Legislature(1995 - 1996)

02/27/1996 03:04 PM HES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HSCR 3 - DISAPPROVING EXECUTIVE ORDER 97                                    
 SSCR 3 - DISAPPROVING EXECUTIVE ORDER 97                                    
 Number 128                                                                    
 DIANE BARRANS, Executive Director, Alaska Commission on                       
 Postsecondary Education; and Executive Officer, Alaska Student Loan           
 Corporation, said when she testified before the committee last                
 month, she spoke about the history of the Commission and the                  
 various functions it has performed over the past 22 years.  She               
 described how the current functions, primarily management of the              
 operations and finances of the Alaska Student Loan Program, are not           
 well-served by the existing configuration of two boards --                    
 especially when the designated members are particularly susceptible           
 to special interest influences, sometimes to the detriment to the             
 loan fund itself.                                                             
 MS. BARRANS said this past week, she met with groups at AMBAC, the            
 Alaska Student Loan Fund's bond insurer, as well as staff at Moodys           
 and Standard & Poor's credit rating agencies in New York City.  In            
 anticipation of the upcoming bond issue, she provided for them an             
 overview of the pending legislation and a servicing and operational           
 status report.  Their reaction to her update was uniformly quite              
 positive.  When reviewing the Executive Order and the related                 
 comments by Bond Counsel to the Loan Corporation, Ken Vassar, they            
 were pleased to see that we in Alaska are continuing to refine our            
 focus on the financial well-being of the loan fund.                           
 MS. BARRANS pointed out that in his January 10 letter commenting on           
 the Executive Order, Mr. Vassar noted that this reorganization                
 would be "beneficial to the corporation's efforts to finance the              
 student loan program through the sale of its bonds and beneficial             
 to the student loan program generally."  Mr. Vassar has been bond             
 counsel to the corporation since its creation and therefore his               
 comments are particularly valuable.  While not an insider to the              
 management of operations, he has been a consistent and objective              
 observer over time.  He goes on to add "The existence of two,                 
 separate state agencies with identical staff and possessing powers            
 and duties relating to the same program is confusing.  Even the               
 members of the commission and the members of the corporation have             
 been confused as to the boundaries of their respective powers and             
 duties."  Additionally, he adds "consolidation will also eliminate            
 the inefficiencies of having two entities that must transact the              
 same business with each other."  Mr. Vassar provides examples of              
 the inefficiency and reiterates that "it would improve the                    
 efficiency of the entire process to have the same entity                      
 responsible for these interwoven procedures."  Ms. Barrans said Mr.           
 Vassar will be in town for a corporation meeting tomorrow afternoon           
 and would be available to answer questions regarding his                      
 experiences with the commission and corporation.                              
 MS. BARRANS concluded that they are convinced the consolidation               
 under Executive Order 97 provides for stronger, more focused                  
 management of the Loan Fund and they respectfully asked that the              
 committee not disapprove it through the Resolution.  Members of the           
 legislative body may elect to amend the statutes through the bill             
 process.  She was looking forward to working with any of the                  
 committee members on such an initiative.  She stated however, at              
 this point, it is critical that the entities which can positively             
 or negatively impact our bottom line, that credit rating agencies,            
 the insurer of the bonds has the highest possible comfort level               
 that we are working cooperatively and continuing to move in the               
 right direction.                                                              
 Number 416                                                                    
 CO-CHAIR BUNDE said speaking for himself and he believed for the              
 House and Senate HESS Committees, it would be their goal to                   
 continue to work toward this consolidation.  He added that                    
 statutory changes would be needed to achieve that.                            
 Number 453                                                                    
 SENATOR JUDY SALO said when they dealt with the issues in SB 123 as           
 well as the items in this Executive Order, she thought that these             
 were all part of a package to make the whole loan fund more                   
 financially stable.  She asked if that was true.                              
 MS. BARRANS replied that from an administrative perspective, all of           
 these changes are pieces of what is necessary to move the fund to             
 a financially stable existence.  She said having a single entity              
 that administers both the financial side as well as the operational           
 side is a big part of that.                                                   
 SENATOR SALO said the reason she asked the question is that she had           
 some problems with portions of SB 123.  She felt it was sort of a             
 hard hit on students who were taking out the loans and profited               
 from this program over the years and there were a couple of places            
 where the increased costs were significant.  But in combination               
 with decreasing the administrative costs and becoming more                    
 realistic about those costs, that's what sold her.  So, she was               
 happy to hear the committee's commitment to address the concepts in           
 this Executive Order.                                                         
 CO-CHAIR BUNDE responded that he was cautious to speak for himself            
 and for the House HESS Committee, the wheels are already in motion            
 to begin to deal with it.  He emphasized that it would require an             
 extensive statutory change.                                                   
 Number 600                                                                    
 ERIC FORRER said the question before the committee concerns the               
 status of the Governor's Executive Order that changes the governing           
 structure of the postsecondary education agency.  He commented he             
 is one of the University Board of Regents representatives to the              
 Postsecondary Commission.  He sat on the commission for two years             
 and is now chair of that commission.  While two years is not that             
 much, he said it did give him a bit of the history and the flavor             
 of the commission's operations, including at some meetings, as much           
 as a full day of student appeals.  His arrival on the commission              
 coincided with the hiring of a new agency director, the initiation            
 of a new management style and the creation of a new internal                  
 organization.  Upon that director's departure for a job in                    
 Washington, he wrote the commission a position paper, in which he             
 was able to refer to a Division of Legislative Audit report from              
 December 1994, which pointed out the Alaska Student Loan Program              
 Fund is not self-sustaining and is in a state of financial                    
 deterioration.  The report also noted that the current role of the            
 Alaska Commission on Postsecondary Education does not reflect its             
 statutory mandate.  The outgoing director also wrote "Over the past           
 20 years, our education policy changes in Alaska have definitely              
 resulted in the obsolescence of the ACPE's original role."  Mr.               
 Forrer said he was quite interested in the financial deterioration            
 part of the assessment, and at the last meeting of the Student Loan           
 Board, he asked the managing director of Smith Barney, a New York             
 debt security firm, what that deterioration amounted to.  The                 
 answer he gave, which got the nod from other financial advisers in            
 the room, was that of the 480 million general fund dollars invested           
 by the state in the student loan fund, some 260 million dollars               
 remain.  He was shocked at the notion that the commission of which            
 he is chair, has been living with a set of statutes, rules and a              
 political environment that enabled 45 percent of such a huge                  
 investment to be lost.  His initial reaction was and remains that             
 the second half of this fund is not going to disappear on his                 
 MR. FORRER said the upshot of his experience is that he has                   
 cooperated with the Governor's Office in the creation of the                  
 Executive Order and he urged the committee to let it stand.  He               
 noted that if the committee denies its passage, it will be one of             
 the most expensive political gestures the state has endured.  The             
 connection between the structure of the commission and the                    
 management of the fund is that the commission as it is currently              
 structured is a very blunt tool for rigorous management.  It is a             
 difficult environment in which to muster sustained political will.            
 It suffers from lack of authority and it is fatally subject to the            
 relentlessly self-serving lobbying of private sector interests that           
 have arrayed themselves around the fund.  Consequently, the public            
 policy governing the fund is structured at least in part, by                  
 interests for which the fund was never intended in the first place.           
 He was not accusing the proprietary schools of doing anything                 
 except engaging in self-preservation, but their vision has a very             
 close horizon.  How this group can make arguments for a structure             
 that results in a loss of millions of dollars annually to the fund            
 upon which they depend is beyond him.  He explained that when the             
 fund loses its ability to sell bonds and the state loses the equal            
 access aspects of the loan fund, the first crowd at the table                 
 begging for fresh money will be the private interests that take               
 such a keen interest in influencing the statutes and regulations.             
 The arguments that should be made to counter their positions have             
 a constituency that is as wide as the entire state, but at any                
 given moment, is only a few students deep.  There is no well-                 
 connected lobbyists for the united future student borrowers of                
 Alaska, there is only the agency itself, himself, and the committee           
 members who have the authority to help rescue this investment of              
 public dollars for the state's future.  He urged the committee to             
 let Executive Order 97 stand and to use subsequent clean up                   
 legislation to achieve more finely directed goals.                            
 Number 863                                                                    
 REPRESENTATIVE CAREN ROBINSON referenced Mr. Forrer's comment that            
 he had worked with the Governor's office and asked him to explain             
 how they reached the conclusion to go in the direction taken in the           
 Executive Order.                                                              
 MR. FORRER responded that anyone who has paid attention to                    
 postsecondary in the past, would come to the same conclusion; that            
 is, it needs significant structural change and the two bodies                 
 existing simultaneously is confusing and serves no purposes.  He              
 began to question what could be done to solve this problem and what           
 are the things that drive the postsecondary education; that is to             
 say the legislation that created it.  It turned out to be a bigger            
 can of worms than what he realized.  For example, two regents are             
 there because of the statutory language that states post secondary            
 oversees the university's budget, which has never occurred and on             
 and on.  He wasn't certain who actually came up with the proposal             
 to move in the direction of the Executive Order.                              
 CO-CHAIR BUNDE said it becomes a question of the cart before the              
 horse.  It would require some serious statutory changes, which Mr.            
 Forrer had alluded to, and whether there's an Executive Order that            
 goes halfway and then statute, or just statutory change is a policy           
 call.  Co-Chair Bunde assured Mr. Forrer that he shares the                   
 concerns about the financial stability of the loan.                           
 CO-CHAIR BUNDE asked if there was further public testimony.                   
 Hearing none, he opened the meeting for discussion.                           
 Number 1000                                                                   
 REPRESENTATIVE TOM BRICE questioned the statement on the fiscal               
 note stating the estimated savings reflected in Executive Order 97            
 will not be achieved in the manner proposed by the Governor.  He              
 said there is no back up documentation in the packet to                       
 substantiate that statement and asked if there was any information            
 CO-CHAIR BUNDE said as he previously mentioned, the Executive Order           
 only makes half of a step and significant statutory change is                 
 required in order to achieve the needed efficiency.  He added that            
 it's going to take legislation which overhauls the entire post                
 secondary system, instead of just limiting the number of people.              
 REPRESENTATIVE BRICE asked if the bill was currently in the                   
 drafting stage.                                                               
 CO-CHAIR BUNDE responded the bill was presently being drafted and             
 he would make it available as soon as it was available to him.  He            
 anticipated it to be an ambitious, cooperative and perhaps lengthy            
 goal to write the applicable statutes.                                        
 Number 1116                                                                   
 SENATOR MIKE MILLER moved to pass Senate Special Concurrent                   
 Resolution 3 out of the Senate HESS Committee with individual                 
 recommendations.  An objection was raised.  CHAIRMAN GREEN asked              
 for a roll call vote.  Voting in favor of the motion were Senators            
 Green, Miller and Leman.  Voting against the motion were Senators             
 Salo and Ellis.  CHAIRMAN GREEN announced that action on the                  
 Resolution disposes of the issue of Executive Order 97 and it will            
 be passed to the Senate Secretary.                                            
 Number 1158                                                                   
 REPRESENTATIVE ROKEBERG moved to pass House Special Concurrent                
 Resolution 3 out of the House HESS Committee with attached fiscal             
 notes.  REPRESENTATIVE BRICE objected and raised a point of                   
 question relating to procedure.  He explained that it is normal               
 procedure for the House HESS Committee not to pass a bill out of              
 committee on the first hearing.  Given the impact of this Executive           
 Order, he felt it would be appropriate to hold it over until the              
 next meeting.                                                                 
 CO-CHAIR BUNDE noted the House HESS Committee has moved bills out             
 of committee at the first hearing on several occasions, and that it           
 was his wish to do so with HSCR 3.                                            
 Number 1203                                                                   
 REPRESENTATIVE VEZEY asked for a call of the previous question.               
 REPRESENTATIVE BRICE pointed out that when bills had passed out of            
 committee at the first hearing, it had been done with a consensus             
 of the committee.                                                             
 Number 1235                                                                   
 CO-CHAIR BUNDE asked for a roll call vote.  Voting in favor of the            
 motion were Representatives Vezey, Rokeberg, Davis, Toohey and                
 Bunde.  Voting against the motion were Representatives Brice and              
 Robinson.  C0-CHAIR BUNDE announced that House Special Concurrent             
 Resolution 3 had moved from the House HESS Committee.  The action             
 on the Resolution disposes of the issue of Executive Order 97 and             
 it will be passed to the House Clerk.                                         
 CO-CHAIR BUNDE adjourned the joint meeting of the House & Senate              
 HESS Committees at 3:23 p.m.                                                  

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