Legislature(2005 - 2006)BELTZ 211


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                    ALASKA STATE LEGISLATURE                                                                                  
    SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                  
                       February 15, 2006                                                                                        
                           1:35 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Bert Stedman, Chair                                                                                                     
MEMBERS ABSENT                                                                                                                
Senator Gary Stevens, Vice Chair                                                                                                
Senator Thomas Wagoner                                                                                                          
Senator Johnny Ellis                                                                                                            
Senator Albert Kookesh                                                                                                          
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 265                                                                                                             
"An Act increasing  the total amount of bonds and  notes that the                                                               
Alaska Municipal  Bond Bank Authority  may have  outstanding; and                                                               
providing for an effective date."                                                                                               
     HEARD AND HELD                                                                                                             
SENATE BILL NO. 248                                                                                                             
"An  Act   relating  to  administrative  boroughs;   relating  to                                                               
municipal   school   districts;   relating   to   standards   for                                                               
incorporation   of    boroughs   and    unified   municipalities;                                                               
eliminating  obsolete  provisions  relating   to  a  third  class                                                               
borough  and making  technical changes  to  statutes relating  to                                                               
regional  educational  attendance  areas;  and  relating  to  new                                                               
borough  grants  for  certain  newly  incorporated  boroughs  and                                                               
unified municipalities."                                                                                                        
     SCHEDULED BUT NOT HEARD                                                                                                    
SENATE BILL NO. 193                                                                                                             
"An Act  relating to an  optional deferral of  municipal property                                                               
taxes  on  certain  primary  residences  owned  and  occupied  by                                                               
individuals with  incomes at or below  federal poverty guidelines                                                               
for the state."                                                                                                                 
     SCHEDULED BUT NOT HEARD                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 265                                                                                                                  
SHORT TITLE: BONDS OF BOND BANK AUTHORITY                                                                                       
SPONSOR(s): SENATOR(s) STEDMAN                                                                                                  
02/03/06       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/03/06       (S)       CRA, FIN                                                                                               
02/15/06       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
WITNESS REGISTER                                                                                                              
Miles Baker, Staff to Senator Stedman                                                                                           
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Introduced SB 265                                                                                        
Deven Mitchell, Executive Director                                                                                              
Municipal Bond Bank                                                                                                             
Department of Revenue                                                                                                           
PO Box 110400                                                                                                                   
Juneau, AK  99811-0400                                                                                                          
POSITION  STATEMENT:    Discussed  the Bond  Bank  Authority  and                                                             
answered questions related to SB 265                                                                                            
Kathie Wasserman, Deputy Director                                                                                               
Alaska Municipal League                                                                                                         
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Testified in support of SB 265                                                                           
ACTION NARRATIVE                                                                                                              
CHAIR  BERT  STEDMAN called  the  Senate  Community and  Regional                                                             
Affairs Standing Committee meeting to  order at 1:35:23 PM. Chair                                                             
Bert Stedman was present.                                                                                                       
              SB 265-BONDS OF BOND BANK AUTHORITY                                                                           
1:36:17 PM                                                                                                                    
CHAIR BERT STEDMAN  announced SB 265 to be  up for consideration.                                                               
He invited Mr. Baker to come forward and introduce the bill.                                                                    
1:37:09 PM                                                                                                                    
MILES BAKER, Staff  to Senator Stedman, explained  the bill seeks                                                               
to increase  the bonding authority  of the Alaska  Municipal Bond                                                               
Bank  from  the  current  $500  million  statutory  cap  to  $750                                                               
million. This  would be  the first increase  since 2003  when the                                                               
cap was raised from $300 million to $500 million.                                                                               
The Alaska Municipal  Bond Bank was designed  to help communities                                                               
secure  financing  for  public   works  projects  and  since  its                                                               
inception  in 1975  it has  helped with  financing for  over $800                                                               
million in public works projects.  In that time it returned $26.9                                                               
million  in  excess  earnings  to   the  state  in  the  form  of                                                               
In  FY05 the  authority  issued $123.0  million  in bonds,  which                                                               
funded  $119 million  in 20  loans to  16 communities  across the                                                               
state.  Based on  the bond  issuances  in FY06,  the bank  should                                                               
return dividends of $652,000. Recent projects include:                                                                          
   · School construction in Kodiak, Petersburg, Sitka and                                                                       
   · Harbor improvements in Adak                                                                                                
   · Hospital in Juneau                                                                                                         
   · Street Improvements in North Pole                                                                                          
   · Ice Rink in Palmer                                                                                                         
   · Roof repairs for the Anchorage Performing Arts Center                                                                      
   · Outstanding bonds for Fairbanks, Cordova, Unalaska and                                                                     
     the Northwest Arctic Borough were refinanced at lower                                                                      
In the event  of a default, statute allows the  bond bank to take                                                               
state   agency  funds   that  are   payable  to   the  defaulting                                                               
As of February, the bond bank has $449 in outstanding bonds,                                                                    
which leaves $50 million for additional loans. The pending                                                                      
applications amount to $80 million.                                                                                             
1:41:52 PM                                                                                                                    
DEVIN MITCHELL,  Executive Director of the  Alaska Municipal Bond                                                               
Bank Authority  and Debt Manager  for the Department  of Revenue,                                                               
opened his  remarks with the  statement that the authority  has a                                                               
shortfall  looming, which  will result  in a  loss of  ability to                                                               
finance  capital projects  at the  community level.  In the  last                                                               
five years  the bond  bank has  issued close  to $400  million in                                                               
bonds and as a result  of participating in those transactions, it                                                               
has saved an estimated $6 million.                                                                                              
MR. MITCHELL  described the authority  as an  extremely efficient                                                               
program that  provides a critical government  service. Its budget                                                               
is based  on $250,000 in  ongoing operating expenses  to maintain                                                               
the outstanding portfolio  and about $500,000 for  the purpose of                                                               
issuing bonds.  If no bond issues  were to occur in  a particular                                                               
year, the operating budget would be reduced by two thirds.                                                                      
1:44:58 PM                                                                                                                    
CHAIR STEDMAN  asked that the  record reflect that  the following                                                               
communities from  across the state  have benefited from  the bond                                                               
bank  program: Wasilla,  Aleutian East  Borough, Homer,  Cordova,                                                               
Fairbanks, Lake Pen Port, Nome  school, Northwest Arctic Borough,                                                               
Lake and Peninsula Borough, Seward, Valdez, and Adak.                                                                           
He  asked  Mr. Mitchell  to  discuss  refinancing [refunding]  in                                                               
terms of  what has occurred  in the  last several years  and what                                                               
might be expected in the near future.                                                                                           
MR. MITCHELL  responded there has been  considerable refunding in                                                               
the last several years due  to the low interest rate environment,                                                               
but they  don't impact the  debt cap because refunding  is simply                                                               
replacing  one outstanding  obligation  with another  at a  lower                                                               
interest rate.                                                                                                                  
He advised that  the bond bank serves not  only small communities                                                               
that have  little or a poor  credit history it also  serves large                                                               
communities  with  very  good  ratings.   For  example  when  the                                                               
Municipality of  Anchorage wanted  to use  a ticket  surcharge to                                                               
pay  for replacing  the roof  on the  performing arts  center, it                                                               
found that from a rating agency  perspective it was a weak credit                                                               
and  would be  viewed  negatively. Going  through  the bond  bank                                                               
provided an  efficient means of  undertaking the  project without                                                               
having to  provide either  a property  tax or  general obligation                                                               
CHAIR STEDMAN  asked for verification that  the state's borrowing                                                               
or credit rating would not be  impacted if the cap were increased                                                               
from $500 million to $750 million.                                                                                              
MR. MITCHELL said that's correct.  It's a moral obligation of the                                                               
State of  Alaska, which means that  by statute a reserve  fund is                                                               
created to  secure the bonds. The  reserve is about equal  to the                                                               
debt service for one year. In  the event of a default the reserve                                                               
would be  drawn upon to  pay the debt  service in the  short term                                                               
and  according  to statute  the  Legislature  would be  asked  to                                                               
replenish the reserve. That's what creates the moral obligation.                                                                
Certainly  there is  the potential  for credit  implications, but                                                               
the bond bank has the  communities committing to pay the projects                                                               
so the funding source is  actually separate and distinct from the                                                               
State of Alaska.  Because of the provisions in  the program there                                                               
hasn't been  any correlation  from this program  to the  State of                                                               
Alaska, which isn't the case with all moral obligation debt.                                                                    
CHAIR STEDMAN asked  if the statutory reserve account  as of June                                                               
30, 2005 amounted to $11 million.                                                                                               
MR. MITCHELL replied yes and  further clarified that $9.7 million                                                               
is the reserve that's in  the general obligation program and $1.5                                                               
is specific to one revenue bond issue.                                                                                          
The  1976 General  Obligation Bond  Resolution requires  that two                                                               
thirds of  the reserve  must be  comprised of  bond bank  cash so                                                               
instead of just  $9.7 million there's actually  about $30 million                                                               
in the reserve. That creates  strength from a credit perspective,                                                               
he said. For instance, if you're  a $5 million borrower, you have                                                               
$30  million pledged  toward your  obligation on  a parity  basis                                                               
with all the other obligations so  the reserve could pay off that                                                               
$5 million.                                                                                                                     
CHAIR STEDMAN  observed that general  obligation bonds  amount to                                                               
just over  $300 million and the  revenue bond total is  about $95                                                               
MR. MITCHELL  replied that was  correct when it was  written, but                                                               
there have been additional issues since the report was prepared.                                                                
CHAIR STEDMAN opened public testimony.                                                                                          
1:52:25 PM                                                                                                                    
KATHIE WASSERMAN, Deputy Director,  Alaska Municipal League (AML)                                                               
announced that  AML would like to  go on record as  being totally                                                               
in  support of  SB  265.  She described  the  bill  as a  win-win                                                               
situation for the state and communities.                                                                                        
CHAIR  STEDMAN closed  public testimony  and  announced he  would                                                               
hold SB 265 in committee.                                                                                                       
CHAIR STEDMAN called a brief at ease at 1:53:49 PM.                                                                           
CHAIR STEDMAN announced that a committee substitute (CS) for SB
193 had been prepared, but he didn't have a quorum to adopt it                                                                  
for discussion.                                                                                                                 
There being no further business to come before the committee,                                                                   
Chair Stedman adjourned the meeting at 1:54:57 PM.                                                                            

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