Legislature(2001 - 2002)
02/28/2001 02:57 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 28, 2001
2:57 PM
TAPE HFC 01 - 35, Side A
TAPE HFC 01 - 35, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 2:57 PM.
MEMBERS PRESENT
Representative Eldon Mulder, Co-Chair
Representative Bill Williams, Co-Chair
Representative Con Bunde, Vice-Chair
Representative Eric Croft
Representative John Davies
Representative Carl Moses
Representative Richard Foster
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Jim Whitaker
MEMBERS ABSENT
None
ALSO PRESENT
Joseph Perkins, Commissioner, Department of Transportation
and Public Facilities; Devon Devon Mitchell, Executive
Director, Alaska Municipal Bond Bank Authority, Department
of Revenue.
PRESENT VIA TELECONFERENCE
None
GENERAL SUBJECT(S):
The following overview was taken in log note format. Tapes
and handouts will be on file with the House Finance
Committee through the 22nd Legislative Session, contact 465-
2156. After the 22nd Legislative Session they will be
available through the Legislative Library at 465-3808.
GARVEEs:
Grant Anticipation Revenue Vehicles
Accelerated Transportation Program
LOG SPEAKER DISCUSSION
TAPE HFC 00 - 35
SIDE A
000 Co-Chair Williams Noted that the meeting would be an open
forum discussion with the Department of
Transportation & Public Facilities
regarding the GARVEE bonds (Grant
Anticipation Revenue Vehicles).
153 JOSEPH PERKINS, Distributed a packet of information to
COMMISSIONER, Committee members. [Copy on File]. He
DEPARTMENT OF clarified that the National Highway
TRANSPORTATION AND System Designation Act of 1995 expanded
PUBLIC FACILITIES the types of costs that could be financed
with federal highway funds. In 1998, the
federal Transportation Equity Act for the
st
21 Century (TEA-21) increased annual
funding for states. State can now use a
portion of those funds for debt financing
through a mechanism called GARVEEs.
219 Commissioner Perkins Noted that the Governor had introduced
legislation, which would authorize the
state, to finance up to $425 million
dollars for much needed transportation
improvements, using the financing
mechanism of the GARVEE bonds.
328 Commissioner Perkins Added that a GARVEE is a financial
instrument that provides a state with up-
front capital for federal aid eligible
transportation projects. Commissioner
Perkins explained that through the
mechanism, the State finances federal aid
eligible transportation projects and then
makes the payments for their debt
obligation with a pledge of a portion of
their future highway funds. No one in
the federal government has specified a
method for financing those projects.
Every state has created their own-some
have used GO Bonds, some have used
revenue bonds and others have used
certificates of participation, which the
State of Alaska is proposing.
404 Commissioner Perkins Pointed out that the Governor's GARVEE
proposal includes the $425 million
dollars in revenue obligations. The
obligations would be paid back in
approximately 15 years. It would
obligate approximately $40 million
dollars a year, 10% of the current annual
federal highway program. It proposes to
use the interest from investment of
proceeds to pay the state match.
Commissioner Perkins briefly discussed
projects in some of the areas in the
Governor's proposed projects.
419 Co-Chair Mulder Asked about the requirement of the public
vote and why the Administration had
changed their position from last year.
459 Commissioner Perkins Replied that last year proposal was a GO
Bond credit and that required a vote of
the public. During the interim, other
states sold them and the market has
matured and there then was a change. The
change provides the advantage of
committing the money earlier. The
Administration decided to utilize that
method of certificates of participation
to cut the time down.
527 Vice-Chair Bunde Referenced Page 5 of handout and the use
of "should" meeting match requirements in
reference to the general fund. He
suggested replacing that with "would".
562 Commissioner Perkins Clarified that language should state
"will" use general fund dollars. He
added that there would be some extra
money above the State fund match.
595 Vice-Chair Bunde Mentioned that there is value in getting
"caught up" on State funding. He
stressed that the State is spending our
grandchildren's money.
641 Commissioner Perkins Explained that this is how debt financing
is done. The State is working with cash
flow.
664 Vice-Chair Bunde Argued that this manner would diminish
future income and would present a risk
for the future.
676 Co-Chair Mulder Pointed out that these projects would be
done anyway, and that they will not
diminish the value of the money. The
money would be compressed into this
timetable.
734 Commissioner Perkins Acknowledged that understanding this is a
complicated application with the federal
government. The project list must be
submitted to the federal government.
That list must indicate that the State
will innovatively finance it. It must be
shown that the action will:
· Save money; and
· Deliver projects more quickly.
The State has hired a consultant to
provide an economic study of cost
benefit. When the projects are advanced,
the State ends up saving money. It would
save the construction inflation.
803 Commissioner Perkins The result has shown sizeable savings.
Commissioner Perkins offered to bring the
consultant to a Committee meeting to
explain the numbers.
870 Representative Spoke to the difference of the
Davies construction inflation rate and the bond
interest rates.
912 Representative Noted that it is important to take into
Lancaster consideration also the discount rate in
addition to the repayment rate. He
suggested with both of those put in
place, there might not be an offset. He
added that it is important to take the
safety of the infrastructure into
account.
942 Representative Croft Asked about the general structure. He
commented that $40 million would be
allocated each year for 15 years.
Borrowing on that money, receive a
"chunk" of money upfront and then build
some projects. He noted that there would
be a State match on those projects. The
earned interest would be used to pay the
State match.
1000 Commissioner Perkins Indicated that was correct and that it
was a very good proposal from the feds.
1031 Representative Croft Questioned if the State had the capacity
to meet the GARVEE loan with Alaska
contractors.
1063 Commissioner Perkins Replied that Alaska does and that he
would address that further into the
discussion. He provided examples of the
current construction market in Alaska.
Commissioner Perkins stated that he had
included the member's packets, the last
four bids that are opened in the State.
It includes the number of bidders, which
is important, and the dollar spread,
which is high. For every bid won, there
were three or four losers, who are still
looking for more work.
1105 Commissioner Perkins Continued an overview of the GARVEE
projects.
· Northern Region - $109 million
· Central Region - $246 million
· Southeast Region - $70 million
He noted that $147 million dollars had
been scheduled for Anchorage. He
referenced Page 8 of the handout listing
each of the projects.
1239 Commissioner Perkins Added that $67 million dollars would be
allocated for various roads in the Mat-Su
Borough. He added that there would be $67
million dollars allocated in Fairbanks.
Commissioner Perkins pointed out that $70
million dollars was allocated for
Southeast Alaska for the two high-speed
ferries.
1294 Commissioner Perkins Stated that all of these projects are
needed and will be built. The questions
are if they will be built in the next
five years or within the next 12-15
years. The only other way to fund these
projects would be through the use of
Statewide Transportation Improvement
Program (STIP) funds.
1318 Commissioner Perkins Explained that the Governor's GARVEE
package would work as follows:
After Legislative approval, the State
would sell, $425 million dollars in
revenue obligations or GARVEEs.
Department of Revenue expects GARVEEs to
have the following terms. There would be
a pledge of future highway funds subject
to an annual appropriation to the
Legislature. That would mature after 15
years; and the annual payment would be
about $40 million dollars. The annual
payment would be about 10% of the present
annual federal highway allocation. He
added that it is expected that the
allocation will increase over the years.
1396 Commissioner Perkins Stressed that enough interest would be
made on the State's proceeds to pay the
State's matched requirements.
1426 Commissioner Perkins Mentioned the biggest benefit to the
State would be the ability to use the
project now. Big projects can be done
under the GARVEE program without taking a
big dent in the program. Using the funds
will level the program out. It is taking
some of the big projects, funding them on
an installment method. Future
construction and inflation costs could be
avoided.
1500 Commissioner Perkins Commented on the price of right-of-way
for the State. On the next project on
the Park's Highway, over $7 million
dollars of the funds went to right-of-way
costs. The Department wills not purchase
right-of-way without the STIP funding,
however, under the GARVEE program, there
will be no purchase of right-of-way until
the project is ready.
1554 Commissioner Perkins Acknowledged that the general fund match
would provide a small hole in the STIP
program for future projects.
1584 Representative Asked how firm was the number of $425
Hudson million dollars. He asked how that
amount was determined.
1612 Commissioner Perkins Replied that it was predicated on the
project lists submitted from the cities
and boroughs. He emphasized that there
is no trouble finding projects that the
communities want. Most of the time, the
other states that have done this
previously, have attempted to stay at 10-
11% of their program.
1680 Vice-Chair Bunde Commented that the Department chooses
projects based on input from the
communities.
1698 Commissioner Perkins Acknowledged that was correct. He noted
that the Department had determined some
of the projects.
1730 Commissioner Perkins He continued that to implement the
Southeast Plan to provide better service
and reduce operational costs, the fast
ferries need to be on line.
1747 Commissioner Perkins Addressed questions from other
Committees. One question is "What
happens if future federal dollars dry
up". He stated that Alaska's share of
the federal highway funds would continue
to increase as long as the feds have an
18% gas tax. Commissioner Perkins
pointed out that the way that the trust
fund is handled, 90% of that money must
be appropriated and that Alaska gets 1%
of that formula. He did not expect that
Alaska would lose its 1%.
1836 Commissioner Perkins Advised that the financial market (Wall
Street) is comfortable with the current
marketing procedures.
1855 Commissioner Perkins Noted that another question asked is the
impact on the in State contractors. He
noted that from bid results, there are
contractors with a lot of capacity in
Alaska. Industry has the capacity to
meet the demand. He added that the
question of school bonds have come up.
He stated that those are non-competitive
areas. The contractors on the list
distributed, would not bid on a school.
1908 Commissioner Perkins He continued addressing questions asked:
Will accelerating the projects overheat
the economy. He did not believe that
would happen. The yearly cash flow from
the program, the maximum construction in
any one-year would be about $100 million
dollars. He noted that the ferries would
not be built in the State. At this time,
state construction averages about $4
billion dollars a year. $100 million
would not be a huge increase to the
construction market.
1980 Commissioner Perkins Continued, eight other states have
already issued the GARVEEs at this time
and five other states are looking closely
at the program. The GARVEE bond ratings
have been excellent. Alaska's bond
rating would translate into favorable
interest rates.
2030 Commissioner Perkins Spoke to the resolutions from the various
boroughs contained in member's file. He
noted the letters of support from the
Alaska Truckers Association, Southeast
Conference and the Alaska Municipal
League (AML).
2064 Commissioner Perkins Summarized that the GARVEE financing
would accelerate $425 million dollars.
That would provide the economic benefits
and safety sooner. Commissioner Perkins
commented that the funding would be a
great benefit to the State.
2093 Representative Requested information in how other states
Hudson use the mix of "other" funding and how
they use their gas taxes to pay it off.
2125 Commissioner Perkins Replied that most other states have a
dedicated gas fund, which is dedicated to
the transportation costs of that state.
Alaska's gas tax goes into the general
fund making it not accessible.
2143 Representative Moses Asked why his district had not been
included.
2162 Co-Chair Mulder Asked what the bond sales rate would be
if the State followed through on the
GARVEE deal.
DEVON DEVON Responded that for the Governor's bill
MITCHELL, EXECUTIVE had attached a fiscal note prepared with
DIRECTOR, ALASKA an interest cost rate at 5.8%. If the
MUNICIPAL BOND BANK bonds were issued right now, the State
AUTHORITY, would be about 1% below that number. He
DEPARTMENT OF commented that a more realistic issuance
REVENUE would be in the $38 million dollar range
with a shift of 30 basis points.
2233 Co-Chair Mulder Exclaimed that was a very fair interest
rate.
2240 Representative Asked if something was being sold.
Whitaker
2251 Mr. Mitchell Explained the difference between the
GARVEE and the tobacco sale issuance
received by the State.
2270 Co-Chair Mulder Requested more information that itemized
the projects for Committee members.
2294 Representative Requested a comparison graph of the
Hudson GARVEE bonds, securization and standard
bonds. He asked what the numbers would
look like if the State floated the bonds.
TAPE HFC 01 - 35,
Side B
016 Mr. Mitchell Offered to put that information together.
069 Representative Commented that the State bonds can be
Davies used for other things, whereas, the
GARVEE can only be used for specific
transportation related concerns.
088 Representative Asked the total amount of anticipated,
Harris per year federal highway funds.
111 Commissioner Perkins Replied that the State is currently at
$400 million per year. He estimated that
there would be an increase of 4-5% per
year. Most other states are at 10% of
yearly average.
153 Representative Asked if this would preclude the State
Whitaker loosing our federal match for any given
year.
191 Commissioner Perkins Advised that the State would not be
loosing "anything" when receiving the
GARVEE deal.
215 Co-Chair Williams Voiced his appreciation for the
Department's testimony.
240 Co-Chair Williams ADJOURNMENT
The meeting was adjourned at 3:50 P.M.
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