Legislature(2013 - 2014)BARNES 124
04/14/2014 03:15 PM LABOR & COMMERCE
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SB 140-AIDEA: ARCTIC DEVELOPMENT PROGRAM/FUND 4:01:15 PM CHAIR OLSON announced that the next order of business would be CS FOR SENATE BILL NO. 140(FIN), "An Act creating the Arctic infrastructure development program and fund in the Alaska Industrial Development and Export Authority; and relating to dividends from the Alaska Industrial Development and Export Authority." 4:01:20 PM JESSE LOGAN, Staff, Senator Lesil McGuire, Alaska State Legislature, stated that SB 140 represents one of the principal elements of the Alaska Arctic Policy Commission's legislative packet. The AAPC was created by the legislature to prepare an Arctic policy and implementation plan for Alaska and to return the plan to the full body for consideration. The purpose of this bill would be to attract investment in Arctic infrastructure to pair with private investment from Alaska's AIDEA. Although AIDEA has the authority to invest in many areas, it does not have a specific program to attract private investment for infrastructure. CHAIR OLSON reported that the House Labor and Commerce Standing Committee heard the companion bill, HB 288, but SB 140 will be the vehicle. 4:02:28 PM MR. LOGAN provided a section-by-section analysis of the bill. Section 1 would establish AIDEA's ability to adopt a policy for payment of a dividend. He characterized Sections 1-3 as "boilerplate" provisions that would establish definitions for "net income" and "unrestricted net income" as well as establishing a means for this fund to return dividends back to the general fund. Sections 4-8 would make conforming changes to include loans from the Arctic Infrastructure Development Fund (AIDF) regarding interest rates and other requirements for loans from funds managed by AIDEA, such as the SETS fund. Section 9 would add the AIDF to the types of programs to pay borrowers of loan participation that the authority can establish. Section 10 would establish the Arctic Infrastructure Development Program fund to promote and provide financing for Arctic infrastructure development. 4:03:27 PM MR. LOGAN referred to page 6 lines 2-16, which lists what the fund consists of, including direct appropriation made by the legislature, money or assets transferred to the fund by AIDEA, unrestricted loan repayments, interest, and other income earned. It would also make certain that this account is separate from other accounts and accounts can be established within this fund. He referred to page 6, lines 17-19, which clarify that the fund will be used for Arctic infrastructure development. He referred to page 6, lines 20 through page 7, line 21, which would establish the powers and duties of the authority regarding the AIDF. This section would mirror the powers and duties of the SETS fund. It would allow AIDEA to use this fund for Arctic infrastructure development, insure project obligations, guarantee loans or bonds, establish reserves, and acquire real or personal property by purchase, transfer, or foreclosure. It would also defer principal payments on capitalized interest on Arctic infrastructure development, as well as to enter into lease agreements, sales-lease-back agreements, build-operate- transfer and operate-transfer agreements or similar financing agreements. It would also allow AIDEA to enter into agreements with government entities for the transfer and control of infrastructure facilities, rights-of-way, and studies. It would allow for services to be contracted and bonds to be issued. This section would also allow for loan guarantees to be provided for purchase and repair of vessels in federally managed fisheries or purchase of quota shares or individual fishing quota used in federally managed fisheries in the Arctic. He said the loan guarantees would be $7 million and the cap would be no more than one-third of the capital cost of the projects. 4:04:56 PM MR. LOGAN referred to page 7, line 22 to page 8, line 2, which would establish limitations on the financing for infrastructure development. It would consist of loans for not more than one- third of the capital cost of the development, limiting the loan guarantee to not exceed $20 million. It would also allow financing for up to 40 years and establish that the fund can be used as security for a bond guarantee. He referred to page 8, lines 2-19, Section 11, which defines the "Arctic" in a geographical boundary and page 8, lines 7-19, defines "Arctic infrastructure development." 4:05:39 PM REPRESENTATIVE JOSEPHSON asked what exactly is being envisioned. He has seen the map that extends to Kamchatka and the Mackenzie River. He asked for an example of projects would be developed with these loans. MR. LOGAN answered that he couldn't give any examples but the purpose is to attract projects from private investment in the state or outside the state. For example, one project could be a deep water draft port the United States Army Corps of Engineers (USACE) has currently been working on. Several sites have been identified, with Port Clarence often discussed. This fund would allow the U.S. Department of Defense or the U.S. Department of the Interior to partner with the state on financing options. He recalled that this has previously happened to establish the U.S. Coast Guard's permanent presence in Anchorage. Using AIDEA saved the U.S. Coast Guard considerable money and was part of their decision-making, he said. 4:07:11 PM REPRESENTATIVE JOSEPHSON recalled SB 99 would give specific authority to issue new bonds in substantial amounts, but he asked whether projects would compete with other projects for the $67 million corpus of the fund under this bill. MR. LOGAN answered that this fund would not be capitalized. He explained that under SB 99, the issuance of bonds would be outside the SETS fund, and would fall under the general AIDEA authority. This bill would allow the fund to be created and allow other assets that AIDEA controls to be transferred to this fund if the board of directors deemed it. Additionally it could be used in the future as a repository for earmarked projects. 4:08:01 PM REPRESENTATIVE JOSEPHSON recalled an earlier question asked how all of these things can be done if the other body plans to use some of the SETS funds to pay for the power plant for the University of Alaska Fairbanks (UAF). He asked for the viability of this or if it would rely on a separate appropriation at a later date. MR. LOGAN answered that this would rely on a separate appropriation or a transfer from other funds within AIDEA. CHAIR OLSON suggested that this one is lagging about a year or two behind the other bill. 4:08:48 PM REPRESENTATIVE SADDLER referred to page 8 lines 16-18, and asked what is envisioned in terms of the construction, improvement, rehabilitation, or expansion of a shore-based plant, facility or equipment used in support of a fishery in the Arctic. He suggested the language is fairly broad. He asked how closely affiliated the project would need to be to Arctic fisheries for it to qualify. MR. LOGAN answered it may be that a dock needed to be built to house vessels that fish primarily in the federally-managed fisheries. He said it might not be located in the Arctic. He offered his belief that these provisions are designed to allow projects in the state to be eligible for these funds if they support development in the Arctic. 4:09:53 PM REPRESENTATIVE SADDLER said, "There was discussion about the community development quota corporation that home ports outside, and they could use a port in Seward if we're available." He asked whether this bill is aimed at that. MR. LOGAN answered that the fisheries provisions in the bill are designed to repatriate some of the vessels and quotas that currently reside outside Alaska. He emphasized that there isn't any specific mention of eligibility of any specific group, but AIDEA has authority to operate only in Alaska, so if a vessel wanted to participate, it would need to relocate to Alaska. 4:10:32 PM REPRESENTATIVE SADDLER pointed out he did not see any specific restriction limiting it to Alaska-based businesses. CHAIR OLSON clarified that projects were eligible if engaged in business in Alaska. 4:10:58 PM REPRESENTATIVE REINBOLD asked who the responsible agency within the federal area would be if a conflict arose between mining and fishing. MR. LOGAN asked for further clarification on the question. REPRESENTATIVE REINBOLD asked who would be the governing body to resolve any disputes if multiple resources were in the area. MR. LOGAN answered it would be the same agencies that currently resolve those disputes. In further response to a question, he said he didn't know, possibly the National Marine Fisheries Service, Alaska Department of Fish & Game, or any agency that resolves disputes in federal and state managed fishery areas. REPRESENTATIVE HERRON said that Mr. Logan has done a good job. 4:12:30 PM REPRESENTATIVE CHENAULT recalled comments about the City of Seward. He explained that Seward is also a major marine repair terminal so it is possible some ships could be in port that have been involved in oil exploration in the Arctic. He suggested this could be why this bill could affect Seward. TED LEONARD, Executive Director, Alaska Industrial Development & Export Authority (AIDEA), Department of Commerce, Community, & Economic Development, deferred to Mark Davis. 4:14:04 PM MARK DAVIS, Deputy Director, Alaska Industrial Development and Export Authority, Department of Commerce, Community, & Economic Development, stated that funding would work within Alaska as per AIDEA's statutes. He anticipated that would be further refined by regulation. Secondly, with respect to the funding, he pointed out that the AIDF is an unfunded fund, unlike the current SETS fund that is funded. 4:14:58 PM CHAIR OLSON asked whether he anticipated that it would be funded in the future. MR. DAVIS said that the funding would be in a manner similar to the Interior Energy Project and anticipated that the legislature would focus on a specific port project and it would use this AIDF as a vehicle to provide AIDEA with some of the funding if it was using a public-private partnership funding mechanism. 4:15:22 PM RON LONG, Deputy City Manager, City of Seward, stated a variety of industries would be in support of development within the Arctic, including the oil and gas industry port development, in which the city would provide a staging area for goods and services that need to do business in the Arctic but must stage outside the strictest geographic definition as developed by the Alaska Arctic Policy Council. He emphasized that this should take place in Alaska, and the City of Seward would want to be competitive with other ports in Alaska. He said that the state will want to tilt the development towards Alaska from development currently being staged outside Alaska. He noted that the Alaska Arctic Policy Council has identified a number of needs and opportunities as well as significant private capital ready to support the development effort, which the state and municipalities want to attract to Alaska. He compared it to how other states attract Nike and Boeing corporate industries to their states. He identified the fisheries as ones conducted in the Bering Sea, which are large offshore federally managed fisheries that are not against the coast or in conflict with state-managed fisheries. He acknowledged that not any one port could do everything to support development in the Arctic. He stressed that response agencies must be close to the area, but moving goods and services might be located at Dutch Harbor or in Kodiak. He offered his belief that Seward is the right place for operations that need rail and road access. 4:18:09 PM REPRESENTATIVE SADDLER asked how he envisioned this financing tool being used in his community. MR. LONG suggested that the public-private partnerships have worked successfully at Red Dog and the North Slope. In terms of fisheries, such as the Bering Sea fleet, the CDQ groups have allocated 10 percent of the resource to Alaskans and the remaining 90 percent is largely being capitalized outside the state. He suggested that the state could create a new, or augment an existing, fisheries processing plant. He commented that if the shoulder seasons could be expanded to bring in new product by leveraging state guarantees on private capital loans using this program, it makes that process more viable for the offshore fisheries and for the state fisheries it also supports. He suggested that in port development, piles, dock materials, staging and logistics, and assembly for construction in the Arctic could be done. He offered his belief that the City of Seward can be competitive for these projects through this program and private capital. He envisioned that the pieces could be assembled in Seward and barged when needed. 4:20:07 PM REPRESENTATIVE SADDLER asked whether he would have some advantage over other food processing plants due to the proximity to the ocean. He asked whether there is anything a port facility would offer that other Cook Inlet or Gulf of Alaska fisheries could not access. He further asked if there would be any limitations on it. MR. LONG answered no. He related that as Mr. Davis suggested, it would be done through AIDEA's due diligence process. He said that each proposal would need to be a good business case and he anticipated that AIDEA would be doing its due diligence and measuring the financial aspects to ensure that it is a good and viable project before "they sign on the bottom line." 4:20:53 PM SARA LUKIN, Chief Operating Officer, Pt Public Policy, LLC, stated briefly Pt Public Policy's support of this bill as a whole, and, more specifically, for the fisheries provision. Speaking as the only private equity firm in Alaska, headquartered in Anchorage, and focused exclusively on building private equity and investment in Arctic Alaska, she said that Pt is supportive of the bill and the company is "hugely" supportive of the fisheries provision. In response to a comment, she said that Pt Public Policy has worked in partnership with the City of Seward, the Association of Village Council Presidents, and [Aleutian Pribilof Island Community Development Association) (APICDA) with the fisheries portion of this bill. In response to a question, she clarified that APICDA is the Aleutian Pribilof Island Community Development Association, which is a community development quota (CDQ) group. 4:22:53 PM REPRESENTATIVE SADDLER asked whether APICDA would be the CDQ organization that would envision taking advantage of these opportunities to "plus up" the facilities in Seward. MS. LUKIN answered that the organization doesn't have a project in mind, but if she would envision a project for this committee she would suggest it might be a partnership between AVPC as a majority owner and APICDA as a minority owner, using a loan guarantee from AIDEA to purchase vessels and quota that are currently housed in Washington State. The partnership would bring the quota and vessels back to Alaska, specifically to fish the Bering Sea fishery. They would be required to house the boats in a port in Alaska, perhaps in Seward. 4:24:01 PM REPRESENTATIVE HERRON commented that Pt Public Policy is an important partner for a lot of western and northern Alaska, but the issue is that when the Arctic opens up, a lot of resources will need to be developed. He envisioned that these would be world class projects, not just "mom and pop" organizations. He emphasized the importance of sustainable communities and offered his belief that Seward can help the Arctic by having fleets stationed there, as well as in Unalaska and some smaller ports in the Bering Sea. He said it is not just about development of fisheries, but to have the ability to respond to accidents and to provide a safe refuge for vessels operating in Alaska's waters. The communities of Unalaska and Seward are examples of established ports that will expand due to Arctic development. CHAIR OLSON remarked that Seward has also been a railhead and an export facility for coal. He suggested that it could be activated again pretty easily. 4:25:36 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on SB 140. REPRESENTATIVE SADDLER asked whether the sponsor considered placing limitations on where funds could be used. He understood this bill relates to things that will service the Arctic but not be located in the Arctic. He asked whether the sponsor has considered any geographical limitation on where facilities would need to be built. MR. LOGAN referred to page 8, lines 4-7, that describe the geographical boundary of the Arctic. He pointed out that other provisions that will allow Seward to provide support for Arctic development. 4:26:53 PM REPRESENTATIVE SADDLER read the definition, in part, which read: (19) "Arctic infrastructure development" means (A) the construction, improvement, rehabilitation, or expansion of a facility (i) in the Arctic to aid in development or meet emergency response needs; or (ii) in the state if the construction, improvement, rehabilitation, or expansion supports or furthers the development of a facility in the Arctic; or (B) the purchase, construction, improvement, rehabilitation, or expansion of a shore-based plant, facility, equipment, or assets used in support of a fishery in the Arctic. 4:27:04 PM REPRESENTATIVE SADDLER asked where financing for quota share or vessel purchasing envisioned in this bill fit in the financial opportunities of fishing loans, boat loans, and quotas. He asked whether this was the only financing or if other financing was available. MR. LOGAN prefaced his response noting he is not expert on fisheries financing, but the floor of $7 million and the cap of one-third was specifically designed to not conflict with other state or federal programs that provide financing for fisheries. He referred to page 7, lines 8-15, which provides for loan guarantee only, but does not provide any direct loans. 4:28:08 PM REPRESENTATIVE REINBOLD moved to report CSSB 140(FIN) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, the CSSB 140(FIN) was reported from the House Labor and Commerce Standing Committee.