Legislature(2003 - 2004)

02/03/2004 03:40 PM Senate STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                SB 279-AHFC WATER & SEWER BONDS                                                                             
CHAIR GARY STEVENS  announced SB 279 to be  up for consideration.                                                               
He invited Brian Butcher and Joe Dubler to come forward.                                                                        
BRIAN  BUTCHER,   legislative  liaison  Alaska   Housing  Finance                                                               
Corporation (AHFC), explained that  SB 279 authorizes $25 million                                                               
in bonds to be sold by  AHFC primarily to fund village safe water                                                               
projects in  the FY  05 Capital  Budget. He  noted that  the bill                                                               
would authorize other capital projects as well.                                                                                 
MR. BUTCHER made  three points. First, based  on current interest                                                               
rates, the estimated debt service on  the bonds would be about $3                                                               
million per year  for a 10 year period. Second,  the debt service                                                               
payments would come from AHFC's  annual dividend to the state and                                                               
SB 279  would amend  the statute to  include the  bonds. Finally,                                                               
rating analysts  indicate that  the AHFC's  ratings would  not be                                                               
negatively impacted by this bond sale.                                                                                          
CHAIR GARY  STEVENS referred  to pages  3 through  5 of  the bill                                                               
where dividend  calculations in FY04  through FY08  are addressed                                                               
and noted that  SB 279 calls for  a 10 year payoff.  He asked for                                                               
MR. BUTCHER  explained that  HB 256,  which placed  AHFC dividend                                                               
payments into statute,  was signed into law in  2003. The current                                                               
AHFC bond debt  service payments were listed  in that legislation                                                               
and those payments are subtracted  from the dividend, which gives                                                               
some idea  of how much the  state would actually receive.  SB 279                                                               
adds the proposed 10 year bonds to that.                                                                                        
JOE  DUBLER,  chief  financial officer,  Alaska  Housing  Finance                                                               
Corporation, further clarified:                                                                                                 
     Section 4 that  you're referring to there  is the phase                                                                    
     in  of the  dividend  plan. Section  2  begins with  75                                                                    
     percent after the  phase in period, and  I believe it's                                                                    
     FY09.  It   would  kick  in   to  75  percent   of  the                                                                    
     corporation's  net   income  and   that  would   go  on                                                                    
     indefinitely. So,  Section 2 would carry  forward after                                                                    
     FY09 for the remainder term of the bonds.                                                                                  
CHAIR GARY  STEVENS asked if it  is correct that the  bonds would                                                               
be paid off in 10 years.                                                                                                        
MR. BUTCHER and MR. DUBLER both agreed that is correct.                                                                         
SENATOR GRETCHEN  GUESS asked if AHFC  bonds now and if  so, what                                                               
they bond for.                                                                                                                  
MR. DUBLER  replied they bond  for mortgage loans  primarily, but                                                               
AHFC has a number of programs:  single family and first time home                                                               
buyer program; veteran's mortgage  program; multi family purchase                                                               
program  for both  low and  moderate income  projects as  well as                                                               
regular  taxable  projects; and  beginning  in  1992, tax  exempt                                                               
bonds  for   state  capital  projects  similar   to  the  current                                                               
SENATOR GUESS  asked how  the proposed  bonding might  impact the                                                               
ability to bond in the future.                                                                                                  
MR. DUBLER pointed to Mr.  Butcher's third point and replied they                                                               
don't  believe  that there  would  be  any impact.  Three  rating                                                               
agencies  rate the  bonds  and Standard  and  Poor's and  Moody's                                                               
weren't  too concerned  with  the additional  bond  issue of  $25                                                               
million. Fitch,  which has  the highest of  the three  ratings at                                                               
AA+, was moderately  concerned, but he and  Mr. Butcher convinced                                                               
them it wouldn't be a problem for the corporation.                                                                              
SENATOR  GUESS  acknowledged  that   the  ratings  might  not  be                                                               
impacted, but questioned  whether AHFC might not  have a quantity                                                               
cap.  Would SB  279 affect  the corporation's  future ability  to                                                               
bond for more typical AHFC projects?                                                                                            
MR.  DUBLER replied  he  didn't  believe so  because  there is  a                                                               
difference  in what  the  bond  proceeds are  used  for. For  the                                                               
mortgage  program, if  AHFC  sells $100  million  in bonds,  they                                                               
typically buy  $100 million  worth of mortgage  loans. That  is a                                                               
structured financing  and is a self-paying  bond transaction. The                                                               
current  proposal  is  a  different  type  of  structure.  It  is                                                               
referred to  as a general obligation  bond issue and it  is based                                                               
on  the  corporation's  working   capital  in  the  corporation's                                                               
general account. This structure  includes the state capital bonds                                                               
and there are no assets, such  as a mortgage pool, pledged to pay                                                               
the  bonds off.  The  corporation's ability  to  issue bonds  for                                                               
state capital  projects as in  SB 279  would be affected,  but it                                                               
wouldn't affect  the corporation's  ability to bond  for mortgage                                                               
SENATOR GUESS asked what asset basis is for the proposed bonds.                                                                 
MR.  DUBLER  replied  there is  just  the  corporation's  general                                                               
account;  there would  be no  assets,  such as  a mortgage  pool,                                                               
pledged  to  pay  off  the proposed  bonds.  He  reiterated,  the                                                               
corporation's  bonding  ability  for capital  projects  would  be                                                               
impacted, but not their ability to bond for mortgage programs.                                                                  
SENATOR GUESS asked  what assets the proposed bonds  are based on                                                               
and whether it is property the corporation owns.                                                                                
MR.  DUBLER  said  AHFC  is  bonding  against  the  corporation's                                                               
general account. He said:                                                                                                       
     If you look at our  financial statements, the revolving                                                                    
     fund that the corporation  - our unrestricted assets is                                                                    
     what  it  is.  Basically,  what  this  does  is,  we're                                                                    
     forward  funding  the dividend  for  10  years.   We're                                                                    
SENATOR  GUESS  finished  his  sentence  saying,  "taking  future                                                               
general fund money  to bond, which is how it's  going to come out                                                               
at $3 million."                                                                                                                 
MR. DUBLER agreed.                                                                                                              
SENATOR GUESS asked  if there is a reason why  the fiscal note is                                                               
zero and doesn't show the $3 million.                                                                                           
MR.  BUTCHER replied  the fiscal  note shouldn't  say zero.  AHFC                                                               
submitted  a fiscal  note to  the Department  of Revenue  and the                                                               
Office of  Management and  Budget and they  were informed  that a                                                               
zero   fiscal  note   had  already   been  submitted.   AHFC  was                                                               
subsequently  informed  that a  corrected  fiscal  note had  been                                                               
submitted and he wasn't aware  that the committee didn't have the                                                               
new information.                                                                                                                
CHAIR  GARY STEVENS  confirmed he  had not  received a  corrected                                                               
fiscal note.                                                                                                                    
SENATOR GUESS asked how water and  sewer projects are paid for at                                                               
this time.                                                                                                                      
MR. BUTCHER said  the AHFC dividend has been used  for the last 5                                                               
or 6 years.                                                                                                                     
SENATOR  GUESS questioned  whether that  was through  the general                                                               
fund process in the capital budget.                                                                                             
MR. BUTCHER said yes, using AHFC dividends.                                                                                     
SENATOR  GUESS then  asked whether  there is  a list  of projects                                                               
that would be funded with the proposed bonds.                                                                                   
MR. BUTCHER  explained that nearly  $20 million of the  total $25                                                               
million is dedicated to village  safe water projects and the rest                                                               
is dedicated to other capital projects.                                                                                         
SENATOR GUESS read from page 1, line  31 to page 2, line 2 of the                                                               
bill and noted that "other capital projects" were included.                                                                     
[Committee members were  provided with a list of  the $25 million                                                               
in proposed projects.]                                                                                                          
SENATOR  GUESS   reviewed  the  list   and  asked   how  deferred                                                               
maintenance and the purchase of sonar equipment fits in.                                                                        
MR.  BUTCHER  replied  those  items  come  under  "other  capital                                                               
projects" as stated on page 1, line 31 and page 2, line 1.                                                                      
SENATOR GUESS questioned why  the administration included village                                                               
safe water  in the bill  language if "other capital  projects" is                                                               
included  as  well. There  is  no  guarantee for  any  particular                                                               
project if "other capital projects" is included.                                                                                
MR.  BUTCHER explained  that  when AHFC  began  working with  the                                                               
governor's  office, the  corporation  discussed  bonding for  the                                                               
same village water projects that  they had been funding with AHFC                                                               
dividends. At  that point, the  administration made  the decision                                                               
where the funds  would go and then the Department  of Law changed                                                               
the legislation to include "other capital projects."                                                                            
CHAIR  GARY STEVENS  noted  that  the list  shows  that some  $19                                                               
million of the $25 million would go for village safe water.                                                                     
SENATOR GUESS  agreed that's  what the list  shows, and  that was                                                               
her point. How  could they know for certain that  this is how the                                                               
money would  be used?  She recalled that,  "All the  schools that                                                               
were on  the general  obligation (GO)  bond last  year -  some of                                                               
them,  the administration  decided  to take  off  the GO  package                                                               
after the voters approved it."                                                                                                  
MR.  BUTCHER explained  that this  is how  it is  coded into  the                                                               
capital  budget and  "if the  project is  funded under  AHFC bond                                                               
proceeds in the  capital budget, they would have to  come up with                                                               
a new funding source to fill that hole."                                                                                        
MR. DUBLER  continued to say  that they  have done close  to $500                                                               
million dollars  in state capital  projects and they have  yet to                                                               
have a  project that  was approved  in a bill  similar to  SB 279                                                               
that wasn't funded with AHFC bonds.                                                                                             
SENATOR  GUESS said  the capital  projects aren't  listed in  the                                                               
bill and she  is extremely concerned about the  broad language in                                                               
the bill because  there is no assurance that any  money would, in                                                               
fact, go  to village safe  water. The bill  opens use of  the $25                                                               
million to any capital project.                                                                                                 
MR.  BUTCHER  agreed   that  she  is  correct,  but   it  is  his                                                               
understanding that, "and  the whole genesis of the  bill was that                                                               
it  would be  used for  village safe  water projects.  But you're                                                               
right, an appropriation  bill ultimately decides how  it is spent                                                               
and regardless of  what we put in this bill,  it wouldn't tie the                                                               
appropriation bill to it."                                                                                                      
SENATOR  GUESS asked  if removing,  "and other  capital projects"                                                               
would ensure that the money would go to village safe water.                                                                     
MR. BUTCHER replied he believes that is correct.                                                                                
SENATOR  GUESS stated  that she  appreciates creative  financing,                                                               
but this  bill is about safe  water and everyone has  agreed that                                                               
this  is something  that needs  to be  done as  a state  and this                                                               
legislation invites  hijacking in  years to come.  She concluded,                                                               
"If we're  going to take care  of village safe water,  I think we                                                               
should do that."                                                                                                                
CHAIR GARY STEVENS  said he understands her  concerns. To clarify                                                               
the issue  further, he  asked for  confirmation that  these bonds                                                               
would affect the  dividend to the state. [He received  a nod.] He                                                               
asked  if  there  were  other   bonds  that  already  affect  the                                                               
MR.  DUBLER replied  he  is  not aware  of  any  other AHFC  bond                                                               
proposal in this session.                                                                                                       
CHAIR GARY STEVENS asked about bond sales in previous years.                                                                    
MR. DUBLER  said there have  been others  and those are  the ones                                                               
referred to earlier in Section 2.                                                                                               
SENATOR GUESS added, "But not for projects outside of AHFC."                                                                    
MR. DUBLER  disagreed and said  those were all  capital projects.                                                               
He  repeated that  AHFC has  bonded  for nearly  $500 million  in                                                               
capital projects including rural  schools, ports and harbors, the                                                               
Atwood Building in Anchorage, and others.                                                                                       
SENATOR BERT  STEDMAN agreed that  Senator Guess brought  up good                                                               
points. He then noted that  the fiscal note is inaccurate because                                                               
the cost  would be  $3 million  and this  would be  a 10  year GO                                                               
bond. He asked what the estimated yield might be.                                                                               
MR.   DUBLER  replied   AHFC  understandably   uses  conservative                                                               
assumptions, but the  projected interest rate is a  3.95 yield on                                                               
the entire issue. He noted that is higher than the current rate.                                                                
SENATOR  STEDMAN   agreed  that   village  safe  water   is  well                                                               
worthwhile and  it's a good  idea to  issue bonds when  rates are                                                               
He referred to  the broad language in the bill  then reviewed the                                                               
list  of  capital  projects  including   the  purchase  of  sonar                                                               
equipment and said he assumes the  life of the equipment would be                                                               
at least 10 years.                                                                                                              
MR.  BUTCHER  said  this  legislation limits  the  bonds  to  $25                                                               
million and the governor's office  decided how the funds would be                                                               
used. However,  AHFC made it  clear that  the bonds needed  to be                                                               
used for  capital projects and  they needed to extend  beyond the                                                               
life  of  the  bonds.  The   governor's  office  understands  the                                                               
SENATOR STEDMAN  noted that it  is clear that there  are deferred                                                               
maintenance  issues in  the  state. However,  when  the state  is                                                               
making a  concerted effort  to address  sanitation issues  in the                                                               
rural communities, it  would be more clear-cut if  the two issues                                                               
weren't  mixed. This  is particularly  important  when trying  to                                                               
communicate with  the public. He concluded  that perhaps projects                                                               
were  mixed   in  the  past,   but  he  senses  that   there  are                                                               
reservations now.                                                                                                               
MR. BUTCHER  said that  projects have been  mixed and  they range                                                               
from  ports and  harbors to  schools. "Whatever  was needed  in a                                                               
bond bill when it was put together."                                                                                            
SENATOR STEDMAN remarked that everyone  could come up with a list                                                               
of capital projects that are needed,  so it is important that the                                                               
intent  of  this  legislation  isn't  substantially  modified  or                                                               
SENATOR GUESS asked how much more  money is needed to finish safe                                                               
MR. BUTCHER admitted  that they don't have a list.  AHFC spoke to                                                               
Department of  Environmental Conservation (DEC), but  they didn't                                                               
produce a list, if in fact they  have one. SB 279 would cover the                                                               
village safe water  projects needed to match  the federal funding                                                               
for FY05.                                                                                                                       
SENATOR GUESS asked if sewage falls under safe water.                                                                           
MR. BUTCHER replied he thought it did.                                                                                          
SENATOR GUESS  asked if the  $500 million in bonding  he referred                                                               
to earlier was through the bill process.                                                                                        
MR.  DUBLER said  it was  and it  is referred  to in  SB 279.  He                                                               
remembered SB 360, HB 281, and HB 287 were related.                                                                             
SENATOR GUESS  said she would  like to  amend the bill  to delete                                                               
reference to "and other capital projects."                                                                                      
CHAIR GARY  STEVENS said he  could sense the discomfort  with the                                                               
bill,  but he  wasn't prepared  to  accept an  amendment at  that                                                               
time.  He said  he  would prefer  to hold  the  bill for  further                                                               
consideration and additional  information. Certainly, a corrected                                                               
fiscal note was in order and  the question about other safe water                                                               
projects is important  information to get from DEC.  He asked her                                                               
to withdraw her motion to amend.                                                                                                
SENATOR GUESS said she would  withdraw her motion, but she wasn't                                                               
confident that the issues would  be solved. If the administration                                                               
wants  additional  projects included  then  she  would like  them                                                               
listed  specifically because  including "other  capital projects"                                                               
is  irresponsible.  She  admitted  she  isn't  enthused  to  bond                                                               
outside  of AHFC  in  any  case, but  leaving  the language  open                                                               
indicates, "We're not doing our jobs."                                                                                          
SENATOR GUESS withdrew her motion as a favor to the Chair.                                                                      
CHAIR GARY STEVENS said he could see her point.                                                                                 
SENATOR STEDMAN noted  that much in this bill  is finance related                                                               
and he  assumes that the  Finance Committee would be  apprised of                                                               
the concerns raised here.                                                                                                       
CHAIR  GARY STEVENS  said  he  understands and  he  was sure  the                                                               
Finance Committee would scrutinize the issue carefully.                                                                         
He announced he would hold SB 279 in committee.                                                                                 

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