Legislature(1995 - 1996)

04/02/1996 03:36 PM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
        SB 306 G.O. BONDS FOR CORRECTIONAL FACILITIES                        
 Number 140                                                                    
 CHAIRMAN SHARP brought up SB 306 as the next order of business                
 before the Senate State Affairs Committee.  He called the                     
 commissioner of the Department of Corrections to testify.                     
 MARGARET PUGH, Commissioner of the Department of Corrections,                 
 stated that the back-drop of this bill is that the governor asked             
 the Criminal Justice Cabinet to develop a plan for protecting the             
 public.  She informed the committee that the administration is                
 taking a three pronged approach to the problem of prisoner                    
 overcrowding.  SB 306 is just one of those prongs.  The other two             
 prongs are to divert low-risk, non-violent offenders from                     
 incarceration in the first place, and to increase the use of                  
 alternatives to incarceration for those folks at the end of their             
 COMMISSIONER PUGH stated that SB 306 has three major merits:                  
  1) It builds the beds where we need them;                                    
  2) It is set in the context of the Long-Range Fiscal Plan;                   
  3) It takes the issue of the expense of corrections to the                   
 COMMISSIONER PUGH stated she has asked Ross Kinney from the                   
 Department of Revenue, Jim Baldwin from the Department of Law, and            
 Nancy Slagle from OMB to be present to answer questions.  She has             
 also asked Bob Cole, Director of Administrative Services for the              
 Department of Corrections to walk the committee through the                   
 sectional analysis for SB 306.                                                
 Number 180                                                                    
 BOB COLE, Director, Division of Administrative Services, Department           
 of Corrections, reads the sectional analysis for SB 306, which was            
 submitted to the committee.                                                   
                       SECTIONAL ANALYSIS                                      
                             SB 306                                            
 Section 1. Provides for the issuance of general obligation (GO)               
 bonds in the amount of $148,500,000.00 for the purpose of paying              
 the cost of issuance of the bonds and design and construction of              
 state correctional facilities across the state.  The issuance is              
 subject to voter approval at the next general election in November,           
 Section 2. Establishes a "State Correctional Facility Construction            
 Fund" (SCFC) in DOT&PF to receive proceeds from bond issuances.               
 Section 3. Authorizes allocation of bond proceeds in the SCFC to              
 the projects listed.                                                          
 Section 4. An amendment has been prepared to delete this section.             
 Section 5. Authorizes the Departments of Corrections and                      
 Transportation/Public Facilities to withdraw funds from the "Public           
 Facilities Planning Fund" (PFPF) in OMB for the purpose of advance            
 planning for the improvements financed under this Act.                        
 Section 6. Allows excess bond proceeds, should any be realized, to            
 be used by the bond committee to redeem these bonds or pay                    
 arbitrage fees.                                                               
 Section 7. Authorizes a ballot measure to be placed on the ballot             
 November, 1996 asking voters whether they support the issuance of             
 these bonds and associated operating costs.                                   
 Section 8. Establishes an immediate effective date for the Act                
 under AS 01.10.070(c).                                                        
 MR. COLE stated an amendment, which Mr. Baldwin will discuss, would           
 use the constitutional budget reserve fund to cover the cost of the           
 initial bond preparation by the Department of Revenue and the State           
 Bond Committee.  The appropriation would cover only expenses that             
 must be incurred before bonds are sold.  Once the bonds are sold,             
 proceeds would be used to cover the rest of the cost of preparation           
 and to reimburse the constitutional budget reserve fund.  The net             
 affect would be revenue neutral once the bonds are issued.                    
 CHAIRMAN SHARP asked if there were any questions from committee               
 members.  [There were none.]                                                  
 JIM BALDWIN, Assistant Attorney General, Department of Law, stated            
 that one of the things that has changed since the state last had a            
 GO bond, probably because of the state's financial condition, is              
 the access to general funds for paying certain costs that have to             
 be incurred before bonds are sold.  The amendments that are being             
 proposed would use the constitutional budget reserve fund as a                
 funding source for the pre-issuance expenditures.  The funds would            
 be paid back when the bonds are sold, so it would be a net                    
 Number 280                                                                    
 SENATOR DUNCAN asked if they aren't mixing an appropriation bill              
 with an authorization bill.  He thought that wasn't allowed.                  
 MR. BALDWIN responded that the administration is proposing the                
 changes that pre-fund these expenditures be done in the budget bill           
 itself, HB 412.                                                               
 SENATOR DUNCAN stated he misunderstood; he thought they were                  
 proposing these changes be made to SB 306.                                    
 MR. BALDWIN stated they are presenting the amendments to the State            
 Affairs Committee as an informational item.  The only amendment               
 they are proposing that would be made to SB 306 is the deletion of            
 Section 4.  But we are telling you that these funding sources need            
 to be provided elsewhere in an appropriation bill.                            
 CHAIRMAN SHARP asked if there are questions of Mr. Baldwin.                   
 SENATOR RANDY PHILLIPS asked if the administration supports SB 306.           
 ROSS KINNEY, Deputy Commissioner, Department of Revenue, Treasury             
 Division, stated he would like to discuss the issuance or                     
 utilization of GO bonds as a mechanism for financing these                    
 particular facilities.  There are four major advantages to using GO           
 bonds.  First, the voters have an opportunity to approve or                   
 disapprove the issuance of bonds for the construction of a project.           
 If the voters approve the issuing of debt for construction of                 
 facilities for corrections, they have authorized to pledge the full           
 faith and credit for the retirement of the principle and interest             
 of those bonds.  That means that the state will pledge all revenue            
 sources that are not restricted by the constitution for the                   
 retirement of that debt.  Because the mechanism is GO debt, the               
 interest rates are historically lower, based on the fact that we do           
 pledge full faith and credit of the state.  There are advantages to           
 that, from the aspect of lower cost for the borrowing of funds.               
 Because the state is in the position to issue the GO debt, we have            
 the option, should the market conditions prevail, that would allow            
 us to refund debt at a better rate and take advantage of those                
 savings in the future.  We've been working on a long-range fiscal             
 plan and a capital improvements program of six years, and we are              
 proposing that through the utilization of GO debt, we have a single           
 authorization for $148,500,000.00 in debt.                                    
 MR. KINNEY stated that the issuance of debt would be served in five           
 instances for several reasons.  The representative from the                   
 Department of Transportation & Public Facilities can probably                 
 explain the construction schedules better than he can.  There are             
 some issues relating to arbitrage requirements that require the               
 state to be careful in the debt we issue from a timing standpoint             
 and the kind of interest earnings that we're able to garner as a              
 result of having those excess funds available.  We are competing              
 with the private sector for funds in this case, and because our               
 funds are in a tax-exempt status, we are limited as to what we can            
 invest the money in while we're holding it.  There are certain                
 restrictions as far as how long we can have that money and how long           
 we can invest it.  We don't want to go in and authorize so much               
 debt at a single time that we're unable to handle it internally, as           
 well putting a tremendous impact on the construction community by             
 over-utilization of [indsc.] as it currently exists.  This is one             
 part of an over-all six year program for the state.  There are                
 limitations on the amount of debt that we can issue, the kinds of             
 debt that we can issue.  We need to be extremely careful about how            
 we interface the various pieces of these puzzles.  We have not                
 authorized any GO debts since 1980, and have not issued any since             
 1983.  A substantial number of laws have changed, so it will be a             
 new experience for the state.                                                 
 Number 355                                                                    
 SENATOR RANDY PHILLIPS asked when the last time was that the state            
 had any GO bonds for jails.                                                   
 MR. KINNEY is not sure he has that information with him.                      
 SENATOR RANDY PHILLIPS stated there is a major difference between             
 then and now: he thinks it would be easier now for voters to vote             
 in favor of this proposition because they are no longer paying                
 income tax.                                                                   
 MR. KINNEY added that there were a number of GO bonds that carried            
 the title of "various".  He doesn't know whether or not those                 
 included jails.  The most common method utilized in the recent past           
 has been using revenue-type debt or certificates of participation             
 for things like Springcreek, Wildwood, Homer Jail, and some of the            
 court houses.  In those cases, it does not require a vote, and                
 requires a higher rate of interest because you are only pledging              
 the revenue derived from the income stream as a result of the lease           
 payments that have been pledged as collateral.  That is subject to            
 legislative approval on an annual basis to determine whether or not           
 that debt is paid.                                                            
 SENATOR RANDY PHILLIPS stated, but then we would be subjugated to             
 about $13,500,000.00 every year for repayment, right?                         
 MR. KINNEY responded that because of the way the debt will be                 
 phased, the first years payment runs from about $2,700,000.00.                
 SENATOR RANDY PHILLIPS stated it doesn't say that on the ballot               
 MR. KINNEY replied they are trying to put enough disclosure in SB
 306 so that people will really understand what they're doing.  Over           
 a period of time, based on the fact we're dealing with oil                    
 revenues, we're going to have to provide voters and investors with            
 assurance that we can meet the debt payment stream.  This debt must           
 be retired no later that 2013, regardless of the issuance [indsc.].           
 As a result of the staggered issuance schedule, payments will range           
 from approximately $2,700,000.00 to $15,000,000.00.  The average              
 will be around $13,000,000.00.                                                
 CHAIRMAN SHARP noted that there would be staggered maturity dates,            
 with the last one maturing in 2013.                                           
 MR. KINNEY clarified that all debt will mature in 2013.  What they            
 are looking at is staggered issuance dates.  There will be a single         
 authorization by the voters, and we will issue in five increments.            
 We have to look at what our projections are for unrestricted                  
 revenues, and currently we are extremely dependant on oil revenues.           
 Until we come up with another stream of revenue, investors want us            
 to rely on 5-8% of unrestricted general fund revenues as a maximum            
 amount for debt issuance.                                                     
 CHAIRMAN SHARP asked if there are further questions.  Hearing none,           
 he asked for a motion on the amendment to delete Section 4.                   
 Number 420                                                                    
 SENATOR DUNCAN made a motion to adopt the amendment which would               
 delete Section 4.                                                             
 CHAIRMAN SHARP, hearing no objections, stated the amendment was               
 adopted.  He asked if there was any other testimony on SB 306 at              
 this time.  Hearing none, he asked the pleasure of the committee.             
 SENATOR DUNCAN made a motion to discharge SB 306 from the Senate              
 State Affairs Committee with individual recommendations.                      
 Number 433                                                                    
 CHAIRMAN SHARP, hearing no objection, stated SB 306 was discharged            
 from the Senate State Affairs Committee.                                      

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