Legislature(2023 - 2024)ADAMS 519
02/05/2024 01:30 PM House FINANCE
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| Start | |
| Presentation: State Debt | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
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HOUSE FINANCE COMMITTEE
February 5, 2024
1:38 p.m.
1:38:04 PM
CALL TO ORDER
Co-Chair Johnson called the House Finance Committee meeting
to order at 1:38 p.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Neal Foster, Co-Chair
Representative DeLena Johnson, Co-Chair
Representative Julie Coulombe
Representative Mike Cronk
Representative Alyse Galvin
Representative Sara Hannan
Representative Andy Josephson
Representative Dan Ortiz
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
None
ALSO PRESENT
Fadil Limani, Deputy Commissioner, Department of Revenue;
Ryan Williams, State Debt Manager, Department of Revenue.
SUMMARY
PRESENTATION: STATE DEBT
Co-Chair Johnson reviewed the meeting agenda.
^PRESENTATION: STATE DEBT
1:39:56 PM
FADIL LIMANI, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
introduced himself and the PowerPoint presentation "State
of Alaska Credit Rating Outlook and Debt Summary" dated
February 5, 2023 (copy on file). He went over the overview
of the presentation on slide 3.
Mr. Limani continued on slide 4 and reviewed some general
information on the bond rating process. He explained that a
bond rating was a way to measure the creditworthiness of a
bond, which corresponded to the cost of borrowing for an
issuer. The ratings typically assigned a letter grade to
bonds that indicated credit quality information. Bond
ratings were provided by independent third-party firms,
such as Standard and Poor's Global Ratings, Moody's
Investors Service, Fitch Ratings Inc., and Kroll Bond
Rating Agency. Rating agencies had been in existence since
the early 1900s but had not been regulated. The U.S.
Securities and Exchange Commission (SEC) imposed
regulations on the rating agencies in in 2006 as part of
the Credit Rating Agency Reform Act.
Mr. Limani explained that each rating agency had a
different financial metric and conducted a thorough
financial analysis of the issuer based on published public
finance criteria which generally focused on different but
similar primary credit factors. Some of the factors
included government framework, financial management, the
economy, budgetary performance, and the debt and liability
profile. Bond ratings were critical to the quality and
stability of the bonds and the issuer. Highly rated bonds
that were considered to be "investment grade" provided
lower risk and a lower borrowing cost, while lower rated
bonds considered to be "non-investment grade" and provided
for higher risk and a higher borrowing cost.
Mr. Limani continued on slide 5 and detailed the importance
of credit ratings to the state. He relayed that debts with
a higher rating provided for a lower cost of borrowing on
Capital Improvement Projects (CIP). The biggest benefit of
higher credit ratings seen by the state was to the Alaska
Municipal Bond Bank (MBB) and its underlying issuers. There
were presently 34 municipalities and governments in the
state that utilized the MBB. When the state experienced an
increase in its bond rating, it benefited the MBB. The
state's ability to attract national and global investors
was also positively impacted when it had a positive bond
rating. When the agencies assigned a new rating, the
Department of Revenue (DOR) had to notify the market of the
new rating to adhere to the SEC rules.
1:44:59 PM
Representative Hannan asked Mr. Limani whether the 34
municipalities in the bond bank were large or small.
Mr. Limani responded that he could provide a detailed list
to the committee, but the municipalities were generally
some of the smaller cities in the state. He suggested that
his colleague from DOR add more context.
RYAN WILLIAMS, STATE DEBT MANAGER, DEPARTMENT OF REVENUE,
added that the municipalities ranged from large to small,
but the number one MBB borrower was Sitka. Another variable
was the type of project for which the municipality was
issuing; for example, Sitka had a large and costly
hydroelectric project. He relayed that Hoonah borrowed for
certain school projects. He could provide a complete list
to the committee.
1:46:31 PM
Mr. Limani continued on slide 6, which detailed the bond
rating scale between the four bond rating agencies that he
discussed on slide 4. He noted that Moody's had a different
rating scale than the other three. He explained that a
rating between a "BBB" to "AAA" was considered investment
grade. Any rating below BBB was considered a non-investment
grade bond or a "junk bond."
Mr. Limani moved to slide 7, which illustrated the state's
current rating between the four agencies as well as
historical rating data. For example, Moody's had started
rating the state in 1961. In 2023, DOR had discussed with
the committee the possibility of engaging a fourth rating
agency, which it had since accomplished. He relayed that
Kroll Bond Rating Agency began rating the state on July 20,
2023. The evaluation criteria followed by Kroll was
slightly different than the other agencies in that it was
more thorough in its ratings, which highlighted the
complexity and uniqueness of the credits in Alaska.
Representative Hannan asked why Moody's had not given the
state a bond rating since 2017.
Mr. Limani replied that there had been no new
authorizations. The ratings on the slide represented the
outstanding bonds held by the state and the agencies
conducted a constant monitoring of the state's credit. The
agencies could make changes to the credit at any point in
time based on financial information made available to the
agencies based on rating criteria. He clarified that Moody
evaluated the state's credit every year, but it had not
made any letter-grade changes other than changing the
outlook.
Representative Stapp asked about the practical implications
of the favorable rating from Kroll. He asked what would
happen if a new state bond was issued.
Mr. Limani replied that there was an upcoming slide that
would answer the question.
1:51:46 PM
Mr. Limani continued on slide 9. He relayed that one of his
priorities for DOR was to consult with the rating agencies
and demonstrate why Alaska was worthy of a higher credit
rating. The department was able to demonstrate Alaska's
strong financial position by tailoring its information and
presentation based on the agencies' rating criteria. The
information that DOR had pitched to the agencies had been
relatively well-received.
Mr. Limani explained that the next few slides detailed the
department's ratings pitch and demonstrated how it was
justifying the need for a higher bond rating for the state.
Based on the FY 23 preliminary and unaudited financial
statements, the Constitutional Budget Reserve (CBR) was at
approximately $2.7 billion and the Permanent Fund was at
approximately $76 billion. The state's general obligation
debt as of December 31, 2023, was $533 million. Revenue
also increased in FY 23 and was in excess of $100 million
from FY 22. He added that that there was a decrease in
operating expenditures and the general fund balance yielded
approximately $800 million in increased funds. The state
also continued to have ample oil and gas natural resources
and some of the world's largest natural mineral deposits.
Mr. Limani moved to slide 10. He explained that a reason
for the bond rating upgrade was the prominent resource
development projects on the horizon, such as the Willow
Development Project. He relayed that Willow was a $10
billion investment with projected revenues of $6.3 billion
to the state and more than $5 billion to the local
municipalities and impacted communities. The Pikka
Development Project was a $4.6 billion investment in
operating expenditures and $4.3 billion in capital
expenditures. The Alaska Liquified Natural Gas (LNG)
Project was about a $41 billion initial investment with
billions of dollars in projected state revenues.
1:54:21 PM
Co-Chair Edgmon appreciated the information and was
supportive of the department's efforts. He noted that there
were many systemic challenges in Alaska's workforce. There
had been a recent uptick in oil production but there might
be a decrease in oil revenue in the future. He asked how
the ten-year spending plan came into focus. The state had
massive deficits in its ten-year spending plan due to
including a full statutory Permanent Fund Dividend (PFD),
which he thought would make anyone nervous. He assumed that
the department made the presentation to Kroll prior to the
release of the most recent spending plan. He viewed the
spending plan simply as a document more than as an actual
plan. He asked what Kroll's perspective on the state was
given the circumstances.
Mr. Limani replied that all credit rating agencies
conducted a comprehensive assessment of the state's
finances. The agencies looked at the state's financial
information in rating meetings with the department in June
of 2023. The agencies were primarily focused on the best
and most up-to-date financial information that had been
thoroughly audited, but the agencies also evaluated the
ten-year plan. However, agencies typically focused on the
first several years in the plan rather than the out-years.
The agencies were concerned about the percent of market
value (POMV) draw and the POMV split. He relayed that the
agencies looked at other economic factors outside of the
longevity and forecasting of the revenue.
Co-Chair Edgmon shared that the response confused him when
he thought about the information provided in prior
presentations to the committee from Moody's and other
agencies. He asked if Kroll had a summary on its website
detailing its opinion on the financial status of Alaska and
what investors should know about the state. He was
surprised that there would not be more hesitancy when
considering the fact that the state might encounter
deficits in the near future. He thought the agencies would
not be taking the situation seriously if there was no
hesitancy.
Mr. Limani responded that agencies were taking all
information into account as part of the credit evaluation.
Co-Chair Edgmon understood that there were multiple
factors. He thought Mr. Limani had provided detailed
information and he supported the process. He understood
that the deficit was not the only element considered in
credit evaluations, but it was an important factor and he
was concerned that he did not hear Mr. Limani refer to it
as a factor.
Mr. Limani agreed that it was a factor, but it was part of
a comprehensive assessment conducted by rating agencies. He
explained that Kroll conducted a comprehensive assessment
totaling around 26 pages, which was unlike the other
agencies. He offered to make the report available to the
committee.
Co-Chair Johnson suggested that the report be submitted to
all members. She asked if agencies were using other
outlooks or assessments to craft the credit evaluations in
addition to the ten-year outlook that the committee had
seen. She thought the credit evaluation would be fairly
weak if the agencies were only working off of the ten-year
outlook.
2:00:03 PM
Mr. Limani responded that rating agencies could analyze
information differently than the state, and information
could be analyzed differently from one rating agency to the
next. For example, Moody's looked at the state's debt and
pension obligation in comparison to the Gross Domestic
Product (GDP) while Fitch might look at the financial
liquidity of the state.
Co-Chair Johnson asked if the state's bond rating could be
changed if the state's finances were analyzed in a
different way. There would always be a discrepancy between
the ways in which rating agencies evaluated different
states. She relayed that Kroll was different in that it
evaluated Alaska's credit in a holistic manner and it
understood that Alaska could compensate in other ways for
areas it may appear to be lacking.
Mr. Limani responded that it was common practice for the
department to promote Alaska's uniqueness. He stressed that
it was not possible to compare Alaska to other states.
Representative Galvin asked Mr. Limani if it would be
better for the state's credit rating to continue to draw
from the CBR and the PFD or to implement a broad-based tax.
She asked which strategy would be better received by the
credit rating agencies.
Mr. Limani replied that the stability of the state's
revenues was an ongoing conversation. He was not aware of
whether the rating agencies preferred one strategy over the
other. He relayed that the POMV was seen as a positive and
stable source of revenue. There was concern about the
volatility of the price of oil and the impact on the
state's overall financial picture.
Representative Galvin appreciated conversations about the
volatility of the price of oil. She noted oil was roughly
37 percent of the state's revenue. She thought that most
states in the nation had a broad-based tax in order to
stabilize finances. She asked if Mr. Limani would agree
with her comments.
Mr. Limani replied in the affirmative. Rating agencies had
often criticized Alaska for the concentration of the
economy and the reliance on natural resources. The POMV had
helped alleviate the criticism, but there had been
conversations about other measures the state could look at
to increase revenue with a tax to offset deficits.
2:06:07 PM
Representative Josephson noted that the one thing on the
slide with which he was unfamiliar was the alternative
energy transition projects estimated capital outlay of
between $105 billion and $175 billion. He was stunned by
the number and asked for more information.
Co-Chair Johnson interjected that the conversation had
taken a detour. She noted that she would like Mr. Limani to
continue presenting on slide 10 and integrate
Representative Josephson's question into his presentation.
Mr. Limani continued the presentation on slide 10. He
relayed that other important economic development prospects
included carbon credits; Carbon Capture, Utilization, and
Storage (CCUS); alternative energy transition projects
(AETP); and the Grid Resilience and Innovation Project
(GRIP). He explained that the capital outlay was projected
to be between $105 billion and $175 billion for AETP. He
added that the Alaska Energy Authority (AEA) applied for
the GRIP grant, which if awarded would be $206 million in
funding from the United States Department of Energy and
required a 100 percent match from the state. He added that
presently, only 24.7 percent of state revenues were based
on oil and gas and 15.1 percent of revenues were based on
diverse world-wide income by way of the POMV transfer.
Co-Chair Johnson understood that the GRIP grant was not an
obligation. She asked how an analysis would be done on the
grant given that it was not a requirement for the state.
Mr. Limani replied that GRIP was analyzed in a similar
manner as bond ratings and was not looked at as a debt, but
more of an opportunity. The remaining question was how the
state would commit the $206 million match. He relayed that
AEA would have a conversation with the legislature on the
way in which the $206 million would be spent.
Co-Chair Johnson asked if the grant contributed to an
upgrade in the bond rating.
Mr. Limani replied that it did not necessarily contribute
to the rating.
Co-Chair Johnson explained that she was looking at the
title [slide 10 was titled "Bond Rating Upgrade"].
Mr. Limani replied that it contributed to the pitch that
DOR was making to the rating agencies to express the unique
aspects of Alaska.
2:10:37 PM
Representative Coulombe noted that the committee had seen a
presentation that showed that funding for the state was
over 50 percent from the federal government. She asked how
the increasing reliance on federal funds influenced the
bond rating.
Mr. Limani responded that much of the increased federal
funding had been through Coronavirus Aid, Relief, and
Economic Security (CARES) act funding and from
Infrastructure Investment and Jobs Act (IIJA) funding. He
explained that the number appeared to be artificially high
due to increased pandemic funding. The federal funding was
considered to be another diversified source of revenue from
a ratings perspective.
Mr. Limani continued on slide 11 to address some of the
positive feedback from the rating agencies. He reiterated
that the transfer from the Permanent Fund, which had been
defined through a POMV statutory structure and had been in
place since FY 19, was viewed favorably by the agencies.
The recent budgetary surplus and deposits to state savings
accounts, including the increase to the CBR, were well
received as well as the significant reduction in state
general fund spending since 2013. Additionally, the
agencies approved of the state's improved oil price
environment and significant available natural resource
projects under development. Alaska's economic demographics
were also improved and the pension obligations were well-
funded. He added that Moody's had been particularly
interested in Alaska's economic demographics in the past,
especially its job growth, wage growth, the GDP, population
growth, and out-migration. He shared that job growth was at
2.1 percent in 2023, which was higher than the national
average of 1.9 percent. He relayed that rating agencies did
not view favorably the long-term outlook of the POMV and
how deficits would be funded in any given year when the
price of oil was low.
2:15:26 PM
Representative Tomaszewski asked for more information about
pension obligations.
Mr. Limani replied that he did not have detailed numbers on
the pension obligations but would follow up.
Representative Tomaszewski remarked that slide 11 said the
pension obligations were well funded but he was uncertain
how the obligations could be considered well-funded when
there was a significant unfunded liability.
Mr. Limani responded that he would be happy to provide the
funding levels in a follow up but he did not have the
information readily available.
Representative Josephson remarked that Representative
Tomaszewski was correct and added that the debt between
Public Employees' Retirement System (PERS) and Teacher's
Retirement System (TRS) was in the range of $6 billion. He
wondered why the rating agencies thought that the state's
pension obligation was well funded. He noted that the
Alaska Retirement Management Board (ARMB) had $30 billion
available.
Mr. Limani replied that the PERS side of the pension was
about 67 percent funded and TRS was about 77 percent
funded. He stressed that health care was about 133 percent
funded for PRS and 136 percent funded for TRS.
Collectively, PERS was funded at 86 percent and TRS was
funded at 92 percent. Rating agencies thought the pension
obligation was well funded because the pensions in other
states were not as well funded or well established. Most of
Alaska's peer states were in the thirtieth percentile based
on actuarial liabilities with the assets to support the
obligations. In 2015, the legislature was able to
contribute around $3 billion to PERS and $2 billion to TRS
to help funding levels.
2:19:06 PM
Representative Stapp noted that slide 11 indicated that
institutional investors "love Alaskan paper, high quality-
credit, highly secured." He understood that investors
wanted the state to issue more bonds, which he appreciated.
However, he did not think that the investors came to the
conclusion by using the graphs in the presentation. He
thought it would not make sense for a state to receive a
bond rating upgrade if the state indicated that it would
spend all of the money. He asked why it seemed challenging
to say that no investor believed that Alaska was going to
spend all of the money. He thought the investors believed
that Alaska was going to take responsible measures and
refer to past performance to progress.
Mr. Limani responded that Representative Stapp's statement
was an opinion and commented that everyone had opinions,
credit rating agencies included. The feedback was coming
directly from institutional buyers that had observed
Alaska's unique credit and determined that bonds were
desirable. He relayed that there were many elements
considered by the agencies as part of the evaluation
criteria.
Representative Stapp thought that people wanted to buy the
bonds because the state was not going to default on the
bonds. The bonds would not be desirable if people thought
that the state would default on the bonds.
Mr. Limani relayed that the remainder of the presentation
would be given by Mr. Williams.
2:21:30 PM
Mr. Williams continued the presentation on slide 12 which
offered the current municipal market update. The update was
released on December 14, 2023, and was already outdated
because rates changed quickly. He provided the update to
illustrate the difference between credit ratings on the
bottom portion of the chart. Rates were fairly compressed
and there was not an overly significant difference between
various ratings, but it offered an example of the yield
curve over time.
Mr. Williams continued on slide 13. He explained that state
debt was required to be authorized by law. The most recent
state authorization for general obligation debt was a
transportation bond act in 2012 which had been fully
utilized with no remaining authorization under the bond
act. The authorization could be a one-time issuance amount
or a not-to-exceed issuance limit. If the authorization was
a not-to-exceed issuance limit, the cap would be set at
issuance and the authorization would theoretically be
issued over a time horizon and issue projected spend down
on the identified capital projects. General obligation (GO)
bonds were also required to be authorized by a majority of
voters and were the only debt secured by full-faith credit
and taxing authority. State debt was issued through the
State Bond Committee and included GO bonds and state
revenue bonds. He relayed that he would be focused on state
debt and state-supported debt in his portion of the
presentation.
2:24:15 PM
Representative Hannan asked whether GO bonds could be used
as part of the federal match for GRIP.
Mr. Williams responded that a bond council would need to
inspect the bonds to ensure that there was a legal
structure in order to issue GO bond debt and determine
whether the proceeds from a GO bond could be used for a
particular project.
Mr. Limani added that absent of going through the process
of GO authorization, a GO bond could be issued for GRIP as
long as it met the definition of a capital outlay project.
Mr. Williams moved to slide 14, which detailed the various
types of Alaska public debt. He would focus on the
following five types of debt: state debt, state guaranteed
debt, state supported debt, Unfunded Actuarial Accrued
Liability (UAAL), and state supported municipal debt that
was eligible for state reimbursement.
Representative Coulombe understood that Anchorage had
struggled with its bond rating. She asked if Anchorage's
rating would affect the state's rating.
Mr. Williams responded in the negative. Municipalities
would issue separate debt from the state. If a municipality
issued GO debt, the debt would have full-faith credit
authority backing it. Debt issued by the state would be a
separate level of issuance.
2:27:35 PM
Mr. Williams continued to slide 15 and detailed the state's
outstanding debt as of June 30, 2023, which was $577.2
million in outstanding par in GO bonds. Lease revenue and
certificates of participation (COP) subject to
appropriation totaled about $163.9 million in remaining
par. The chart on the bottom left of the slide illustrated
the 10 percent paydown of 77 percent of the total
outstanding principal. He relayed that it was an aggressive
paydown on the principal of the remaining debt. The chart
on the bottom right illustrated the annual GO debt service
by fiscal year.
Co-Chair Johnson asked if it was the will of the committee
to continue quickly through the information on the slide.
She ascertained that the committee was amendable to the
speed at which Mr. Williams was presenting.
Mr. Williams continued on slide 16, which included a
depiction of each state agency and its associated debt by
type as of June 30, 2023. He added that the Alaska Housing
Finance Corporation (AHFC) issued state guaranteed debt,
which was for collateralized veterans' mortgage program
bonds. State supported debt included certificates of
participation and lease revenue bonds with a state credit
pledge and payment. He explained that state-supported
municipal debt included the state reimbursement of
municipal school debt service and of capital projects.
There was about $1 billion in outstanding moral obligation
debt for the Alaska MBB and $204 million outstanding for
AEA. The revenue bonds issued to benefit the international
airports were also authorized through the state bond
committee and totaled $237 million in outstanding debt. The
airport system's debt profile went through a significant
restructuring in 2021 and received some refunds and
redeemed bonds, which meant that the outstanding principal
and payments were reduced.
Representative Josephson understood that in 2015, previous
Alaska State Senator Anna Fairclough placed a moratorium on
the state reimbursement of the municipal debt service
program. He asked if the $433 million listed as the state
reimbursement of municipal debt service was current. He was
surprised that more debt had not been accumulated and asked
for clarification that the state's outstanding obligation
was $433 million.
Mr. Williams replied that $433 million was the state's
share of the total outstanding municipal school debt. When
the program was available for use, school districts had to
apply to the Department of Education and Early Development
(DEED) and would often be reimbursed at a rate of 60
percent to 70 percent. The total outstanding debt at the
municipal level was approximately $649 million and the $433
million was the state's share for projects that were
approved prior to the moratorium.
Representative Josephson noted that there were years when
governors had vetoed appropriations and there was one year
in which the legislature retroactively appropriated funds.
He asked how local governments could meet bond obligations
without state assistance. He thought there would be a hole
of about 60 percent to 70 percent in a local government's
expectation.
Mr. Williams responded that he was unsure if he could
answer how it was accomplished. He thought the local
governments were resilient.
Representative Josephson asked if paying the debt held by
MBBs was considered a moral obligation because local
governments were referred to as "creatures of the state"
and the state therefore had some obligation for the debts
of local governments.
Mr. Williams responded that the rating agencies would
evaluate the bond bank program as part of the credit rating
process. The state had an annual appropriation since around
2009 to backfill the reserve fund should there be a default
by a borrower. The appropriation had significantly
increased the strength of the program from the perspective
of the credit rating agencies. The bond bank was able to
issue debt at a lower cost and it directly passed the lower
rate to the municipal borrower. He emphasized that the bond
bank was not a grant program, but a way to assist
municipalities in creating sustainable capital budgets and
help decrease borrowing costs.
2:35:31 PM
Co-Chair Johnson commented that she did not think that the
municipal government thought of the state as a parental
figure.
Mr. Williams moved to slide 17 and detailed the state's
outstanding debt as of June 30, 2023, by debt type. The
total state debt from the University of Alaska's revenue
bonds, university lease liability, and notes payable
totaled about $479 million. He added that Alaska state
agency debt included commercial paper and state capital
project bonds for AHFC, the railroad, and the bond bank.
State agency collateralized or insured debt included
certain mortgage revenue bonds for AHFC and totaled about
$1.1 billion in outstanding debt. The total for all state
and state agency debt was about $9 billion.
Representative Tomaszewski asked if the interest and
maturity for the $9 billion debt was known.
Mr. Williams responded that interest and maturity was
broken out by each individual type but was not totaled. He
thought that each different type of debt had a widely
different structure and should not be combined. The
interest and maturity on state GO bonds would be
significantly different than interest and maturity on
certain state agency debt. He would be happy to provide the
total number.
Representative Tomaszewski noted that there was a column on
the slide for total interest. He asked if the total
interest could be determined by adding all interest items
together.
Mr. Williams asked if Representative Tomaszewski wanted the
total interest of all of Alaska debt types.
Representative Tomaszewski responded in the affirmative. He
was simply wondering if the total was available. He asked
if there was a reason why the total was not on the slide.
Mr. Williams responded that he thought it was more
appropriate to include the interest and maturity within
each type of outstanding debt rather than the overall
total. He would be happy to follow up with the totals.
Representative Tomaszewski replied that he would use a
calculator to total the numbers.
2:39:09 PM
Representative Galvin asked where on the slide were the
Alaska Industrial Development and Export Authority (AIDEA)
bonds listed.
Mr. Williams answered that AIDEA reported that certain debt
that was listed as outstanding was issued as conduit debt.
The listed outstanding debt was moved from the Alaska
Public Debt book to the notes section of AIDEA's financial
statements. He offered to follow up with additional
information.
Representative Galvin responded that it would be helpful to
the committee for the information to be available. She
would appreciate finding out more information if Co-Chair
Johnson was amenable.
Co-Chair Johnson remarked that whether the debt was state
debt or not, it was important for the committee to be
apprised of it. She requested that Mr. Williams provide
more detailed information to the committee.
2:41:31 PM
Mr. Williams continued on slide 18 and reviewed the state's
historical and future debt service needs. The debt was
below its 2018 peak of about $229 million due in part to
the amortization process. In FY 23, debt service payments
included approximately $95.9 million in GO and state
supported debt, and approximately $81.2 million in state
supported municipal debt. In FY 24, the approximation was
$90 million. The chart on the bottom of the slide showed
general fund debt and statutory payments to PERS and TRS.
Mr. Williams advanced to slide 19, which detailed the debt
affordability analysis. The annual analysis was required by
AS 37.07.045 to be delivered by January 31 every year.
Other states had certain policies in place to limit debt
and had a directly paid state debt limit of about 5
percent. After the implementation of SB 26 and the POMV
transfer Alaska changed its methodology and relied upon
debt ratios with a limit of 4 percent for directly paid
state debt and a 7 percent limit when combined with state
supported municipal debt. The policy also outlined other
refinancing parameters for outstanding debt and provided a
capacity level of an estimated $1.4 billion. The PERS and
TRS payments for state assistance were not included in the
percentage calculations but were included in the analysis.
Representative Stapp remarked that in the prior year, he
was shocked to learn that the state's bonding capacity was
only $1.4 billion. He thought that the assumption would be
that the state's debt ratio to its capacity ratio was 50
percent. He asked if his understanding was correct.
Mr. Williams replied that the capacity took into
consideration the annual commitment to pay debt from the
general fund. The capacity was the amount remaining after
the 4 percent target was met.
Representative Stapp understood that capacity was being
discussed in terms of the annual payment service. He
thought that the state could theoretically add another
payment service of $1.4 billion, which would be the maximum
capacity on an annual basis, and the debt would be
amortized into 20 years or 30 years.
Mr. Williams responded in the affirmative.
2:45:55 PM
Mr. Williams noted that the general target was 20 years
when considering the issuance of debt. The estimated
interest rate was 5 percent, which he thought was a
reasonable average.
Representative Stapp understood that the state had a low
debt ratio, a healthy credit rating, and a sufficient
bonding capacity. He asked if his understanding was
correct.
Mr. Limani responded in the affirmative. He was confident
that the state had a healthy financial position and a low
debt load. He stressed that Alaska was resilient and able
to adapt and adjust over time in terms of spending
patterns. Trends showed that the state had been able to
adjust its spending based on the inflow of revenues.
2:48:15 PM
Co-Chair Johnson reviewed the agenda for the following
day's meeting.
ADJOURNMENT
2:49:15 PM
The meeting was adjourned at 2:49 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| H.FIN DOR Credit Outlook and Debt Summary 02.05.24.pdf |
HFIN 2/5/2024 1:30:00 PM |