Legislature(2019 - 2020)ADAMS 519

03/12/2020 09:00 AM FINANCE

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Audio Topic
09:07:26 AM Start
09:08:16 AM HB268
10:09:32 AM HB181
11:23:56 AM Consideration of Governor's Appointee: Lucinda Mahoney, Commissioner, Department of Revenue
11:52:11 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 268 MUNI BOND BANK: UA, LOAN AND BOND LIMITS TELECONFERENCED
Heard & Held
-- Public Testimony --
+ Consideration of Governor's Appointees: TELECONFERENCED
Dept. of Revenue - Commissioner Lucinda Mahoney
+ Bills Previously Heard/Scheduled TELECONFERENCED
+ HB 181 PUBLIC SCHOOLS: MENTAL HEALTH EDUCATION TELECONFERENCED
Heard & Held
-- Public Testimony --
HOUSE BILL NO. 268                                                                                                            
                                                                                                                                
     "An Act relating to the Alaska Municipal Bond Bank                                                                         
     Authority."                                                                                                                
                                                                                                                                
9:08:16 AM                                                                                                                    
                                                                                                                                
Co-Chair   Foster   MOVED   to  ADOPT   proposed   committee                                                                    
substitute  for  HB  268,  Work  Draft  31-LS1440\U  (Klein,                                                                    
3/10/20)(copy on file).                                                                                                         
                                                                                                                                
Co-Chair Johnston OBJECTED for discussion.                                                                                      
                                                                                                                                
ERIN   SHINE,  STAFF,   REPRESENTATIVE  JENNIFER   JOHNSTON,                                                                    
relayed  that the  one difference  between the  version that                                                                    
came  to the  committee  and the  committee substitute  (CS)                                                                    
before  members, version  U, was  that the  previous version                                                                    
eliminated  the $102.5  million project  limit for  a single                                                                    
regional health  organization project.  The cap  was removed                                                                    
completely. In  the CS on  page 3, lines 21-22,  the section                                                                    
was  reinserted  with an  increased  project  limit to  $250                                                                    
million.                                                                                                                        
                                                                                                                                
Representative Josephson  asked why  the cap  was increased.                                                                    
Co-Chair   Johnson  indicated   the  explanation   would  be                                                                    
provided by the sponsor.                                                                                                        
                                                                                                                                
Co-Chair Johnston WITHDREW her OBJECTION.                                                                                       
                                                                                                                                
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
9:10:06 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BART  LEBON,  SPONSOR,  explained  that  the                                                                    
purpose  of  the bill  was  to  expand the  availability  of                                                                    
credit for  Alaska's regional  health organizations  as well                                                                    
as  assist  the University  of  Alaska  with potential  debt                                                                    
refinancing   opportunities.  Currently,   the  University's                                                                    
access to the Alaska Municipal Bond Bank was limited.                                                                           
                                                                                                                                
Representative LeBon  provided a  brief history of  the Bond                                                                    
Bank. About  5 years prior,  access to the  Alaska Municipal                                                                    
Bond Bank  by regional health organizations  was established                                                                    
in  statute. However,  at  the time  it  was established  in                                                                    
statute the  funding was limited  to 49 percent of  the cost                                                                    
of a project and capped at  $102 million. The goal of making                                                                    
a change  was to allow  up to 100 percent  financing through                                                                    
the Alaska  Municipal Bond  Bank and to  raise the  cap from                                                                    
$102 million to  $250 million. It raised the  ceiling on the                                                                    
total funding  through the  Bond Bank  to $500  million. The                                                                    
goal  of  the  legislation  was to  give  Alaska's  regional                                                                    
health  organizations  and  the   University  of  Alaska  an                                                                    
additional tool in their toolboxes.                                                                                             
                                                                                                                                
Representative  LeBon indicated  that to  finance a  project                                                                    
currently  entities were  always looking  for the  best deal                                                                    
possible  whether  through  a  private  bank,  participation                                                                    
loans, or  a bond  bank. Part of  determining the  best deal                                                                    
was  determining  how much  could  be  financed through  the                                                                    
lender. Some  lenders might go  up to 95 percent  and others                                                                    
might be more comfortable at  75 percent. He mentioned a law                                                                    
that  came   out  in  2014  that   limited  regional  health                                                                    
organizations  from  borrowing more  than  49  percent of  a                                                                    
project's  cost through  bond banking  creating a  condition                                                                    
that  forced  the  regional   health  organization  to  seek                                                                    
partnerships.  Sometimes   partnerships  could   benefit  an                                                                    
organization. He spoke  of his banking days and  a number of                                                                    
partnerships where  there was  a lead lender  in a  deal who                                                                    
would  assist in  putting together  partnerships to  benefit                                                                    
the  client  or customer.  The  legislation  would give  the                                                                    
regional health organizations additional options.                                                                               
                                                                                                                                
Representative  LeBon  discussed  repayment  and  collateral                                                                    
risks.  He  explained  that  it   was  difficult  to  define                                                                    
collateral risk  in a traditional  way regarding  a regional                                                                    
health   organization.  He   provided   an   example  of   a                                                                    
traditional collateral risk  to a bank. If a  home owner did                                                                    
not pay  back a home loan,  the bank would foreclose  on the                                                                    
home. He opined that it was  unlikely any bank would want to                                                                    
foreclose on a regional  health organization. The risk would                                                                    
likely be cash  flow and, the credit risk  would be managed.                                                                    
The  bill  allowed  for  multiple   or  single  lenders  and                                                                    
provided the  option for the  Alaska Municipal Bond  Bank to                                                                    
be the  lead lender.  He indicated  his staff  would provide                                                                    
further details.                                                                                                                
                                                                                                                                
9:15:23 AM                                                                                                                    
                                                                                                                                
ANNE RITTGERS,  STAFF, REPRESENTATIVE BART  LEBON, explained                                                                    
that  there  were also  a  few  changes  to lending  to  the                                                                    
University of Alaska. It removed  the project scope limiting                                                                    
bond  bank   participation  to   only  heating   and  energy                                                                    
projects. It  also raised the  UA project  participation cap                                                                    
from $87.5 million to $500 million.                                                                                             
                                                                                                                                
Representative Josephson  asked if it was  possible that the                                                                    
borrower  would   have  more  leverage  to   negotiate  with                                                                    
partners.    Representative   LeBon    responded   in    the                                                                    
affirmative. Additional  options helped to drive  down rates                                                                    
and provided other benefits.                                                                                                    
                                                                                                                                
Representative  Sullivan-Leonard  saw  the benefits  of  the                                                                    
legislation. She  wondered if there  were any  projects that                                                                    
Representative  LeBon  was  aware   of  that  had  not  been                                                                    
established because  of how the  bond rating  was currently.                                                                    
Therefore, the  legislation being presented would  assist in                                                                    
their endeavor.                                                                                                                 
                                                                                                                                
Representative  LeBon was  not  aware of  any projects  that                                                                    
lacked  financing opportunities.  He  suggested  that if  an                                                                    
entity  was  forced to  partner  with  multiple lenders,  it                                                                    
would  also  force  a parody  agreement  from  the  multiple                                                                    
lenders.  It   required  a  balanced  playing   field  among                                                                    
lenders. The borrower  was also required to be  aware of the                                                                    
relationships.  It   was  rare  in  partnerships   that  the                                                                    
borrower could  favor one lender over  another. He continued                                                                    
that a  parody relationship  had to  be clearly  defined and                                                                    
respected. It  was also important  for all  parties involved                                                                    
in the transaction  to have defined agreements  in place. He                                                                    
suggested  that the  more parties  that were  involved in  a                                                                    
transaction,  the  more  complicated  the  parody  agreement                                                                    
became. He  relayed an experience  in which there  were four                                                                    
partners. The four partners had  to reach a common agreement                                                                    
on how  the financing would  take place. Once  the agreement                                                                    
was reached,  the partners had  to share the  agreement with                                                                    
the borrower who rejected the  agreement. His point was that                                                                    
the more  players involved in  a deal, the  more complicated                                                                    
the deal would likely become.                                                                                                   
                                                                                                                                
Representative  Wool  asked  if there  was  any  competition                                                                    
between Alaska  Industrial Development and  Export Authority                                                                    
(AIDEA) and  the banking industry. Representative  LeBon did                                                                    
not believe the banking industry  would be threatened by the                                                                    
legislation. In  his experience,  at times a  banking entity                                                                    
might  be brought  in to  do the  interim financing  such as                                                                    
construction financing.  The takeout  would be  AIDEA, USDA,                                                                    
or the  Alaska Municipal Bond Bank  Authority. Some entities                                                                    
would not  do interim construction financing  and would look                                                                    
to the  private banks  for assistance.  He had  done several                                                                    
projects   statewide  in   which  the   bank  financed   the                                                                    
construction of a  building providing the take  out. He also                                                                    
understood that  the Bond Bank could  help with construction                                                                    
financing.                                                                                                                      
                                                                                                                                
9:20:20 AM                                                                                                                    
                                                                                                                                
Representative Wool  commented that  it looked  like several                                                                    
millions were available. He assumed  that the funds were for                                                                    
something  other  than  construction.  He  asked  about  the                                                                    
6-fold increase  from $87  million to  $500 million  and the                                                                    
kinds  of projects  that  would need  a  $500,000 bond  bank                                                                    
loan.  Representative LeBon  thought most  of the  financing                                                                    
would  be  related  to  building   a  facility  and  not  to                                                                    
purchasing  equipment.  Equipment  was a  depreciable  asset                                                                    
with  a short  life. There  were  other ways  to finance  or                                                                    
purchase equipment.  The biggest benefit for  the University                                                                    
was that  it would have another  option if debt came  up for                                                                    
renewal, debt  was recallable,  or refinancing  rates became                                                                    
more favorable. He thought there  might be opportunities for                                                                    
the University to lower its  debt service because of current                                                                    
low interest rates.                                                                                                             
                                                                                                                                
Representative Knopp  wondered if in  Representative LeBon's                                                                    
banking  days  he  ever  financed  100  percent  of  a  home                                                                    
purchase. He referenced the fiscal note and read from it:                                                                       
                                                                                                                                
     In the event of a default by the University or a                                                                           
     regional health organization that participates in this                                                                     
     program the State  of Alaska would be  asked to provide                                                                    
     for that debt  service, and if the State  failed to act                                                                    
     on that  request a  loss of  market access,  impacts on                                                                    
     investor confidence and current  credit rating would be                                                                    
     expected.                                                                                                                  
                                                                                                                                
Representative Knopp  reported that since 2006  his hospital                                                                    
had  taken  on  hundreds  of   millions  of  bond  debt  for                                                                    
expansion  purposes. Since  the  passage  of the  Affordable                                                                    
Care Act the area did away  with service area mill rates and                                                                    
sold revenue bonds to help to  pay down debt. The result was                                                                    
the responsibility was taken from  the borough and placed in                                                                    
the  hands of  the  facilities. He  was  concerned with  the                                                                    
state getting overburdened with debt.  He wondered if it was                                                                    
possible for  the state to  avoid having the liability  of a                                                                    
revenue bond  issuance. He  thought the  institutions should                                                                    
have some skin in the game.                                                                                                     
                                                                                                                                
Representative LeBon responded  that the loan-to-value issue                                                                    
in traditional  bank loans was  important. He  recalled that                                                                    
the bank always  tried to keep a maximum 80  percent loan to                                                                    
value. He  responded to the representative's  question about                                                                    
debt  service  and  repayment  ability.  The  loan  approval                                                                    
process by  a banker weighed  what the project  could afford                                                                    
to pay  back and the  predictability of its  revenue stream.                                                                    
He wanted to invite a couple of experts to the table.                                                                           
                                                                                                                                
Representative  Josephson  asked   Representative  LeBon  to                                                                    
define  "Takeout."  Representative  LeBon responded  that  a                                                                    
takeout was the lender  who followed the construction lender                                                                    
and took out  the construction loan and converted  it into a                                                                    
long-term mortgage.                                                                                                             
                                                                                                                                
9:25:50 AM                                                                                                                    
                                                                                                                                
DEVIN  MITCHELL, EXECUTIVE  DIRECTOR, ALASKA  MUNICIPAL BOND                                                                    
BANK AUTHORITY, DEPARTMENT OF REVENUE, introduced himself.                                                                      
                                                                                                                                
LUKE WELLES, SENIOR DIRECTOR  OF BUSINESS DEVELOPMENT ALASKA                                                                    
NATIVE TRIBAL HEALTH CONSORTIUM,  introduced himself. He had                                                                    
been on the board of the  Alaska Municipal Bond Bank and was                                                                    
currently the chair.                                                                                                            
                                                                                                                                
Mr.  Mitchell responded  to Representative  Knopp's question                                                                    
about 100  percent of a  project financing and  his concerns                                                                    
related  to loan  to equity  issues. He  explained that  the                                                                    
Bond  Bank was  not  a  commercial bank,  rather,  it was  a                                                                    
public corporation  of the State of  Alaska. The corporation                                                                    
issued bonds but  did not make mortgage  loans. He continued                                                                    
that when the corporation looked  to an organization, it did                                                                    
not look  at a specific  asset being financed. It  looked at                                                                    
the  cashflow-generating  capabilities of  the  organization                                                                    
and what could be pledged to  secure the bonds that the Bond                                                                    
Bank would be purchasing from  the organization. In the case                                                                    
of  regional health  organizations, they  had some  revenues                                                                    
that  were not  pledge-able, certain  federal receipts,  and                                                                    
other revenues  that were pledge-able. The  Alaska Municipal                                                                    
Bond Bank  Authority created a  lock box situation  with the                                                                    
pledge-able revenues  in which  all the  insurance payments,                                                                    
the  co-payments, and  Medicare and  Medicaid receipts  that                                                                    
could be pledged flowed through  a trustee bank. The trustee                                                                    
bank  would  have irrevocable  control  of  the account  and                                                                    
would  ensure  that the  funding  paid  debt service  before                                                                    
being used for other purposes of the organization.                                                                              
                                                                                                                                
Mr.  Mitchell continued  that  the  organizations had  other                                                                    
cashflow associated  with the non-pledge-able  revenues they                                                                    
received  from Indian  Health Service  (IHS) or  from joint-                                                                    
venture agreements that  they could rely on  to ensure their                                                                    
operations  would remain  intact  even with  a diversion  of                                                                    
revenue.  The Bond  Bank  would require  coverage  to be  in                                                                    
place  such  that the  amount  of  revenue coming  in  would                                                                    
exceed the debt  service amount paid on the  bonds issued by                                                                    
the bank.  In previous  instances involving  regional health                                                                    
organizations and the Bond Bank,  coverage had been robust                                                                      
equal  to multiple  times the  amount. In  a normal  revenue                                                                    
situation, coverage might be equal  to 1.5 times the amount.                                                                    
He added that  when the Bond Bank sold  bonds it implemented                                                                    
provisions to avoid  a diminution of the  credit pledge. The                                                                    
bank  conducted  an  additional   bond  test  ensuring  that                                                                    
historical or  projected revenue (based on  changes in rates                                                                    
and charges)  would be  sufficient to  repay the  bonds that                                                                    
might be  issued after  those of the  Bond Bank  and provide                                                                    
coverage on the bonds.                                                                                                          
                                                                                                                                
Co-Chair Johnston  asked if  there was a  way to  define the                                                                    
capacity  of the  Alaska Municipal  Bond Bank.  Mr. Mitchell                                                                    
responded that in the current  instance, the Bond Bank, as a                                                                    
public corporation,  obtained its  credit rating based  on a                                                                    
moral obligation pledge  of the State of  Alaska. The Alaska                                                                    
Municipal  Bond Bank  Authority had  existed since  1975 and                                                                    
had never had to rely on  a moral obligation pledge. All the                                                                    
loans that  had been  made had been  paid by  the underlying                                                                    
borrowers. The  program was not  a grant or risk  program. A                                                                    
speculative idea  without an expectation  of being  paid 100                                                                    
percent would  not qualify for  the program. In the  case of                                                                    
the regional health organizations  and capacity, it would be                                                                    
a  matter of  the organizations  themselves. The  University                                                                    
was a different  animal. It was like a  conduit revenue bond                                                                    
program  unlike  a  traditional   bond  bank  program  which                                                                    
originally started with municipalities.                                                                                         
                                                                                                                                
9:30:53 AM                                                                                                                    
                                                                                                                                
Representative Josephson asked Mr.  Mitchell to describe how                                                                    
the  University   was  a  different  animal.   Mr.  Mitchell                                                                    
responded that the  University was a subagency  of the state                                                                    
which received much  of its funding from  the state already.                                                                    
The Alaska  Municipal Bond  Bank Authority  had participated                                                                    
with  the  University in  the  past.  The  Bond Bank  had  a                                                                    
statute  that allowed  for the  interception of  state funds                                                                    
appropriated  to  one  or  any of  the  borrowers  prior  to                                                                    
disbursement  to  the  lender.   The  University,  with  the                                                                    
payments it received  from the State of Alaska,  fell into a                                                                    
different credit  analysis category.  The Bond Bank  did not                                                                    
have to be quite as stringent  with the University as it was                                                                    
with the  regional health organizations. The  Bond Bank only                                                                    
made loans it expected to  get repaid. However, the coverage                                                                    
requirements for the University could possibly be reduced.                                                                      
                                                                                                                                
Representative   LeBon  indicated   the  University   had  a                                                                    
representative online.                                                                                                          
                                                                                                                                
9:32:04 AM                                                                                                                    
                                                                                                                                
Representative Josephson noted the  University was trying to                                                                    
decrease its  square footage. Ten years  previously, it made                                                                    
sense to  build the Alaska  Airlines Arena in  his district.                                                                    
Presently, it would  not make sense. He asked  if the Alaska                                                                    
Municipal Bond Bank Authority considered all factors.                                                                           
                                                                                                                                
Mr.  Mitchell  indicated that  the  University  had its  own                                                                    
requirements to  fulfill in  order to  issue bonds.  It also                                                                    
typically  had to  have legislative  approval to  do so.  He                                                                    
noted  that  the  Bond  Bank  was not  like  a  credit  card                                                                    
available  for  use by  the  University,  rather it  was  an                                                                    
option  the  University could  exercise  if  it was  already                                                                    
planning on  borrowing money. The  University would  look at                                                                    
issuing bonds  on its own based  on its credit, or  it would                                                                    
consider using  the Bond Bank,  whichever option  cost less.                                                                    
The University's  chief financial officer, Myron  Dosch, had                                                                    
undertaken   analysis   in   the   current   interest   rate                                                                    
environment. It appeared the University  would save money if                                                                    
it  refinanced its  portfolio through  the Bond  Bank rather                                                                    
than  independently.  He  concluded that  given  the  strong                                                                    
linkage between the  State of Alaska and  the University, it                                                                    
was not a  step sideways to allow the Bond  Bank to help the                                                                    
University save money.                                                                                                          
                                                                                                                                
MYRON DOSCH, CHIEF FINANCIAL  OFFICER, UNIVERSITY OF ALASKA,                                                                    
FAIRBANKS, spoke in  support of the bill.  He concurred with                                                                    
the comments made by Representative  LeBon and Mr. Mitchell.                                                                    
The  bill  would  provide  the   opportunity  to  borrow  or                                                                    
refinance obligations  at lower interest rates  by accessing                                                                    
credit  through  the  Municipal   Bond  Bank  Authority.  He                                                                    
suggested  that by  avoiding interest  costs the  University                                                                    
would  have more  money for  operations. The  University had                                                                    
been able to quantify its  position. In the current interest                                                                    
rate environment,  if the  University were  to issue  a bond                                                                    
for either new  money or refinancing in the  amount of about                                                                    
$50  million  over 30  years,  the  interest rate  would  be                                                                    
better   by  about   .15  percent.   The  saving   would  be                                                                    
approximately $50,000  per year  or about $1.5  million over                                                                    
the life  of the bond.  He saw the bill  as a way  of making                                                                    
opportunities more viable.                                                                                                      
                                                                                                                                
Mr. Dosch  continued that the University  did not anticipate                                                                    
any  new construction  projects in  the next  2 to  3 years.                                                                    
Accessing  credit through  the  Bond Bank  would provide  an                                                                    
opportunity  that   it  would  assess  in   the  future.  He                                                                    
reiterated that  the University had  the authority  to issue                                                                    
bonds in its  own name which it had done  in the past. There                                                                    
were other  state statute provisions  that limited  the size                                                                    
of  the bonds  the  University could  issue without  seeking                                                                    
legislative authority. The board  made its decision based on                                                                    
the University's debt capacity and  the mission of any given                                                                    
project. The board was very judicious about debt.                                                                               
                                                                                                                                
Representative  Wool  asked  for  the  University's  current                                                                    
total debt  amount. Mr. Dosch  responded that  the aggregate                                                                    
total  debt was  $297 million.  Currently,  the annual  debt                                                                    
service was about $28 million.                                                                                                  
                                                                                                                                
Representative  Wool noted  that  the bill  would allow  for                                                                    
$500 million in  debt service per project. He  asked if that                                                                    
limit exceeded  the cost of  any project the  University had                                                                    
undertaken  in   the  past.  Mr.  Dosch   responded  in  the                                                                    
affirmative.  He noted  that the  bill did  not provide  any                                                                    
additional authority  from the University's  perspective. It                                                                    
was merely  an avenue for  the University to  access credit.                                                                    
The University  would remain bound  by its own  authority to                                                                    
issue  debt  in  its  name  as well  as  the  other  statute                                                                    
AS.14.40.253.  He explained  that when  there was  a project                                                                    
with  expected  annual  debt   service  that  exceeded  $2.5                                                                    
million,  the  statute  required   the  University  to  seek                                                                    
separate approval from the Legislature.                                                                                         
                                                                                                                                
9:39:42 AM                                                                                                                    
                                                                                                                                
Representative  Carpenter  asked  who  currently  owned  the                                                                    
bonds related  to the University.  Mr. Bosch  responded that                                                                    
the University bonds were on  the general market and sold on                                                                    
the capital  market. They generally  had a 10-year  call. He                                                                    
elaborated   that  when   the  University   refinanced,  the                                                                    
existing  bond holders  were  paid off  and  new bonds  were                                                                    
reissued.  The bonds  were  owned in  the  general market  -                                                                    
traded and  sold in mutual  funds, insurance  companies, and                                                                    
the like.                                                                                                                       
                                                                                                                                
Representative  Carpenter was  curious if  there were  other                                                                    
organizations that  had access to bonding  authorities other                                                                    
than the  University and regional health  organizations. Mr.                                                                    
Mitchell  responded  that  through the  program  there  were                                                                    
other  authorized  borrowers  who   had  the  capability  of                                                                    
financing  100  percent  of the  University's  projects.  He                                                                    
detailed  that the  projects themselves  were not  providing                                                                    
the  security or  source for  repayment. For  example, on  a                                                                    
general obligation pledge of the  City of Kenai or Soldotna,                                                                    
the  Bond Bank  was not  worried  about the  library or  the                                                                    
public  safety building  being financed.  Instead, the  Bond                                                                    
Bank was  worried about the  property tax base or  sales tax                                                                    
base  being able  to provide  revenue to  be used  to pay  a                                                                    
bond.                                                                                                                           
                                                                                                                                
Representative  Carpenter noted  the significant  healthcare                                                                    
inflation  in  the  state.  He  wondered  how  the  cost  of                                                                    
inflation would  impact payment risk.  He also  wondered how                                                                    
getting  a handle  on inflation  would  impact payment  risk                                                                    
specifically  for health  care  organizations. Mr.  Mitchell                                                                    
indicated the Bond Bank would  rely on the current construct                                                                    
and on experts to provide  information on the expectation in                                                                    
the current  market. In terms  of the risks  moving forward,                                                                    
he thought they  were of legitimate concern.  He deferred to                                                                    
others.                                                                                                                         
                                                                                                                                
9:42:51 AM                                                                                                                    
                                                                                                                                
Mr. Welles  responded that  he would  break up  the question                                                                    
into  several questions.  He  reported  that the  healthcare                                                                    
facilities being  discussed were tribally owned  by regional                                                                    
health organizations.  The joint  venture projects  in which                                                                    
facilities  were  being  built included  all  people  within                                                                    
their    respective   communities.    He   indicated    that                                                                    
reimbursement  was  primarily  through  Medicaid  (State  of                                                                    
Alaska),  Medicare  (federal  government),  and  third-party                                                                    
insurance with  price regulations. Tribal health  was unique                                                                    
in  that for  an individual  on  Medicaid who  was a  tribal                                                                    
member of one of the  229 federally recognized tribes in the                                                                    
state, their health care cost  was the responsibility of the                                                                    
federal government rather  than the state. He  noted the 100                                                                    
percent Federal Medical Assistance  Percentage (FMAP) when a                                                                    
member  received   health  care  through  a   tribal  health                                                                    
organization.                                                                                                                   
                                                                                                                                
Mr.  Welles  relayed that  the  current  projects slated  to                                                                    
expand  community health  services  included  a $20  million                                                                    
project in  Kotzebue, an  $87 million  project in  Kodiak, a                                                                    
$15  million project  in Seward,  a $20  million project  in                                                                    
Cordova, and  a new hospital  project in Sitka  estimated to                                                                    
cost  more  than  $300  million.  The  projects  were  joint                                                                    
ventures with IHS  providing a unique stream  of revenue. He                                                                    
explained  that when  a tribal  health organization  entered                                                                    
into  an  agreement  with IHS  to  build  an  infrastructure                                                                    
project  (hospital  or  clinic),  the IHS  entered  into  an                                                                    
agreement  with  the  organization   to  pay  for  staffing,                                                                    
operations,  and maintenance  costs of  the facility  for 20                                                                    
years  upon  the  project's completion.  The  agreement  was                                                                    
entered  into  as part  of  compact  funding tied  to  self-                                                                    
determination.  He elaborated  that  for the  past 35  years                                                                    
Alaska's  tribes had  looked to  the federal  government for                                                                    
funding through Public Law 93.6.38.  The law allowed for the                                                                    
tribes  to   take  the  funding  to   form  regional  health                                                                    
organizations.                                                                                                                  
                                                                                                                                
Mr.  Welles  continued that  the  baseline  funding for  the                                                                    
organizations  came  from  the federal  government  and  was                                                                    
negotiated  every year.  The  regional health  organizations                                                                    
were able  to bill for third-party  care including Medicare,                                                                    
Medicaid, and third-parties. He  indicated that the rates of                                                                    
reimbursement  for  Medicaid  and Medicare  were  cost-based                                                                    
rates.  A   cost-based  rate   was  an   all-inclusive  rate                                                                    
determined  by  taking  all of  the  allowable  costs  under                                                                    
Medicare rules each year in  the cost reports divided by the                                                                    
number of  allowable patient encounters.  In turn,  the cost                                                                    
per  encounter  for   in-patient  services  and  out-patient                                                                    
services  could be  determined. Once  determined, the  cost-                                                                    
based   rate   was   forwarded  to   the   regional   health                                                                    
organizations addressing  the issue of price  inflation. The                                                                    
projects  would provide  equal opportunity,  improved access                                                                    
to  and  quality  of  care,   and  a  significant  boost  to                                                                    
telemedicine services.                                                                                                          
                                                                                                                                
Representative  Carpenter surmised  that if  the legislature                                                                    
made  the decision  to bond,  the public  would pick  up 100                                                                    
percent  of the  debt. However,  if the  conditions changed,                                                                    
the public would be more on  the hook than it would be under                                                                    
current  law.  He was  unsure  whether  federal funds  would                                                                    
continue to flow  at the same level over the  next couple of                                                                    
decades. He  thought the situation was  challenging and that                                                                    
it was  likely that  money would  dry up.  If so,  the state                                                                    
would  pick up  the  risk  on the  bonds  more  so with  the                                                                    
proposed legislation.                                                                                                           
                                                                                                                                
9:49:32 AM                                                                                                                    
                                                                                                                                
Mr.  Mitchell  indicated  the  Alaska  Municipal  Bond  Bank                                                                    
Authority would address the issue  through the rate covenant                                                                    
concept in  which pledge-able revenues  would be  a multiple                                                                    
factor of  the debt service.  There would be  limitations on                                                                    
the  ability   to  pledge  the   revenue.  If   the  revenue                                                                    
diminished in  the future, a  default would not  occur until                                                                    
the diminishment  was significant. In the  current instance,                                                                    
there  was  additional  comfort  that  the  operation  would                                                                    
continue  because   of  the  funding  packages   Mr.  Welles                                                                    
described, even  if 100 percent of  the pledge-able revenues                                                                    
were  taken. He  reiterated that  the Alaska  Municipal Bond                                                                    
Bank Authority's  process in issuing loans  was conservative                                                                    
and,  there   was  a  100   percent  expectation   of  their                                                                    
repayment. The authority tried  to accommodate for potential                                                                    
future negative  events. It  was possible  there might  be a                                                                    
scenario  in which  measures were  not conservative  enough.                                                                    
However, the Bond Bank tried  to incorporate any concerns in                                                                    
its process.                                                                                                                    
                                                                                                                                
Co-Chair Foster heard Mr. Welles  mention FMAP. He asked for                                                                    
an example. He  noted that there was a  hospital in Kotzebue                                                                    
that  might be  able to  take advantage  of the  program. He                                                                    
asked if a long-term care facility would be a good example.                                                                     
                                                                                                                                
Mr.  Welles responded  that Tim  Gilbert, the  President and                                                                    
CEO of  the Maniilaq Association,  had provided a  letter of                                                                    
support  and  information  about the  association's  project                                                                    
submitted  to IHS.  He relayed  that although  many projects                                                                    
across the United States had  been submitted to IHS, five of                                                                    
ten of  the selected  projects were in  Alaska. One  of them                                                                    
was  the  Maniilaq  Association's project  in  Kotzebue.  He                                                                    
explained that the project would  expand dental services and                                                                    
other outpatient ancillary clinic  services at its facility.                                                                    
The  Maniilaq  facility  was  the  hub  for  12  surrounding                                                                    
communities  outside of  Kotzebue. The  Maniilaq Association                                                                    
owned   and  operated   the  clinics   in  the   surrounding                                                                    
communities referring patients to  Kotzebue when they needed                                                                    
a greater care of service.                                                                                                      
                                                                                                                                
Co-Chair  Foster was  familiar with  the long-term  facility                                                                    
model.  He suggested  that  if  a tribal  member  had to  be                                                                    
placed in  a facility  not associated with  IHS or  FMAP, it                                                                    
was  his understanding  that  the  federal government  would                                                                    
only  be responsible  for 50  percent  of the  cost and  the                                                                    
state  would  be  responsible  for  the  other  50  percent.                                                                    
Ideally, a tribal member would  be placed in a facility that                                                                    
was IHS owned where the  federal government paid 100 percent                                                                    
of  the costs.  He  asked  if part  of  the  reason for  the                                                                    
legislation was to free the state  from having to pay the 50                                                                    
percent.  He asked  how the  legislation  applied to  dental                                                                    
services.                                                                                                                       
                                                                                                                                
Mr. Welles explained that  the regional health organizations                                                                    
had  traditionally  provided  dental and  behavioral  health                                                                    
services.  Whereas,  specialty  care and  tertiary  hospital                                                                    
care had been  provided at the Alaska  Native Medical Center                                                                    
in Anchorage.  If a person  needed to see a  specialist such                                                                    
as a dermatologist or a  cardiologist, they would have to be                                                                    
seen  in   Anchorage.  The  regional   health  organizations                                                                    
provided local care to Alaska Natives and non-natives.                                                                          
                                                                                                                                
Mr.  Welles  addressed   Co-Chair  Foster's  question  about                                                                    
dental services.  He relayed  that Mr.  Gilbert spoke  of an                                                                    
organic growth and  a need to expand  dental services within                                                                    
the  Maniilaq facility.  The association  also wanted  to be                                                                    
able to offer more services  closer to home keeping costs as                                                                    
low as possible.  He noted a large pediatric  dental need in                                                                    
Alaska. Enhancing facilities to  handle the pediatric dental                                                                    
need in the rural areas was an important goal.                                                                                  
                                                                                                                                
Mr.  Mitchell  pointed  out  that   there  was  an  existing                                                                    
provision in statute that required  the Department of Health                                                                    
and Social  Services (DHSS)  to agree  that a  project would                                                                    
glean a financial  benefit to the state  and improve quality                                                                    
of  care. He  continued  that partnerships  were created  in                                                                    
2015 to ensure both, particularly in rural Alaska.                                                                              
                                                                                                                                
9:56:52 AM                                                                                                                    
                                                                                                                                
Representative Wool used his  community-owned hospital as an                                                                    
example. He  wondered if  it would be  eligible to  apply to                                                                    
the Bond Bank.                                                                                                                  
                                                                                                                                
Mr.  Mitchell responded  that the  Fairbanks Hospital  would                                                                    
not be  eligible to apply directly  to the Bond Bank,  as it                                                                    
was a non-profit  facility. He noted that the  Bond Bank had                                                                    
a loan with a long-term  care facility in Juneau, Wildflower                                                                    
Court. He  elaborated that  the City  and Borough  of Juneau                                                                    
(CBJ)  applied to  the Bond  Bank because  they had  a close                                                                    
association with  Wildflower Court   it  was co-located with                                                                    
Bartlett  Regional Hospital,  a  place  where patients  went                                                                    
after  surgery  to  convalesce,   and  a  place  to  receive                                                                    
end-of-life care. The facilities were  on land owned by CBJ.                                                                    
He noted there was an  agreement in place that if Wildflower                                                                    
Court  were  to  fail,  Bartlett Hospital  would  take  over                                                                    
operations  of  the  facility. Otherwise,  the  organization                                                                    
would be looking  to issue bonds on a  conduit basis through                                                                    
some  entity  such  as  Alaska  Industrial  Development  and                                                                    
Export  Authority  (AIDEA)  or   the  Fairbanks  North  Star                                                                    
Borough. The  borough or the  city would have to  be willing                                                                    
to  commit financially  to the  Bond Bank,  as their  credit                                                                    
would  be  pledged. If  the  non-profit  were to  fail,  the                                                                    
municipality would take on the debt.                                                                                            
                                                                                                                                
Representative LeBon asked to hear from Ms. Gayhart.                                                                            
                                                                                                                                
9:59:20 AM                                                                                                                    
                                                                                                                                
RENEE GAYHART,  DIRECTOR, DIVISION OF HEALTH  CARE SERVICES,                                                                    
DEPARTMENT OF HEALTH AND SOCIAL  SERVICES referenced 2 lines                                                                    
on page 2. She explained that  when the Bond Bank received a                                                                    
project, the department took a look  at it from a health and                                                                    
social  services perspective.  The Medicaid  Office and  the                                                                    
Office of  Rate Review evaluated the  project. She continued                                                                    
that in  many cases the project  would entail a build  or an                                                                    
enhancement of existing  services. The department considered                                                                    
whether  the project  would divert  travel  as new  services                                                                    
were added. Some examples included  increasing the number of                                                                    
available  dental  chairs  or enhancing  facilities  in  the                                                                    
outlying areas  in order to  perform dental  crowns locally.                                                                    
The  department  reviewed  travel costs,  potential  revenue                                                                    
generation, and  the costs for  additional hospital  beds or                                                                    
dental services.                                                                                                                
                                                                                                                                
Ms.  Gayhart addressed  Representative Carpenter's  question                                                                    
regarding inflation.  The department  did not set  the rates                                                                    
for  tribal health  organizations    they  were  set in  the                                                                    
federal register by  IHS. The department paid  the set rates                                                                    
and was  reimbursed 100 percent.  She indicated  things were                                                                    
more  complicated  with  reclaiming.  She  noted  the  state                                                                    
health official letter  that came out in  2016. She reported                                                                    
that in  some cases when  tribal members went  to non-tribal                                                                    
sites,  if the  requirements  of the  state health  official                                                                    
letter  were  met,  the  state  would  receive  100  percent                                                                    
reimbursement. Additional  analysis had  to be  completed to                                                                    
assess how much Medicaid  would contribute or alleviate from                                                                    
the state's  expenses. Expenses would include  items such as                                                                    
transportation or  services in another region.  The Medicaid                                                                    
Office and  the Office of  Rate Review compiled  the numbers                                                                    
and sent  them to the  Commissioner's Office to  be reviewed                                                                    
and  forwarded to  the Bond  Bank. The  information included                                                                    
what the state would  contribute. She conveyed that Medicaid                                                                    
was a different payer mix  in every region with the Medicaid                                                                    
population being a factor.                                                                                                      
                                                                                                                                
Ms. Gayhardt relayed  that there was another  piece that had                                                                    
to  be  analyzed.  There were  several  non-native  Medicaid                                                                    
beneficiaries that  went to  tribal health  organizations in                                                                    
the regions. They met the  regular match qualifications. The                                                                    
state would pay the all-inclusive  IHS rate but only receive                                                                    
a  reimbursement  rate of  50  percent.  The State  Medicaid                                                                    
Office had  a detailed analysis  of the numbers  before they                                                                    
were  sent  to the  Bond  Bank.  The department  weighed  in                                                                    
either supporting or remaining neutral on a project.                                                                            
                                                                                                                                
10:02:48 AM                                                                                                                   
                                                                                                                                
Representative  Carpenter wondered  what other  avenues were                                                                    
available for moving  forward with projects if  the bill did                                                                    
not  pass.  Mr.  Welles  indicated  that  there  were  other                                                                    
alternatives. Typically,  the other options  entailed paying                                                                    
additional interest costs. He  used the new hospital project                                                                    
in Sitka  as an  example. He indicated  that the  entity was                                                                    
large enough to get its own  credit rating and issue its own                                                                    
bonds.  More than  likely they  would  receive an  A+ or  AA                                                                    
rating based on  their financials having the  same raking as                                                                    
the Bond Bank and the ability to stand alone.                                                                                   
                                                                                                                                
Mr. Welles continued that the  Maniilaq Association might be                                                                    
able to get  its own credit rating and issue  its own bonds,                                                                    
but perhaps  at a credit rating  less than that of  the Bond                                                                    
Bank at  higher interest rates.  He noted that  a commercial                                                                    
bank was also an option.  He reported that the Tanana Chiefs                                                                    
Conference was one  of the first entities to  go through the                                                                    
Bond Bank.  They were able  to refinance and save  more than                                                                    
$30  million  in  interest  charges  for  the  life  of  the                                                                    
financing. He  mentioned going to  Fitch and Moody's  to get                                                                    
credit   ratings   and   provide  them   with   information.                                                                    
Subsequently, with  the follow up  issuance of bonds  in the                                                                    
market  they  were  found  to  be a  good  credit  risk.  In                                                                    
September Tanana  Chief Conference  Received its  own credit                                                                    
rating (single A) and issued  $126 million of bonds on their                                                                    
own  with  a  30-year  term  and an  interest  rate  of  3.4                                                                    
percent. He noted several tools in the tool box.                                                                                
                                                                                                                                
Representative  Wool brought  up the  hospital in  Sitka for                                                                    
$300 million.  He noted that  the current cap for  a project                                                                    
was  $102  million.  He  asked  if  the  Sitka  project  was                                                                    
dependent on the cap being raised.                                                                                              
                                                                                                                                
Mr. Welles replied that it would  be helpful to have the cap                                                                    
raised.  He  noted the  project  in  Bethel associated  with                                                                    
Yukon-Kuskokwim Health Corporation (YKHC)  was 50 percent to                                                                    
the  cap. He  relayed  that  the new  hospital  was a  joint                                                                    
venture  project with  the  U.S.  Department of  Agriculture                                                                    
(USDA).  He  was aware  of  similar  projects in  Sitka  and                                                                    
Anchorage. He added that the  larger projects could stand on                                                                    
their own.                                                                                                                      
                                                                                                                                
10:07:04 AM                                                                                                                   
                                                                                                                                
Representative Wool  asked if the  cost of the  Tanana Chief                                                                    
Conference project  was $127  million. Mr.  Welles indicated                                                                    
that the amount applied to multiple projects.                                                                                   
                                                                                                                                
Representative Wool clarified that  the figure reflected the                                                                    
construction  cost  of  the  original  project.  Mr.  Welles                                                                    
indicated that  the $127 million was  the refinancing amount                                                                    
of the  original project which  was $87 million.  There were                                                                    
additional   projects  underway   next  door   to  Fairbanks                                                                    
Memorial Hospital (FMH).                                                                                                        
                                                                                                                                
Representative Knopp  asked about the hospital  in Sitka and                                                                    
whether  it changed  hands. Mr.  Welles  responded that  the                                                                    
Sitka  Community  Hospital  had  been taken  over  by  Sitka                                                                    
Community Health Services (SEARHC)  - the two hospitals were                                                                    
becoming one.                                                                                                                   
                                                                                                                                
10:08:10 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:08:30 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Johnston OPENED Public Testimony.                                                                                      
                                                                                                                                
10:08:48 AM                                                                                                                   
                                                                                                                                
Co-Chair Johnston CLOSED Public Testimony.                                                                                      
                                                                                                                                
Co-Chair Johnston would be setting the bill aside.                                                                              
                                                                                                                                
HB 264 was HEARD and HELD in committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                
10:09:11 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:09:32 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                

Document Name Date/Time Subjects
HB 268 Sectional Analysis 030320.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB 268 Southcentral Foundation - Support 2020 03 09.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB 268 Support Univ. of Alaska -2020 03 06 -.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB 268 Sponsor Statement v.M 030320.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB 268 Sectional Analysis version U 3.10.2020.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB 268 verison U 3.10.2020.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB 268 Summary of Changes version M to version U 3.10.2020.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB 268 AMBBA Annual Report Fiscal Year 2019 Final 12.12.19.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB 268 - Chugachmiut - Letter of Support 031120.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB268 APIA - Letter of Support 031120.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
HB 268 - KANA - Letter of Suppport 031120.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
Lucinda_Mahoney Appointee Commissioner DOR 031220.pdf HFIN 3/12/2020 9:00:00 AM
Governor's Appointee DOR - HFIN
HB268 ANHB re.Municiple Bond Bank - Final 20.03.12.pdf HFIN 3/12/2020 9:00:00 AM
HB 268
Response HFIN COS Approved Mahoney Ethics 021220.pdf HFIN 3/12/2020 9:00:00 AM
Appointee Response HFIN