Legislature(1995 - 1996)
04/23/1996 03:50 PM Senate TRA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
CSHB 526(FIN) am AIDEA OPERATIONS/PROJECTS/LOANS
CHAIRMAN RIEGER brought CSHB 526(FIN) am before the committee. He
requested a motion to adopt a proposed SCS CSHB 526(TRA) as a
working document.
SENATOR GREEN moved SCS CSHB 526(TRA), version "K," be adopted.
SENATOR ADAMS stated he was objecting to its adoption until the
committee has gone through the changes and received a response from
AIDEA.
Number 130
CHAIRMAN RIEGER outlined the following changes in SCS CSHB
526(TRA):
(1) Section 1 of the House version contained language which said
that contracts of AIDEA related to an integrated transportation and
port facility, which was intended to apply to those contracts made
with the developer of the Red Dog Project. The words "related to"
were deleted and replaced with "made with the developer of." The
reason for the proposed change is so that the language is not
overly broad so that it could apply to any contract, even
theoretically, remotely related to the port facility.
(2) Section 4: Testimony showed that the statutes are fairly
clear on the interest rate charged on loan participations which
were financed through bonds, but they were silent on the interest
rate on loan participations made directly out of the assets of the
authority. Language was added on page 2, lines 15 through 18,
which provides that the interest rate on a loan participation
purchased from assets of the authority may not be less than the
rate for treasury bonds that mature at the same time as the loan
participation, plus 150 basis points.
(3) Section 9: The House version referred to guarantees of 80
percent of a loan. The new language changes it to guarantees of up
to 80 percent of a loan. Also, subsection (c) of the House
version, which referred to guarantees of interest, was deleted.
(4) Section 12: On page 5, line 23, language was added clarifying
that protection of the authority's interest is in a loan or a loan
guarantee.
(5) Section 13: Existing law refers to prime rate as the lowest
money center prime rate. The new language clarifies that it is the
lowest domestic money center prime rate.
(6) Section 17: The House version contained a repealer of a
sunset. In the Senate version, instead of a complete repealer of
the sunset, the sunset is extended until July 1, 1998.
(7) Section 18: The House version contained a repealer of AS
44.88.500(b), which referred to the limit on the extent to which
the assets of AIDEA pledged to a project or guarantee would
actually be at risk. That repealer is deleted so that existing
language, which restricts the recourse to the specific items
pledged, would be the existing law with the passage of the bill.
(8) Section 20: This is transition language which was inserted in
Senate State Affairs and was not in the House version of the bill.
(9) Section 21: This is a new section which would reinstate the
ability for AIDEA to issue bonds in a amount not to exceed $10
million without legislative approval.
(10) Section 22: Language was added that is in large part
borrowed from the original Red Dog authorization act. However, in
the original act the definition of "reasonable return" was 5
percent and that has been changed to 6.5 percent.
Number 216
SENATOR ADAMS asked if the rate of return at 6.5 percent will also
affect any future investments that AIDEA will make, or does it just
pertain to Red Dog. CHAIRMAN RIEGER responded that it only refers
to the Delong Mountain transportation system.
Number 227
CHAIRMAN RIEGER noted the members' packets also contained a
proposed amendment relating to a bulk commodity loading and
shipping terminal in Cook Inlet, which would be addressed later in
the meeting.
CHAIRMAN RIEGER asked if Senator Adams maintained his objection to
the adoption of SCS CSHB 526(TRA), version "K." SENATOR ADAMS
stated his objection was maintained. A hand vote was taken which
resulted in a 2-2 vote. The Chairman stated the motion to adopt
the committee substitute failed.
CHAIRMAN RIEGER opened the hearing to public testimony.
Number 245
JAN SIEBERTS, representing the National Bank of Alaska and
testifying from Anchorage, stated their interest in the bill is
primarily because of the interest guarantee portion of the
legislation.
Mr. Sieberts pointed out that in other guarantee programs like the
Small Business Assistance program (SBA), the SBA guarantees the
payment of interest and also will pay off the bank the guaranteed
portion of the loan and liquidate the loan. Under the AIDEA law,
the bank keeps the entire balance of the loan on its bank books and
liquidates the loan transaction at AIDEA's instruction, which can
take a long period of time. There is absolutely no interest
guarantee by AIDEA. He added that if AIDEA paid the bank 90 days
worth of interest on the loan transaction, it probably would be
inconsequential in most cases. He said it should be an obligation
of the authority to pay the guarantee if something goes wrong.
AIDEA has the ability through its board of directors to limit the
amount of guarantees or to expand or contract the programs.
Mr. Sieberts referred to the new language relating to the interest
rate on loan participations purchased from assets of the authority
not being less than the rate for treasury bonds, plus 150 basis
points. He said originally, most of these transactions were tax
exempt transactions, and the interest rates were generally down and
often below the treasury rate. There is still federal law to do
certain types of tax exempt loans. He said in those transactions,
if you are minimizing the rate at 150 basis points above the
treasury, it would effectively substantially increase the interest
rates above what the customers are able to obtain or whether from
a practical point of view is reasonable.
Mr. Sieberts stated NBA is supportive of the original AIDEA bill.
Number 318
CHAIRMAN RIEGER requested that Randy Simmons and Keith Laufer
present their response to the changes made in the Transportation
SCS.
RANDY SIMMONS, representing the Alaska Industrial Development and
Export Authority, stated AIDEA does not have a problem with the
change made on the procurement portion of Section 1. The change in
Section 2 does not give them a problem for the loans that are
taxable, but they are not sure how they would do it for the tax
exempt portions.
Number 350
CHAIRMAN RIEGER asked how the tax exemption applies when AIDEA is
using its own assets. KEITH LAUFER of the Department of Law
explained it is the bank's portion of the interest that would be
tax exempt, but it is all part of one loan transaction so there is
the ability for AIDEA to issue loans out of their assets that would
qualify for tax exempt interest. CHAIRMAN RIEGER commented that he
is not sure he is comfortable with AIDEA lending its own hard
assets at tax exempt rates when they could invest those assets
elsewhere. RANDY SIMMONS added that the reason they would look at
doing that is because their mission is economic development,
creating jobs. It is not necessarily getting the highest return on
their dollars from a dollar standpoint. However, it is hard to
say; it depends on what the project is and what the amount of
financing is.
Number 365
Continuing his response to the changes in the Transportation SCS,
RANDY SIMMONS said AIDEA agrees with the addition of the "up to"
language in Section 9. Also, he believes it is important to the
financial community that AIDEA be able to guarantee the 90 days of
interest.
AIDEA agrees with the addition of the "loan or loan guarantee"
language in Section 12.
AIDEA also agrees with the addition of "United States" to the
definition of "prime rate."
Referring to the sunset provision in Section 17, Mr. Simmons said
AIDEA would be happy not to have a sunset provision, but they can
understand some of the concerns; however, he suggested the
possibility of adding another year to the provision.
Number 383
KEITH LAUFER, addressing the removal of the repealer in Section 18,
said as it stands now, the authority would have to designate
certain assets that would be available for loan guarantees under
the fund. That would allow the authority to segregate funds for
that purpose. He added it doesn't cause a problem to leave that
language in, but he thinks the position of the authority would be
that it would have to designate sufficient assets in that reserve
to cover all the guarantees anyway.
Speaking in support of the transition provision in Section 20, Mr.
Laufer said he believes it just clarifies what he believes would
happen anyway, which is that the assets currently in the Business
Assistance Fund would roll back into the revolving fund.
Number 400
RANDY SIMMONS, addressing Section 21, said they do not have a
problem with giving the authority the $10 million authorization
under the development finance program. However, AIDEA does have
concern that by changing the language that was in the original bill
they have no authorization to do revenue conduit financings and
they have no authorization to do loan participation financings
using bonds. From AIDEA's perspective, that is probably as
important or more important than the development finance program.
They believe it is an important provision that does not obligate
the authority's assets in any way.
Speaking to the Section 22 language, which is putting into statute
some minimum requirements for Cominco on the Red Dog project, Mr.
Simmons said AIDEA agrees with the idea that they should try to
maximize their investment, but they think that as they are going
into negotiations this will tie their hands somewhat as to how they
get the best deal for the state. He said they agree with the
concept, but they are uncomfortable with having it tied in statute.
Number 495
CHAIRMAN RIEGER said his recollection of the evolution of AIDEA, in
particular, and the original evolution of AHFC as a major
corporation was that these corporations were structured in a way to
try to keep the transactions on a financial basis. That was the
reason for the participation, the reason for requirements of
minimum interest rates. His concern is that when they stray from
the strict financial considerations to, in essence, marking down
the rates of return on a project or on a deal for the sake of other
benefits, other public good type benefits, they are really taking
away the power to appropriate from the legislature. He is not sure
that he would be comfortable with trying to let this become an
agency where their mandate is that mixed, where they have to weigh
jobs against financial return and against taxes to a municipality.
He is a little concerned that the approach in AIDEA, or elsewhere
in the Executive Branch, is to try to mix financial returns and
other goods.
SENATOR TAYLOR said he shares the Chairman's concern. Projects
that he has some sincere concern about are not advancing or moving
because of the economic viability of those concepts, and, yet, if
they were to focus just on the jobs, they would probably be seen as
very worthwhile investments.
Number 541
SENATOR ADAMS said the majority would like to revert $21 million to
the general fund, and he asked if that has any effect on any onging
projects or any future projects. RANDY SIMMONS responded that the
way the majority plan has put forward to take a dividend out of
AIDEA does have an effect at the current time, both on projects
that they are looking at right now and potential projects in the
future.
CHAIRMAN RIEGER inquired if AIDEA earned approximately $38 million
last year. RANDY SIMMONS responded that he thought their net
income figure was approximately $37 million, which is different
than their net revenues. CHAIRMAN RIEGER asked if they could
propose language which speaks to a percentage of net revenues that
gets to the same number and would be in statute. RANDY SIMMONS
replied that the governor has made it clear that he opposes any
amounts coming out of AIDEA in a dividend and that he would veto
any of those amounts.
TAPE 96-18, SIDE B
Number 001
CHAIRMAN RIEGER invited Representative Navarre to address the
proposed amendment (K.1) contained in the members' packets.
REPRESENTATIVE MIKE NAVARRE explained he was offering the amendment
at the request of the Kenai Economic Development District, as well
as the mayor of the Kenai Peninsula Borough, who have been working
for a number of years on the Midrex project to be located at Point
McKenzie. However, Midrex is not going to do the project, but
another group has formed with an iron carbide process, a new
process that is cheaper, cleaner and more efficient than existing
ore processing. That group is looking at locating two modules
somewhere in Cook Inlet. The two modules would cost about $100
million and they are not connected to the authorization provided
for in the amendment. This authorization would be for a loading
and unloading dock facility that would be part of the development.
If the group is able to put the package together, they will be
ready to be under construction by the spring of 1997, but nothing
would move forward on the dock facility until that $100 million
commitment for the modules is made.
Number 070
SENATOR TAYLOR asked if this authorization was put on the books,
would it still have to go before AIDEA. REPRESENTATIVE NAVARRE
responded that ADIEA would have the final say in whether or not the
dock portion of the project would go forward.
Number 085
GEORGE DOZIER, committee aide to the House Labor & Commerce
Committee, stated that Chairman Kott had not had an opportunity to
examine the Transportation SCS. However, he did request that Mr.
Dozier articulate to the committee his opposition to the proposed
amendment being offered by Representative Navarre. His position is
that the legislation had two hearings at the House level and this
matter could have been brought to his and the committee's attention
at any time and it was not. As a consequence, the House
essentially has been deprived of an opportunity to engage in debate
and consideration of the matter.
REPRESENTATIVE NAVARRE pointed out that offering the amendment at
this time was a matter of timing and that he would contact
Representative Kott and explain why it wasn't offered until now.
Number 130
CHAIRMAN RIEGER stated work with AIDEA would continue on SCS CSHB
527(TRA). He then recessed the meeting at 4:46 p.m. to a call of
the chair.
[THE 4/23 MEETING WAS CALLED BACK TO ORDER BY CHAIRMAN RIEGER AT
2:50 P.M. ON 4/26 AND ADJOURNED AT 2:51 P.M.]
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