Legislature(1999 - 2000)
04/30/2000 10:39 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
COMMITTEE SUBSTITUTE FOR HOUSE BILL NO. 281(FIN) am
"An Act relating to the financing of construction of
public school facilities, facilities for the
University of Alaska, and facilities for ports and
harbors; authorizing the commissioner of revenue to
sell the right to receive a portion of the anticipated
revenue from a certain tobacco litigation settlement
to the Alaska Housing Finance Corporation; relating to
the deposit of certain anticipated revenue from a
certain tobacco litigation settlement; authorizing the
issuance of bonds by the Alaska Housing Finance
Corporation with proceeds to finance public school
construction, facilities for the University of Alaska,
and facilities for ports and harbors; providing for
the creation of subsidiary corporations of the Alaska
Housing Finance Corporation for the purpose of
financing or facilitating the financing of public
school construction, facilities for the University of
Alaska, and facilities for ports and harbors; and
providing for an effective date."
This was the second hearing for this bill in the Senate
Finance Committee.
Co-Chair Torgerson described the bonding packages included
on a pie chart, Bond Package HB 281. [Copy on file.] He
explained how the bonds would be financed using a
combination of municipal school bonds, a newly created
Municipal Harbor Program, the Alaska Housing Finance
Corporation (AHFC) bonding capacity within the current
financing structure, plus anticipated tobacco settlement
funds.
Co-Chair Torgerson detailed the distribution of funds,
including $20 million for the Anchorage library, deferred
maintenance on the University of Alaska Fairbanks, $3.1
million deferred maintenance in Anchorage, $1.7 deferred
maintenance in Juneau, $700,000 for deferred maintenance in
Mat-Su, $6 million matching funds for Corps. of Engineering
projects, $4.2 million for the Alaska Vocational Technical
Institute, and $5 million for deferred maintenance on AHFC
facilities.
Co-Chair Torgerson directed attention to the attached pages
that show a breakdown of the specific projects by
geographical area and by funding source.
Co-Chair Torgerson noted that some of the projects are
located in Rural Education Attendance Areas (REAA) that do
not have bonding authority and therefore need to be
changed.
Co-Chair Parnell moved to adopt CS HB 281 1-LS1201\B as a
workdraft.
Senator Adams objected, saying that to have a fair bond
package, the University of Alaska-Southeast classroom
project must be included. He said this was necessary to
ensure that all areas of the state benefit.
Co-Chair Torgerson explained that this package does not
require a vote to be implemented because the bonds are not
general obligation but rather revenue bonds, municipal
debt, AHFC bonds and the harbor reimbursement program.
Senator Donley expressed he would vote against the
committee substitute as well but his reason was because
this plan does not include a vote of the people. He
recognized that there is no constitutional requirement for
a vote but asserted it would be better to have a vote from
a public policy point of view.
A roll call was taken on the motion.
IN FAVOR: Senator P. Kelly, Senator Leman, Senator Wilken,
Co-Chair Parnell and Co-Chair Torgerson
OPPOSED: Senator Phillips, Senator Donley, Senator Adams,
ABSENT: Senator Green
The motion PASSED (5-3-1)
The committee substitute was ADOPTED as a workdraft.
Co-Chair Torgerson detailed the committee substitute.
Page 7, lines 19 and 20 - allows reimbursement for
school indebtedness authorized by the municipality
prior to the June 30, 1998 deadline, also extends the
deadline that debt must be incurred to July 1, 2004 to
qualify for reimbursement.
Page 8, line 14 - changes funding of $2,237,000 for
projects located in an REAA that does not have bonding
capacity from municipal bonds to tobacco
securitization.
This was the second hearing for this bill in the Senate
Finance Committee.
Senator Adams asked if this change addresses the projects
in Wrangell, Petersburg and Delta Junction.
Co-Chair Torgerson answered that the specified funds are to
pay for the Kake school construction.
Page 8, line 29 to page 9 - section rewritten to
stipulate that 40 percent, or approximately $93
million, of the tobacco settlement receipts would be
pledged for 15 years for the debt of this program.
Page 9, line 29 - stipulates that no more than the
authorized amount of tobacco settlement funds could be
used for securitization of the bonds.
Page 10, lines 21 and 22 - moves the Amber and Kiana
school projects into the school reimbursement program
from the tobacco settlement securitization.
Co-Chair Torgerson stated that this change is made to
offset moving the Kake school project from the school
reimbursement program to the tobacco settlement-backed
program. He noted that the funding impact is negligible.
Page 11, line 29, through page 12, line 3 - this
language is deleted from the amended House Finance
Committee version.
Co-Chair Torgerson explained that the language applied to
the harbor transfer program, but that the project was part
of the Corps of Engineers program and thus was unnecessary.
He further detailed that the harbor transfer program
requires an agreement to transfer the facility to the local
municipality before the state could reimburse the money,
and that the corps program has no such requirement.
Co-Chair Torgerson continued that the committee substitute
also contains several conforming amendments to the above
mentioned changes.
Co-Chair Torgerson announced that a new Senate bill would
be introduced later in the day that encompasses harbor
projects. He said this was to avoid an otherwise necessary
title change to this bill.
Senator Leman suggested changing the last three digits of
each dollar amount listed in the committee substitute to
"000", thus rounding the figures downward.
Co-Chair Torgerson stated he made a note to make that
change in the next drafted committee substitute.
Senator Donley asked if the total cost over the lifetime of
the bonds had been calculated.
Co-Chair Torgerson responded that the AHFC had prepared
figures for the bonds, which that organization is part of.
He noted that he would request the Office of Management and
Budget to provide a complete analysis. He advised that the
committee substitute has only just been presented and
therefore, there had not been time to prepare the
corresponding information. He assured the bill would not
move from Committee at this meeting to allow for
information to be gathered and considered.
Senator Phillips also wanted to see a complete
amortization.
Co-Chair Torgerson stated that his intent was that HB 312,
currently in the House Finance Committee, establishes a sub
account of the Constitutional Budget Reserve (CBR) fund and
would provide the potential funding source for any debt
reimbursement. He expressed that future legislatures would
have the opportunity to consider the sub account as a
funding source but not to dedicate it as the funding
source.
Senator Donley clarified that HB 312 would put the
statutory mechanism for funding bond indebtedness but not
to stipulate the sub account as a dedicated funding source.
He asked if this bond package includes a deposit of the
amount required to satisfy the debt into the sub account.
Co-Chair Torgerson affirmed and explained that the sub
account could not be included in HB 281 before the
Committee without a title change.
Senator Donley asserted he was therefore not convinced this
package is the best solution. However, if he could be
assured the sub account would be used to fund the bond
repayment, he would support the bills.
Co-Chair Torgerson informed Senator Donley that he knew of
no way to dedicate the funds in the sub account. He
qualified that finding a way to do just that is worth
considering.
JOHN BITTNEY, Executive Director, Alaska Housing Finance
Corporation, Department of Revenue, testified that the co-
chair's request was to provide information on necessary
changes to securitize the tobacco settlement funds to repay
the $93 million bond package. He shared that other officers
of AHFC were online listening to the meeting.
Mr. Bittney first addressed Section 1 subsection (b) that
speaks to intent to back out $1.4 million of the total
tobacco revenue that would have been spent on smoking
education and cessation programs. He stated that because
the legislation only uses a portion of the tobacco
settlement proceeds, there is still a great deal of revenue
available to the state for the tobacco-related programs.
Mr. Bittney said AHFC recommends depositing the tobacco
funds into the general fund and transferring $1.4 million
to AHFC rather than the current language, which stipulates
the funds would be "sold" to AHFC. He assured that whatever
method of distributing the funds is still legislative
intent.
Mr. Bittney recommended changes to the committee substitute
as they apply to AHFC.
Page 9, line 2 - Delete "all but $1.4 million" and
insert "40 percent". Amended language reads, "
Page 9, line x - Delete "up - through the end of line
6
Mr. Bittney pointed out that this language speaks to
investment grades, keeping in mind that the $269 million
was the proceeds that were anticipated from selling the
balance of the MSA after reduction of $1.4 million and
ensuring that AHFC was selling investment grade bonds. He
said that this language is not longer necessary.
Page 9, line 7 - Following "proceeds" insert "to the
state of the sale the right to receive revenue",
delete "sold" and "$269,000,000" and insert "at least
$93 million. The amendment language reads, "
Page 9, line 29 - Change language to read, "bonds
issued under (b) of this section"
Mr. Bittney explained that the existing language relates to
tobacco bonds and the accounts pledged for those bonds. He
said AHFC wants the credits to be pledged only for the AHFC
general obligation bonds. He said that the intent is that
the tobacco securitization bonds have no pledge and the
risk is purchased by the investors.
Page 10, line 11 - Include authorization for AHFC
deferred maintenance projects
KEN VASSAR, Attorney, Wohlforth, Vassar, Johnson and
Brecht, testified via teleconference from Anchorage to make
it clear that the language on page 9 relating to the
capital reserve fund is described in AS 18.56.125 as a
"moral obligation reserve fund". He explained that the
suggested change ensures that the tobacco bonds, the
state's moral obligation, is in no way connected with those
bonds. He stressed that the intent is that the tobacco
bonds are to be strictly revenue bonds supported only by
the revenues of the tobacco settlement.
Co-Chair Torgerson noted that recommendation would be
offered in a subsequent committee substitute.
Senator P. Kelly asked if AHFC has an estimate on the size
of reserve account at the end of the term.
Mr. Bittney referred to spreadsheets provided, Tobacco
Settlement Payment Analysis, draft of April 30, 2000 and
Bond Debt Service Report, Tobacco Revenue Bonds, 2000
Series AA, that illustrate the costs and payments for this
level on bond issuance. [Copy on file.]
Senator P. Kelly then asked for clarification of the amount
requested for AHFC deferred maintenance projects and asked
if inclusion of those projects requires a title change.
Co-Chair Torgerson answered that the AHFC projects total $5
million and explained that authorization must be given in
this bill, but the actual appropriation could not be done
without a title change. That is the reason, he said HB 312
would be used to carry the appropriation for the AHFC
deferred maintenance.
DAN FAUSKE, CEO/Executive Director, Alaska Housing Finance
Corporation, Department of Revenue introduced AHFC staff
present to address the Committee.
JOE DUBLER, Senior Finance Officer, Alaska Housing Finance
Corporation, Department of Revenue, testified via
teleconference from Anchorage starting with the Bond Debt
Service Report. He stated that this report is a debt
service schedule of the proposed tobacco revenue bonds. He
detailed the columns in the spreadsheet. He pointed out
that the redeemed principle comes from surplus revenues
that is a result of the over-collateralization required of
the MSA. He said the redeemed principle is calculated on
the assumption that the payments are made on schedule, and
if payments were not made on schedule, the principle amount
would be higher and the time taken to pay off the debt
would be extended. He continued that the redeemed principle
allows the debt to be satisfied in December 2015 rather
than the scheduled maturity of December 2039. He summarized
that the total bond payment matches approximately with the
40 percent expected of the MSA.
Co-Chair Torgerson clarified that AHFC would issue $93
million of debt for revenue bond and the total bond payment
is estimated at $188,850,000. He stated that the difference
between this bond package and previously considered
packages is that the current version increases the
percentage to 40 percent in order to retire the debt five
or six years earlier. He continued that the projected MSA
totals approximately $562 million and the total debt
payment through December 2015 totals approximately $188
million, leaving a $571 million tobacco settlement fund
balance.
Senator Adams asked if the total interest paid is $60.6
million.
Mr. Dubler affirmed and added that one portion of the bonds
is called a capital appreciation bond (CAB) and no interest
paid is shown. He defined CAB as "a zero coupon bond that
doesn't pay current interest" and once the bond is
redeemed, the payment is considered a redemption not an
interest payment.
Senator Adams asked the witness' financial opinion on
whether the proposed bond package is more beneficial than
using the CBR to pay for the projects directly. He noted
that projected revenues for the state continue to decline
due to oil production rates.
Mr. Fauske responded that the rates of return on the CBR
would first need to be examined. He estimated that the
rates of return would exceed six-percent if the CBR were
managed in a similar fashion as the permanent fund. He
therefore surmised that the cost of issuing debt would be
less than the cost of spending cash because earnings on
investments should earn more than the debt incurred.
Senator Adams then wanted to know whether Mr. Fauske
believed that the proposed bond package funding mechanism
violates the dedication of funds requirements.
Mr. Fauske expressed that AHFC does not believe this plan
is a violation of the dedicated funds issue. He said that
Mr. Bassor concurred.
Co-Chair Torgerson noted several legal opinions that agreed
the proposed bond package is not in violation.
Senator Adams asserted that the opinions depend on how the
requests to the bond council are worded.
Co-Chair Torgerson countered that this is the reason he
requested additional opinions from those who would not
benefit from the proposal.
Senator Adams wanted to know if passage of HB 281 would
have any effect on the $103 million annual dividend the
state receives from AHFC.
Mr. Fauske confirmed and detailed the dividend amounts and
the capital budget requests. He pointed out that this bill
utilizes the remainder of the current dividend after AHFC
capital projects are funded.
Tape: SFC - 00 #107, Side B 11:26 AM
Mr. Fauske continued detailing the amounts of money
withdrawn from the dividend to pay for existing bond
indebtedness.
Senator P. Kelly asked for clarification that after AHFC
capital projects are funded, the remaining $50 million of
the AHFC dividend would be used to fund this bond package.
Mr. Fauske stated that this was correct.
Senator P. Kelly commented that this proposal is similar to
the co-chair's earlier plan to create a sub account in the
earnings reserve using CBR funds. He asserted that the
similarity strengthens the argument to pass this
legislation. He expressed this plan as "good money
management."
Senator Donley wanted further explanation of how this bond
proposal package would relate to education projects in the
Anchorage area. He referred to previous project lists and
noted the structure of the current list provides that those
projects already authorized would receive 70 percent
reimbursement. He wanted to know if the remaining 30
percent would be available for new projects.
Co-Chair Torgerson corrected that the 70 percent
reimbursement refers to payment of the state's share of
municipal revenue bonds. He explained that the Municipality
of Anchorage received voter approval to pay 100 percent of
the cost, in the event the state did not contribute to the
project. Therefore, he stated, the municipality is still
responsible for the remaining 30 percent cost of the
project. He added that the same provision applies to Mat-Su
projects.
Senator Donley noted that traditionally the projects, which
receive the highest voter approval for bond issuance have
been transportation projects. However, he pointed out that
this bond package contains no road projects and that
concerned him.
Co-Chair Torgerson noted the "billion-dollar capital
budget" that addresses many of the transportation needs.
Co-Chair Torgerson ordered the bills HELD in Committee.
ADJOURNED
Senator Torgerson recessed the meeting to the call of the
Chair at 11:31 AM and adjourned the meeting at 3:45 PM.
SFC-00 (13) 04/30/00
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