Legislature(1995 - 1996)

02/05/1996 01:32 PM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
         SB 207 REVENUE BONDS: WATER & WASTE PROJECTS                        
                                                                               
                                                                               
  CHAIRMAN TORGERSON  called the Senate Community & Regional Affairs           
 Committee meeting to order at 1:32 p.m. and introduced  SB 207  as            
 the only order of business before the committee.                              
                                                                               
 KEITH KELTON, Division Director of Facility Construction &                    
 Operation within DEC, supported SB 207.  He said that he would be             
 using the "Leveraging the Clean Water Fund" chart as a guide for              
 his overview.  SB 207 modifies an existing statute in order to take           
 advantage of available money for capital construction.  He                    
 mentioned that 20 other states have utilized this leverage and much           
 has been learned from their experiences.  The Alaska Clean Water              
 Fund (ACWF) is the statute that is being modified.  ACWF is a fund            
 that is put in place by the federal government and matched by the             
 state.  There will be approximately $80 million in the fund at the            
 end of this fiscal year.                                                      
                                                                               
 Mr. Kelton explained that ACWF is available to fund low-interest              
 loans for wastewater projects, primarily collection systems and               
 treatment plants.  The fund can be used for land fills if there is            
 a wastewater component to the facility.  Currently, ACWF receives             
 money from federal capitalization grants and state appropriations             
 which is loaned to municipal projects with a repayment mechanism.             
 Of the $80 million currently available to the State, about $50                
 million has been loaned to existing projects.  Therefore, a $30               
 million unobligated balance is available for new loans.  Mr. Kelton           
 emphasized that the obligation rates on this money is increasing;             
 the current obligation rate is $13 million per year.  The available           
 $30 million would be used within two to three years.  He explained            
 that DEC wants to create a mechanism allowing DEC to leverage the             
 $30 million remaining.  In order to achieve that goal the $30                 
 million should be used as a corpus, revenue bonds should be sold,             
 and the money should be leveraged two or three times to one                   
 according to the market.                                                      
                                                                               
 Mr. Kelton pointed out that the statute changes can be seen on the            
 bottom half of the chart.  A Bond Redemption Fund (BRF) is                    
 established.  The ACWF balance goes through the BRF and pays the              
 bond issuance costs.  The bonds are then sold by the State Bond               
 Committee (SBC) and their Trustee who then issue and sell the bonds           
 to investors.  When the investors buy the bonds, the proceeds                 
 return to the ACWF in order to fund additional loans for projects             
 and create the repayment stream again.  Then the bonds and                    
 investors are paid.  In conclusion, Mr. Kelton stated that this               
 bill would allow leverage of the existing dollars in order to allow           
 the funding of more projects.  If ACWF can fund $60 million worth             
 of projects from the $30 million, then some of the demand on the              
 State's General Fund would be alleviated.  He mentioned that there            
 is federal legislation which establishes a similar system for                 
 drinking water which is expected to be in place within a year or              
 so.                                                                           
                                                                               
 Number 108                                                                    
                                                                               
 SENATOR KELLY asked if the drinking water fund would be placed in             
 the ACWF or a separate fund?  KEITH KELTON informed the committee             
 that there are several different concepts, one of which would                 
 allow, 30 percent of either fund to cross over between the two                
 programs.  Mr. Kelton emphasized that there would be two funds, but           
 cross over may be allowed.  Mr. Kelton explained that passing this            
 legislation is advantageous because most of the $30 million would             
 be retained for leveraging.  Delays would cause a decrease in the             
 $30 million so that the remaining corpus would not offer a large              
 amount to leverage.  Mr. Kelton noted that the reauthorization of             
 the Clean Water Act is still pending in Congress.                             
                                                                               
 CHAIRMAN TORGERSON inquired as to how this would be self-limiting.            
                                                                               
 Number 138                                                                    
                                                                               
 ROSS KINNEY, Deputy Commissioner of Revenue in the Treasury                   
 Division, felt that the limits would be determined by the                     
 marketplace, the amount of money in the corpus fund, and the                  
 distribution of loans.  The income stream would be utilized as the            
 pledge for the repayment of the bonds.  As the credits are reviewed           
 in relation to the communities, the interest rate on the bonds will           
 be dictated.  Therefore, a limiting factor would be placed on the             
 amount committed.  Other techniques, such as insurance of the                 
 corpus of the fund, could be used depending on the circumstances.             
 Mr. Kinney emphasized that market conditions would be limiting, so            
 establishing limits in the bill would be meaningless.                         
                                                                               
 CHAIRMAN TORGERSON said that he did not know which state agencies             
 would be allowed to borrow from this fund.  He did not believe                
 there would be a limit if buying and refinancing debt occurred.               
                                                                               
 ROSS KINNEY posed the following scenario.  If bonds were issued at            
 a rate of seven percent and the marketplace interest rates fell in            
 the next two or three years, those bonds could be refinanced by               
 issuing new bonds to retire existing bonds.  Utilizing the new                
 bonds and the income stream from the loans would pay for the new              
 bonds based on the lower rate of interest.  Mr. Kinney noted that             
 his example assumes that special provisions such as call features             
 would be allowed.  Refinancing is dependent upon what is                      
 outstanding and whether there is a realized savings based on                  
 interest rates; there is a limit on that.  Revenue bonds require a            
 dedicated revenue stream - proceeds derived from the borrowing.               
 Mr. Kinney pointed out that SB 207 contains some provisions that              
 allow for state intercept which serves as protection for the                  
 bondholders.                                                                  
                                                                               
 CHAIRMAN TORGERSON referred to Section 8 of the bill when surmising           
 that any state agency or department that relied on the legislature            
 for appropriations would not qualify.  Would they not qualify                 
 because they do not have a dedicated source of revenue?  ROSS                 
 KINNEY said that was a legal question.  In his opinion, the revenue           
 stream would have to be present, available and pledged.  Mr. Kinney           
 acknowledged that there is a dedication problem in the State.  Most           
 of the revenue bonding mechanisms that are utilized in Alaska are             
 lease purchase agreements with nonappropriation clauses.                      
                                                                               
 Number 252                                                                    
                                                                               
 SENATOR HOFFMAN pointed out that the legislature appropriates on an           
 annual basis due to the Constitution.  How can the constitutional             
 provisions regarding the dedicated fund be dealt with if the                  
 legislature is not the one appropriating on an annual basis?  ROSS            
 KINNEY explained that the dedicated revenue stream in this case               
 refers to that revenue coming from communities and municipalities.            
 The revenue stream based on this bond issue would come from other             
 places than the state budget which would be utilized to make the              
 payments.                                                                     
                                                                               
 SENATOR KELLY asked if this was the Municipal Bond Bank?  ROSS                
 KINNEY said that it is different than the Municipal Bond Bank.                
 There are limitations within the bond bank legislation which                  
 prevent the bond bank from assuming a program of this nature.  Mr.            
 Kinney recalled that there had been some joint meetings in June of            
 1994 in order to review the option of running this program through            
 Alaska's Municipal Bond Bank.  The statutory language of the bond             
 bank necessitates that the bond bank make a profit.  Mr. Kinney               
 stated that this program is not necessarily going to generate a               
 profit.  Therefore, statutory language changes would have been                
 required within the bond bank in order to implement a program that            
 did not generate a profit.  There may be some problems with                   
 existing loans with the bond bank when some of the same communities           
 may be required to generate revenue in one instance and not                   
 another.  The grants from DEC are very specific.                              
                                                                               
 KEITH KELTON explained that the bond bank buys existing debt which            
 means the community must already have incurred a debt.  The program           
 established in SB 207 loans money to a community without a                    
 municipal debt being incurred first.  The program in SB 207 could             
 save a point of interest.  Currently, ACWF is the lowest interest             
 loan available to construct infrastructure facilities in Alaska.              
                                                                               
 Number 320                                                                    
                                                                               
 SENATOR KELLY pointed out that SB 207 seems to be expanding this              
 program to state agencies as stated in Section 8 of the bill.  Now            
 the State is allowed to go into debt without passage in the                   
 legislature; where is the balance of power?  ROSS KINNEY said that            
 the balance of power would come from the revenue stream that DEC              
 could provide.  SENATOR KELLY interjected that DEC cannot provide             
 revenue stream unless the legislature appropriates it each year.              
 A revenue stream cannot be guaranteed.  ROSS KINNEY replied that              
 under a revenue bond program, there would be almost no opportunity            
 for the participation of those subject to annual appropriations               
 utilizing a pure revenue bond.  SENATOR KELLY inquired as to why              
 this was being extended to state agencies.                                    
                                                                               
 CHAIRMAN TORGERSON asked Ms. Sansone to discuss why state agencies            
 are being added to this program.                                              
                                                                               
 MARIE SANSONE, Assistant Attorney General of the Civil Division of            
 the Department of Law, explained that the expansion to state                  
 agencies is derived from a DEC policy decision.  The Clean Water              
 Act does allow the use of the fund by state agencies as well as               
 municipalities.  If the state agencies are left in SB 207, the                
 funding available to them would have to be received from outside of           
 the revenues from the bond program.  The Clean Water Fund                     
 encompasses money from federal grants, matching state                         
 appropriations, interest, and loan repayments.  Therefore, there              
 are types of money in the fund which could be utilized by state               
 agencies.  Ms. Sansone noted that any concern regarding the control           
 of the use of the fund by state agencies could be addressed in the            
 appropriations process.  She informed the committee that state                
 agencies had been added at the request of DEC.                                
                                                                               
 Number 362                                                                    
                                                                               
 SENATOR KELLY inquired as to the advantage DEC saw when extending             
 the program to itself.  KEITH KELTON stated that this issue could             
 be eliminated without any detriment to the program.  Mr. Kelton               
 explained that state agencies were added because they were an                 
 eligible requirement under federal law.  There are many programs              
 operated by state agencies and within DEC which are eligible for              
 this type of funding.  Mr. Kelton pointed out that the clean-up of            
 contaminated ground waters by petroleum tanks could be an eligible            
 cost.  A state agency cannot pay for that cost with an                        
 appropriation because it would not meet the revenue stream                    
 requirements.  If that money were loaned to people who dedicated              
 their repayment stream as with the wastewater projects, it would be           
 a feasible alternative.  Mr. Kelton did not anticipate that the               
 other applications would be a major use of the fund.                          
                                                                               
 SENATOR KELLY reminded everyone that the word "leverage" really               
 referred to debt.  This would allow others to place Alaska in debt            
 for which the State would be responsible.                                     
                                                                               
 KEITH KELTON reiterated that this program has existed in 20 other             
 states for seven years.  In response to Senator Kelly, Mr. Kelton             
 said that this program had been utilized in the State of                      
 California.  There has not been a default nationwide in the                   
 program's seven years.  In Alaska, there has not been a late                  
 payment in the six years of the program's existance.  He explained            
 that a portion of the leveraging concept would limit the sale of              
 bonds to an amount that could be absorbed if default occurred.                
                                                                               
 CHAIRMAN TORGERSON asked if it would be better to establish a cap;            
 would that hinder the program?  KEITH KELTON did not believe it               
 would pose a hinderance, but suggested that perhaps a leveraging              
 amount would be more appropriate than a numerical amount.  Mr.                
 Kelton suggested a limit of two to one and said that he could offer           
 specific language later.                                                      
                                                                               
 Number 412                                                                    
                                                                               
 SENATOR ZHAROFF inquired as to how a state agency would repay money           
 borrowed from the ACWF.  KEITH KELTON explained that the only                 
 manner in which the money could be repaid or loaned would be if               
 there was a dedicated payment stream coming back to that state                
 agency for the project it was billed; it could not depend upon                
 state appropriations.                                                         
                                                                               
 SENATOR KELLY asked if the Matanuska ferry requested money to                 
 refurbish and rebuild its wastewater treatment plant, could they              
 borrow money from this fund and repay it with the revenue stream              
 from the Alaska Marine Highway system fund.  KEITH KELTON said that           
 he could not answer that.  Unless the agency can commit a revenue             
 stream without an act of the legislature over the life of the debt,           
 the agency cannot utilize this program.                                       
                                                                               
 SENATOR KELLY asked if that authority was being given in this                 
 legislation.  KEITH KELTON did not believe that one could dedicate            
 revenue in Alaska without an amendment to the Constitution.  This             
 seems to be one of the problems.                                              
                                                                               
 SENATOR KELLY asked how that was dealt with regarding the student             
 loan revolving fund.  KEITH KELTON pointed out that it is a                   
 separate corporation.  There was a capitalization and statutory               
 language allowing specific functions under certain guidelines and             
 restrictions.  SENATOR KELLY assumed that the State could not let             
 the student loan program go under.  The State would have to bail it           
 out just as with this program.                                                
                                                                               
 KEITH KELTON indicated that debt of any type which was issued by              
 the State or through one of the corporations such as Alaska Housing           
 and Alaska Student Loan, would have an impact on future credit or             
 bond rating of Alaska.  He reminded everyone that SB 207 does not             
 refer to a full faith and credit pledge; that necessitates a higher           
 rate of interest, but we may be required to retain a debt service             
 reserve or a bond redemption reserve equal to one annual                      
 installment of principal interest on the debt.  If there is default           
 in various communities, the program may apply the intercept                   
 program.  There is a period of over one year in which corrective              
 action may be taken.  For their own protection, bond holders will             
 require those type of mechanisms for the more risky investments.              
 At the same time, those mechanisms help by allowing the borrowing             
 of money at a cheaper rate.  The SBC is reviewing the types of                
 plans Alaska is including since we are currently spending more than           
 we are receiving annually; they are concerned about Alaska's                  
 ability to issue debt.  In Mr. Kelton's opinion, Alaska is not                
 going to enjoy freedom with the time of maturity schedules nor will           
 Alaska be able to borrow without stringent controls until an                  
 Operating Budget and Capital Budget are established.                          
                                                                               
 Number 490                                                                    
                                                                               
 CHAIRMAN TORGERSON asked if the Municipal Bond Bank had an                    
 intercept clause in their language.  ROSS KINNEY replied yes.  That           
 clause ensures the rating that the Municipal Bond Bank enjoys.                
 Alaska's financial advisor for the SBC strongly recommended that an           
 intercept clause be included in this legislation in order to ensure           
 as high a rating as possible as well as ensuring as low an interest           
 rate to the borrowing communities as possible.                                
                                                                               
 SENATOR KELLY inquired as to the meaning of the section entitled              
 "ENFORCEMENT BY BONDOWNER"; what legal powers does that section               
 give the bondowner?  MARIE SANSONE explained that the bonds are               
 normally considered to be a contract between the state or the                 
 agency issuing the bond and the bondowner.  If a bondowner felt               
 that the state was not living up to the obligations of the bond               
 resolution or the statute, the bondowner could seek to enforce the            
 contractual arrangement.  Ms. Sansone noted that sometimes the                
 bondowner will challenge the legal provisions of the bond in order            
 to test them prior to investment.  This section allows the                    
 bondowner to proceed to State court if they feel the obligations              
 are not being met.  The 10 percent was established in order to                
 eliminate frivolous suits by people not holding many bonds.  Ms.              
 Sansone pointed out that there is also a provision requiring that             
 any lawsuit be heard in the First Judicial District at Juneau in              
 order to avoid the selection of a more favorable forum.                       
                                                                               
 SENATOR KELLY asked if the sections, "STATE AID INTERCEPT", "PLEDGE           
 OF THE STATE" and "ENFORCEMENT BY BONDOWNER" are also in the                  
 Municipal Bond Bank legislation.  MARIE SANSONE believed that those           
 sections are included in the Municipal Bond Bank.  SENATOR KELLY              
 requested that Ms. Sansone determine if these sections are in fact            
 in the Municipal Bond Bank legislation.                                       
                                                                               
 Number 543                                                                    
                                                                               
 CHAIRMAN TORGERSON asked why the language on lines 17-18, on page             
 10 was added.  MARIE SANSONE believed that the language was added             
 to strengthen the value of the debt in order to support the bond.             
 The language was an addition by the Bond Council which reflected              
 the recommendations of the SBC or the financial advisor.                      
                                                                               
 CHAIRMAN TORGERSON expressed concern with how that would translate            
 into the allocation of dollars when determining the criteria for a            
 project.  Chairman Torgerson seemed to believe the person with the            
 most in their reserves would rate higher than others.                         
                                                                               
 ROSS KINNEY explained that "sufficient reserves" referred to money            
 set aside at the time the loan is committed.  Normally in a reserve           
 situation, the borrower would be required to set aside the reserves           
 by borrowing the money.  That reserve would be used first to meet             
 a payment in the event of a default.  The reserve would be based              
 upon the amount available to the borrower or a portion of the fund            
 would set these reserves aside based on a percentage of their loan.           
 If a community with no rating or payment history and a small source           
 of revenue with little possibility of intercepted money from the              
 State pursues a loan, their reserve requirement may be higher.  The           
 reserve requirement offers a period of time for corrective action             
 in order to avoid an immediate default with no remedy.                        
                                                                               
 CHAIRMAN TORGERSON assumed that reserves set aside by                         
 municipalities for future mitigation problems with water, sewage,             
 and solid waste were not subject to such restrictions.  ROSS KINNEY           
 understood Chairman Torgerson to be speaking to the fact that                 
 Governmental Accounting Standards Board has required that a                   
 substantial amount of financial assurances be available in the                
 event of ground water contamination as a result of solid waste                
 landfill.  This would ensure that sufficient money is being                   
 accumulated on a pay as you go basis so that there is the ability,            
 during the closure and post closure period, to monitor for some               
 years after the facility closes. That change occurred about three             
 years ago.  He discussed Kenai's situation.  Mr. Kinney emphasized            
 that the previously described situation is a separate issue; the              
 money cannot be utilized for the purposes of meeting these same               
 requirements.                                                                 
                                                                               
 Number 580                                                                    
                                                                               
 SENATOR KELLY indicated that the bondholder's should assume some of           
 the risk.  ROSS KINNEY said that there is a risk factor.  The risk            
 factor is determined by the loaner and is based on the interest               
 rate they demand which is determined by the project for which the             
 money is being loaned.  Mr. Kinney acknowledged that there are                
 advantages to dealing with the government in this situation in that           
 these are tax exempt transactions.  Therefore, the interest rate is           
 lower.                                                                        
                                                                               
 TAPE 96-3, SIDE B                                                             
                                                                               
 SENATOR KELLY asked if SB 207 was drafted by legislative drafters             
 or by the Administration's attorneys.  KEITH KELTON said that the             
 Administration's attorneys drafted the bill.                                  
                                                                               
 SENATOR KELLY referred to page 8, line 27 when recommending that              
 such language structure should be avoided.                                    
                                                                               
 SENATOR ZHAROFF pointed out that there is no provision for a                  
 dedicated fund to pay back revenue bonds.  There will probably not            
 be a repayment schedule.  He noted that the departments had                   
 testified that there would not be a problem with eliminating state            
 agencies from this bill.  The legislature has no control over state           
 agencies as the bill is currently written.                                    
                                                                               
 KEITH KELTON suggested that an authority could be incorporated into           
 the bill.  He explained that an authority would combine                       
 jurisdictions of political boundaries for purposes of a certain               
 project.  He said that a portion of the definition of a "state                
 agency" should remain in order to cover the "authority" situation.            
                                                                               
 SENATOR ZHAROFF expressed concern with the effect this legislation            
 would have on smaller communities.  He asked that caution be taken            
 on this.  Senator Zharoff did not believe that there had been a               
 constitutionally correct example with the dedication of fund                  
 prohibition.                                                                  
                                                                               
 SENATOR KELLY mentioned that there is no future in cutting cash               
 spending today only to go into debt tomorrow.                                 
                                                                               
 KEITH KELTON noted that the definition of "state agency" could                
 apply to housing authorities.  They may build projects and receive            
 commitments from some of the users of the facilities in order to              
 obligate that revenue stream to pay the debt.  SENATOR ZHAROFF said           
 that if it's a separate legislative appropriation, then it should             
 be addressed.                                                                 
                                                                               
 The point that there is no cap on this entire process was                     
 reiterated.  That raised the red flags to begin with.                         
                                                                               
 SENATOR KELLY asked if Alaska would be pledging its faith and                 
 credit to repay these bonds.  KEITH KELTON said that is not the               
 case.  Mr. Kelton explained that the pledge is for a revenue stream           
 from the borrowers to pay this.  The bill is not necessarily                  
 pledging full faith and credits of municipalities either, but their           
 revenue stream is being pledged.  In order to pledge the full faith           
 and credit of the State of Alaska, a referendum must be held.  In             
 the cases of Airport Bonds, Alaska Housing and the Student Loan               
 Corporation, the revenue stream derived from an income generating             
 function is being pledged; no vote has to be taken.  Mr. Kelton               
 informed the committee that normally, revenue types are done for              
 enterprise funds such as water, sewer, etc.  The payment of the               
 bonds in this case are actually being given by the user of the                
 provided service not the general taxpayer.                                    
                                                                               
 SENATOR RANDY PHILLIPS posed the following scenario: Anchorage                
 International Airport takes a down-turn and their bonds go belly              
 up; what would happen?  KEITH KELTON said that the Department of              
 Transportation could begin the liquidation of facilities and other            
 necessary actions.  That is a state function which would be                   
 achieved through a liquidation measure.  In response to Senator               
 Randy Phillips, Mr. Kelton agreed that at that time the full faith            
 and credit of Alaska would not be involved.                                   
                                                                               
 SENATOR KELLY said that in the end, the State of Alaska cannot                
 allow any of these groups to go under and maintain credibility.               
                                                                               
 SENATOR ZHAROFF interjected that back up parallels the ACWF to the            
 Airport Fund although, the Airport Fund has a cap and is subject to           
 appropriation.                                                                
                                                                               
 Number 505                                                                    
                                                                               
 SENATOR KELLY asked if the legislature is required to authorize               
 each year all the bond proceeds from the revolving Airport Fund.              
                                                                               
 CHAIRMAN TORGERSON pointed out that the bill says that the SBC must           
 give the Commissioner of Administration the money necessary to pay            
 for the bond that year.                                                       
                                                                               
 SENATOR RANDY PHILLIPS interjected that it had to go through the              
 General Fund and be approved first.  SENATOR KELLY agreed and said            
 that there is a provision in the budget dealing with that loan fund           
 in which those projects are authorized each year.                             
                                                                               
 CHAIRMAN TORGERSON asked if the references to hazardous wastes on             
 page 11, lines 4 and 21 in the bill provide the authority to loan             
 money for hazardous waste management.  Chairman Torgerson seemed to           
 think that was a different direction than the bill intended.                  
                                                                               
 KEITH KELTON explained that this section of the bill modifies                 
 current statute which does refer to hazardous waste.  The change              
 deleting "facility" and adding "system", was done in order make the           
 language consistent between the two statutes.  The reference to               
 solid and hazardous waste does not apply to the intention of the              
 bill.                                                                         
                                                                               
 CHAIRMAN TORGERSON was concerned that the issue of hazardous waste            
 was being incorporated into the bonding stream.  KEITH KELTON                 
 reiterated that this was existing language, but it could be                   
 changed.                                                                      
                                                                               
 Number 470                                                                    
                                                                               
 In response to Senator Kelly, KEITH KELTON explained that a public            
 process is utilized in order to develop an annual intended use plan           
 which defines the projects that would be funded.  The demand for              
 this money has been considerably less than the available money.               
 The legislature is provided with an annual report which defines all           
 the activities of the program in the preceding year.                          
                                                                               
 SENATOR KELLY expressed concern that this could be another open               
 pocketbook for debt in Alaska.  Municipalities can tax in order to            
 repay revenue bonds if the revenues do not fulfill the                        
 expectations.                                                                 
                                                                               
 SENATOR ZHAROFF said that in various areas of Alaska there is a               
 serious sewer and water problem.  A large revenue stream is being             
 taken in order to leverage more money to complete more of these               
 projects, however we are limiting this to areas that already have             
 the ability to do such projects.                                              
                                                                               
 CHAIRMAN TORGERSON referred to page 8, line 5 when indicating that            
 there had been suggestions to broaden the definition of "committee"           
 in the bill.  KEITH KELTON informed everyone that the bond                    
 community has a standard definition of "committee", but there is a            
 trustee who assists in the management recommendations.                        
                                                                               
 ROSS KINNEY pointed out that the SBC is authorized by statute to              
 issue these types of debt within certain limitations.  In regard to           
 these types of issues, the definition should be retained unless               
 language changes to other statutes dealing with authority of the              
 SBC were to be proposed.  Mr. Kinney assured the committee that a             
 bond sale would not be authorized or approved without the consent             
 of the SBC and the opinion from the financial advisor.                        
                                                                               
 CHAIRMAN TORGERSON asked if the word "may" on page 6, line 13 was             
 used in order to allow that the proceeds of the bond would not all            
 go to the functions of AS 46.03.032.  ROSS KINNEY explained that an           
 allowable expenditure under the proceeds of a bond sale is the cost           
 of the sale itself.  That would include the cost of the financial             
 advisor and the bond attorney as well as associated administrative            
 costs.  In addition, there may be custodial bank fees which would             
 be an allowable expenditure.  Mr. Kinney believed that "may" was              
 the correct word.                                                             
                                                                               
 Number 388                                                                    
 A discussion ensued between Senator Randy Phillips and Keith Kelton           
 regarding the technologies and their applicability in rural Alaska.           
                                                                               
 In response to Senator Randy Phillips and Senator Hoffman, ROSS               
 KINNEY explained that one of the criteria for clean water is that             
 local governments have an O&M capability.  Before a facility is               
 built a utility collection fee system, an 80 percent collection               
 rate, and trained operators must be in place.  Those measures are             
 done in order to eliminate the possibility of failure.                        
                                                                               
 Number 290                                                                    
                                                                               
 SENATOR ZHAROFF inquired as to the beneficiaries of SB 207.  ROSS             
 KINNEY said that the beneficiaries would be the residents of the              
 larger urban communities.  The communities must have a dedicated              
 revenue stream before the loan will be made.                                  
                                                                               
 CHAIRMAN TORGERSON said that when the committee receives the                  
 discussed language changes, a CS would be written and the bill                
 would be heard again.  There being no further business before the             
 committee, the meeting was adjourned at 2:50 p.m.                             

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