Legislature(1999 - 2000)
04/12/2000 06:11 PM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SENATE BILL NO. 248
"An Act relating to the financing authority, payment
in lieu of tax agreements, and tax exemption for
assets and projects of the Alaska Industrial
Development and Export Authority; relating to renaming
and contingently repealing the rural development
initiative fund within the Department of Community and
Economic Development, and establishing the rural
development initiative fund within the Alaska
Industrial Development and Export Authority; and
providing for an effective date."
KEITH LAUFER, Financial and Legal Affairs Manager, Alaska
Industrial Development and Export Authority (AIDEA),
Department of Community and Economic Development referred
to the sectional analysis of the bill. [Copy on file.]
Mr. Laufer stated that the legislation has three elements.
The first, he said extends the AIDEA general bonding
authority that would otherwise sunset July 1, 2000. The
second element of the bill, he explained transfers the
Rural Development Initiative Fund Loan program to AIDEA. He
relayed that the third element is technical changes to
provisions in existing law dealing with tax exemptions and
payment in lieu of tax agreements related to AIDEA
development finance projects.
With regard to the bonding sunset, Mr. Laufer asserted that
AIDEA has been subject to these sunsets for many years. He
said the current sunset would prevent AIDEA from issuing
all bonds other than refunding bonds regardless of size
without specific legislative approval. Specifically, he
pointed out, the sunset would prevent issuing bonds for
less than $10 million for development finance projects. He
noted that bonds over $10 million, currently and in the
future under this legislation, to require specific
legislative approval.
Mr. Laufer continued that the sunset would also prevent
AIDEA from issuing conduit revenue bonds. He explained that
these are the bonds that AIDEA can issue and which do not
obligate either AIDEA's credit or the credit of the State
Of Alaska but provide qualified projects with low-cost tax-
exempt financing.
Mr. Laufer stated that the bill would extend the sunset
provision to July 2003 and make clear that the conduit
revenue bonds are not subject to the sunset.
Mr. Laufer then addressed the transfer of the Rural
Development Initiative Fund (RDIF). That program, he stated
would formally move from the former Department and
Community and Regional Affairs to AIDEA. He explained the
program makes loans under $200,000 to businesses and
communities with populations of less than 5,000. He
expressed that AIDEA has long supported this program that
also advances AIDEA's mission. He spoke of past actions
where the legislature has authorized AIDEA to purchase
these loans and directed the proceeds from the loans to re-
capitalize the initiative fund. He stated that the
relocation of this program would allow it to become self-
sustaining without the need for periodic legislative
appropriations. He noted that AIDEA would continue to work
with the Department of Community and Economic Development
to administer the program.
Mr. Laufer stated that this bill anticipates that a
separate appropriation will also pass that would allow
AIDEA to purchase the existing RDIF loan portfolio and the
other assets in the fund.
Mr. Laufer continued that the bill makes technical
amendments to the tax exemption provisions related to
AIDEA-owned projects. Under existing law, he explained
AIDEA's ownership of these projects is tax-exempt and local
jurisdictions are permitted to exempt users of AIDEA-owned
development projects from property tax or to enter into
payment in lieu of tax agreements with those projects.
Unfortunately, he shared these statutes are not clear as to
the mechanism which are to be used for the tax exemption.
He detailed two specific problems the bill address; pilot
agreements and clarification to allow municipalities to
grant tax exemptions.
Co-Chair Torgerson asked about the RDIF.
Mr. Laufer described that due to complicated language in
the transfer provision of the bill, there could be two
funds. However, he assured that once the purchase of the
fund's assets is authorized and consummated, the existing
program is repealed and is combined into the new program.
This language, he pointed out is contained in Section 10 of
the bill.
Co-Chair Torgerson wanted to know if the language in the
transfer is exactly the same as the existing language.
Mr. Laufer replied that the new language mirrors the
existing language with the exception of technical changes
to allow the fund to comply with AIDEA's assets. He assured
there are no changes to the program.
Senator Phillips asked who asked for this legislation and
why. He commented that his constituency would like to see
the state sell AIDEA.
Mr. Laufer answered the bill was requested by the governor
with the primary intent to extend AIDEA's bonding
authority. He added that the RDIF transfer is included to
avoid the need for future legislative appropriations to
capitalize the fund.
Senator Phillips wanted to know who requested the governor
sponsor this bill.
Mr. Laufer shared that AIDEA and the department had been
discussing this matter for "some time."
Senator Donley asked the criteria for the RDIF loans. He
noted that AIDEA's charter requires it to practice due
diligence to get repayment of its loans. He wanted to know
if the rural loans were subject to the same requirement and
what action AIDEA planned to take if a number of the loans
began to default. He voiced his skepticism of many loan
programs trying to become independent from state funding
and instead become part of the AIDEA program. He stated
that by becoming part of AIDEA, the programs are no longer
subject to legislative scrutiny but that the funds used for
the loans could instead be deposited into the general fund
as AIDEA dividends.
Mr. Laufer responded that AIDEA has already been purchasing
the RDIF loan portfolios and therefore has experience with
these loans. He stated that the default rates are not out
of line with what is expected in a typical loan portfolio
that AIDEA would manage. He stressed that the loans are
required to go through a similar process, as would be
required in typical AIDEA programs. He detailed these
requirements.
Senator Donley asked if there was a maximum dollar amount
AIDEA could put into the RDIF program.
Mr. Laufer answered that there is not a maximum and that
approximately $1 million would be a significant amount to
make it the fund a truly revolving loan program. He shared
that the current problem is that once the department has
loaned the money, there is insufficient money returned on
an annual basis to fund any new loans. AIDEA would be able
to operate the fund as a revolving loan program, he
assured.
Co-Chair Torgerson asked if AIDEA would oppose a
legislative imposed cap of $2 million as the amount that
could be given to the RDIF.
Mr. Laufer did not think so.
Co-Chair Torgerson asked for an explanation of Section 7
asking for authorization to make loans to a political
subdivision and if AIDEA is making loans to local
governments.
Mr. Laufer clarified that is not the case, but that the
provision refers to the ability of users of AIDEA-owned
projects to enter into payment in lieu of tax agreements to
build the subdivisions. He stated that the language is
detailed to make sure it is clear that the local
subdivisions and the users of the project may enter into
the tax agreements.
Co-Chair Torgerson noted the bill would not be reported
from the Committee at this hearing, saying he wanted to
consider setting a maximum amount that AIDEA would be
allowed to deposit into the RDIF.
Senator Green referred to the language on page 4, line 27
"community with a population of 5,000 or less". She wanted
to know how many communities fit this description in the
state.
Mr. Laufer did not have that information.
Co-Chair Torgerson ordered the bill HELD in Committee.
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