Legislature(2009 - 2010)SENATE FINANCE 532

03/10/2009 09:00 AM Senate FINANCE

Download Mp3. <- Right click and save file as

Audio Topic
09:06:57 AM Start
09:10:17 AM SB50
09:17:16 AM Presentation: Alaska Housing Finance Corporation
10:46:28 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Rescheduled from 03/09/09 --
Moved SB 50 Out of Committee
+ Alaska Housing Finance Corporations TELECONFERENCED
Presentation by Dan Fauske, CEO
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  SENATE FINANCE COMMITTEE                                                                                      
                       March 10, 2009                                                                                           
                         9:06 a.m.                                                                                              
9:06:57 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stedman called the Senate  Finance Committee meeting                                                                   
to order at 9:06 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Johnny Ellis                                                                                                            
Senator Donny Olson                                                                                                             
Senator Joe Thomas                                                                                                              
MEMBERS ABSENT                                                                                                                
Senator Charlie Huggins, Vice-Chair                                                                                             
ALSO PRESENT                                                                                                                  
Sharon Long,  Staff, Senator  Charlie Huggins; Andy  Moderow,                                                                   
Dog  Musher/Iditarod  Finisher;   Dan  Fauske,  CEO/Executive                                                                   
Director, Alaska  Housing Finance Corporation,  Department of                                                                   
Revenue;  Bryan  Butcher, Director,  Government  Affairs  and                                                                   
Public   Relations,  Alaska   Housing  Finance   Corporation,                                                                   
Department  Of  Revenue;  Joe Dubler,  Director  of  Finance,                                                                   
Alaska Housing  Finance Corporation,  Department of  Revenue;                                                                   
John  Anderson, Weatherization  Officer,  Research and  Rural                                                                   
Development, Alaska  Housing Finance Corporation,  Department                                                                   
of Revenue.                                                                                                                     
SB 50     "An Act relating to Iditarod finisher special                                                                         
          request license plates."                                                                                              
          SB 50 was REPORTED out of Committee with no                                                                           
          recommendation and zero fiscal note 1 by the                                                                          
          Department of Administration.                                                                                         
Presentation: Alaska Housing Finance Corporation                                                                                
Co-Chair Stedman reported results  of a sub-committee meeting                                                                   
regarding airports.                                                                                                             
SENATE BILL NO. 50                                                                                                            
     "An Act  relating to  Iditarod finisher special  request                                                                   
     license plates."                                                                                                           
9:10:17 AM                                                                                                                    
SHARON LONG,  STAFF, SENATOR  CHARLIE HUGGINS, SPONSOR,  read                                                                   
from the Sponsor Statement (Copy on File):                                                                                      
     By  passage  of this  legislation,  a new  provision  is                                                                   
     added for  special issue  license plates to  honor those                                                                   
     who   have  shown  the   dedication,  perseverance   and                                                                   
     exemplary athletic  ability that finishing  the Iditarod                                                                   
     Trail Sled Dog Race requires.                                                                                              
     Design work for  the new plates must be  approved by the                                                                   
     Department  of  Administration.  The finishers  will  be                                                                   
     able  to  purchase  the exclusive  specialty  plates  by                                                                   
     providing   specific   proof    of   participation   and                                                                   
     completion of  the race. The race finisher  must have an                                                                   
     automobile  registered in the  state of Alaska  on which                                                                   
     the plates would be displayed.                                                                                             
     Senator Huggins  requests support for this  new category                                                                   
     of  specialty license  plates honoring  the mushers  who                                                                   
     have endured  the challenges  and shown the  courage and                                                                   
     ability  to complete  what  is affectionately  known  as                                                                   
     "the  last  great race,"  the  Iditarod  Trail Sled  Dog                                                                   
Ms. Long reminded  the committee that the 2009  Iditarod race                                                                   
had just begun and there were  over 60 potential finishers on                                                                   
the  trail. She  thought  it fitting  that  Alaska honor  the                                                                   
finishers  because  of the  importance  of  the race  to  the                                                                   
Senator Olson  asked if  the Iditarod  Trail Committee  had a                                                                   
position on the  legislation. Ms. Long replied  that Mr. Stan                                                                   
Hooley, executive  director of  the committee, had  testified                                                                   
in support of the bill in another committee.                                                                                    
Senator  Olson asked  why the  race finisher  had to have  an                                                                   
automobile registered  in Alaska. Ms. Long answered  that the                                                                   
idea was  to keep  the license plates  on automobiles  and in                                                                   
the state to demonstrate pride in Alaska and in the race.                                                                       
9:13:34 AM                                                                                                                    
Senator Olson  asked if a person  would be allowed to  sell a                                                                   
plate to another party. Ms. Long did not know.                                                                                  
Co-Chair  Stedman  referred  to  the  zero  fiscal  note  and                                                                   
queried revenue expected. Ms.  Long answered that the measure                                                                   
was expected to generate positive  cash flow. The fiscal note                                                                   
is a zero note because the revenue expected is minimal.                                                                         
Co-Chair Hoffman  asked if it  were true that the  view never                                                                   
changes for the  dogs behind the lead dog.  Ms. Long answered                                                                   
that a finisher could speak to the issue.                                                                                       
ANDY MODEROW, DOG MUSHER/IDITAROD  FINISHER, spoke in support                                                                   
of the legislation. He reported  his experience as a racer in                                                                   
the Iditarod. His mother and father  had finished the race as                                                                   
well;  all three of  them would  get the  license plates.  He                                                                   
informed the  committee that from  the sled, the  view rarely                                                                   
9:16:18 AM                                                                                                                    
Co-Chair Stedman closed public testimony.                                                                                       
Co-Chair Hoffman MOVED to REPORT  SB 50 out of committee with                                                                   
individual recommendations and  the accompanying fiscal note.                                                                   
There being NO OBJECTION, it was so ordered.                                                                                    
SB 50  was REPORTED out  of committee with no  recommendation                                                                   
and zero fiscal note 1 by the Department of Administration.                                                                     
^PRESENTATION: ALASKA HOUSING FINANCE CORPORATION                                                                             
9:17:16 AM                                                                                                                    
DAN FAUSKE,  CEO/EXECUTIVE DIRECTOR,  ALASKA HOUSING  FINANCE                                                                   
CORPORATION, DEPARTMENT  OF REVENUE, introduced  a PowerPoint                                                                   
presentation,  "Alaska's  Housing  Market,  2009,"  (Copy  on                                                                   
File), beginning with "Alaska's Housing Market" (Slide 2):                                                                      
   · Interest rates are historically low                                                                                        
   · Prices are stable                                                                                                          
   · New construction                                                                                                           
        o Extremely low                                                                                                         
        o Contractors busy with remodeling                                                                                      
Mr. Fauske covered Slide 3, "What Happened Outside?"                                                                            
   · Collapse of housing market                                                                                                 
        o Economy-Loss of jobs                                                                                                  
        o Excessive speculation                                                                                                 
        o Subprime mortgages defaulted                                                                                          
        o Depreciating home values                                                                                              
Mr. Fauske reported that he serves  on the board of directors                                                                   
of a mortgage bank. He described  a phenomenon called "other-                                                                   
than-temporarily  impaired"  (OTTI) and  how  it affects  the                                                                   
balance sheet  for institutions. He expressed  concerns about                                                                   
OTTI  related  to recording  paper  losses before  an  actual                                                                   
economic loss.                                                                                                                  
9:20:56 AM                                                                                                                    
Mr. Fauske turned to Slide 4, "The Good News Is…":                                                                              
   · Alaska is different from the Lower 48                                                                                      
        o Adjustable rate mortgages (ARMS) were a very small                                                                    
          proportion of total market                                                                                            
        o Small lending community that didn't participate in                                                                    
          riskier loan products                                                                                                 
        o AHFC did not participate in them, even though                                                                         
        o Minimal speculative development or buying                                                                             
        o Continued moderate growth in economy expected                                                                         
Mr.  Fauske   talked  about  areas   in  the   country  where                                                                   
speculative  buying could  result in  four or five  different                                                                   
people owning  a unit before  anyone moved in.  He questioned                                                                   
how the government would relate to speculation.                                                                                 
Mr.  Fauske  moved  to  Slide  5,  "Delinquencies-Are  we  in                                                                   
trouble? 4 Quarter 2008":                                                                                                       
   · Mortgage Bankers Association survey - 7.88 percent                                                                         
        o In Alaska our rate was 3.81 percent, the second                                                                       
          lowest in the nation                                                                                                  
        o AHFC's delinquencies - 4.11 percent                                                                                   
   · Alaska's delinquency rate reached 5.9 percent in 2000                                                                      
     and 2001                                                                                                                   
Mr. Fauske emphasized that he  is not seeing alarming numbers                                                                   
in Alaska  and does  not anticipate  trouble  as long as  the                                                                   
economy stays stable.                                                                                                           
Mr. Fauske covered Slide 6, "Foreclosures 4 Quarter 2008":                                                                      
   · Alaska ranks 50 in foreclosures at 0.90 percent                                                                            
   · Less than one-third the national average of 3.3 percent                                                                    
Mr. Fauske  reported that the  number of foreclosures  in the                                                                   
country is increasing as unemployment rises.                                                                                    
Mr. Fauske turned to Slide 7, "Market is cooling":                                                                              
   · 2008 end-of-year numbers of homes for sale in Anchorage                                                                    
     much lower than '90s                                                                                                       
   · From 1999 to 2005, market hot for sellers                                                                                  
   · Now a more moderate pace                                                                                                   
Mr. Fauske  added that the inventory  is good and  the length                                                                   
of time on market is fine.                                                                                                      
9:24:32 AM                                                                                                                    
Mr. Fauske  pointed to  Slide 8, "Average  Sales Price  as of                                                                   
Dec. 2008."                                                                                                                     
   · Anchorage:     $326,000 (stable)                                                                                           
   · Bethel:        $233,213 (-2.3%)                                                                                            
   · Fairbanks:     $214,000 (-.004%)                                                                                           
   · Mat-Su:        $221,000 (stable)                                                                                           
   · Nome:          $185,000 (-15.9%)                                                                                           
   · Sitka:         $295,333 (-12.3%)                                                                                           
Mr.  Fauske  reported  difficultly   getting  data  from  all                                                                   
Co-Chair  Stedman  asked  if   the  average  sale  price  for                                                                   
December represented  homes sold. Mr. Fauske  answered in the                                                                   
Co-Chair  Stedman asked  for a  broader list  of prices  that                                                                   
included other  communities around the state.  He also wanted                                                                   
to know the number of homes sold in the sample.                                                                                 
Co-Chair Hoffman  asked if the  numbers were reflective  of a                                                                   
one-year period. Mr. Fauske answered in the affirmative.                                                                        
9:26:00 AM                                                                                                                    
Mr.  Fauske described  a  graph on  Slide  9, "Average  Sales                                                                   
Price Reported by Lenders" representing  prices in Anchorage,                                                                   
Fairbanks, Juneau, and MatSu areas between 2000 and 2008.                                                                       
Mr. Fauske  compared sales activity  in various areas  in the                                                                   
state on "Statewide Housing Market-2008" (Slide 10):                                                                            
   · Anchorage      -10%                                                                                                        
   · Mat-Su         -20%                                                                                                        
   · Fairbanks      -14%                                                                                                        
   · Kenai          -17%                                                                                                        
   · Kodiak         -.05%                                                                                                       
Mr. Fauske  turned to  a graph on  Slide 11 depicting  annual                                                                   
residential sales activity from  2001 to 2008. He assured the                                                                   
committee  that the numbers  were not  alarming, although  it                                                                   
would be good if they were higher.  The downturn in the graph                                                                   
does  not indicate  a  troubled economy  but  a slowing  down                                                                   
after peaks in 2004 and 2005 when the market was robust.                                                                        
9:27:20 AM                                                                                                                    
Mr.  Fauske explained  the graph  on Slide  12 detailing  the                                                                   
number of homes for sale in Anchorage  between 1995 and 2008.                                                                   
The peak was close  to 1,100 in 1998; the number  for 2008 is                                                                   
around  800.  Experts  have assured  AHFC  that  the  current                                                                   
inventory is fairly healthy.                                                                                                    
Mr.  Fauske  turned  to  Slide   13,  "Average  Market  Days-                                                                   
Statewide  Through  Dec.  2008," which  depicts  the  average                                                                   
number  of days  that a  home was  on the  market in  various                                                                   
communities in 2007 and 2008:                                                                                                   
                    2007       2008                                                                                         
   · Anchorage      64         72        (+13 percent)                                                                          
   · Mat-Su         79         92        (+16 percent)                                                                          
   · Fairbanks      50         74        (+48 percent)                                                                          
   · Kenai          103        116       (+13 percent)                                                                          
   · Kodiak         68         85        (+25 percent)                                                                          
Mr. Fauske pointed to a graph  on Slide 14, "How long does it                                                                   
take to sell?"  illustrating the average time a  house was on                                                                   
the market  in Anchorage  between 2001  and 2009. The  darker                                                                   
line  represents   active  inventory  and  the   purple  line                                                                   
represents new sales.                                                                                                           
Mr.  Fauske turned  to a  graph  on Slide  15 showing  annual                                                                   
residential  building permit activity  for Anchorage  between                                                                   
2001 and 2008. The number peaked  at 1039 in 2002 and dropped                                                                   
steadily to 225 in 2008.                                                                                                        
Mr. Fauske explained a graph on  Slide 16, "Number of Permits                                                                   
by  Area"  depicting  a decline  in  residential  permits  in                                                                   
Juneau and Fairbanks between 2000 and 2008.                                                                                     
9:29:39 AM                                                                                                                    
Mr.  Fauske discussed  Slide  17, "Apartment  Vacancies  Feb.                                                                   
   · Anchorage           5.0 percent                                                                                            
   · Juneau              4.7 percent                                                                                            
   · Fairbanks           21.2 percent                                                                                           
   · Wasilla/Palmer      2.1 percent                                                                                            
   · Kenai/Wasilla       8.6 percent                                                                                            
Mr. Fauske added  that the vacancy rate in  Fairbanks is high                                                                   
because of the deployment of the striker brigade.                                                                               
Mr.  Fauske segued  to  a more  detailed  chart of  apartment                                                                   
vacancies in the same communities (Slide 18).                                                                                   
BRYAN  BUTCHER,  DIRECTOR,  GOVERNMENT   AFFAIRS  and  PUBLIC                                                                   
RELATIONS, ALASKA HOUSING FINANCE  CORPORATION, DEPARTMENT OF                                                                   
REVENUE, added for comparison  that the national vacancy rate                                                                   
for rentals was approximately 10 percent.                                                                                       
Mr. Fauske  addressed  average interest  rates over time  and                                                                   
introduced several graphs. He  spoke to Slide 20, with a bell                                                                   
curve representing interest rates from 1963 to 2008.                                                                            
9:31:20 AM                                                                                                                    
JOE  DUBLER,  DIRECTOR  OF FINANCE,  ALASKA  HOUSING  FINANCE                                                                   
CORPORATION,  DEPARTMENT OF REVENUE,  explained the  graph on                                                                   
Slide  21 as  showing  what has  happened  to  cost of  funds                                                                   
related to the rest of the conventional  market. The red line                                                                   
represents  the  30-year  Municipal  Market  Data  (MMD),  an                                                                   
approximation of  the corporation's  cost of fund,  which has                                                                   
stayed consistent at around 5.5  percent. The light blue line                                                                   
represents  the U.S. Treasury  (UST) and  the 30-year  London                                                                   
InterBank  Offered   Rate  (LIBOR),   an  indicator   of  the                                                                   
conventional mortgage  market; the bottom dropped  out of the                                                                   
LIBOR  around  November 2008.  Housing  finance  associations                                                                   
around the country are priced  out of the market because they                                                                   
do not  have access  to the  same capital  as Fannie  Mae and                                                                   
Freddie Mac.                                                                                                                    
Mr.  Dubler described  a graph  comparing  mortgage rates  on                                                                   
Slide  22,  "AHFC Tax-Exempt  30-year  vs.  Conventional  30-                                                                   
year."  The red  line shows  how  steeply fixed  conventional                                                                   
rates  dropped   in  the  recent  downturn.   The  blue  line                                                                   
represents  AHFC  rates, which  have  stayed  high enough  to                                                                   
price them out of the market.                                                                                                   
Co-Chair Stedman asked  if the chart ended in  the first part                                                                   
of January.  Mr. Dubler replied  that the chart  was compiled                                                                   
the  previous  month.  The  indicated   rates  have  remained                                                                   
approximately the same.                                                                                                         
Senator Thomas asked why one-quarter  federal rate reductions                                                                   
totaling around 4  percent were not reflected  in the charts.                                                                   
Mr.  Fauske replied  that mortgage  rates  were not  affected                                                                   
quickly when the federal government  cut the rate. Mr. Dubler                                                                   
added that the federal funds rate  is a very short-term rate.                                                                   
The  rates  AHFC  deals  with are  30-year  rates.  When  the                                                                   
Federal Reserve System  (the Fed) cuts rates, if  the rest of                                                                   
the market does not move, the yield curve steepens. Short-                                                                      
term rates get down to a quarter of a percent. If the long-                                                                     
term  rates are  still at  5 percent,  the result  is a  very                                                                   
steep yield curve.  During the past five years,  yield curves                                                                   
have ranged from nearly horizontal to almost vertical.                                                                          
9:35:27 AM                                                                                                                    
Mr.   Fauske   explained   that    Alaskans   are   currently                                                                   
refinancing, which  is new mortgage  activity for  AHFC. Some                                                                   
housing  finance associations  are in  dire straits  and have                                                                   
had to  shut programs down  because there  is no access  to a                                                                   
market to  replenish cash or  bond resources.  Alaska Housing                                                                   
Finance Corporation has not had to shut down programs.                                                                          
9:36:28 AM                                                                                                                    
Mr.  Fauske added  that  150 basis  points  translate to  1.5                                                                   
percent interest.  Co-Chair Stedman clarified that  AHFC is 2                                                                   
percent too high to compete in the market.                                                                                      
Mr. Fauske  reported that AHFC  is trying to figure  out ways                                                                   
to access the  capital markets, but it would  take some time.                                                                   
Alaskans are saving money through  refinancing. He thought it                                                                   
would be  interesting to track  what Alaskans are  doing with                                                                   
the money  saved.  His fear was  that people  would save  the                                                                   
money  instead  of  putting  it back  into  the  economy.  He                                                                   
expressed  dismay  that  millions  of  dollars  [of  stimulus                                                                   
money]  would  be  pumped  into   a  state  with  the  lowest                                                                   
foreclosure rates in the country.                                                                                               
9:38:32 AM                                                                                                                    
Mr.  Dubler  reported  that meetings  with  Freddie  Mac  and                                                                   
Fannie  Mae  officials  revealed  that the  process  is  slow                                                                   
because  the federal government  is a  large bureaucracy.  He                                                                   
stated that the  current situation is short-term.  The Alaska                                                                   
Housing  Finance Corporation  has  long-term objectives.  The                                                                   
corporation  has been  priced out  of the  market before  and                                                                   
their position is to wait for the market to right itself.                                                                       
Co-Chair Stedman  asked for  clarification regarding  Freddie                                                                   
Mac. Mr.  Dubler explained  that Freddie  Mac is the  federal                                                                   
home loan  mortgage corporation.  Fannie  Mae is the  federal                                                                   
national mortgage association.  Both entities are government-                                                                   
sponsored entities (GSE) of the federal government.                                                                             
Mr. Butcher added that the president  has instructed the U.S.                                                                   
Treasury, Fannie  Mae, and Freddie  Mac to work  with housing                                                                   
finance  agencies.  He was  optimistic  that  there would  be                                                                   
access to  cheaper money, but  agreed that going  through the                                                                   
federal government could be challenging.                                                                                        
9:40:11 AM                                                                                                                    
Mr.  Fauske  stated  that the  present  market  also  affects                                                                   
student loan  corporations, municipal and  state governments,                                                                   
and people working  with tax-exempt entities.  The market for                                                                   
people trying to  raise money for capital needs  is currently                                                                   
Mr. Fauske  directed attention  to Slide  23, "Mortgage  Rate                                                                   
Trend Survey Predictions  as of 2/9/09." The  numbers are the                                                                   
result  of a survey  of 250  mortgage bankers.  He noted  the                                                                   
wide range of opinion:                                                                                                          
    · Over the next 30 days:                                                                                                    
         o Rates will rise significantly: 0.0%                                                                                  
         o Rates will rise slightly: 17.9%                                                                                      
         o Rates will remain unchanged: 14.3%                                                                                   
         o Rates will decline slightly: 64.3%                                                                                   
         o Rates will decline significantly: 3.6%                                                                               
    · Over the next 90 days:                                                                                                    
         o Rates will rise significantly: 0.0%                                                                                  
         o Rates will rise slightly: 17.9%                                                                                      
         o Rates will remain unchanged: 25.0%                                                                                   
         o Rates will decline slightly: 42.9%                                                                                   
         o Rates will decline significantly: 14.3%                                                                              
Mr. Fauske  turned to  Slide 24, "Low  Interest Rates  - What                                                                   
has changed?":                                                                                                                  
   · Eligible borrowers have diminished 30-40 percent                                                                           
        o Loan investors and mortgage insurance companies                                                                       
          tightened credit standards                                                                                            
             ƒHigher down payment required                                                                                     
             ƒHigher FICO score required                                                                                       
             ƒJumbo loan financing limited                                                                                     
             ƒNo more exotic loans                                                                                             
                  · No income; no jobs; no assets; interest-                                                                    
                    rate teaser; payment option (interest-                                                                      
                    only, half interest, etc., payments)                                                                        
        o FHA                                                                                                                   
             ƒIncreased fees                                                                                                   
             ƒNo seller-financed down payment assistance                                                                       
        o People don't qualify to refinance                                                                                     
             ƒDecrease in property values                                                                                      
             ƒShouldn't have gotten the loan in the first                                                                      
               place and don't qualify                                                                                          
Mr. Fauske  explained that  FICO is an  acronym for  a credit                                                                   
score  [Fair Isaac  Corporation];  680 is  considered a  good                                                                   
FICO score,  but when  banks allowed  loans  such as the  "no                                                                   
income, no  job, no  assets" (NINJA),  the FICO score  became                                                                   
irrelevant. Loans that had no  value were bought as portfolio                                                                   
securities and contributed to  the market collapse. He opined                                                                   
that  lack of  oversight and  greed distorted  the desire  of                                                                   
ordinary  people to  own homes  into making  buying homes  an                                                                   
investment venture.                                                                                                             
9:44:51 AM                                                                                                                    
Mr. Fauske returned  to Slide 24. The Federal  Housing Agency                                                                   
(FHA)  increased   the  fees  and  eliminated   down  payment                                                                   
assistance.  In   addition,  people  could  not   qualify  to                                                                   
refinance  because  loan  values  exceeded  the  home  value.                                                                   
People were unable to get out  of higher interest rate loans,                                                                   
creating difficulties  in many areas around  the country. The                                                                   
situation is aggravated by increasing unemployment.                                                                             
9:46:29 AM                                                                                                                    
Senator  Olson   asked  when  and  how   constituents  should                                                                   
refinance  homes. Mr.  Fauske  recommended that  constituents                                                                   
call  their  bankers.  He emphasized  that  people  can  save                                                                   
significant amounts of money by refinancing.                                                                                    
9:48:13 AM                                                                                                                    
Senator Olson asked  how AHFC could help. Mr.  Fauske replied                                                                   
that refinancing is done by the  banks. Mr. Dubler added that                                                                   
AHFC  has a  streamlined  refinancing  program  in place  for                                                                   
people who  already have an  AHFC loan. People  can refinance                                                                   
through  AHFC  through  their  bank.  The  cost  is  low  and                                                                   
paperwork  minimal. The  corporation already  knows the  loan                                                                   
and helps by passing cost savings to borrowers.                                                                                 
9:49:07 AM                                                                                                                    
Mr. Fauske pointed out that a  1 percent decrease in interest                                                                   
rates  roughly  translates  into  a 10  percent  increase  in                                                                   
homebuyer purchasing power (Slide 25).                                                                                          
Mr. Fauske  noted that the demand  for housing is  not likely                                                                   
to  subside;  state  demographers  forecast  that  population                                                                   
growth  in  Alaska  is  likely to  increase  the  demand  for                                                                   
housing. The economy is expected to remain steady.                                                                              
9:49:56 AM                                                                                                                    
Mr. Fauske turned  to Slide 27, "Alaska  Affordability Index:                                                                   
Single-Family  Homes, Private and  Public Agency  Lenders, 1                                                                    
Quarter 1992 -  2  Quarter 2008." The graph  illustrates that                                                                   
it  takes 1.62  incomes per  household  to afford  a home  in                                                                   
Alaska. He said the number was  not unusual. He referred to a                                                                   
survey by  United Way revealing  that 44 percent  of Alaskans                                                                   
are  spending  more  than  30  percent  of  their  income  on                                                                   
housing. Federal  guidelines suggest  that people  should not                                                                   
spend more than that on housing.                                                                                                
Co-Chair  Stedman thought  the  statistic  was that  Alaskans                                                                   
spend  28 percent  of their  income for  housing. Mr.  Fauske                                                                   
replied  that  AHFC uses  the  30  percent number,  based  on                                                                   
recommendations by  the U.S. Department of Housing  and Urban                                                                   
Development (HUD).                                                                                                              
9:51:23 AM                                                                                                                    
Co-Chair Stedman  noted that the  graph on Slide 27  stops in                                                                   
the middle of 2008. He asked how  adding recent numbers would                                                                   
affect the  graph. Mr. Fauske  answered that there  would not                                                                   
be a difference and promised to upgrade the numbers.                                                                            
9:51:38 AM                                                                                                                    
Mr.  Fauske explained  that significant  increases in  energy                                                                   
costs will  have an impact  on the affordability  of housing.                                                                   
Also,  personal choices  affect  how much  people spend.  The                                                                   
number of people spending more  than 30 percent on housing in                                                                   
Alaska is decreasing.                                                                                                           
9:52:49 AM                                                                                                                    
Mr. Fauske detailed AHFC's loan volume (Slide 28):                                                                              
   · FY2007: 2,808 loans; $565.7 million                                                                                        
   · FY2008: 2,012 loans; $403.5 million                                                                                        
   · Projected through FY2009: 1,500 loans; $368 million                                                                        
     (down 25 percent)                                                                                                          
Mr. Fauske  pointed  out that  the lower number  of loans  is                                                                   
directly  related to  interest rates.  He stressed that  AHFC                                                                   
did not believe the situation was permanent.                                                                                    
9:53:28 AM                                                                                                                    
Co-Chair  Stedman returned  to AHFC's  loan volume and  noted                                                                   
that  the  average   loan  increased  in  2008.   Mr.  Dubler                                                                   
responded that there has been  an increase in loan balance as                                                                   
the costs of homes has increased, especially in Anchorage.                                                                      
9:54:21 AM                                                                                                                    
Mr. Fauske  continued with  Slide 29, "Construction  Spending                                                                   
2009 Forecast":                                                                                                                 
   · Total spending: $7.1 billion, down 3 percent                                                                               
   · Private-sector spending: $4.3 billion, down 12 percent                                                                     
   · Public-sector spending: $2.7 billion, up 16 percent                                                                        
Mr.  Fauske stressed  that there  was  still a  lot of  money                                                                   
being  spent  for  construction,   although  not  in  housing                                                                   
construction. Workers have been  able to find employment with                                                                   
other construction projects.                                                                                                    
9:55:38 AM                                                                                                                    
Senator  Thomas  queried  earlier  statements  regarding  the                                                                   
relationship   between  government   spending  and   Alaska's                                                                   
relatively stable economy.                                                                                                      
9:56:03 AM                                                                                                                    
Mr. Fauske  pointed out that housing  makes up 20  percent of                                                                   
the gross domestic product of  Alaska. New housing starts and                                                                   
other housing  factors are key  indicators for the  health of                                                                   
an economy;  AHFC is  comfortable with  the current  economic                                                                   
situation   in   Alaska.  However,   he   suggested   careful                                                                   
9:57:34 AM                                                                                                                    
Mr. Fauske turned to how Alaska  compared in 2008 relative to                                                                   
housing and the economic crisis (Slide 30):                                                                                     
   · Nationwide: Median home values fell for ninth straight                                                                     
     quarter - 15.3 percent of the year                                                                                         
   · Anchorage: Median home values up 3 percent                                                                                 
   · Nationwide: Existing home sales down 3.5 percent                                                                           
  · Western states: Existing home sales down 31.6 percent                                                                       
   · Alaska: Existing home sales down 9 percent                                                                                 
9:58:48 AM                                                                                                                    
Mr. Fauske described the big picture (Slide 31):                                                                                
   · Average home prices stable                                                                                                 
   · Home sales activity down                                                                                                   
   · Time on market up                                                                                                          
   · Delinquencies low                                                                                                          
   · Foreclosures low                                                                                                           
   · Interest rates low                                                                                                         
   · Overall construction outlook good                                                                                          
        o New home construction down                                                                                            
   · Additional $1 billion estimated in Stimulus Package                                                                        
   · Population growth forecasted                                                                                               
Mr.  Fauske noted  that  AHFC participates  in  a variety  of                                                                   
areas for which economic stimulus money is being discussed.                                                                     
9:59:24 AM                                                                                                                    
Mr.  Fauske  concluded  that  overall,  AHFC  was  cautiously                                                                   
optimistic. The goal  is to remain flexible  and committed to                                                                   
the success  of the program. He  stated that there  were good                                                                   
opportunities  for   Alaskans  related  to   refinancing  and                                                                   
10:01:30 AM         AT EASE                                                                                                   
10:03:43 AM         RECONVENED                                                                                                
Mr.  Fauske introduced  a PowerPoint  presentation,  "Energy-                                                                   
Efficiency Programs: Progress  Update for Alaska Legislature,                                                                   
3/4/2009" (Copy on File). He gave  a brief overview of AHFC's                                                                   
weatherization program:                                                                                                         
   · $200 million for weatherization (income-based, no-cost                                                                     
   · $100 million for rebates (for those NOT qualifying for                                                                     
     weatherization    program:    rebates    for    eligible                                                                   
     improvements - ratings required)                                                                                           
   · $60 million additional for rebates 9/2008 (to carry                                                                        
     program into next calendar year)                                                                                           
   · Large training component for both programs                                                                                 
Mr. Fauske explained that people  above 100 percent of median                                                                   
income go into the rebate program.  The rebate program was in                                                                   
place in the 1990s and has been  re-introduced. An additional                                                                   
$60 million was added during the special session.                                                                               
10:04:39 AM                                                                                                                   
Mr.  Fauske explained  allocations were  figured by  dividing                                                                   
the  state.  The formula  takes  into  consideration  heating                                                                   
degree days,  cost of fuel,  and population. The  corporation                                                                   
wanted  to have enough  money  in various regions  to make  a                                                                   
program  successful and  to  have equitable  distribution  of                                                                   
     REGION              REBATE          WEATHERIZATION                                                                         
   · Anchorage Region    $26 million     $34 million                                                                            
   · Southcentral Region $16 million     $24 million                                                                            
   · Fairbanks Region    $17 million     $29 million                                                                            
   · Interior Region     $2 million      $12 million                                                                            
   · Juneau Region       $4 million      $12 million                                                                            
   · Southeast Region    $5 million      $14 million                                                                            
   · Northern Region     $4 million      $18 million                                                                            
   · Western Region      $5 million      $20 million                                                                            
   · Southwest Region    $2 million      $12 million                                                                            
10:05:43 AM                                                                                                                   
Mr. Fauske  gave an overview  of the program  start-up (Slide                                                                   
   · April 2008: Programs approved                                                                                              
        o AHFC operates under emergency regulations                                                                             
        o Training & personnel ramp-up started                                                                                  
   · May 2008: Programs launched                                                                                                
  · July 2008: Public hearing & final regulations adopted                                                                       
   · Summer 2008: Continued ramp-up & training                                                                                  
Mr.  Fauske directed  attention to  Slide 5,  "Weatherization                                                                   
Program Progress Report":                                                                                                       
   · Previous program weatherized 600 homes.                                                                                    
   · This year that number will triple to 1800.                                                                                 
   · Year 2: 4000                                                                                                               
   · Year 3: 7500                                                                                                               
   · Statewide    weatherization   providers    and   housing                                                                   
     authorities continue ramping up.                                                                                           
Mr. Fauske pointed out that the  previous program operated on                                                                   
a much more limited  scale, with $3 million to  $5 million in                                                                   
corporate receipts  and $1 million  to $2 million  in federal                                                                   
money. The level was 60 percent of median income.                                                                               
Mr. Fauske  read more  about progress  on the  weatherization                                                                   
program from Slide 6:                                                                                                           
   · $30 million currently on the street.                                                                                       
   · $59.9 million projected for next fiscal year.                                                                              
   · Communities and surrounding areas served: 56 this year                                                                     
     and 90 next year.                                                                                                          
   · Statewide    weatherization    providers    &    housing                                                                   
     authorities continue ramping up.                                                                                           
Mr. Fauske noted  that 700 homes are completed,  500 are near                                                                   
completion,  and   600  are  in  the  assessment   and  early                                                                   
construction phase.                                                                                                             
Mr. Fauske  listed statewide weatherization  providers (Slide                                                                   
   · Alaska Community Development Corporation                                                                                   
   · Interior Weatherization                                                                                                    
   · Municipality of Anchorage                                                                                                  
   · Rural Community Action Program                                                                                             
   · RuralCap-Juneau                                                                                                            
   · Tanana Chiefs Conference                                                                                                   
Mr. Fauske  stated that  AHFC has  worked with the  providers                                                                   
for  many  years.  The housing  authorities  have  also  been                                                                   
brought  in. The  Fairbanks  North  Star Borough,  the  North                                                                   
Slope Borough,  and other government entities  have indicated                                                                   
a desire to  participate in order to expedite  the process in                                                                   
various regions.                                                                                                                
10:08:26 AM                                                                                                                   
Mr.  Fauske listed  the housing  authorities involved  (Slide                                                                   
   · Aleutian Housing Authority                                                                                                 
   · AVCP Regional Housing Authority                                                                                            
   · Baranof Island Housing Authority                                                                                           
   · Bering Straits Regional Housing Authority                                                                                  
   · Bristol Bay Housing Authority                                                                                              
   · Cook Inlet Housing Authority                                                                                               
   · Copper River Basin Regional Housing Authority                                                                              
   · Interior Region Housing Authority                                                                                          
   · Kodiak Island Housing Authority                                                                                            
   · North Pacific Rim Housing Authority                                                                                        
   · Northwest Inupiat Housing Authority                                                                                        
   · Tagiugmiullu Nunamiullu (TNHA) through North Slope                                                                         
   · Tlingit-Haida Regional Housing Authority                                                                                   
   · Ketchikan Indian Community                                                                                                 
   · Metlakatla Housing Authority                                                                                               
Mr.  Fauske  pointed  out  that   every  entity  is  actively                                                                   
involved with the program.                                                                                                      
Mr. Fauske  segued into the  Home Energy Rebate  Program with                                                                   
Slide 11, "Ratings Processed":                                                                                                  
   · Estimate: Over 8000 ratings performed by raters                                                                            
   · 7002 ratings processed                                                                                                     
   · Approximately $66.3 million committed                                                                                      
   · 100-150 applications received per day                                                                                      
   · Over 200 inquiries per day                                                                                                 
   · 417 Post-Improvement rebates paid average: $5909                                                                           
  · 187 New 5 Star Plus rebates paid totally $1.4 million                                                                       
Mr. Fauske  noted that a  $7500 rebate  is paid to  those who                                                                   
build a new  home rated "5 Star Plus." Previously  there were                                                                   
problems  with  builders  being  hesitant  to  construct  the                                                                   
improvements  because the  improvements were  not tallied  in                                                                   
the value of the home; the problem has been addressed.                                                                          
Mr. Fauske turned to Slide 12, "Rater Availability":                                                                            
   · Raters                                                                                                                     
        o 38 at program start                                                                                                   
        o 94 at present                                                                                                         
        o 20 in training process                                                                                                
   · Roving rater program                                                                                                       
   · Centralized sign-up list                                                                                                   
        o www.akrebate.com or call 1-877-AK-REBATE                                                                            
        o Ability to check place on waiting list                                                                                
Mr. Fauske  explained  that under the  roving rater  program,                                                                   
raters  can go where  they are  needed around  the state.  He                                                                   
thought the program was working well.                                                                                           
10:10:22 AM                                                                                                                   
Senator Olson  asked who citizens  should call  regarding the                                                                   
roving rater program.                                                                                                           
JOHN  ANDERSON, WEATHERIZATION  OFFICER,  RESEARCH AND  RURAL                                                                   
DEVELOPMENT, ALASKA  HOUSING FINANCE CORPORATION,  DEPARTMENT                                                                   
OF REVENUE,  answered  that people are  automatically  put on                                                                   
the  roving  rater  list if  there  is  not  a rater  in  the                                                                   
location of a citizen  who calls to get on the  waiting list.                                                                   
A rater is sent when a community  has between ten and fifteen                                                                   
clients on the roving rater list.                                                                                               
Senator Olson  requested the toll-free  number for  people to                                                                   
call to get  on the waiting list. Mr. Anderson  answered that                                                                   
the number is 1-877-257-3228, or 1-877-AK-REBATE.                                                                               
Mr. Fauske  gave an  overview  of the wait  list (Slide  13),                                                                   
explaining that state-wide,  there are 7,724 on  the list. He                                                                   
gave a sample of distributed of households on the list:                                                                         
   · Anchorage - 5888                                                                                                           
   · Kodiak - 182                                                                                                               
   · Juneau - 128                                                                                                               
   · Fairbanks - 25                                                                                                             
   · Dillingham - 6                                                                                                             
Mr. Fauske  described his personal  experience with  the wait                                                                   
list. When  he first signed  up, he was  number 5,408  on the                                                                   
list. One and a  half months later, he was  number 3,400. The                                                                   
list does  move. He offered  encouragement and  stressed that                                                                   
improvements are being made to the program every day.                                                                           
10:13:05 AM                                                                                                                   
Mr. Anderson offered a "Program  Snapshot: Rebates vs. Amount                                                                   
Spent by Sampled  Homeowners" (Slide 14). A  sample was taken                                                                   
of 300  homes that had gone  through the entire  process. The                                                                   
average spent  was around  $9,500; the  average rebate  was a                                                                   
little  over  $5,900. Homeowner  investment  averaged  around                                                                   
$3,500 per upgrade.                                                                                                             
Mr. Fauske added that some people  have concerns that they do                                                                   
not have  money for  the initial  investment. Alaska  Housing                                                                   
Financing  Corporation offers  a fixed  rate loan  for up  to                                                                   
$30,000. People have borrowed  to do additional work to their                                                                   
homes, which he described as a good investment.                                                                                 
Senator  Olson  asked how  much  a  person eligible  for  the                                                                   
rebate can borrow.  Mr. Anderson replied that  the loan could                                                                   
be  for up  to $30,000.  The  rebate amount  could  be up  to                                                                   
$10,000, and comes off the top  of the loan. Mr. Fauske added                                                                   
that the minimum  rebate is $4,000 and the  maximum rebate is                                                                   
10:15:41 AM                                                                                                                   
Mr. Fauske directed attention  to numbers on a chart on Slide                                                                   
15, "Energy  & CO2  Impacts from  Sampled Homes." The  energy                                                                   
cost   for   the   entire  sample   of   260   homes   before                                                                   
weatherization  was   $1,211,080  and  the  cost   after  was                                                                   
$941,242,  totaling  $269,837 in  savings,  or  a savings  of                                                                   
$1,355  per  year  per  home.   He  called  the  savings  the                                                                   
equivalent  of another  permanent  fund  check. In  addition,                                                                   
after  weatherization 12,228  less pounds  of carbon  dioxide                                                                   
were released  per year  per home.  Other data is  confirming                                                                   
the results.  The rating  stars increase  1.21 per  home. The                                                                   
total energy saved in the sample was 17.2 billion BTUs.                                                                         
Mr. Fauske added  that the life span of the  house increased,                                                                   
as  well as  quality of  life. The  installation of  furnaces                                                                   
using new technology produces the most significant results.                                                                     
10:18:08 AM                                                                                                                   
Co-Chair  Hoffman thought  the average  Alaskan would  better                                                                   
understand  the extent  of the  savings if  it was stated  in                                                                   
terms of barrels  of oil conversion. He pointed  out that the                                                                   
amount  of  energy  saved  over  a  longer  period  would  be                                                                   
Mr. Fauske  agreed that  the number would  be very  large. He                                                                   
relayed  that the results  in Alaska  are significant  enough                                                                   
that an advisor  to the U.S. Department of  Housing and Urban                                                                   
Development has asked for the data and software used.                                                                           
Mr. Fauske added  that the following slide would  convert the                                                                   
savings  to  different  types  of fuel  (Slide  16,  "Average                                                                   
Savings per  Home by  Fuel Type"). The  savings in  the chart                                                                   
are average savings per home by fuel type:                                                                                      
     FUEL TYPE           AVERAGE SAVED        SAMPLE SIZE                                                                       
   · Electric            699 kWh              260 homes                                                                         
   · Natural Gas         783 ccf              150 homes                                                                         
   · Number 1 Oil        444 gallons          24 homes                                                                          
   · Number 2 Oil        668 gallons          85 homes                                                                          
   · Propane             149 gallons          17 homes                                                                          
   · Spruce wood         3 cords              9 homes                                                                           
   · Birch wood          1 cord               11 homes                                                                          
   · Coal                2 tons               1                                                                                 
Co-Chair  Stedman  requested  that  the  numbers  be  checked                                                                   
regarding  the difference  between  kilowatt-hours and  BTUs.                                                                   
Mr. Anderson replied that he would check.                                                                                       
Co-Chair  Hoffman  queried how  17.2  BTUs savings  from  the                                                                   
sample on Slide  15 translates to numbers of  barrels of oil.                                                                   
Mr. Fauske  agreed that translation  to barrels of  oil would                                                                   
be a good statistic and said he would get the figure.                                                                           
Co-Chair Stedman  also wanted  conversion to per  million BTU                                                                   
equivalent for the  chart on Slide 16, as well  as the degree                                                                   
days  used  in  the  different  regions  in  the  state.  Mr.                                                                   
Anderson  replied   that  he  would  get  the   data  to  the                                                                   
10:22:45 AM                                                                                                                   
Mr. Fauske moved to Slide 17,  with a breakdown of the rebate                                                                   
allocated by region:                                                                                                            
     REGION              ALLOCATED       ENCUMBERED                                                                             
   · Anchorage Region    $26 million     $19.8 million                                                                          
   · Southcentral Region $16 million     $12.8 million                                                                          
   · Fairbanks Region    $17 million     $17.9 million                                                                          
   · Interior Region     $2 million      $0.36 million                                                                          
   · Juneau Region       $4 million      $4 million                                                                             
   · Southeast Region    $5 million      $3.7 million                                                                           
   · Northern Region     $4 million      $0.37 million                                                                          
   · Western Region      $5 million      $0.25 million                                                                          
   · Southwest Region    $2 million      $0.2 million                                                                           
Senator  Olson  noted the  lower  numbers of  the  encumbered                                                                   
funds proportional  to the  allocation at  the bottom  of the                                                                   
list and asked  what was different in the  Northern, Western,                                                                   
and Southwest  regions.  Mr. Fauske answered  that there  had                                                                   
been a  slowdown in the  Nome region  because of a  change in                                                                   
management.  He added  that  in some  areas  the majority  of                                                                   
recipients will  qualify for  weatherization rather  than the                                                                   
rebate program.                                                                                                                 
Mr.  Anderson  agreed  that there  are  differing  levels  of                                                                   
participation in  some of the  rural communities. He  did not                                                                   
know  why there  were  less people  on  the  waiting list  in                                                                   
Barrow, for example. A large majority  of people will qualify                                                                   
and want  to participate in  the weatherization  program. The                                                                   
corporation is  considering advertising in  rural communities                                                                   
in order to increase participation.                                                                                             
Co-Chair Hoffman  pointed out that private industry  had also                                                                   
been advertising in  urban areas in order to get  some of the                                                                   
business; that is  not happening in rural Alaska.  He thought                                                                   
another problem is that raters  have not been able to get out                                                                   
to smaller  villages. When  raters have been  able to  get to                                                                   
rural areas, there  are additional challenges  to getting the                                                                   
work accomplished.                                                                                                              
10:25:51 AM                                                                                                                   
Senator  Olson wondered  how much low  participation  in some                                                                   
regions  is  related  to the  unavailability  of  raters  and                                                                   
equipment.  Mr.  Anderson responded  that  unavailability  of                                                                   
raters could be  a contributing factor. He added  that he had                                                                   
a copy of  the wait list  broken down by community.  The wait                                                                   
list   for  the   rebate  program   is   short  in   outlying                                                                   
Mr. Anderson  reported that  extensive training efforts  were                                                                   
underway and going well for:                                                                                                    
   · Weatherization Service Providers                                                                                           
   · Housing Authorities                                                                                                        
   · Energy Raters                                                                                                              
   · Contractors                                                                                                                
   · General Public                                                                                                             
Mr. Anderson turned to a progress  report for training (Slide                                                                   
   · April to December 2008:                                                                                                    
        o Professional Classes: 121                                                                                             
        o Professional Students: 2615                                                                                           
        o Consumer Classes: 13                                                                                                  
        o Consumer Students: 464                                                                                                
   · Total Classes: 134                                                                                                         
   · Total Students: 3079                                                                                                       
Mr.  Anderson   explained  that  "students"  in   the  report                                                                   
represented  a range  of people,  from  general laborers,  to                                                                   
subcontractors,  to homeowners  participating  in either  the                                                                   
weatherization  or rebate programs.  There were four  or five                                                                   
different  instructor grantees  or contractors through  AHFC.                                                                   
Training was provided in 14 regional communities:                                                                               
   · Anchorage                                                                                                                  
   · Barrow                                                                                                                     
   · Bethel                                                                                                                     
   · Cordova                                                                                                                    
   · Fairbanks                                                                                                                  
   · Juneau                                                                                                                     
   · Hydaburg                                                                                                                   
   · Ketchikan                                                                                                                  
   · King Salmon                                                                                                                
   · Kodiak                                                                                                                     
   · Kotzebue                                                                                                                   
   · Nome                                                                                                                       
   · Palmer/Wasilla                                                                                                             
   · Seward                                                                                                                     
Mr.  Anderson  concluded  the presentation  by  listing  AHFC                                                                   
training partners (Slide 21):                                                                                                   
   · Alaska Building Science Network                                                                                            
   · Alaska Works                                                                                                               
   · Alaska Craftsman Home Program                                                                                              
   · Northern Building Science Group                                                                                            
   · UAF Cooperative Extension                                                                                                  
   · UAS Building Science Program                                                                                               
   · Wisdom & Associates                                                                                                        
   · Cold Climate Housing Research Center                                                                                       
   · Denali Commission                                                                                                          
   · Opportunity Council                                                                                                        
   · Building Performance Institute                                                                                             
10:28:51 AM                                                                                                                   
Senator Ellis  asked why more  money was encumbered  than was                                                                   
allocated  in Fairbanks.  Mr. Anderson  replied that  the $60                                                                   
million allocated to AHFC was  not allocated for sub-regions.                                                                   
The money is used  as contingency in areas that  are using up                                                                   
their funding  first. Fairbanks is  over the limit.  The wait                                                                   
list in Fairbanks is nearly non-existent.                                                                                       
Co-Chair  Stedman  asked  for   clarification  regarding  the                                                                   
difference  between  urban  and   rural  communities  in  the                                                                   
weatherization program. Mr. Anderson  responded that there is                                                                   
discussion  about whether  there should  be a third  category                                                                   
for  "road remote"  locations.  He explained  that about  600                                                                   
homes have  been done in the  existing program at  an average                                                                   
of approximately $4,000 per home.  Under the new funding, the                                                                   
limits  have  been raised  to  $11,000  for urban  areas  and                                                                   
$30,000 for  rural areas. He  believed that another  category                                                                   
was needed between  the two. The first cycle  of the grantees                                                                   
and contracts are currently coming  to a close; data garnered                                                                   
will  help AHFC  determine  the need  for  a third  category.                                                                   
Historically, the dollar amount  that has gone into the units                                                                   
is low compared to what is being  done currently, so there is                                                                   
nothing to compare with. Energy savings are clearly high.                                                                       
Co-Chair  Stedman asked  if AHFC  would come  forward with  a                                                                   
proposal if need is established.                                                                                                
10:31:41 AM                                                                                                                   
Mr.  Fauske  provided  history   regarding  investments.  The                                                                   
corporation  made the  decision  to not  participate  through                                                                   
consumers  in adjustable  rate  mortgages  (ARMS) and  "magic                                                                   
loans,"  but that  they would  participate  in variable  rate                                                                   
debt, an  area in  which AHFC  has expertise and  confidence.                                                                   
The  variable  rate debt  market  is complicated;  there  are                                                                   
remarketing agents  and bonds are  traded on a  weekly basis.                                                                   
One of  the agents  AHFC used was  Lehman Brothers.  One day,                                                                   
Lehman Brothers  was a  highly rated  company; the  next day,                                                                   
they were gone, leaving AHFC with a $190 million exposure.                                                                      
Co-Chair Stedman  asked for clarification regarding  the $190                                                                   
million  exposure.  Mr. Dubler  answered  that  at one  point                                                                   
Lehman Brothers  was a marketing  agent for the  corporation.                                                                   
Such an agent has the right every  week to put the bonds back                                                                   
to the corporation and the corporation  has to purchase them.                                                                   
Lehman Brothers  was the  agent that  resold the bonds  every                                                                   
week. If  an entity gives  the bonds  back and does  not want                                                                   
them, Lehman  Brothers would find  another purchaser  for the                                                                   
bonds.  To   the  extent  the   agent  cannot   find  another                                                                   
purchaser, the  corporation has to  come up with cash  to pay                                                                   
off the bondholder.                                                                                                             
10:34:03 AM                                                                                                                   
Co-Chair  Stedman queried  the timeframe  during which  bonds                                                                   
must be  repurchased.  Mr. Dubler replied  that normally  the                                                                   
corporation receives  a seven-day  notice. Until  November of                                                                   
2008, the bonds were always remarketed  and AHFC never had to                                                                   
worry about coming  up with cash. In November,  AHFC received                                                                   
a three-day  notice from  the agent that  they did  not think                                                                   
they could  sell the bonds.  The corporation was  given three                                                                   
days  to  come  up  with  a  little  over  $60  million.  The                                                                   
corporation has significant resources  and could have come up                                                                   
with  the  money,  although  they  would  have  had  to  sell                                                                   
investments.  The corporation could  potentially have  had to                                                                   
repurchase $300 million in bonds.                                                                                               
Mr. Dubler  explained  that AHFC has  a sub-corporation,  the                                                                   
Alaska Housing  Capital Corporation  (AHCC) that  was created                                                                   
by the  legislature and funded  with $300 million.  The money                                                                   
has been invested  since the inception of the  corporation by                                                                   
the Department of Revenue (DOR)  in the GeFONSI Fund (General                                                                   
Fund  and  Other  Non-segregated  Investments).  The  capital                                                                   
corporation's portion  of the fund at the end  of January was                                                                   
$345,554,000, so the return to  DOR over the past three years                                                                   
has been almost $46 million.                                                                                                    
Mr.  Dubler explained  that AHFC  approached DOR  and made  a                                                                   
request to  draw some of  the money out  of the AHCC  fund in                                                                   
order to  purchase the  bonds back. Taking  the money  out of                                                                   
the capital  corporation fund allowed  AHFC to keep  the cash                                                                   
in its own  general account needed to keep  mortgage programs                                                                   
operating. If the entire $300  million in the general account                                                                   
had been drawn out, there may  not have been enough liquidity                                                                   
to purchase mortgage loans from Alaskan home buyers.                                                                            
Mr. Dubler  reported that  DOR had  initially hesitated.  The                                                                   
corporation made  the argument  that the capital  corporation                                                                   
is subject to the same fiscal  policies as AHFC; the policies                                                                   
allow investment in corporate  securities, such as the bonds.                                                                   
The  debt   of  AHFC  is   highly  rated,  investment   grade                                                                   
securities. The  corporation asked DOR to purchase  the bonds                                                                   
strictly  as  an  investment.  The  department  did  so;  $63                                                                   
million were  purchased in  September 2008  and were  sold in                                                                   
November  of the  same year.  Another $75  million block  was                                                                   
purchased by  DOR in September  2008 and returned  in October                                                                   
2008. Through  September and  October, another $43.8  million                                                                   
was purchased and returned in  October and November 2008. The                                                                   
Alaska Housing  Finance Corporation  paid the Alaska  Housing                                                                   
Capital Corporation  interest on the funds;  the rates ranged                                                                   
from 1.7  percent to  10.25 percent in  that short  period of                                                                   
10:38:58 AM                                                                                                                   
Mr.  Fauske added  that the  state average  interest rate  is                                                                   
approximately  6  percent  annual return  on  the  investment                                                                   
through AHCC.                                                                                                                   
Mr.  Dubler  stated that  during  the  same time  period  the                                                                   
remainder  of the  fund  earned approximately  2.78  percent.                                                                   
Part of  the reason  AHFC wanted AHCC  to purchase  the bonds                                                                   
was  a  credit  scare  in  the   market;  bond  holders  were                                                                   
requiring  exorbitant yields,  up to  10 percent. Instead  of                                                                   
paying  to a  third  party, AHFC  kept the  yield.  It was  a                                                                   
better investment  than buying  a treasury  bill at 30  or 40                                                                   
basis points.  Mr. Fauske  added that  the interest  rate was                                                                   
0.3 percent at 30 or 40 basis points.                                                                                           
Co-Chair Stedman  asked if the  return derived  from offering                                                                   
the liquidity  was calculated into  the $46 million  extra in                                                                   
the  account. Mr.  Dubler answered  in  the affirmative.  Co-                                                                   
Chair Stedman  asked for  a transaction  schedule related  to                                                                   
the amounts. Mr. Dubler agreed to provide the information.                                                                      
10:40:42 AM                                                                                                                   
Mr. Fauske  revealed that AHFC  was pleased with  the outcome                                                                   
of the  situation. The  corporation had  operated within  its                                                                   
fiscal policies and averted potential disaster.                                                                                 
Co-Chair Stedman asked  if the AHCC fund was  made whole. Mr.                                                                   
Dubler  replied that  the  vast majority  of  the funds  were                                                                   
returned in  the early part of  November. He referred  to the                                                                   
schedule  with  every  payment  made and  received.  A  small                                                                   
portion  of  the  bonds,  around $7,000  had  to  wait  until                                                                   
December  1, but  received  interest. Mr.  Fauske  emphasized                                                                   
that the transaction is complete.  Mr. Dubler agreed that the                                                                   
last  payment  was  paid  into the  GeFONSI  [AHCC]  fund  by                                                                   
December 1.                                                                                                                     
Co-Chair  Stedman referred  to discussion  and difference  of                                                                   
opinion regarding  the potential use  of the $300  million in                                                                   
case of revenue shortfalls.                                                                                                     
10:43:02 AM                                                                                                                   
Co-Chair Stedman  asked if  there would  be future  need. Mr.                                                                   
Dubler hoped not.  He stressed that the November  2008 market                                                                   
was  very  unique.  The  corporation has  never  drawn  on  a                                                                   
liquidity  facility. Mr.  Fauske noted  that AHFC would  have                                                                   
fully  reimbursed any  loss that  may have  occurred. In  the                                                                   
event  that   something  worse   would  have  occurred,   the                                                                   
corporation would not have shorted the state.                                                                                   
Co-Chair   Stedman   recognized   that  the   situation   was                                                                   
extraordinary.   He  asked  if   DOR  had  notified   finance                                                                   
committee  chairs regarding  the  issue.  Mr. Fauske  replied                                                                   
that he  was not aware of  notification. Mr. Dubler  told the                                                                   
committee  that  the  department viewed  the  interaction  as                                                                   
another investment  rather than  an extraordinary  event. Mr.                                                                   
Fauske pointed  out that DOR could  not buy their  own bonds,                                                                   
but could buy those of AHFC as a separate entity.                                                                               
Co-Chair  Stedman  referred to  a  similar issue  related  to                                                                   
student loans.                                                                                                                  
10:46:28 AM                                                                                                                   
The meeting was adjourned at 10:46 AM.                                                                                          

Document Name Date/Time Subjects
AHF058 Weatherization-HomeEnergyUpdateLegUpdate20090304.pdf SFIN 3/9/2009 9:00:00 AM
SFIN 3/10/2009 9:00:00 AM
AHF-022_Housing_Trends_'09_short.pdf SFIN 3/9/2009 9:00:00 AM
SFIN 3/10/2009 9:00:00 AM
SB50 PR Iditarod Plates 022609.doc HFIN 3/16/2009 1:30:00 PM
SFIN 3/9/2009 9:00:00 AM
SFIN 3/10/2009 9:00:00 AM
SB 50
SB 50 Sectional.pdf HFIN 3/16/2009 1:30:00 PM
SFIN 3/9/2009 9:00:00 AM
SFIN 3/10/2009 9:00:00 AM
SB 50
SB 50 Sponsor Stmt final.doc HFIN 3/16/2009 1:30:00 PM
SFIN 3/9/2009 9:00:00 AM
SFIN 3/10/2009 9:00:00 AM
SB 50