Legislature(1999 - 2000)

04/22/1999 09:07 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE                                                                                                        
April 22, 1999                                                                                                                  
9:07 AM                                                                                                                         
SFC-99 # 104, Side A and Side B                                                                                                 
CALL TO ORDER                                                                                                                   
Co-Chair John Torgerson convened the meeting at                                                                                 
approximately 9:07 AM.                                                                                                          
Senator John Torgerson, Senator Sean Parnell, Senator Randy                                                                     
Phillips, Senator Dave Donley, Senator Loren Leman, Senator                                                                     
Gary Wilken and Senator Al Adams.                                                                                               
Also Attending:                                                                                                                 
SENATOR MIKE MILLER; SENATOR JERRY MACKIE; ALISON ALGEE,                                                                        
Deputy Commissioner, Department of Administration; GINNY                                                                        
FAY, Legislative Liaison, Office of the Commissioner,                                                                           
Department of Commerce and Economic Development; CATHERINE                                                                      
REARDON, Director, Division of Occupational Licensing,                                                                          
Department of Commerce and Economic Development; ELMER                                                                          
LINDSTROM, Special Assistant, Office of the Commissioner,                                                                       
Department of Health and Social Services; DAN FAUSKY,                                                                           
CEO/Executive Director, Alaska Housing Finance Corporation,                                                                     
Department of Revenue; JOHN BITTNEY, Legislative Liaison,                                                                       
Alaska Housing Finance Corporation, Department of Revenue;                                                                      
NANCY SLAGLE; Director, Division of Administrative                                                                              
Services, Department of Transportation and Public                                                                               
Utilities; TOM BRIGHAM, Director, Division of Statewide                                                                         
Planning, Department of Transportation and Public                                                                               
Facilities; DAVE MILLER, Federal Highway Administration.                                                                        
Attending via Teleconference: From Anchorage: DWIGHT                                                                            
BECKER, Program Coordinator, Adult Protective Services,                                                                         
Division of Senior Services, Department of Administration;                                                                      
BRUCE KOVARIK, Executive Director, Association of Alaska                                                                        
Housing Authorities; SUE BENEDETTE, Vice President, First                                                                       
National Bank of Anchorage and Co-Chair, Alaska Mortgage                                                                        
Bankers Association; ROBIN WARD; From Dillingham: DAVE                                                                          
MCCLURE, Executive Director, Bristol Bay Housing Authority,                                                                     
and Board Member, AHFC; From Homer: ANNE WHITNEY,                                                                               
President-elect, Katchemak Board of Realtors; ANGIE NEWBY,                                                                      
President, Katchemak Board of Realtors; From Kodiak: BOB                                                                        
BRODIE; BONNIE AULABAUGH, Broker, Chelsea Realty; ED                                                                            
MAHONEY, President, Kodiak Building Industry Association                                                                        
From Valdez: NANCY LETHCOE.                                                                                                     
SUMMARY INFORMATION                                                                                                             
SB 107-ABOLISH TOURISM MARKETING COUNCIL                                                                                        
A committee substitute and a fiscal note were adopted.  The                                                                     
committee heard from the sponsor, the House Finance                                                                             
Committee, Department of Commerce and Economic Development                                                                      
plus additional public testimony. The bill was reported                                                                         
from committee.                                                                                                                 
SB  73-ASSISTED LIVING FACILITIES                                                                                               
The sponsor and the Department of Administration addressed                                                                      
the committee. The bill was held in committee.                                                                                  
SB 149-TRANSPORT.PLAN/ROAD MONEY                                                                                                
The committee heard from the sponsor, the Department of                                                                         
Transportation and Public Utilities and the Federal Highway                                                                     
Administration. The bill was held in committee.                                                                                 
SB 150-SMALL COMMUNITY HOUSING LOANS                                                                                            
The committee heard from the Alaska Housing Finance                                                                             
Corporation. Public testimony was taken and the bill was                                                                        
held in committee.                                                                                                              
CS FOR SENATE BILL NO. 107(L&C)                                                                                                 
"An Act relating to tourism and tourism marketing;                                                                              
eliminating the Alaska Tourism Marketing Council; and                                                                           
providing for an effective date."                                                                                               
DARWIN PETERSON, aide to Senator John Torgerson explained                                                                       
the changes made in the proposed CS before committee                                                                            
members.  Many of the items conformed to changes made by                                                                        
the House Finance Committee to the companion bill. Some of                                                                      
the changes were as follows:                                                                                                    
Language was deleted that stated, "The tourism related                                                                          
contract awarded under AS 44.33.125(b) to a qualified trade                                                                     
association with the right of first refusal or subcontract                                                                      
by a qualified trade association." This was conforming                                                                          
changes to those made in the House version.                                                                                     
Language was inserted to clarify the location of a visitor                                                                      
center in Tok, Alaska.  Co-Chair John Torgerson said the                                                                        
intent was to ensure the location of the only state-                                                                            
operated visitor center.                                                                                                        
Direction was given as to what kind of research could be                                                                        
conducted in relation to tourism. This provision was not                                                                        
included in the House bill.                                                                                                     
Section 15 was amended to provide for marketing operations.                                                                     
Instead of stating that the procedures were to be directed                                                                      
by the department, the language gave the direction. This                                                                        
also conformed to the House changes.                                                                                            
Language was inserted to read "or fails to accept the offer                                                                     
within a reasonable time" and related to the contracting of                                                                     
services.  This was not contained in the House bill but was                                                                     
inserted here to show the Legislature's intent to the trade                                                                     
association. Co-Chair John Torgerson clarified this was to                                                                      
avoid contract delay.                                                                                                           
Clarification was given to allow the use of the state seal                                                                      
and other logos. The use of mailing lists and other data                                                                        
received as part of the contractual services was also                                                                           
Conforming technical changes were made to apply to the                                                                          
substantive amendments.                                                                                                         
Senator Sean Parnell offered a motion to adopt the CS                                                                           
Version "I" as a Workdraft. Senator Al Adams objected.  He                                                                      
wanted the sponsor to testify as to whether or not he                                                                           
agreed with the changes.                                                                                                        
SENATOR JERRY MACKIE, sponsor of the bill, stated he                                                                            
supported the changes. Many of the changes were technical                                                                       
and cleaned up the language.                                                                                                    
Senator Al Adams removed his objection and Version "I" was                                                                      
GINNY FAY, Legislative Liaison, Department of Commerce and                                                                      
Economic Development testified. Although she had not had an                                                                     
opportunity to review the CS, she felt the changes were                                                                         
Senator Al Adams asked if new fiscal notes would be                                                                             
prepared. Co-Chair John Torgerson said the committee would                                                                      
draft fiscal notes to reflect the changes.                                                                                      
Senator Jerry Mackie stated the changes wouldn't change the                                                                     
fiscal notes. Co-Chair John Torgerson concurred but noted                                                                       
he wanted to address the personnel services component of                                                                        
the note.                                                                                                                       
Ginny Fay noted there should be an updated fiscal note. The                                                                     
department had found a mistake and submitted a revised                                                                          
fiscal note.                                                                                                                    
NANCY LETHCOE testified via teleconference from Valdez in                                                                       
support of the bill.                                                                                                            
The committee began addressing the fiscal notes. Co-Chair                                                                       
John Torgerson noted he had requested that the department                                                                       
provide a breakdown. A House Finance Committee fiscal note                                                                      
would also be considered for this bill.                                                                                         
Senator Jerry Mackie spoke to the fiscal notes. He                                                                              
supported the fiscal notes submitted to the committee with                                                                      
the Senate Resources committee substitute.  He spoke to the                                                                     
location of staff positions, which were agreed upon with                                                                        
the department. These actually showed a reduction.                                                                              
Co-Chair John Torgerson said the biggest concern was with                                                                       
the personnel services line.                                                                                                    
Ginny Fay pointed out a misunderstanding in one of the                                                                          
fiscal notes.  The House Finance Committee fiscal note was                                                                      
based on the millenium plan and was in error.  She shared                                                                       
the same confusion that the reductions weren't happening                                                                        
more rapidly. She detailed the situation and showed how the                                                                     
latest fiscal note corrected the error.                                                                                         
JOE BALASH, Staff to Representative Gene Therriault came to                                                                     
the table at the request of the co-chair.  He was asked if                                                                      
the budget would be increased with the HFC fiscal note. He                                                                      
clarified that numbers the previous witness referred to                                                                         
were general funds only and the long-range discussion would                                                                     
address that. He detailed the fiscal information. There was                                                                     
discussion between Ginny Fay and Joe Balash on the matter.                                                                      
Co-Chair John Torgerson understood that the project                                                                             
development and the project assistance portions would not                                                                       
be funded through the department. There would be fewer                                                                          
positions funded. Senator Jerry Mackie affirmed. There was                                                                      
discussion as the differences of the number of positions                                                                        
requested in the various fiscal notes.                                                                                          
Senator Jerry Mackie supported the existence of the                                                                             
Division of Tourism. It provided important functions.                                                                           
However, he noted that if many of the functions were                                                                            
removed, the same number of positions could not be                                                                              
justified. He spoke to the general budget situation. He was                                                                     
trying to be realistic.                                                                                                         
Co-Chair John Torgerson asked if the personnel services                                                                         
line totaled $890,400. Ginny Fay stated there would be a                                                                        
reduction from 16 staff to nine.                                                                                                
Joe Balash countered that was not correct.  There was a                                                                         
$100,000 difference in the personnel services line and                                                                          
$20,000 in the contract line for FY00.                                                                                          
Co-Chair John Torgerson was inclined to recommend the                                                                           
committee adopts the HFC fiscal note.  Senator Jerry Mackie                                                                     
asked the department to defend their argument that they                                                                         
needed to maintain the same level of staffing in light of                                                                       
the intent to scale down the division.  Ginny Fay responded                                                                     
that the fundamental difference was that currently there                                                                        
was no staff in either the ATMC or the Division of Tourism                                                                      
to directly do marketing functions. It was contracted out                                                                       
and overseen by staff. If the bill passed, there would not                                                                      
actually be a privatization of marketing but rather a                                                                           
consolidation of marketing. Staff would be reduced in both                                                                      
agencies and the Division of Tourism would be required to                                                                       
oversee a contracting level that was four times greater                                                                         
that the present.                                                                                                               
Co-Chair John Torgerson was not convinced.                                                                                      
Senator Loren Leman agreed with Co-Chair John Torgerson's                                                                       
assumptions on the first year, but looked at the second                                                                         
year and suggested merging the numbers of the two fiscal                                                                        
notes as the amount was higher in the house fiscal note                                                                         
than the division requested.                                                                                                    
Joe Balash commented on the contractual line item saying                                                                        
that the funding would be to fund initial contract                                                                              
services. After the initial contracts were made, fewer                                                                          
funds would be needed to oversee the contractors.                                                                               
Senator Jerry Mackie said the $200,000 was for tourism                                                                          
related research and had been provided for in the committee                                                                     
Senator Randy Phillips made a motion to direct the co-chair                                                                     
to write a new fiscal note similar to the house version and                                                                     
work out the details later. Senator Al Adams objected and                                                                       
spoke to his objection. By having the co-chair draft the                                                                        
new fiscal note, the remainder of the committee would not                                                                       
know the amount and allocation of funds between the                                                                             
personnel services and contractual services components. Co-                                                                     
Chair John Torgerson said he would write the fiscal note                                                                        
using the direction of the discussion held in this hearing.                                                                     
Senator Loren Leman did not have a problem granting the co-                                                                     
chair authority to write the fiscal note. He had concerns                                                                       
with the additional spending allowed in the second year. He                                                                     
didn't believe sufficient savings were presented.                                                                               
The motion to create a new fiscal note adopted by a vote of                                                                     
6-2-2. Senator Loren Leman and Senator Al Adams voted                                                                           
against the motion. Senator Dave Donley and Senator Sean                                                                        
Parnell were absent.                                                                                                            
Senator Randy Phillips offered a motion to report CS SB 107                                                                     
(FIN) out of committee with the new fiscal note. There was                                                                      
no objection and it was so ordered.                                                                                             
CS FOR SENATE BILL NO. 73(HES)                                                                                                  
"An Act relating to assisted living homes; and                                                                                  
providing for an effective date."                                                                                               
This was the second hearing for this bill.                                                                                      
Co-Chair John Torgerson explained proposed committee                                                                            
substitute, Version "G". He commented that he supported the                                                                     
bill but had concerns about the fiscal note.  The CS                                                                            
addressed those concerns.                                                                                                       
Under the proposed CS, the bill would provide for a                                                                             
reimbursement rate of $50 per day, up from the current $34.                                                                     
This rate would apply for two years.  In FY02, the rate                                                                         
would increase to $75 per day, where it would remain.  The                                                                      
current version allowed for an additional raise to $100 per                                                                     
day, which this would eliminate.                                                                                                
He noted an agreement with the Alaska Mental Health Trust                                                                       
Authority that they would provide $600,000 per year toward                                                                      
this increase.                                                                                                                  
Co-Chair John Torgerson asked Senator Mike Miller if he                                                                         
opposed the drafted CS.                                                                                                         
SENATOR MIKE MILLER qualified that he had tried to grant as                                                                     
much reimbursement to the caregivers as possible. In light                                                                      
of the current fiscal crisis, he believed this would be an                                                                      
improvement for the caregivers and would help many assisted                                                                     
living homes. He told the committee he was making other                                                                         
efforts to help the assisted living facilities in ways that                                                                     
would not cost the state any money.                                                                                             
Senator Randy Phillips moved for adoption of the CS Version                                                                     
"G". There was no objection and it was so ordered.                                                                              
Senator Mike Miller further commented that he felt this                                                                         
legislation was a step in the right direction and that it                                                                       
should not be delayed.                                                                                                          
DWIGHT BECKER, Program Coordinator, Adult Protective                                                                            
Services, Division of Senior Services, Department of                                                                            
Administration, testified via teleconference from                                                                               
Anchorage.  He asked for clarification of when the $75                                                                          
reimbursement rate actually began.                                                                                              
Tape: SFC - 99 #104, Side B    9:54 AM                                                                                          
Co-Chair John Torgerson clarified that the program would                                                                        
begin in the calendar year 2001. However the fiscal year                                                                        
was 2002.                                                                                                                       
ALISON ELGEE, Deputy Commissioner, Department of                                                                                
Administration and ELMER LINDSTROM, Special Assistant,                                                                          
Office of the Commissioner, Department of Health and Social                                                                     
Services came to the table to speak to the fiscal notes.                                                                        
Co-Chair John Torgerson asked why there were two fiscal                                                                         
notes rather than one. Alison Elgee answered that this                                                                          
program impacted the clients of the Division of Senior                                                                          
Services and the clients of the Division of Mental Health                                                                       
and Developmental Disabilities. The program operated under                                                                      
one set of statutes and regulations although it serviced                                                                        
two different client groups.                                                                                                    
Co-Chair John Torgerson wanted to know the total general                                                                        
fund expenditure. Elmer Lindstrom detailed the amounts of                                                                       
both fiscal notes adjusting for the receipts from the                                                                           
Alaska Mental Health Trust Authority. Senator Gary Wilken                                                                       
calculated the general fund component at $1.26 million.                                                                         
Co-Chair John Torgerson ordered the bill held in committee                                                                      
to work on the fiscal notes.                                                                                                    
SENATE BILL NO. 149                                                                                                             
"An Act relating to awards of federal funds to                                                                                  
municipalities for road projects and to the statewide                                                                           
transportation improvement program; and providing for                                                                           
an effective date."                                                                                                             
This was the first hearing for this bill.                                                                                       
Co-Chair John Torgerson made general remarks to the bill.                                                                       
There had been discussion in committee regarding                                                                                
appropriation to specific transportation projects, which                                                                        
the department failed to do even after the projects passed                                                                      
the entire legislative process and was approved by the                                                                          
Governor. This legislation would address that.  It would                                                                        
also place into statute, under the Community Road Program,                                                                      
how the funds would be broken down.                                                                                             
MARY JACKSON, staff to Senator John Torgerson came to the                                                                       
table. The bill contained two things. It would put the                                                                          
Statewide Transportation Program (STIP) into statute and it                                                                     
would establish a new program for municipalities.                                                                               
She gave a sectional analysis of the bill.                                                                                      
Section 1 set the STIP into statute and broke it down into                                                                      
three components: the National Highway System, the                                                                              
Community Transportation Program and Trails and Recreation                                                                      
Access for Alaska. It established a percentage value for                                                                        
all federal funds.  It also set out a process for revising                                                                      
the STIP to give direction to the department.  It made                                                                          
clear the legislative process was clear when the                                                                                
Legislature took action on a STIP during the budget                                                                             
Subsection (b) addressed the CTP and established the                                                                            
categories and percentages. The Anchorage Metropolitan Area                                                                     
Transportation Study (AMATS) was identified at 30 percent.                                                                      
Remote Areas was identified at ten-percent.  State Highway                                                                      
Systems was identified at 15 percent. Gravel Improvement                                                                        
and Upgrades was identified at 15 percent as well.                                                                              
Reconstruction and Transfer was identified at ten-percent.                                                                      
Finally, Statewide Competitive was identified at 20                                                                             
Subsection (C) gave direction to the department on how to                                                                       
rank the projects with priority given to road that would be                                                                     
upgraded from gravel or asphalt treatment and turned over                                                                       
to a municipality for maintenance. They intent was to                                                                           
reduce the cost of maintenance to the department.                                                                               
Subsection (d) stipulated that if there were not sufficient                                                                     
projects within a component, a transfer to other categories                                                                     
was provided.                                                                                                                   
Subsection (e) gave definitions.                                                                                                
Section 2 provided the Gravel to Pavement was a separate                                                                        
program that would sunset after four years. The 15 percent                                                                      
allocation for that category would transfer to the                                                                              
Statewide Competitive category. It also stipulated that                                                                         
projects could not be included in this category if they                                                                         
qualified for either the NHS or TRAAK programs.                                                                                 
Section 3 gave the definitions with reference to the Gravel                                                                     
and Pavement category and would sunset in four years.                                                                           
Section 4 was a new program for the award of federal funds                                                                      
to municipalities.  This would allow the municipalities to                                                                      
come to the department with projects that qualified under                                                                       
federal program eligibility standards. The municipalities                                                                       
would undertake construction of the projects and provide                                                                        
the matching grant requirement.                                                                                                 
Sections 5 and 6 were the effective dates for the                                                                               
Mary Jackson noted that representatives were present from                                                                       
the department and the National Highway System.                                                                                 
Co-Chair John Torgerson wanted to hear from the                                                                                 
representatives but did not intend to take up amendments at                                                                     
this meeting.                                                                                                                   
Senator Al Adams commented that some of the projects would                                                                      
be passed along to municipalities. He wanted to know if the                                                                     
bill contained language that shifted liability from the                                                                         
state to the municipality, once the funds were transferred.                                                                     
He also commented that the percentages should not be                                                                            
dictated. While he felt the remote category should be at                                                                        
least 15 percent, he didn't believe the limitations should                                                                      
be placed on the department.                                                                                                    
Co-Chair John Torgerson felt those were good questions for                                                                      
the department. He commented that the matter had been                                                                           
discussed and the proposed percentage amounts closely                                                                           
mirrored history.                                                                                                               
Senator Al Adams noted the available funding amounts                                                                            
TOM BRIGHAM, Director, Division of Statewide Planning,                                                                          
Department of Transportation and Public Facilities was                                                                          
called to the table to respond to Senator Al Adams's                                                                            
concerns about local liability. The department believed it                                                                      
was never completely off the hook, according to Tom                                                                             
Brigham. Language in the bill would help however.                                                                               
In addressing Senator Al Adams's concerns about the ten-                                                                        
percent allocated to rural projects, Tom Brigham said it                                                                        
would depend on the future of sanitation roads in rural                                                                         
communities.  If you look at the out-years currently                                                                            
projected for the program, ten-percent was not                                                                                  
unreasonable.  However, Public Health Service and Village                                                                       
Safe Water staff saw additional projects on the horizon and                                                                     
felt a higher percentage would be needed.                                                                                       
Senator Al Adams wanted to know if language could be added                                                                      
to limit the state's liability. Tom Brigham responded that                                                                      
the Attorney General would be better suited to address the                                                                      
Senator Gary Wilken wondered why a particular area of the                                                                       
state was singled out (Anchorage) and wanted to know if                                                                         
other areas such as Fairbanks should be considered for                                                                          
Senator Gary Wilken had a question on what would happen                                                                         
when the gravel to pavement provision sunset. Mary Jackson                                                                      
responded that the intent was the percent allocated to that                                                                     
program would be added to the statewide competitive                                                                             
Senator Gary Wilken wanted to know the percentage                                                                               
allocation for the six categories in the past for                                                                               
Co-Chair John Torgerson said there wasn't officially an                                                                         
FMATS established for Fairbanks even though there was some                                                                      
money appropriated to it.  However, the question was well                                                                       
taken. Tom Brigham confirmed.                                                                                                   
Senator Gary Wilken then asked what was the FMATS if it was                                                                     
not an official organization.  Tom Brigham said it was an                                                                       
operating agreement between the Department of                                                                                   
Transportation and Public Utilities, the borough, the City                                                                      
of Fairbanks and the City of North Pole. Once the urban                                                                         
area of Fairbanks reached 50,000 people, it would then                                                                          
qualify. At that point, the department would treat it in                                                                        
the same manner AMATS was treated.                                                                                              
Senator Gary Wilken wanted to make sure the matter was                                                                          
clear before the bill was moved from committee.                                                                                 
Senator Lyda Green asked how the Gravel to Pavement Upgrade                                                                     
timeframe was established. Was the intent that all projects                                                                     
would be completed in four years, or if projects after that                                                                     
date would not be listed in the separate allotment? Co-                                                                         
Chair John Torgerson said the target was set by the TEA21.                                                                      
Mary Jackson confirmed and detailed.                                                                                            
DAVE MILLER, Assistant Division Administrator, Federal                                                                          
Highway Administration, came before the committee to                                                                            
address the municipal road project portion of the bill.                                                                         
Title 23 in itself specifically allowed for states to                                                                           
contract with municipalities or other governmental agencies                                                                     
to conduct projects. He read the specific language into the                                                                     
The same provision stipulated that the state agency was not                                                                     
relieved under federal law or regulation in the event it                                                                        
utilized the services of another organization. In his                                                                           
interpretation, that held the state responsible for                                                                             
assuring compliance with federal regulation.                                                                                    
Senator Al Adams asked if federal law allowed an                                                                                
appropriation to rural Alaska or if the funds were granted                                                                      
in a lump sum to the state for disbursement.  Dave Miller                                                                       
answered that TEA21 provided funds to the state in a number                                                                     
of general categories.  Considerable flexibility was                                                                            
granted to the State Of Alaska that was not normally                                                                            
considered for other states. The subcategories proposed in                                                                      
this bill was a practice done throughout the US and was                                                                         
acceptable but not necessarily encouraged.                                                                                      
Dan Miller noted that his office did not have an                                                                                
opportunity to assess the proposed percentages.                                                                                 
Co-Chair John Torgerson ordered the bill held in committee.                                                                     
He told members that amendments would be distributed by the                                                                     
time of the next hearing on the bill.                                                                                           
SENATE BILL NO. 150                                                                                                             
"An Act relating to interest rates for small community                                                                          
housing mortgage loans under the housing assistance                                                                             
program of the Alaska Housing Finance Corporation."                                                                             
This was the first hearing for this bill.                                                                                       
DAN FAUSKY, CEO/Executive Director, Alaska Housing Finance                                                                      
Corporation, Department of Revenue, came to the table at                                                                        
the request of Senator Al Adams. Senator Al Adams wanted to                                                                     
know how much money would be made in rural Alaska using the                                                                     
one-percent proposal. In looking at the rural versus urban                                                                      
situation, he wondered how much money had been spent on                                                                         
this program in Anchorage.                                                                                                      
Senator Al Adams knew it was required that a portion of the                                                                     
earnings of this program be spent on certain housing                                                                            
programs. He asked where the proceeds of the one-percent                                                                        
interest rate went. Did they really go to rural Alaska or                                                                       
were they spread among communities across the state?                                                                            
Dan Fauske responded that the majority of the subsidized                                                                        
loans or enhancement programs went to Anchorage. That was a                                                                     
condition of the population base. He listed figures showing                                                                     
Regarding the consideration of removing the one-percent                                                                         
interest rate provision for rural Alaska, he noted the                                                                          
corporation could make more money if the percentage was                                                                         
increased. He anticipated however, that if it were                                                                              
eliminated there would be about a 16 percent drop in loan                                                                       
portfolio activity. Therefore, the program would break even                                                                     
and there would be no gain. He pointed out that in rural                                                                        
areas, and even less rural areas by Alaska standards,                                                                           
mortgage insurance could not be obtained.  Therefore, if                                                                        
there were not a subsidy of some sort more down payment                                                                         
money would have to be required from residents.                                                                                 
He explained that the rate established in statutes was one-                                                                     
percent of the taxable rate would have been had bonds been                                                                      
issued. This was a revolving fund and bonds were not sold                                                                       
to fund it. Generally, once the one-percent was removed,                                                                        
compared to a tax of the program, the rate was the same on                                                                      
a thirty-year mortgage. The rural program would exceed the                                                                      
tax-exempt program by an eight of a point for a fifteen-                                                                        
year mortgage.                                                                                                                  
Senator Al Adams asked if the rural communities along the                                                                       
road system would be affected by this legislation. Dan                                                                          
Fauske answered that the current program required the                                                                           
population of communities along the road system had to be                                                                       
1600 residents or less to qualify. Off the road system, the                                                                     
population requirement was 6500. The corporation had                                                                            
discussions with some realtors who would like to see those                                                                      
limits raised. He noted the program had tripled over the                                                                        
last three years. He listed the number of loans done in                                                                         
various rural communities during that period. Another                                                                           
concern raised was with communities that were annexed into                                                                      
a borough.  Those residents would no longer qualify for the                                                                     
program. This had happened for areas in the Kodiak Island                                                                       
Borough and the Haines Borough.                                                                                                 
Dan Fauske believed it was a program that was necessary.                                                                        
Whether it stood up to strict economic standards was                                                                            
another issue. Charging a higher interest rate could always                                                                     
make more money. His concern was with the mortgage                                                                              
Senator Randy Phillips asked if the criteria for the                                                                            
program were the same for every person in Alaska regardless                                                                     
of where they lived. He noted the different number of loans                                                                     
given in various communities Dan Fauske said it was the                                                                         
same. Senator Randy Phillips asked if this applied to all                                                                       
of the programs the corporation offered. If the criteria                                                                        
were different, he felt it should be examined. Dan Fauske                                                                       
agreed. The only differences were found in the urban areas                                                                      
because of access to amenities such as ease of access or                                                                        
the quality of the property.                                                                                                    
Senator Randy Phillips asked about the mortgage insurance.                                                                      
Dan Fauske said that under the program, the borrower would                                                                      
still have to pay a ten-percent down payment. AHFC then                                                                         
assumed a part of the risk that would normally be covered                                                                       
under mortgage insurance.  Under most programs, more than                                                                       
ten-percent would be required to obtain mortgage insurance.                                                                     
That was just the way the industry operated, he stressed.                                                                       
Senator Dave Donley was entertained by the witness                                                                              
testimony that if the subsidy was removed, fewer people                                                                         
would borrow money and the corporation would make the same                                                                      
amount of money. That seemed to argue for extension of the                                                                      
one-percent program to all Alaskans. Dan Fauske did not                                                                         
disagree. He was only trying to make an analogy and he                                                                          
didn't know how much business would be lost with the                                                                            
elimination of the one-percent provision.                                                                                       
Senator Dave Donley referred to the comments that the rural                                                                     
loans were more difficult to make, which was the reason the                                                                     
AHFC was involved. For that reason, he doubted the private                                                                      
sector would choose to pick up the estimated sixteen-                                                                           
percent drop.                                                                                                                   
Senator Dave Donley then noted the Boundary Commission's                                                                        
latest report that specifically identified this program as                                                                      
one of the most problematic and biggest inhibitors of the                                                                       
formation of local governments. This was because                                                                                
communities would not qualify for the program if they                                                                           
joined or formed boroughs. In his opinion, the lack of                                                                          
formation of local governments was one of the biggest                                                                           
problems facing the state today. He asked if the witness                                                                        
could propose a solution. Dan Fauske responded that the                                                                         
corporation was not trying to advocate a program that was                                                                       
based on these problems. He hoped to alleviate the problems                                                                     
associated with the qualifications of some properties based                                                                     
on which side of the road they were located. He had heard                                                                       
this concern from realtors.                                                                                                     
Senator Dave Donley made further comments on the formation                                                                      
of local boroughs.                                                                                                              
Senator Dave Donley then pointed out that other programs                                                                        
operated by AHFC applied to all Alaska's regardless of                                                                          
where they lived.  He used veteran, disabled and first time                                                                     
homebuyer programs.  This program was only available to                                                                         
those people who met a particular discriminatory category,                                                                      
in his opinion.                                                                                                                 
Senator Randy Phillips noted he had potential conflict of                                                                       
interest because he works for a mortgage company. He                                                                            
offered a motion to be allowed to abstain from voting on                                                                        
the bill. Senator Dave Donley objected and the motion was                                                                       
Senator Loren Leman asked if the intent was to increase the                                                                     
rate in the rural area market using the one-percent                                                                             
provision. He wanted to know why the corporation didn't                                                                         
reduce the rate charged in the rest of the state instead.                                                                       
Dan Fauske responded that the other programs were bonded                                                                        
programs that were driven by the rate the bonds could be                                                                        
sold. This program was established as a revolving fund so                                                                       
the rates were calculated. The corporation was exploring                                                                        
other options with regard to universal statewide programs.                                                                      
He noted that there were limitations under the tax-exempt                                                                       
programs for income limits that were established by the                                                                         
federal government.                                                                                                             
Co-Chair John Torgerson introduced Alex Grundmann, age 13,                                                                      
who was visiting the committee as a participant of Take                                                                         
Your Child to Work Day. He was serving in the capacity of                                                                       
Senator Al Adams asked if of the money earned from by the                                                                       
corporation how much was spent on this program. He also                                                                         
wanted to know if this money could be used to match the                                                                         
supplemental housing project in the capital budget. Dan                                                                         
Fauske answered that in terms what was spent on the total                                                                       
program, he only knew of only $200,000 that was spent on                                                                        
this subprogram. He would find out the actual figures and                                                                       
supply them to the committee.                                                                                                   
To answer the question on whether the arbitrage could be                                                                        
used for the CIP, he told Senator Al Adams that the                                                                             
arbitrage could only be used for a loan that met the same                                                                       
perimeters of what the bond was issued for. It had to be                                                                        
used for a loan with a reasonable expectation of repayment.                                                                     
Co-Chair John Torgerson noted the bill would not be                                                                             
reported out of committee this meeting.                                                                                         
Tape: SFC - 99 #105, Side A                                                                                                     
BRUCE KOVARIK, Executive Director, Association of Alaska                                                                        
Housing Authorities, testified via teleconference from                                                                          
Anchorage. He had submitted written testimony. The                                                                              
association opposed the bill. It was clear to them that it                                                                      
would focus significant and adverse impact on the                                                                               
availability of affordable mortgage loans in rural Alaska.                                                                      
The bill would not save money and would further discourage                                                                      
private lending activities in rural Alaska. It would                                                                            
increase the cost of housing and lessen the economic                                                                            
development in areas of the state that needed it the most.                                                                      
He disagreed with Senator Dave Donley's assumption that                                                                         
this program was a special discriminatory subsidy.                                                                              
SUE BENEDETTE, Vice President, First National Bank of                                                                           
Anchorage and Co-Chair, Alaska Mortgage Bankers                                                                                 
Association, testified via teleconference from Anchorage.                                                                       
FNBA lends on a statewide basis and found this program to                                                                       
be very successful in allowing it to lend to rural Alaska.                                                                      
It helped offset the higher cost of housing in rural areas.                                                                     
ROBIN WARD testified via teleconference from Anchorage. She                                                                     
stated that the bankers associations, the homebuilders and                                                                      
affiliated businesses viewed the AHFC as their own                                                                              
permanent fund. She would submit further testimony in                                                                           
DAVE MCCLURE, Executive Director, Bristol Bay Housing                                                                           
Authority, and Board Member, AHFC, testified via                                                                                
teleconference from Dillingham. He had submitted a policy                                                                       
brief from HUD to the committee. It stated that home equity                                                                     
was the largest single source of household wealth for most                                                                      
Americans. A decrease in the interest rate exemption would                                                                      
have a negative affect on the number of loans made. He                                                                          
urged the committee to maintain the current program as a                                                                        
method of maintaining economic stability in rural areas.                                                                        
ANNE WHITNEY, President-elect, Katchemak Board of Realtors,                                                                     
testified via teleconference from Homer.  The cost of                                                                           
living and the cost of construction was much higher in                                                                          
rural areas and that was one reason the one-percent                                                                             
provision was put into place. It did not cost AHFC any                                                                          
money. First-time homebuyers in urban areas were able to                                                                        
take advantage of other interest rate reduction programs.                                                                       
Therefore, this was not a fairness issue.                                                                                       
ANGIE NEWBY, President, Katchemak Board of Realtors,                                                                            
testified via teleconference from Homer.  This program had                                                                      
made home ownership possible for many people on the Kenai                                                                       
Peninsula. She listed the figures.                                                                                              
BOB BRODIE, Assoc. Realty, testified via teleconference                                                                         
from Kodiak. He felt the committee missed the point. The                                                                        
object of AHFC was to make housing affordable for all                                                                           
Alaskans. When the interest rate was raised only one point                                                                      
many people were eliminated from qualification for home                                                                         
ownership. Instead of taking the program from rural Alaska,                                                                     
he supported Senator Dave Donley's suggestion to make all                                                                       
the AHFC loans one-percent lower than the market rate.                                                                          
That would pick up the revenue from those loans that                                                                            
typically went to FHA and Fanny Mae programs.                                                                                   
BONNIE AULABAUGH, Broker, Chelsea Realty, testified via                                                                         
teleconference from Kodiak in opposition to the bill. She                                                                       
believed the program was set up to allow for loan programs                                                                      
in rural areas.  She attested to the higher cost of home                                                                        
ownership in rural Alaska.                                                                                                      
ED MAHONEY, President, Kodiak Building Industry                                                                                 
Association, testified via teleconference from Kodiak. The                                                                      
association opposed the legislation.  The impact to the                                                                         
community would be substantial.                                                                                                 
Co-Chair John Torgerson ordered the bill held in committee.                                                                     
Senator Torgerson with the assistance of Alex Grundmann                                                                         
recessed the meeting at 10:52 AM.                                                                                               
SFC-99 (18) 4/22/99                                                                                                             

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