATIVE  STEVE THOMPSON,  SPONSOR,  read the  sponsor                                                                    
statement for the bill.                                                                                                         
     Under  the current  fiscal shortfall  of $3.5  billion,                                                                    
     the state must control  expenses. It is imperative that                                                                    
     the  state not  only find  efficiencies and  reduce the                                                                    
     size of operational costs of  the state, but also limit                                                                    
     the potential growth of state  spending. House Bill 136                                                                    
    (HB 136) will allow the state to control expenses.                                                                          
     There  are   four  major   cost  drivers   in  Alaska's                                                                    
     statewide operating  costs: K-12 education,  Health and                                                                    
     Social  Services,  debt   service  (PERS/TRS  and  bond                                                                    
     payments), and  employee salaries and benefits.  HB 136                                                                    
     addresses the growth in state  debt service expenses by                                                                    
     suspending  subdivisions  of  government's  ability  to                                                                    
     bond without explicit state approval.                                                                                      
     House Bill  136 would  sunset Alaska  statutes relating                                                                    
     to  state  aid for  costs  of  school construction  and                                                                    
     major  maintenance  debt  for five  years.  After  five                                                                    
     years, if the legislature  does not take further action                                                                    
     on these  statutes, the reimbursement rates  for school                                                                    
     construction would  be reinstated and reduced  from 70%                                                                    
     to  50%  for  eligible   projects  described  under  AS                                                                    
     14.11.100 (h), (i),  (j) (2) - (5) and from  60% to 40%                                                                    
     for eligible projects  described under AS 14.11.100(h),                                                                    
     (i), and (j) (2), (3), and (5).                                                                                            
BRODIE ANDERSON, STAFF, REPRESENTATIVE STEVE THOMPSON, read                                                                     
the sectional analysis of the bill.                                                                                             
     *Section 1:  Amends AS  14.11.014, adds  new subsection                                                                    
     Sunsets  the  bond  debt reimbursement  provisions  for                                                                    
     school  construction  and  major maintenance  for  five                                                                    
     years, May 1, 2015 - July 1, 2020.                                                                                         
     *Section 2: Amends AS 14.11.100(a)                                                                                         
     Page  6,  line  21  restricts  reimbursement  of  bonds                                                                    
     authorized after  May 1,  2015. Page 7,  lines 1  - 11,                                                                    
     deletes language relating to  bonds   authorized  after                                                                    
     May 1, 2015.                                                                                                               
     *Section 3: Amends AS 14.11.100(a)                                                                                         
          Page 12, line 17 - Page 13, line 2 inserts                                                                            
          language relating to bonds authorized on or after                                                                     
          July 1, 2020.                                                                                                         
          (18) For projects approved under AS 14.11.100                                                                         
          (h), (i), and (j) (2) - (5) the reimbursement                                                                         
          would be 50 percent.                                                                                                  
          (19) For projects approved under AS 14.11.100                                                                         
          (h), (i), and (j) (2), (3), and (5) the                                                                               
          reimbursement would be 40 percent.                                                                                    
     *Section 4: Amends AS 14.11.100                                                                                            
          adds a new section (s) Restricts the Commissioner                                                                     
          from approving an application for bond debt                                                                           
          reimbursement between May 1, 2015 - July 1, 2020.                                                                     
     *Section 5: Amends AS 14.11.102                                                                                            
          adds new section (c) Restricts the Commissioner                                                                       
          from approving an application for bond debt                                                                           
          reimbursement between May 1, 2015 - July 1, 2020.                                                                     
     *Section 6:    Repeals sections 1, 4, and 5 of this                                                                        
                    act on July 1, 2020                                                                                         
     *Section 7:    Retroactivity clause                                                                                        
                    Sections 1, 2, 4, and 5 of this act are                                                                     
                    retroactive to May 1, 2015                                                                                  
     *Section 8:    Section 3 of this act takes effect July                                                                     
                    1, 2020                                                                                                     
     *Section 9:    Sections 1, 2, 4, 5, and 7 of this act                                                                      
                    take effect immediately                                                                                     
2:25:55 PM                                                                                                                    
Representative  Guttenberg cited  the multi-year  allocation                                                                    
totals shown on the  document titled, "Multi-year Allocation                                                                    
Totals - Operating Budget -  FY 2016 Senate Structure" (copy                                                                    
on file) and asked whether the  purpose was to point out the                                                                    
total  amount of  the state's  obligation from  2007 through                                                                    
2015.  Mr. Anderson  responded  affirmatively. He  indicated                                                                    
the information conveyed prior reimbursement obligations.                                                                       
Representative  Guttenberg asked  what the  totals would  be                                                                    
for FY  17 and FY 18  based upon past history.  Mr. Anderson                                                                    
referred  to  an additional  page  in  the committee  packet                                                                    
titled,  "Statewide   Liability  School   Construction  Debt                                                                    
Retirement, Updated 2/13/2015" (copy  on file) that reported                                                                    
the debt from  FY 15 through FY 34. He  explained that based                                                                    
on  the document  the  FY 16  total  was approximately  $108                                                                    
Co-Chair Thompson interjected that  the document showed that                                                                    
by  paying off  the debt  through 2034  the state  liability                                                                    
totaled $1,212,713,044.                                                                                                         
Mr.  Anderson added  that the  totals  only reflected  bonds                                                                    
already issued.                                                                                                                 
Vice-Chair Saddler inquired about  the physical condition of                                                                    
the schools  around the state.  Mr. Anderson  responded that                                                                    
he did not have the answer  to that question and referred to                                                                    
the Department of Education and Early Development (DEED).                                                                       
Vice-Chair  Saddler   asked  whether  the  state   would  be                                                                    
"abrogating" its  responsibility if it  did not fund  at the                                                                    
level  of  the  70  percent   30  percent  [state  -  local]                                                                    
reimbursement split.  Mr. Anderson  indicated he  would have                                                                    
to review  before he  could answer. He  added that  the bill                                                                    
did  not   prohibit  school  districts  from   bonding.  The                                                                    
legislation  only restricted  the  state's reimbursement  of                                                                    
the bonds.                                                                                                                      
2:30:19 PM                                                                                                                    
Vice-Chair Saddler  restated his question about  the general                                                                    
condition of the schools in the state.                                                                                          
ELIZABETH   NUDELMAN,   DIRECTOR,    SCHOOL   FINANCES   AND                                                                    
FACILITIES, DEPARTMENT  OF EDUCATION AND  EARLY DEVELOPMENT,                                                                    
answered  that  the condition  of  the  schools varied.  She                                                                    
elaborated that the  condition of a school was  based on the                                                                    
"useful life  of the components"  which created  a continued                                                                    
need for repair.  However, many buildings were  in very good                                                                    
condition based on maintenance and repair needs being met.                                                                      
Representative Wilson asked about  the history of the school                                                                    
bond  debt reimbursement  program and  the reasoning  behind                                                                    
the program.  Ms. Nudelman replied that  the bonding program                                                                    
was initiated  sometime in the  1970's. She  determined that                                                                    
upon  examination   of  the  previous  statute,   the  state                                                                    
partnered  with  school   districts  and  municipalities  to                                                                    
construct and  repair schools around the  state. The program                                                                    
mandated that  the municipalities  carried the debt  and the                                                                    
state  reimbursed a  portion of  the debt  under eligibility                                                                    
requirements. She  confirmed that the bill  did not prohibit                                                                    
municipalities from bonding.                                                                                                    
Representative  Wilson asked  about the  bonding ability  of                                                                    
schools  that  were  not  in  municipalities.  Ms.  Nudelman                                                                    
responded  that Regional  Education  Attendance Area  (REAA)                                                                    
schools  were located  in unorganized  boroughs and  did not                                                                    
have  the "legal  capacity"  to bond.  She  added that  some                                                                    
schools  located in  small municipalities  could not  obtain                                                                    
the backing to  bond for school construction  or repair. She                                                                    
detailed that a second statutory  program was a school grant                                                                    
program   called  the   CIP  Program   (capital  improvement                                                                    
project).  The department  received  applications each  year                                                                    
and ranked the projects according  to need and forwarded the                                                                    
list to  the governor and  legislature for funding  from the                                                                    
capital budget.                                                                                                                 
Representative Wilson  reported that from 2005  through 2015                                                                    
the  grant  program  totaled   $763  million.  She  wondered                                                                    
whether  with  passage  of the  bill,  the  districts  would                                                                    
switch over to the grant  program instead of bonding without                                                                    
reimbursement from the state.  Ms. Nudelman assumed that the                                                                    
grant  program  would  receive   more  applications  in  the                                                                    
absence  of the  debt reimbursement  program. Representative                                                                    
Wilson  commented that  she hoped  the  grant program  would                                                                    
also  be  reexamined  by the  legislature  and  include  all                                                                    
school construction.                                                                                                            
Co-Chair   Thompson   remarked    that   the   school   debt                                                                    
reimbursement program  was subject  to appropriation  by the                                                                    
legislature and  therefore, some  sideboards were  in place.                                                                    
He agreed  with Representative  Wilson's latter  comment and                                                                    
noted  that the  point of  the bill  was to  completely halt                                                                    
bonding for a period of time  until the state could "get our                                                                    
financial house in order."                                                                                                      
Representative Wilson wanted to  ensure that the legislation                                                                    
was applied equally throughout the state.                                                                                       
2:37:14 PM                                                                                                                    
Co-Chair  Neuman asked  whether  the bill  would affect  the                                                                    
construction  of the  last  Kasayulie  School. Ms.  Nudelman                                                                    
responded  that  the bill  did  not  apply to  the  Kivalina                                                                    
School.  Co-Chair Neuman  expressed more  concern about  the                                                                    
bill  affecting  the  Kasylie case  mandate  and  asked  for                                                                    
further clarification.  Ms. Nudelman  relayed that  the debt                                                                    
reimbursement  program  timeline eligibility  happened  when                                                                    
the  voters authorized  the debt.  She  expounded that  debt                                                                    
that was  authorized in  2011 would  remain in  the program.                                                                    
The  Kivalina School  was part  of the  Kasayulie settlement                                                                    
resolved  in  2011.  In  the FY  2016  budget  the  governor                                                                    
appropriated approximately  $4.7 million  for design  of the                                                                    
school.  In  order  for  the bill  to  affect  the  Kivalina                                                                    
project, either  the governor or  legislature would  have to                                                                    
deny  funding for  the project.  The Kivalina  School was  a                                                                    
separate  issue   from  the  legislation.   Co-Chair  Neuman                                                                    
indicated  he  wanted to  ensure  that  the bill  would  not                                                                    
create   a  legal   issue   with   the  mandated   Kasayulie                                                                    
Vice-Chair  Saddler  asked  whether  the  legislation  would                                                                    
prompt lawsuits for the state  from municipalities or school                                                                    
districts. Ms. Nudelman  responded that she "did  not have a                                                                    
basis" to form an opinion  about the potential for lawsuits.                                                                    
She maintained  that the legislature  held the  authority to                                                                    
appropriate funds and create statute.                                                                                           
2:41:35 PM                                                                                                                    
Representative  Kawasaki   wondered  what  portion   of  the                                                                    
overall state debt belonged to  schools versus other bonding                                                                    
debt.  Co-Chair Thompson  answered  that  the state's  total                                                                    
bond payments  in FY 15  was approximately $264  million, of                                                                    
which $114.6 million was attributed to school debt.                                                                             
Co-Chair Neuman  stated that  total debt  bond reimbursement                                                                    
was actually $228 million.                                                                                                      
Representative Kawasaki  expressed concern about the  May 1,                                                                    
2015 effective  date of  the bill.  He indicated  that every                                                                    
other  school district  except Anchorage  would be  excluded                                                                    
from the  program this  year base on  the date.  He wondered                                                                    
whether  any discussion  ensued in  regards to  changing the                                                                    
effective date.  Mr. Anderson relayed that  both the Bristol                                                                    
Bay Borough  and the Anchorage  School District  was holding                                                                    
school  debt  bonding  elections  before  May  1,  2015.  He                                                                    
confirmed  that  every  other   school  district  "would  be                                                                    
impacted" by passage of the legislation.                                                                                        
Co-Chair Thompson reminded  the committee that reimbursement                                                                    
of any school  debt bond package was  subject to legislative                                                                    
appropriation.  He  cautioned  that  both  school  districts                                                                    
needed  to remember  that with  passage of  the bond  issue,                                                                    
they   still  might   be  required   to   pay  100   percent                                                                    
Representative   Kawasaki   asked   whether   other   school                                                                    
districts were planning on having  a bond measure as part of                                                                    
elections in the fall. Ms.  Nudelman was uncertain. However,                                                                    
she  did  know  of  one   other  school  district  that  was                                                                    
anticipating   a   new   bond  proposal   at   some   point.                                                                    
Representative Kawasaki  asked whether many  districts would                                                                    
rush  to  add  school  bonding  proposals  as  part  of  the                                                                    
upcoming elections in the fall  if the date was changed. Ms.                                                                    
Nudelman was not certain but thought that it was possible.                                                                      
2:45:56 PM                                                                                                                    
Representative Edgmon clarified  that the debt reimbursement                                                                    
program  had  "historically  come  and gone  in  the  past."                                                                    
Recently, there had  not been a sunset date  attached to the                                                                    
program.  He  stated  that  the  grant  program  was  highly                                                                    
competitive.  He  offered  that the  Ketchikan  lawsuit  was                                                                    
focused on  the K -  12 funding formula and  the operational                                                                    
side of  education funding.  He also  indicated that  he had                                                                    
some  "conflicted feelings  about the  bill." He  understood                                                                    
the  reason  from  the standpoint  of  "fiscal  discipline."                                                                    
However,  from  the  standpoint of  the  small  Bristol  Bay                                                                    
Borough School  District, he  thought that  it would  be the                                                                    
last opportunity  for the  school to  take advantage  of the                                                                    
program. He added  that the school was in  desperate need of                                                                    
repair and that repairs would  render the school more energy                                                                    
efficient  and  overtime  could   save  money.  He  wondered                                                                    
whether  a  "rush"  of school  districts  were  expected  to                                                                    
attempt  to qualify  before the  program  would sunset.  Ms.                                                                    
Nudelman believed  that school districts were  restricted by                                                                    
its voters  who understood  the larger fiscal  crisis facing                                                                    
the state and thought that  the voters would need convincing                                                                    
before a bond issue was passed.                                                                                                 
Mr.  Anderson   responded  that  through  his   research  in                                                                    
anticipation  of  the  legislation he  discovered  that  the                                                                    
municipal school bonding process  was lengthy and could last                                                                    
months.  He  observed that  "in  regards  to the  bum  rush"                                                                    
scenario, current evidence of that would be apparent.                                                                           
2:50:21 PM                                                                                                                    
Representative Edgmon  wondered whether the committee  had a                                                                    
legal  opinion  from the  Department  of  Law regarding  the                                                                    
legality  of   imposing  a  definitive  cut-off   date.  Mr.                                                                    
Anderson reported  that no legal  memo existed  regarding HB
Co-Chair  Thompson   informed  Representative   Edgmon  that                                                                    
Alaska  Housing Finance  Corporation  (AHFC)  had a  program                                                                    
applicable to  public buildings, including schools  that was                                                                    
being utilized  in many rural  areas. He explained  that the                                                                    
program was focused on  energy efficiency and weatherization                                                                    
and  the grant  would be  repaid through  guaranteed savings                                                                    
from lower energy costs achieved overtime.                                                                                      
Co-Chair  Neuman  interjected  that  private  entities  also                                                                    
offered the same energy efficiency type programs.                                                                               
Vice-Chair  Saddler   remarked  that  in  response   to  the                                                                    
suggested "land  office rush" for the  remaining school debt                                                                    
program , he thought that  the notion of the "generous state                                                                    
reimbursement coming to  an end" would not  be surprising to                                                                    
the school districts given the state's financial condition.                                                                     
Representative  Munoz  asked  whether non-REAA  schools  can                                                                    
apply for  the grant  funding. Ms.  Nudelman replied  in the                                                                    
affirmative. Representative  Munoz asked what the  number of                                                                    
applications the  department received for the  grant program                                                                    
in a  given year  was versus the  number of  awarded grants.                                                                    
Ms. Nudelman responded that  DEED received approximately 160                                                                    
to  200 applications  and that  in the  FY 2016  budget four                                                                    
applications were awarded totaling  $13 million exclusive of                                                                    
the  capital construction  project for  the Kivalina  School                                                                    
design. She noted that the  number of applications typically                                                                    
decreased during leaner budget years.                                                                                           
2:55:12 PM                                                                                                                    
Representative Munoz asked whether all  of the funds for the                                                                    
grant  program was  state  funding.  Ms. Nudelman  responded                                                                    
that  the grant  program required  a percentage  of matching                                                                    
funds based  on the  assessed value  per ADM  (average daily                                                                    
Representative Gattis believed that  over the 40 year period                                                                    
of  the reimbursement  program  it  incentivized the  school                                                                    
districts   to  overbuild   buildings  which   all  required                                                                    
maintenance. She felt that the  school districts were moving                                                                    
into a period  of necessary maintenance and  with passage of                                                                    
HB 136,  were getting its  source of funding  revoked, which                                                                    
was  not planned  for. She  asked  for the  total amount  of                                                                    
deferred  school  maintenance  in the  state.  Ms.  Nudelman                                                                    
responded  that   one  way  that  the   department  assessed                                                                    
deferred maintenance  was reviewing the insurance  value for                                                                    
all of  the school buildings statewide.  She elaborated that                                                                    
DEED  also required  six year  plans  from school  districts                                                                    
regarding maintenance  needs. She thought that  both methods                                                                    
gave   the  department   a   good   indication  of   general                                                                    
maintenance  needs  of  the schools.  Representative  Gattis                                                                    
wondered  whether the  district had  a specific  number. Ms.                                                                    
Nudelman had  access to a  report with the numbers  that she                                                                    
would provide to the committee.                                                                                                 
Representative Kawasaki  notified the committee that  a 2010                                                                    
report on school construction  and major maintenance funding                                                                    
had been distributed.                                                                                                           
Representative  Munoz  stated  that charter  schools  became                                                                    
eligible  for the  school  debt  reimbursement program.  She                                                                    
wondered whether charter schools  were included in the bill.                                                                    
Mr. Anderson was uncertain.                                                                                                     
HB  136  was  HEARD  and   HELD  in  committee  for  further                                                                    
He discussed the agenda for the next day.                                                                                       
3:00:46 PM                                                                                                                    
The meeting was adjourned at 3:00 p.m.                                                                                          

Document Name Date/Time Subjects
Mental Health Trust - Smith #1.pdf HFIN 3/24/2015 1:30:00 PM
Mental Health - Michael #4.pdf HFIN 3/24/2015 1:30:00 PM
Mental Health - Cooke #3.pdf HFIN 3/24/2015 1:30:00 PM
HB 136 Sectional Analysis.pdf HFIN 3/24/2015 1:30:00 PM
HB 136
HB 136 Sponsor Statement.pdf HFIN 3/24/2015 1:30:00 PM
HB 136
HB 136 Fiscal Note EED.pdf HFIN 3/24/2015 1:30:00 PM
HB 136
HB 136 Support Material - State Debt Liability.pdf HFIN 3/24/2015 1:30:00 PM
HB 136
HB 136 Support Material - MultiYearAllocationTotals.pdf HFIN 3/24/2015 1:30:00 PM
HB 136
HB 136 Supporting Documents - May 1 Date Only - Letter From Bristol Bay Borough.pdf HFIN 3/24/2015 1:30:00 PM
HB 136
HB 136 Opposing Documents - FNSB School Debt Reimbursement Letter.pdf HFIN 3/24/2015 1:30:00 PM
HB 136
HB 136 DEED 6 YR Plan 2015 Final.pdf HFIN 3/24/2015 1:30:00 PM
HB 136
HB 136 DEED Response to Rep. Gattis.pdf HFIN 3/24/2015 1:30:00 PM
HB 136