HOUSE BILL NO. 386 "An Act relating to the financing authority, programs, operations, and projects of the Alaska Industrial Development and Export Authority; and providing for an effective date." RANDY SIMMONS, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), ANCHORAGE, spoke in support of HB 386 which would continue AIDEA's bonding authority powers and which would provide new tools to meet the mission purpose to facilitate job creation, retention, and helping diversify the economy. Mr. Simmons noted that a sectional analysis had been distributed identifying four major areas of change. He spoke to bonding authorization, export guarantees, business assistance changes, confidentiality provisions and loan participation changes. Mr. Simmons commented that any bonds over $10 million dollars would come to the Legislature for authorization. HB 386 would reauthorize general bonding authority for AIDEA for certain types of bonds. The legislation would also allow for the Authority to bond for projects such as Ft. Knox at $71 million conduit dollars, Goat Lake at $23 million dollars and Craig Port (False Island Marine Facility). Representative J. Davies asked what a conduit bond was. Mr. Simmons explained that a conduit bond was a bond issued in AIDEA's name but which does not put the credit of the Authority or the State at risk. The credit risk would instead go with the owner of the facility or the person actually financially responsible. Co-Chair Therriault interjected that it would act as a conduit to enhance our tax-free status. Mr. Simmons continued, the State of Alaska is eligible to receive only $150 million dollars a year in volume, which is the ability to issue private activity bonds tax-exempt. In the last four or five years, that was not important for the State, as volume caps were not used much. He pointed out that in the next three or four years, that will not be the case. AIDEA now will be working with the State's bonding committee in order to decide which projects should be brought forward to use the volume cap for private activity bonds. The one change the Authority is requesting would be to eliminate the sunset. The sunset was important when development finance bonding was new, but now the Authority has a very good track record. AIDEA will still come before the Legislature for authorization of anything over $10 million dollars. Under the Loan Participation Program, the Authority can obligate $10 million dollars cash. Representative J. Davies asked if the annual business plan had been subject to the Executive Budget Act. Mr. Simmons replied that the operating budget was included in that consideration. Mr. Simmons pointed out that in the sectional analysis, the Export Guarantee Program was the most confusing to understand. The intent is to modify the program and merge it into the already existing Business Assistance Program. That program allows the Authority to guarantee 80% of a loan up to $1 million dollars. The program has not been used in the ten years it has been available. Following a study provided by an outside consultant, it was determined that the program was not applicable for the State's needs. It had been designed from other state programs appealing to a strong manufacturing base, which Alaska does not have. The program was also transactional based and required 25% value added, which eliminated opportunities for Alaskan distributors and transshipments. It also required that there was export credit insurance on every transaction. The proposed change incorporates the data recommended in the study. The program will be modified so that it will reflect the cost of goods and services, the 25% value added will be removed and it will be established that the business must be Alaskan. Insurance will be left at the discretion of the Authority in each transaction. The two programs would be merged and called the Export Guarantee and Business Assistance Program. Representative J. Davies believed that State policy should be to keep documents open to the public and that they be kept confidential only upon request of the applicant. Mr. Simmons assured Representative Davies that confidentiality is requested every time there is an application. He stressed that the Authority is a part of the public records balancing act. The banks are required to keep the information confidential. He noted that he would support language proposed in Amendment #D. KEITH LAUFER, MANAGER OF FINANCIAL AND LEGAL AFFAIRS, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), ANCHORAGE, commented on Amendment #D. He noted that deleting "or complied by" as recommended by Representative Davies would be detrimental as the Authority receives many documents which need to be compiled into some form before they are taken to the internal credit committee. Representative J. Davies asked if a credit-reporting agency would require that the information be kept confidential. Mr. Laufer agreed that there would be a need to insure that the information came from a source and was confidential when received. "Compiled" versus "submitted" would be of maximum concern to the Authority. The identity of the applicant is a public item. That information should be kept confidential. The information becomes public when there is a formal application before the Authority. Mr. Simmons spoke to the technical changes to the loan participation program. The release of interest rates would be in reference to the interest rates charged by the Authority and not those charged by the bank. Representative Martin voiced concern that the State could become a loosing partner when making these types of arrangements. Co-Chair Therriault distributed the current confidentiality statute proposed for deletion. [Copy on file]. Mr. Simmons explained that language was used specifically in addressing the export program only. The new confidentiality provision applies to all of AIDEA's programs. Mr. Simmons spoke to Amendment #B. [Copy on file]. The proposed project would create a new entrance channel to the inner port in Nome. The project also would include construction of a new 28-foot breakwater that would be built parallel to the existing causeway. The new entrance channel would improve navigational safety and reliability, and the breakwater would create a protected turning basin. Part of the existing channel would be filled to provide a new access road to the sand spit, which will be protected by a rip rap seawall connecting to the existing wall in front of town. The cost would be $30 million dollars. PAUL FUHS, COURT CONSULTANT, CITY OF NOME, noted that the City of Nome has already paid $550 thousand dollars for studies accompanying the proposal. The Army Corps of Engineers has indicated through the cost benefit analysis justification of a $40 million dollar project. Their estimate for the project is $26 million dollars. The City of Nome has paid for all the bills associated with the project to date. Federal procurement takes a long time to put projects out to bid. If the State put it out to bid and managed all concerns associated with that, the Corps would then pay 80% of the project costs in the first year. Of the $26 million dollars, AIDEA would be repaid $21 million. Mr. Simmons pointed out that AIDEA has not yet worked out the feasibility of the proposed project. Because of timing concerns, the construction would be started late in the fall, which would not give AIDEA the opportunity to come back to the Legislature. To date, a finding has not been initiated. As part of the enabling legislation, all the approval must be accomplished before the project is considered. He noted that AIDEA does support the authorization of this project. Representative Martin pointed out that $25 million dollars had already been invested into this project. He understood that there is a problem that the Corps had not dredged deep enough to maximize for bigger ships entering the port. Mr. Fuhs responded that the proposed port is the only port available from Dutch Harbor upward. It is a regional port serving that entire region, with the potential to serve Russian fishing vessels. Representative Martin reiterated concern that the port was not deep enough. Mr. Fuhs replied that it could be dug deeper. Because of the currents, it has been maintained at 21' for the past eight years. Mr. Simmons stated that Nome's port has the second largest volume of incoming cargo in the State. At present, it has limited access, safety issues, and situation problems which significantly burden the port. If a conduit bond were used, ownership would change. If development finance authority were used, AIDEA would have to own the facility. If AIDEA determines that conduit revenue financing will work, the Authority would not own it, but would give the City of Nome the credit risk for the facility. Mr. Simmons guaranteed that the proposed wording would not cut off the Authority's bonding ability. If conduit bonding was successful, the proposed language would not be used. (Tape Change HFC 98- 42, Side 2). Mr. Simmons spoke to the proposed Red Dog project. The project would extend the existing dock by approximately 2,500 feet and a 50 foot shipping channel would be excavated, allowing ships to directly load the concentrates. The project would eliminate barge traffic and expedite the loading process. Mr. Simmons informed Committee members of the benefits of the proposed project. It would allow shipping season to be extended to December and would eliminate the twice handling of concentrates by eliminating barge relay. The proposal would lower vessel loading time in half and would reduce down time caused by poor weather conditions. Mr. Simmons concluded that in economic terms, the project would extend most seasonal jobs at the port and would lower the cost of shipping concentrates. Additionally, the regional port at Red Dog would no longer be used at 100% capacity, opening up shipping opportunities for other potential users. HB 386 was HELD in Committee for further consideration.