Legislature(1999 - 2000)
01/27/2000 01:40 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): DISCUSSION ON G.O. BONDS
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: 1:40 P.M.
Tape(s): HFC 00 - 19, Side 1
PRESENT:
X
Representative G. Davis
X
Co-Chair Therriault
X
Representative Foster
Absent
Co-Chair Mulder
X
Representative Grussendorf
X
Vice Chair Bunde
Absent
Representative Moses
X
Representative Austerman
X
Representative Phillips
X
Representative J. Davies
X
Representative Williams
ALSO PRESENT: WILSON, CONDON, COMMISSIONER, DEPARTMENT OF REVENUE;
TIM RATTIGAN, VICE PRESIDENT OF PUBLIC FINANCE,
SOLOMON/SMITH/BARNEY, JUNEAU; DEVAN MITCHELL, DEBT MANAGER, TREASURY
DIVISION, DEPARTMENT OF REVENUE; NEIL SLOTNICK, ASSISTANT ATTORNEY
GENERAL, CIVIL DIVISION, DEPARTMENT OF LAW.
LOG
SPEAKER
DISCUSSION
TAPE HFC 00 - 19,
SIDE 1
000
VICE CHAIR BUNDE
Vice Chair Bunde convened the House
Finance Committee meeting at 1:40 p.m.
187
DEVAN MITCHELL, DEBT
MANAGER, TREASURY
DIVISION, DEPARTMENT
OF REVENUE
Provide a handout for Committee members.
[Copy on File]. He noted that page 2 of
the handout identified the general
obligation bonds authorized and issued
and listed by decade.
298
MR. MITCHELL
Referenced page 3, which illustrates the
outstanding bonds at each year since
1957. He commented on the general
obligation bonds issued against the
relation to the Prudhoe Bay drop off.
350
REPRESENTATIVE
FOSTER
Asked what the bonds were expected to be
used for.
392
MR. MITCHELL
Replied that bonding has been used for
multiple purposes but generally are used
for one time expenses that the State
might have incurred.
431
MR. MITCHELL
Referenced page 4, which demonstrates the
general sales life of each bond. He
suggested that today, there exists no
outstanding debt.
491
REPRESENTATIVE
AUSTERMAN
Requested information regarding the 1984
spike. He imagined that there could be
over $1 billion dollars given the current
increase.
538
REPRESENTATIVE
FOSTER
Asked about the bonds used for capitol
projects. He asked if other states had
considered using bonds for operating
expenses.
595
MR. MITCHELL
Explained that bonds used for that
purpose was no longer allowed. He noted
that there is a tax-exempt limitation for
one-time costs.
625
MR. MITCHELL
Moved to page 5, which lists the State
debt capacity. He explained that:
? The ratio of debt service to revenues
is used as a guideline;
? Included debt service on state and
state supported debt;
? Applied to unrestricted general fund
revenues;
? 5% to 8% guideline for a double "A"
rating.
746
MR. MITCHELL
Added that there is not a defined
capacity. He pointed out that the number
is a moving target. A large
consideration is the responsibility that
comes with continued operation under the
double "A" rating. He noted that other
statistical measures do not apply in
Alaska. An issuance of the size
suggested would shift the rating. The
State should rely on their capacity to
standardize policy throughout the
country. He added that normal measures
do not apply to some situations.
890
MR. MITCHELL
Commented that it is important to
consider how the debt service should be
supported. Mr. Mitchell referenced page
? State G.O. Debt;
? Lease/Purchase Obligations;
? University of Alaska; and
? School Debt (1) Reimbursement
989
MR. MITCHELL
Stated that Moody's rate determination
would not include the school debt
reimbursement. Standard and Poor model
does include the State debt reimbursement
but does not include it for the borrowing
capacity. He reiterated that there are
differences for state supported
borrowing.
1125
MR. MITCHELL
Referenced page 7, which lists the types
of debt service as a percentage of,
unrestricted revenues.
? State GO Debt;
? State Supported Debt Service; and
? School Debt Service.
1155
VICE CHAIR BUNDE
Inquired if that could change the State's
rating.
1168
MR. MITCHELL
Responded that it would not.
1184
CO-CHAIR THERRIAULT
Admitted that was what was shown for
1999, however, voiced curiosity about the
spike in the graph.
1206
MR. MITCHELL
Agreed.
1215
MR. MITCHELL
Reiterated that information on page 6
would help to define that situation more.
He spoke to the projected range
percentages. In 2001 through 2010 and
onward, the projection is for all school
debt reimbursement as if authorized
today. Inclusive of that information,
Alaska is at 4%.
1290
VICE CHAIR BUNDE
Asked if the market had built a margin
for the fluctuation in the price of oil.
1312
MR. MITCHELL
Stated that the market will price, given
consideration for oil price fluctuations.
He added that this is the long-term
projection and the plan at this time. He
reiterated that this is the long-range
projection and not geared for a short
term unexpected event.
1360
MR. MITCHELL
Page #8. Mr. Mitchell provided
observations on the State debt capacity.
? Projected fiscal gap is limiting
factor;
? 68% of revenues from oil is a limiting
factor; and
? Debt issuance's of $100 to $125
million dollars per year over the next
five years probably feasible as G.O.
debt.
1442
MR. MITCHELL
Continued addressing the Permanent Fund
earnings and the projection on how that
would be used.
1469
VICE CHAIR BUNDE
Pointed out that there are proposals
currently "on the table" that are worth
over $100 million dollars.
1493
MR. MITCHELL
Replied that will require "pushing the
envelope" a little further. He
emphasized that there is an 8% guideline
included in the packet recommendations.
The most important aspect is the dialogue
that is involved.
1534
REPRESENTATIVE
PHILLIPS
Pointed out the 68% revenues from oil.
She inquired if that number had been
projected from last year.
1550
MR. MITCHELL
Explained that it had been taken from the
revenue book. That is classified as
unrestricted revenue. He acknowledged
that there was a discrepancy in that
number.
1579
REPRESENTATIVE J.
DAVIES
Asked the revenue percentage used to
determine that number.
1597
MR. MITCHELL
For FY2001, that amount would be $1566.2
billion dollars. It would decline from
that number.
1641
MR. MITCHELL
advised that there had been discrepancies
between the various departments.
1655
CO-CHAIR THERRIAULT
Asked if the $100 - $125 would be debt
issued to that amount.
1682
MR. MITCHELL
Replied it would.
1687
CO-CHAIR THERRIAULT
Asked if that was only for the GO and
GARVEE bonds. He asked if the market
would be looking at the overall debt.
1711
MR. MITCHELL
Advised that the people will be looking
at what the State of Alaska is doing
broad based. It is contemplated that if
the settlement were removed, given that
there were deterioration, there would be
no recourse against the State of Alaska.
He stated that the GARVEE bonds would be
paid with federal dollars. There is
ongoing dialogue at this time. He
reiterated that the overall debt issuance
needs to be considered.
1805
REPRESENTATIVE
PHILLIPS
Asked if the Departments recommendation
would be for the Legislature to put
together the capital projects, but not to
recommend issuing for more than $125
million dollars this year and then the
remaining for the following years.
1841
MR. MITCHELL
Commented on the parameters that the
Department would recommend. He
acknowledged that there could be
ramifications.
1869
REPRESENTATIVE J.
DAVIES
Asked how long could it be expected that
the authorization would last.
1889
MR. MITCHELL
Stated that could occur.
1896
CO-CHAIR THERRIAULT
Believed that some of the authorization
could be strung out over a number of
years.
1910
MR. MITCHELL
Referenced page 9 which is a simplified
debt schedule of State debt capacity in
the $million dollars of debt
service/unrestricted revenues (Fall 1999
Revenue Sources Book). He noted that at
the 5% target, the cumulative capacity
would be $155.13 million dollars and at
8% would be $628.8 million dollars.
1995
MR. MITCHELL
If an additional amount were authorized,
the State would use the more conservative
approach which is the Standard and Pore
recommendation.
2039
REPRESENTATIVE
FOSTER
Spoke to addressing deferred maintenance.
He inquired if some of the funds should
be used for that.
2058
MR. MITCHELL
Understood that some of the recommended
package did include some deferred
maintenance costs.
2099
MR. MITCHELL
In response to Representative Foster, Mr.
Mitchell stated that the bonding agencies
are not assuming any responsibilities.
The people that buy the bonds are
ultimately responsible. He emphasized
that it is imperative that the State
raises revenues to pay for the bonds.
2123
VICE CHAIR BUNDE
Asked if the State of Alaska was becoming
like the miser who would die with debt
and lots of financial assets.
2154
WILSON, CONDON,
COMMISSIONER,
DEPARTMENT OF
REVENUE
Replied that could happen to the State
given the choices of the investments that
are made. It is important to give
consideration of where the investments
are made. The investments have to be
weighed against other places where
investments can be made.
2196
CO-CHAIR THERRIAULT
Asked about the negative brackets [] on
page 9.
2207
MR. MITCHELL
Replied that was where there was a
decrease in the fund service in what
could be issued over the next 20 years.
He added that it is the "mapping"
expected revenue stream.
2235
CO-CHAIR THERRIAULT
Asked about the use of the tobacco
settlement funds. He noted that in some
states, private citizens had undertaken
litigation for the proper use of those
funds.
2270
COMMISSIONER CONDON
Did not know the legal basis that people
in other states were using. He advised
that what applies in Alaska could be
legally different from those states.
2298
REPRESENTATIVE
FOSTER
Voiced appreciation on the testimony
received both 2/26 and 2/27. He asked if
there was a bill prepared with the
discussed information.
2309
REPRESENTATIVE
PHILLIPS
Replied that it is being working on in
Co-Chair Mulder's office.
2316
CO-CHAIR THERRIAULT
ADJOURNMENT
The meeting adjourned at 2:30 P.M.
HOUSE FINANCE COMMITTEE
LOG NOTES
January 27, 2000
H.F.C. 6 1/27/00
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