Legislature(1995 - 1996)
04/10/1996 09:20 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 207(CRA) "An Act authorizing the issuance and sale of revenue bonds to fund public wastewater systems, nonpoint source water pollution control projects, including solid waste management systems, and estuary conservation and management projects; authorizing the use of the Alaska clean water fund to pay and secure the bonds and to pay costs related to issuance and administration of the bonds; authorizing certain measures to secure payment of the bonds; and amending Rule 3, Alaska Rules of Civil Procedure." Mr. Keith Kelton, Department of Environmental Conservation was invited to join the committee. He gave a brief background of the bill and its' companion HB401. In 1987 Congress re-authorized the clean water act to replace an existing grants program with a loan program. Prior to this there were grants available to municipal governments for up to 75% of the construction of waste water facilities. The state and community put in matching shares. After the re- authorization of the act they converted it into a low- interest loan program which was then capitalized by matching grants from State contribution. The monies from these loans initially exceeded demand. The last several years the loan interest has increased and at the rate of current obligation the account will soon be overdrawn and not be available for community infrastructure for management and development. The sale of revenue bonds has been proposed that would allow extension and leverage of the existing remaining balance of the loan fund. This pattern is the same as had been done in 20 other states. In the development of this bill DEC has worked closely with Departments of Labor and Revenue along with their bond counsel, financial advisors and the Department of Law to develope this proposal. Basically it is trying to be insured there is an adequate supply of loan funds for communities with waste water facilities. (Mr. Kelton referred to a chart for the committee.) The draft legislation proposed creating a bond redemption fund that the costs of issuing bonds would go through the state bond committee. They would then find the investors, sell the bonds and the proceeds would come back to expand the capability of issuing new bonds. He said the original bill had been modified by Senate CRA committee to put a cap on the amount of revenue bonds that could be sold at $15 million/year with a ten year maximum. He referred to a numbers chart and said these could vary depending on actual circumstances that will happen in the next ten years. The existing state match and the federal grant are unknown at this time. There is an appropriation even without authorization presently for federal money to be coming in as currently allocated. There would be interest earned on the corpus of the account and other unallocated portions of the loan account of $3 million/year. He referred to out-going debts. Co-chairman Halford asked if there was any state match in the Governor's budget Mr. Kelton said there was a $1.5 million match in the front end of the operating budget. With reference to this program being used in 20 other states he said there had been no defaults of the loan payments. He said this was a program that would benefit the larger communities and was a win/win situation for the State. Senator Rieger said the numbers outlined should more than cover the $15.8/year that is needed. Mr. Kelton said that was correct and advised that they did not have sell the bonds if they were not needed but it was just nice to have them in place if they were needed. There is no assurance for the additional federal funds. After further discussion between Senator Rieger and Mr. Kelton, co-chairman Halford said he felt the program was working very well. However, he was worried that it all sounded too good to be true and things that sound too good to be true are usually eating out of their value and end up worthless ten years away and one doesn't know where it went. He asked if the value of the entire portfolio ten years from now was going to be more than it was today and all the loans were going to be made? Mr. Kelton concurred. Senator Rieger said he wondered about the alternative of continuing it without the loan program would do to the value of the portfolio. In ten years, compounding at 4%, which is a 50% increase in the value of the corpus, it will grow, but not as much? Mr. Kelton said he thought it would decline if the revenue bonds are not available because the demand is going to take the corpus down to the point there will be no interest coming back from any invested money in the corpus. All that will be available for re-loan will be the principle and interest that is coming back. That is projected without additional modifications of the program to stabilize at $6.5 million out of the revolving account absent any new money coming into it from the Federal and State match. In response to Senator Rieger's question, the department determines the funding of projects. It is based on environmental and health concerns as well as other project related competitions. No project up to this time has been turned away. The department has noticed an increased interest the last two years and so it is anticipated that this will now change. Co-chairman Halford asked how much of the evaluation in terms of who gets the money is based on the projected ability to repay the amount. Mr. Kelton said it is 100% unless there is a dedicated revenue stream. Typically there has to be a provision in place from revenues collected from utility payments which would offset an meet the repayment request. Co-chairman Halford said he was concerned the fund could lose its' value if it is making loans that cannot be repaid because of the choices made in the selection of loans. As soon as the fund loses its' economical value and because a social purpose it will be gone. Mr. Kelton concurs. He explained the difference between the JUD CS and the CRA CS and said they were basically housekeeping amendments that were proposed by the Department of Law. There was nothing significant in the revision. Marie Sansone, Assistant Attorney General, Department of Law was invited to join the committee. She explained Rule 3 of the Civil Rules and said it was a rule change for venue. That change would prevent hometowning as stated in the original proposal. She referred them to page 6, lines 9 - 10. Senator Rieger asked the last sentence on page 4, line 29 - 31 to be explained. Ms. Sansone said the decisions of the bond committee as expressed in the bond resolution would be considered the final decision. The intent of that was the bond committee, which is composed of the commissioners of Administration, Revenue and Commerce & Economic Development. They will also be working closely with the Department of Environmental Conservation in crafting the bond program, selecting projects and making decisions. She further said the sentence was to address any conflicts or questions about interpretation, since this is a bond resolution it would be the decision of the state bond committee that would be the final decision. That would eliminate any questions about who would have the authority to make decisions and who has a say over what the terms mean. Senator Rieger asked who would conclusively make the decisions and she said one would have to read the previous sentence also. DEC would have to consider the needs of the communities and balance other factors. Making the decisions about the terms of the bonds will need alot of give and take and balancing. These sentences would require the committee to consider the public health and environmental purposes of the projects and then balance against the best financial terms. Senator Rieger referred to AS 37.15.580, pledge of the state, in terms of contracts made by the committee with the holders and asked how broad this was. Ms. Sansone said the bond committee does have quite a bit of power, in terms of fashioning the bond resolutions. The pledge of the state then, is that the state and its agencies will not interfere with the state's abilities to meet that contract. In drafting the bill, enough checks and balances were included and the due processes itself offers enough input that the bond committee would be acting in the State's interest and would have enough input and review from other agencies and entities. Senator Rieger asked if this was some circular way of deeming that the regulations are proper regardless of what they say or how they are arrived at? She said that the regulations would be treated the same as any other state regulations and follow the same review and public process. They would be reviewed to make sure they were consistent with all state laws and requirements. They would have the same review and checks on them that any other agency's regulations would have. The regulations contemplated in this bill may not be necessary but it was trying to be anticipated a situation where the bond committee would need to interpret language or need to see out requirements they expected the municipalities to meet or procedures that needed to be articulated in a regulation form. This was a device included in the bill to enable them to do their job. Senator Rieger asked if the committee drafts a bond resolution what good is all the review if it is deemed conclusive that it comply. Ms. Sansone responded the committee is required to follow the statute and if they have adopted regulations that have taken effect they are legally required to follow those regulations. The bond committee decisions would be final and conclusive between the agencies. Senator Rieger specifically wanted to know who was bound by the requirement to consider if the bond committee has conclusively complied. Ms. Sansone referred to the provision on page six stating the bond owners are able to enforce the covenants, terms and conditions of the bonds and they have the ability to challenge whether the bond committee had complied. She said they would work on some further language to clarify the matter. She further referred to the language regarding the pledge of the state and said this was a standard provision appearing in all state bond programs. It is not pledging the moral obligation of the state but rather it is pledging that the state will not interfere with a contractual relationship with the bond owners. Mr. Kelton, in response to question by Senator Rieger said that the language on page 11, lines 29 - 30 was put in at the request of the Senate CRA committee to allow the opportunity for municipalities to work in concert with organizations outside their corporate boundaries such as service districts or housing authorities or any other group that wanted to pledge revenues outside the municipal boundary. However, the municipality ultimately must sign on the dotted line and they are responsible regardless of where the service is extended to. Senator Sharp asked why mention regional housing authorities if the municipality is the ultimate signature, just because it is outside the boundary or beyond their powers? A majority of regional housing authority monies come through grants. Mr. Kelton concurs and said the language was probably not needed but it was added at the request of Senate CRA committee. Mrs. Berda Willson, Nome Joint Utilities and Diana Bennett, Anchorage Water Utility testified via teleconference. Both testified previously in favour of the bill and continued to urge its' passage. Ms. Willson said many homes in Nome were still on water tank truck water and used honey buckets. She said the city and taken advantage of loans for new sewage treatment plants. Ms. Bennett said Anchorage was a major recipient of the loan which has provided much needed water quality improvements for the city. Senator Rieger asked about the capital construction plan in Anchorage in the amount of $4 - $6 million/year and wanted to know if that would be a growing amount or a constant amount. Ms. Bennett said this was an average and referred to the city's six-year plan to draw on the clean water fund. Co-chairman Halford asked Senator Rieger to help work on problematic areas of the bill. He said it was necessary to protect something that is working well. Mike Burns, Department of Environmental Conservation was invited to join the committee. He said bonds were being sold at the market rate and the corpus could be invested at any rate. This would offset any differential and would allow for a slow growth of the program over the years. Senator Halford asked where the money was that was being invested at the higher rate to cover the loans at the lower rate. There must be a package of dollars invested at taxable higher interest rates versus tax-exempt lower interest rates to somehow create the arbitrage that will cover the difference. Mr. Burns advised that they do not know about the possibility of future money but they would have the opportunity for $80 million to lend out. He said they did not have to put out all the bonds as loan money. $30 million is committed under a federal program. Mr. Kelton said he would provide spread sheet information regarding this matter for the committee. Co-chairman Halford held the bill in committee for further work.