Legislature(2023 - 2024)BARNES 124
03/28/2024 01:00 PM House TRANSPORTATION
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): State of Alaska, General Obligation Bonds, and State Agency Debt | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE TRANSPORTATION STANDING COMMITTEE
March 28, 2024
1:03 p.m.
MEMBERS PRESENT
Representative Kevin McCabe, Chair
Representative Tom McKay
Representative Genevieve Mina
MEMBERS ABSENT
Representative Sarah Vance, Vice Chair
Representative Craig Johnson
Representative Jesse Sumner
Representative Louise Stutes
COMMITTEE CALENDAR
PRESENTATION(S): STATE OF ALASKA~ GENERAL OBLIGATION BONDS~ AND
STATE AGENCY DEBT
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
FADIL LIMANI, Deputy Commissioner
Alaska Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Co-offered the State of Alaska General
Obligation Bonds & State Agency Debt presentation.
RYAN WILLIAMS, Debt Manager
Treasury Division
Alaska Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Co-offered the State of Alaska General
Obligation Bonds & State Agency Debt presentation.
ACTION NARRATIVE
1:03:46 PM
CHAIR KEVIN MCCABE called the House Transportation Standing
Committee meeting to order at 1:03 p.m. Representatives McKay,
Mina, and McCabe were present at the call to order.
^PRESENTATION(S): State of Alaska, General Obligation Bonds, and
State Agency Debt
PRESENTATION(S): State of Alaska, General Obligation Bonds, and
State Agency Debt
1:04:26 PM
CHAIR MCCABE announced that the only order of business would be
the presentation, titled "State of Alaska, General Obligation
Bonds, and State Agency Debt."
1:05:00 PM
FADIL LIMANI, Deputy Commissioner, Alaska Department of Revenue,
began a PowerPoint presentation, titled "State of Alaska General
Obligation Bonds & State Agency Debt" [hard copy included in the
committee packet]. He related that some of the topics he
anticipated covering would be related to the state's outstanding
debt and prior debt authorizations as it pertains to general
obligation (GO) bonds. He moved through slides 4 and 5, titled
"Alaska Public Types of Debt." Slide 4 read as follows
[original punctuation provided]:
.notdef State Debt
.notdef State Guaranteed Debt
.notdef State Supported Debt .notdef Unfunded Actuarial Accrued
Liability (UAAL)
.notdef State Supported Municipal Debt - Eligible for State
Reimbursement
.notdef State Moral Obligation Debt
.notdef State and University Revenue Debt
.notdef State Agency Debt
.notdef State Agency Collateralized or Insured Debt
.notdef Municipal Debt
MR. LIMANI continued on slide 5, which focused on the State
Moral Obligation. Slide 5 read as follows [original punctuation
provided]:
State moral obligation debt consists of bonds issued
by certain State agencies or authorities that are
secured, in part, by a debt service reserve fund
benefited by a discretionary replenishment provision
that permits, but does not legally obligate, the
Legislature to appropriate to the particular State
agency or authority the amount necessary to replenish
the debt service reserve fund up to its funding
requirement (generally the maximum amount of debt
service required in any year). State moral obligation
debt is payable in the first instance by revenues
generated from loan repayments or by the respective
projects financed from bond proceeds.
o Among those State agencies that have the ability to
issue State moral obligation debt are:
• Alaska Aerospace Development Corporation (AADC)
which has not issued any debt
• Alaska Energy Authority (AEA)
• Alaska Housing Finance Corporation (AHFC)
• Alaska Industrial Development and Export Authority
(AIDEA)
• Alaska Municipal Bond Bank Authority (AMBBA)
• and Alaska Student Loan Corporation (ASLC)
1:09:03 PM
REPRESENTATIVE MCCABE asked why the Alaska Railroad Corporation
(ARRC) wasn't on the slide, as it is a corporation that the
state owns and "in the same boat."
MR. LIMANI responded it would be in the matrix on slide 6.
1:09:40 PM
RYAN WILLIAMS, Debt Manager, Treasury Division, Alaska
Department of Revenue, addressed Chair McCabe's inquiry and said
that ARRC is unable to issue state moral obligation debt due to
legislation.
1:10:30 PM
MR. LIMANI returned to the PowerPoint and summarized slides 6
and 7, titled "State Agencies Debt Authorization." The slides
covered state agencies, types of debt issued, and limitations of
each.
1:13:12 PM
MR. LIMANI proceeded to slides 8 and 9, titled "General
Obligation Bonds." Slide 8 read as follows [original
punctuation provided]:
• What are GO Bonds? A tool to raise funds for capital
needs:
Once authorized, bonds are issued, and the entity
bond proceeds
Proceeds from the GO Bonds fund capital projects
through an identified / defined project list
Examples of capital projects may include roads and
bridges, parks, schools, harbors, University and/or
community facilities, and renovation and deferred
maintenance
• Must have authorization by law and must be ratified
by voters
Authorized first by the governing body with defined
parameters surrounding project list, this will include
other factors such as one-time issuance or not to
exceed limit
Must be approved / authorized by voters in a ballot
proposition at an election as to those defined
parameters set forth in the enacting authorization
Backed by the full faith, credit, resources and
taxing authority of the issuing entity
GO's hold a more diverse credit structure based on
the issuing entities finances
GO's typically have a lower interest rate
commensurate with credit quality of the pledge of that
underlying entity
1:14:56 PM
CHAIR MCCABE, referring to the previous slide, offered his
synopsis of the process on how GO bonds and issuance by the
state worked.
MR. LIMANI affirmed Chair McCabe was correct. He added that the
authorization passed by the legislature had to have distinct
projects and gave an example of the construction of a school.
The determination of parameters would be discussed in later
slides, he said.
1:17:03 PM
REPRESENTATIVE MINA inquired whether there was any secondary
requirement that the capital need, which the GO bond is funding,
is a statewide need or at the discretion of the legislature.
MR. LIMANI replied that as long as it had the definition of
capital improvement, it did not matter if it was for a
particular area.
1:17:49 PM
MR. LIMANI continued to slide 9, titled "General Obligation
bonds - Continued," which read as follows [original punctuation
provided]:
• General Obligation Debt:
Authorizing legislation identifying certain
projects, dollar amounts, and any underlying fund
structuring (and enactment of that Bill to move
forward in the process)
State examples of authorizing legislation: HB424
(2010) and HB286 (2012)
General Obligation bonding has to go through an
approved ballot proposition by vote within either the
state or community (full faith /credit pledge of the
entity for the GO Bond)
Voter authority is required as the pledge of future
revenues of the entity is the payment commitment over
the life of the bonds. If resources were insufficient,
revenues would need to be raised to cover the payments
(example: taxes)
Additional authorization for timing of actual debt
issuance, issuance parameters, method of sale
(typically through resolution, example: State Bond
Committee)
The state bond committee shall approve the sale of
bonds of each authorization in the amounts or series
and at the times which it finds are for the best
interests of the state and its inhabitants
Project Fund, funded with bond proceeds, has
specific requirements associated with the underlying
authorizations (specified projects, spending rules,
other financial analysis on project cash flows)
1:18:31 PM
REPRESENTATIVE MINA asked whether there were other examples of
authorizing legislation beside 2010 and 2012 and how often GO
bonds were put on the ballot and ratified.
MR. LIMANI replied that the last one was the 2012 authorization,
and going back to statehood, the dollar amount issued over that
time period had been approximately $3 billion.
MR. WILLIAMS added that prior to 2010, there were authorizations
for GO bonds in 2003, 2004, and 2009. He offered his belief
that there should be a table that referenced more historical
information.
MR. LIMANI affirmed they could look into it and provide the
information to the committee at a later date.
1:20:22 PM
MR. LIMANI proceeded to slide 10, titled "Project Finance
Process," which read as follows [original punctuation provided]:
• Breakdown of total project financing and costs:
Project finance often involves a combination of
different sources
Grants or other programs providing partial financial
support
This may include Federal / State / Entity programs,
appropriations, and/or contributions
Could have strict administrative requirements
through grant or other alternative programs GO Bonds
• The financing:
Assemble the Financing Team: Bond Counsel,
Underwriting Banks, Disclosure Counsel, Financial
Advisor / Municipal Advisor, Representatives
State policy requirements level debt service,
method of sale, and potential refunding requirements
The financing team is usually involved in both
original issuance and subsequent maintenance of debt
1:22:10 PM
CHAIR MCCABE inquired about the length of time in issuing a GO
bond, how long the service is for the bond, and the income
received for the bond.
MR. LIMANI advised that generally, the debt structure is based
on the life of the asset. He touched on a time frame of 20
years for the GO bond but added that it depended on the asset.
MR. WILLIAMS added that bond counsel would look at the useful
average life.
CHAIR MCCABE opined that it could be a 6 percent return for 100
years, which would be a "no brainer" for a union or retirement
fund. He commented on the rail and inner ties not going away
after 20 years and added that the roads would not go away
either.
MR. LIMANI said that generally the roads, because of required
upkeep and maintenance, have a shorter span. For some of the
aforementioned longer life assets, the useful life could be 50
to 75 years, so the debt is stretched accordingly.
1:26:08 PM
REPRESENTATIVE MINA asked how much of the financing team is
under the Department of Revenue (DOR) versus the legislature
versus other entities.
MR. LIMANI replied that the financing team would include the
commissioner's office within DOR, the debt manager, and the
Department of Law (DOL) since it must review the underlying
resolutions up for consideration. A third-party bond counsel is
also engaged, he said, and many advisors may be included.
REPRESENTATIVE MINA expressed interest in whether there was
turnover with the financing team and inquired about the length
of terms for maintenance of debt.
MR. LIMANI stressed that stability must be maintained, and he
noted the financial advisor has been with them for approximately
seven years. He noted there is an extensive process that goes
into monitoring the bonds on the compliance after they are
issued.
1:30:15 PM
MR. WILLIAMS continued the presentation on slide 11, titled
"Project Finance Process - Continued," which read as follows
[original punctuation provided]:
• After Financing:
Arbitrage Rebate (rate examples and tax
compliance)
Continuation of cash flow forecasting for those
identified projects and not to exceed limit /
authorization remaining
Call and Redemption Provisions on issued bonds
(typically 10-years)
Legal defeasance if officially funding escrow prior
to call date to defease debt
Other special spending requirements
Continuing disclosure and SEC rule 15c2-12:
• Continuing disclosure consists of important
information about municipal bonds that arises after
the initial issuance. This information generally
reflects the financial health or operating condition
of the state or local government as it changes over
time, or the occurrence of specific events that can
have an impact on key features of the bonds
• Examples: Audited Financial Information or Final
Statements, Notice of Failure to provide Financial
Information by deadline
• Specific events: Any payment deficiencies, defaults,
bond calls and defeasances, rating changes
1:33:56 PM
MR. WILLIAMS moved to slide 12, titled "State's Debt Profile,"
which featured outstanding debt as of June 30, 2023, with a
table and two graphs. He gave a summary of some of the main
state debt items. He then moved to slides 13 and 14, titled
"Outstanding Debt as of June 30, 2023 - By Type," which featured
a table with numbers in millions. Broken down on the slide were
the types of debt, dollar amounts of principal outstanding,
interest to maturity, and total debt service to maturity. He
stated that he would not go over each one by line item, but he
would be happy to discuss any of them at the will of the
committee.
1:38:56 PM
MR. WILLIAMS proceeded to slide 15, titled "State Debt
Capacity," featuring debt affordability analysis, which read as
follows [original punctuation provided]:
.notdef Annual analysis required by AS 37.07.045 to be
delivered by January 31
.notdef Discusses credit ratings, current debt levels,
history and projections
.notdef Relies upon debt ratios, limit of 4% for directly
paid state debt, and 7% when combined with municipal
debt that the state supports
.notdef Identifies currently authorized, but unissued debt .notdef
Establishes refinancing parameters
.notdef Determines a long-term debt capacity at current
rating level
.notdef Discusses, but doesn't define, a capacity for short-
term debt .notdef The 2023-2024 analysis determined that the
State had a debt capacity of $1,400 million
Adjustments made to base analysis to account for
recognition of a POMV split for PFDs vs state budget,
special funding for PERS/TRS and future budget
uncertainty and volatility in the State's revenue
sources
1:40:32 PM
MR. WILLIAMS moved to slide 16, titled "Prior State
Authorization in 2010," which he said was a "tombstone" of the
2010 issuance. He said slides 18 and 19, titled "Prior State
Authorization in 2012," gave much more detail about the defined
project list and amounts.
1:42:23 PM
CHAIR MCCABE noted that he did not see the Port Mackenzie rail
extension on the list. He asked for layman's terms in how to go
about that amount of track.
REPRESENTATIVE MCKAY pointed out where the rail extension was on
the slide.
MR. LAMANI addressed Chair McCabe and explained that one could
go about it the same as the $30 million that was put in, in
2012. He noted that it would have to be in legislation first.
CHAIR MCCABE observed that the first stop would be legislation,
then it must get ratified by the voters, and then the bonds must
be sorted out to create the "package" for the rail.
MR. LIMANI proffered that the financial structure does not take
long on the GO bond and tends to be straightforward. The
majority of the time spent is with the legislative efforts, he
added. He further explained that if it generates revenues and
the agency wished to pledge the revenues to pay for the debt, it
becomes a "double barrel bond."
1:46:00 PM
CHAIR MCCABE sought clarity that the term "double barrel" meant
both revenue and GO bond.
MR. LIMANI responded that there "is still tax exempt" and
considered more of a GO bond.
CHAIR MCCABE noted that there was an amendment to the railroad
bond bill and asked whether Mr. Limani was referring to that
when he spoke of "the legislation."
MR. LIMANI suggested that two different things were being
referenced. He offered his belief Chair McCabe meant the
increase in the cap.
CHAIR MCCABE reiterated the steps a bond goes through would be
legislation, voters, and a specific project attached to the
bond.
MR. LIMANI confirmed that was correct.
1:48:22 PM
REPRESENTATIVE MINA referred to the 2012 GO bond and sought
context as to what determined capital projects.
MR. LIMANI replied that he did not have the historical
perspective as to what went through determining the projects for
the 2012 authorization.
REPRESENTATIVE MINA said that she understood part of the
mechanics in relation to the process for the GO bond but
expressed curiosity as to what factors lead projects to be a
part of a GO bond rather than normal capital budget.
MR. LIMANI responded there were many different factors that go
into making the determination, and he reiterated that [those
determinations are] the duty and discretion of the legislature.
1:51:51 PM
REPRESENTATIVE MCCABE asked what would happen when there is a
project that does not get completed and the voters and state are
still responsible for paying it off.
MR. LIMANI explained that as for the debt, there is still an
obligation to make debt service payments, but as for the
completion of the project, it would become a legislative item to
be addressed.
1:53:45 PM
CHAIR MCCABE concluded the presentation and discussed future
business.
1:54:11 PM
ADJOURNMENT
There being no further business before the committee, the House
Transportation Standing Committee meeting was adjourned at 1:54
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| H.TRA Presentation on GO Bonds and State Debt 03.28.24.pdf |
HTRA 3/28/2024 1:00:00 PM |