Legislature(1997 - 1998)
03/24/1998 09:15 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 223(RLS) "An Act lowering the age requirement from 60 years to 55 years for purposes of senior housing programs; relating to the senior housing revolving fund; relating to bonds to fund senior housing loans; repealing provisions establishing the senior housing bond account of the Alaska Housing Finance Corporation; and repealing a provision relating to the interest rate on senior housing loans made by the Alaska Housing Finance Corporation." Co-Chair Sharp noted this was the first hearing the committee held on this bill. He invited to the table, BENJAMIN BROWN, Legislative Aid to Senator Tim Kelly, who was the Chairman of Senate Rules Committee and sponsor of this legislation. Mr. Brown's testimony was as follows: "The version before the Senate Finance Committee is a Rules Committee Substitute, which is a little unusual. That is because members of the committee and other members of the Senate were concerned that some of the fiscal implications of this legislation had not been addressed. I'm happy to be here on Senator Kelly's behalf to make sure we look at those things as carefully as they ought to be looked at." "This bill attempts to remedy several problems in Alaska's senior housing statute. In 18 56.700, which is the area of Alaska's statutes which sets up the Alaska Housing Finance Corporation." "Back in 1990, Legislation was passed that created the Senior Housing Office. At that time it was in the Department of Community and Regional Affairs. That office's purpose was to help provide loans that would make sure that Senior Housing was available to Alaskans who wanted to remain up here. We had many other programs, obviously to encourage seniors to be independent. This is the housing part of the picture. The Senior Housing Office was merged into AHFC when the merger went through in 1992. At that time AHFC took over managing the provisions of these loans to make sure that non-profits that wanted to get together to build either rental apartment units or ownership condos would have financing available at a reasonable rate from the state." "Since that time, of the nine senior housing projects that have been built around Alaska, eight have been financed, not under the Senior Housing Revolving Fund (the program we're talking about today,) but have been financed instead under the Special Needs Multi Family Loan Program, another of AHFC's programs. The reason for that is, this is an antiquated statute and some of the things that were put in back in 1990 into Senator Duncan's legislation that originally created the OSH are just no longer necessary given the superstructure of the AHFC over the Senior Housing Program." "So, Senator Kelly was just interested in streamlining the statutes and making sure that the unnecessary provisions that date from a prior time when DCRA was in the senior housing business are no longer there. One very targeted change he also wished to make was to lower the age of eligibility for persons wishing to move into these publicly financed senior housing projects from 60 to 55 years of age. That was a specific response to difficulty in achieving maximum occupancy at a couple facilities around the state. One here in Juneau, which we are all pretty familiar with, is Fireweed Place. That large fairly new building off of Calhoun near the Governor's house. That was not financed under the SHRF. It was finance under the other program I mentioned, the SNMFP. But if they had not been able to lower their age of eligibility from 60 to 55, they would probably still be at about 50 percent occupancy. They've raised that to about 75 percent thanks to the AHFC Board's ability to lower the age of eligibility for moving in there to 55 years." "This bill attempted to take that policy change, going from 60 to 55, and bring it back to the main loan program, which ought to be used for the SHRF for the financing of senior housing in Alaska." After offering to answer any questions up to that point, Mr. Brown continued. "As I worked with AHFC, the bill was originally very simple and just lowered the age to 55 from 60 in statute. But then Mr. Bittney, AHFC's Legislative Liaison who has much experience in this branch of government as well, brought a few more details forward as we went through the process of little things that needed to be tweaked in 18 56.700. One of those things was getting rid of an old fiscal structure where there was a bond account. The corporation sold bonds, the money from the bonds was put into the bond account and then was transferred into the revolving funds each time a loan had to be made." "This legislation, at the recommendation of AHFC, (the Rules Committee Substitute is where this change was put in,) eliminates the bond account and takes it current assets of some $14 million I believe, and puts them straight into the revolving fund and makes it a fully functional financing mechanism for these senior housing loans." "The bill also authorizes the capitalization of the SHRF with up to $30 million in new bonds. So there's two infusions of capital into this new fund that we're attempting to streamline so it can again be put to use as the primary agent for financing senior housing in Alaska." "I believe that may be the area of greatest concern to members of the Senate Finance Committee, although I don't want to second guess your judgement. The point I'd like to make most strongly this morning is, this legislation and the cleaning up of statutes it accomplishes can proceed with or without the transfer of the $14 million and the bond account. That's a policy call that AHFC I think would be certainly be glad to speak to in a moment if given the opportunity. But that's not necessarily integral to what Senator Kelly is trying to accomplish the way his bill came out of the rules committee." Co-Chair Sharp said he assumed the difficulty would be in moving the money over without an appropriation. He said the committee would talk with Mr. Bittney on that issue. Mr. Brown had one more thing to add to his presentation. "There was a separate issue that was a bit of a bone of contention, not so much with the AHFC staff, but some of the members of the AHFC Board and some members of the senior community, that by lowering the age in statutes for the SHRF, there would be no flexibility. It would just automatically be down to 55 and the AHFC Board would have no latitude if that ended up creating too much demand for senior housing. The way they handled it with the other loan program, the SNMF loan program, the board has the regulatory authority to lower it to 55 on a case by case basis. It seems that is more friendly approach to a lot of the senior community. So much so that the Commission on Aging passed a resolution in support of changing this bill so that it's not a statutory lowering from 60 to 55, but enabling the AHFC Board by regulation to take step." "This just gives them a little tighter hold on the reins on the demand there if there is a problem. It's really not - they're Actuary Analysis does not anticipate a huge spike in demand by adding five more years of population. The average senior in Alaska is 77.5 or something. That's not the area of senior population that is going to be most demanding on these senior housing units. But it's probably prudent to make sure we don't change it in statutes and have to go and raise it again at some future point." "So I have had the Finance Committee Secretary distribute a workdraft "H" version. It is identical to the Rules Committee substitute except that it does not include a statutory change in the age limit from 60 to 55, but leaves it for the regulatory discretion of the AHFC Board." "That's all I have. Maybe the folks from the corporation can address any other concerns." Co-Chair Sharp then invited JOHN BITTNEY, Legislative Liaison for AHFC, and members of his staff to come to the table. STEVE ASHMAN, Senior Housing Specialist for AHFC joined Mr. Bittney. Mr. Bittney made his statement: "Mr. Chairman, we're here today to speak in favor of the proposed draft CS that Mr. Brown has referenced. My understanding is that the CS would change the Rules Committee version in relation to how the bill addresses the lowering of the age requirement for these projects. Instead of taking a blanket, across the board approach in statute of lowering the age eligibility from 60 to 55, it would more or less put it into something that we would be able define by regulation. We would be limited by not being able to go below the age of 55." "Right now we do have a multi-family loan program that's called Special Needs Program, that we've been financing most senior projects around the state since the time of the merger. We got started in this discussion last summer by addressing the age eligibility for those with the regulation process." "We had proposed lowering it again much the same way the bill originally did. That did cause some concern on the part of our board for its impact and that policy call. The draftsman here was working at the time and held some hearings with some senior folks around the state and did a survey." "So what the board did in its final review of that regulation was basically say that senior developments around the state - if they experienced some sort of an economic hardship situation - they could apply to AHFC to lower the age on a temporary basis down to the age of no lower than 55. We would look at that regulation if the CS were to go through to basically do the same thing for loans under the revolving fund." Mr. Ashman added to Mr. Bittney's comments: "Mr. Chairman I think its fair to acknowledge AHFC did receive a letter from the co-chair of the Finance Committee requesting that our board of directors review the assets within the bond account as potentially being available. That issue is being addressed at our board meeting as we speak right now. I expect to have a resolution or some sort of board action with regard to that matter any minute now." Senator Torgerson asked what kind of waiting list the corporation anticipated if they dropped the age down to 55. What would the impact be and how many folks would be affected, he wondered. Mr. Bittney responded by sharing information on the demographic population. He said he looked at the '60 and above' and compared that to the '50 and above'. When his office looked at the figures a couple years ago, he thought the population of '60 and above' would have went from about 35,000 up to 60,000 senior citizens under that definition. They didn't think it would have much of a cause of increased demand on the loan program. The primary reason was because with independent senior housing, the average age at the time of occupancy was about 75. For assisted living, the average age was 83 to 85 years of age. He concluded that the more mobile senior wasn't likely to move into the complex because they typically did not want to move out of their own home. Senator Torgerson then wanted to know what was the residency requirement to receive the loan. Mr. Ashman told him there was a residency requirement under regulation or statute. He said that while an out of state developer could build senior housing, it would have to be located within the State Of Alaska and be utilized by Alaska citizens. However, there was no residency requirement like what may be required for other loan programs administered by state agencies. Co-Chair Sharp had a question on Page 2, Lines 21 and 22 of the draft referring to bonds in the amount of no more than $30 million. He wanted to know if that was currently accessed. Mr. Bittney replied that it was not as there were no applications pending before the corporation right now for loans under this program. He added, they were leaving in place, the $30 million bonding cap in statutes. Co-Chair Sharp interjected asking if that was a maximum amount per project or a cumulative amount of bonds that could be issued. Senator Donley told him the amount was the maximum amount of bonds that could be issued. Mr. Bittney agreed that was the way he also read the statute. Mr. Bittney continued, pointing out the current statute that was being deleted, which talked about approval by the corporation. That clause was leftover from before the merger. The bill would try to clear up some of the ambiguity as to how authority worked between the two accounts, he said. He noted the difficulties in trying to issue debt to capitalize one account and then have to transfer the proceeds to be issued over to the loan fund. It was not clear how the funds could be used as collateral for the bond account. He said it would be better to have all the funds in one account. Co-Chair Sharp asked where the $14.2 million dollars originated that was currently in the SHRF account. Was that equity money of AHFC, he wanted to know. Mr. Ashman affirmed that. He said the bond account had always been at AHFC. What happened, he explained, was when that was set up in 1990 an appropriation bill went through the Legislature that was tied to the enabling legislation. The appropriation granted $10 million of AHFC receipts into the newly established bond account at that time. It's been there to this day. Co-Chair Sharp asked if the funds were transferred in 1989. Mr. Ashman replied he believed the year was 1990. Co-Chair Sharp noted that the money had been held in the account for seven years and had not been utilized. The rising account balance was from the accrual of interest and not from loan activity, he wondered. Mr. Ashman confirmed that. Co-Chair Sharp questioned if the reason the funds had not been put to use was because of the difficulty in accessing the funds and making both statutes fit. Mr. Bittney answered that was correct. In addition, he said when the two funds and the functions were separated between AHFC and DCRA, statute required that a surcharge be placed upon the interest rate calculation for any loan going out. The rate was one-half percent for a permanent, or regular loan and two points for a construction loan. This was with the idea that proceeds of the surcharge would be used to fund DCRA. Now that the program is a part of AHFC it is not necessary, he concluded. Basically, he surmised that by going to the other loan program where folks could apply for low-income senior housing, they could avoid the surcharge. Section Eight of the pending legislation would repeal the surcharge. Mr. Bittney continued by saying what AHFC would do if this loan program were improved. They would use the fund to address the needs of moderate, or middle-income market rate senior housing. He explained that the special needs program was something that had been geared toward lower income situations that require set-asides and was where AHFC would offer tax-exempt rates, which come with strings attached. His office was seeing more interest in market rate or moderate, middle-income senior housing. By improving the senior loan program, efforts would be placed in making loans for these programs. In Mr. Bittney's opinion, that was the intention of the program. Co-Chair Sharp pointed out the "Senior Housing Mortgage Loans" and asked if that was what these monies would be used for, as well as loans made for building materials for senior housing. He questioned that to qualify, did the projects have to multi-unit housing, or could single-family units participate. As Mr. Bittney recalled the legislation, AHFC would have the ability to finance single family homes for senior citizens 60 years of age or older under existing definition. He doubted they would ever use that mechanism because their single-family home products had a much more favorable interest rate than they would under this program. Traditionally the interest rates had been higher under the special needs program and the senior program than the prevailing market rates. Co-Chair Sharp directed the conversation to the lowering of the permissible age. He asked if the regulation would be set by the board, or by the executive director or staff. Mr. Bittney explained how under the administrative procedures they would have to take a regulation to the board of directors as well as hold public hearings. Co-Chair Sharp wanted to know if once the regulation was approved, did Mr. Bittney foresee a delegation of authority to the AHFC administration. Mr. Bittney responded that the current regulations for the special needs program - as far as applying for the hardship situation - was done through the staff. Co-Chair Sharp mentioned objections he had heard with regard to lowering the age to meet the federal age limit of 55. The seniors who currently live in senior housing were not too excited about getting a lower age group in their complex, according to comments he had received. He asked if these complexes were owner-occupied, like condominiums. Mr. Brown told the committee he visited many senior housing developments across the state while working on this legislation. The only ownership facility was Chester Park in Anchorage. It was unique because of that. The good thing about it being a real condo, many of the Alaskans there had been able to convert the equity in their homes into buying the units. That was a very nice transition, he commented. He noted a collegial, village-type arrangement at Chester Park that was geared toward middle and upper-middle class seniors. He said he met with some of the residents and the manager and never heard of concerns about a new influx into the population. In his opinion, the residents were hoping to get more occupants to help share with the fixed costs. Senator Adams arrived at the meeting, coming from a public testimony hearing and stated for the committee that the reality checks in rural Alaska and in Anchorage was - people did not want to cut the budget. Co-Chair Sharp brought the discussion back to the bill at hand. He pointed out that the proposed draft did not transfer or allocate funds. Mr. Brown interjected saying Section 7 of Workdraft H did transfer all assets in the Senior Housing Bond Accounts, on the effective date of the act, into the Senior Housing Revolving Fund. He didn't know if that would be an impediment for those funds being further appropriated, but they would be a different source of appropriation. He didn't know if that legislation would have to be changed to permit that eventuality later in the session. The workdraft did make the transfer just for the purpose of tidying up the statute and getting rid of the bond account, an unnecessary financial instrument. The revolving fund was meant to be the source of loans and the destination of repayments. Co-Chair Sharp asked for confirmation that all the assets in the Senior Housing Bond Account were Alaska Housing equity and had nothing to do with any bond receipts or obligated funds. Mr. Ashman affirmed that. He added that under Section 8, the bond account was being repealed, and elaborated on the details. There was further clarification on that matter between Co-Chair Sharp and Mr. Ashman. Co-Chair Sharp stated his desire to hold the bill until the decision was received from the board on the request by the co-chairs. He offered to allow the workdraft be adopted by the committee in the meantime. Senator Adams moved and asked unanimous consent that Senate Finance Committee Substitute for SB 223 Version H be adopted as a workdraft. There was no objection and Co-Chair Sharp so ordered. Co-Chair Sharp thanked the involved parties for their participation. He warned of the possibility that Section 7 would be struck from the bill. He wanted to ensure that it would not cause damage to the other goals the sponsor wanted to accomplish. That concluded discussion on the bill.
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