HOUSE BILL NO. 361 "An Act relating to the dividend paid to the state by the Alaska Housing Finance Corporation; and providing for an effective date." Representative Foster MOVED to ADOPT the proposed Committee Substitute (CS) for HB 361, labeled 24-GH2058\G, Cook, 2/1/06. There being NO OBJECTION, it was so ordered. DAN FAUSKE, EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE, related that CSHB 361 would amend the agreement between the Alaska Housing Finance Corporation (AHFC) and the state, calling for the transfer of AHFC's net income to the state general fund in the form of an annual dividend that funds debt service for certain bonds and capital projects. JOE DUBLER, DIRECTOR, FINANCE, ALASKA HOUSING FINANCE CORPORATION, explained that the bill is an adjustment to the current transfer plan that AHFC has in place in statute 18.56.089(c), which references net income and how it is paid to the state. The Governmental Accounting Standards Board (GASB) has adopted statement number 34, which changed the financial statement presentation of the net income of governmental entities to "change in net assets". The term net income no longer exists on AHFC's financial statements. FY 07 is when the first payment will be made based on net income; prior years were all a static $103 million. The bill would conform the statute to current Generally Accepted Accounting Principles (GAAP). Mr. Dubler explained that another change involves what used to be the Balance Sheet, now called the Statement of Net Assets. Pre-GASB 34, accounting by AHFC involved multiple equity accounts including contributed capital and retained earnings. Contributed capital represented the original investment by the state in AHFC, and retained earnings was accumulated profits. In determining the transfer prior to GASB 34, net income was the baseline. Using the change in net assets line item from the current financial presentation incorporates items that, before GASB 34, were not included in net income. Such items were direct cash transfers to the state that were presented as direct reductions in contributed capital, as they did not represent operating activity of AHFC. GASB 34 does not allow that accounting treatment for those items and requires that they flow through the Statement of Net Assets as Expenses of one form or another. The bill modifies the transfer plan statute to use an "Adjusted Change in Net Assets" as the baseline for the transfer, which incorporates all of the expenses that were under pre-GASB 34 rules included in net income and excludes those expenditures that were not. Without the passage of HB 361, the dividend paid to the state by AHFC will be $38.1 million. With the legislation, the dividend will be $80.6 million. 1:58:41 PM Mr. Dubler referred to Section 1, line 9, the addition of the words "or other capital projects". He maintained that the language is too restrictive without that wording. Mr. Fauske added that the bill is needed in order to justify sending over $80 million to the state and it is an advantage to AHFC on Wall Street. The bill also helps conform to the intent of the original legislation passed two years ago. Co-Chair Meyer noted the new fiscal note and a change in revenue of $42,500,000. 2:01:35 PM Representative Joule questioned the creation of new subsidiaries in the CS. Mr. Fauske responded that the language in the new CS is the same as in the original bill. He explained that the rationale behind adding the wording "or other capital projects" would give the legislature more room to expand use of proceeds such as the tobacco bond bill. Co-Chair Meyer repeated that the CS is just expanding what is already in statute. Mr. Fauske further explained how the bill would expand the dividend paid to the state by AHFC. 2:05:15 PM Representative Kerttula asked what would happen to the money if this change were not made. Mr. Fauske replied that the money would stay within the corporation. Representative Kerttula questioned how AHFC would use the money. Mr. Fauske related that even though business is vibrant, the market is changing and the bottom line is changing. This bill represents an attempt to pay a percent of net income. The money could be used for many things, but affordability is always an issue. Representative Kerttula agreed that the program should not be under-funded. 2:09:08 PM BRYAN BUTCHER, LEGISLATIVE LIAISON, ALASKA HOUSING FINANCE CORPORATION, pointed out that this legislation is in line with the original intent of the bill. 2:09:53 PM At-ease. 2:11:41 PM Representative Foster MOVED to report CSHB 361 out of committee with individual recommendations and with the accompanying fiscal note dated 2/1/06. There being NO OBJECTION, it was so ordered. HB 361 was REPORTED out of Committee with a "no recommendation" recommendation and with a new fiscal note by the Department of Revenue. 2:12:59 PM