Legislature(1995 - 1996)
05/02/1995 02:04 PM House HES
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 281 - AHFC TRANSFERS TO GENERAL FUND; BONDS Number 830 CO-CHAIR BUNDE announced this bill had been heard previously, and he had proposed an amendment. The bill had been held so everyone would have a chance to look at the amendment. Number 847 DAN FAUSKE, Chief Executive Officer, Alaska Housing Finance Corporation (AHFC), understands the amendment proposed by Co-Chair Bunde would in essence eradicate Section 3, under ratification. The problem Mr. Fauske had with that is that in negotiations with the rating agencies in an attempt to get AHFC off credit watch, the agencies stated they wanted to see that some form of agreed upon legislation was in existence. With this legislation, the agencies could see what the transfers out of the corporation would be on a regular basis over a period of time. This was so the agencies could protect their bond holders. MR. FAUSKE said without that kind of language, the AHFC runs the risk that the credit agencies will not honor the agreement as it was seen, as far as transferring money out of the corporation. The AHFC will probably be placed back on credit watch with all the negative implications and, subsequent to that, any future bond sales. Probably, future bond ratings will most likely go down depending on how much money was taken from the corporation. Number 928 MR. FAUSKE stressed that his concern is not so much a case of being told what to do by people on the East Coast. The point is to look ahead in time after the bonds are already sold. The bonds are sold and the rating has been maintained based on the financial stability and strength of the corporation. If that is weakened, the rating agencies have a fiduciary responsibility to notify their bond holders of a potential problem. Therefore, the strength of the transfer bill was based on the fact that there would be some agreement between the legislature, the administration and the corporation. CO-CHAIR BUNDE understood. His reason for offering the amendment was not antagonistic in respect to someone from "back East" trying to tell Alaska what to do. Surely the ratings agencies are aware that this is a very hollow assurance. The next legislative session could repeal the entire bill or that section of the bill if the legislature chose to do so. CO-CHAIR BUNDE said if the rating agencies are not aware, they should be aware that HB 281 provides a very hollow assurance. Co- Chair Bunde does not feel that taking Section 3 out automatically indicates that Co-Chair Bunde wants to continue to drain capital reserves from the AHFC. To Co-Chair Bunde, Section 3 is a meaningless part of the bill. Number 1030 REPRESENTATIVE VEZEY pointed out the legislature cannot change the law without the Governor's signature or a veto override. Therefore, if HB 281 is passed, it is more difficult to change a law than it is to initially pass a law. HB 281 does provide what Representative Vezey believes most courts would interpret as the pledge of the full faith and credit of the State of Alaska for those bonds. That is more than those bonds have now. REPRESENTATIVE VEZEY said that is a subject of debate in and of its own. If the state of Alaska puts its full faith and credit behind those bonds, Representative Vezey would imagine that the financial managers on the East coast would probably care less what is done to the AHFC as long as the bonds are guaranteed. Number 1080 CO-CHAIR BUNDE conceded that he was not a bond attorney, but he thought the quasi-governmental agencies that issue bonds have the full faith of the state if the bonds ever went to court. However, some people like to be meticulous. REPRESENTATIVE VEZEY assured Co-Chair Bunde if that was the case, the bond rating company would not be the least bit concerned. CO-CHAIR BUNDE announced that Representative Rokeberg joined the meeting at 2:20 p.m. Number 1120 MR. FAUSKE said the AHFC is the only housing finance corporation in the United States that has its own general obligation (G.O.) rating. That is very significant, because there is no other such corporation that has that. The AHFC is a stand-alone organization and the credit is based on the full faith and credit of the corporation. Therefore, if the legislature or some other body were to take significant acts that impaired the ability of the corporation to service its debt, any number of things could happen. MR. FAUSKE did not wish to discuss those possibilities at the moment. He only wanted to state that Section 3 assures the full agreement with the legislature that the legislature will not impair the corporation's ability to service its debt. It is also in the spirit of the language that the corporation cannot be utilized in full force to solve all the fiscal problems of the state. MR. FAUSKE said, "The AHFC has arrived at what seems to be a reasonable amount of money based on some technical analysis as to fund equity balances of the corporation that meet with the guidelines established to maintain the bond rating that the AHFC currently enjoys." That bond rating is translated into some low mortgage interest rates for the residents of Alaska. MR. FAUSKE explained that a bond rating is a direct result of risk. The higher the rating, the lower the risk. In retrospect, if ratings go the other way, interest rates go up. Number 1212 CO-CHAIR BUNDE did not disagree with the proposal the bill laid out as a reasonable withdrawal of dividends from the AHFC. However, regarding the full faith and credit of the state of Alaska, if the legislature chose to dissolve the corporation, the state would take on its debts and responsibilities. REPRESENTATIVE BRICE thought that was true with any other bonding agency that is quasi-governmental. The AHFC has been able to maintain a substantially high bond rating because it has established through past history that the state is willing to take those golden eggs and stow them away in an appropriate manner. That is what Section 3 intends. CO-CHAIR BUNDE noted that the state has done that in the past, and it has done that without Section 3. Number 1278 REPRESENTATIVE NORMAN ROKEBERG thought that there needs to be teeth in legislation, therefore, he is going to vote against the amendment. CO-CHAIR BUNDE noted that the amendment was moved at the last meeting, and there were objections to the amendment. A roll call vote was taken. Voting "yes" on the amendment were Co-Chair Bunde and Representative Vezey. Voting "no" were Representative Rokeberg, Representative Brice, Representative Robinson, Co-Chair Toohey and Representative Davis. Amendment 1 failed. Number 1318 REPRESENTATIVE ROKEBERG introduced an amendment. It was moved as Amendment 2, and there were objections for purposes of discussion. Amendment 2 modified the title of the bill and deleted Section 4, which provides the bonding authority to provide the $3 million. REPRESENTATIVE ROKEBERG said the reason he brought forth the amendment is because he considered this particular provision a blatant raid on the equity of the AHFC for a special purpose. Representative Rokeberg did not feel that was right, and it was very poor public policy. REPRESENTATIVE ROKEBERG was also concerned about the credit worthiness of the AHFC, and their ability to maintain their credit worthiness and their bond rating. In addition, the university system and all school systems in Alaska should be able to provide the repair and maintenance of their physical plants within their operating budgets and not look for special appropriations to do so. Number 1390 REPRESENTATIVE ROKEBERG appreciated the situation the university was in. However, this bill amounts to one state entity raiding another. The two are not related. If the legislature wants to bond the repair and maintenance of the university system it should do so with a G.O. bond that goes before the vote of the people. That is why Amendment 2 is being offered. Number 1411 CO-CHAIR TOOHEY asked what the difference was between taking $200 million from the AHFC to put into the general fund as was done last year, and what is being provided for in the bill, other than the fact that the bill's provisions have a purpose. REPRESENTATIVE ROKEBERG said the purpose of the $270 million appropriation is to give a predictable annual dividend to the state's general fund. The state can do what it wishes with that money. Representative Rokeberg supports that because it is a sustainable type of dividend. The real estate community and the state supports that. It provides stability. REPRESENTATIVE ROKEBERG said his amendment was offered to further avoid any major raids of bond equity of the corporation. Representative Rokeberg does not feel this is the right cause and purpose. If the legislature wishes to repair and maintain the university with bonding money, the legislature should go to the voters and ask their permission. Number 1470 MR. FAUSKE said Representative Rokeberg's concerns are a separate issue in terms of how to go about this area. Mr. Fauske said he did not wish to discuss the merits of going to the people for a vote or not. HB 281 is a G.O. of the corporation that falls within the parameters of the corporation based on the merger of 1992. MR. FAUSKE said this would have come under the old Alaska State Housing Authority (ASHA). Mr. Fauske believed the repair and replacement of state facilities used to be one of the functions of ASHA. That gave the mechanism whereby the state was operating within the overall umbrella of the corporate activities. MR. FAUSKE stated that at the beginning of the session, up to March of this session, there was a great deal of activity going on as far as funding for the university. This program became part of the process to help eliminate the overall deteriorating maintenance on the university campuses. This agreement has been discussed with the rating agencies. At this level they have considered this $30 million in G.O. as well as the withdrawal from the corporation. MR. FAUSKE concluded it falls within the parameters of what is being done, and within the perusal of the rating agencies and what they have been told the state is trying to do. It does not, however, address the question that Representative Rokeberg is asking. REPRESENTATIVE BRICE said unlike Co-Chair Bunde's amendment which attempted to address a specific concern, the current amendment is probably eviscerating the whole intent of the legislation and would probably be considered dilatory in that sense. HESS Committee members might want to consider some type of an action on that point. On the other point he does believe that when HESS Committee members are talking about the discussion of the AHFC and its corporation's bond authority, HESS Committee members need to discuss establishing also whether or not it is appropriate for the AHFC to be used to adequately fund the deferred maintenance operations at the state university. REPRESENTATIVE BRICE considered the debate that has taken place over the last two years concerning the issue. He has not heard any realtors complain, nor has he heard anyone argue. In addition, Representative Brice has not heard the AHFC get concerned over their bonding rating, as testimony has said that the bill, as is, protects the corporation's bonding authority. Therefore, Representative Brice opposes the amendment. Number 1636 REPRESENTATIVE ROKEBERG asked Mr. Fauske, given the language on Section 4 of HB 281, if the payment of the principal interest would not be a draw-down on the retained earnings and other resources of the corporation. MR. FAUSKE answered yes in that it is coming from corporate receipts. It is not a revenue bond per se because it is a G.O. bond. REPRESENTATIVE ROKEBERG concluded that any retained earnings or profits generated by the lending activities throughout the state, for example, "The homeowners paying their mortgage checks to their servicing agent to the AHFC as the underwriter of their mortgage," are going to finance this bigger bond issue. MR. FAUSKE said following that paper trail, that is correct based on the fact that the AHFC is a profit making corporation, and profits are derived from repayment on mortgages, investment earnings and other mechanisms. Money is coming into the corporation, and the profits are then being utilized as a financial strength to support the bond credit. Number 1695 REPRESENTATIVE ROKEBERG said it was kind of like a phantom tax. CO-CHAIR BUNDE called for a roll call vote on Amendment 2. Voting "yes" on the amendment was Representative Rokeberg. Voting "no" were Representative Robinson, Co-Chair Toohey, Co-Chair Bunde, Representative Vezey, Representative Davis, and Representative Brice. Amendment 2 failed. REPRESENTATIVE VEZEY was expecting to see a schedule of transfers of capital in this bill. He asked if that would be coming in another bill. MR. FAUSKE believed that appears in the agreement between the commissioner of revenue and the corporation which is based on HB 281. CO-CHAIR BUNDE announced that copies were in the bill packets. Number 1807 REPRESENTATIVE BRICE moved HB 281 with individual recommendations and accompanying fiscal notes. There were no objections, and the bill passed out of committee.
| Document Name | Date/Time | Subjects |
|---|