HOUSE BILL NO. 256 "An Act relating to a dividend payment to the state made by the Alaska Housing Finance Corporation each fiscal year; and providing for an effective date." DAN FAUSKE, EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE CORPORATION (AHFC), DEPARTMENT OF REVENUE testified in support of the legislation and provided information on the bill's history. He explained that AHFC entered into a transfer plan agreement with the state of Alaska in 1995/6. The agreement specified an annual transfer of $103 million or an amount not exceeding prior year net income. He went on to explain that over recent years, AHFC had begun selling bonds on behalf of the state to support debt service payments. He noted that of the $103 to be paid to the State, $50 million was used to service debt on outstanding bonds, and $53 million went to support AHFC's capital budget. Mr. Fauske noted that in recent years corporate income had declined due to [low] interest rates and the market economy. He observed that loan activity was strong, but pointed out that interest earnings had decreased by nearly four percentage points. He explained that when the transfer plan was devised, it was based on a six percent return, whereas currently the return was 1.5 percent. Mr. Fauske highlighted that more and more Alaskans were now becoming homeowners since interest rates were so low. He recognized that the corporation needed to take into account declining interest rates in respect to the amount paid by AHFC to the State. He noted that the board had submitted $75.6 million as its dividend in FY 03, since that represented its net income and was prescribed by the transfer plan. He also noted that negotiations were underway to arrive at a plan to bring the dividend up to the level expected by the State. Mr. Fauske stated that the purpose of the bill was to bring the AHFC dividend in line with government needs without affecting bond ratings. He explained that the legislation proposed an increased payment of 95% of net income, followed by a gradual decline in payment levels until FY 08. He noted that the plan had been discussed favorably with investment bankers. He pointed out that the rating agencies must be comfortable with arrangements in order for banks to invest in Alaska bonds. He added that the majority of bonds would be paid off on June 1 of 2006, making the corporation debt free in the next two fiscal years. He concluded that the bill would improve Alaska's bond ratings and strengthen the economy. Co-Chair Harris asked whether the dividend guarantee proposed by the bill would in any way threaten the solvency of the corporation. Mr. Fauske clarified that the corporation would continue to approach the legislature with its appropriation needs. He noted that AHFC's capital projects were greatly assisted by last year's legislative decision to allow AHFC to sell bonds to gain capital. He confirmed that AHFC would remain financially sound as long as the legislature continued to consider the corporation's business needs on an annual basis. Representative Foster MOVED to report HB 256 out of Committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION it was so ordered. HB 256 was REPORTED out of Committee with a "do pass" recommendation and one new zero fiscal note by the Department of Revenue.