HOUSE BILL NO. 286 "An Act providing for and relating to the issuance of general obligation bonds for the purpose of paying the cost of municipal port projects; and providing for an effective date." 9:06:30 AM Vice-chair Fairclough MOVED to ADOPT proposed committee substitute (CS) for HB 286, Work Draft 27-GH2769\B (Kirsch, 4/6/12). Co-Chair Stoltze OBJECTED for discussion. JAMES ARMSTRONG, STAFF, REPRESENTATIVE BILL STOLTZE, discussed that the CS would issue $453,499,200 in transportation general obligation (G.O.) bonds across the state. He remarked that the House and Senate had worked together to develop a balanced package. Projects included in the bill were shown in the capital budget for appropriation authority. He recommended a technical amendment that would replace the word "reconstruction" with the word "construction" in relation to a Katlian Bay Road item (page 3, line 16). Co-Chair Stoltze noted that the change would be substantive and not technical and that the issue would be addressed in the amendment process. Mr. Armstrong remarked that committee members had been in possession of the CS for a couple of days and he was not aware of any other changes that needed to occur. Co-Chair Stoltze clarified that there had been suggestions made regarding the appropriate titles and project descriptions in the CS. He asked for a description of the bill and the Department of Revenue's (DOR) role in the bond process. ANGELA RODELL, DEPUTY COMMISSIONER, TREASURY DIVISION, DEPARTMENT OF REVENUE, explained that the bill provided for the issuance of $453,499,200 in G.O. bonds. The state's debt was managed by DOR and the issuance would be conducted out of its office. The debt would be issued piecemeal as the projects were ready to be funded to ensure that items were not prefunded prior to being "shovel" ready. The department believed it was appropriate to issue debt for the projects that were long-term; the current market conditions made it very affordable to issue debt and the issuance would allow the state to use its cash for other purposes and to pay down its higher cost debt. She relayed that the projects in the CS were significantly different than the ones proposed by the governor, but all of the projects included were appropriate for debt issuance. 9:10:22 AM Representative Doogan wondered whether all of the projects proposed by the governor were incorporated into the CS. Mr. Armstrong replied that the Senate Transportation Committee had added two projects. Representative Doogan clarified that he wanted to know whether all of the governor's original items were included in the bill. Mr. Armstrong responded that all of the items were included albeit in smaller amounts. Co-Chair Stoltze commented on the size of the bond package. Mr. Armstrong added that funding for a Ward Cove project was removed from HB 286 and had been included in the proposed capital budget. Representative Gara queried what the public's annual payment cost would be and how long it would last when the full bond was issued. Co-Chair Stoltze answered that the amount was listed in the fiscal note. Mr. Armstrong referred to the Office of Management and Budget fiscal note. The total cost would be $36,392,000 beginning in FY 17 for a period of 20 years. Representative Gara asked for an estimate of annual payments made resulting from a bond that had passed two years earlier. He was interested to know how much the bill would add on to existing future debt. Co-Chair Stoltze was interested in the amount that had been paid down on debt as well. Mr. Armstrong replied that the education bond was $29,772,000 for a $397,300,000 package that had been developed two years earlier. Ms. Rodell added that there was $197 million of the past authorization that DOR had not issued because the need for the funds had not surfaced as of yet; the department expected to issue the amount during FY 13. She relayed that a refunding had been done in January 2012 that provided approximately $27 million in all-in savings, which equaled about $3 million per year. 9:14:00 AM Vice-chair Fairclough pointed to the fiscal note and asked for an explanation of the difference between the terms "tax-exempt" and "tax exempt" listed in the bill. Ms. Rodell replied that tax-exempt meant completely tax exempt. The non-hyphenated term "tax exempt" referred to tax exempt subject to the alternative minimum tax, which was a federal tax code related to the nature of projects. She elaborated that in the case of private activity projects (most port projects fell into the category because they were leased to private industry) tax exempt income on a bond was subject to the alternative minimum tax if the taxpayer had to pay an alternative minimum tax. Co-Chair Thomas discussed that G.O. bond money had been appropriated for a Cordova bridge a couple of years earlier; however, the bridge had been washed out and was closed indefinitely. He would talk with the Department of Transportation and Public Facilities (DOT) to determine the appropriate course of action, given that G.O. bonds could not be reappropriated. He reported that his office would research the issue and follow up with DOR. Representative Guttenberg wondered whether there were restrictions on conducting project work before the bond issuance in February 2013. He assumed that projects included on the list would be shovel-ready at the time the bonds were issued. Mr. Armstrong replied that DOT planned to add some money to its accelerated capital fund account in order for preliminary work on some of the projects to begin. He relayed that the capital budget included $4 million to $5 million and that there was a request to increase it by $3 million. Representative Guttenberg wondered whether the amount would be included in the capital budget. Mr. Armstrong replied that funding was in the governor's proposed capital budget and that he would provide the detailed information to the committee. Representative Guttenberg queried the state's total outstanding bond obligation and its overall maximum bond issuance level. Ms. Rodell replied that the state's current debt obligation was approximately $650 million to $660 million. Markets and rating agencies would look to the state's overall debt including the unfunded pension liability, and any moral and lease obligation debt. The amount was well within the limits of the state's ability to withstand debt; Alaska currently had tremendous financial reserves, which created flexibility around financing infrastructure projects. Representative Doogan asked about the location of Mertarvik, Alaska (page 2, line 26 of the legislation). Representative Joule replied that Mertarvik was the new site chosen for the move from Newtok. 9:18:37 AM Co-Chair Thomas noted that the bill would come before the committee again following public testimony. Co-Chair Stoltze WITHDREW his OBJECTION to the adoption of the CS. There being NO further OBJECTION, Work Draft 27- GH2769\B was ADOPTED. 9:19:29 AM DENISE MICHELS, MAYOR, CITY OF NOME, thanked the committee for considering Nome's initial request. She requested the inclusion of an additional $40 million for a total of $50 million. She communicated that the city had been working on becoming the deep-draft Arctic port for the nation. There was a 35 percent design showing that the port could get to minus 35 percent to support all vessels going up for Outer Continental Shelf (OCS) leases; the city's data showed that Port of Nome numbers had gone up with increased drilling. She furthered that annual dockings had increased from 30 in 1988 to 304 at present. The city was looking at a partnership with the state to support the industry, job and economic development creation, and to ensure that enforcement existed. She noted the funding tied in with the Northern Waters Task Force Report, the 2009 Arctic Marine Shipping Report, and other state planning documents (Road to Resources and road to Nome). Representative Gara wondered how people would feel about dredging in an area where people mined for gold. Ms. Michels replied that Nome was working with all users to prevent any user conflict. She relayed that dredging had increased significantly since 1990; there were 51 permits in the current year. The state had received $9 million in revenue on increased lease sales. CHRISTINE KLEIN, CHIEF OPERATING OFFICER, CALISTA CORPORATION (via teleconference), thanked the committee for its time. She pointed out that funding for the Port of Emmonak had been dropped from the legislation. She shared that the $16.5 million project was shovel ready. Currently there was no existing port on the lower Yukon River; there was a fishery that was very important to the region. She requested that the project be reinserted into the bond package. Co-Chair Stoltze CLOSED public testimony. Mr. Armstrong referenced an earlier question from Representative Guttenberg and pointed to information on a Project Acceleration Account on page 84 of the CS. Representative Gara asked whether the Port of Emmonak was included in the capital budget. Co-Chair Stoltze did not know. He would relay the concern to Senator Lyman Hoffman. Representative Edgmon clarified that the district was Senator Olson's. HB 286 was HEARD and HELD in Committee for further consideration. 9:25:22 AM AT EASE 9:31:00 AM RECONVENED