HOUSE BILL NO. 285 "An Act providing for and relating to the issuance of general obligation bonds for the purpose of paying the cost of state infrastructure projects, including construction, major maintenance, and port and transportation projects; and providing for an effective date." 2:54:57 PM ^OVERVIEW: HB 285 G.O. BONDS FOR INFRASTRUCTURE BY OFFICE OF MANAGEMENT AND BUDGET 2:55:09 PM NEIL STEININGER, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, introduced the PowerPoint Presentation: "HB 285 G.O. Bonds for Infrastructure." He began on Slide 2 titled HB 285 GO bond Issuance: $325.2m for 14 projects spread with statewide impact Current 20-year interest rate is 2.5% for tax-exempt bonds Debt service costs estimated at $20.7 million The State's debt capacity is $1.3 billion Mr. Steininger commented that the bond package represented a responsible level of debt compared to the capacity of debt the state was able to accrue. He noted that the state earned more than the 2.5 percent interest rate. Representative LeBon asked how the state's debt capacity was calculated. 2:57:22 PM DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND BANK AUTHORITY, DEPARTMENT OF REVENUE (via teleconference), indicated that there was a publication published annually by DOR called The Debt Affordability Analysis, which fully described the process to determine the states debt capacity. He characterized the analysis as simple relative to the states revenues versus its modest population. He explained how the debt capacity was calculated, which determined the percentage of UGF revenue the debt payments represented. The difference between those percentages and the percentages for debt service determined the capacity on a 10-year horizon. The state had a bonding capacity of approximately $1.3 billion. 2:59:39 PM Representative Edgmon calculated that 64 percent of the debt capacity went towards Mat-Susitna (Mat-Su) projects. He did not see the Anchorage Port. He asked for an explanation. Mr. Steininger thought he had a misinterpretation of the project. He offered that the Knik Arm Port Infrastructure $175,000.0 project was for Port McKenzie and the Port of Alaska. The project was intended to serve the region. Representative Edgmon asked whether some of the $175 million for the Knik Arm Port was intended for the Port of Alaska. Mr. Steininger responded in the affirmative. The funding would go towards the two ports, and it would be up to the ports to determine the percentage distribution. 3:01:17 PM Representative Edgmon observed that there was nothing for his district in the bill. He maintained that the GO Bond was directed to South Central and there was nothing for Southwest Alaska. He was determined to include statewide projects if the bill moves forward. 3:02:22 PM Representative Josephson had never heard of a Knik Arm Port. He asked why the administration did not want to engage in the discussion between the two ports. Mr. Steininger clarified that the administration wanted to engage but wanted both ports to look at the project as a statewide project and view the project through a regional scope. He indicated that was why it was called the Knik Arm Port Infrastructure. Representative Josephson pointed to Slide 3 titled HB285 GO Bond Projects items 9 and 11 of the presentation:  9.Palmer Municipal Airport Taxiway $6,500.0  10.Wasilla Airport Runway and Terminal $14,100.0 Representative Josephson asked if the Palmer or Wasilla Airports received any Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. Mr. Steininger was unsure of the amount. He could get back to the committee as to how much each airport received. 3:04:19 PM Representative Rasmussen noted that the Port of Alaska supported 90 percent of Alaska providing critical infrastructure for the entire state. She would appreciate any additional information from the administration. Mr. Steininger agreed with her assessment of the port. 3:05:46 PM Representative Josephson indicated that the project summary referred to the project as being managed by a shared regional authority. He asked if it was one that existed currently. Mr. Steininger replied that the intention was there would be cooperative between the two entities whether or not that was borne out of a formal organization not yet established. Representative Josephson thought the situation seemed combustible. Representative Thompson cited Slide 3, item 2 that listed bond projects for DOT: 2.Northern Access to University Medical District $22,000.0 Mr. Steininger answered that the project installed an intersection to connect two main roads. Representative LeBon asked about the status of the Juneau Access Road listed as item 1 under DOT projects: Juneau Access $25,000.0 Mr. Steininger replied that it was for Northern Lynn Canal access. Representative LeBon asked if the project related to extending the road system to Skagway and Haines. Mr. Steininger reported that it was funding to restart the project. However, additional funding would be needed to complete the project. Representative LeBon asked for clarification. Mr. Steininger answered that the project was put on hold at the federal level and the appropriation would reactivate the project. He deferred to DOT for details. 3:09:31 PM Representative LeBon referred to item 1 on slide 3: UAF -Bartlett Hall and Moore Hall Modernization and Renewal $18,650.0 Representative LeBon asked why the project for the University was not a GF request. He wondered why it was being included in the bond package. Mr. Steininger replied that it was included in an attempt to address the backlog and the project was eligible for bonding. Representative LeBon asked if the bond package did not pass, would the administration come forward with a capital request for GF dollars. He inquired if the bond package would be voted on in November 2022. Mr. Steininger responded in the affirmative. The administration was supportive of including the project in the bond package. Representative LeBon reminded Mr. Steininger of the importance of the University project even without bonding. Representative Edgmon was concerned about hearing that the administration had reached out to Representative Rasmussen about the bond package but possibly not all members of the committee, like himself who represented significant commercial fishing districts. He asked if he was correct. Mr. Steininger responded that he was unsure of the question. He indicated that the administration had reached out to legislators regarding capital projects. Representative Edgmon was disappointed that no one from the administration had contacted him. He offered that he represented Bristol Bay and the fishery contributed significantly to the salmon industry. He wondered why the area was not considered for port and harbor improvements. He understood Anchorage was seeking more funding for its port than the amount included in the capital requests, and he would support additional funding for the Alaska Port in Anchorage. The term that was used derisively was "Christmas Treeing" in bond packages. However, he liked the concept of bond packages and wanted it to be more inclusive. He would like the opportunity to discuss the possibility to add to the bond package and would advocate strenuously for his district. He asked Mr. Steininger for further remarks. 3:15:03 PM Mr. Steininger offered that the bond package was a starting point. The administration was willing to discuss the bond package and would be open to additional conversations. Representative Rasmussen clarified that she had approached the administration to discuss the budget and the bond package. She appreciated that they took the time to meet with her to answer questions. She hoped the bond package would encompass the entirety of the state. 3:15:45 PM Vice-Chair Ortiz asked about the timing of putting together the G.O. Bond proposal. He asked if it occurred prior to the passage of the federal infrastructure bill. Mr. Steininger responded in the affirmative and added that the administration had prepared a package in the prior year and the work had continued. He explained that there was synergy between the infrastructure package and the GO bond package. However, the prioritizations on infrastructure spending in IIJA happened on the federal level. The IIJA bill did not negate the need for some Alaska specific priorities because of IIJAs project specificity, it lacked flexibility. They worked together in tandem, but one was not dependent on the other. Vice-Chair Ortiz discussed the avoidance of debt and possibility of a direct appropriation of $300 million on capital projects instead of issuing a GO bond package since recent reporting suggested that market conditions would likely not be favorable for a bonding package by the fall of 2022. Mr. Steininger would defer to Mr. Mitchell regarding speculation on interest rates. He answered that in terms of issuing debt through bonds versus using UGF, the state's money would earn more than the interest paid on a bond debt. Surplus funds could be saved at a higher interest rate than the interest rate on debt. 3:20:43 PM Mr. Mitchell responded that it was difficult to predict the future. However, the consensus view of various banks he worked with was that interest rates would likely rise. He discussed the use of arbitrage and the yield curve. He explained that when the Federal Reserve increased the overnight interest rate it did not impact the long end of the yield curve. The short end of the yield curve was expected to increase one percent, but the long end was expected to remain in a low end environment. He concluded that it appeared that it was reasonable to consider borrowing that was carefully considered in recognition of the financial strengths of having a debt program. 3:25:41 PM Representative Carpenter returned to the Port infrastructure of $175 million. He wondered who had the authority of divvying up the money. Mr. Steininger responded that the authority would be managed by DCCED through named recipient grants. Representative Carpenter suggested that the easiest way to get the G.O. Bond was to divvy up the funding 40 ways. He suggested developing a prioritization list based on objective criteria. He could not see that from the current list. He asked whether that was possible. Mr. Steininger responded that as the list was developed, regionality and the statewide impact was considered. The administration was open to discuss with communities how the prioritization worked and the reasons for the need for certain projects. 3:29:27 PM Representative Carpenter suggested that if there was a priority list, he had not received one. He thought a deliberate priority process should be done in conjunction with the legislature; lacking one, the legislature would establish its own priorities and it would be political. Mr. Steininger responded that the list in the legislation was the output of the prioritization that the administration engaged in. 3:31:08 PM Co-Chair Merrick thought Representative Carpenter had brought up a good point about the port projects. She referenced a letter from Legislative Legal (copy on file) regarding constitutional issues with the port appropriations since there was no guarantee how the money would be spent. Mr. Steininger requested a copy of the memo to pass on to the Department of Law. Representative Rasmussen suggested a presentation regarding the deep ports in the state. She was aware of the Port of Alaska being in poor condition. She wanted a presentation in which each project was discussed for 15 minutes. She discussed issues with the Kodiak Fire Hall. 3:33:51 PM Representative LeBon cited the discussion about arbitrage and earning more in savings than paying on debt. He pointed to the Constitutional Budget Reserve (CBR) and Statutory Budget Reserve (SBR) and did not view robust investment. He noted the high earnings of the Permanent Fund and wondered if the administration intended to use the percent of market value (POMV) earnings to repay the bond debts. Mr. Steininger reported the repayment would come from UGF which was significantly filled by the POMV earnings of the PF. Representative Josephson agreed that he would like to see the objective basis for the projects. He commented on the poor condition of the Port of Anchorage and questioned the proposal to dividing the funding between two ports. Vice-Chair Ortiz reviewed the agenda for the following meeting.