Legislature(2001 - 2002)
04/19/2001 09:10 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
April 19, 2001
9:10 AM
TAPES
SFC-01 # 78, Side A
SFC 01 # 78, Side B
SFC 01 # 79, Side A
CALL TO ORDER
Co-Chair Pete Kelly convened the meeting at approximately 9:10 AM.
PRESENT
Senator Dave Donley, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Jerry Ward, Vice Chair
Senator Lyda Green
Senator Alan Austerman
Senator Lyman Hoffman
Senator Donald Olson
Senator Gary Wilken
Also Attending: SENATOR RICK HALFORD; JOHN FAUSKE, Chief Executive
Officer and Executive Director, Alaska Housing Finance Corporation,
Department of Revenue; WAYNE MUNDE, Executive Director, Bering
Straits Regional Housing Authority; JOHN BITNEY, Legislative
Liaison, Alaska Housing Finance Corporation, Department of Revenue;
GUY BELL, Director, Division of Retirement and Benefits, Department
of Administration; KEN BISCHOFF, Director, Division of
Administrative Services, Department of Public Safety;
Attending via Teleconference: From Homer: TERRY YAGER; DAVID
DERRY; JOHN KOSCH; From Kodiak: BOB BODIE; BONNIE AULABAUGH, 9-year
Nome resident then 14-year Kodiak resident; From Kwethluk: MAX
ANGENAN, Executive Director, Kwethluk Tribal Residence Counsel;
From Ketchikan: CHUCK DEARDEN, Energy Rater, and member of the
Ketchikan Home Builders Association; From Anchorage: RENEE
DEVEREAUX, President, Alaska Mortgage Bankers Association, and
Senior Vice President, Residential Mortgage; From Dillingham: DAVE
MCCLURE, Executive Director, Bristol Bay Housing Authority, and
Former Director, AHFC; BRAD ANAGASAN, Village Public Safety Office
Program Manager, Bristol Bay Native Association; From Nome: JOSIE
STILES, Village Public Safety Officer Program Director, Kawerak
Native Association; From Fairbanks: JIM KNOPKE, Director, Village
Public Safety Officer, Tanana Chiefs Conference, Inc.; From Craig:
ROBIN LOWN, Village Public Safety Officer
SUMMARY INFORMATION
SB 181-SMALL COMMUNITY HOUSING LOANS
The Committee heard from the sponsor, the Alaska Housing Finance
Corporation, industry representatives and members of the public.
The bill was held in Committee.
SB 145-REGIONAL & VILLAGE PUB.SAFETY OFFICERS
The Committee heard from the sponsor, the Department of Public
Safety and affiliated organizations. A committee substitute was
adopted and the bill was held in Committee.
SENATE BILL NO. 181
"An Act making the interest rate for the Alaska Housing
Finance Corporation's small community housing mortgage loans
the same as the interest rate on mortgage loans purchased
under the corporation's special mortgage loan purchase program
from the proceeds of the most recent applicable issue of
taxable bonds before the origination or purchase of the small
community housing mortgage loans."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Donley spoke to this bill sponsored by the Committee. He
explained that this legislation eliminates the statutory one-
percent below market interest rates for the Housing Assistance Loan
Fund (HALF) and replaces it with a standard market rate for AHFC
home loans. He spoke of the existing statute governing the HALF
program and mandating the one-percent below market rate in
communities of less than 6,500 residents. He noted that the
population requirement had been raised a few years prior.
Co-Chair Donley referenced a September 2000 Division of Legislative
Budget and Audit (LB&A) report [Copy on file.] saying it concluded
that the need for the HALF program has been eliminated through
other programs and private entities meeting the needs of
homeowners. He stated that if the one-percent subsidy provision
were eliminated and if loan activity remained constant then
$500,000 annual Alaska Housing Finance Corporation (AHFC) earnings
could be retained to assist in balancing the state budget.
Co-Chair Donley asserted that the HALF program is not based on
need, but only on community size and as a result, provides low cost
loans to borrowers who don't need the subsidy while denying a
subsidy to other Alaskans who may have the need. He stressed that
this is unfair discrimination. He added that this provision is also
not based on construction costs in a particular community and is
rather an "arbitrary policy call", which he disputed.
Co-Chair Donley noted that the elimination of this subsidy would
encourage the formation, consolidation and unification of local
governments. He relayed that this provision was determined in the
Local Boundary Commission (LBC) 1999 report to the legislature as
one of the major inhabitants to formation of local governments.
Co-Chair Donley opined, "This program has been severely abused by
some Alaskans." He detailed that in the past few years, 148 loans
were made in amounts over $200,000, 11 loans were for amounts
greater than $300,000 and one loan was over $400,000. He stressed
this is a "pretty massive subsidy" over the life of these loans. He
calculated that the $400,000 loan would cost the state $100,000
over its life.
Co-Chair Donley qualified that the HALF program was "well intended
when it started," due to evidence of higher construction costs in
smaller communities. However, he argued that because the provision
"wasn't put in place in any kind of smart public policy way, just
an arbitrary population limit," it created a disparity that
unfairly discriminates against certain Alaskans to the benefit of
"very rich Alaskans" who live in rural areas.
Co-Chair Donley again cited the LB&A report as finding that most of
the qualifying areas no longer have construction rates higher than
the ineligible areas. He relayed the audit recommends the
elimination of the one-percent interest subsidy.
Co-Chair Donley stressed that this legislation does not eliminate
the HALF program. He stated that there is a demonstrated need for
"nonconforming loans" in areas with lower population. He expressed
the need to continue this program but without the one-percent
subsidy provision.
Co-Chair Donley pointed out other AHFC programs identified by the
LB&A audit available to provide lower interest loans to borrowers
with a demonstrated need.
Co-Chair Donley spoke to additional concerns, such as found on the
Kenai Peninsula. He described the City of Kenai, which does not
qualify for the one-percent provision, and residences located
outside the municipal boundary as close as across the street, which
do qualify. He stated that borrowers with the same income,
purchasing identical houses within a block of each other pay
different interest rates. He again challenged this is "lousy
stupid public policy" that is "indefensible."
Co-Chair Donley emphasized that the intent of the program is not to
give the interest rate discount to those people who can afford a
$400,000 home loan. He surmised that providing subsidies for
borrowers who truly need it would better use state funds.
Senator Ward shared that residents of Kenai in his district living
inside the city limits support this legislation, while those living
"on the other side of the street" are opposed. He asked if a needs-
based provision was considered.
Co-Chair Donley answered that the LB&A audit suggests there are
programs currently available on a needs basis and therefore, this
program does not need to be restructured to meet these needs.
Senator Hoffman expressed that there remains a need for the HALF
program, although it is possible that it should be modified for
reasons described by Co-Chair Donley. He agreed that $300,000 home
loans should not be included in the program. He referred to the
LB&A report that lists modifying the existing program as the first
recommendation and elimination is as the second. He emphasized that
there, "is a strong need" for this one-percent interest rate
subsidy provision in areas outside of Anchorage, Fairbanks and
Juneau because of higher construction costs, including freight and
labor. He told of the necessity for contractors to travel to and
temporarily relocate in smaller communities when building homes in
these areas. In contrast, he noted, that many construction workers
already reside in urban areas and are available to build homes in
their communities.
Senator Hoffman shared communications he had received from an
employee of the First National Bank of Alaska in Bethel in which he
was told that there is a need for this program in the Yukon-
Kuskokwim Delta region.
Senator Hoffman stressed that a one-percent interest rate reduction
does not completely compensate for the higher construction costs.
Co-Chair Kelly asked Senator Hoffman to work with Co-Chair Donley
to develop needs-based criteria to include in the bill.
Senator Austerman read from the LB&A report, "although the HALF
program has not been effective in targeting high-cost areas of the
state, it can be made effective through a statute change… If the
legislature likes to continue the HALF program, we would recommend
a more direct approach. For example, the legislature may wish to
subsidize only borrowers in communities with building costs
exceeding 115 percent." He suggested that there were other ways to
address the need issue without eliminating the one-percent subsidy
provision.
Senator Olson stressed that if there is abuse of a system,
especially one that is subsidized, he agreed that it needed to be
modified, although not necessarily eliminated. He referenced the
one $400,000 loan and asked if the sponsor knew what type of
project the loan was funding, whether a single dwelling or an
apartment complex.
Co-Chair Donley answered that the project was a single-family
house. He pointed out that the loan itself was for $400,000,
meaning that the actual cost of the house was higher.
Co-Chair Donley noted in the LB&A report that since the HALF
program was created, "those barriers to construction had been
adequately addressed by other private or government programs except
for higher construction costs in some areas." He continued citing,
"Although the higher construction costs have not been fully
addressed, most of the loans are not being made in those high
construction areas of Alaska." Therefore, he surmised that the
majority of the subsidized loans are not issued in the higher cost
construction areas.
Senator Hoffman ascertained that part of the reason for the
issuance of these loans in rural areas is because the costs are
higher and the one-percent interest rate reduction is likely not
sufficient to compensate.
TERRY YAGER testified via teleconference from Homer to comment that
the one-percent subsidy provision in his area "has been a help on
many fronts." He elaborated that the multiple listings service in
Homer shows less than six homes annually list for over $225,000.
He spoke of the high cost of living and increased construction
costs. He stated that AHFC has been responsive to the needs of the
community by offering various programs that give incentives to
builders to construct better quality homes. He acquiesced that "no
program is perfect" but requested that the HALF program continue in
some form.
BOB BODIE testified via teleconference from Kodiak referring to
written testimony he had submitted. He disagreed with Co-Chair
Donley's charge that the program was abused. Mr. Bodie asserted
that it is unfair to charge recipients of abusing a program when
all the rules are complied with. He pointed out that the same house
located in Kodiak could be purchased for half the price in
Anchorage and that successful residents of smaller communities
should not be required to move to urban areas in order to purchase
a quality home.
Mr. Bodie compared this legislation to that of a child witnessing
his brother with a candy bar, and demanding his mother take the
candy away rather than sharing. He suggested that the one-percent
interest rate reduction could extend to the entire state, stressing
that a large number of mortgage payments currently made to out of
state lenders could remain in Alaska. He surmised that this would
compensate the corporation for the lower interest rate earnings.
Co-Chair Kelly commented that Co-Chair Donley did not infer that
there was abuse of the current system.
BONNIE AULABAUGH, 9-year Nome resident then 14-year Kodiak
resident, testified via teleconference from Kodiak that she has
utilized the HALF program. She stressed that in certain areas of
the state, such programs are necessary for residents to afford
adequate housing. She acquiesced that while some of the loans have
exceeded $300,000, it sometimes costs over $200,000 to purchase a
home adequate for the needs of a family.
Ms. Aulabaugh understood that this program was established with the
intent of addressing the needs of the residents of rural
communities not connected to Anchorage or Fairbanks by either the
Alaska Railroad or by road. She suggested that the population
criteria could be reviewed and adjusted for areas that are
connected to urban areas, noting that Kodiak is not connected. She
pointed out that the City of Kodiak population precludes residents
from qualifying for the one-percent interest rate differential.
Ms. Aulabaugh questioned why some senators thought that every state
program for Alaskans must be based on need. She expressed that it
would be fairer to have some programs intended to help Alaskans,
particularly those willing to live in rural areas.
[Note: The following testifier spoke from an off-net location. The
audio feed into the Committee room was poor, although the audio
recording is adequate. Committee members were unable to discern
much of the testimony.]
MAX ANGENAN, Executive Director, Kwethluk Tribal Residence Counsel,
testified via teleconference from Kwethluk to request continuation
of the HALF program. He gave a history of the local housing entity
established by the local government and the construction of seven
new homes and one duplex since its inception. He stated that the
one-percent subsidy provision was utilized in the financing of
these homes. He told of the higher construction costs in his
community and noted that the average loan amount for Kwethluk
residences is $100,000. He assured that the approximately 900
residents of Kwethluk are low income.
DAVID DERRY, real estate appraiser on the Kenai Peninsula,
President, AK Chapter of the Appraisal Institute, testified via
teleconference from Homer that there are two issues contained in
this legislation. The first he said is the interest rate change and
the second is the benefit of the AHFC rural housing program in the
underwriting criteria. He stressed that while an interest rate
difference of one-percent might seem insignificant, it can affect
the affordability of housing. He further detailed the many factors
contributing to higher construction costs in rural areas including
those communities located along the road system. He relayed a
conversation with a California based lender regarding an
application for a loan on duplex in Anchor Point and the conclusion
that the rural setting precludes the property from meeting the
lender's underwriting requirements.
Co-Chair Kelly stated for the record that this legislation "doesn't
eliminate that program, it would still be available."
CHUCK DEARDEN, Energy Rater, and member of the Ketchikan Home
Builders Association, testified via teleconference from Ketchikan
on how this interest rate affords young families with children to
purchase homes rather than rent. He informed that the economy in
Ketchikan is depressed and the homes purchased using this program
average from $135,000 to a maximum of $200,000. He also noted the
dependence on fuel oil for heating as opposed to the availability
of less expensive natural gas in Anchorage. He expressed agreement
with statements made by previous testifiers.
RENEE DEVEREAUX, President, Alaska Mortgage Bankers Association,
and Senior Vice President, Residential Mortgage, testified via
teleconference from Anchorage about the importance of AHFC programs
in making home ownership possible in rural Alaska. She stated that
the one-percent interest rate subsidy compensates for just a small
portion of the higher construction costs. She surmised that the
situation of similar houses located on either side of city limit
boundaries that qualify or do not qualify based on which "side of
the street" they are on, was the basis for this legislation. She
relayed that the Mortgage Bankers Association contends that if this
public policy needs to be addressed then the definition of "rural"
should be reviewed rather than penalizing all of the rural
communities.
DAVE MCCLURE, Executive Director, Bristol Bay Housing Authority,
and Former Director, AHFC, testified via teleconference from
Dillingham about his awareness of the responsibility of AHFC to
transfer the annual dividend payment to the state and the effect of
this dividend to the state's revenue. He requested the bill be
amended to support a needs based program in high cost areas. He
informed that freight delivery costs average ten to 20 percent
higher. He pointed out that housing authorities and villages have
begun to design and implement loan programs rather than utilize the
highly subsidized programs as in the past. He stated that the one-
percent subsidy provision is part of a package that includes
property tax reduction agreements with local governments, "soft
second" mortgages and lower insurance through risk pools.
JOHN KOSCH, Legislative Chair, Kachemak Bay Board of Realtors,
testified via teleconference from Homer in favor of retaining the
one-percent subsidy provision. He reiterated the arguments made by
other witnesses.
JOHN FAUSKE, Chief Executive Officer and Executive Director, Alaska
Housing Finance Corporation, Department of Revenue, testified in
Juneau about the extensive discussions about this program in the
past. He emphasized that the one-percent discount was established
to address the documented higher cost of construction in smaller
communities. He added that conventional underwriting standards and
applications often do not apply in remote communities. As an
example, he informed that small communities often lack access to
fire insurance, basic infrastructure, police and fire protection as
well as the availability of mortgage insurance.
Mr. Fauske commended the auditors who authored the LB&A report
citing that some of the mitigating circumstances he listed have
been eliminated or improved. He agreed with this assessment, but
qualified that the finding "generalizes" the situation.
Mr. Fauske advised that the repeal of the one-percent rate
differential would "further result in less affordability for
potential borrowers in small communities." He shared AHFC
prediction that a 15 percent drop in loan volume would be the
"break even point" if the interest rate were increased by one
percent. However, he cautioned that the more likely result would be
a minimum of 50 percent loan loss. He noted estimates from a banker
in Kodiak anticipate an 85 percent reduction.
Mr. Fauske stressed that the issue of fairness must be carefully
considered pointing out that the corporation has been adhering to
the current provisions, which are in statute. He described the
"perfect bell curve" of the portfolio consisting of loans to low-
income borrowers, middle-income borrowers earning between $50,000
and $99,000 annually and the minimal loans in amounts higher than
$200,000. He emphasized that the question of whether to issue loans
to high-income borrowers is not his to answer. Although, he said
that those Alaskan borrowers who do qualify for the programs are
currently eligible.
Mr. Fauske spoke of the city boundary issue, telling of his meeting
with the City of Kenai city council. He disclosed that the
corporation shares the frustrations about the definition of
"rural".
Co-Chair Donley interrupted to state that the legislation does not
contain a definition of "rural" but rather establishes a population
level. He asserted that the "continued use of the terminology rural
is just erroneous."
Mr. Fauske clarified that he considers areas outside of Fairbanks,
Anchorage and Juneau as rural. He noted that the Kenai City Council
recommends changing the definition of the program to match that of
the US Department of Housing and Urban Development (HUD) that
determines rural to be all areas outside of Anchorage, Fairbanks
and Juneau.
Mr. Fauske continued by sharing that the program earned $19 million
for the corporation the previous year and that besides the lost
loan activity, his concern is that there is not a corresponding
increase in net income. He stressed that AHFC could not compete
with Fanny Mae, Freddy Mac and other federal programs that might
offer loans in these areas because of differentials, loan issuance
procedures and service release premiums. As a result, he warned
that there would be a significant drop in volume for this program,
which in turn would have an "absolute impact to the net income to
the corporation." He reminded the Committee of the performance
measures established by the legislature for the corporation to
"provide affordable, safe housing for Alaskan residents, increase
market share and provide a dividend to the state."
Mr. Fauske cited a recent survey conducted in January 2001 showing
the average cost of building materials. He listed: Anchorage
$15,783, Fairbanks $18,000, Juneau $16,000, Barrow $36,000, Bethel
$25,000 and Nome $26,000. He next listed the fair market rent of a
two-bedroom residence for each community as Anchorage $794,
Fairbanks $738, Juneau $1,073, Barrow $1,048, Bethel $1,074 and
Nome $959. He then gave year 2000 AHFC median sale price figures
for a single-family home as Anchorage $182,800, Fairbanks $204,000,
Juneau $235,000, Barrow $226,000, Bethel $232,000 and Nome
$242,000.
Mr. Fauske shared that he has concerns about the rising housing
costs in Anchorage as well as the rest of the state. He stressed
that the difference between Anchorage and other communities is that
the "vast majority of the tax exempt, bonded first time homebuyer
money in this state rolls into Anchorage and urban areas." He gave
the reasons as most people living in these areas, but also because
of the ability to bond these loans.
Mr. Fauske reiterated his concerns about protecting the
affordability and home ownership options as well as the net impact
on the corporation. He addressed the emphasis claiming that this
legislation does not eliminate the program. He countered, "if you
take the one-percent away, we believe in affect from a business
standpoint, that if not eliminated, is severely curtailed" since
the corporation would be unable to compete against lenders offering
some of the loans and the other loans that would not be made.
Senator Leman referred to the earlier suggestion to expand the
interest rate reduction to include all residences in the state. He
asked the impact of this to net income and the ability of the
corporation to compete with other lenders.
Mr. Fauske responded that this is a revolving loan fund with a
static amount of capital.
SFC 01 # 78, Side B 09:58 AM
Mr. Fauske shared that to expand the interest rate subsidy
provision, as suggested, additional funds must be infused into the
corporation. He stated the goal of the corporation is to be
competitive in the bond market. He explained the involvement of
loan to value ratios, private mortgage insurance and other criteria
in the creation of a bondable loan program, which would secure
investors. He spoke of efforts of the corporation to create a
taxable program that could be below market rate. The proposed
program, he said would free up funds for this program explaining
that current loans in the program are supported by arbitrage.
Mr. Fauske summarized the two options of allocating additional
capital and maintaining the revolving loan status, or designing a
program that is bondable, thus giving access to the capital
markets.
Senator Ward talked about the homes located close to the Kenai city
limits and the different tax structures applied to each. He stated
he supports increased development in areas of the state. He wanted
to know what AHFC programs would replace the one-percent rate
differential if it were eliminated.
Mr. Fauske listed the tax-exempt first time homebuyer program, the
largest of the corporation's programs, as a potential replacement.
However he predicted difficulties because many borrowers would not
qualify based on acquisition limits placed by the federal
government and income restrictions. He then informed that the
corporation has not issued taxable bonds since 1991, but that if
the corporation resumed, some borrowers would qualify for this
program. He predicted though that buyers would obtain loans through
other competing lenders, such as Fannie Mae. He stressed the
difficulties in achieving conformance requirements for conventional
loans in rural areas.
Senator Wilken asked for clarification that urban areas benefit
from first time homebuyer program while rural areas benefit from
the one-time rate differential program. He asked if there was a
crossover.
Mr. Fauske responded that both types of loans are issued to
borrowers in rural areas. He stated the corporation had found that
many homebuyers in the Kenai area were moving outside of the city
limits. He ascertained the reasons for this are many and include
land size and availability and the different tax structure outside
the boundary. He cautioned that until the federal government
updates income criteria, the rising construction costs would
continue to prevent homebuyers from obtaining loans through the
first-time homebuyer programs. This, he stated is in addition to
the requirement that qualified borrowers could not have owned a
home in the past three years.
Senator Wilken clarified that both programs are available to all
Alaskan residents depending upon where in the state they chose to
live.
Senator Wilken disclosed that two of his children had participated
in the first-time homebuyer program and each was able to purchase a
house earlier than they could have otherwise. He asked that if
funds were not utilized for the HALF program, if they could be
allocated to the first-time homebuyers program.
Mr. Fauske answered that the money in the revolving loan fund is
"tied up in loans" and that there is not instantly available cash.
Senator Wilken restated his question of if the HALF program were
eliminated could the first-time homebuyer continue longer then the
estimated date of February 2001.
Mr. Fauske replied it was possible and explained that the first-
time homebuyer loans are bondable and the corporation does sell
bonds for these loans. He specified that the corporation is limited
on the number of these bonds that could be sold under the Private
Activity Bond Cap. He stated the difficulty would be in compiling a
blended portfolio that could be marketed in order to secure the
bonds.
Senator Wilken commented that it has been established that the HALF
program benefits some borrowers who do not need this assistance. He
said he wanted those funds to instead be used for first time
homebuyers, such as his children, who he asserted do need this
assistance in order to purchase a house sooner.
Co-Chair Kelly asked if because one program is capitalized and the
other is bonded, there is not an automatic causal relation between
the two.
Mr. Fauske affirmed.
Senator Wilken referenced the document "Arbitrage Everything you
wanted to know" [copy on file] and asked if the conclusion is that
funds used for arbitrage must be placed in specific types of
programs, which the US Internal Revenue Service monitors.
Mr. Fauske answered this is essentially true.
Senator Wilken then noted that first time homebuyer tax exemption
program does not depend on arbitrage.
Mr. Fauske explained that arbitrage was used in certain programs to
buy-down interest rates, and to promote energy efficiency to
benefit low-income borrowers. The taxable program, he continued,
included arbitrage in order to buy the interest rate down to make
the loan more competitive. He noted that Fanny Mae interest rates
are always one-eighth to one-quarter of a point below what AHFC
could offer.
Senator Wilken asked that if the first-time homebuyers taxable
mortgage loans depend on the availability of arbitrage funds if
reductions to the HALF program then would increase availability of
funds for the first-time homebuyers program.
Co-Chair Kelly requested Senator Wilken obtain this information
from Mr. Fauske at a later time.
Co-Chair Donley commented on a response Mr. Fauske gave to Senator
Wilken's question. Co-Chair Donley asserted that other lending
institutions such as Native housing programs, regional Native
corporations and rural housing corporations also offer loan
programs.
WAYNE MUNDE, Executive Director, Bering Straits Regional Housing
Authority in Nome testified in Juneau to give details on the
authority. He told of the projects undertaken using AHFC funds in
the sixteen villages included in the Authority. He remarked that
AHFC has been authorized by the legislature to offer the one-
percent interest rate differential to qualified communities as an
acknowledgement of the higher construction costs in rural areas and
as an incentive to provide economic stimulation to these areas. He
continued that this in combination with other interest rate
reductions makes housing affordable in rural communities.
Mr. Munde requested that the HALF program not be eliminated. He
suggested that the needs criteria could instead be reviewed. He
stressed that the issue of qualifying residences located across the
street from non-qualifying residences has been before the
legislature since 1983 when he was the Rural Loan Manager for the
former Department of Community and Regional Affairs.
Mr. Munde stated AHFC programs have found increasing use under the
new federal law regarding funding for home construction through
HUD. He explained that in the past, housing authorities have
carried the loan contracts and essentially served as the lender,
which he said causes a hardship for the authority. As a result, he
said the US Congress has changed the law to encouraging the use of
federal funds to "reach in and tap into traditional mortgage
markets."
Mr. Munde pointed out that the cost of infrastructure in rural
areas adds to the already high construction costs.
Senator Ward wanted to know what other loans besides those provided
by AHFC exist that allow for the housing market in the Bristol Bay
area.
Mr. Munde answered there are other programs, noting the US
Department of Agriculture, Rural Development, provides some funding
but that the uses for these loans are limited. He surmised that
developing partnerships between the regional housing authorities
and AHFC are key to the success of housing in rural Alaska.
Senator Ward asked if the existence of the HALF program was
preventing the acquisition of federal funds.
Mr. Munde answered this was not the case, qualifying that because
the housing authorities have been carrying the loans, significant
revenue has been unavailable. He stressed the purpose of housing
authorities is to "build more houses."
Senator Austerman cited the LB&A report assessing the organization
and function of AHFC as follows.
AHFC operates the Housing Assistance Loan Fund program to
assist borrowers in communities
…with a population of 6,500 or less that is not connected
by road or rail to Anchorage or Fairbanks, or with a
population of 1,600 or less that is connected by road or rail
to Anchorage or Fairbanks; in this paragraph "connected by
road" does not include a connection by the Alaska marine
highway system." (AS 18.56.600(2))
He noted confusion with the inclusion of the Kenai Peninsula in the
HALF program. He assumed that more than 1,600 people resided in
this area.
JOHN BITNEY, Legislative Liaison, Alaska Housing Finance
Corporation, Department of Revenue, testified in Juneau that once
outside of the City of Kenai city limits, there is no community so
the population cap does not apply. He compared this situation to
the City of Kodiak, which does not qualify because the population
is over 6,500, but the remainder of the island does qualify.
Co-Chair Kelly asked if the qualifying areas on the Kenai Peninsula
are within the Kenai Peninsula Borough.
Mr. Bitney answered that they are.
Co-Chair Kelly asked if the same criterion applies to residences
outside the city limits of Fairbanks and North Pole and within the
North Star Borough.
Mr. Bitney replied yes.
Co-Chair Kelly surmised these areas are "a more extreme example
than Kenai."
Senator Austerman asked if it were true that $19 million net profit
was generated from the HALF program.
Mr. Fauske affirmed this was for the previous year.
Senator Austerman commented that the state receives $103 million in
dividends from AHFC that are then used for other programs.
Co-Chair Donley revisited the witness's response to earlier
testimony about expanding the program to offer the one-percent
interest rate subsidy to all Alaskans that there is a limited
amount of funds available for the program. Co-Chair Donley pointed
to Mr. Fauske's argument that more money infused in the HALF
program would allow the corporation to be more competitive, thus
securing more loans and making a greater profit. Co-Chair Donley
asked why this logic was not applied to all AHFC loan programs.
Mr. Fauske responded that the corporation does this by using
arbitrage interest rate subsidies in seven of the ten programs
offered and in all areas of the state. He listed energy efficiency,
loans for low-income, disabled and senior borrowers.
Co-Chair Donley stressed these programs are "criteria based" and
the HALF program does not target low-income, disabled or senior
citizens or promote energy reduction. He asserted, "There is no
public policy goal you are meeting with the HALF program other than
an arbitrary assumption, which is inaccurate according to the
audits, that all these communities have higher costs for some
reason because the vast majority of loans went to people living in
areas that didn't have higher housing costs."
Co-Chair Donley suggested that the interest rate reduction could be
offered to all areas of Alaska and asked why the corporation does
not practice this.
Mr. Fauske detailed what is necessary to offer a below market rate,
by being "ingenious" and capture the market offering a bonded rate
lower than the competition and attracting borrowers. Another
method, he continued is to buy the interest rate down to a level
below the market rate. He explained how the corporation could not
afford to do this for all loans and stressed that this was learned
when the corporation issued taxable loans. He pointed out that the
HALF program is a revolving loan fund that utilizes capital
appropriated several years prior rather than bond proceeds.
Co-Chair Donley stated there is a statutory formula that calculates
the one-percent interest rate discount in the HALF program, which
could not be applied to other types of loans.
Mr. Fauske agreed and expounded that bonds are driven by market
conditions.
Co-Chair Donley opined that this discussion is necessary because
most observers do not understand why the one-percent discount could
not be offered statewide.
Mr. Fauske disagreed with Co-Chair Donley on the point that there
is a public policy of ensuring affordability of housing in rural
communities.
Co-Chair Donley argued that the one-percent interest rate discount
is offered arbitrarily without consideration for need.
Mr. Fauske countered that the need is documented by the higher
costs in some communities. He stressed this is most apparent in
rural Alaska.
Co-Chair Kelly ordered the bill HELD in Committee.
CS FOR SENATE BILL NO. 145(JUD)
"An Act relating to regional and village public safety
officers; relating to the expansion of the village public
safety officer program to include the provision of probation
and parole supervision services; and relating to retirement
benefits for village public safety officers."
This was the first hearing for this bill in the Senate Finance
Committee.
Senator Ward moved for adoption of CS SB 145, 22-LS0584\X as a
working draft.
There was no objection and it was ADOPTED.
BRAD ANAGASAN, Village Public Safety Office Program Manager,
Bristol Bay Native Association, testified via teleconference from
Dillingham to explain the current difficulties with the Village
Public Safety Office (VPSO) program. He expressed "general support"
for the provisions of this legislation specifically pay increases
in relation to probation and parole supervision services.
Mr. Anagasan informed that the Bristol Bay Native Association
participated on the parole and probation pilot project, which he
explained develops a relationship giving authority to VPSOs to
perform adult felony probationary responsibilities. He listed the
services as direct on-site monitoring and accountability as well as
judicial follow-through of probationers. He surmised that one of
the "obvious benefits" is that these services are delivered locally
within the probationer's respective community thus eliminating
potential and infrequent response of the district probation officer
"who's handicapped by geographic location or other unknown
factors."
Mr. Anagasan then spoke of the reduced turnover rates of VPSO,
which he attributed to the increased "compensation that has brought
our VPSO salary close to a proportionate wage." He admitted that
there is still difficulty in hiring entry-level officers at the
beginning salary.
Mr. Anagasan stressed the need for increased retirement benefits,
warning that the current five-percent level does not provide long-
lasting security for VPSO employees. He predicted that the recent
success in retaining officers would be lost without retirement
benefit increases. This he said is because many VPSOs would leave
for other careers with better retirement benefits.
Mr. Anagasan concluded that the Bristol Bay Native Association
endorses the bill, which provides "areas of significant
development" and would "establish direct results."
JOSIE STILES, Village Public Safety Officer Program Director,
Kawerak Native Association, testified via teleconference from Nome
in support of the legislation. She listed the 15 villages in the
Bering Straits region that participate in the program and the
services provided. She stressed the hardships and risks the BPSO
employees encounter in their jobs. She referenced written testimony
in support of the increased salary and benefits to BPSO employees.
[Copy on file.]
JIM KNOPKE, Director, Village Public Safety Officer, Tanana Chiefs
Conference, Inc., testified via teleconference from Fairbanks on
behalf of the 42 villages served. He expressed support for the
legislation and deferred to the earlier testifiers' comments.
ROBIN LOWN, Village Public Safety Officer Coordinator, Tlingit
Haida Central Council, Inc., testified via teleconference from
Craig in support of the bill.
GUY BELL, Director, Division of Retirement and Benefits, Department
of Administration, testified in Juneau that this legislation would
add VPSOs to the Public Employees Retirement System (PERS). He
detailed the committee substitute as follows.
Sections 4 and 6 -places VPSOs in PERS unless an employee
files a waiver to opt out.
Section 7 - labor provision that indicates how and when a VPSO
employee could opt out of PERS. A current VPSO could opt out
within 90 days of the effective date of the act and new
employees could opt out within 90 days of commencement of
employment as a VPSO.
Mr. Bell informed that there are some retired state employees
currently working as a VPSO, who would have to forgo collection of
their retirement benefits unless they opted out of PERS. He added
that in the future PERS retirees could also chose to become VPSOs
while collecting retirement benefits if they waive participation in
PERS as a VPSO.
Section 8 - relates to PERS and indicates that for rate
stability the VPSO employers (Native associations) would be
treated as one employer for the purpose of setting employer
rates.
Section 9 - relates to current statute allowing the purchase
of VPSO service as credit toward PERS, which requires the full
actuarial cost to be paid by the employee. This section does
not change this provision except to eliminate the maximum
amount of five years that could be purchased. Time served for
which a waiver has been filed could not be purchased.
Section 10 - includes VPSOs in the definition of a PERS
employee.
Section 11 - relates to the definition of peace officer by
adding a new category of regional public safety officers to
the provision allowing retirement after completion of 20 years
of service but specifically excludes VPSOs employed in VPSO
programs.
AT EASE 10:40 AM / 10:44 AM
SENATOR RICK HALFORD, sponsor of the bill, testified that this
legislation represents the next phase of a project he and Senator
Ward had begun with the creation of a pilot project four years
prior. He described the four parts of this project as the probation
and parole program, pay scale changes as a result of the expansion
to the probation and parole program, addition of retirement
benefits, and the creation of a "career track" in the VPSO program.
Senator Halford asserted that VPSOs serve Alaska and provide a
valuable service. He stated "If there are any group of people that
we ask to go unarmed into the lion's den, it's the Village Public
Safety Officers."
Senator Halford qualified that this legislation does not provide
everything that was requested but emphasized it is a "substantial
upgrade" of the statewide VPSO program. He noted the VPSOs "do more
for less than virtually anybody else in law enforcement."
Senator Halford gave a brief sectional analysis as follows.
Section 1 - relates to the intent, retirement and benefits
pay, the responsibilities, and the career path of VPSOs.
Section 2 - relates to liability and limits liability to for
activities with regard to probation and parole.
Co-Chair Kelly asked if the civil liability language is the same as
that which applies to other peace officers.
Senator Halford answered it is similar but pointed out that it only
applies to duties related to the newly added parole and probation
functions. He noted this language was inserted into the bill at the
request of the Administration.
Section 3 - defines the existing VPSO program and adds to it
the parole and probation provision supervision coordination
with the Department of Corrections.
Section 4 - relates to PERS
Section 5 - defines the regional public safety officers
Sections 6 - 11 - address the retirement benefits and
clarifies that VPSOs are included in the baseline PERS and not
the public safety retirement system
Senator Halford next addressed the fiscal note, stressing the
indeterminate benefit of the legislation. He stated that this
project allows parolees and probationers to return to their home
communities rather than stay in larger cities or regional centers
where they have more trouble with alcohol and other factors that
contribute to delinquency. He stressed the family support and
workable options available in the parolees' and probationers' home
communities. He predicted long-term savings realized for the state
with a reduction in re-offenders returning to institutions.
Senator Ward referenced an Alaska Native Commission Report signed
by former President Bush and former Governor Hickel six years
prior. Senator Ward stated that this legislation implements some of
the recommendations of that report.
Senator Wilken voiced concerns with the high administration costs
of operating the VPSO programs, which he noted has been an on-going
issue. He wanted to know if administrative costs are addressed in
the bill.
SFC 01 # 79, Side A 10:50 AM
Senator Halford responded the high administrative costs are still a
concern. He stressed that there are expenses relating to the
contracting of the VPSO service, but "there has always been a
discussion as to what the cost was". He indicated that the 20 - 27
percent for administrative costs are the same as the amount allowed
for the contractors in federal contracts. He stated that the
Administration could address this matter through administrative
means. He chose not to address the issue in this legislation.
Senator Hoffman asserted that the VPSO is an excellent program. He
said that one difficulty is with a high turnover rate and that this
legislation would help retain qualified officers and that delivery
of services would improve.
Senator Wilken referred to a one-time federal training grant for FY
02 listed on the fiscal note. He pointed out that the expenditure
of these funds is shown on the fiscal note but that the funds are
not listed as federal receipts. He asked the amount of that grant
and whether it is anticipated the state would assume the training
costs after the grant expires.
Senator Halford deferred to Department of Public Safety for
details.
KEN BISCHOFF, Director, Division of Administrative Services,
Department of Public Safety, addressed the $1.8 million federal
grant for training and equipment for village police officers and
VPSOs. He stated this is the funding source for the expenditures
listed on the fiscal note. He explained the reason the funds are
shown as interagency receipts is because the allocation is a
reimbursable services agreement with the FY 02 capital budget
appropriation. He noted this is a one-time grant that is available
for two years and that it is unknown whether additional federal
funding could be secured after the grant expires.
Senator Leman referenced interagency receipts for $100,000 and
asked if these funds are appropriated from the $1.8 million federal
grant.
Mr. Bischoff affirmed and explained the attempt to identify
allowable expenses under the grant requirements to lessen the
general fund impact of this legislation.
Co-Chair Kelly ordered the bill HELD in Committee to allow time to
examine the fiscal note.
AT EASE 10:54 AM / 10:56 AM
ADJOURNMENT
Co-Chair Pete Kelly adjourned the meeting at 10:56 AM.
| Document Name | Date/Time | Subjects |
|---|