SENATE BILL NO. 171 "An Act relating to the contracting and financing authority of the Alaska Industrial Development and Export Authority, giving approval of the issuance of the authority's revenue bonds, and delaying the termination date of the authority's business assistance program; and providing for an effective date." JOHN OLSON, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA) clarified, in regards to a question asked by Representative Brown during the 4/21/93 meeting, that the amount of gas which would be used by the proposed iron plant is 50 million cubic foot per day. He stated that long term contracts have been put in place for consumer use. There would be no change in consumer prices for 10 to 15 years. Representative Hoffman provided members with Amendment 1 (Attachment 1). The amendment would require the AIDEA Board to make available for rural development initiative grants, $5 million dollars from the unobligated and unreserved balance of the AIDEA Revolving Fund. Representative Hoffman noted that AIDEA expects the Rural Development Initiative Program (RDI) to be short funded. He stressed that the Program has only been in existence for one year and that the demand for the program is great. He asserted that the Program has only touched the "tip of the iceberg" in terms of need for economic development in rural areas. He stressed the lack of jobs in rural areas. Co-Chair Larson asked if the funding will be used for loans. Representative Hoffman replied that the funding would be for repayable loans. Co-Chair Larson asked why the program was not working. Representative Hoffman emphasized that the program is working, but that there is a great demand for additional funding. Co-Chair Larson asked why AIDEA would be used to float the bonds. Representative Hoffman replied that it makes sense to use the expertise of AIDEA. He pointed out that administration costs could be saved by allowing AIDEA to operate the bonds rather than duplicating efforts within RDI. WILLIAM (RILEY) SNELL, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY agreed that there is a need for capitalization in rural Alaska. He stated that AIDEA has the authority to assist in leveraging money. He explained the bond/loan process used by AIDEA. He stressed that there would be a double drain on AIDEA if amendment 1 is adopted. Mr. Snell emphasized that AIDEA projects have focused on the needs of rural Alaska. He stated that the source of funding is his only concern with amendment 1. Representative Hoffman stressed that the amendment will address the needs of small businesses. He noted that the previous projects developed through AIDEA have not gone to small businesses. He pointed out that there is a $100.0 thousand dollar cap on project eligibility. He observed that there are over 200 villages that need assistance. He asserted that rural Alaska has the highest unemployment with the fewest job opportunities. Representative Hanley observed that AIDEA can only use money which has been appropriated to the Authority. He noted that the amendment states that money is authorized to be reserved for the use of RDI. He noted that no new bonding will be used. He asked if the amendment would limit AIDEA's authority to issue bonds approved by SB 171. Mr. Snell stated that AIDEA has $137 million dollars in unrestricted surplus funds available. He stated that an appropriation from these funds would reduce funds for other program participation. He referred to a Legislative Budget and Audit Committee advisor's report, issued March 1, 1993, that reduction of AIDEA assets could affect bond ratings. Representative Hanley expressed concern that the amendment does not fit under the title of SB 171. Representative Hoffman assured him that there is no need for a title change. Representative Hanley reiterated his concern that an appropriation is needed. Representative Hoffman assured him that amendment 1 is not an appropriation. Co-Chair Larson noted that the amendment would require that Board approval of the $5 million for RDI before the other projects contained in SB 171 can be begun. Representative Brown asked if AIDEA could be asked to approve the $5 million dollars for RDI without tying the other projects to the Board's approval. Co-Chair MacLean suggested that funding be provided through reappropriation legislation. Mr. Snell did not think that the Board would have to approve the reappropriation of funds. Members continued to discuss the option of reappropriating funds to RDI. JACK CHENOWETH, ATTORNEY, LEGISLATIVE AFFAIRS AGENCY discussed the drafting of amendment 1. He reiterated that SB 171 is not an appropriation bill and that the amendment does not appropriate funds. He noted that an appropriation would be necessary. He stressed that the amendment would require that the Board approve $5 million dollars for RDI before the other projects contained in SB 171 could be begun. (Tape Change, HFC 93-116, Side 2) Representative Hoffman did not offer Amendment 1. Co-Chair Larson expressed his support for a Rural Development Initiative in areas where no economic base exists. The Co-Chairs indicated that funding for RDI would be sought through reappropriation. Representative Brown stated that gas consumed by the proposed iron plant contained in SB 171 will tighten supplies in Cook Inlet. She referred to page 2, line 24. She noted that the original bill requested $30 million dollars. Mr. Snell explained that off-loading systems were added to increase the project cost to $50 million dollars. Representative Brown provided members with articles regarding the proposed Mat-Su iron plant (Attachment 2). She noted that line 13, page 2 says for use by the MIDREX Company. She observed that according to attachment 2, MIDREX would not own or operate the facility. She asked if alternative language would be needed. Mr. Snell stressed that MIDREX will perform the feasibility analysis, be actively involved in securing financing and would oversee the construction. At some point ownership would be transferred to a new owner. He pointed out that similar language was used in legislation regarding the Red Dog mine. Representative Brown asked how the language could be modified to assure that firm financing is in place before the project is begun. Mr. Snell assured her that the project will not proceed before financing is secured. Representative Brown and Mr. Snell discussed general obligation versus revenue bonding. Mr. Snell stated that if a general obligation bond were to be used that corporate guarantee of subsidiaries would be required. Representative Brown asked what would occur if MIDREX Corporation did not use the facility. Mr. Snell explained that MIDREX would be obligated prior to any release of funds. A reimbursement agreement will be put in place prior to funding release. Representative Brown suggested that someone else could provide financial security. Mr. Snell stated that financial guarantees by MIDREX would remain in place. Representative Martin MOVED to report CSSB 171 (FIN) out of Committee with individual recommendations and with the accompanying fiscal note. Representative Navarre asked when the final financial feasibility study would be complete. Mr. Snell replied that it is expected by Fall, 1993. Mr. Snell clarified, for Representative Navarre, that it will be a multiple use facility. Capacity will not be expanded without financial support. Representative Navarre noted that, due to budget reductions, there may not be enough personnel to complete the permitting process. He added that additional state support will be needed due to the economic development. He questioned if the state will receive increased revenues to offset the additional social cost of development. He expressed support for economic development but emphasized that the state will not receive additional revenues. He stressed that a state long range economic plan is needed. Co-Chair Larson asked if there were objections to Representative Martin's motion. There being NO OBJECTION, CSSB 171 (FIN) was reported out of committee. CSSB 171 (FIN) was reported out of Committee with a "no recommendation" and with a zero fiscal note by the Department of Commerce and Economic Development, dated 3/24/93.