Legislature(2011 - 2012)HOUSE FINANCE 519
02/14/2012 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB66 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 66 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 14, 2012
1:34 p.m.
1:34:59 PM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 1:34 p.m.
MEMBERS PRESENT
Representative Bill Stoltze, Co-Chair
Representative Mia Costello
Representative Mike Doogan
Representative Bryce Edgmon
Representative Les Gara
Representative David Guttenberg
Representative Mark Neuman
Representative Tammie Wilson
MEMBERS ABSENT
Representative Bill Thomas Jr., Co-Chair
Representative Anna Fairclough, Vice-Chair
Representative Reggie Joule
ALSO PRESENT
Mark Davis, Deputy Director, Alaska Industrial Development
and Export Authority, (AIDEA)
SUMMARY
CSSB 66(L&C)
AIDEA: NEW MARKETS TAX CREDIT PROGRAM
CSSB 66(L&C) was HEARD and HELD in committee for
further consideration.
CS FOR SENATE BILL NO 66(L&C)
"An Act creating a new markets tax credit assistance
guarantee and loan program within the Alaska
Industrial Development and Export Authority and
relating to the program; and providing for an
effective date."
1:36:30 PM
MARK DAVIS, DEPUTY DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT
AND EXPORT AUTHORITY, (AIDEA) clarified that SB 66 is
essentially the same bill as HB 120 with the only
difference being a cap on how much can be guaranteed on the
loans. House Bill 120 had a cap of $50 million; the Senate
reduced it to $40 million. The Alaska Industrial
Development and Export Authority had no objection to the
reduction. Senate Bill 66 allows AIDEA to work with an
effective federal tax credit program; the program was
implemented in 2000 and although the program is still
active in 2012, it is now up for reallocation. Mr. Davis
explained that there are allocations from the U.S.
Department of the Treasury for these types of credits. The
credits are available to people who put equity/cash in
projects in census areas that have 20 percent of the
population below the poverty level or a median income less
than 80 percent of the metropolitan median for a state
which in Alaska would be Anchorage.
Co-Chair Stoltze requested a definition of the metropolitan
mean area.
Mr. Davis replied that each state picks a central
population area such as New York City for New York or San
Francisco or Los Angeles in California, and then the
average income in those large areas would be calculated.
The program largely works in rural areas or targeted
populations, such as Native Americans. In Alaska the
credits have already been used for the Platinum fish plant
and the Galena and Kotzebue long term care facilities. The
loan is usually from a bank, called a leveraged lender, and
a task credit investor. The task credit investor receives
39 percent of whatever they put into the project that is
then used as a tax write-off over a seven year period. The
tax write-off translates into a substantial amount. Equity
investors usually leave their equity in a project, and then
the rest of the money is raised through a regular bank or
credit union. The bank can only collect interest-only for
the first seven years.
Mr. Davis explained that this non-recourse loan prevents
the investor from foreclosing on the project and limited
security. Since 2008, with the economic downturn and
changes in banking procedures, there is a shortage of these
types of loans available. The Alaska Industrial Development
and Export Authority hired several consultants to determine
how to get projects moving in rural Alaska; the consensus
was that AIDEA could offer guarantees for these bank loans
for the first seven years of the project. Once the projects
are cash flowing, over 99 percent would then refinance with
a conventional loan.
1:41:03 PM
Mr. Davis elaborated that a large company could afford to
build a project that may not have a revenue stream for
three to five years, but it was difficult for an
independent. The program uses new market cash credits to
attract equity investors with this interest-only loan. At
the end of seven years the program moves to a conventional
loan using the original equity to refinance. The consensus
among investors and banks is if AIDEA guarantees these
seven year bank loans it would free up the market to
continue.
Mr. Davis cited that there is interest in Alaska to use
these credits if it is possible to get the lending in place
again. The Alaska Industrial Development and Export
Authority would charge a fee for offering the guarantee and
since the default rate would be very low, a small profit
would be generated for the department. He reiterated that
there is no cost to the program and very little risk to the
department's portfolio. One reason is that the Internal
Revenue Service (IRS) has strict requirements If the
project does not succeed in paying its interest-only loan
for seven years, then the investors who received that tax
credit would have to pay back all their tax write-offs.
Investors may also be subject to penalties or additional
interest, therefore when these deals are put together, the
tax credit investors determine that the project will be
successful. In addition, there is the due diligence review
of the lender along with the qualified development entity
to ensure the loan is sound. He revealed that certain
projects with potential investors were already in place in
Alaska. He added that the aforementioned successful
projects were in very rural sections of Alaska.
1:45:06 PM
Representative Edgmon indicated that rural Alaska and
poverty guidelines could potentially benefit the entire
state. He noted that the equity partner or investment
partner could possibly emerge from Anchorage or Fairbanks
where there are areas of 20 percent poverty guidelines. He
believed this could benefit areas in Alaska in need of more
economic development.
Mr. Davis responded that the average savings on a project
financed in this manner was 20 to 30 percent depending on
the negotiations between the bank and the qualified
investors.
Representative Doogan requested the costs of the previous
three loans.
Mr. Davis responded that the amount of the loan in the
Platinum seafood plant was $10 million while the other
projects were in the $2 to $3 million range. These loans
can be used for low amounts of money and also for gap
financing. He offered the example of the Galena project
where the loan was used to provide an additional $2 million
for wood pellet heating and solar panels. These interest-
only payments allowed for the use of alternate fuels in
this project.
Representative Doogan inquired how the plan works if there
is a $40 million loan limit for seven years.
Mr. Davis responded that the project range tends to be up
to $5 million per project, translating into eight projects
over seven years. As each new project takes considerable
time to assemble before a decision is made to move forward,
this would be the usual number of projects to be found
during a seven year period. The cap was picked so as not to
affect AIDEA's financial ratings.
1:48:49 PM
Representative Gara noted that the loan investment had to
be in a community development entity and requested some
examples.
Mr. Davis responded that Alaska Growth Capital (AGC) could
function as a community development entity or a non-profit
could be set up to be a qualified development entity with a
project beneath it.
1:50:10 PM
Co-Chair Stoltze pointed out that absent House Finance
Committee Representatives were interested in the bill. He
encouraged those with suggestions or concerns to notify the
committee.
CSSB 66(L&C) was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
The meeting was adjourned at 1:52 PM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB66_WhitePaper.pdf |
HFIN 2/14/2012 1:30:00 PM |
SB 66 |
| SB66 Sectional.pdf |
HFIN 2/14/2012 1:30:00 PM |
SB 66 |
| SB66 Information Sheet.pdf |
HFIN 2/14/2012 1:30:00 PM |
SB 66 |
| SB66 Gov Transmittal Letter.pdf |
HFIN 2/14/2012 1:30:00 PM |
SB 66 |
| SB66 2-3-2011_AGC-Letter.pdf |
HFIN 2/14/2012 1:30:00 PM |
SB 66 |
| SB66 Hearong Request Letter.pdf |
HFIN 2/14/2012 1:30:00 PM |
SB 66 |