Legislature(1999 - 2000)
02/11/1999 01:35 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
GENERAL SUBJECT(S): OVERVIEWS:
Alaska Housing Finance Corporation (AHFC)
The following overview was taken in log note format. Tapes and
handouts will be on file with the House Finance Committee through the
21st Legislative Session, contact 465-2156. After the 21st Legislative
Session they will be available through the Legislative Library at 465-
3808.
Time Meeting Convened at 1:35 p.m.
Tape HFC 99-20, Side 1 and 2
PRESENT:
X
Representative G. Davis
X
Co-Chair Therriault
Absent
Representative Foster
X
Co-Chair Mulder
X
Representative Grussendorf
X
Representative Austerman
X
Representative Kohring
X
Representative Bunde
Absent
Representative Moses
X
Representative J. Davies
Absent
Representative Williams
ALSO PRESENT:
DANIEL R. FAUSKE, EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE
CORPORATION; JOHN BITNEY, LEGISLATIVE LIAISON, ALASKA HOUSING
FINANCE CORPORATION, DEPARTMENT OF REVENUE
LOG
SPEAKER
DISCUSSION
OOO
HFC 99-20, SIDE 1
ALASKA HOUSING FINANCE CORPORATION (AHFC)
Co-Chair Mulder
Convened the meeting at 1:35 p.m.
101
DANIEL R. FAUSKE,
EXECUTIVE
DIRECTOR, ALASKA
HOUSING FINANCE
CORPORATION
Provided members with a handout, Alaska
Housing Finance Corporation (AHFC) rating
news (copy on file). He gave a brief
overview. He read written remarks
(Attachment 1, see below). Their budget
request reflects the overall direction of
AHFC.
442
Mr. Fauske
AHFC plays a major role in the state's
housing industry and economy. The
Corporation supports itself through annual
net income of the corporation and federal
dollars.
501
Mr. Fauske
Pointed out that AHFC's credit strength is
the key to its success. Homeownership in
Alaska at the end of 1997 was 67.2
percent. This is an increase from 1992.
Average interest rates have dropped.
Almost all communities report a steady and
strong recovery in their residential
construction market.
543
Mr. Fauske
Emphasized that housing is the most
significant investment that a family will
make in their personal budget.
583
Mr. Fauske
Discussed activities of the corporation.
Noted that AHFC was capitalized with $1
million dollars. The state of Alaska has
received $965,964 thousand dollars.
613
Mr. Fauske
Pointed out that AHFC was scored by the
federal department of Housing and Urban
Development (HUD) as one of the nation's
leading agencies.
654
Mr. Fauske
Noted AHFC's success in bond ratings.
Stressed that AHFC has a good working
relationship with the state and effective
management. AHFC has received a bond
rating upgrade.
710
Mr. Fauske
Discussed issuance of the remaining
balance the bonds for capital projects
that were authorized in F99.
729
Mr. Fauske
Noted that the increase in bond ratings
was accompanied by an increase in bond
ratings for the state of Alaska, the Mat-
Su Borough and Kodiak Borough and the
North Slope Borough.
835
Mr. Fauske
Stressed that AHFC must balance competing
goals of maintaining its own facilities,
buildings, and programs and funding the
needs of the state.
879
Mr. Fauske
Discussed the $53 million dollars proposed
for capital projects. He noted that $38.5
million dollars of this amount is proposed
for projects and programs that would be
administered by AHFC. The rest would be
for remaining state agencies. $13.2
million of the remainder would be for
water and sewer projects in Department of
Environmental Conservation.
1012
Mr. Fauske
Discussed budget requests (see attached
written remarks). He emphasized the need
to address deferred maintenance. They are
asking for $15.8 million dollars in
corporate funds and $17.9 million dollars
in federal funds.
1053
Mr. Fauske
Discussed the Gateway Learning Center in
Anchorage.
1071
Mr. Fauske
Concluded written remarks.
1084
Co-Chair Mulder
Asked the mission of AHFC.
Mr. Fauske
Make safe, quality and affordable housing
available for Alaskans.
Co-Chair Mulder
Asked AHFC's total book value?
1167
Mr. Fauske
Responded that AHFC had $4.4 billion
dollars is the total book value. Fund
equity is approximately $1.8 billion
dollars.
1183
Representative G.
Davis
Recalled legislation to allow AHFC into
other markets, such as rural and assisted
living housing. Asked if there are areas
that AHFC wants to get out of or expand
into.
1247
Mr. Fauske
Noted that programs to help low income
housing offer tax breaks. Added that AHFC
could expand in area of taxable programs,
like FANNY MAE. They have not been very
active in their taxable program in recent
years. Stated that AFHC is doing fine in
the areas in which they are currently
operating. Observed that they are holding
discussions to find better ways to develop
statewide.
1338
Co-Chair
Therriault
Has administration discussed options for
reducing FY99 of FY00 expenses?
1370
Mr. Fauske
Stressed that they are scrutinizing travel
and purchases. They are also freezing new
hires that are not essential.
1430
Co-Chair
Therriault
Does AHFC track the housing market in
terms of when it might be overbuilt?
1472
Mr. Fauske
2 months ago AHFC formed a contingency
task force to look at economic indicators.
They looked at how layoffs affect the
market and AHFC. Stressed that they would
with industry. Pointed out that interest
rates have dropped to allow capital into
the housing market. They will watch the
default rate. The default rate remains
constant at between 3 and 4 percent. In
1986 it was most to 16 percent.
1543
Co-Chair
Therriault
Has AFHC had dialog with lending
institutions to prevent over building?
Mr. Fauske
Yes, they have had good dialog. Stressed
that memories of the last downturn are
still fresh in everyone's mind. Pointed
out that the goal is to show steady
growth. Acknowledged that there is a
downturn in the oil industry, but pointed
out other sectors of the economy are
vibrant.
1721
Co-Chair
Therriault
Referred to the Bank of America Building.
Asked if AHFC purchased the asset.
Mr. Fauske
Clarified that AHFC purchased the asset
and has factored it into one of their
upcoming general government bond
obligation.
Co-Chair
Therriault
Referred to South Hall Manor.
John Bitney,
Legislative
Liaison, Alaska
Housing Finance
Corporation,
Department of
Revenue;
Observed that renovation of the South Hall
Manor is in the Governor's capital budget.
It is item 11.
1774
Representative J.
Davies
Noted that there is a 40 percent ratio of
personal income to housing costs in
Alaska. Observed that 67 percent of
Alaskans are homeowners.
1821
Mr. Fauske
Stated that the market indicators were
derived from the Department of Labor.
Pointed out that the National average of
home ownership is over 60 percent. It used
to take 1.7 members of a household working
to make a mortgage. This is now down to
1.4 members of a household.
1877
Representative
Bunde
Reiterated that there is an increase in
housing growth during a time of large
state budget deficits. Asked if the
deficit is viewed as an impact on the
overall economy.
1962
Mr. Fauske
Stressed that the strong economy reflects
confidence that the problem will be
resolved. Consumers want to take advantage
of low interest rates. Try to prevent the
domino affect of reductions. More
diversified then before. The state is more
diversified. Observed that permanent fund
dividend earnings exceed oil revenues.
2065
Representative
Bunde
Pointed out that the state needs to walk a
narrow path, between the sky is falling
and not recognizing deficit.
2079
Representative
Bunde
Referred to the Family self-sufficiency
program.
2098
Mr. Fauske
Explained that there is a center in Park
View for training and job skills. It is
funded through federal grant money.
2124
Co-Chair Mulder
Consumers have high level of confidence,
but once consumers are frighten there is a
domino effect. Challenge is that the
public's perception is that spending has
not been reduced. Conflicting needs of
educating public and gaining their
confidence.
2185
Mr. Fauske
Recommended discussions with public to
educate them that there is a real problem
that must be solved. Show numbers and how
it works. Can't cut $1 billion dollars
from the budget without adverse effects.
Stressed that it is important to retain
consumer confidence.
2265
Co-Chair Mulder
Haven't gotten the public's attentions.
Pointed out the availability of venture
capital. The state's financial status
affects private industry's ability to
capture capital nationally.
234
Mr. Fauske
Observed that bond rating is a key
indicator. Financiers look at the state's
plan.
000
HFC 99-20, SIDE 2
TAPE CHANGE
050
Mr. Fauske
Noted that there have been several
upgrades to municipal issuance bonds.
Discussed how state can assure public.
145
Co-Chair Mulder
Noted that there would be a town meeting
in Anchorage.
155
Representative
Austerman
Referred to the low interest rates. Asked
Mr. Fauske's prediction for 1999.
Mr. Fauske
Observed that the rate was 6.125 for a
first time homebuyer as of 2/11/99.
271
Representative
Austerman
Asked if he foresaw change in 1999.
288
Mr. Fauske
Interest rates climbing slightly. Noted no
change in federal rates. If there is
inflation there may be some slight
increase. Anticipates rates staying fairly
stable. Pointed out national economy is
good.
436
Representative
Austerman
Alaskans are comfortable at this point.
Asked if missions and measures are
available.
484
Mr. Fauske
Yes.
Mr. Fauske
1974 - 1976 $1 billion dollars was placed
into AHFC.
567
Mr. Fauske
Amount AHFC has paid back is almost $1
billion dollars. Emphasized that it has
been a wise investment. The merger of the
housing finance agency and the public
housing was good. Other states are
following the example of AHFC.
628
Representative
Austerman
Pointed out the need to protect revenue
sources as the budget is balanced.
650
Mr. Fauske
Observed that the debt that was initiated
as a result of SB 360 was a general
government obligation of the Corporation.
The way AHFC is rated and viewed is based
on their ability to secure debt. Pointed
out thousand dollars at they don't have
the ability to tax. Observed that half of
debt remains to complete the sale for SB
360. Pointed out that $10 million dollars
of $93 million dollars was purchased by
Alaskans.
Co-Chair Mulder
Asked when they expect complete sale on
$93 million capital SB360.
829
Mr. Fauske
Anticipate that the cash flow requirements
on the $93 million dollars would be used
up in September. Want to calculate
difference between maximizing the
arbitrage and giving up basis points in
interest. Will probably complete sale or
portion in next 2-3 months to take
advantage of interest rates.
921
Co-Chair Mulder
What is dominated AHFC activity.
944
Mr. Fauske
New loans are exceeding refinancing. They
are close.
985
Co-Chair Mulder
Asked if AHFC is able to react better than
other agencies to reduce staff.
1028
Mr. Fauske
Did not know. Activity is high trying to
increase ability to service. Observed
there is a three-day turn around. Pointed
out that mortgage activity is high and
they have a small staff.
1129
Representative
Kohring
Best thing Legislature can do is to get
its fiscal house in order.
Co-Chair Mulder
Referred to multiplex lending.
1236
Mr. Fauske
Observed that multiplex lending is a
combination of low income and those
seeking tax credits. Pointed out that
multifamily lending has increased. There
were 39 loans 1998. Taxable rates are 6 -
7 percent.
1311
Co-Chair Mulder
Noted problems with multiplexes being
refurbished or sold.
1331
Mr. Fauske
Expanding program for equity transfers if
money goes into a similar investment.
Getting inquiries from military in
reference to housing needs.
1385
Co-Chair Mulder
Asked who owns senior housing properties.
1397
Mr. Bitney
AHFC has title, but changes need HUD
permission. Almost joint ownership with
HUD backing.
1456
Co-Chair
Therriault
Local nonprofits contracted for operation?
1488
Mr. Bitney
Public housing funded by federal
government but AHFC holds title. AHFC
needs HUD approval. Clarified that grants
go to nonprofit for operation.
1549
Representative J.
Davies
Long term care report. Asked if AHFC is
involved in financing for assisted living
or nursing homes.
1574
Mr. Bitney
Yes, through the senior housing
assistance.
Mr. Fauske
Expected to see more assisted living
housing.
1665
Co-Chair Mulder
ADJOURNMENT
The meeting adjourned at 2:50 p.m.
Attachment 1
ALASKA HOUSING FINANCE CORPORATION OVERVIEW
House Finance Committee
February 11, 1999
Introduction Statement
Mr. Chairman, members of the House Finance Committee - I am Dan
Fauske. I have been the CEO of Alaska Housing Finance
Corporation since March 1, 1995.
Mr. Chairman, I was asked to give you an Overview of AHFC. I
have prepared; 1) a brief opening statement; 2) some recent
activities of the corporation; 3) information regarding the
state housing industry; 4) a summary of our funds in the budget;
and, of course, 5) I am available for your questions.
Today - unless there are specific items in our operating or
capital budget requests that you would like to discuss -- I will
keep my comments in this area fairly general. Our budget
officer, Mr. Les Campbell, and myself are available to come to
Juneau when you are ready to get into specific line items for the
capital budget. I am also prepared and ready to work with
Representative Bunde as our subcommittee chairman for the
Department of Revenue operating budget.
I will say that the budget numbers we are requesting reflect the
overall direction of AHFC and the policies, goals, and priorities
that have been established by the Board of Directors and senior
management. We have also taken it upon ourselves to establish
and come forward with performance measures and goals that you
will see when we get into more budget details.
II. Opening Summary
Alaska Housing Finance Corporation is a public corporation lead
by a Board of Directors - 4 public members appointed by the
governor & 3 commissioners
Today, AHFC plays a major role in the state's housing industry
and economy with our ability to attract low-cost capital through
the issuance of bonds for taxable and tax-exempt single family
and multi-family mortgages. Alaska Housing Finance Corporation
operates itself AND supports the housing market through annual
net income of the corporation and federal dollars. In addition,
our net income (or profits) that are not used by AHFC for housing
programs is returned directly to the State of Alaska.
Our credit strength is key for our ability to generate net
income. While we serve many social functions for lower income
housing, senior & special needs housing, and other areas, we
function as a profit-making corporation in order to self-support
our operations and programs with no state funds coming our way.
Our access to the capital markets is as strong today as ever.
This is based on AHFC's credibility, strong management, financial
strength, and the increased diversification of the Alaskan
economy. By bringing low-cost capital into this state from
outside investors who purchase our bonds, the positive results
can be seen in Alaska's current housing market indicators.
(Source: AK Dept. of Labor, Research & Analysis Section)
? Homeownership for Alaska at the end of 1997 hit 67.2%, a
substantial increase from 55.5% in 1992.
? Average interest rates dropped from 7.79% in 1997 to 6.9% in
1998.
? Statewide in Alaska, total number of loans by all mortgage
institutions nearly doubled in 1998 compared to 1997.
? Almost all communities around the state report a steady and
strong recovery in their residential construction market. For
example, Anchorage and Mat-Su recorded their busiest season
since 1984. Anchorage Public Works estimates that permit
valuation exceeded $200 million in 1998.
? Through the 3rd quarter of 1998, total loan volume was $1.4
billion in those regions of the state where we can determine
permit numbers.
? Total sales volume for the same period was $1.77 billion.
According to numbers from the Alaska State Homebuilders
Association, the construction of 1,000 single family homes
generates 2,448 full-time jobs in construction related
industries; $79 million in wages; and $42 million in combined
federal, state, and local revenues and fees.
The Homebuilders estimate 2,369 single family homes are permitted
in 1999. This does not include homes built outside of
municipalities that require building permits.
We've got a healthy industry going right now. Housing remains
probably the most significant investment that a family will make
in their personal budget. For 1998, Total Alaska Personal Income
was $15.2 billion, of which $6 billion was spent for housing. In
other words, roughly 40% of personal income was spent on housing.
As a business entity, AHFC finds these numbers encouraging.
Housing activity is robust and steady, and AHFC is a key player
in that market which equates to good business for the corporation
and low cost mortgage financing for Alaskans.
What we do is work to keep rates as low as possible, and by
passing these rates on to the Alaskan consumer, increase
disposable income for things other than housing. There is
nothing more basic in our own personal budgets than housing. A
key part of our mission is to make sure that Alaskans have the
opportunity to benefit from the low cost capital - or "interest
friendly environment" we are experiencing.
In addition, I also wanted to inform you on where the corporation
stands as far as paying back the state's investment in AHFC.
From 1976 to 1984, AHFC was capitalized with $1 billion. To date
today, the State of Alaska has directly received $965,964,000.
This number does not even include hundreds of millions in annual
AHFC mortgage activity in the state, or AHFC's own capital budget
programs.
Personally, I am very proud of what has been accomplished at AHFC
over the past four years.
III. Activities of the Corporation
Mortgage Activity Report
Over the past two years, we have initiated measures to increase
our mortgage activity. We believe we offer lending and mortgage
institutions the lowest interest rates to pass on to the Alaskan
homebuyer. In turn, our mortgage programs keep those dollars in
state.
? We established focus groups with industry to help with changes
to our programs
? We have streamlined our mortgage process, reduced paperwork
requirements, loan application turnover time, and established
a "user friendly" policy
? We have increased outreach and information effort with
homebuyer education workshops, a marketing effort, and
homebuilder and realtor workshops for continuing education
credits.
? AHFC now posts its mortgage interest rates at 8 AM every day.
For example, today's rates are _______.
Our single family mortgage activity reflects these efforts.
(These are calendar
In addition to increasing our activity by over 1,000 loans in
1998, our staff also processed 1,499 Streamline Refinance loans
worth over $128 million. We also have seen increased activity in
multifamily lending (5-Plex and larger in size).
Again, these numbers show that we have been busy. Along this
line, we have requested some increments in our operating budget
to handle this activity. We are also considering whether
requesting an amendment to our front section may be necessary for
loan authorizations.
Financial Management
We have taken steps to both monitor and manage our internal funds
better. Much of this was started two years ago when we
established new fiscal policy procedures.
? We have hired two fund-manager firms, which has resulted in an
increase of $1 million to AHFC over what would have been made
using in-house management
? We have brought our commercial paper program from Europe back
to the domestic market
? Just last week, we began the process of initiating a
securities lending program
PHMAP
For the third consecutive year, AHFC scored a perfect 100.0 on
the Dept. of Housing & Urban Development's Public Housing
Management Assessment Program. In eleven different evaluation
criteria, HUD recognizes us as one of the leading agencies in
America for effectively managing and delivering housing services
for over 2,700 low-income Alaskan families.
Bond Ratings
Many of you are probably well aware of our recent bond rating
success. All of the things I have mentioned here today are an
integral part in achieving good bond ratings.
? A good working relationship with the state and its elected
officials
? Strong financial statements and net income numbers
? Effective management of our programs and responsibilities
? A good state economy
Mr. Chairman, I wanted to update you and the committee on the
$200 million in bonding that was authorized last session for
state capital projects. This was a very unique deal in the
United States. For the first time, a state housing authority
issued bonds on behalf of its state government. In this case, we
offered the ability to leverage a portion of our future dividends
to the state (what used to be the $50 million payment to the
general fund) and pledging those funds as a debt service payment
over 7 years.
On January 20th we closed on the first portion of the bonds,
totaling $92.3 million.
? Alaskan investors purchased $10 million.
? The bonds were priced to yield form 2.96% to 4.05%, with a
True Interest Cost of 3.88%.
? AHFC also received a bond rating upgrade from A+ to AA- from
Standard & Poor's.
I have some handouts that might help describe the deal.
(HANDOUTS)
We are now starting some internal discussions about timing the
remaining balance.
Again, a very favorable deal, and I commend the legislature
(especially the co-chairs and members of this committee) and the
governor for their help in making this a success. The
legislature and the governor have honored our agreement regarding
transfer of funds to the state every year since 1995, and this is
referenced in our ratings and the success I just mentioned.
The success of doing business in this manner is something all of
us should be proud of. By establishing an agreement regarding
transfers of funds from the corporation to the state, and staying
on course every year with that plan has upgraded our credit,
upgraded our credibility, and proven the benefits of establishing
a financial plan and sticking with it.
As we've seen our bond ratings increase, the same criteria has
also led to bond rating increases for the State of Alaska, the
Mat-Su Borough, the Kodiak Borough, the North Slope Borough,
I also want to commend the legislature and the governor the
Economic Summit held on Tuesday here in Juneau. Having the
debate is encouraging, and sends a positive message to the
investment community about our state.
It goes without saying that we have been quite topical toward
ways that AHFC can contribute to state budget concerns. We are
not the solution. However, our success has shown ways that we
can part of the effort.
So often I hear people say that AHFC should give more money
because the corporation has a lot of money. Yet, I seldom ever
hear anyone ask why the corporation has money. Again, our credit
strength is the key. I encourage all of you here and to those
listening to look at how AHFC does its business and take the time
to understand the importance and factors that go into having good
access to the nation's capital markets.
I appreciate you allowing me to talk a little bit about these
activities, Mr. Chairman. I realize that you are also interested
in looking at our budget numbers, but it is important that you
know that we are working very hard to maintain our core-business
functions. These functions generate the profits that go into
providing our funds for the capital budget, and for our bonding
ability.
FY2000 Budget
AHFC finds that it must balance the competing goals of (1) net
income; (2) maintaining its own facilities, buildings, and
programs; and (3) funding certain needs of the state.
For Fiscal Year 2000, AHFC is making available $103 million for
transfer to the state. The first call on these funds is the debt
service obligations for the bonds authorized last session.
Beyond that, I believe that you will find all of these funds in
the appropriate places throughout the various budget bills.
Within the $53 million proposed for capital projects, $38.5
million is for projects and programs administered by AHFC. The
balance is for projects in other state agencies - the main one
being $13.2 million for water and sewer projects in the
Department of Environmental Conservation.
Increases in our capital budget reflect a growing deferral of
maintenance and renovations to our public housing facilities. As
we have seen these requests reduced in prior years in order to
free up non-general fund dollars for off budget state
expenditures, our facilities find their needs being deferred into
future budget requests. I understand the budget situation faced
by all of you, and AHFC has stepped up to the plate time and
again in recent years. But I would ask, Mr. Chairman, that we
not allow a maintenance problem to start to accrue with public
housing facilities while AHFC is asked to fund the backlog of
state maintenance problems. Specifically, you will find
increased funding in our capital budget for Senior & Statewide
Deferred Maintenance, the renovation of Southall Manor in
Fairbanks, Mt. View Senior Citizens housing here in Juneau, and
Parkview and Fairmount in Anchorage.
As for our operating budget, we have requested $35,663,700 for
FY2000. As I mentioned earlier, either our own corporate funds
or federal housing dollars pays for our operations.
Specifically, we are asking for $15.8 million in corporate funds,
and $17.9 million in federal funds. Our proposed budget
demonstrates a commitment results-oriented a measurable, results-
oriented framework that is intended to gauge our ability to
perform our mission.
I will say that we have asked you to consider approving four new
positions for us. Three positions are for our mortgage
department, and are intended to keep up with the current level of
loan activity, and also to increase it through the establishment
of an automated mortgage underwriting system to maintain our
share of the mortgage market in state. We have asked for two
Range 10 assistants, and a Range 20 Loan Program Officer.
We have also requested a position in our public housing
department to assist at the Gateway Learning Center in Anchorage.
This Center is part of our Family Self-Sufficiency program
designed to complement the state's welfare to work initiative by
providing training, job searches, and a computer lab. This
position would be a Range 15, and would be funded by federal HUD
dollars.
Mr. Chairman, I would like to conclude by saying that things are
going well at AHFC. Business has been good, and I am proud of
the contributions the corporation is making to our state. We are
seeing positive market indicators in the housing economy, and we
have received a bond rating upgrade even in this low oil price
environment.
Much of this success stems from the good working relationship we
have had with this committee, and I know that I speak for the
board and the staff when I say "thank you" for your support of
our efforts.
Mr. Chairman, I will stop here and make myself available for your
questions.
HOUSE FINANCE COMMITTEE
LOG NOTES
February 11, 1999
HFC 12 2/11/99
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