HB 293-AHFC LOANS TO TEACHERS CHAIR BUNDE announced that the next order of business would be HOUSE BILL NO. 293, "An Act relating to the teachers' housing loan program in the Alaska Housing Finance Corporation; and providing for an effective date." CHAIR BUNDE announced that he didn't intend to move HB 293 from committee today. Number 3335 REPRESENTATIVE PORTER moved to adopt Version 22-LS1165\J, Cook, 3/28/02, as the working document. There being no objection, Version J was before the committee. CHAIR BUNDE moved that the committee adopt Amendment 1, which reads as follows: Page 2, line 9, following "section": Insert "and permit each vacant unit to be occupied by at least one individual who is not a certificated teacher but is employed in a public elementary or secondary school in the state. If the multi-family housing project still has an unacceptable vacancy level, the corporation may expand the waiver to permit other individuals to occupy vacant units" Page 2, line 10, following the first occurrence of "waiver": Insert "and any expansion of the waiver" Page 2, line 10, following "the waiver": Insert "or expansion" Page 2, line 11, following the first occurrence of "waiver": Insert "or expansion" Page 2, line 11, following "the waiver": Insert "or expansion" Number 3260 JANET SEITZ, Staff to Representative Norman Rokeberg, Alaska State Legislature, spoke on behalf of the sponsor of HB 293. She explained that Amendment 1 ensures that there is a tiered system. The intent is that multi-family housing loans would be for units occupied by certificated teachers. This amendment allows vacant units to be filled by teachers in situations in which there aren't enough teachers to fill the units. Therefore, certificated teachers would fill the units first, then school employees, and then the occupants could be [anyone]. However, a waiver from the Alaska Housing Finance Corporation (AHFC) must be obtained before offering the units to anyone besides a certificated teacher or school employee. CHAIR BUNDE, upon determining there were no objections, announced that Amendment 1 had been adopted. Number 3210 CHAIR BUNDE moved that the committee adopt Amendment 2, which reads as follows: Page 2, line 5, following "housing": Insert "(A) located in a city or community with a population of 6,000 or less; and (B)" Page 2, line 9: Delete "(a)(2)" Insert "(a)(2)(B)" MS. SEITZ pointed out that Amendment 2 refers to the multi- family housing units. The intent of the sponsor is that the multi-family housing projects be for rural areas, and therefore Amendment 2 specifies a community with a population of 6,000 or less. Communities of that size include some of the communities that aren't Rural Education Attendance Areas (REAAs) while keeping the program unavailable to larger communities. CHAIR BUNDE, upon determining there were no objections, announced that Amendment 2 had been adopted. MS. SEITZ explained that this legislation establishes a loan program for teachers to purchase housing with no down payment as well as a multi-family housing program for the rural areas. The corporation, AHFC, will develop the program. Section 1 of the Version J specifies a suggested funding source. Number 2950 REPRESENTATIVE STEVENS asked if this legislation would cover a teacher who builds a house in an area where there is no housing. MS. SEITZ replied that she believes so, but deferred to AHFC representatives for a more definitive answer. Number 2852 JOHN BITNEY, Legislative Liaison, Alaska Housing Finance Corporation, Department of Revenue, began by noting AHFC's support of the legislation, although it recognizes concerns of the Alaska State Pension Investment Board (ASPIB). The question has been regarding the source of funds being used to make these loans, which has driven the search for setting up a cost of capital to lend out that is lower than what's available on the market today. In his experience, a kicker is necessary to lower the cost of capital in order to create an incentive to meet the problem. However, there are also other issues besides finances. For example, in villages there are title restrictions on property. There are also turnover issues in rural communities where teachers aren't necessarily living in the community year round. Mr. Bitney pointed out that AHFC is trying to find ways in which to use existing programs. For example, AHFC currently has the "rural loan program," which is a revolving loan fund that makes loans in small communities at a 1 percent discounted rate from the taxable or conventional loan rate. This existing program includes a multi-family piece for up to eight plexes if the owner doesn't occupy the building. However, something is missing in the existing program. He noted that the rural districts don't want to be in the housing business. Furthermore, in many cases the teachers in the small communities form a large economic sector of the community and thus the question becomes how one can establish a program such that the economic benefit of that group is captured. MR. BITNEY pointed out that if a low cost to capital program is created there is no desire to use up the program with existing teachers using the program to refinance homes they already have. The intent seems to be to create new housing opportunities. With regard to Representative Stevens' question, Mr. Bitney related that the industry standard is that AHFC and the loan program would offer a commitment at an interest rate for construction for a specified amount of time. Once the commitment is in place, the borrower takes the commitment and borrows from a bank based on that commitment. At the time of completion, when all requirements are satisfied, the loan is taken out with that commitment. Number 2236 REPRESENTATIVE STEVENS related that the villages with which he is familiar the districts own the housing and provide the housing to the teachers. However, in many cases the housing is substandard and thus it's difficult to obtain teachers who are willing to move to the community. He asked if this program would include loans to districts to provide housing to teachers. MR. BITNEY said that he wasn't familiar with the types of authorizations that would be required for a district to enter into such an agreement. From AHFC's perspective, if the loan is a good loan AHFC would like to make the loan. However, he questioned what statutory restrictions are in place for districts when entering into certain types of debt agreements. REPRESENTATIVE GREEN asked if there is any possibility of using an "arm". MR. BITNEY said he wasn't familiar with an "arm". He mentioned that generally the bond covenants for the source of capital on a lending program have restrictions regarding the types of loans being made. He said he would be happy to look into this. Number 1914 DEBBIE OSSIANDER, Legislative Chair, Anchorage School Board, Anchorage School District, reminded the committee that this topic arose several times in the hearings many months ago. The [board] seems to think that this legislation has some merit. And in discussions with school board members in California and Nevada, it has come to light that any kind of housing incentive has been remarkably effective in recruiting and retaining people. Ms. Ossiander noted support of HB 293 as another tool for districts across the state. Number 1822 GRETCHEN MANGROBANG, certified teacher, Alaska Military Youth Academy, informed the committee that she is a fairly new teacher who graduated in 2000. She explained that it took her five years to finish her Bachelor's degree and another year to complete graduate school. She informed the committee that her total debt amounts to about $40,000, which is considerably more than she makes in a year. Ms. Mangrobang noted that the steps necessary to apply for a teaching position total about $500. Therefore, the loan forgiveness incentives and housing incentives other states offer are very inviting. She noted that in a recent article she read, Alaska's teaching salaries ranked fifteenth. She expressed the need to take the steps necessary to entice and retain teachers in this state. Furthermore, Ms. Mangrobang said that this legislation would seem to allow teachers in rural communities to purchase housing even if the area is one in which the land cannot be purchased. Number 1536 NEIL SLOTNICK, Deputy Commissioner, Treasury Division, Alaska State Pension and Investment Board (ASPIB), Department of Revenue, noted that although he is speaking in his capacity as staff to ASPIB. In regard to Section 1 of Version J, Mr. Slotnick expressed the need to ensure that there is no false expectation created with regard to ASPIB being able to provide a kicker for this program. He directed attention to a memorandum in the committee packet from Mr. Jenks that explains why ASPIB cannot be viewed as a funding source for the type of loans proposed. Number 1428 JOHN JENKS, Chief Investment Officer, Treasury Division, Alaska State Pension and Investment Board (ASPIB), Department of Revenue, reviewed the memorandum included in the committee packet. He reiterated that Section 1 of Version J permits something that ASPIB could already do; that is if there was a good investment in the marketplace, such as the program [proposed in Version J], ASPIB may invest in it. However, it would be inconsistent with the fiduciary standards the legislature has set out for ASPIB if the risk return was such that the kicker was coming from this investment. If this legislation somehow established an expectation that ASPIB would fund the entire program or make below-market investments to support the program, that would be a significant misunderstanding, he emphasized. While the members of ASPIB think the overall goals of the program are good, the board has unanimous opposition for use of the retirement systems for any type of subsidy. [HB 293 was held over.]