Legislature(2015 - 2016)HOUSE FINANCE 519

03/26/2015 01:30 PM FINANCE

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01:33:13 PM Start
01:34:38 PM HB101
03:15:14 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
<Bill Hearing Canceled>
<Bill Hearing Canceled>
<Pending Referral>
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 26, 2015                                                                                            
                         1:33 p.m.                                                                                              
1:33:13 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Thompson called the House Finance Committee                                                                            
meeting to order at 1:33 p.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative Mark Neuman, Co-Chair                                                                                            
Representative Bryce Edgmon                                                                                                     
ALSO PRESENT                                                                                                                  
Representative   Bob   Herron,   Sponsor;   Dan   Winkelman,                                                                    
CEO/President,  Yukon-Kuskokwim  Health  Corporation;  Deven                                                                    
Mitchell,  Executive Director,  Alaska  Municipal Bond  Bank                                                                    
Authority, Department of Revenue.                                                                                               
HB 101    MUNI BOND BANK LOANS TO REG HEALTH ORGS                                                                               
          HB 101 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
Co-Chair Thompson reviewed the agenda for the day. He                                                                           
indicated that he did not intend to move the bill out of                                                                        
1:34:38 PM                                                                                                                    
HOUSE BILL NO. 101                                                                                                            
     "An  Act relating  to the  Alaska  Municipal Bond  Bank                                                                    
     Authority; authorizing  the Alaska Municipal  Bond Bank                                                                    
     Authority  to  issue  bonds or  notes  for  a  regional                                                                    
     health  organization; and  providing  for an  effective                                                                    
1:34:42 PM                                                                                                                    
REPRESENTATIVE BOB HERRON, SPONSOR, began by reading the                                                                        
sponsor statement:                                                                                                              
     Muni Bond Bank loans to Regional Health Organizations                                                                      
     HB  101 provides  Regional Health  Organizations direct                                                                    
     access  to the  Alaska Municipal  Bond Bank  (AMBB) for                                                                    
     the  purpose  of issuing  debt,  in  an amount  not  to                                                                    
     exceed $250  million. In  2014, the  Legislature passed                                                                    
     SB 218  which allows AMBB  to issue bonds on  behalf of                                                                    
     the  University of  Alaska for  their new  power plant.                                                                    
     This  bill  aims to  accomplish  the  same results  for                                                                    
     Regional Health Care Organizations.                                                                                        
     AMBB is  a public  corporation of  the State  of Alaska                                                                    
     established to  aid Alaska municipalities  in financing                                                                    
     capital  improvement projects.  AMBB generates  funding                                                                    
     by selling bonds on the  national market, and using the                                                                    
     proceeds  to  purchase  bonds from  local  governments.                                                                    
     AMBB leverages  its credit ratings into  lower interest                                                                    
     rates  than  municipalities  would be  able  to  borrow                                                                    
     independently. These municipalities  then pay principal                                                                    
     and  interest   to  the  Bond   Bank  on   their  debt.                                                                    
     Utilization of the State's  moral obligation pledge has                                                                    
     not  cost the  State as  every loan  that the  AMBB has                                                                    
    entered into over the last 40 years has been paid.                                                                          
     Currently, regional health  organizations have indirect                                                                    
     access  to   the  Bond  Bank   by  partnering   with  a                                                                    
     municipality to  apply to  the Bond  Bank on  a conduit                                                                    
     basis. All  non-profits that want  to issue  tax exempt                                                                    
     debt in Alaska  must do so through a  municipality on a                                                                    
     conduit basis.  However, even though the  debtor is not                                                                    
     the  municipality, not  all  municipal governments  are                                                                    
     willing to consider  using the Bond Bank  on the behalf                                                                    
     of  a local  non-profit due  to the  complexity of  the                                                                    
     bonding process.                                                                                                           
     Benefits of Utilizing the Bond Bank                                                                                        
     The Bond  Bank has an  excellent loan record  with 100%                                                                    
     of loans repaid and  in conjunction with state support,                                                                    
     has received "AA+" credit ratings  from both Standard &                                                                    
     Poor's  Ratings  Services  and  Fitch  Ratings.  Strong                                                                    
     credit ratings allow  the Bond Bank to  borrow money at                                                                    
     favorable interest rates. Smaller  communities are at a                                                                    
     disadvantage in  the financial  markets. They  may have                                                                    
     lower bond  ratings, and  although credit  worthy, have                                                                    
     not  issued bonds  or  notes,  have little  outstanding                                                                    
     debt, or  lack investor  familiarity. Over the  last 10                                                                    
     years,  the Bond  Bank  has  saved Alaskan  communities                                                                    
     approximately $112  million, and has secured  over $1.5                                                                    
     billion   dollars  since   inception  to   finance  the                                                                    
     construction  of   key  projects;   including  schools,                                                                    
     roads,   utilities,  harbors,   hospitals,  and   other                                                                    
     municipal facilities.                                                                                                      
     Yukon-Kuskokwim  Health   Corporation  (YKHC)  Proposal                                                                    
     Regional  health  organizations  in  Alaska  have  been                                                                    
     constructing new health  infrastructure in coordination                                                                    
     with the  federal government's Indian  Health Service's                                                                    
     Joint  Venture   Construction  Program   (JVCP).  Joint                                                                    
     Venture Construction  Program is a  competitive federal                                                                    
     program  whereby   the  regional   health  organization                                                                    
     agrees to construct new  health infrastructure and then                                                                    
     the   federal   government  will   request   additional                                                                    
     staffing for the new facility from Congress.                                                                               
     Four JVCP projects have recently  been built in Alaska.                                                                    
     At  this time,  the federal  government is  considering                                                                    
     two additional  JVCP projects in  Alaska, one  of which                                                                    
     is  a  large  rural project  with  the  Yukon-Kuskokwim                                                                    
     Health  Corporation  headquartered  in  Bethel.  YKHCs'                                                                    
     project request  was recently rated  number one  in the                                                                    
     nation by  the federal  government out of  thirty seven                                                                    
     other competitive JVCP applications.                                                                                       
     YKHC is  currently working with the  federal government                                                                    
     to renovate the existing  Bethel hospital and construct                                                                    
     a new  primary care  clinic costing  approximately $250                                                                    
     million. YKHC  will pay  for the  construction. Federal                                                                    
     standards call  for Congress to fund  approximately 200                                                                    
     new staff  in relation  to the  cost of  a construction                                                                    
     project,   which   will   also  provide   an   economic                                                                    
     opportunity in human capital for the region.                                                                               
     The JVCP  will cost the  State of Alaska  no additional                                                                    
     monies, and  in fact  the improvements are  expected to                                                                    
     save  State funds.  The JVCP  will bring  approximately                                                                    
     200 new  permanent positions  into Bethel  region, paid                                                                    
     for  by the  federal government.  The JVCP  will create                                                                    
     hundreds  of  new  construction   jobs  in  Bethel  and                                                                    
     elsewhere,  paid for  by YKHC.  The  JVCP will  improve                                                                    
     access and  quality of  care for  the residents  of the                                                                    
     entire Yukon-Kuskokwim Delta.                                                                                              
     Construction   in  rural   Alaska   is  expensive   and                                                                    
     therefore   affordable   financing  becomes   extremely                                                                    
     important  for  large  rural JVCP  projects.  For  this                                                                    
     large rural project to be  affordable for YKHC, the low                                                                    
     interest  rates   obtainable  by   the  Bond   Bank  is                                                                    
Representative Herron  explained that the  legislation would                                                                    
allow YKHC,  a regional health organization,  to have access                                                                    
to AMBB. The legislation did  not allow for any preferential                                                                    
treatment of YKHC  over any other entity that  had access to                                                                    
the bond  bank. He  reported that  the project  included the                                                                    
rehabilitation  of  a hospital  and  new  construction of  a                                                                    
primary  care facility  totaling $250  million. The  project                                                                    
would  provide over  200 full-time  jobs. The  Indian Health                                                                    
Service  indicated   that  it  would  negotiate   a  20-year                                                                    
staffing  package. He  announced  that two  staff from  YKHC                                                                    
were available for questions from committee members.                                                                            
Co-Chair  Thompson  reviewed  the available  testifiers  and                                                                    
asked if there were any questions from committee members.                                                                       
Representative Wilson asked why  YKHC was pursuing financing                                                                    
from AMBB as opposed to other financing options.                                                                                
Representative Herron deferred to Mr. Winkelman.                                                                                
1:37:35 PM                                                                                                                    
DAN   WINKELMAN,   CEO/PRESIDENT,   YUKON-KUSKOKWIM   HEALTH                                                                    
CORPORATION,  introduced   himself  and  indicated   he  was                                                                    
speaking in favor of HB 101.                                                                                                    
Representative  Wilson  restated  her  question  as  to  the                                                                    
pursuit of municipal bond bank funding.                                                                                         
Mr. Winkelman noted  that both of the hospitals  in Nome and                                                                    
in Barrow  were paid for  with IHS dollars. He  relayed that                                                                    
currently there  was a wait  list of projects  equaling over                                                                    
$1  billion; IHS  had  an extensive  queue  of projects,  of                                                                    
which YKHC was  not listed. The queue list had  to be opened                                                                    
by congress  in order for  projects to be added.  He relayed                                                                    
that only a  small list of projects was  available to choose                                                                    
from at present. It was not  expected that the list would be                                                                    
opened to  further projects anytime  in the near  future. He                                                                    
suspected that  the wait time  for a new hospital  in Bethel                                                                    
would extend beyond his lifetime.                                                                                               
1:39:00 PM                                                                                                                    
Representative Gattis asked why  the legislature would limit                                                                    
a change  in statute to  just YKHC. Mr.  Winkelman explained                                                                    
that   YKHC,  as   a  regional   health  organization,   was                                                                    
significantly  different  than  other  organizations  within                                                                    
rural Alaska.  He reported that YKHC  had third-party monies                                                                    
that  other  organizations  did not  have.  He  argued  that                                                                    
access to affordable capital for  large projects was limited                                                                    
due to being off of  the road system. Yukon-Kuskokwim Health                                                                    
Corporation  was  looking  for  the  most  affordable  money                                                                    
possible.  Lower-cost  financing  with  a  bond  bank  would                                                                    
equate  to  a  savings  of  approximately  $100  million  in                                                                    
interest monies.  The rates were  kept low  making borrowing                                                                    
more affordable.                                                                                                                
Representative  Gattis   understood  that  the   option  was                                                                    
optimal  for YKHC.  However, she  wondered about  broadening                                                                    
the legislation to include other entities.                                                                                      
Representative  Munoz wondered  if  YKHC,  the primary  care                                                                    
center, and the regional hospital  were all part of the same                                                                    
entity. Mr.  Winkelman replied that the  primary care center                                                                    
was part of  YKHC, but the hospital was  federally owned. He                                                                    
reported working with Congress to  have the hospital and the                                                                    
corresponding  land   ownership  transferred  to   YKHC.  He                                                                    
relayed that JVCP required  the regional health organization                                                                    
to own the site.                                                                                                                
Representative Munoz  asked if the YKHC  had any outstanding                                                                    
debt.  Mr.  Winkelman  responded   in  the  affirmative.  He                                                                    
indicated   that  YKHC   had   incurred  debt   for  a   new                                                                    
administrative building  constructed in the late  1990s. The                                                                    
municipalities of  St. Mary's and Emmonak  were the conduits                                                                    
used to  access AMBB. He  informed the committee  that there                                                                    
was approximately $9 million of  associated debt on the note                                                                    
and added  that YKHC had  recently refinanced the  loan with                                                                    
its banker.                                                                                                                     
1:42:58 PM                                                                                                                    
Representative  Munoz asked  if Mr.  Winkelman was  aware of                                                                    
any  other   health  organization  expressing   interest  in                                                                    
accessing  bond bank  funds.  Mr.  Winkelman responded  that                                                                    
there were  other organizations such as  Norton Sound Health                                                                    
Corporation (NSHC) that were interested  in AMBB funding. He                                                                    
detailed  that  NSHC  was  seeking  monies  for  clinics  in                                                                    
disrepair.  He reported  that the  Denali Commission  was no                                                                    
longer funding new construction  of village clinics in rural                                                                    
Alaska. He  confirmed that  other entities  were in  need of                                                                    
affordable financing.                                                                                                           
Vice-Chair   Saddler   asked   Mr.  Winkelman   to   provide                                                                    
historical  information  about  YKHC and  its  function.  He                                                                    
wanted to better understand the  roll of YKHC. Mr. Winkelman                                                                    
specified  that  YKHC  was  founded in  1969  as  a  501(C)3                                                                    
nonprofit   organization;  leaders,   doctors,  and   nurses                                                                    
started the company in order to  have a say about how health                                                                    
care  was going  to be  delivered  in the  region. Prior  to                                                                    
YKHC's  inception, health  care in  Alaska was  only offered                                                                    
through IHS. In  the beginning, YKHC contracted  with IHS to                                                                    
provide  a  community health  care  program  and dental  and                                                                    
optometry services.  In time, the entity  elevated to mature                                                                    
contractor   status.   Yukon-Kuskokwim  Health   Corporation                                                                    
entered  into   negotiations  with  the   regional  hospital                                                                    
eventually  taking  over  the entire  health  care  delivery                                                                    
system previously  run by IHS.  He reported that YKHC  had 5                                                                    
subregional clinics,  ran 41 village clinics,  and served 30                                                                    
residents in the Yukon-Kuskokwim delta.                                                                                         
Vice-Chair Saddler asked about  Mr. Winkelman's reference to                                                                    
"took  over." He  recapped  that YKHC  provided  IHS with  a                                                                    
service,  IHS  provided  compensation   to  YKHC,  and  YKHC                                                                    
provided health care services to  patients in the region. He                                                                    
wanted to  know if YKHC was  associated in any way  with the                                                                    
regional  native corporation.  Mr. Winkelman  responded that                                                                    
YKHC was independent of the  regional native corporation. He                                                                    
detailed  that the  organization had  21 board  members that                                                                    
were elected to  serve 5-year terms. It was  required by the                                                                    
Indian Self-Determination Act to have a contract with IHS.                                                                      
1:46:51 PM                                                                                                                    
Vice-Chair  Saddler  wondered  about the  governance  system                                                                    
prior  to  the  acknowledgement  of  tribes  in  Alaska.  He                                                                    
assumed that  there were 21  different tribes; 1  member per                                                                    
tribe  was elected  to the  board.  Mr. Winkelman  explained                                                                    
that, prior to recognition,  Alaskan tribes got together and                                                                    
elected the  tribal councils that  existed at the  time. The                                                                    
process  was basically  the same  as the  current system  in                                                                    
Vice-Chair  Saddler  asked  if  the  people  had  considered                                                                    
themselves members  of a  tribe at  the time.  Mr. Winkelman                                                                    
responded affirmatively.                                                                                                        
Vice-Chair  Saddler asked  Mr.  Winkelman  to explain  about                                                                    
previous financing. Mr. Winkelman  explained that JVCP was a                                                                    
program in  which IHS agreed  to lease and staff  new health                                                                    
care  facilities   that  were   built  by   regional  health                                                                    
organizations. Yukon-Kuskokwim  Health Center was one  of 37                                                                    
applicants  from around  the country  to apply.  He detailed                                                                    
that the  program was started  in 1992 with the  first pilot                                                                    
project. There  was a long  list of awardees, four  of which                                                                    
were operating in Alaska.  The facilities included; Dena'ina                                                                    
Wellness Center  in Kenai, South  Central Foundation  in the                                                                    
Mat-Su valley [Wasilla], The  Tanana Chief's facility [Chief                                                                    
Andrew Isaac  Health Care Center]  in Fairbanks,  and Copper                                                                    
River Native  Association Health Center [in  Glennallen]. He                                                                    
reported  that   the  four   facilities  had   been  running                                                                    
1:48:59 PM                                                                                                                    
Vice-Chair Saddler wanted to confirm  that if a facility was                                                                    
constructed the  federal government would fund  it and staff                                                                    
it. He  also asked if  YKHC was  seeking funds to  build the                                                                    
Mr.  Winkelman responded  that  HB 101  only  gave YKHC  the                                                                    
authority to apply  for funding with AMBB. It was  up to the                                                                    
bond  bank to  determine YKHC's  eligibility for  affordable                                                                    
financing.  Yukon-Kuskokwim Health  Center was  also looking                                                                    
to diversify  the state's  risk by  working with  the United                                                                    
States  Department of  Agriculture  and  other financers  to                                                                    
diversify  the  project's  financing structure  due  to  its                                                                    
large size.                                                                                                                     
Vice-Chair Saddler wondered if  the project would create any                                                                    
obligations on  the part  of the state  if the  bill passed,                                                                    
YKHC was granted funding from  the bond bank, and a facility                                                                    
was built. Mr. Winkelman responded  that he was not aware of                                                                    
any obligations on the part  of the state. He commented that                                                                    
Mr. Mitchell would  be able to better  respond to Vice-Chair                                                                    
Saddler's question.                                                                                                             
Co-Chair  Thompson asked  about YKHC's  bonding through  the                                                                    
cities  of St.  Mary's and  Emmonak. He  wanted to  know the                                                                    
size  of  the  bond  and the  bond  balance.  Mr.  Winkelman                                                                    
reported  that YKHC  used Emmonak's  and St.  Marys' bonding                                                                    
ability  in  the  late  1990s.  He  estimated  the  original                                                                    
bonding  at  $20  million.  The  current  balance,  recently                                                                    
refinanced at a better rate, was approximately $9 million.                                                                      
1:51:38 PM                                                                                                                    
Representative  Guttenberg stated  that  he represented  the                                                                    
cities of Emmonak  and St. Mary's and that  both had bonding                                                                    
capacity for regional health clinics.  He wondered if Bethel                                                                    
had the capacity  for the size of bond that  was needed. Mr.                                                                    
Winkelman responded that YKHC  currently had indirect access                                                                    
to  the bond  bank through  the municipality  of Bethel.  He                                                                    
relayed that  Bethel was adverse to  debt accumulation which                                                                    
explained   the   reason   for    YKHC   bonding   via   the                                                                    
municipalities of  Emmonak and St.  Mary's in the  1990s. He                                                                    
believed there  was a bonding cap  and that the size  of the                                                                    
current project was beyond Bethel's bonding capacity.                                                                           
Mr. Winkelman continued to provide  reasons he supported the                                                                    
bill  including   the  benefits  of   economic  development,                                                                    
improved access  to health  care, quality  of care,  and job                                                                    
opportunities.  He  reported  that a  $30  million  staffing                                                                    
package   was  being   considered   along   with  a   yearly                                                                    
maintenance  and   improvement  fund  of  $10   million.  He                                                                    
explained  that  he had  been  aggressive  in pursuing  JVCP                                                                    
because he  was unable to  satisfy the health care  needs in                                                                    
Bethel. He  pointed out that  Bethel's current  hospital was                                                                    
limited by size and age. He  asserted that JVCP was the only                                                                    
way to  improve the services  to meet the  significant needs                                                                    
of the  region. He reiterated  the success of JVCP  in other                                                                    
areas of Alaska.  He felt that the bill provided  a means to                                                                    
improve health care for 30  thousand residents in the Yukon-                                                                    
Kuskokwim delta.                                                                                                                
1:54:26 PM                                                                                                                    
Representative    Guttenberg   remarked    that   Fairbanks,                                                                    
Anchorage,  Juneau,  St. Mary's,  and  Emmonak  all had  the                                                                    
ability to access municipal bonds.  He suggested that Bethel                                                                    
did not.  He asked about  Norton Sound and whether  Nome had                                                                    
potential bonding  capacity. Mr.  Winkelman replied  that he                                                                    
was talking about Nome and  Barrow and furthered that it was                                                                    
not  a bonding  issue  with either  community. He  explained                                                                    
that they were  already in IHS's queue  for new construction                                                                    
and  that the  Nome Hospital  was  very old.  The issue  for                                                                    
Bethel was that it would  not have the opportunity to expand                                                                    
its  30-year  old  hospital  or  construct  a  new  facility                                                                    
through IHS because  of Congress' backlog in  the funding of                                                                    
new  facilities for  IHS. He  did not  believe Bethel  would                                                                    
receive any  funding. He clarified  that Bethel  had bonding                                                                    
capacity  but  in  past  years   had  not  been  willing  to                                                                    
accumulate additional  debt. He understood that  AMBB wanted                                                                    
the  legislature to  weigh in  due  to the  scope of  YKHC's                                                                    
Representative  Guttenberg   referenced  page  2,   line  6,                                                                    
Section  6 of  HB 101  [many municipalities  provide for  or                                                                    
partner   with  nonprofit   organizations  to   provide  for                                                                    
delivery of health  care]. He wanted to  know if Legislative                                                                    
Legal Services thought line 6 was necessary.                                                                                    
Representative  Herron remarked  that  it  was obvious  that                                                                    
municipalities    regularly    partnered   with    nonprofit                                                                    
organizations. He  reported that  Bethel was  presented with                                                                    
three  opportunities to  go  to the  bond  bank for  funding                                                                    
facilities  in   its  community.   The  first  was   for  an                                                                    
administrative building.  The second opportunity  came about                                                                    
when  the legislature  set  up a  mechanism  to build  Goose                                                                    
Creek Correctional Center,  rehabilitate the Fairbanks jail,                                                                    
and rehabilitate the  Yukon-Kuskokwim Correctional Center in                                                                    
Bethel.  It was  suggested  that the  municipalities be  the                                                                    
conduits,  which Bethel  opted against.  The third  time the                                                                    
City  of Bethel  went  to  the bond  bank  was  to fund  the                                                                    
construction  of  the  court house.  Eventually  the  stated                                                                    
leased the building enabling payments to the bond bank.                                                                         
1:58:19 PM                                                                                                                    
Representative Kawasaki  wanted clarity about how  IHS' JVCP                                                                    
worked. He  understood that  the joint  venture did  not pay                                                                    
for the cost of construction  or implementation. He asked if                                                                    
the venture  paid for the  staff following  construction and                                                                    
for the debt.                                                                                                                   
Mr.  Winkelman confirmed  that  Representative Kawasaki  was                                                                    
correct. He explained that  the regional health organization                                                                    
would be responsible for building  the new facility with its                                                                    
own funds.  After a facility  was completed IHS  would staff                                                                    
the  facility based  on  formulas  that considered  building                                                                    
size, population, and growth rates.  The funds that would be                                                                    
used  to pay  off indebtedness  would be  the organization's                                                                    
funds  or third  party  funds  (Medicaid, Medicare,  private                                                                    
insurance,  and  self-pay  funds)  amounting  to  about  $70                                                                    
million per  year. A portion of  the money would be  used to                                                                    
make monthly payments to the bond bank.                                                                                         
2:00:12 PM                                                                                                                    
Representative  Kawasaki   asked  if  a  specific   type  of                                                                    
construction  or a  specific size  was  required under  IHS'                                                                    
JVCP. He wondered if the  regional health organization would                                                                    
qualify for the  project if the legislature  did not support                                                                    
the  entire amount  being requested  and a  smaller facility                                                                    
was built. Mr.  Winkelman relayed that the  new facility had                                                                    
to be  a minimum of  400 thousand  square feet. In  order to                                                                    
fulfill  the  square  footage  mandate  the  Yukon-Kuskokwim                                                                    
Health Center's  plan was to renovate  the existing hospital                                                                    
which  counted towards  the required  square footage  and to                                                                    
build  a  new  130  thousand square  foot  facility  located                                                                    
adjacent to the hospital. The  primary care clinics would be                                                                    
moved  out  of  the  hospital  and  into  the  new  adjacent                                                                    
building.  He  furthered  that the  dental,  optometry,  and                                                                    
behavioral health  units would  move into the  new facility.                                                                    
The inpatient  unit would be  moved to the same  location as                                                                    
the clinics  and the  emergency room  would be  expanded. He                                                                    
claimed  that  by  remodeling the  hospital  expenses  would                                                                    
remain reasonable and keep the  amount of new square footage                                                                    
Mr.   Winkelman   also   reported  that   there   might   be                                                                    
opportunities to make the facility  smaller. However, if the                                                                    
facility were smaller, so would the IHS staffing package.                                                                       
Representative  Kawasaki   asked  if   IHS  also   paid  for                                                                    
maintenance  and operation  for the  life of  the loan.  Mr.                                                                    
Winkelman responded  that in  addition to  staffing dollars,                                                                    
IHS   also  provided   maintenance  and   improvement  funds                                                                    
including  contract support  dollars. He  reported that  $30                                                                    
million dollars  was slated  for the  Yukon-Kuskokwim Health                                                                    
Center's proposal.  He estimated  upwards of $20  million to                                                                    
$30 million in additional  dollars which would almost double                                                                    
the existing contract  that it had with  IHS. Currently YKHC                                                                    
had a  contract with  IHS in which  it received  $71 million                                                                    
annually to run its program.                                                                                                    
Representative  Kawasaki referred  to  the 30-page  proposal                                                                    
and the financing  package contained in the  last few pages.                                                                    
He  indicated that  it stated  that YKHC  was trying  to get                                                                    
$250  million from  the municipal  bond bank.  He wanted  to                                                                    
know the rating YKHC received  was contingent on the passage                                                                    
of the bill. Mr. Winkelman  asserted that the passage of the                                                                    
bill had  nothing to do  with the rating. He  also specified                                                                    
that YKHC was  not seeking $250 million from  the bond bank.                                                                    
The amount  was considerably  less. In  the bill  the amount                                                                    
was capped  at $250  million. Yukon-Kuskokwim  Health Center                                                                    
had its own  monies to contribute and was  working with USDA                                                                    
to provide  a substantial amount of  funding. He anticipated                                                                    
that YKHC would  be seeking less than $200  million from the                                                                    
municipal bond bank.                                                                                                            
2:04:30 PM                                                                                                                    
Representative Gara placed on  record that he had previously                                                                    
represented  YKHC  about  twenty   years  prior  to  recover                                                                    
significant monies from IHS. He  confirmed that he no longer                                                                    
represented YKHC  and did  not think there  was any  kind of                                                                    
conflict of interest.                                                                                                           
Representative Gara believed there  was a future in lowering                                                                    
medical  costs and  expanding access  with  clinics such  as                                                                    
what  YKHC was  proposing. He  surmised that  the more  that                                                                    
people  were  served in  hospitals,  the  more that  medical                                                                    
costs would rise. He commented  that there were clinics that                                                                    
were not  affiliated with regional health  organizations. He                                                                    
wanted to know  if HB 101 could be expanded  to include non-                                                                    
native health clinics.                                                                                                          
Representative Herron deferred to Deven Mitchell.                                                                               
2:07:08 PM                                                                                                                    
DEVEN  MITCHELL, EXECUTIVE  DIRECTOR, ALASKA  MUNICIPAL BOND                                                                    
BANK   AUTHORITY,  DEPARTMENT   OF  REVENUE,   informed  the                                                                    
committee  that it  would be  an additional  policy decision                                                                    
whether  to allow  other nonprofits  to have  access to  the                                                                    
bond bank.  He divulged that  if Bethel  were to apply  on a                                                                    
conduit basis to  AMBB for the size of  loan being suggested                                                                    
it would be  very difficult to approve due  to the magnitude                                                                    
and nature  of the  project. He suggested  that if  AMBB was                                                                    
more   knowledgeable  about   the  non-native   health  care                                                                    
industry  he would  be  more than  willing  to have  further                                                                    
discussions about an addition  to AMBB's mission. He relayed                                                                    
that currently the bond bank  had a significant footprint in                                                                    
the  health care  industry in  communities that  owned their                                                                    
own hospitals.  He provided some  examples such  as Bartlett                                                                    
Regional Hospital in  Juneau, Ketchikan's Hospital, Valdez's                                                                    
hospital, Central  Kenai Peninsula Hospital in  Kenai, South                                                                    
Peninsula Hospital  in Homer, the  care facility  in Seward,                                                                    
and a facility in Kodiak. He  pointed out that the bond bank                                                                    
had funded  a variety of  facilities in the state  that were                                                                    
owned by the community and often operated by a nonprofit.                                                                       
2:09:04 PM                                                                                                                    
Representative   Gara  asked   if  nonprofit   clinics  were                                                                    
currently eligible  for bond  bank assistance.  Mr. Mitchell                                                                    
confirmed  that nonprofit  clinics  were  eligible for  AMBB                                                                    
assistance.  He relayed  that Juneau's  Wildflower Court,  a                                                                    
nonprofit long-term  care facility, obtained a  loan through                                                                    
the bond bank. The facility  shared a location and a mission                                                                    
with  Bartlett Regional  Hospital.  Many  of the  hospital's                                                                    
major  surgery patients  were released  to Wildflower  Court                                                                    
for  convalescence. He  explained that  the facility  sat on                                                                    
land owned by  the City and Borough of Juneau  (CBJ) and was                                                                    
previously bonded  on a  conduit basis  by CBJ.  He detailed                                                                    
that when a  nonprofit applied for financing with  AMBB on a                                                                    
conduit  basis the  credit that  was evaluated  was that  of                                                                    
only  the nonprofit.  In the  instance of  Wildflower Court,                                                                    
before  refinancing  through AMBB,  its  credit  was a  non-                                                                    
investment grade credit with an  interest rate of close to 7                                                                    
percent. He  furthered that by refinancing  through the bond                                                                    
bank  Wildflower Court  saw a  present value  savings of  $5                                                                    
million. However,  in order for  Wildflower Court  to secure                                                                    
AMBB's financing, CBJ had to  incur a $12 million contingent                                                                    
liability.  The bond  bank did  not have  to stress  as much                                                                    
with CBJ  behind the  loan on a  moral obligation  basis. He                                                                    
continued that  in a similar  instance moral  obligation was                                                                    
more than acceptable from a bond bank perspective.                                                                              
Representative  Gara asked  about potential  financial risks                                                                    
to  AMBB or  to  YKHC  if the  legislation  was expanded  to                                                                    
include  nonprofit health  clinics.  Mr. Mitchell  responded                                                                    
that  broadening the  issue could  jeopardize the  expansion                                                                    
proposed in  the current  form of the  bill. He  stated that                                                                    
health care  was not generally  viewed favorably  by capital                                                                    
markets due  to a variety  of health care  options available                                                                    
in the  continental United  States. He  suggested that  if a                                                                    
patient was  not comfortable with  one health  care facility                                                                    
he or  she could drive down  the road to the  next facility.                                                                    
He pointed out that it was  possible to do the same thing in                                                                    
Alaska, only with  a little less ease  (particularly off the                                                                    
road system).  He stated that  what Representative  Gara was                                                                    
suggesting  was something  the bond  bank might  be able  to                                                                    
manage  but would  have to  exercise care.  He relayed  that                                                                    
AMBB had not had any  defaults since inception. He wanted to                                                                    
maintain  a clear  record and  opined  that expansion  would                                                                    
make that more difficult.                                                                                                       
2:13:23 PM                                                                                                                    
Co-Chair Thompson  relayed that  the bond bank  was intended                                                                    
for  municipalities. He  understood that  municipalities had                                                                    
used their authority  for other health clinics  but had also                                                                    
assumed  the responsibility  for  the  loan application  and                                                                    
payment.  He  acknowledged that  in  the  previous year  the                                                                    
legislature  had  expanded  the  authority  to  include  the                                                                    
university.  He   wondered  if  including   other  nonprofit                                                                    
consortiums  would result  in  any unintended  consequences.                                                                    
Mr.  Mitchell replied  that AMBB's  board  of directors  had                                                                    
discussed  the potential  outcomes of  HB 101  and supported                                                                    
the  undertaking. He  reiterated  asking  the question,  "Is                                                                    
this a good policy decision  to have these partnerships that                                                                    
we are  discussing?" He  referred to Section  2 of  the bill                                                                    
requiring the commissioner of DHSS  to provide an opinion on                                                                    
behalf  of  the state  about  its  financial interest  in  a                                                                    
proposed project  and to weigh  in about whether  a specific                                                                    
project  would be  beneficial to  regional  health care.  He                                                                    
believed that,  from a  policy prospective,  the bill  was a                                                                    
good idea. He  conveyed that it was his job  to make sure it                                                                    
was a good idea from a credit perspective.                                                                                      
Co-Chair  Thompson asked  if there  would  be any  potential                                                                    
financial effects on municipalities  if the bonding capacity                                                                    
for  regional health  care facilities  were  expanded up  to                                                                    
$250 million.                                                                                                                   
Mr. Mitchell surmised that there  would not be any financial                                                                    
impacts to municipalities. He reiterated  that the intent of                                                                    
AMBB's   board  was   to  ensure   that   the  program   was                                                                    
administered  properly. He  reported  that  there were  some                                                                    
costs  the  bond  bank  subsidized  for  municipalities  and                                                                    
conversely,  other costs  were not.  He suggested  that when                                                                    
the program was  100 percent supported by  fees collected by                                                                    
users,  participating municipalities  experienced additional                                                                    
savings and the bank's ability  to complete its work was not                                                                    
Mr.  Mitchell  relayed that  AMBB  had  a strategy  for  its                                                                    
capital reserve requirement. He  reported that the bond bank                                                                    
was  statutorily required  to  fund a  debt service  reserve                                                                    
when it sold bonds. He  detailed that funding a debt service                                                                    
reserve was  expensive in the current  financial environment                                                                    
given  that  the yield  curve  went  up. He  explained  that                                                                    
financial  investors were  at  the short  end  of the  yield                                                                    
curve,  which, on  the taxable  side, was  not where  it had                                                                    
been in the  past. He elaborated that  treasuries could only                                                                    
yield 1 percent in a  two-year time frame. Therefore, with a                                                                    
tax exempt  borrowing cost of  3.75 or  4 percent for  a 20-                                                                    
year  period,  it  would  cost AMBB  to  have  the  security                                                                    
feature.  He   noted  that  AMBB  was   considering  various                                                                    
strategies to  deal with the  issue; there was  no intention                                                                    
that it would  take away from the bank's  ability to fulfill                                                                    
its core mission.                                                                                                               
Co-Chair  Thompson  wondered  if public  financing  competed                                                                    
with any private sector financing.                                                                                              
He relayed  that there had  been discussion about  the tribe                                                                    
using a municipal  conduit to access the  bond bank program;                                                                    
however,  the   tribe  had   ultimately  chosen   to  obtain                                                                    
financing from  a commercial bank.  He surmised that  if the                                                                    
program had been modified it  would have been easier for the                                                                    
tribe to access the bond  bank, which would have most likely                                                                    
resulted in  a lower  cost of  capital. He  noted that  if a                                                                    
bank such as  Wells Fargo was going to  provide a commercial                                                                    
loan, it would  be just as easy for AMBB  to issue its bonds                                                                    
using Wells  Fargo as an  underwriter. He stated  that there                                                                    
were  other   ways  businesses  benefitted   from  financial                                                                    
activity; there were different avenues.                                                                                         
2:18:53 PM                                                                                                                    
Vice-Chair  Saddler asked  Mr. Mitchell  if the  legislation                                                                    
would impose  any implicit  hierarchy on  the bond  bank. He                                                                    
further asked  if the legislation would  detract from AMBB's                                                                    
primary  mission.  Mr.  Mitchell indicated  that  the  board                                                                    
would have to make a  decision about hierarchy. He clarified                                                                    
that his  statements reflected his understanding  of how the                                                                    
current board would pursue the  new activity. He stated that                                                                    
there was no explicit hierarchy of priority.                                                                                    
Vice-Chair  Saddler  referred  to  Section  2  of  the  bill                                                                    
requiring  feedback  from  the   commissioner  of  DHSS.  He                                                                    
wondered about the  form of state financial  benefit and the                                                                    
form   of   feedback  that   would   be   provided  by   the                                                                    
commissioner. Mr.  Mitchell responded  that he did  not have                                                                    
answers to Vice-Chair Saddler's questions.                                                                                      
Vice-Chair  Saddler   suggested  further   clarification  be                                                                    
provided by the sponsor of  the bill. He also wondered about                                                                    
whether expanding the mission of  the bond bank would dilute                                                                    
its ability  to carry  out its other  mission. Additionally,                                                                    
he asked Mr. Mitchell if he  was aware of any other regional                                                                    
health  corporations making  application to  the bond  bank.                                                                    
Mr. Mitchell  conveyed that Norton Sound  Health Corporation                                                                    
had expressed  interest. He offered  that although  the bill                                                                    
would provide a potential  opportunity for other entities to                                                                    
apply to  the bond  bank, every entity  would be  subject to                                                                    
providing   documentation   such    as   audited   financial                                                                    
statements to demonstrate eligibility.                                                                                          
Co-Chair Thompson  mentioned that  in the previous  year the                                                                    
legislature  expanded the  municipal  bond bank's  authority                                                                    
from  $1 billion  to $1.5  billion. He  wondered if  lending                                                                    
$250  million  for the  YKHC  project  would interfere  with                                                                    
servicing  municipalities. Mr.  Mitchell  answered that  the                                                                    
legislation created  a separate  allocation. In  addition to                                                                    
the  $1.5 billion  there would  be $87.5  million allocation                                                                    
specific  to the  university and  $250 million  allocated to                                                                    
YKHC's project.                                                                                                                 
Co-Chair Thompson clarified that it  would be in addition to                                                                    
the $1.5 billion. Mr. Mitchell answered affirmatively.                                                                          
2:22:44 PM                                                                                                                    
Vice-Chair Saddler asked if the  approval of the legislation                                                                    
and  the execution  of the  financing agreement  created any                                                                    
state funding  obligation other  than through  the municipal                                                                    
bond  bank authority.  Mr. Mitchell  responded  that in  the                                                                    
event YKHC failed and defaulted  on its loan the state would                                                                    
be asked to replenish the reserve  to the extent that it was                                                                    
drawn upon. If there was  a failure to replenish the reserve                                                                    
the State of Alaska's credit would likely be downgraded.                                                                        
Vice-Chair  Saddler  wondered if  the  State  of Alaska  was                                                                    
ultimately responsible  for YKHC's loan from  the bond bank.                                                                    
Mr.  Mitchell stressed  that  the state  would  not be  held                                                                    
liable to repay the loan;  however, the state's credit would                                                                    
be downgraded.                                                                                                                  
Vice-Chair  Saddler  asked if  YKHC  would  be building  the                                                                    
facilities if  JVCP was not available.  Mr. Winkelman stated                                                                    
that YKHC  would not be  able to pursue the  project without                                                                    
JVCP.  The   IHS  dollars  for  staffing,   maintenance  and                                                                    
contract  costs  were  necessary  for the  project  to  move                                                                    
Vice-Chair  Saddler understood  YKHC's  needs. He  expressed                                                                    
concerns that the  state would be approached to  help if the                                                                    
federal  government  was  not  able  to  provide  the  lease                                                                    
payments and to pay for staff.                                                                                                  
2:25:04 PM                                                                                                                    
Representative Pruitt asked Mr.  Mitchell what the bond bank                                                                    
would  be looking  for from  YKHC  in terms  of security  to                                                                    
proceed with the bonding.                                                                                                       
Mr. Mitchell  responded that it  would be determined  in the                                                                    
future  based on  an interactive  process.  In general,  the                                                                    
bond  bank  would  approach  it as  it  would  approach  any                                                                    
revenue bond  loan. In  a revenue  bond situation  an entity                                                                    
was required  to covenant  or promise to  cover itself  in a                                                                    
certain fashion. The  bond bank expected a  borrower to fund                                                                    
at  debt service  reserve  level. In  the  event there  were                                                                    
operational deficiencies  the bank would access  those funds                                                                    
first, prior  to a draw on  the bond bank's reserve  fund. A                                                                    
rate  covenant that  required the  borrower to  over-collect                                                                    
net revenue to debt service  was included in the loan terms.                                                                    
He cited the example of 1.25  times. If the entity failed to                                                                    
over-collect they would be required  to notify the bond bank                                                                    
of the failure and to  take actions to rectify the situation                                                                    
and meet the collection requirement in the future year.                                                                         
Mr.  Mitchell  explained  that on  a  historical  basis  the                                                                    
borrower  provided   financial  statements   confirming  its                                                                    
ability to pay debt service.  If the entity failed, the bond                                                                    
bank  would  have  the perspective  analysis  undertaken  to                                                                    
ensure that  in the  future, given the  operational changes,                                                                    
there would be  sufficient revenue. It was normal  to have a                                                                    
revenue  system developing  a new  infrastructure. The  bond                                                                    
bank discussed  requiring certain payments go  directly to a                                                                    
trustee  rather   than  the  general  fund   of  the  health                                                                    
consortium,  the source  of disbursements  to  pay the  debt                                                                    
service.  He offered  that the  details concerning  payments                                                                    
would be reviewed to ensure debt repayment.                                                                                     
2:28:43 PM                                                                                                                    
Representative Pruitt  asked if  the joint venture  would be                                                                    
part of the conversation. Mr. Mitchell replied, "Yes."                                                                          
Representative Pruitt  wanted to better understand  why YKHC                                                                    
could not  work with the  City of Bethel to  secure bonding.                                                                    
He was unsure  of the amount of bonding  available to Bethel                                                                    
or  Bethel's bonding  limitations. He  wondered if  the bond                                                                    
bank looked  at the corporation's  ability to pay  or solely                                                                    
at Bethel's  ability to pay  the bond. Mr.  Mitchell replied                                                                    
that the  loan amount  far exceeded Bethel's  debt capacity.                                                                    
He  relayed  that  the  bond   bank  had  recently  examined                                                                    
Bethel's  debt  capacity  for  a   pool  project.  The  bank                                                                    
concluded   that   Bethel's   revenue  situation   with   an                                                                    
anticipated  sales tax  increase  only  supported about  $20                                                                    
million in general  obligation bonds. He did  not ascribe to                                                                    
making  $250  million  available to  Bethel,  a  lower-rated                                                                    
community,  without a  policy decision  that determined  the                                                                    
appropriateness of the partnership.                                                                                             
Representative  Pruitt   asked  whether   the  corporation's                                                                    
ability to  pay would be  considered in  the case of  a bond                                                                    
being issued  to the City of  Bethel or if it  would only be                                                                    
based  on the  city's revenue.  Mr. Mitchell  commented that                                                                    
underlying credit  would be taken  into account.  He relayed                                                                    
that  the bond  bank's  largest borrower  was  the City  and                                                                    
Borough  of Sitka.  He reported  that Sitka  had about  $150                                                                    
million outstanding  through the  bond bank program  made up                                                                    
of a  variety of  credits. Sitka's  full debt  portfolio was                                                                    
owned  by the  bond  bank.  He suggested  that  it would  be                                                                    
challenging  for AMBB  to issue  a $250  million loan  for a                                                                    
health care  business without additional direction  from the                                                                    
legislature. He  reiterated that  he would  be uncomfortable                                                                    
making a  magnitude change without  the direction  of policy                                                                    
Representative Pruitt  surmised that the  legislation before                                                                    
the  committee  included a  policy  change.  He asked  about                                                                    
YKHC's ability  to pay down debt.  He wanted to know  if the                                                                    
funds  supplied by  IHS  would  be used  to  repay the  bond                                                                    
2:34:13 PM                                                                                                                    
Mr.  Winkelman responded  in the  negative. He  relayed that                                                                    
IHS made it explicitly clear  that staffing dollars were not                                                                    
to  be  used  for debt  repayments.  Yukon-Kuskokwim  Health                                                                    
Corporation  planned to  use funds  from  revenues paid  for                                                                    
through Medicaid, Medicare,  private insurance, and self-pay                                                                    
funds totaling $70 million annually.                                                                                            
Representative  Pruitt wanted  to fully  understand how  IHS                                                                    
staffing dollars  were to  be spent. He  asked if  the funds                                                                    
could be used to pay for  the facility lease or if they were                                                                    
to  be used  strictly for  staffing expenses.  Mr. Winkelman                                                                    
confirmed  that  the  IHS staffing  dollars  only  paid  for                                                                    
staffing needs.  He offered that  IHS provided  the staffing                                                                    
package and the contract  support cost dollars including the                                                                    
maintenance and improvement funds.                                                                                              
Representative Pruitt mentioned a  letter received from DHSS                                                                    
indicating   that  the   staffing  package   was  based   on                                                                    
appropriations.  He  wondered  what   would  happen  if  the                                                                    
federal  government decided  not  to  appropriate funds.  He                                                                    
wanted to know  how that would impact YKHC and  how it would                                                                    
impact   the  corporation's   ability   to   pay  its   bond                                                                    
obligation.  Mr. Winkelman  explained  that  if the  federal                                                                    
government did not appropriate funds,  YHKC's ability to pay                                                                    
would  be impacted.  He offered  that since  1992 there  had                                                                    
never  been a  problem  with appropriations.  He also  noted                                                                    
that  YKHC had  over  2  years' worth  of  reserves for  the                                                                    
project in  case there  were issues. He  did not  perceive a                                                                    
funding issue.                                                                                                                  
Co-Chair  Thompson mentioned  that Renee  Gayhart from  DHSS                                                                    
was available on the phone for questions.                                                                                       
Representative  Wilson suggested  that  the legislation  was                                                                    
not  limited to  YKHC but  was applicable  to other  similar                                                                    
organizations.  Mr.  Mitchell  replied  that  Representative                                                                    
Wilson was correct.                                                                                                             
Representative Wilson asked if  the change that included the                                                                    
university was the  first change to increase  the mission of                                                                    
the bond bank.                                                                                                                  
2:37:40 PM                                                                                                                    
Mr. Mitchell responded  that the bond bank  statute had been                                                                    
changed a  number of  times over  the years.  Initially, the                                                                    
bond  bank  was  only  a general  obligation  program,  then                                                                    
revenue bonds  and the  ability to  lend to  joint insurance                                                                    
associations were  added. More recently, he  reported seeing                                                                    
expanded authority to borrow for  the bond bank. The program                                                                    
was   relatively   successful   with   financing   community                                                                    
projects, and  saving money. The current  legislation was an                                                                    
additional step.                                                                                                                
Representative   Wilson   asked    if   there   were   other                                                                    
organizations  or groups  that had  approached Mr.  Mitchell                                                                    
about  bond   obligations.  If  not,  she   wondered  if  he                                                                    
anticipated being  called upon.  Mr. Mitchell  answered that                                                                    
he had  been approached  by a joint  action agency.  He also                                                                    
stated that the statutes had  changed so that the bank could                                                                    
lend to port  authorities. The joint action  agency was like                                                                    
a  port authority  in  which a  number  of communities  came                                                                    
together for  a common goal.  He continued that there  was a                                                                    
joint  action committee  that administered  the remnants  of                                                                    
the Four Damn  Pool that was talking  about participating in                                                                    
AMBB's program which he felt  would more likely fit into the                                                                    
bond bank program criteria.                                                                                                     
Representative  Wilson asked  why  the  legislature did  not                                                                    
give the  AMBB the authority  to lend money based  on market                                                                    
knowledge  and  other expertise.  She  wondered  why it  was                                                                    
necessary  for  the  legislature  to  decide.  Mr.  Mitchell                                                                    
responded that he  liked the ceiling currently  in place. He                                                                    
liked that  someone was  verifying what  the bank  was doing                                                                    
rather than confirming activities  in the field. He believed                                                                    
that the process of legislation  was valid and that making a                                                                    
determination  as  a  group  was  important  for  discussion                                                                    
purposes. He  felt that the  opportunity to  explore options                                                                    
was positive. He believed that  the core policy question was                                                                    
whether  the  state  should  partner  with  regional  health                                                                    
corporations to make  a project more affordable.  He saw the                                                                    
opportunity  for   efficiencies  with  the  bond   bank  and                                                                    
Representative Wilson  asked why YKHC did  not apply through                                                                    
Alaska Industrial  Development and Export  Authority (AIDEA)                                                                    
for funding.  Mr. Mitchell understood that  YKHC was working                                                                    
with   AIDEA.  He   mentioned   that   there  were   certain                                                                    
limitations to  AIDEA and that  there were times  that AIDEA                                                                    
requested  changes  in  legislation  for  certain  types  of                                                                    
Representative  Wilson expressed  her  concern with  opening                                                                    
the  door  to  other   organizations  to  access  AMBB.  She                                                                    
emphasized  the success  of the  bank  and was  apprehensive                                                                    
about  it being  compromised. She  commented that  she would                                                                    
ask  additional  questions  as  she  better  understood  the                                                                    
2:43:29 PM                                                                                                                    
Representative  Kawasaki asked  about the  payment in  place                                                                    
and  about over  collection.  He wondered  if  YKHC had  the                                                                    
ability  to pay  and  could meet  revenue requirements.  Mr.                                                                    
Winkelman  expressed confidence  in YKHC's  ability to  meet                                                                    
its  debt obligation  with the  bond bank.  He reported  the                                                                    
success of  approximately twenty  similar IHS  joint venture                                                                    
projects contending  that the reason  for their  success was                                                                    
due to the federal staffing dollars.                                                                                            
Representative  Kawasaki  asked  for clarity  regarding  the                                                                    
term  "over collection."  Mr.  Mitchell  explained that  the                                                                    
term was in  reference to a coverage  covenant. He specified                                                                    
that  net revenue  should  not equal  debt  service and  was                                                                    
considered risky.  He suggested that if  anything went wrong                                                                    
the   organization  would   be  deficient.   Borrowers  were                                                                    
required to  over collect as  a condition  of the loan  as a                                                                    
buffer for debt service.                                                                                                        
Representative  Kawasaki asked  for reconfirmation  that the                                                                    
health  corporation had  the necessary  funds. He  commented                                                                    
that  the corporation  had  been doing  very  well with  its                                                                    
margins. Mr.  Winkelman stated  that YKHC's  financials were                                                                    
very strong. He reported that he was new to his position.                                                                       
2:46:21 PM                                                                                                                    
Mr. Mitchell had one point  of clarification. He stated that                                                                    
depreciation was taken after coverage.                                                                                          
Representative  Kawasaki  asked  about  the  municipal  bond                                                                    
bank. He referred  to Alaska Statute 44. He  stated that the                                                                    
legislature  had  added a  couple  of  things including  the                                                                    
power plant  in Section 5 of  the bill. He also  referred to                                                                    
Section 4  dealing with the  retirement system.  He wondered                                                                    
if  the  statute  was dealing  with  the  Public  Employees'                                                                    
Retirement  System  (PERS)  change  in  2008.  Mr.  Mitchell                                                                    
responded  that  Representative  Kawasaki  was  correct.  He                                                                    
elaborated that it was at  the same time that Alaska Housing                                                                    
Finance  Corporation  (AHFC)  received  authority  to  issue                                                                    
pension obligation bonds and  created the pension obligation                                                                    
bond  corporation.   The  bond  bank  was   intended  to  be                                                                    
available for  municipalities that  wanted to  issue pension                                                                    
obligation  bonds.  However,   no  municipalities  expressed                                                                    
Representative Kawasaki  stated that he had  reviewed AMBB's                                                                    
40-year   history  of   providing   financing  for   capital                                                                    
improvements  in  communities.  Projects  included  schools,                                                                    
water sewers,  public buildings, and docks.  He relayed that                                                                    
smaller communities  were at a disadvantage  financially. He                                                                    
suggested that  the bond bank  be allowed to  operate freely                                                                    
rather than being confined to  doing very specific things as                                                                    
identified in  statute. He  relayed that  there were  only 5                                                                    
sections in the legislative  finding. Mr. Mitchell responded                                                                    
that  he  preferred  the  boundaries   set  in  statute.  He                                                                    
indicated that there was some  confusion within the statutes                                                                    
because   of  references   to  municipalities,   the  Alaska                                                                    
Municipal  League  (AML),  and  political  subdivisions.  He                                                                    
suggested  including  municipalities   and  AML  within  the                                                                    
category of  political subdivisions to  alleviate confusion.                                                                    
He reiterated that he was not  in favor of allowing the bond                                                                    
bank to act without parameters.                                                                                                 
Representative Kawasaki referenced  the University of Alaska                                                                    
combined heat  and power bond  which added $87.5  million to                                                                    
the  previous year's  budget. He  commented  that the  total                                                                    
limit  of  the  outstanding  bonds  was  increased  by  $600                                                                    
million. At the time it  appeared that the outstanding notes                                                                    
were approximately  $924 million  requiring the  addition of                                                                    
$600  million  to  the  limit.  He wanted  to  know  if  the                                                                    
increased  limit  was  necessary  in  order  to  maintain  a                                                                    
specific  credit  rating.  Mr.  Mitchell  responded  in  the                                                                    
negative. He explained  that it was due  to the University's                                                                    
ability to  issue debt based  on its current  credit rating.                                                                    
The  University's  ability  to  leverage  its  revenues  was                                                                    
perceived  to  be limited  to  a  certain amount.  In  other                                                                    
words, the  University had a  certain amount it  believed it                                                                    
could obtain in the capital  budget and needed a backfill of                                                                    
funds. It turned to the bond bank.                                                                                              
2:50:42 PM                                                                                                                    
Representative Guttenberg  wanted to confirm that  the bonds                                                                    
for the  YKHC project would not  be issued until all  of the                                                                    
requirements  were  met,  even  with a  policy  change.  Mr.                                                                    
Mitchell  confirmed Representative  Guttenberg's assumption.                                                                    
He elaborated that the bond  bank had a multi-tiered process                                                                    
for evaluating  an applicant's credit.  The bar  was lowered                                                                    
for  municipalities  that  had voter  approval  through  the                                                                    
initiative  process to  issue  general  obligation debt.  He                                                                    
detailed the  evaluation process. He explained  that once he                                                                    
reviewed the  application he turned  it over to  an external                                                                    
financial  advisor   for  review.  The   external  financial                                                                    
advisor completed  a written  evaluation that  was submitted                                                                    
to the board of directors.  The board of directors evaluated                                                                    
the  report  and  the credit.  Under  certain  circumstances                                                                    
board members encouraged him to  take additional measures of                                                                    
protection on  specific loans. He  asserted that  the review                                                                    
process was thorough.                                                                                                           
2:53:31 PM                                                                                                                    
Vice-Chair Saddler referenced page  4, line 10. He suggested                                                                    
omitting the word,  "regional." He assumed that  by doing so                                                                    
it  would open  up  a  larger pool  of  entities that  could                                                                    
potentially borrow  from the bond  bank. He  appreciated Mr.                                                                    
Mitchell's assurance  that the board made  mindful decisions                                                                    
and would  choose among  the different  borrowing capacities                                                                    
rightly. He  wanted to know  if IHS imposed  any limitations                                                                    
on providing  services to non-tribal members.  Mr. Winkelman                                                                    
responded  that   because  YKHC  was  the   largest  service                                                                    
provider  within the  region it  served  everyone that  came                                                                    
through  its doors.  He believed  that most  regional health                                                                    
organizations in rural Alaska had an open door policy.                                                                          
Vice-Chair  Saddler  remarked  that  all  IHS  beneficiaries                                                                    
received services  paid at 100  percent. He asked  about how                                                                    
non-beneficiaries paid  for services and wondered  if it was                                                                    
through  Medicaid, Medicare,  private  insurance, and  self-                                                                    
pay.  Mr.  Winkelman  stated  that  Vice-Chair  Saddler  was                                                                    
Representative Herron  emphasized that anyone could  use the                                                                    
facility. He informed  the committee that when  he served on                                                                    
the  board  of  directors  for the  Lower  Kuskokwim  School                                                                    
District, the  district took  the position  that it  did not                                                                    
have to pay  for insurance claims for  its native employees.                                                                    
However, it  was disputed in  court and the  school district                                                                    
Co-Chair Thompson asked about  whether YKHC would receive an                                                                    
unfair  advantage in  the marketplace  over other  community                                                                    
health  clinics  due to  having  a  low interest  loan.  Mr.                                                                    
Winkelman answered in the negative.  He mentioned that there                                                                    
was  one other  community health  clinic located  in Bethel,                                                                    
Bethel Family  Clinic. He  did not feel  that YKHC  would be                                                                    
given  an  unfair advantage.  He  was  not aware  of  Bethel                                                                    
Family Clinic  wanting or having  the ability to  expand. He                                                                    
knew of  only one  other provider in  Bethel, a  dentist who                                                                    
practiced part-time.  He reiterated  that YKHC was  the only                                                                    
health care  provider for the  30 thousand residents  in the                                                                    
Yukon-Kuskokwim delta especially in the villages.                                                                               
2:57:59 PM                                                                                                                    
Co-Chair Thompson  expressed concerns about  finding medical                                                                    
staff. He alleged that  previously Fairbanks, Anchorage, and                                                                    
other   large  population   centers  had   problems  finding                                                                    
necessary medical  staff. He wanted  to understand  how YKHC                                                                    
intended  to attract  providers. Mr.  Winkelman acknowledged                                                                    
that  finding  medical  staff was  extremely  difficult.  He                                                                    
indicated  that  he  was using  over  ten  recruiting  firms                                                                    
currently,  in  addition  to in-house  recruiting,  to  find                                                                    
physicians. He relayed that the  hospital was rebuilding its                                                                    
physician base. He  reported that it took about  one year on                                                                    
average  to recruit  one  physician. Yukon-Kuskokwim  Health                                                                    
Corporation searched  the nation  with the  help of  the ten                                                                    
recruitment   firms  offering   incentives   such  as   loan                                                                    
repayment. He  relayed that the corporation's  plan included                                                                    
phasing in  services based on  being able to  recruit staff.                                                                    
Once YKHC  obtained financing it would  begin recruiting for                                                                    
additional positions.                                                                                                           
Representative  Munoz  referred  to  the  bonding  authority                                                                    
extended to the university and  how it related to a specific                                                                    
project. She wondered  if Mr. Mitchell had  an opinion about                                                                    
tailoring the  bill to  a certain project.  She asked  if it                                                                    
would be beneficial and whether he liked the general idea.                                                                      
Mr. Mitchell  responded that the  university's authorization                                                                    
was for  and limited to  power and/or heat projects  for the                                                                    
university. He claimed that it  would be simpler to have the                                                                    
bill  specific   to  YKHC's   project.  However,   it  would                                                                    
potentially cause concerns about  creating a slippery slope.                                                                    
He believed  there were  legal reasons  that the  bill would                                                                    
have  to  be  carefully  crafted identifying  some  sort  of                                                                    
criteria  embedded  in  the legislation.  It  could  not  be                                                                    
limited to YKHC.                                                                                                                
3:01:20 PM                                                                                                                    
Representative Gattis  asked Mr. Winkelman  about attracting                                                                    
physicians.  She  admitted  that  the  Washington,  Wyoming,                                                                    
Alaska,  Montana,  and   Idaho  Regional  Medical  Education                                                                    
Program  (WWAMI)  had  received   a  significant  amount  of                                                                    
attention  in  recent  times. She  wondered  if  Alaska  was                                                                    
better off keeping the WWAMI  program and possibly expanding                                                                    
it to  attract physicians. She relayed  that recruitment was                                                                    
a  national problem.  Mr. Winkelman  opined  that the  WWAMI                                                                    
program  was a  great and  needed program.  He claimed  that                                                                    
there  was  a  national  shortage of  physicians.  He  fully                                                                    
supported  the WWAMI  program  and a  great  benefit to  the                                                                    
State of Alaska.  The issue was not limited  to rural Alaska                                                                    
but was a problem throughout the state.                                                                                         
Representative  Gattis  asked  if  it  was  specifically  an                                                                    
Alaska issue  or if the  problem was a  nation-wide concern.                                                                    
Mr.  Winkelman indicated  that the  issue  was felt  nation-                                                                    
wide,  but  more acutely  in  Alaska  particularly in  rural                                                                    
Representative Pruitt  asked Mr. Mitchell if  he thought the                                                                    
name of  the bank,  the Alaska  Municipal Bond  Bank, should                                                                    
remain the  same if the  bill were  to pass. He  wondered if                                                                    
requests  had  been  received from  other  entities  besides                                                                    
municipalities to  join in the  lending pool.  He referenced                                                                    
the university that  was added to the  bond bank's authority                                                                    
the previous year, and the  potential to add regional health                                                                    
corporations.  He  wondered  about  the  interest  of  other                                                                    
entities   seeking  opportunities.   He  wanted   to  better                                                                    
understand the future discussion  about expansion beyond the                                                                    
mission  of the  bond bank.  Mr. Mitchell  believed that  an                                                                    
entity could  have a name  and conduct business  beyond just                                                                    
the  name's implication.  However,  there were  a number  of                                                                    
other  pooled  programs in  the  United  States that  called                                                                    
themselves infrastructure  banks or had other  less specific                                                                    
Representative   Pruitt  wanted   to  understand   what  the                                                                    
legislature could,  would, and  might expect in  the future.                                                                    
He  wanted to  know who  had  approached the  bond bank.  He                                                                    
wanted  to know  the ramifications  and discussions  that he                                                                    
should expect to  hear in respect to the  utilization of the                                                                    
bond bank. Mr.  Mitchell indicated that he was  not only the                                                                    
executive  director of  the bond  bank but  he was  also the                                                                    
debt  manager   for  the  State  of   Alaska.  He  discussed                                                                    
different  types  of financing  on  and  off throughout  the                                                                    
year. He reported  that he had not had any  other group come                                                                    
forward asking for  access to the program.  He supposed that                                                                    
based  on  the  bond   bank's  tax-exempt  financing,  other                                                                    
nonprofit  organizations  currently  borrowing  money  on  a                                                                    
conduit basis  through a municipality would  be attracted to                                                                    
the  program. In  Alaska  a nonprofit  had  to borrow  money                                                                    
through  a  municipality  in order  to  access  the  capital                                                                    
market on a  tax-exempt basis. He surmised  that there could                                                                    
be some interested group but he was not aware of one.                                                                           
3:06:48 PM                                                                                                                    
Representative  Pruitt wanted  to  confirm  that there  were                                                                    
other entities  that could potentially become  interested in                                                                    
the bond  bank program.  He used  Providence Hospital  as an                                                                    
example of an  entity that might approach the  bond bank for                                                                    
funding. He  wondered if it would  be a policy call  to make                                                                    
in the  future. Mr.  Mitchell thought  Representative Pruitt                                                                    
answered his own question.                                                                                                      
Representative Kawasaki  asked Mr. Winkelman about  the last                                                                    
page  of  the  proposal  [page  29,  Yukon-Kuskokwim  Health                                                                    
Corporation  2014 JVCP  Application].  He  noted a  specific                                                                    
timeline to get  from point "A" to point "B"  and that there                                                                    
were  many unknowns  at present  dealing with  financing. He                                                                    
wanted him to review the  timeline in terms of financing and                                                                    
commented  that he  thought  it was  a  worthy project.  Mr.                                                                    
Winkelman  explained that  the  timeline  was contingent  on                                                                    
available  financing. He  remarked that  YKHC was  slated to                                                                    
sign  the  joint venture  agreement  by  summertime. He  was                                                                    
putting  together  a meeting  with  IHS  within a  month  to                                                                    
confirm  a time.  He stressed  that  if YKHC  was unable  to                                                                    
secure  affordable financing  the timeline  would be  pushed                                                                    
back.  It was  his  goal to  keep  searching for  affordable                                                                    
financing  and  to do  everything  he  could to  ensure  the                                                                    
success  of  the project  for  YKHC  and its  financers.  He                                                                    
believed  that if  YKHC  was making  progress  IHS would  be                                                                    
flexible with  the timeline. The  timeline on the  last page                                                                    
was included in YKHC's  application contingent on financing.                                                                    
He  reiterated that  he thought  the  timeline was  somewhat                                                                    
3:10:13 PM                                                                                                                    
Representative Kawasaki  referred to the second  to the last                                                                    
page [Page 28, Yukon-Kuskokwim  Health Corporation 2014 JVCP                                                                    
Application]  that discussed  the private  financing options                                                                    
and  opportunities available.  He  was curious  if the  bond                                                                    
bank used the information to  determine the viability of the                                                                    
project. He also  asked if commercial lenders  looked at the                                                                    
ability to borrow from AMBB  as an indication of a project's                                                                    
credibility. Mr.  Mitchell asked Representative  Kawasaki to                                                                    
restate his question.                                                                                                           
Representative  Kawasaki  pointed  out  that  there  were  a                                                                    
couple of  loans noted in  the financial plan with  the USDA                                                                    
and Bureau  of Indian  Affairs as  well as  commercial loans                                                                    
with Wells Fargo  and CoBank. He wanted to know  if the bond                                                                    
bank's involvement  in the process helped  the other lenders                                                                    
view the project  as viable. He also  wondered conversely if                                                                    
the viability of  the project would be  viewed negatively if                                                                    
any of  the lenders were  not involved. Mr. Mitchell  saw it                                                                    
as  a benefit  if there  were multiple  lenders for  a large                                                                    
scale  project.   Certain  loans,   such  as   USDA's  rural                                                                    
development authority  loans, offered  fixed rates  for very                                                                    
long term (below market at the  back end, and over market at                                                                    
the  front end  because of  the yield  curve). He  continued                                                                    
that  just   one  rate   applied  to   every  year.   If  an                                                                    
organization  borrowed from  USDA and  placed the  principle                                                                    
amortization at the  back end of the loan  and borrowed from                                                                    
a  bond bank  program  on the  front end  of  the loan,  the                                                                    
borrower could  reduce the  total cost  of capital.  He also                                                                    
suggested that  a commercial  bank's interest  in partnering                                                                    
in  a  portion  of  the  financing  of  a  facility  was  an                                                                    
additional confirmation of credibility.                                                                                         
3:13:36 PM                                                                                                                    
Co-Chair Thompson  indicated that  the committee was  out of                                                                    
time,  thanked the  individuals who  testified, and  invited                                                                    
Representative Herron to make any final comments.                                                                               
Representative  Herron expressed  his  appreciation for  the                                                                    
questions  asked by  committee members  and the  interest in                                                                    
the  project.  He  reiterated the  creditworthiness  of  the                                                                    
project. He stressed the importance  of improving the health                                                                    
care delivery system  in his region. He  also emphasized the                                                                    
potential  for creating  over 200  permanent  jobs with  the                                                                    
project.   He   stated   that  he   would   seek   out   the                                                                    
commissioner's approval directly.                                                                                               
HB  101  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair  Thompson reviewed  the  agenda  for the  following                                                                    
3:15:14 PM                                                                                                                    
The meeting was adjourned at 3:15 p.m.                                                                                          

Document Name Date/Time Subjects
HB101 Sectional Analysis.pdf HFIN 3/26/2015 1:30:00 PM
HB 101
HB101 Supporting Documents - 1.25.14 YKHC Letter.pdf HFIN 3/26/2015 1:30:00 PM
HB 101
HB101 Supporting Documents - 15-01-15 YKHC Presentation Graphics.pdf HFIN 3/26/2015 1:30:00 PM
HB 101
HB101 Supporting Documents - YKHC Proposal (2).pdf HFIN 3/26/2015 1:30:00 PM
HB 101
HB 101 Fiscal Note DOR.pdf HFIN 3/26/2015 1:30:00 PM
HB 101
HB 101 - Supporting Documents - City of Bethel LTR of Support.pdf HFIN 3/26/2015 1:30:00 PM
HB 101
HB 158 Fiscal Note - DOR.pdf HFIN 3/26/2015 1:30:00 PM
HB 158
HB101 Sponsor Statement.pdf HFIN 3/26/2015 1:30:00 PM
HB 101