Legislature(1995 - 1996)

04/10/1996 09:20 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                 
  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                 
  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 -                 
  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.                         

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