HB 342-AIDEA: BONDS & RURAL DEVELOPMENT [A quorum was established during this portion of the meeting.] CHAIRMAN ROKEBERG announced the next order of business is HOUSE BILL NO. 342, "An Act relating to the financing authority, payment in lieu of tax agreements, and tax exemption for assets and projects of the Alaska Industrial Development and Export Authority; relating to renaming and contingently repealing the rural development initiative fund within the Department of Community and Economic Development, and establishing the rural development initiative fund within the Alaska Industrial Development and Export Authority; and providing for an effective date." Number 1500 KEITH LAUFER, Financial and Legal Affairs Manager, AIDEA (Alaska Industrial Development and Export Authority), came forward to testify on HB 342. He was accompanied by Katelyn Markley, Development Specialist, AIDEA. He stated that AIDEA is in support of HB 342. He explained that HB 342 has three purposes. It extends AIDEA's general bonding authority that would otherwise sunset July 1, 2000. Secondly, it transfers the Rural Development Initiative Fund (RDIF) loan program that was formerly in the Department of Community and Regional Affairs to AIDEA. Finally, the bill makes technical changes to the provisions of existing law relating to tax exemptions and payment in lieu of tax agreements between municipalities and users of AIDEA's development finance projects. With respect to the bonding sunset, the sunset is one that has periodically appeared in AIDEA's bills. The current sunset is effective July 1, 2000 and would prevent AIDEA from issuing all bonds regardless of size without specific legislative approval. Specifically, the sunset would prevent AIDEA from issuing bonds under $10 million for development finance projects. Bonds in excess of $10 million now require, and will continue to require, specific legislative authorization. The sunset would also prevent AIDEA from issuing conduit revenue bonds. These bonds, which do not obligate either AIDEA's credit or the credit of the state, can provide qualified projects with low-cost, tax-exempt financing pursuant to the internal revenue code. CHAIRMAN ROKEBERG asked Mr. Laufer to provide an example of that. MR. LAUFER explained that AIDEA has issued tax-exempt conduit revenue bonds to help finance the Fort Knox gold mine ($71 million), the Goat Lake Hydroelectric project ($23 million), the Fairbanks Sewer and Water project ($6 million), and, recently, the Association of Village Council Presidents ($916,000). CHAIRMAN ROKEBERG wondered where Goat Lake is located. MR. LAUFER responded that Goat Lake is located in the Skagway-Haines area. CHAIRMAN ROKEBERG asked Mr. Laufer to continue with his testimony. MR. LAUFER said HB 342 would extend the sunset until July 1, 2003 and makes clear that the conduit revenue financing bonds are not subject to the sunset. The bill transfers the RDIF program to AIDEA. The program makes small loans under $200,000 to businesses located in communities of under 5,000 people. AIDEA has long supported this program in a couple of manners. First, it has coordinated its export assistance and loan guaranty program with the RDIF to make both programs more effective. In 1993 and 1996, the Alaska State Legislature authorized AIDEA to purchase loan portfolios from the state and use the proceeds from those sales to recapitalize RDIF. The bill would transfer the program to AIDEA which furthers AIDEA's mission in rural Alaska and will also allow the program to become self-sustaining without the need for periodic legislative appropriations to recapitalize the program. AIDEA will continue to work with the department to administer the program. In addition, there is a separate appropriation in an appropriations bill that will AIDEA to purchase the existing RDIF loan portfolio from the state. This is one of the reasons for some of the complexity in the bill because the bill does not repeal the old program until that sale can be consummated. Finally, the bill makes technical changes to tax exemptions, provisions related to AIDEA-owned development finance projects. Under existing law, local jurisdictions may exempt users of AIDEA-owned development projects from property tax or may enter into payment in lieu of tax agreements with respect to those projects. Unfortunately, existing law is unclear on the mechanisms to be used. There are two specific things the bill clarifies. First, existing law speaks to AIDEA entering into payment in lieu of tax agreements with project users. Mr. Laufer said, "In fact, if those agreements are to be entered into it would be between the local jurisdiction and the users of the project, not AIDEA. The bill makes that clarification." Another example is that existing law anticipates that local jurisdictions can grant those exemptions, but does not provide a specific exemption in law to allow for that. There are exemptions in law that could provide exemptions, but none specific to AIDEA-owned projects. The bill makes the change to make clear that there is a permissive exemption that municipalities can grant, if they so choose, for the projects. CHAIRMAN ROKEBERG commented, "In other words, you're leaving it to their discretion, and it's something like the developer would bargain with the municipality in question...in concert with you if you were financing them." MR. LAUFER stated that is correct. CHAIRMAN ROKEBERG asked if there was any hidden bonding authority in the bill for another $300 million dollars for the DeLong Lake road project. MR. LAUFER replied that it would be difficult to hide something like that. Number 1877 REPRESENTATIVE MURKOWSKI indicated there is an amendment from Senate Finance that would essentially limit the assets transferred to the fund to $2 million. She said she assumes this is something AIDEA would support. MR. LAUFER said yes and explained that it was something that was proposed in Senate Finance. He stated that AIDEA anticipates that that is the amount that will be necessary to capitalize the fund as a revolving fund. AIDEA has no problem with the amendment. REPRESENTATIVE MURKOWSKI made a motion to adopt Amendment 1 which reads: Page 4, line 20, following "deposited into the fund by the authority." Insert "The assets transferred to the fund by the authority may not exceed $2 million." There being no objection, Amendment 1 was adopted. Number 1946 REPRESENTATIVE MURKOWSKI made a motion to move HB 342 as amended out of committee with individual recommendations and the attached zero fiscal note. There being no objection, CSHB 342(L&C) moved out of the House Labor and Commerce Standing Committee.