CS FOR SENATE BILL NO. 46(FIN) "An Act relating to the Alaska Municipal Bond Bank Authority; authorizing the Alaska Municipal Bond Bank Authority to issue bonds or notes for a regional health organization or joint action agency; and providing for an effective date." 9:04:57 AM TIM GRUSSENDORF, STAFF, SENATOR LYMAN HOFFMAN, noted that the bill had been previously before the committee on March 26, 2015. He spoke to the changes in the bill that were made by the senate, and shared that they were identical to changes made in HB 101. He walked through the explanation of changes: The CS for Senate Bill 46(FIN) makes the following changes form the Senate Bill 46: Bill Language Changes  1. The CS lowers the total amount form $250 million to $205 million that the bond bank can finance for Regional Health organization. 2. The CS only allows for the bond bank to finance no more than 49 percent of any one project in the state. 3. The CS states that the 49 percent bond bank financing is contingent on the balance (51 percent) of the total project cost being secured/delivered prior to bonding. 4. The CS states that no single Regional Health Organization borrower can be access more than 50 percent of the $205,000,000 bonding authority. 5. The CS allows for Joint Action Agencies to utilize the bond bank. Co-Chair Thompson noted that Representative Gara had joined the meeting. Representative Wilson could not find language pertaining to the 50 percent bonding authority on page 6. Mr. Grussendorf replied that $102.5 million was 50 percent of the $205,000,000 bonding authority. Representative Wilson assumed that the fund would never exceed $205 million. Mr. Grussendorf concurred with the assumption. Co-Chair Thompson noted that Representative Kawasaki had joined the meeting. Vice-Chair Saddler asked whether the $102.5 million was per project, or for all Regional Health Corporations. DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND BANK AUTHORITY, DEPARTMENT OF REVENUE, replied that the $102.5 million would be the limit per project. 9:09:15 AM Co-Chair Thompson queried the definition of a "joint action agency" as it was written in the legislation. Mr. Mitchell replied that joint action agencies were entities created by state law that required utilities to come together and form an agency in instances where facilities were being acquired from the state Vice-Chair Saddler noted that the bonds bank had recently expanded to cover the University. He wondered which entity the bank would expand to next. Mr. Mitchell thought that the university had synergy with the bond bank that had worked well, the Regional Health Organizations had similar synergy of goals. He said that a future synergy between the state and a capital need could result in another expansion. He asserted that there were no plans for future expansion on the horizon. 9:11:04 AM Vice-Chair Saddler asked how Mr. Mitchell would respond to a legislative request to extend the bond bank to tribal organizations. Mr. Mitchell replied that is was hard to project what an extension would entail. He said that tribal organizations had issues specific to tribal finance. He understood that there could be challenges associated with dealing with sovereign entities. Vice-Chair Saddler asked whether there were limits to bond authority expansion. Mr. Mitchell replied that there would be limits on what could bonded for on a tax exempt basis. Vice-Chair Saddler asked how the department evaluated, balanced, compared, and prioritized bonding requests. Mr. Mitchell answered that the willingness of the bond bank to consider partnering with regional health organizations had developed during collaborative talks between the Board of Directors of the bond bank and the department. He believed that the partnership would benefit the quality of care in rural part of the state and ensure that services were delivered in a financially minimized fashion. Vice-Chair Saddler asked again how the bond bank prioritized the bonding capacity for different users. Mr. Mitchell replied that the financing requests that would come before the bond bank were prioritized in statute and in department regulation. He offered to provide further information. Co-Chair Thompson noted that Representative Munoz and Representative Pruitt had joined the meeting. 9:13:55 AM Representative Edgmon spoke in strong support of the project. He categorized the project as an innovative and a responsible financing mechanism. He spoke to the stellar credit rating of the bond bank. He requested clarification on Page 6 of the document, and pointed out that the bill would transfer more risk to the investor, or builder of the project, and contained additional sideboards. Mr. Mitchell answered that the bill protected the state's participation in the proposed financings by requiring partners in the financing. He explained that the state would be financing a minority interest of the total funding and the partner would be expected to provide an additional 51 percent of the project costs. He noted that the structure would prove to create greater financial security for the state. Representative Edgmon observed that the project had been carefully crafted. Representative Kawasaki noted that the bill would add non- profit regional health organizations. He asked whether joint-action agencies could be for-profit entities, and whether those agencies were rate regulated. Mr. Mitchell answered that the entities were non-profit and were not rate regulated. He added that joint-action agencies set their power rate based on a break-even proposition and had no profit motive. Representative Kawasaki wondered whether the bill should recommend that someone outside of the municipal bond bank review requests by examining the need of the requesting region. Representative Gara believed the bill was strong and hoped that it would receive committee support. He queried the bank's opinion of the policy change found on Line 21 of the bill; the bond bank would no longer finance more than 49 percent of a project. Mr. Mitchell asserted that the change made it easier for the bond bank to support the bill because it mitigated risk. The change would require the partner to provide either equity, or alternative funding sources, to share in the risk. 9:20:36 AM Mr. Mitchell followed up on an earlier question by Vice- Chair Saddler. He read from AS 44.85.180: (d) In deciding to purchase municipal bonds of a municipality, the bond bank authority shall give preference to the municipalities referred to in AS 44.85.005. In addition, the following, listed in order of preference, are preferred purposes of the municipal bonds that may be considered by the bond bank authority for purchase: schools, waste water treatment facilities, fire protection and public safety facilities, public health facilities, and public transportation facilities. Vice-Chair Saddler pointed to Page 3, lines 18 to 19, which added conditions to the issuance of bonds for regional health corporations. He asked what form documentation of an anticipated need the bond bank would require from the Department of Health and Social Services. Mr. Mitchell replied that a letter from the commissioner or a certificate of need analysis would suffice. Representative Pruitt wondered what the benefit of increasing the regional quality of care actually meant, and did it include cost savings. Mr. Mitchell answered that it was a two-pronged test; the first would be a recognition that there would be an improvement of the quality of care in the region, and that the state expected that the facility would result in a financial benefit to the state through reduced costs. Representative Pruitt asked about the moral obligation to the state. Mr. Mitchell answered that the bill did not require a full- faith credit pledge of the state. He listed the tiers of credit to which an entity could obligate itself. He believed that if the state saw an opportunity to increase the quality of healthcare in the state, which would also benefit the state financially, the benefits were worth the risk. He relayed that the risk would be minimized to the extent that the bond bank would be obtaining an authorization, not a requirement, to lend money. He stressed that the bank intended to be repaid 100 percent of the time, questions about an organizations financial viability could result in impairment of their ability to access the program. 9:26:43 AM Representative Kawasaki spoke to the add-on for joint- action agencies. He understood that the commissioner of DHSS would detail a significant financial benefit to the state, but that joint-action agencies would not bear that burden of proof. He appreciated the sideboards that had been crafted into the legislation, but expressed concern that the joint-action agencies could place the bond bank at risk. Mr. Mitchell answered that the difference was warranted due to the different nature of the organizations. He said that a municipality that owned a utility would not be subject to the Regulatory Commission of Alaska (RCA) setting its rates; rates could be adjusted at the city council level based on need, their loans would be evaluated based on the merits of the enterprise activity. The joint-action agency, as was currently provided for in statute, would be similar in nature. Vice-Chair Saddler reiterated his concern about the expansion of the bond bank's authority. He thought that the bond bank should provide a guideline as to the limitations of the bank's financing authority expansion. Mr. Mitchell restated the question for clarification. He contended that the question was a difficult one because the state's interest would be the basis of why the bond bank program would be taking action in the first place. The bank would be providing an opportunity to borrow at lesser cost than would otherwise be available. Vice-Chair Saddler asked if there was a standard for the state's interests. 9:31:21 AM Mr. Mitchell replied that the parameters for the standard were broad. Vice-Chair Saddler asked whether the Municipal League had offered a position on the legislation. Mr. Mitchell replied that he had not heard any concerns from the Municipal League. Representative Wilson asked about the difference between using Alaska Industrial Development and Export Authority (AIDEA) versus the Alaska Municipal Bond Bank Authority (AMBBA) to fund projects. Mr. Mitchell believed that the AMBBA program was more streamlined than AIDEA, which resulted in a more efficient program. He added that the bank had a program that was set up strictly as a credit enhancing program, which allowed the bank to provide lower costs and better execution. He thought that having several funding options for projects was beneficial to local municipalities. 9:35:10 AM Representative Wilson wondered whether a program could be funded by both the bond bank at 50 percent, and another agency in the state for the other 50 percent. Mr. Mitchell replied it was possible. He said that the organizations involved would need to be in good communication with each other. Representative Wilson thought that it would be good for the committee to have a better understanding of underutilized state agencies. She voiced support for the project. Representative Munoz whether the joint-action agency language spoke to only municipally owned utilities, or could it be a combination of a non-profit and a municipality. Mr. Mitchell understood that the statute offered a small window of potential joint-action agencies because they were required to consist of several utilities that were coming together to purchase a facility previously owned by a state agency. 9:38:35 AM Representative Munoz understood that that joint-agency was directed specifically to the Southeast Alaska Power Agency (SEPA) and would not include other organizations, such as the Inside Passage Electric Cooperative (IPEC). Mr. Mitchell answered that IPEC would not qualify unless they were purchasing utilities formerly owned by the state. Representative Munoz understood that a joint-agency could apply for up to 100 percent of its financing for a project. Mr. Mitchell replied in the affirmative. Representative Pruitt wondered at what point the bank would reach the limit in its ability to expand bonding capacity. Mr. Mitchell answered that it would be a moving target. He likened the bond bank's credit to a form of cosigning indirectly by the state. He relayed that the state would have a lesser rating than the current AAplus if the authority were based on the borrowers in the current pool; the pool size was limited because the state was small. He believed that the state's financial strength would inform the bond bank's expansion limit. 9:42:32 AM Co-Chair Thompson OPENED public testimony Co-Chair Thompson CLOSED public testimony. Vice-Chair Saddler MOVED to REPORT CSSB 46(FIN) out of committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, CSSB 46(FIN) was REPORTED out of committee with a "do pass" recommendation and with one previously published indeterminate fiscal note: FN1 (DHS); and one previously published fiscal impact note: FN2 (DHS). 9:43:26 AM AT EASE 9:45:37 AM RECONVEYNED