Legislature(2003 - 2004)
02/12/2003 01:30 PM Senate CRA
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* first hearing in first committee of referral
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+ teleconferenced
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ALASKA STATE LEGISLATURE
SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
February 12, 2003
1:30 p.m.
MEMBERS PRESENT
Senator Thomas Wagoner, Chair
Senator Georgianna Lincoln
Senator Kim Elton
MEMBERS ABSENT
Senator Robin Taylor
COMMITTEE CALENDAR
SENATE BILL NO. 51
"An Act relating to revenue bonds issued by the Alaska Municipal
Bond Bank Authority and the total amount of bonds and notes
outstanding of that authority; and providing for an effective
date."
MOVED SB 51 OUT OF COMMITTEE
PREVIOUS ACTION
SB 51 - No previous action to record.
WITNESS REGISTER
Deven Mitchell
Alaska Municipal Bond Bank
Department of Revenue
PO Box 110405
Juneau, AK 99811-0405
POSITION STATEMENT: Testified on SB 51
Dave Dengel
Valdez City Manager
P.O. Box 307
Valdez, Alaska 99686
POSITION STATEMENT: Testified on SB 51
ACTION NARRATIVE
TAPE 03-3, SIDE A
CHAIR THOMAS WAGONER called the Senate Community and Regional
Affairs Standing Committee meeting to order at 1:30 p.m. Present
were Senators Elton, Lincoln and Chair Wagoner.
The business to come before the committee was SB 51.
SB 51-BONDS OF BOND BANK AUTHORITY
DEVEN MITCHELL, Executive Director Alaska Municipal Bond Bank
Authority (MBBA), testified via teleconference to explain the
bill requests a twofold increase in the statutory lending limit
for the bond bank. First is a request to increase the cumulative
limit on borrowing from $300 million to $500 million. This
request is in anticipation of reaching the $300 million limit
this fiscal year and exceeding the limit next fiscal year. The
second request is to increase the annual limit from $50 million
to $75 million.
The MBBA is a public corporation of the State of Alaska created
in 1975 whose purpose is to reduce the cost of capital for
Alaskan municipalities. This in turn reduces the cost of capital
for the state since the state participates in local borrowing
through the school debt reimbursement and other reimbursement
programs. The requested increase does not have a direct cost to
the general fund because the MBBA has sufficient reserves in
place to continue the program using the same structure for
future borrowers.
The MBBA saves money for communities by issuing MBBA bonds on
the open market. They are secured by the underlying credit of
the municipality applying for the loan, the ability to intercept
certain state revenues that might flow to a community if there
were a default, and a moral obligation pledge by the State of
Alaska. The combination of credit features results in a strong
investment grade rating for the bonds and correlates to a lower
cost of capital for projects. Also in the equation is how
frequent the bond bank is in the market, name recognition in the
market place, and project efficiency.
The request for quick action stems from the fact that current
applications exceed the annual limit on revenue bond issuance.
To date Juneau revenue bonds have been approved and Ketchikan
Public Utilities has issued a revenue bond. The $19 million
revenue bond application from the City of Valdez would put the
annual total above the $50 million cap. If the authorization is
not in place in a timely manner, either two series of bonds
would be required or Valdez would have to fund the project in
another way. Either option would increase costs to the city.
SENATOR ELTON asked for verification that neither the change to
the annual cap nor the change to the ultimate cap affects the
bond ratings.
MR. MITCHELL verified there would be no impact to the bond
ratings. The way MBBA borrows and secures money would remain the
same for future borrowings.
SENATOR LINCOLN asked when the $50 million cap was last
adjusted.
MR. MITCHELL didn't believe it had ever been adjusted. The
revenue program of the bond bank came into existence much later
than the general obligation program. Revenue bonds were first
issued through the bond bank in the early 1980s and that cap was
put in place in 1983 as part of the legislation that allowed
revenue bond issuance. He opined the caps were put in place
because the bond bank issues bonds that are moral obligations of
the State of Alaska meaning there is a reserve fund that is
pledged to the bonds and if a community fails to pay the debt
service then the state would pay whomever bought the bonds. The
reserve fund would be used to pay the debt service and MBBA
would subsequently ask the legislature to replenish the reserve.
That has never happened in the history of the bond bank, but it
is worthy of consideration and why limits were placed in
statute.
There were no further questions for Mr. Mitchell.
DAVE DENGEL, Valdez City Manager, testified via teleconference
in support of SB 51. If the annual limit is not increased, the
city will be required to issue a $14 million bond in March and a
st
$5 million bond after July 1. Issuing two bonds rather than one
would cost the city an additional $9 thousand, which is money
that could be more productively spent elsewhere.
There was no further testimony.
CHAIR WAGONER called for a motion to move the bill from
committee with unanimous consent.
SENATOR LINCOLN made a motion to move SB 51 from committee with
individual recommendations.
There being no objection it was so ordered.
CHAIR WAGONER announced there would be no meeting on Wednesday
February 19, 2003 so members could attend the HES meeting.
There being no further business to come before the committee,
Chair Wagoner adjourned the meeting at 1:50 p.m.
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