Legislature(2015 - 2016)SENATE FINANCE 532
03/17/2016 01:30 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Alaska Enterprise Agency Analysis: Alaska Aerospace Corporation | |
| Alaska Enterprise Agency Analysis: Alaska Housing Finance Corporation | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
March 17, 2016
1:42 p.m.
1:42:59 PM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 1:42 p.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Peter Micciche, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
PRESENT VIA TELECONFERENCE
Craig Campbell, President and Chief Executive Officer,
Alaska Aerospace Corporation, Department of Military and
Veterans Affairs; Bryan Butcher, Chief Executive Officer
and Executive Director, Alaska Housing Finance Corporation,
Department Of Revenue.
SUMMARY
SB 124 EXTEND SUNSET ON AK COMMISSION ON AGING
SB 124 was SCHEDULED but not HEARD.
ALASKA ENTERPRISE AGENCY ANALYSIS:
ALASKA HOUSING FINANCE CORPORATION
ALASKA AEROSPACE CORPORATION
^ALASKA ENTERPRISE AGENCY ANALYSIS: ALASKA AEROSPACE
CORPORATION
1:44:01 PM
Co-Chair MacKinnon referred to a list of 12 questions that
the committee had sent to the Alaska Aerospace Corporation,
CRAIG CAMPBELL, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
ALASKA AEROSPACE CORPORATION, DEPARTMENT OF MILITARY AND
VETERANS AFFAIRS (via teleconference), read from his
written testimony, provided to the committee in a document
"Alaska Aerospace Corporation; Senate Finance Committee
Testimony," (copy on file):
This is a good opportunity to put facts on the record
concerning Alaska aerospace to counter much of the
misinformation that has been presented by detractors
during public testimony and even from some legislators
during committee and floor sessions.
Alaska Aerospace Corporation is currently a state-
owned corporation established by the legislature in
state statue. AAC is the only government or private
sector company in the state that provides the services
and capabilities for space launch and aerospace
development. The University of Alaska also has a very
active aviation education curriculum at the University
of Alaska- Anchorage, and the University of Alaska -
Fairbanks operates the Poker Flat launch facility and
a satellite downlink operation under the Geophysical
Institute. The Poker Flat launch site is primarily
funded by NASA for sub-orbital studies of the aurora.
AAC is exempt from many state department regulations,
requirements, and the state procurement code, but
remain under the state Department of Military and
Veterans Affairs for administrative oversight only. As
part of our existence, the legislature provided, in
statute, that AAC has bonding authority. However, we
have never utilized that capability. Therefore, we
have no outstanding debt or current liabilities.
But AAC is not the same company that came before you
in February 2015. Much has happened to move the
company away from state dependency into a true
commercial marketplace. At a time when oil and gas
prices are at damagingly low values for our state, at
a time when there is tremendous pressure on our state
budget to support the essential services Alaskans
expect from government, I am pleased to be here to
give you a positive story about our/your aerospace
company that demonstrates our success at no longer
being dependent on state funding, while creating a
resurgence in aerospace business for our company.
But first I would like to set the stage for my
presentation. Historically, Alaska Aerospace
Corporation has been solely viewed as the Kodiak
Launch Complex. Measurement of our success was based
on the number of launches from Kodiak and the revenues
generated by those launches. While that model proved
successful for many years, the past five years have
shown that Alaska Aerospace can no longer be a
successful company by rocket launches from Kodiak
alone. Let me explain.
From 1996 until 2011, AAC did not require any state
funding for Operations and Sustainment. The company
operated within the revenues received from launches at
Kodiak. During that period, AAC successfully launched
16 rockets, all for the Federal government. However,
as the Federal government changed focus on missions,
the lucrative government contracts that AAC had relied
upon quickly came to an end. With no other business
units within the company, the future financial
position of AAC quickly became a serious issue. In
2011, my predecessor requested $4.0 million in the
governor's budget which the Legislature approved to
support the daily Operations and Sustainment of AAC
until such time as we could secure more launches. In
SY 2012, AAC again requested and received an
additional $4.0 million in General Funds for
Operations and Sustainment. This was followed in SY
2013 by a request for $8.0 million, which was also
approved.
In October 2012, I was appointed as the new President
and Chief Executive Officer for AAC. During my
subsequent presentations before both the House and
Senate Finance Committees, I made the pledged that AAC
would become a profitable company, that we would
diversify, and that we would implement a long term
budget plan to reduce state general funds for
Operations and Sustainment by $2.0 million per year.
The SY 2014 budget contained the final $8.0 million
request, with our SY 2015 budget request reduced to
$6.0 million and our SY 2016 budget request targeted
for $4.0 million.
1:48:58 PM
Mr. Campbell continued reading his written testimony:
In addition to the Operations and Sustainment funds,
AAC also requested $25.0 million in SY 2013 to pursue
medium-lift expansion capabilities at Kodiak. The
Legislature passed this capital fund appropriation,
with a specific expenditure plan which stated that AAC
could spend an initial $3.0 million for engineering,
environment, permitting, and associated preparatory
efforts. Once a contract was secured, AAC could expend
an additional $10.0 million on site development work
to support the expansion program. However, the
remaining $12.0 million could not be spent until all
additional financing for full construction of the
medium-lift facilities, known as Launch Pad 3, had
been secured.
In 2014, AAC initiated the engineering and environment
processes. Later that year, AAC awarded to Lockheed
Martin the right to proceed with medium-lift
development for the Athena IIS, provided they secured
a launch customer for the vehicle.
Following the election of Governor Walker and in light
of the State's fiscal situation, Governor Walker
issued Administrative Order 271 in December 2014
halting discretionary spending on mega projects. AAC
immediately ceased all work on the Kodiak Launch
Complex medium lift project.
Unfortunately, Lockheed Martin was not able to close
the business case on the Athena IIS, so no work has
been done since that date on developing medium lift at
the Pacific Spaceport Complex - Alaska, nor have there
been any costs charged to this project since that
time. The Medium-Lift Environmental Assessment is in
the final stage of approval with the Federal Aviation
Administration and we expect the final report within
the next few weeks. There are no further costs
associated with the EA. Currently, $2,315,249 of the
original $3.0 Million remains in the AAC account.
In January 2015, AAC offered $22.0 million of the
medium-lift appropriation back to the state for re-
appropriation to other state priorities. That was
accomplished last year and that money no longer
resides in any AAC account.
Concurrent with this, Governor Walker requested that
AAC immediately reduce all state general funding
requests for Operations and Sustainment to zero in the
SY 2016 budget. We agreed, effectively terminating any
future state funding to AAC with last year's budget.
You may recall that last year when I appeared before
you, there were questions about the Administrations
action to zero us out in the budget. You may also
recall that I supported Governor Walker's action. I
speak here today still in favor of that action. There
are no state funds included in the SY 2017 state
budget for AAC.
Finally, in response to questions you also may recall
that I stated AAC would be exploring the possibility
to privatize the company so that Alaska could retain a
viable aerospace industry, without requirements for
state funds.
So here we are today, no money requested in the budget
and one year further down the road. But we have not
been idle.
In January 2015 AAC presented the Administration a
point paper recommending that privatization be
considered as an alternative to shutting the
corporation down.
In February 2015, the AAC Board of Directors
authorized the company to proceed with evaluating
alternative organizational structures and business
models for AAC.
In March 2015, AAC hired Nossman, LLP to conduct the
study. They evaluated nine different scenarios for
potential transformation of the company away from
state government.
1:52:32 PM
Mr. Campbell continued reading his written testimony:
During the May 2015 Board meeting Nossman presented
these options to the Board and the Board directed that
six scenarios be further developed for evaluation at
the November meeting.
Governor Walker was briefed on the Board's direction
in August 2015 by me and Dr. Bob McCoy, AAC Board
Chair. DMVA Deputy Commissioner Bob Doehl also
attended the meeting. No action was requested of
Governor Walker, AAC simply wanted to make sure the
Administration was kept abreast of the Boards
progress.
During the November 2015 meeting, the Board
unanimously passed Resolution #15-06; a resolution
recommending to the Governor that he pursue the
transfer of the Alaska Aerospace Corporation to a
Public-Private Partnership. So despite press releases
by some elected officials that claimed "The Alaska
Aerospace Corporation needs to take the Alaska
Legislature's message to privatize seriously and not
draw out the process while using state money to stay
afloat," the AAC Board of Directors has recommended
that we be transitioned to a Public-Private
Partnership.
Furthermore, AAC has not received any state funds
since the FY 2015 budget, so our operations today are
wholly paid by customer receipts and cash reserves. It
is our intention to not use state funding in the
future, but rather to privatize and be part of our
states economic solution, bringing money into the
state, employing Alaskans, and diversifying our
economy away from being so heavily dependent on
natural resource extraction and sales.
So now let me highlight the economic value of AAC to
our state since becoming operational in 1996. I am
sure you hear, like I do, the repeated pounding of the
drum that "Alaska Aerospace has NEVER made any money
in its history." That is absolutely false. As I
already mentioned, for the first fifteen years Alaska
Aerospace launched sixteen rockets and never received
a single state dollar for Operations and Sustainment.
Facts are facts! During that period, AAC financially
contributed to the state through the contracts we held
with the Federal government.
But let me further present the fact that AAC has been
a positive economic driver for Alaska. Since being
established the State of Alaska has invested $58.7
million in AAC:
· $30.2 million in Operations and Sustainment
funding, as previously explained;
· $22.6 million Capital Funds for infrastructure
development and deferred maintenance at the
Pacific Spaceport Complex - Alaska (formerly the
Kodiak Launch Complex); and
· $5.9 million through the University of Alaska
Science and Technology Fund.
· In total, AAC maintains a physical asset base
valued at approximately $57.0 million, following
reconstruction of the damaged launch facilities,
which will be approximately $35.0 million.
In return, AAC has generated nearly $300.0 million in
"new money," non-state revenues, accounting for 84% of
total revenues for the company.
1:55:28 PM
Mr. Campbell continued reading his written testimony:
In further analysis, of the $58.7 million in State
funds, only 30.2 million was for Operations and
Sustainment. The rest went directly into capital
projects or education programs that facilitated our
ability to attract new business. Therefore, the State
received around nine dollars in "new money" for every
State dollar invested for Operations and Sustainment.
Now, am I happy that the State had to provide $30.2
million to AAC? Absolutely not! That is why I agreed
with Governor Walker to eliminate state funding last
year, to return the $22.0 million CIP funding to the
State, and to support establishment of a Public-
Private Partnership company. By being a Public-Private
Partnership there is virtually no risk that the State
would have to provide further Operations and
Sustainment funding, and it presents business model
for the new company to potentially pay the State back
the $30.2 million over time. If AAC is shut-down, that
$30.2 million investment is lost forever.
But let me bring this closer to home. Our last launch
in August 2014 generated significant economic benefit
to the community of Kodiak. Over $1.3 million in
hotels/B&B, and lodge room rentals; approximately
$835,000 on food, beverage, and incidentals; $250,000
on vehicle rentals; and another $250,000 for logistics
support was spent in the community during the launch
campaign. This resulted in a direct positive economic
impact to Kodiak of $2.7 Million in "new money" to the
community. This is in addition to the $2.8 Million
contract AAC had with Miltec to conduct the launch.
When all direct investments are accounted for, the
2014 launch injected over $5.5 Million of "new money"
into Alaska. Using a standard economic multiplier, the
direct, indirect, and induced positive economic impact
was at least $8.0 Million for that launch, with the
majority being spent in Kodiak and Sand Point.
Returning to the macro evaluation of economic benefit
derived to the State by AAC, when a standard economic
multiplier is applied to the total AAC budget of
$356.7 Million, AAC has provided over one half a
Billion dollars in economic benefit to the state. I
think that is a positive message that is not
understood by nearly enough people. But these are the
facts.
Before I close I want to return to one more important
point: For too long AAC has been synonymous with
Kodiak. Our past behavior has validated that this
assumption was correct; however, the past two years
AAC has dramatically changed and this is no longer an
accurate view of AAC. We are aggressively diversifying
the company so that we are no longer solely dependent
on launches from PSCA and have the ability to adjust
resources as markets change. Let me provide some
examples:
• We have a contract with Plant Labs as distributor of
the Rapid Eye satellite constellation imaging data of
Alaska. No matter who buys Alaska imaging data, AAC
receives a commission.
• AAC is also pursuing installation and operation of
data downlink earth stations in both northern Alaska
and along the equator to allow us to down link data
and do imaging processing as part of our vertical
integration for imagine services.
• We have initiated work on Unmanned Aircraft Systems
(UAS). We are part of the University of Alaska's Pan
Pacific FAA UAS Test Range and have received FAA
authority to apply for UAS Certificate of Authority
(COA) for commercial UAS operations state-wide. We are
the only other agency in the state, besides the
University, with this FAA approval. In fact, we have a
partnership agreement with two commercial companies
that are planning operations in Alaska later this
year.
• We have a contract with Rocket Lab USA to provide
Range Support and Launch Director services for their
first four Electron rocket launches from their New
Zealand facility, scheduled for 2016 and 2017. This
will ultimately lead to launches from Alaska projected
for late 2017 or early 2018.
• AAC received $2.6 million in Federal funds in the FY
2015 budget for capital improvements at PSCA to
support future Federal operations from Alaska. AAC
also has a request in for $5.0 million of Federal
funds within the FY 2017 budget.
• The AAC Board of Directors passed a resolution in
February 2016 authorizing AAC to proceed with
development of a Joint Venture for marketing our Range
Safety and Telemetry System (RSTS) worldwide.
• The AAC board also passed a resolution in February
authorizing AAC to proceed with establishing a wholly
owned subsidiary to provide launch services world-
wide. These launch services are the services currently
provided at PSCA, but our intent is to expand the
business unit to obtain work at other launch
facilities, thereby generating revenues when the team
is not needed in Alaska.
• AAC is actively pursuing development of an
equatorial launch site to compliment the current polar
capabilities of PSCA. It is the intent of the Board
that AAC have the ability to serve customers
equatorial and polar requirements. This would
significantly increase potential revenues, as the
majority of launches require equatorial orbits.
2:00:43 PM
Mr. Campbell continued to read from his written testimony:
• And finally AAC is in the final negotiations with a
customer that will use PSCA, with the first launch in
2017. This will be a multi-year, multi-launch program
that has the potential of being a prime customer for
the next five to ten years. While I can't provide any
further information than this due to the sensitive
nature of contract negotiations, I can say that we
expect a public announcement will be forthcoming from
the customer in April.
What else can I say? I guess I will close by telling
you that:
• Four years ago AAC had over forty state employees.
Today we have only sixteen.
• Over the past four years I have not provided any
Cost of Living Allowance (COLA) increase to any of our
state employee workforce. While the state budget
included COLA, we did not implement it at AAC and
never received the money from the State.
• We also have not provided raises to our state
employees in the past four years. I recognize that AAC
employees are well paid and that the state is facing
serious financial challenges.
• Alaska Aerospace Corporation is transforming into a
diversified company that, in this past year, has
demonstrated the resilience of our workforce to create
new opportunities and secure new business for Alaska.
Conclusion:
AAC wants to be part of the solution. That is why our
Board has recommended to Governor Walker to proceed
with the Public-Private Partnership, create the
environment to allow AAC the potential to repay the
$30.2 million back to the state, and diversify our
economy at a time when we can ill afford to see more
Alaskans unemployed or be sending a message to the
world that Alaska is NO LONGER an aerospace state.
Mr. Campbell thanked the committee and stated that he was
prepared to answer questions.
Senator Olson thanked Mr. Campbell for his efforts,
including those towards downsizing. He asked if AAC
employees were part of the Public Employees' Retirement
System (PERS) system.
Mr. Campbell answered in the affirmative, specifying that
the 16 AAC employees were in PERS as well as the state
health insurance program. He stated that part of the reason
for his desire to move to a public-private partnership was
to transition the employees out of PERS and out of the
state system, which would lower costs and take some
financial burden from the state.
Senator Olson wondered if the communities were paying 20
percent or more of the PERS liability. He wondered what
percentage AAC paid of the PERS liability.
Mr. Campbell stated that AAC paid payroll every two weeks,
and included funding for obligations to the state. He
expanded that in the past, AAC had received some funding
against the PERS liability.
2:04:22 PM
Senator Olson asked what AAC paid in percentage to the PERS
contribution, as the communities paid at 22 percent.
Mr. Campbell stated that AAC paid the same contribution as
other state agencies, and was not sure of the percentage.
Co-Chair MacKinnon asserted that the committee would like
to know about the unfunded liability for employees under
the new Governmental Accounting Standards Board (GASB)
rules. She asked about a termination study on the pension
system that could have taken place when AAC downsized.
Mr. Campbell stated that the corporation had a study done
by PERS that specified the cost to AAC for transitioning
out of PERS to a public-private partnership, and offered to
provide it to the committee.
Co-Chair MacKinnon asked about the $58 million in
investment by the state. She thought that there had been
great benefit to the people of Alaska, but noted that the
state was looking for a return on investment rather than
just a cash-out sale. She suggested that with an average
rate of return of 4.25 percent, there would have been a $2
million to $2.5 million payment to the state for the
investment. She disagreed with what appeared to be the
assertion that the $32 million investment would be lost
forever. She thought there was greater value in AAC than
was reflected in Mr. Campbell's statement.
Mr. Campbell discussed the public-private partnership
proposal, noting that the public portion would be to retain
the assets, and the capital investment money would remain
state assets. He confirmed that the monies paid back were
still part of the asset base that was invested. If the
facility was divested from the state, the additional
capital funds that were placed into the facility should
also be recouped by the state. He characterized the private
sector as the operating side, while the public sector would
retain the full value of the assets.
Co-Chair MacKinnon expressed interest in an update from the
administration or from Mr. Campbell as to the proposal for
the public-private partnership. She commented that the
legislature had been left out of the loop while the idea
was being developed.
2:08:06 PM
Senator Bishop was curious about the range safety and
telemetry systems (RSTS), and wondered if Mr. Campbell
could elaborate. Mr. Campbell stated that range safety was
a mobile system, and a range safety team had been
established with members who would be FAA certified to use
the facility at any range around the world. He informed
that the first contract was with Rocket Labs, to do its
services under an FAA license in New Zealand. He continued
that AAC would have all the equipment shipped to New
Zealand, and the team would likely travel to provide
support for the first four launches. Then the equipment
would be brought back to do the Alaska launches after the
rocket was certified.
Mr. Campbell discussed a joint venture with another company
that was very interested in marketing RSTS on the east
coast of the United States and other locations far from
Alaska. He continued that the joint venture envisioned
providing services to the United States Department of
Defense, NASA, and commercial customers in various
locations. He recalled the previous year when he had hoped
to use RSTS for generating funds, and emphasized that AAC
currently had a contract that was driving it to do so. He
described that the team was established and the FAA
certification process was underway; and added that AAC was
negotiating a joint venture that could be used with another
company in other locations that had not been envisioned a
year previously.
Co-Chair MacKinnon asked if the agency had any outstanding
liabilities (through contracts or other means) that the
legislature should be aware of. She recalled Mr. Campbell
saying there was no outstanding debt obligation.
Mr. Campbell agreed to provide a report to identify what
liabilities could be created if AAC were to be shut down.
He used the example of the rocket lab contract. He stated
that there were no liabilities other than PERS; and there
was no bonding or loans with any banks. He detailed that in
the case of a shutdown, customers of AAC could seek remedy
from the state.
Co-Chair MacKinnon asked about the number and length of any
contracts AAC had. Mr. Campbell mentioned contracts with
BlackBridge and Rocket Lab; and pledged to provide a more
thorough written response with details.
2:12:25 PM
AT EASE
2:16:40 PM
RECONVENED
Co-Chair MacKinnon reiterated that she had asked each
enterprise agency a series of questions to address in its
presentation. [Note: the questions appear as the title of
each slide in the presentation by the Alaska Housing
Finance Corporation (AHFC)].
^ALASKA ENTERPRISE AGENCY ANALYSIS: ALASKA HOUSING FINANCE
CORPORATION
2:17:08 PM
BRYAN BUTCHER, CHIEF EXECUTIVE OFFICER AND EXECUTIVE
DIRECTOR, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF
REVENUE (via teleconference), discussed the presentation
"Alaska Housing Finance Corporation," (copy on file).
Mr. Butcher addressed slide 1, "What is the strategic
vision and value to Alaska?" and discussed the agency
mission statement: to provide Alaskans access to safe,
quality, affordable housing. He expanded that slide 1
addressed many of the different things that were done at
the corporation, including that the Alaska Housing Finance
Corporation (AHFC) was a self-supporting corporation with
offices in 16 communities statewide. He emphasized AHFC
mortgage programs, which were geared towards affordable
housing or workforce housing, and tended to be for Alaskans
that were credit-worthy but had a more difficult time
obtaining a mortgage through secondary mortgage markets
such as Fanny Mae and Freddie Mac. He used examples such as
the tax exempt first-time homebuyers program and the tax
exempt veterans mortgage program; both of which could only
be administered through AHFC by federal law. He mentioned
the rural loan program and multi-family loans as additional
examples.
Mr. Butcher continued to discuss AHFC functions, and noted
that the corporation had taken a bigger role in the state's
mortgage business and housing market. He used the example
of the recession in the late 1980s, when foreclosure rates
were very high and it was difficult to obtain home loans.
At that time, AHFC were responsible for 90 percent of all
mortgages being given. He discussed foreclosures and the
action of AHFC in not flooding the market, but rather
holding the foreclosures until the market recovered.
2:21:18 PM
Mr. Butcher continued discussing slide 1, noting that about
half of AHFC's activities related to public housing. He
reported that the corporation administered 1,600 public
housing units in 14 communities in the state for the United
States Department of Housing and Urban Development (HUD).
Additionally, AHFC administered 5,000 housing choice
vouchers (that went to landlords) which put approximately
$4 million in to the private sector. He detailed that the
vouchers were part of a 100 percent federally funded
program that AHFC administered for the federal government.
Mr. Butcher discussed the AHFC dividend, and the value it
had to Alaska.
Co-Chair MacKinnon referred to consolidation, best
practices, and duplication of services (in the private
sector or in other state agencies) as factors the committee
was considering during the challenging fiscal climate. She
referred to the mortgage program for credit-worthy
Alaskans; and wondered if the general private sector
mortgage lending was up, down, or static. Mr. Butcher
reported that the program had been up quite a bit over the
last couple of years. He furthered that AHFC was a
secondary market that relied on banks, credit unions, and
mortgage companies to initiate the mortgages before it
bought them. Mortgage activity over the last two years had
gone up 21 percent to about $500 million. He estimated that
in the previous year, roughly 20 percent of the mortgages
in the state were from AHFC.
Co-Chair MacKinnon asked if the state was buying the
mortgages on the secondary market. Mr. Butcher clarified
that AHFC served a role similar to that of Fannie Mae and
Freddie Mac. He emphasized the benefit of giving housing
loans; it kept the funds within the state, and gave
customers more personalized attention if they had any
extenuating circumstances.
Co-Chair MacKinnon asked if the AHFC default rate was
comparable to those of private sector banking
organizations. Mr. Butcher stated that the foreclosure rate
and delinquency rate of AHFC loans were extremely low, and
were currently the lowest that had been seen in eight
years. He specified that the foreclosure rate was
approximately 37 one-hundredths of one percent, and the
delinquency rate (30 days or longer) was a little more than
3 percent. He relayed that AHFC had one of the lowest rates
of delinquency and foreclosures as compared to other
states.
2:25:08 PM
Co-Chair MacKinnon asked if AHFC was the only agency that
could manage tax exempt first-time home buyers and veterans
mortgage programs. Mr. Butcher answered in the affirmative.
Co-Chair MacKinnon asked if it was typical in other states
to have a corporation doing what AHFC did.
Mr. Butcher stated that all 50 states had a housing finance
agency. He continued that there were a couple of small
public housing agencies that had combined with housing like
AHFC had; however AHFC was the only statewide office that
had the same combination of functions.
Co-Chair MacKinnon asked if there was a way to transition
to a public-private partnership, taking the state's assets
and handing over management responsibilities inside the
private sector.
Mr. Butcher thought it would be difficult to transition to
a public-private partnership, and thought it might require
a change in federal statute. He offered to get back to the
committee with further information. He had not heard of a
variance of the management model of state agencies
administering the federal funds.
Mr. Butcher showed slide 2, "2. When was AHFC created and
how much state funds were invested?":
AHFC was created in 1971
AS 18.56.020. Alaska Housing Finance Corporation.
The Alaska Housing Finance Corporation is a public
corporation and government instrumentality within the
Department of Revenue, but having a legal existence
independent of and separate from the state.
Governed by Board of Directors
Board requirements specified in AS 18.56.030.
Corporation governing body
State funds invested: $1,069,523,000
Mr. Butcher detailed that the Alaska Housing Authority
(AHA) was created by the territorial legislature in 1946,
and had to do with federal public housing. In 1959 under
the Alaska Statehood Act, AHA became the Alaska State
Housing Authority (ASHA), which managed the public housing
portfolio that AHFC currently had. In 1971, AHFC was
created; and between the years of 1976 and 1985, a little
over $1 billion was invested by the state in AHFC. The
corporation was set up as a legally independent agency from
the State of Alaska, primarily so the debts of the
corporation would not become the debts of the state. He
gave an example of the current AHFC debt of bonds to fund
mortgages at a little over $2 billion. He clarified that
any calculation of the state's debt would not consider the
debt of AHFC.
Mr. Butcher continued on slide 2, recounting that in 1992
the legislature passed a bill that merged ASHA with AHFC,
and henceforth AHFC had been operating the public housing
function as well as the mortgage function. He expanded that
the change added the rural loan program from the former
Department of Community and Regional Affairs, and the loan
program had included weatherization and energy programs.
2:29:00 PM
Senator Dunleavy referred to the statute referenced on
slide 2. He wondered which aspects of the business were
independent of the state and which were not. He asked if
AHFC employees were part of the state retirement system.
Mr. Butcher answered in the affirmative.
Senator Dunleavy asked to hear a list of functions for
which AHFC was dependent upon the state or independent of
the state.
Mr. Butcher stated that AHFC was legally independent with
regard to debt; and had a self-supporting operating budget
which was run from agency receipts, federal funds, and
other funds. He explained that AHFC employees were not
state employees; they were within PERS, but paid into
social security rather than SBS. He continued that AHFC was
not in the state health care system, and had its own
personnel and procurement rules and regulations. He stated
that aside from being a part of PERS, AHFC was mostly
independent.
Senator Dunleavy asked if there were bargaining units
within AHFC. Mr. Butcher stated there was one bargaining
unit, the Alaska Public Employees Association (APEA).
Senator Olson wondered what percentage AHFC contributed to
the PERS system.
Mr. Butcher specified that the corporation paid 22 percent,
like the other state departments.
Senator Olson related a concern about state employees
earning in excess of the governor's wage, and large
retirement liabilities. He noted that individuals from his
district had pointed out the issue.
Senator Bishop asked how many people were within the
bargaining unit. Mr. Butcher estimated there were 56 people
in the APEA bargaining unit, and stated that the number
could change on a day-to-day basis.
Co-Chair MacKinnon referred to the 2016 Department of
Revenue Public Debt Report. She read that AHFC was listed
under a category for state guaranteed bonds for the
veterans mortgage program, with an outstanding principal of
$56,900,000; and with total debt service at maturity of
$94,600,000.
Mr. Butcher explained that the only piece of AHFC debt that
had the general obligation of the state was the tax exempt
veterans loan program, which was required by federal law.
He expanded that when bond debt capacity was needed for the
program, a bill would be passed and the issue would go on
the general election ballot for the people of the state to
vote upon. He recalled that 2010 had been the last
occurrence of the issue in Alaska, and recounted that the
issue had passed with about 70 percent of the voters in
support. He thought the current outstanding principal was
$46 million, and explained that the only way the liability
would reach the state would be if all the loans and the
corporation itself defaulted.
2:34:12 PM
Co-Chair MacKinnon referred to a report showing $7.8
billion of outstanding debt, and wanted to ascertain how it
might affect the state's credit rating. She detailed that
some of the amount was municipal debt, some was general
obligation bonds ($1.3 billion), and some was other
projects.
Co-Chair MacKinnon referred to page 5, which listed AHFC in
a category of state agencies having "collateralized or
insured debt" and having $852 million for mortgage revenue
bonds. The report indicated a date range of 2002 through
2011.
Mr. Butcher stated that the number sounded correct.
Co-Chair MacKinnon asked if there was a moral obligation of
the state.
Mr. Butcher answered in the negative, and specified that
the only obligation the state had on any of AHFC debt was
the $46 million of the veterans loan program.
Co-Chair MacKinnon asked if the debt was insured through
the state, or if there was another connection.
Mr. Butcher answered in the negative.
Mr. Butcher turned to slide 3, "3. What is the current
level of funding from the Legislature?" The slide showed a
pie chart entitled "AHFC FY2016 Operating Budget." He
detailed that the operating budget included $57 million in
federal funds, $33 million in corporate funds, a small
amount of capital improvement projects, and $800,000 in
interagency receipts. He pointed out that within the $57
million in federal funds, there were HUD voucher funds
passed through to landlords while AHFC managed the program.
Mr. Butcher turned to slide 4, "FY2016 Appropriated Capital
Budget," noting that many of the programs could be seen in
AHFC's capital budget request every year.
Mr. Butcher turned to slide 5, "Board of Directors," which
depicted photographs and identification of the AHFC Board
of Directors. He detailed that three members were
commissioners of state agencies (the Department of Revenue,
the Department of Health and Social Services, and the
Department of Commerce, Community and Economic
Development). The board chair was Brent LeValley of
Fairbanks, and filled the statutory position of a person
with expertise in finance or real estate. The vice chair
was Marty Shuravloff, who filled the position of a rural
resident of the state and a person who had experience with
a regional housing authority. He relayed that board member
Alan Wilson had expertise with residential energy-efficient
homebuilding and weatherization; and board member Carol
Gore had expertise with senior and low-income housing. He
noted that there were public members from the Interior,
South-Central, Southeast, and one from rural Alaska. He
thought AHFC had good regional representation on the board.
2:38:01 PM
Mr. Butcher turned to slide 6, "4. What is the management
structure?" The slide illustrated a flow chart of AHFC. He
pointed out the board of directors at the top of the chart,
and directed attention to areas of the corporation divided
according to how the components had come together in the
1992 merger. He noted that the blue section (public
housing) was formerly ASHA, yellow (operations) was the
original AHFC, and the orange section (rural housing) was
the energy department that come over from the Department of
Community and Regional Affairs.
Mr. Butcher turned to slide 7, "5. How many employees and
how are they funded?":
AHFC Employees
· AHFC has 313 full-time PCNs, and authorization
for part-time and non-permanent employees,
totaling 350.
· Approximately half of the employees work in the
federally funded public housing division.
· Federal funds, along with mortgage and investment
earnings, support the operations of the
corporation.
· AHFC's employees are not employees of the State
of Alaska; however, they do participate in the
state's retirement system.
Mr. Butcher stated that in the last decade, AHFC had seen
its employee count (permanent, full-time employees) drop
from 328 to 313. He shared that AHFC was working with the
University of Alaska Anchorage on a business improvement
plan, and anticipated that employee numbers would continue
to drop. He thought the corporation could do things more
efficiently and more effectively.
Senator Dunleavy asked about a program that had set up a
multi-use housing program whereby buildings could contain
residential housing as well as commercial space.
Mr. Butcher though Senator Dunleavy was referring to HB 50.
He stated that the program was in effect. He noted that
slide 17 would show the advantage of the program in
question, and illustrate how organizations and groups had
been able to work cooperatively on housing issues as they
had not been able to in the past.
Co-Chair MacKinnon referred to slide 2, which indicated
that the state had invested over $1 billion. She wondered
if Mr. Butcher had a breakdown as to whether the investment
was cash, assets, or some kind of instrument.
Mr. Butcher did not have the information. He had a year-by-
year breakdown of investment, but since most had occurred
in the 1970s and 1980s it showed up in historical documents
as total numbers. He imagined that the investments were
cash, but acknowledged there may have been other things
they were not aware of.
Co-Chair MacKinnon asked if Mr. Butcher would be providing
a number for total assets owned by AHFC.
Mr. Butcher stated that the information would be presented
in upcoming slides.
Co-Chair MacKinnon asked about slide 7 and wondered, under
the new Governmental Accounting Standards Board (GASB)
rules, what AHFC was carrying as an unfunded liability for
the pension side of the system.
Mr. Butcher estimated that AHFC was carrying approximately
$29 million in unfunded liability for pension.
2:42:39 PM
Mr. Butcher turned to slide 8, "6. Does AHFC generate
revenue?":
REVENUE TYPE - FY 2016 (Projected)
Mortgage and Loan Revenue
$128,018,000
Externally Funded Programs
$119,580,000
Total Investment Income
$5,200,000
Other Revenue
$12,690,000
Total Operating Revenues
$265,488,000
· There are currently more than 15,000 loans in the
AHFC mortgage portfolio.
· AHFC's main source of revenue comes from earning a
positive spread on its mortgage and bond portfolio.
· Externally funded program revenue is from federal
and state grants, so it has offsetting expenses and
does not generate profit.
· Most of AHFC's cash is restricted by bond or
statutory requirements to be liquid so investment
income is limited to short term market rates.
Mr. Butcher qualified that the slide took a snapshot of
revenue midway through the fiscal year, and the numbers on
Mr. Butcher turned to slide 9, "7. Does AHFC return a
dividend to the State? How much?" The slide showed a line
graph entitled "Summary of AHFC State Dividends by Fiscal
Year." He told the committee he wanted to detail a history
of the dividend. He pointed out that the corporation had
paid the dividend in the early 1990s, at the same time that
the state was interested in being reimbursed the $1 billion
that it had invested in the corporation. He pointed out on
the graph that during FY 94 to FY 99, a tremendous amount
was transferred from the corporation to the state, as the
corporation had begun to pay a flat amount of $103 million.
Mr. Butcher continued to discuss the graph on slide 9, and
detailed a past problem that occurred when the net income
of AHFC dropped below the flat dividend amount.
Consequently, agencies had warned the corporation that it
could be facing a downgrade if it continued to pay
dividends in excess of the amount of earnings. He recalled
that in 2004 a bill was passed that instituted a transfer
plan, under which the corporation would pay 95 percent of
its net income, subsequently lowering to 85 percent, and
then to the current level of 75 percent. He discussed the
recession in 2008 and 2009, the historically low interest
rates, and the subsequent drop in the AHFC dividend. He
added that the dividend was $7 million two years
previously; then trended upwards to $19 million, and
finally reached $26 million.
Co-Chair MacKinnon asked about retained earnings.
Mr. Butcher specified that AHFC had approximately $1.4
billion to $1.5 billion in retained earnings.
Co-Chair MacKinnon reminded Mr. Butcher that the state was
experiencing a revenue shortfall, and commented on the
large size of AHFC's retained earnings. She suggested the
board consider the earnings and why the corporation was not
providing additional dividend funds to the state. She
acknowledged there was reasons for having retained earnings
on the books, and suggested the state may be asking for a
call on cash on its investment.
2:46:54 PM
Senator Bishop asked if AHFC had looked at contingency
plans, and discussed past property acquisition in the
1980s. He wondered how much cash was necessary at the time,
and how much the prorated amount would equate to
(considering inflation) in the present time.
Mr. Butcher agreed to research the topic, and recalled that
the corporation, when it had begun repaying the $1 billion
in dividends, was considerably larger than it is currently.
He estimated that it was between $1 billion and $1.5
billion larger than present. He thought the size, along
with budget pressure, created motivation to reimburse the
original funds that had established the corporation.
Mr. Butcher presented slide 10, "Dividend Status":
· Total Dividends: $1,957,180,000
· Total Expenditures: $1,895,640,000
· Remaining to be Paid: $61,540,000
Mr. Butcher explained that the $61.5 million that was
remaining to be paid was the dividend funds appropriated by
the legislature that had yet to be expended.
Co-Chair MacKinnon asked if dividends paid to the state
came with direction as to how they were to be invested.
Mr. Butcher clarified that the board approved budget
requests, and the board approved based on the statutory
plan calculation. The decision as to where the funds would
be spent first came from the governor's office on December
15, and ultimately the legislature decided how the funds
were appropriated.
Co-Chair MacKinnon understood that first the board made
recommendations, then the governor passed his
recommendation through, and then the legislature considered
the recommendations.
Mr. Butcher concurred.
Mr. Butcher presented slide 11, "9. What are AHFC's capital
assets?":
AHFC Capital Assets
Capital Assets - Non-Depreciable
(Land) $20,200,000
Capital Assets - Net of Depreciation
(Buildings) $93,000,000
Mr. Butcher quantified that $14 million of the $20 million
in capital assets (land) was public housing land throughout
the state that contained public housing units. He continued
that there were a couple of low-income housing developments
in Anchorage that were included in the total. He specified
that $76 million of the $93 million in capital assets
(buildings) was public housing buildings around the state.
The remaining $17 billion in capital assets (buildings) was
an office building in Anchorage, and a couple of other
buildings.
Mr. Butcher discussed slide 12, which showed a chart titled
"NON-CAPITAL ASSETS":
NON-CAPITAL ASSETSFY 2016 Q2
Mortgage Loans & Notes
$2,765,495,000
Investments & Cash
$749,302,000
Direct Financing Lease
$36,175,000
Other Assets
$54,508,000
Total Non-Capital Assets
$3,605,480,000
Mr. Butcher detailed that about $170 million of the
investments and cash was in bond resolutions, and $116
million was restricted by contract. He furthered that the
remaining cash supported operations; with $250 million in
short-term bonds for self-liquidity, and $230 million for
current mortgage commitments. He reiterated that AHFC had
done approximately $500 million per year of mortgages; the
liquidity for the mortgages and the operations of the
corporation were the primary focus.
Mr. Butcher relayed that the direct financing lease funds
represented AHFC's ownership of the Atwood Building and the
garage in Anchorage. He detailed that the Atwood Building
lease with the state would expire in 2017, and that of the
parking garage in 2027. He noted that the other assets were
primarily mortgage foreclosures, homes AHFC owned short-
term before selling, and various smaller items.
2:51:45 PM
Co-Chair MacKinnon asked if the dividend was paid out
statutorily.
Mr. Butcher stated that a bill had passed in 2003, and the
dividend was put into statute. The statute listed the
dividend calculation equation; taking a certain percentage
of adjusted change in net assets, as well as consideration
of a listing of debt-service payments on previous capital
projects.
Mr. Butcher discussed slide 13, "10. Does AHFC have bonding
authority? Issued, outstanding, capacity?":
AHFC Bonds
· Bonds are issued for financing single family and
multi-family mortgages with emphasis on first-
time homebuyers, veterans, rural and special
needs populations in Alaska.
· Bonds are issued for governmental purposes,
including state capital projects and state
building leases.
o Alaska Energy Efficiency Revolving Loan Fund
is a recent example of bond authority
granted to AHFC
· $2.2 billion outstanding as of 12/31/15.
· Annual bonding capacity limited by state statutes
to $1.5 billion, not including refunding bonds.
· Qualified tax-exempt bonds are limited by federal
tax laws.
Mr. Butcher clarified that the $2.2 billion outstanding was
debt to the corporation rather than debt to the state. He
added that AHFC had not come near to bond capacity limits
for many years.
Co-Chair MacKinnon asked what interest rate AHFC was
charging single-family or first-time home buyer. She
wondered if the rate was higher, lower, or equal to the
private sector rate.
Mr. Butcher stated that the rate depended upon the borrower
and the timing of the loan. He specified that the current
rate for tax-exempt first-time home buyers was three and
five-eighths percent, and the rate for taxable first-time
home buyers was approximately three and seven-eighths
percent. He noted that there were various add-ons from a
number of programs that could potentially change the rate.
He stated that AHFC was generally competitive with interest
rates from Fanny Mae and Freddie Mac.
Co-Chair MacKinnon discussed annual bonding capacity, which
was limited by state statutes to $1.5 billion, and asked if
the limit was cumulative and went up each year.
Mr. Butcher explained that the limit was not cumulative,
and was a per-year limit.
Co-Chair MacKinnon asked about the statement on slide 13
that specified there was $2.2 billion outstanding as of
December 31, 2015.
Mr. Butcher explained that the $2.2 billion was the total
of all the loans that AHFC had taken over the years, and
was owed in bonds. He clarified that the $1.5 billion was a
limit for what could be done in a single year.
Co-Chair MacKinnon asked for clarification. She requested a
graph of the previous 10 years to illustrate how much new
debt had been taken on each year, overlaid with the total
accumulated debt for the 10 year period.
Mr. Butcher agreed to provide the information.
2:55:48 PM
Mr. Butcher discussed slide 14, "12. Does AHFC have any
outstanding liabilities the Legislature should be aware
of?":
AHFC LIABILITIES
FY 2016 Q2
Bonds Outstanding
$2,172,115,000
Short Term Debt
$23,999,000
Interest Rate Swaps
$162,699,000
Other Liabilities
$49,803,000
Total Liabilities
$2,408,616,000
Mr. Butcher explained that almost all of AHFC liabilities
were in outstanding bonds. He detailed that the majority of
the $49 million listed for 'other' liabilities was $29
million in pension liability.
Vice-Chair Micciche extrapolated that there was about $1.3
billion in assets after adding capital and non-capital
assets and subtracting liabilities.
Mr. Butcher affirmed that AHFC had about $1.4 billion in
assets, with invested capital assets of $113 million.
Co-Chair MacKinnon clarified that Mr. Butcher had stated
the previous slide correctly and she had misheard.
Mr. Butcher discussed slide 15, "8. Is AHFC able to
receive/leverage Federal funds?":
AHFC Federal Funds
AHFC is scheduled to receive $59,000,000 for
administering federal housing programs in FY2017
Operating Budget.
$35,000,000 for Housing Assistance Payments (HAP) to
private landlords throughout 13 communities for the
Housing Choice Voucher Program.
$15,400,000 operating revenue for 1,245 AHFC-owned
units in the Low-Rent Housing Program.
$4,900,000 operating revenue for 370 AHFC-owned units
in the Section 8 Project-Based Multi-family Housing
Program.
$3,800,000 operating revenue for administrative
expenses for the Housing Choice Voucher Program.
Mr. Butcher discussed slide 16, "Capital Programs with
ability to combine federal funding with other mixed
funding":
· Teacher & Other Professionals Housing Loan Programs
· HOME Program
· Rental Assistance for Victims (ECHP)
· Senior Housing Program
· Supplemental Housing Program
· Tax Credit Program
· Weatherization Program
· Competitive Grants for Public Housing
· Federal & Other Competitive Grant Program
· Emergency Solutions Grants
· Affordable Housing Development Program
Senator Dunleavy referred to a previous conversation with
Mr. Butcher about the information on the slide.
Mr. Butcher recalled the conversation.
Mr. Butcher discussed slide 17, "Creekview Plaza", which
showed an illustration of a property:
Creekview Plaza in East Anchorage became the first new
construction opportunity for AHFC to utilize mixed-use
financing granted by the legislature. During FY15,
AHFC granted long-term financing for the development,
which features 49 affordable rental units for elderly
residents with commercial space on the ground floor.
Demonstrating the complexity of financing in home
construction, Cook Inlet Housing is developing the
project with $3,836,150 in loans; $2,333,333 from
AHFC's Senior Citizen Housing Development grant funds;
$1,890,000 from AHFC's Supplemental Housing Grant
Program; $4,324,892 in anticipated proceeds from the
sale of low-income housing tax credits; a Rasmuson
grant of $1,400,000, and approximately $2 million of
its own funds.
AHFC was able to offer the loan to Cook Inlet Housing
after the legislature expanded its authority in 2014
to finance such projects. House Bill 50 was sponsored
by then Representative Mia Costello, and supported
unanimously by her colleagues in the House and Senate.
Mr. Butcher discussed slide 18, which showed an image of
the Ridgeline Terrace property. Mr. Butcher detailed that
AHFC's subsidiary, Alaska Corporation for Affordable
Housing, created in FY 14, was used for the first time in
the development of Ridgeline Terrace and Susitna Square. He
noted that the project was also a mix of many different
funding sources; including $9 million in federal tax
credits, and private investor KeyBank. He continued that
none of the projects could have occurred without private
investors playing a role.
3:00:41 PM
Mr. Butcher discussed slide 19, "11(a). Are there other
state entities or private corporations in Alaska that may
provide the same or similar services as AHFC?":
· AHFC is Alaska's State Housing Finance Agency (HFA).
HFAs are state-chartered authorities established to
help meet the affordable housing needs of residents
of their states. All 50 states have an HFA to
address housing issues which are not, or cannot, be
provided by the private sector.
· As a secondary mortgage lender, AHFC offers loans
for first time homebuyers, Alaskans in rural areas,
to veterans and others while working with private
sector partners.
· The Alaska market is too small to rely on an out-of-
state secondary mortgage lender to rapidly address
economic changes. AHFC plays a critical industry
role as a stabilizing entity in the Alaska housing
market. The most dramatic example of this role was
proven during the housing meltdown of the Alaska
market in the 1980s.
· AHFC is unique among HFAs with integration of
mortgage, public housing, affordable housing
development and residential energy-efficiency
programs all under one roof.
· AHFC is nationally recognized as an innovative
leader with a skilled management team and maintains
one of the highest credit ratings among its peers.
Mr. Butcher asserted that AHFC believed there were not
other entities that provided the same or similar services
as AHFC. He continued that AHFC worked with the private
sector extensively, and many of the companies in the same
area relied on the corporation. He thought AHFC was unique
in that it integrated many of its activities. He specified
that AHFC tried to contract out as much of the work as
possible that was not part of the core operation of the
corporation. He used the weatherization program as an
example, which had expanded tremendously in 2008 and 2009.
He detailed that AHFC had not hired more employees after
program expansion, but rather directed the funds to non-
profits and regional housing authorities in areas across
the state. He noted that even as the program was reduced,
there were skills learned and work done in the regions that
would provide lasting benefit.
Mr. Butcher discussed slide 21, "11(b). Is AHFC subject to
the state procurement code? Explain?":
AHFC Procurement
In 1990, Senate Bill 427 was passed (AS 36.30)
providing that AHFC adopt its own procurement
regulations subject to the provisions of the
Administrative Procedures Act (AS 44.62).
AHFC's procurement regulations provide for a fair and
open public procurement process and integrate well
with other authority that governs AHFC's activities
(15 AAC 150.300 through 15 AAC 150.490).
These include:
1. Bond Authority/Investment Strategies
2. Mortgage Loan Programs
3. Public Housing
4. Grant Programs
5. Subsidiaries
AHFC procurement regulations ensure the ability to
respond quickly and efficiently to changing market
conditions and multiple funding sources.
Mr. Butcher specified that AHFC had just updated its
procurement regulations updated in December, 2014.
Mr. Butcher showed slide 22, "Other":
Northern Tobacco Securitization Corporation (NTSC):
•Legally independent from AHFC and the State.
•Bonds originally issued in 2000 and 2001 to
securitize 80 percent of the tobacco settlement
revenues. Bonds were refunded in 2006 and currently
mature in 2046.
•Bond proceeds were used to fund $405,000,000 in state
capital projects.
•Currently $350,000,000 bonds outstanding.
Mr. Butcher discussed subsidiary corporations of AHFC
created when the legislature gave the corporation
authorization. He recalled when AHFC created the subsidiary
Northern Tobacco Securitization Corporation (NTSC) in 2000
to securitize some of the revenue flow of the tobacco
settlement. He detailed that 20 percent of the funds
remained in the state operating budget. He clarified that
NTSC was legally separate from AHFC, and legally separate
from the state; ergo the debts of NTSC were not the debts
of AHFC or the state.
3:04:00 PM
Co-Chair MacKinnon referred to the debt report, and pointed
out that on page 55, NTSC was listed under state agency
debt for $346 million in outstanding principal (of 2006
settlement asset-backed bonds). She asked if the listing
was state debt.
Mr. Butcher explained that it was a debt of the NTSC, and
not the state or AHFC.
Co-Chair MacKinnon stated that the committee would follow
up with the finance team on the matter.
Senator Dunleavy asked about NTSC, and asked if it sold
debt based upon future settlement or future tax on tobacco.
Mr. Butcher relayed that when the tobacco settlement
occurred in 1999 or 2000, it set up a revenue stream that
would come to all states involved in the lawsuit. The State
of Alaska had an estimate as to what funds it would
receive, and the bonds were sold to securitize 80 percent
of the revenue stream. There were some potential changes
based on how much tobacco use was in the state. The bonds
were purchased with the understanding that there was a high
level of potential volatility. He furthered that the action
was taken immediately after the Kasuylie vs. State of
Alaska court case, in which the state was had been focused
on getting rural schools constructed when there was little
funding. The bill passed for AHFC to set up NTSC, with the
intention that 40 percent of the revenue stream would be
securitized in one year, and an additional 40 percent the
following year.
Senator Dunleavy asked if the bonds were junk bonds because
of the risk involved.
Mr. Butcher stated that the bonds were lower rated than one
would normally see from AHFC or the state, but they were
not junk bonds.
Co-Chair MacKinnon stated that she was interested in a full
presentation on the NTSC.
Mr. Butcher agreed to create a presentation.
Co-Chair MacKinnon referred to a historical paper that
included NTSC.
Mr. Butcher turned to slide 23:
Alaska Housing Capital Corporation (AHCC):
•Created in 2006 for the purpose of financing various
capital projects of the state and financing expenses
via enacted legislative action.
•Current balance of $44,000,000 with $23,000,000
appropriated.
•AHCC has no liabilities.
Mr. Butcher pointed out that AHCC was originally funded
with a $300 million appropriation from the state general
fund (GF).
3:07:59 PM
Co-Chair MacKinnon expressed that the committee would like
to include the Alaska Housing Capital Corporation (AHCC) in
the presentation on NTSC.
Co-Chair MacKinnon referred to the earlier mention of
capitalization, and wondered if the subsidiary corporation
were part of the $1 billion investment.
Mr. Butcher answered in the negative, and used AHCC as an
example. He expanded that AHFC had created the subsidiary
that held the funds, and managed it, but had no access to
it. He furthered that AHCC was a stand-alone corporation
for the benefit of state capital projects.
Senator Dunleavy requested that the report include such
items as mission, purpose, board members, and bonding
capacity.
Mr. Butcher agreed to include all of the items requested.
Mr. Butcher addressed slide 24:
Alaska Corporation for Affordable Housing (ACAH):
•ACAH was formed to develop, manage and operate
affordable housing and provide supportive and related
services to support the mission of AHFC.
•ACAH's functional mission is to undertake the types
of affordable housing and services that are not open
to AHFC directly but which support AHFC's mission.
Mr. Butcher outlined that ACAH had been established through
legislation four years previously. The legislation had
allowed the corporation to form a subsidiary that could
develop, manage, and operate affordable housing with more
flexibility. He specified that ACAH had received financial
backing from a number of partners including KeyBank (as a
tax credit investor) and the Rasmuson Foundation. He noted
that ACAH was a relatively new corporation, had one
development done, and had been successful.
Co-Chair MacKinnon asked how much in state funds was
invested in ACAH.
Mr. Butcher stated about $1.3 million.
Co-Chair MacKinnon stated that the committee wanted all the
subsidiary corporations to answer the same 12 questions
that had been posed to AHFC and other enterprise agencies.
She wanted to gain understanding as to how the funds came
into the corporations and how the funds went out of the
corporations.
Mr. Butcher agreed to provide the information. He pointed
out that all the corporations were created by legislative
action, with the exception of ACAH, which was created at
the request of AHFC.
Co-Chair MacKinnon expressed appreciation for the way AHFC
had managed the assets with the direction that the
legislature had provided. She referred to the bond report
(that showed all state debt) she had been viewing during
the meeting, and confirmed that no there was state debt
obligation under the commercial paper she had mentioned.
3:11:23 PM
Co-Chair MacKinnon asked if there was board policy or
statute regarding retained earnings.
Mr. Butcher stated that there were discussions on the
matter with the board on a regular basis, but did not think
that there was anything in AHFC rules or regulations that
pertained to retained earnings.
Co-Chair MacKinnon asked if Mr. Butcher could follow up
with information about the $1.4 billion in retained
earnings, which she assumed was cash.
Mr. Butcher did not think the funds were cash. He stated
that cash and mortgage loans played a role, much of which
was restricted by contracts or were in reserve funds for
bonds. He stated that the actual cash amount was not much
larger than what was needed to keep liquidity for funding
mortgages and the operations of the corporation.
Co-Chair MacKinnon asked if retained earnings were owned by
the state.
Mr. Butcher answered in the affirmative.
Co-Chair MacKinnon discussed the schedule for the following
day.
ADJOURNMENT
3:14:19 PM
The meeting was adjourned at 3:14 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 031716 AAC 2016 Senate Finance Testimony.pdf |
SFIN 3/17/2016 1:30:00 PM |
|
| 031716 SFIN_AHFC_3-17-2016 committee.pdf |
SFIN 3/17/2016 1:30:00 PM |