Legislature(1999 - 2000)

04/12/2000 09:07 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                                    
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                                                                    
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                                                                    
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                                                                    
Mr. Laufer did not have that information.                                                                                       
Co-Chair Torgerson ordered the bill HELD in Committee.                                                                          

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