Legislature(1995 - 1996)

02/29/1996 03:30 PM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 SSTA - 2/29/96                                                                
         SB 207 REVENUE BONDS: WATER & WASTE PROJECTS                        
 Number 585                                                                    
 SENATOR SHARP brought up SB 207 as the next order of business                 
 before the Senate State Affairs Committee and called the first                
 Number 570                                                                    
 KEITH KELTON, Director, Division of Facility Construction &                   
 Operation, Department of Environmental Conservation, representing             
 the governor, prime sponsor of SB 207, stated the bill would                  
 attempt to solve a financing problem facing Alaskan communities.              
 Mr. Kelton relayed information to the committee which is contained            
 in members' bill packets.  This information was previously relayed            
 to the Senate Community and Regional Affairs Committee.                       
 Number 550                                                                    
 MR. KELTON explains flow charts showing how the program would work.           
 Copies of those charts were given to the committee.  DEC is                   
 proposing that the 30 million corpus be leveraged into a larger               
 source of funding.  SB 207, which was drafted with the help of the            
 Department of Revenue, the Department of Law, and outside bond                
 counsel, is patterned after similar legislation from 20 other                 
 states and would expand available revenue to continue a current               
 clean-water program.  Amendments made to SB 207 in the Senate                 
 Community & Regional Affairs Committee limited the annual sale of             
 bonds to $15,000,000.  After bond and sale costs, that leaves about           
 $13,300,000 available for loans.  The federal/state match program             
 will have a contribution.  But since the Clean Water Act is                   
 currently under reauthorization, we don't know what that dollar               
 figure will be.  So that will ultimately have the effect of                   
 increasing the incoming cash.  Mr. Kelton noted that the figures in           
 the chart are for illustrative purposes only, and that they can               
 Number 495                                                                    
 MR. KELTON commented that DEC is very pleased with the amendments             
 made by the CRA committee.                                                    
 Number 485                                                                    
 SENATOR LEMAN asked if 10% costs for bond sales are normal.                   
 MR. KELTON responded those are normal costs, assuming the bonds are           
 AA rated.  Costs would increase if the bond rating falls.  There              
 are provisions in the legislation which would attempt to maintain             
 the rating at AA.  One of those is the state-aid intercept, on page           
 5 of SB 207.  That would specify that if there is a default, the              
 state agencies would have the opportunity to take any revenue                 
 enhancements coming to a community from the state.  They couldn't             
 take dedicated funds, but they could take undedicated funds to                
 apply to the debt.  That particular provision, by itself, enhances            
 the bond rating from A to AA, and would save about $2,800,000 over            
 a twenty-year period on each $10,000,000 issuance.  So the bond               
 costs are very high, and they can go much higher without the                  
 language contained in the legislation.                                        
 Number 475                                                                    
 MR. KELTON stated another aspect is that bond proceeds could be               
 used for the 20% state match to federal contributions, if SB 207 is           
 passed.  Currently that 20% comes out of the general fund, so that            
 would save the state some money.                                              
 Number 467                                                                    
 SENATOR LEMAN asked if there is a maximum limit for any single                
 MR. KELTON replied one project could arguably use all the funds for           
 one year; it is not DEC's intent to do that though.  There were               
 amendments discussed in Senate CRA Committee.  One suggestion that            
 was made was that any one project would be limited to half of an              
 annual allocation.  DEC conducts an annual intended use plan for              
 this fund, which ranks and coordinates funding for projects.  It              
 would not be DEC's intent to allocate an entire year's allocation             
 to one project.                                                               
 SENATOR LEMAN commented that this fund could be a source for the              
 Anchorage Water Project.  Yet any one portion of that would                   
 probably use at least half of the available money.                            
 MR. KELTON responded that committee members have in their bill                
 packets a list of past projects and potential future projects.                
 However, this program does not fund water projects; it only funds             
 wastewater and solid waste projects.  To get back to Senator                  
 Leman's premise, this program has funded many large projects in               
 Anchorage, including a $10,000,000 addition to the Anchorage                  
 Landfill.  Senator Leman has raised a concern, especially of a lot            
 of the smaller communities who might visualize no money being                 
 available if Anchorage were to suck it all up in one year.  DEC               
 would hope to prevent that, with or without statutory language.               
 SENATOR LEMAN asked why water projects aren't funded from this                
 program.  Is there another source for water projects?                         
 MR. KELTON replied that this particular program is under the                  
 Federal Clean Water Act, which only addresses wastewater projects.            
 There is a very strong likelihood that there will be a similar                
 program in place for drinking water within the next year, as soon             
 as congress reauthorizes the Safe-Drinking Water Act.                         
 SENATOR LEMAN thought Alaska had two different programs, one for              
 wastewater, and one for water.                                                
 Number 430                                                                    
 MR. KELTON responded Senator Leman is correct: there are two                  
 authorizations in the Alaska Clean-Water Fund.  One addresses                 
 wastewater, which is capitalized by the federal government.  There            
 is also a corresponding state only section, which would allow this            
 type of program for drinking-water projects.  However, that would             
 require capitalization by the state, and it's never been                      
 capitalized.  There is probably little advantage to using that                
 program, as long as there is a grants program in place.                       
 SENATOR LEMAN remembers proposing capitalizing the drinking-water             
 program, but he thinks Senator Duncan blocked it.                             
 CHAIRMAN SHARP asked what the current annual amount from the                  
 federal government was.                                                       
 MR. KELTON responded that for each federal dollar, the state                  
 matches it 20%.  The last federal appropriation was about                     
 $7,500,000.  The state's portion of that would be 20% of that for             
 another $1,500,000.  That would mean an annual increase of                    
 $9,000,000.  Passage of SB 207 this year would allow us to have a             
 larger corpus, because as new loans are made, the corpus decreases.           
 So the sooner this passes, the larger the corpus will be.                     
 CHAIRMAN SHARP asked where the original funding came from that                
 makes up the current corpus of $30,000,000.                                   
 MR. KELTON responded the corpus is made up of several years'                  
 accumulation of state and federal appropriations.  Over the last              
 two years, demand for the program has doubled, to the point where             
 in two years, at the current rate of demand, the fund will be                 
 CHAIRMAN SHARP asked if all the funds going out are in the form of            
 loans, and not grants.                                                        
 Number 395                                                                    
 MR. KELTON responded that this program is entirely a loan program.            
 Over the six-year history of this program, there has never been a             
 single late payment.                                                          
 SENATOR LEMAN asked for an explanation of "other qualified entity".           
 MR. KELTON responded that term was added primarily at the direction           
 of Senator Torgerson, who was concerned that service districts and            
 other entities that might lie outside an incorporated community's             
 boundary be allowed to work in conjunction with a community to                
 secure these funds, as long as the revenue stream was dedicated               
 back.  So basically, we cannot make a loan to any entity unless an            
 incorporated community is part of the contractual agreement.  But             
 it does clarify that it is intended to benefit service districts              
 and other entities outside incorporated boundaries.                           
 Number 370                                                                    
 BERDA WILLSON, Assistant Manager - Nome Joint Utilities, also                 
 speaking on behalf of the City of Nome, testifying from Nome,                 
 supports SB 207.  She stated that both NJU and the City of Nome               
 have taken advantage of this fund.  With the decline in state                 
 revenues, municipalities are hard pressed to find low-cost funding            
 such as this.  She supported removing language giving state                   
 agencies access to this fund: she does not think it would be fair             
 for municipalities to have to compete against the state for these             
 It was noted that Mr. Lee Sharp was on-line via teleconference to             
 answer questions regarding bond ratings.                                      
 Number 335                                                                    
 MARK EARNEST, Manager, City of Unalaska, testifying from Unalaska,            
 supports SB 207.  Like communities throughout the state, Unalaska             
 is facing significant financial impacts resulting from unfunded               
 federal mandates.  The largest of those for Unalaska is the                   
 landfill.  We also have an upgrade due for our wastewater treatment           
 plant with an estimated cost of $6,300,000.  Unalaska is also                 
 looking at possible costs of $16,000,000 for the water system, plus           
 $500,000 in operating costs.  To put these costs in perspective,              
 the population of Unalaska is about 4,000.  Mr. Earnest stated that           
 Unalaska has to proceed with these projects; they are not optional.           
 However, even with available grants and rate increases, they cannot           
 do it all themselves.  They really need to be able to turn to a               
 low-interest loan program, such as the program that SB 207 would              
 establish.  He encouraged support of SB 207.                                  
 Number 300                                                                    
 CHAIRMAN SHARP asked if the bonds will contain a reference to the             
 full faith and credit of the State of Alaska.                                 
 MR. KELTON does not think that is a condition on the revenue bonds.           
 ROSS KINNEY, Deputy Commissioner, Department of Revenue, stated Mr.           
 Kelton is correct: the bonds would not pledge full faith and credit           
 of the State of Alaska.  The revenue stream pledged by the                    
 communities would be the collateral.                                          
 Number 285                                                                    
 CHAIRMAN SHARP asked how the loan application would work.                     
 MR. KELTON responded that one of the advantages of revenue bonds is           
 that they do not require voter approval.  So a project can be                 
 initiated more quickly with just assembly action authorizing an               
 application to the department for these funds.  There has to be a             
 dedicated user-fee stream coming back that can be applied toward              
 repayment of the bond.  This program would be available for                   
 wastewater and solid waste projects.  The tie to solid waste                  
 projects is the threat for groundwater pollution potential.  Point            
 or non-point source, or even an estuarian enhancement could be                
 funded, even though we've never had one of those.                             
 Number 265                                                                    
 CHAIRMAN SHARP asked if this would be an avenue for local                     
 governments to apply for funding for solid waste programs.                    
 MR. KELTON responded it would, and Anchorage has already done so.             
 CHAIRMAN SHARP asked the pleasure of the committee.                           
 Number 240                                                                    
 SENATOR LEMAN thinks SB 207 is a good source of funds for                     
 wastewater and solid waste projects, and gets away from the concept           
 of grants.  Senator Leman made a motion to discharge CSSB 207(CRA)            
 and accompanying zero fiscal notes [from DEC & DOR] from the Senate           
 State Affairs Committee with individual recommendations.                      
 CHAIRMAN SHARP commented the state is duty-bound to give as much              
 access to funding as possible, and this pool-type arrangement                 
 should result in a lower interest rate than municipalities could              
 get individually.                                                             
 CHAIRMAN SHARP, hearing no objection, stated SB 207 was released              
 from committee.                                                               
 SSTA - 2/29/96                                                                
         SB 207 REVENUE BONDS: WATER & WASTE PROJECTS                        
 Number 180                                                                    
 SENATOR LEMAN noted that he might have a conflict of interest on SB
 207, as he is a consulting engineer.                                          

Document Name Date/Time Subjects