05/19/2003 03:23 PM House L&C

SB  73-AIDEA: LOAN PARTICIPATION & REGULATIONS                                                                                
                                                                                                                                
CHAIR ANDERSON announced  that the first order  of business would                                                               
be CS FOR  SENATE BILL NO. 73(FIN), "An Act  relating to the loan                                                               
participation program  of the  Alaska Industrial  Development and                                                               
Export  Authority and  to regulations  of  the Alaska  Industrial                                                               
Development and Export Authority;  and providing for an effective                                                               
date."                                                                                                                          
                                                                                                                                
Number 0060                                                                                                                     
                                                                                                                                
MIKE BARRY, Chairman of the  Board, Alaska Industrial Development                                                               
&  Export Authority  (AIDEA),  spoke on  behalf  of the  sponsor,                                                               
Senate Rules Committee by request  of the governor.  He explained                                                               
that  SB 73  allows AIDEA  to extend  flexibility and  update the                                                               
loan  participation  program.    This would  cope  with  the  low                                                               
interest  rates, the  lowest in  50 years.   A  large portion  of                                                               
AIDEA's funds  are invested  in government  bonds and  that money                                                               
could be  used more  effectively by transferring  it to  a better                                                               
earning asset  in the loan participation  program.  Historically,                                                               
the  loan participation  program  has achieved  a  great deal  of                                                               
success.   The  "charge-offs" in  the loan  participation program                                                               
are less than  seven-tenths of 1 percent, which is  far less than                                                               
the national average for commercial  banks.  Mr. Barry noted that                                                               
the total participation in AIDEA has declined over the years.                                                                   
                                                                                                                                
Number 0150                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if  the [change] from  $10 million                                                               
to $20  million is the  stand-alone program or a  ceiling without                                                               
legislative approval.                                                                                                           
                                                                                                                                
MR. BARRY explained that this  [change] would extend [the account                                                               
amount]  in  any  one  project.     He  related  that  he  didn't                                                               
anticipate  that this  would be  widely used,  although it  would                                                               
allow AIDEA  to expand  its dialogue with  the banks  and perhaps                                                               
generate a  few more deals.   The $10  million doesn't go  as far                                                               
today  as it  did  when it  was established  many  years ago,  he                                                               
noted.    In further  response  to  Representative Rokeberg,  Mr.                                                               
Barry  clarified  that  in  relation  to  bonding  AIDEA  has  to                                                               
approach the legislature for anything in excess of $10 million.                                                                 
                                                                                                                                
REPRESENTATIVE ROKEBERG turned  to the change from  20 percent to                                                               
10  percent on  page 2,  lines 18-19,  and asked  why that  isn't                                                               
[considered] subsidizing the banking industry.                                                                                  
                                                                                                                                
MR. BARRY explained that the change  to 10 percent will allow the                                                               
bank to layoff more  of the loan to AIDEA.   He surmised that the                                                               
aforementioned  helped  the banks  in  the  sense that  they  can                                                               
provide better  service to  their customers.   However,  AIDEA is                                                               
giving better  terms than  the banking community  as a  whole and                                                               
thus the  customers want AIDEA  to take  a larger portion  of the                                                               
loan, which fits  with AIDEA's desire to expand the  program.  In                                                               
further response to Representative  Rokeberg, Mr. Barry confirmed                                                               
that the 75 percent loan to value ratio is the maximum.                                                                         
                                                                                                                                
Number 0309                                                                                                                     
                                                                                                                                
MR. BARRY,  in response to  Chair Anderson, explained  that AIDEA                                                               
offers  this   loan  participation   program  to   all  financial                                                               
institutions  in  the state.    Those  financial institutions  do                                                               
their  own underwriting  through the  procedures the  institution                                                               
has, then the  loan is brought to AIDEA.   At that point, AIDEA's                                                               
credit folks  do an independent  underwriting of the  loan, which                                                               
is why  the experience is better  than going solely to  the bank.                                                               
In further  response to  Chair Anderson, Mr.  Barry said,  to his                                                               
knowledge, the only  other state with an  organization like AIDEA                                                               
is Pennsylvania.                                                                                                                
                                                                                                                                
Number 0367                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  moved to  report  CSSB  73(FIN) out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
zero fiscal notes.  There being no objection, it was so ordered.