SB 73-AIDEA: LOAN PARTICIPATION & REGULATIONS CHAIR ANDERSON announced that the first order of business would be CS FOR SENATE BILL NO. 73(FIN), "An Act relating to the loan participation program of the Alaska Industrial Development and Export Authority and to regulations of the Alaska Industrial Development and Export Authority; and providing for an effective date." Number 0060 MIKE BARRY, Chairman of the Board, Alaska Industrial Development & Export Authority (AIDEA), spoke on behalf of the sponsor, Senate Rules Committee by request of the governor. He explained that SB 73 allows AIDEA to extend flexibility and update the loan participation program. This would cope with the low interest rates, the lowest in 50 years. A large portion of AIDEA's funds are invested in government bonds and that money could be used more effectively by transferring it to a better earning asset in the loan participation program. Historically, the loan participation program has achieved a great deal of success. The "charge-offs" in the loan participation program are less than seven-tenths of 1 percent, which is far less than the national average for commercial banks. Mr. Barry noted that the total participation in AIDEA has declined over the years. Number 0150 REPRESENTATIVE ROKEBERG asked if the [change] from $10 million to $20 million is the stand-alone program or a ceiling without legislative approval. MR. BARRY explained that this [change] would extend [the account amount] in any one project. He related that he didn't anticipate that this would be widely used, although it would allow AIDEA to expand its dialogue with the banks and perhaps generate a few more deals. The $10 million doesn't go as far today as it did when it was established many years ago, he noted. In further response to Representative Rokeberg, Mr. Barry clarified that in relation to bonding AIDEA has to approach the legislature for anything in excess of $10 million. REPRESENTATIVE ROKEBERG turned to the change from 20 percent to 10 percent on page 2, lines 18-19, and asked why that isn't [considered] subsidizing the banking industry. MR. BARRY explained that the change to 10 percent will allow the bank to layoff more of the loan to AIDEA. He surmised that the aforementioned helped the banks in the sense that they can provide better service to their customers. However, AIDEA is giving better terms than the banking community as a whole and thus the customers want AIDEA to take a larger portion of the loan, which fits with AIDEA's desire to expand the program. In further response to Representative Rokeberg, Mr. Barry confirmed that the 75 percent loan to value ratio is the maximum. Number 0309 MR. BARRY, in response to Chair Anderson, explained that AIDEA offers this loan participation program to all financial institutions in the state. Those financial institutions do their own underwriting through the procedures the institution has, then the loan is brought to AIDEA. At that point, AIDEA's credit folks do an independent underwriting of the loan, which is why the experience is better than going solely to the bank. In further response to Chair Anderson, Mr. Barry said, to his knowledge, the only other state with an organization like AIDEA is Pennsylvania. Number 0367 REPRESENTATIVE ROKEBERG moved to report CSSB 73(FIN) out of committee with individual recommendations and the accompanying zero fiscal notes. There being no objection, it was so ordered.