Legislature(2021 - 2022)BELTZ 105 (TSBldg)

01/27/2022 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS

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03:30:45 PM Start
03:31:55 PM HB127
04:33:16 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Testimony <Invitation Only> --
Deven Mitchell, State Investment Officer and
Alaska Municipal Bond Bank Authority Executive
Luke Welles, Chair of the Alaska Municipal Bond
Bank Authority
Myron Dosch, University of Alaska Chief Finance
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
        HB 127-MUNI BOND BANK: UA, LOAN AND BOND LIMITS                                                                     
3:31:55 PM                                                                                                                    
CHAIR HUGHES  announced the  consideration of  HOUSE BILL  NO. 127                                                              
"An Act  relating to  the Alaska  Municipal Bond Bank  Authority."                                                              
She made remarks.                                                                                                               
3:34:13 PM                                                                                                                    
REPRESENTATIVE  BART LEBON, Alaska  State Legislature,  Fairbanks,                                                              
Alaska, sponsor  of HB  127, explained  that the Alaska  Municipal                                                              
Bond  Bank Authority  (AMBBA, also  known as  bond bank)  provides                                                              
bonding  financial assistance  on  projects  in Alaska,  including                                                              
regional  health organization  (RHO) projects.  This bill  expands                                                              
the capacity of  RHOs to participate through the AMBBA,  up to 100                                                              
percent  of  the   project  cost.  This  bill   also  expands  the                                                              
University of Alaska's  (UA) access to the bond  bank to refinance                                                              
UA  debt at  a  lower rate  and  finance UA  projects.  Currently,                                                              
AMBBA does not have the authority to do either.                                                                                 
3:37:40 PM                                                                                                                    
CHAIR  HUGHES invited  Mr. Mitchell  to give  a brief overview  of                                                              
3:38:18 PM                                                                                                                    
DEVEN MITCHELL,  State Investment Officer and  Executive Director,                                                              
Alaska  Municipal  Bond  Bank Authority,  Department  of  Revenue,                                                              
Juneau, Alaska, testified  by invitation on HB 127.  He added that                                                              
he  also serves  as the  debt manager  for the  state. The  Alaska                                                              
Municipal Bond  Bank Authority is  a public corporation  in Alaska                                                              
and has a five-member board.                                                                                                    
MR. MITCHELL  gave a brief  overview of  AMBBA. In 1975  the Lower                                                              
48 had  a highly rustic view  of Alaska. Lesser-known  communities                                                              
had  a difficult  time  convincing  Wall Street  for  a loan.  The                                                              
state  created  the Alaska  Municipal  Bond  Bank Authority  as  a                                                              
vehicle for  municipalities to obtain  low-cost funds  for capital                                                              
projects. Since  its inception in  1975, the program  has expanded                                                              
beyond  just municipalities.  The bond  bank has  issued over  350                                                              
loans  without   one  default.   He  said  that   commercial  loan                                                              
portfolios have  some expectation  of default; however,  AMBBA has                                                              
zero expectation of default for the type of loans it makes.                                                                     
MR.  MITCHELL  described  the bond  banks   very  successful  loan                                                              
1. Staff review projects.                                                                                                       
2. External advisors review projects.                                                                                           
3. Market review of projects from rating agencies.                                                                              
4. Underwriting firms that facilitate the sale of the bonds.                                                                    
5. Investors that consider purchasing the bonds.                                                                                
MR.  MITCHELL  reiterated   that  the  state  started   AMBBA,  so                                                              
authorized  borrowers  had access  to  lower interest  rates.  The                                                              
bond bank  saved authorized borrowers  $50 million this  past year                                                              
by lowering  interest rates  from what  they would have  otherwise                                                              
achieved  on  money needed  to  either  refinance or  provide  for                                                              
capital projects.                                                                                                               
3:41:47 PM                                                                                                                    
SENATOR GRAY-JACKSON  asked who  funded the Alaska  Municipal Bond                                                              
Bank Authority in 1975.                                                                                                         
MR. MITCHELL  answered that a  series of appropriations  from 1976                                                              
to 1986,  totaling $18.6  million, funded  AMBBA. An  organization                                                              
could borrow  tax-exempt money,  invest it  taxable, and  keep the                                                              
difference at that  time. So, the bond bank borrowed  money to put                                                              
in  a   reserve  fund,   invested  that   money  in   governmental                                                              
securities  that earned  more than  the  loan rate,  and kept  the                                                              
difference. It  made money on  that investment. The  earnings from                                                              
the bond  bank's cumulative  net assets  provide for its  slightly                                                              
over  $1,000,000/year budget,  eliminating  the  need for  support                                                              
from the general fund at this point.                                                                                            
MR. MITCHELL detailed the AMBBA loan process:                                                                                   
1. The bond bank borrows money from third parties.                                                                              
2. The bond bank uses the borrowed money to purchase bonds                                                                      
   from an authorized borrower.                                                                                                 
3. The authorized borrower pays the bond bank's debt                                                                            
   service, which pays for the bonds.                                                                                           
SENATOR  GRAY-JACKSON asked  at  what interest  rate  is the  bond                                                              
bank and borrower eligible.                                                                                                     
MR. MITCHELL  took a moment to  review market factors  that affect                                                              
Alaska's  credit rating.  He stated  that the  rates vary;  it's a                                                              
market-driven  rate.  The  bond  bank  achieves  a  credit  rating                                                              
linked to  the state's  credit rating. The  decrease in  the price                                                              
of  oil and  the resulting  financial  difficulties  of the  state                                                              
have  affected the  states   bond rating  since  FY2015. The  bond                                                              
bank is  currently rated A1/A+ by  Moody's and Standard  & Poors.                                                               
In  the  current   interest  rate  environment,   there  has  been                                                              
significant  compression.  There's  not  much  difference  between                                                              
credit radiations, which has benefited the bond bank program.                                                                   
MR.  MITCHELL   answered  that   in  the  current   interest  rate                                                              
environment, a 20-year loan might be in the 2 percent range                                                                     
SENATOR  GRAY-JACKSON followed  up  and asked  what interest  rate                                                              
the bond bank charges the borrowers.                                                                                            
MR. MITCHELL  answered that the  bond bank charges the  same rate;                                                              
the  bond  bank does  not  make  money  off the  borrowers.  AMBBA                                                              
offers a  service that  lowers the cost  of good Alaska  projects.                                                              
It benefits  the taxpayers or the  users of a facility  that has a                                                              
revenue-based charge.                                                                                                           
3:45:33 PM                                                                                                                    
SENATOR  MYERS asked  what interest  rate  RHOs and  the UA  might                                                              
expect in the open market.                                                                                                      
MR. MITCHELL  preceded the answer  with a brief  financial history                                                              
of  Regional Health  Organizations.  He  said that  Alaska  tribal                                                              
health  care financial  awareness has  evolved over  the last  six                                                              
years. The  Tanana Chiefs  Conference (TCC)  had an outstanding  7                                                              
7/8 percent  loan. It issued privately  placed bonds with  a group                                                              
of big  boy sophisticated  investors. TCC  entered into  covenants                                                              
that  required it  to  obtain  an investment-grade  credit  rating                                                              
every year; it tried and failed every year.                                                                                     
MR. MITCHELL  said that the  Alaska Municipal Bond  Bank Authority                                                              
helped  the Tanana  Chiefs  Conference  restructure  its means  of                                                              
committing  revenue so  that  the market  recognized  TCC for  its                                                              
true  credit strength.  TCC  saved $40  million  with its  initial                                                              
transaction financed  through the bond  bank. TCC used  this money                                                              
to  go into  Alaska health  care  and leveraged  its knowledge  to                                                              
obtain a  higher credit rating. If  an entity has a  credit rating                                                              
similar to  the bond  bank, which  it does,  the expectation  is a                                                              
more modest  benefit.  However, health  care tends  to price  at a                                                              
premium. The  bond bank  is the third-largest  issuer of  bonds in                                                              
the state.  A borrower may be  able to issue  bonds independently,                                                              
but AMBBA  has the knowledge and  experience to ease  a borrower's                                                              
administrative  burden  and  save   a  borrower  some  money.  The                                                              
benefit  will be  more  significant  for some  RHOs  and less  for                                                              
3:48:33 PM                                                                                                                    
SENATOR  MYERS  asked why  the  proposed  changes  in HB  127  are                                                              
necessary when a bank would probably issue loans to TCC.                                                                        
MR.  MITCHELL  answered  that  a local  bank  wants  something  to                                                              
secure  a   mortgage-style  loan.   In  contrast,  bond   issuance                                                              
requires  more   of  a   revenue  pledge   in  a  construct   that                                                              
prioritizes the  use of revenues. The  flow of funds from  a given                                                              
revenue  activity  secures the  bondholder.  On Wall  Street,  not                                                              
banks in  Alaska, investment banks  are willing to  underwrite TCC                                                              
bonds.  TCC   successfully  issued   its  last  series   of  bonds                                                              
independent of the bond bank.                                                                                                   
MR.  MITCHELL opined  that  the  statutorily required  49  percent                                                              
single-project  participation  cap  influenced  TCC to  issue  its                                                              
last series  of bonds independent  of the bond bank.  He explained                                                              
that  it  requires  much  effort to  construct  a  bond  issuance,                                                              
taking four  to six  months. It  is twice the  effort to  have two                                                              
banks,  and  even   if  it's  slightly  cheaper  to   do  so,  the                                                              
administrative  burden of  two transactions  pushed TCC away  from                                                              
using the bond bank.                                                                                                            
3:51:32 PM                                                                                                                    
CHAIR HUGHES asked with whom AMBBA does business.                                                                               
MR. MITCHELL  stated that  it works  with political  subdivisions,                                                              
joint  action agencies,  ferry authorities,  and communities.  The                                                              
bond bank has  also worked collaboratively with UA  for a specific                                                              
coal-fired  power  and heat  project.  Otherwise,  AMBBA does  not                                                              
work  with private  entities. He  added that  RHOs are  nonprofit,                                                              
tribal entities  rather than for-profit businesses.  The bond bank                                                              
does not work with non-political subdivisions.                                                                                  
REPRESENTATIVE  LEBON stated  that  the Alaska  banking  community                                                              
views  AMBBA as  a  partner, not  a competitor,  financing  Alaska                                                              
projects  for the  benefit of  Alaskans.  The bond  bank fills  an                                                              
empty niche.                                                                                                                    
3:53:41 PM                                                                                                                    
CHAIR HUGHES asked  why commercial banking institutions  in Alaska                                                              
are not interested in bond bank-type projects.                                                                                  
REPRESENTATIVE LEBON  answered that commercial banks  seek federal                                                              
loan  guarantee   partnerships  to  provide  financing   to  RHOs.                                                              
Commercial  banks  seek a  loan  repayment source  and  collateral                                                              
with a tangible  asset to back a  loan. Banks do not  want to take                                                              
possession  of  the collateral,  particularly  a  regional  health                                                              
organization located  in a remote  location. Banks are not  in the                                                              
business  of  operating  regional  health  organizations.  Nor  do                                                              
banks want  to liquidate  a health organization;  it is  not easy.                                                              
If a  commercial bank  participates in the  financing, it  seeks a                                                              
partnership.  He partnered  with the United  States Department  of                                                              
Agriculture,   the    Small   Business   Administration,    Alaska                                                              
Industrial Development  Corporation as  loan guarantees  for loans                                                              
in  his  banking  days.  He  typically  processed  private  sector                                                              
3:55:30 PM                                                                                                                    
SENATOR  MYERS   asked  why  commercial   banks  shy   away  when,                                                              
historically, the  bond bank risk  portfolio shows zero  chance of                                                              
loan default.                                                                                                                   
REPRESENTATIVE LEBON  answered that a commercial  bank's margin of                                                              
risk and  overhead is  higher than  that of the  bond bank,  so it                                                              
follows  that the  financing rates  will  be higher.  An RHO  loan                                                              
would  be two  to three  times higher  if issued  by a  commercial                                                              
bank than  by the bond  bank. Eligible  borrowers choose  the bond                                                              
bank  over  a  commercial  bank  loan for  this  reason,  and  the                                                              
banking community understands it.                                                                                               
MR.  MITCHELL  added  that commercial  loan  portfolios  and  bond                                                              
issuances  are structured  differently  concerning  perception  of                                                              
risk   in the  banking  industry.  Bond issuances  are  more of  a                                                              
revenue  stream  pledge.  A  system  revenue  pledge  secures  the                                                              
Anchorage  International Airport  System  bonds; a  pledge of  the                                                              
terminal does  not secure  it. He  illustrated the point,  stating                                                              
that  the Alaska  International  Airport will  not be  repossessed                                                              
for  default  payment  because other  remedies  are  available  to                                                              
investors.  This  perception  of  risk  does  not  conform to  the                                                              
commercial  banking  industry's  structure  requirements,  but  it                                                              
does conform to  the bond market structure requirements  in a high                                                              
credit profile way.                                                                                                             
3:58:23 PM                                                                                                                    
CHAIR  HUGHES  requested  a  flow  chart  of  a  borrower's  steps                                                              
through the bond bank process.                                                                                                  
3:59:12 PM                                                                                                                    
ANNE  RITTGERS, Staff,  Representative  LeBon, Fairbanks,  Alaska,                                                              
introduced  the sectional analysis  HB 127.  She stated  that this                                                              
bill's sectional analysis has three sections:                                                                                   
[Original punctuation provided.]                                                                                                
     Sec. 1. AS 44.85.010                                                                                                       
     Removes  the project  scope limitation  of only  heating                                                                   
     or  energy   projects  for  the  University   of  Alaska                                                                   
MS. RITTGERS said  that two changes impact RHOs  in Section 2. The                                                              
first  change  removes  the 49  percent  participation  rate.  The                                                              
second raises the single project cap limit.                                                                                     
     Sec. 2. AS 44.85.090                                                                                                       
     Removes  the 49%  project  participation  on the  Alaska                                                                   
     Municipal  Bond Bank  for regional  health  organization                                                                   
     Raises  the  $102,500,000  project limit  for  a  single                                                                   
     regional health organization project to $250,000,000                                                                       
MS. RITTGERS said  that Section 3 has two changes.  One raises the                                                              
UA project  cap. The  other raises the  cap, cumulatively,  on RHO                                                              
     Sec. 3. AS 44.85.180                                                                                                       
     Raises  the $87,500,000  cap  for University  of  Alaska                                                                   
     projects to $500,000,000                                                                                                   
     Raises   the  $205,000,000   cap  for  regional   health                                                                   
     organization projects to $500,000,000                                                                                      
4:00:09 PM                                                                                                                    
CHAIR HUGHES  asked the  difference between the  RHO cap  limit in                                                              
Section 3  and the  cap limit  in Section  2 for single  projects.                                                              
She also asked why both cap limits need adjustments.                                                                            
MS. RITTGERS answered  that Section 2 refers to the  cap limit for                                                              
a single  RHO project. Whereas Section  3 refers to the  cap limit                                                              
for the combined total of all RHO projects.                                                                                     
CHAIR  HUGHES  asked whether  this  means  one RHO  with  multiple                                                              
projects or multiple RHOs.                                                                                                      
MS. RITTGERS expressed her belief that both apply.                                                                              
REPRESENTATIVE LEBON  answered that it is more likely  to apply to                                                              
multiple RHOs. Not multiple loans to one RHO.                                                                                   
4:01:14 PM                                                                                                                    
SENATOR  MYERS  stated the  raise  is  significant. He  asked  the                                                              
reasons for the increase in the cap.                                                                                            
MR. MITCHELL answered  that the bond bank   outstanding  RHO loans                                                              
total $104.3  million, so the requested  changes are not  a result                                                              
of pressure  on the  $250,000,000 cap.  The issue revolves  around                                                              
the 49  percent single-project  participation  cap. The bond  bank                                                              
anticipates RHOs will  want to use its services in  the future. He                                                              
explained that in  the last couple of years,  several RHO projects                                                              
around the  state have  been as large  as $300,000,000  with other                                                              
smaller  projects in  the  $40,000,000 range.  AMBBA  wants to  be                                                              
prepared to  respond to credit-worthy  projects with a  limit that                                                              
is able to accommodate  both small projects and  projects of great                                                              
magnitude.  An  enlarged  authorization  would  enhance  the  bond                                                              
bank's  potential  to  provide  value  to  RHO  financing  in  the                                                              
4:04:16 PM                                                                                                                    
CHAIR  HUGHES asked  why  the legislature  set  a  49 percent  RHO                                                              
single-project participation cap in 2015.                                                                                       
MR. MITCHELL answered  that the state had no  experience with this                                                              
type of program  in 2015. The Senate Finance Committee  set the 49                                                              
percent  cap  to  diminish the   perception  of  risk.   Initially                                                              
viewed as  a non-investment grade  program, RHOs are  highly rated                                                              
in the low AA/high A credit categories at this point.                                                                           
MR.  MITCHELL pointed  out  that  AMBBA worked  with  TCC and  the                                                              
Yukon   Kuskokwim   Health   Corporation   (YKHC)  on   the   2015                                                              
legislation.  TCC   and  YKHC  had  a  $350,000,000   construction                                                              
project  in  Bethel,  and  both  organizations  were  amenable  to                                                              
diluted legislation for two reasons:                                                                                            
- One,  it allowed the  legislature to  test the waters  with this                                                              
type of project.                                                                                                                
- Two,  TCC and YKHC  had lined-up USDA  for the remaining  funds.                                                              
He  noted that  RHOs  are in  a unique  position  to utilize  USDA                                                              
MR.  MITCHELL  said   that  it  is  reasonable   to  increase  the                                                              
allowance so  that the bond  bank can be  a more effective  lender                                                              
in this category.                                                                                                               
4:07:32 PM                                                                                                                    
CHAIR HUGHES asked  how many regional health organizations  are in                                                              
the state and how many have participated in loans from AMBBA.                                                                   
LUKE  WELLES, Chair,  Board of  Directors,  Alaska Municipal  Bond                                                              
Bank Authority,  Anchorage, Alaska, provided invited  testimony on                                                              
HB 127.  He stated  that he has  worked in  tribal health  for the                                                              
last  twenty  years.  He  answered   that  tribal  health  has  40                                                              
organizations in  Alaska, and six  of them have hospitals.  Tribal                                                              
health organizations  in Alaska have  212 clinics that  range from                                                              
1,500  square feet  to 15,000  square feet.  Alaska tribal  health                                                              
organizations provide  health care  throughout the state  for both                                                              
tribal  members  and  other community  members  in  rural  Alaska.                                                              
Those needing health  care in Dillingham and Naknek  go to Bristol                                                              
Bay. Those needing health care in Nome go to Norton Sound.                                                                      
MR.   WELLES   listed   the   health   organizations   that   have                                                              
participated in bond bank loans:                                                                                                
- Yukon Kuskokwim Health Corporation, Bethel project                                                                            
- Tanana Chiefs Conference                                                                                                      
- Yakutat                                                                                                                       
- Seward, Chugachmiut project                                                                                                   
MR. WELLES said  that SouthEast Alaska Regional  Health Consortium                                                              
(SEARHC) just  completed a $300,000,000  bond offering on  its own                                                              
for  the new  hospital  in Sitka.  They have  a  variety of  other                                                              
building  projects. The  Sitka project  would have  used the  bond                                                              
bank given the opportunity,  but the bond bank was  unable to meet                                                              
that need.                                                                                                                      
MR.  WELLES  said that  the  opportunity  to improve  health  care                                                              
quality throughout  the state is  tremendous, especially  in rural                                                              
areas.  He explained  the  importance of  structuring  and how  it                                                              
works.  The Indian  Health  Service (IHS)  works  with a  regional                                                              
health  organization  or  a  new   facility  on  a  joint  venture                                                              
project. IHS  invites a  regional health  organization to  build a                                                              
facility,  then  IHS  funds  a portion  of  the  staffing  package                                                              
through the  Title 5 Compact. A  portion of the funds  may finance                                                              
bonds. This  unique partnering  method is  able to  fund a  lot of                                                              
different infrastructure  in the  state. Multiple facilities  have                                                              
gone through  the process.  Everyone understands  this is  a solid                                                              
credit risk, including  credit rating agencies. This  has been one                                                              
of the tremendous  benefits over the years. The  financial benefit                                                              
to make  sure all tribal  members receive  their care  from tribal                                                              
care organizations in the state is huge.                                                                                        
4:11:20 PM                                                                                                                    
CHAIR HUGHES  appreciated that TCC,  in conjunction with  the bond                                                              
bank, saved $40,000,000  and chose to reinvest  those dollars back                                                              
into care. This has helped Alaskans.                                                                                            
CHAIR HUGHES  brought up Medicaid  expansion. Alaska  Natives that                                                              
fall  under Medicaid  expansion  are covered  100  percent by  the                                                              
federal government  at tribal health care facilities,  which means                                                              
a state match  is not necessary.  She asked how this  might affect                                                              
the Medicaid budget in the future.                                                                                              
CHAIR HUGHES  requested health  care cost comparisons/savings  for                                                              
tribal members  who use  tribal facilities  versus tribal  members                                                              
who use non-tribal facilities.                                                                                                  
4:13:18 PM                                                                                                                    
RENEE  GAYHART,  Director,  Division   of  Health  Care  Services,                                                              
Department  of   Health  and  Social  Services,   Juneau,  Alaska,                                                              
provided  invited testimony  on HB  127. She  said that the  state                                                              
has a  vested interest  in partnering  with tribes and  supporting                                                              
infrastructure  development in various  ways. Medicaid  reform has                                                              
taken on a lot  of different forms over the years.  She cited four                                                              
Medicaid reform bills:                                                                                                          
1. A  senate bill  from a previous  legislature supported  18-bed,                                                              
long-term  care  facilities  in   Bethel  and  Kotzebue,  enabling                                                              
elders to  stay close  to home.  These 36 elders  did not  have to                                                              
transfer to  Anchorage or  beyond and their  care was  100 percent                                                              
federally  funded.  The state  does  pay that  tab  and  pays  and                                                              
chases the federal government for 100 percent reimbursement.                                                                    
2. Senate Bill 88  [ch. 63, SLA 13], Alaska Native  Medical Center                                                              
Housing. This bill  assisted with residential housing.  It allowed                                                              
200  or  more  individuals  to be  housed  on  the  Alaska  Native                                                              
Medical Center campus and receive services.                                                                                     
3.  Senate  Bill  46  [ch.  28,  SLA  15],  Municipal  Bond  Bank;                                                              
Regional Health  Organizations; Joint Action Agency.  The Division                                                              
analyzes  data. In  the case of  the YKHC  facility, the  analysis                                                              
included   whether  the   in-patient   facility  had   out-patient                                                              
services, the  off-set to the  state, whether the  facility served                                                              
the community without  incurring transportation costs  and out-of-                                                              
state prices.  The Division analyzes  this type of data  and works                                                              
with the  bond bank  to determine  the potential  cost savings  to                                                              
the state. She said  that Medicaid becomes a payer  at 100 percent                                                              
to help the  revenue generated pay  back part of those  loans. The                                                              
departments  role  is to look  for RHO infrastructure  development                                                              
in outlying areas  so that individuals can receive  services close                                                              
to  home at  100  percent.  The idea  is  to provide  health  care                                                              
services locally, so individuals do not have to leave.                                                                          
4.   Senate  Bill   74  [ch.   25,  SLA   16],  Medicaid   Reform;                                                              
Telemedicine;   Drug  Database.   This  bill  implemented   tribal                                                              
reclaiming.  The  Division must  process  prior period  claims  as                                                              
 reclaims   for  individuals  who  have to  travel  to  Anchorage,                                                              
Seattle, or  beyond for services.  The Division prefers  the state                                                              
invest in  outlying area  infrastructure  upfront and receive  100                                                              
percent  rather than  chase federal  dollars later.  It is  better                                                              
access  for the  individual, reduces  transportation, and  reduces                                                              
the Medicaid administrative burden to reclaim dollars.                                                                          
4:16:41 PM                                                                                                                    
CHAIR  HUGHES requested  the  aforementioned  fiscal analyses  and                                                              
projected and actual savings.                                                                                                   
CHAIR HUGHES mentioned  that her husband was the  medical director                                                              
of  the  Ft. Yukon  Clinic  years  ago.  The  clinic had  not  yet                                                              
implemented  an "open to  all" policy;  families had  to get  on a                                                              
plane and  fly to Fairbanks  for care. She expressed  appreciation                                                              
that tribal health  facilities have opened their  doors to members                                                              
of the community.                                                                                                               
MS. GAYHART  said that  she would  submit the  fiscal analyses  as                                                              
4:18:09 PM                                                                                                                    
SENATOR  GRAY-JACKSON  requested  that Representative  LeBon  read                                                              
the sponsor statement for HB 127 into the record.                                                                               
REPRESENTATIVE LEBON read the sponsor statement for HB 127:                                                                     
[Original punctuation provided.]                                                                                                
     This   bill  expands   the  authority   of  the   Alaska                                                                   
     Municipal   Bond   Bank  Authority   regarding   bonding                                                                   
     capacity  to  the  University  of  Alaska  and  regional                                                                   
     health organizations.                                                                                                      
       Regarding the University of Alaska (UA), the bill                                                                        
     proposes two changes:                                                                                                      
          Removes the project scope limiting Alaska                                                                             
          Municipal Bond Bank Authority participation to                                                                        
          only heating or energy projects                                                                                       
          Raises the UA project participation cap from                                                                          
          $87,500,000 to $500,000,000                                                                                           
REPRESENTATIVE  LEBON  explained  that the  $500,000,000  is  just                                                              
headroom.  In the  banking industry,  headroom  must be  available                                                              
before the borrower arrives at the bank, not after.                                                                             
     Previously  the  University  used  Municipal  Bond  Bank                                                                   
     participation  for  funding  of the  combined  heat  and                                                                   
     power  plant  at the  University  of  Alaska  Fairbanks.                                                                   
     This change  is intended to provide the  University with                                                                   
     expanded  tools for financing  or refinancing,  allowing                                                                   
     the  University  to leverage  the  bond ratings  of  the                                                                   
     Alaska  Municipal Bond Bank  Authority if  advantageous.                                                                   
     This additional  financing tool is not intended  to be a                                                                   
     substitute  for   capital  appropriations   through  the                                                                   
REPRESENTATIVE  LEBON explained  that this  change applies  to any                                                              
debt  UA may  currently hold  and will  encompass projects  beyond                                                              
just the heat and power plant project.                                                                                          
REPRESENTATIVE  LEBON   stated  that  interest  rate   cycles  are                                                              
unpredictable. Interest  rates are  creeping up currently,  so the                                                              
window of  opportunity is  closing a  little bit.  Even so,  it is                                                              
important to  create the eligibility now,  so UA is ready  to take                                                              
advantage of favorable interest rates.                                                                                          
     Regarding  regional   health  organizations,   the  bill                                                                   
     proposes these changes:                                                                                                    
          Removes the 49% Alaska Municipal Bond Bank                                                                            
          Authority single-project participation cap                                                                            
          Raises   the   cap   for    all   regional   health                                                                   
          organization   projects    from   $205,000,000   to                                                                   
     This  change is  intended  to expand  opportunities  for                                                                   
     regional   health  organizations   to  use  the   Alaska                                                                   
     Municipal  Bond  Bank  Authority.   In  accordance  with                                                                   
     existing  statute AS 44.85.010,  the Bond Bank  provides                                                                   
     capital   funds  through   loans   to  regional   health                                                                   
     organizations  "when  the  commissioner  of  health  and                                                                   
     human  services anticipates  a  state financial  benefit                                                                   
     and  an  increase  in regional  quality  of  care."  The                                                                   
     financial   benefit  is   realized  by   the  state   by                                                                   
     capturing  additional  Federal  Medicaid  reimbursement,                                                                   
     assisting the State in reducing Medicaid expenditures.                                                                     
     I   would   appreciate   your   support   in   expanding                                                                   
     opportunities   for  the   University   of  Alaska   and                                                                   
     Alaska's  regional health organizations  to utilize  the                                                                   
     Alaska Municipal Bond Bank Authority.                                                                                      
4:22:37 PM                                                                                                                    
CHAIR HUGHES  invited Mr.  Dosch to testify.  She asked  what type                                                              
of projects  the university will  consider with the passage  of HB
127, given favorable interest rates.                                                                                            
MYRON  DOSCH,   Chief  Finance  Officer,  University   of  Alaska,                                                              
Fairbanks,  Alaska,  provided invited  testimony  on  HB 127.  The                                                              
University  of Alaska  supports  this bill.  The university  would                                                              
consider  a refinancing  opportunity given  the university's  debt                                                              
MR.  DOSCH said  that the  bond bank  has a  better credit  rating                                                              
than  the  university,  allowing   the  university  to  borrow  or                                                              
refinance  at  lower   interest  rates.  The  university   has  no                                                              
projects lined  up for financing in  the next two to  three years,                                                              
but refinancing  would be  economically beneficial  given  the low                                                              
interests  right now.  This bill  provides  that use  of the  bond                                                              
bank is  optional. He  said that the  university would  be pleased                                                              
to have the  option of the bond  bank available to hit  the bottom                                                              
line and help save money.                                                                                                       
CHAIR HUGHES asked  how much savings to expect if  UA went through                                                              
the bond bank to refinance.                                                                                                     
MR.  DOSCH  answered that  an  outlined  hypothetical  $50,000,000                                                              
bond issuance,  over  a 30-year  term, based  on a current  credit                                                              
spread of  10 to  15 basis points,  was submitted  in a  letter of                                                              
support.  The  estimated  savings  would  be  $50,000  a  year  or                                                              
$1,500,000 over the life of the bond.                                                                                           
4:26:23 PM                                                                                                                    
SENATOR  MYERS   asked  whether  the  university   is  considering                                                              
projects  that  require  the  proposed   loan  limit  increase  or                                                              
whether the loan limit increase is a "just in case" idea.                                                                       
MR. DOSCH  answered that  the increase  in the cap  is a  "just in                                                              
case"  idea. The  university  does  not have  a  new project  that                                                              
needs  financing   right  now.  The  university,   primarily,  has                                                              
refinancing  opportunities planned  within the  next two  to three                                                              
4:27:28 PM                                                                                                                    
CHAIR HUGHES stated  that the university supports HB  127, as does                                                              
the bond  bank. She  asked whether  the university  and bond  bank                                                              
may support this bill independent of the administration.                                                                        
REPRESENTATIVE   LEBON  answered   that  the  university's   chief                                                              
financial officer speaks on behalf of the administration.                                                                       
CHAIR HUGHES  clarified the question.  She asked whether  the bond                                                              
bank  may  support   this  bill  independent  of   the  governors                                                               
REPRESENTATIVE  LEBON  answered  that the  administration  has  no                                                              
issue  with the  bond bank's  expanded authority  as presented  to                                                              
the committee.                                                                                                                  
CHAIR HUGHES  sought clarification  on whether  the bond  bank and                                                              
its   board   have   the   authority    to   support   legislation                                                              
independently of the governor.                                                                                                  
MR. MITCHELL  answered  that the  bond bank has  a separate  legal                                                              
existence  from  the  state  and  answers  to  a  board,  not  the                                                              
governor,  on  bond   bank  business.  The  commissioner   of  the                                                              
Department  of Revenue  hires the  state  investment officer,  and                                                              
the governor reviews  the hire, so the bond bank  coordinates with                                                              
the   governor's  office.   The   bond  bank   went  through   the                                                              
legislation vetting process with the governor's office.                                                                         
4:31:39 PM                                                                                                                    
CHAIR HUGHES held HB 127 in committee.                                                                                          

Document Name Date/Time Subjects
HB 127 version A.PDF HCRA 4/8/2021 8:00:00 AM
SCRA 1/27/2022 3:30:00 PM
HB 127
HB 127 Sectional Analysis version A 3.16.2021.pdf HCRA 4/8/2021 8:00:00 AM
SCRA 1/27/2022 3:30:00 PM
HB 127
HB 127 Sponsor Statement version A 3.16.2021.pdf HCRA 4/8/2021 8:00:00 AM
SCRA 1/27/2022 3:30:00 PM
HB 127
HB 127 Letter of Support Maniilaq 3.15.2021.pdf HCRA 4/15/2021 8:00:00 AM
SCRA 1/27/2022 3:30:00 PM
SCRA 2/3/2022 3:30:00 PM
SFIN 4/21/2022 9:00:00 AM
HB 127
HB 127 Support Letter University of Alaska 3.9.2021.pdf HCRA 4/15/2021 8:00:00 AM
SCRA 1/27/2022 3:30:00 PM
SCRA 2/3/2022 3:30:00 PM
HB 127
HB 127 Fiscal Note DOR 01.21.2022.pdf SCRA 1/27/2022 3:30:00 PM
HB 127