HB 288-AIDEA: ARCTIC DEVELOPMENT PROGRAM/FUND  4:01:42 PM CHAIR OLSON announced that the next order of business would be HOUSE BILL NO. 288, "An Act creating the Arctic infrastructure development program and fund in the Alaska Industrial Development and Export Authority." 4:02:14 PM REPRESENTATIVE REINBOLD moved to adopt the proposed committee substitute (CS) for HB 288, labeled 28-LS1139\N, Martin, 3/14/14, as the working document [Version N]. CHAIR OLSON objected for the purpose of discussion. 4:02:36 PM REPRESENTATIVE HERRON, speaking as prime sponsor of HB 288, stated that the Arctic coastline runs from Canada across the North Slope, down Western Alaska to Bristol Bay, to the end of the Aleutian Chain. However, only one deep draft port exists, Dutch Harbor, within that coastline in the middle of the Aleutian Islands. He said that with the emerging Arctic, vessel landings places are limited, whether vessels are being used for oil response, search and rescue, or resource extraction. This bill has proposed to develop a funding mechanism similar to the sustainable energy transmission and supply development fund (SETS) authored by Representative Millett. He explained that HB 288 would expand AIDEA's [Alaska Industrial Development and Export Authority] "tool bag" by extending the same authority for loans, loan guarantees, bonds, bond guarantees currently in SETS, which allows the state to develop the infrastructure under its own terms. It will extend AIDEA's ability to ensure project obligations and loans, defer principal payments and capital interest, offer financing terms up to 40 years, enter lease agreements, enter into sales lease back agreements, transfer agreements, and other agreements. He stated that making financing available will empower communities and attract a global pool of investment as an alternative to the traditional grant model. Currently, an estimated $100 billion in global capital is "looking for a home in the Arctic." Instead of the Alaska Permanent Fund Corporation investing in projects in the Lower 48, private investments want to invest in Alaska and are recommended by the Arctic Policy Commission. In order to help provide advancing economic development and a healthy environment an infrastructure development fund is critical, he said. 4:05:57 PM GRAHAM JUDSON, Staff, Representative Bob Herron, Alaska State Legislature, referred to the sectional in members' packets. He referred to page 1, line 5 through page 2, line 19, Section 1,  AS 44.88.088(a), which establishes that the Alaska Industrial Development and Export Authority shall adopt a policy for payment of a dividend from the Arctic Infrastructure Development Fund (AIDF), AS 44.88.810, to the state each fiscal year. The dividend may not be less than 25 percent or more than 50 percent of the net income of the fund. This puts the AIDF in line with AIDEA's revolving fund and sustainable energy transmission and supply development fund (SETS). 4:07:00 PM MR. JUDSON stated that Section 2 defines "net income" for the purposes of this chapter and the definition now includes the AIDF. Section 3 defines "unrestricted net income" for the purposes of this chapter and the definition now includes the AIDF. He said Sections 4-8, page 3, line 8 thru page 5, line 6, will make conforming changes to include loans from the Arctic Infrastructure Development fund (AIDF) to existing statues regarding interest rates and other requirements for loans from funds managed by AIDEA. These changes place the same requirements on the AIDF that currently exist for the revolving fund and the SETS fund. Section 9, AS 44.88.159(g), adds the AIDF to the types of programs to pay borrowers of loan participation the AIDEA may establish. This places the AIDF in parallel with the existing revolving fund and SETS fund. 4:08:01 PM MR. JUDSON referred to Section 10 which establishes the Arctic Infrastructure Development Program and fund. The purpose of this fund is to provide financing for Arctic infrastructure development and defines the fund's structure, including direct appropriations made by the legislature and money or assets transferred to the fund by AIDEA from any other fund controlled by AIDEA. These transfers would require a majority vote by the members of AIDEA, which is essentially an action by its board of directors on unrestricted loan repayments, interest, other income earned by the fund, and investment or assets of the fund. This section allows separate accounts to be established within the fund and managed by AIDEA and ii establishes the AIDF and clarifies that it is not part of the revolving fund, he said. 4:08:54 PM MR. JUDSON referred to page 6, lines 17-19, of Section 10, which clarifies that the fund will be used for Arctic infrastructure development. He referred to page 6, lines 20 thru page 7, line 14 of section 10, which establishes the powers and duties of the AIDEA regarding the AIDF. This section mirrors the powers and duties of the revolving fund and the SETS fund. It also allows AIDEA to use the AIDF to finance Arctic infrastructure development, ensure project obligations, guarantee loans or bonds, establish reserves, and acquire real or personal property by purchase, transfer, or foreclosure. He said it allows AIDEA to defer principal payments or capitalize interest on Arctic infrastructure development, enter into lease agreements, sales- lease-back agreements, build-operate-transfer and operate- transfer agreements or similar financing agreements and to enter into agreements with government entities for the transfer and control of infrastructure, rights-of-way, facilities, and studies, allows contract services, allows the fund to borrow money or issue bonds, and directs AIDEA to establish regulations to implement the fund. 4:10:07 PM REPRESENTATIVE HERRON explained that this section is "a must have" for the other body, since it's important for AIDEA to have the authority, but if it goes beyond the limitations outlined, it must come back to the legislature for approval. 4:10:34 PM MR. JUDSON continued with Section 10, page 7, lines 15 thru page 8, line 1, which establishes the limitations on financing in the AIDF. It provides that legislative authority would be needed to go beyond the limitations set forth in this section. The AIDEA may not use the AIDF to make a loan for more than one-third of the capital cost of the development; a loan guarantee if the amount of the guarantee exceeds $20 million, or financing for more than 40 years. Notwithstanding (a) of this Section 10, legislative approval, AIDEA can use the fund as security for a bond guarantee and AIDEA may provide financing, loans, or bond guarantees for the development and support of fisheries in the Arctic provided the amount of any financing, loan, or bond guarantee is no less than $7 million. MR. JUDSON said it limits financing, loans, or bond guarantees for fishing vessels, quota shares or individual fishing quotas to those used within a federally managed fishery. 4:12:12 PM REPRESENTATIVE MILLETT asked why add the fishing vessels, quota shares, or individual fishing quotas to those used within a federally managed fishery since a revolving loan fund for vessel enhancement exists, although she did not recall anything that would help fishermen purchase individual quotas or shares of individual fishing units. REPRESENTATIVE HERRON responded that this language was suggested by a legislator in the ther body. He suggested that conversations were held with AIDEA. He said that Mr. Judson was "shadowing" the Senate version of the bill. 4:13:23 PM MR. JUDSON said this language would allow AIDEA to finance loans with the goal to increase ownership of fishing vessels and quota shares in Alaska. REPRESENTATIVE REINBOLD expressed her concern. She said she has a bit of a "hardship" with that provision. REPRESENTATIVE MILLETT clarified her concern. She said she was a commercial fisherman for 25 years and has used every fishing opportunity, grant, and low interest loan for fisheries. She questioned the need for another program and was uncomfortable with the potential amount of the loan. She said that she has never seen one for the purchase of quota shares or individual quotas and characterized it as being able to stack the deck. CHAIR OLSON pointed out that concerns can be brought to the sponsor since he planned to hold the bill over. 4:15:30 PM MR. JUDSON referred to page 8, to Section 11, which defines "Arctic" in a geographical boundary similar to the boundary set forth in the Arctic Region Policy Act (ARPA), north of the Arctic Circle, north and west of the boundary formed by the Porcupine, Yukon, and Kuskokwim rivers, and all contiguous seas including the Arctic Ocean, the Beaufort, Bering and Chukchi Seas, and the Aleutian chain. Finally, the language on page 8, lines 7-19, defines "Arctic Infrastructure development." REPRESENTATIVE HERRON suggested that it may be helpful to hear others testify. 4:16:49 PM REPRESENTATIVE JOSEPHSON referred to Section 11, paragraph (19), and asked how expansive "Arctic Infrastructure development" is. He asked if the Anchorage port could be seen as something that furthers or supports the development of an Arctic facility. MR. JUDSON answered yes; he did not believe there were any limitations to what supports the Arctic. REPRESENTATIVE HERRON commented that the City of Seward has provided a letter of support since they have been and continue to place themselves as a service port for all vessels in Alaska. He said that all items that support development of the Arctic should be included. 4:18:05 PM REPRESENTATIVE JOSEPHSON asked for the definition of facility in that same paragraph. MR. JUDSON answered that was a change from the original bill, and the use of facility was to reduce the list. He said it is somewhat open. 4:18:57 PM REPRESENTATIVE JOSEPHSON asked what type of project or facility that might be "spawned." He asked if it would it be a harbor in Point Hope or Point Lay or something in the Interior. REPRESENTATIVE HERRON answered that is the key and what will be needed first, whether that would be a safe refuge or harbor, or harbors and ports to support oil response. He said obviously, most of the funds will be private sector so identifying which port or resource makes the most sense. He said it is not a race, but what makes sense and what is important to Alaska. He likened it as being similar to the port authority legislation, elsewhere in the legislature, that is a holistic plan. And this language tries to balance this for the good of Alaska rather than it being the community who has the strongest leverage. REPRESENTATIVE SADDLER referred to page 8, line 19, to the language "used in support of a fishery in the Arctic" which could be Port of Anchorage as broad as possible or if it will be at least 50 percent aimed at a fishery in the Arctic. REPRESENTATIVE HERRON deferred to Mr. Mark Davis, Alaska Industrial Development and Export Authority. 4:21:23 PM REPRESENTATIVE JOSEPHSON referred to a map in members' packets and asked how the feature was achieved. REPRESENTATIVE HERRON related that Congress defined the Arctic region, but the Bering Sea is the key to the Arctic since warm water goes in and cold water goes out. He characterized the Bering Sea as Western Alaska and the Aleutian's garden, just like the Beaufort and Chukchi Sea is their garden. The reason for the boundaries is that in the 1950s, President Eisenhower had the idea that the northern part of Alaska couldn't pay for itself but the southern part of the Railbelt and the Tongass forest could. Thus the PYK line, named after the Porcupine, Yukon, and Kuskokwim rivers was a result of Senator Butrovich and Mr. Atwood objecting to a territory above the PYK line. Ultimately, the Congress defined the Arctic within those boundaries, which [was the basis for Section 10 of the Alaska Statehood Act, which U.S. Senator Ted Stevens wrote]. 4:24:17 PM MYRON NANENG, Sr., President, Association Village Council Presidents, stated that the association represents 56 villages on the Yukon Kuskokwim Delta. He said he is testifying in support of HB 288 because it is considered an economic opportunity for the region, which is economically depressed. He thanked Representative Herron for the bill. He hoped the committee would support it since it will make a difference for the youth in the region. 4:25:26 PM REPRESENTATIVE MILLETT referred to page 8, lines 15-17, and the reason for the language. She wondered why they would be giving loans for fishing vessels and fishing quotas. She said she didn't object to the construction or rehabilitation or expansion of a plant or facility; however, she expressed concern about financing a fishing vessel that would fish in the Bering Sea or the Arctic. She noted other loan programs exist and the reason for such a "high mark" for the Arctic. 4:26:58 PM MARK R. DAVIS, Deputy Director, Infrastructure Development, Alaska Industrial Development and Export Authority (AIDEA), Department of Commerce, Community & Economic Development (DCCED), referred to page 7, which contains the concept that none of the loans can be less than $7 million. He said that AIDEA did not want to interfere with the existing programs, but in particular, for quotas, there isn't any program to provide for financing. He hoped that AIDEA would be poised to work with the banking community to provide for a quota and repatriate, if possible, back to the State of Alaska. 4:27:31 PM REPRESENTATIVE MILLETT asked if Alaskan companies could benefit. MR. DAVIS answered yes; He thought the private public partnerships (P3) realm that AIDEA works in represents a lot of capital. He envisioned a concerted business plan that may involve the restructuring of a fishing company, but he did not think it would happen very often. 4:28:11 PM CHAIR OLSON asked whether this would apply to vessels documented outside Alaska but fishing in northern waters. MR. DAVIS answered that it would, which is why AIDEA would likely want to have the collateral for the loan now plus the quota shares restricted to uses in the Alaska fisheries; thus, it would tie the two together. CHAIR OLSON asked whether those fishermen have access to other programs and may compete against Alaskans. MR. DAVIS said he doesn't think so, but the loan is set at a $7 million minimum since AIDEA did not want to interfere with existing programs the state has for fisheries. 4:29:12 PM REPRESENTATIVE MILLETT related her understanding this could help out-of-state large companies purchase quotas. MR. DAVIS pointed out that the loans would have to be consistent with AIDEA's other statutes, which require AIDEA to alleviate unemployment in the state and be concerned with programs in the state. Thus, AIDEA would need a nexus to Alaska in order to make loan. 4:29:49 PM REPRESENTATIVE MILLETT asked whether AIDEA follows the loan and tracks the number of Alaskans employed by the vessel during the course of the loan. MR. DAVIS answered yes; that with the current loan participation program, which lends to real estate, AIDEA does precisely that, as well as tracking in the SETS fund. 4:30:19 PM REPRESENTATIVE MILLETT related a scenario in which a company purchases a quota and shares. She asked whether they could in turn the loan to someone else. MR. DAVIS answered that AIDEA usually does not permit the transfer of any AIDEA loan without written permission with termination consistent with their statutes. He said that typically AIDEA includes a clause that any transfer without permission would accelerate the loan and it would immediately be due in full with interest. 4:31:08 PM REPRESENTATIVE CHENAULT related a scenario in which funds could be used for port expansion at Seward. It would allow Seward to expand its port and bring back fishing vessels that currently are docked in Seattle and Washington areas. It would bring boats back to Alaska and Alaskans would work on the boats. He asked whether that is correct. MR. DAVIS answered yes; AIDEA has been in contact with various ports, including the Port of Seward. He said that AIDEA is very interested in wanting to create more jobs in the local port and the fishing fleet is very labor intensive. 4:32:18 PM REPRESENTATIVE SADDLER wondered if a company from the Lower 48 could obtain an AIDEA loan from the AIDF and generate work for Alaskans, but not necessarily owned by Alaskans. MR. DAVIS answered yes; AIDEA can make loans to companies domiciled outside Alaska, but the economic impact would need to be in the state in order for them to make the loan, which is also under AIDEA's current statutes. 4:33:01 PM REPRESENTATIVE SADDLER asked how he anticipated the loan funds to be used and whether it is for large infrastructure, likely to be more for quotas. MR. DAVIS offered his view, which is that this would be used for large infrastructure. He reminded members he is the director of infrastructure for AIDEA. He has been working on large projects for roads to resources (R2R). He thought this would primarily be used for ports. It does have the quota portion, but he envisioned this would be used for infrastructure for ports, such as the Port of Seward to try to keep vessels in our waters and jobs in Alaska. 4:33:53 PM REPRESENTATIVE REINBOLD expressed her concern on page 7, lines 27-31; and on page 8, lines 15-19. She offered her support for infrastructure in the Arctic, but not for fishing vessels given the tight budget. MR. DAVIS answered that traditionally how the industries work in the Arctic for the Bering Sea fleet is that the lending goes to the ship which serves as collateral for the quota. He said the AIDEA tries to track the current commercial practice in the fleet. He related the goal is to tie the vessel to the Alaska based loan and the vessel would be kept in Alaska waters in the off season, but would fish in Alaska's waters during the season. REPRESENTATIVE REINBOLD reiterated she supports large infrastructure, but she found this to be "a real stretch." 4:35:30 PM REPRESENTATIVE HERRON responded that he wants this infrastructure to be solid assets and not apply to fishing. He related his understanding that Seward plans to expand, and other ports typically used by the fishing fleet will provide the nexus. He asked if this is the nexus Mr. Davis envisions. MR. DAVIS answered that is correct. For example, he related that AIDEA is an owner of the Ketchikan Alaska Shipyard and recently that shipyard built the only vessel in the fleet that is kept in Alaska. He stated that AIDEA would like more vessels to be built, maintained, and kept in Alaska in the off season, which would generate more income for the state from the fishing fleet. He offered his belief that most of the fleet exits the state at the end of the season. 4:36:49 PM REPRESENTATIVE SADDLER said in the last couple of years that AIDEA's mission, funding levels, and loan capacity has expanded. He asked whether there are any limits to AIDEA's growth, mission, and magnitude. MR. DAVIS pointed out that he worked with the legislature on the SETS fund and this bill tracks the SET funds. Thus, the idea for expansion is that AIDEA would have specialized funds and as with the Interior Energy project, the legislature could provide AIDEA with additional bonding or funds to be used for those purposes. In fact, that's the reason there isn't any funding associated with it. He said he considers it a joint venture between AIDEA and the legislature to decide how to deploy the state's resources. 4:38:00 PM REPRESENTATIVE SADDLER asked whether AIDEA supports the bill. MR. DAVIS answered that AIDEA supports the bill so long as it contains the provision in subsection (d) that AIDEA can't make the loans for less than $7 million. He referred to page 7, lines 16-17, which states that AIDEA "may not" use the infrastructure fund, but on line 27, it reads, "may not provide" which creates a double negative. Thus, AIDEA would propose a slight change in the language, but he supports AIDEA not making loans in the federally-managed fishery below $7 million. He stated that AIDEA would like to preserve other programs already in existence. 4:38:57 PM REPRESENTATIVE JOSEPHSON referred to page 7, lines 24-26, to subsection (c) and asked for the intent of this language. MR. DAVIS answered that subsection (c) only becomes effective if there were funds in the fund; however, until it is funded then nothing in the Arctic infrastructure development fund could be used for security as a bond. Again, as with the Interior Energy project, this new fund would be used in conjunction with a decision by the legislature to fund it. 4:39:51 PM REPRESENTATIVE JOSEPHSON asked who AIDEA envisions would be an investor. He related a scenario in which Alaska developed a port at the deepest water location in the Arctic, in which loans are made not to exceed one-third for that project. He asked whether the entity would be a company like Crowley Maritime. MR. DAVIS answered that AIDEA would be looking at large infrastructure funds, perhaps pension funds that invest in infrastructure. For example, a potential partner in the Interior energy project is a pension fund that invests in infrastructure. He believed that other infrastructure funds would also be interested assuming the port would generate the revenue to pay off the debt. 4:41:02 PM REPRESENTATIVE JOSEPHSON asked for further clarification. He asked whether investors would use their pension dollars. MR. DAVIS answered that in the Interior energy project, which is a proposed trucking operation with an LNG plant on the North Slope to truck to Fairbanks. The potential partner approved by AIDEA on January 14 is a pension fund that invests in infrastructure. REPRESENTATIVE JOSEPHSON was unsure that is how he would spend his pension dollars. 4:41:32 PM RON LONG, Assistant City Manager, City of Seward, testified in support of HB 288, Version N. He heard Seward mentioned several times today, but in all fairness, this bill could apply equally to several other ports around the state and represents an effort to build the infrastructure to support development in the Arctic. He indicated that this effort will take place in terms of staging from somewhere outside the region described in Section 11 until sufficient infrastructure can support it. He said he did not want to see the entry level position be located in Tacoma or Bellingham, but to be in Alaska. He said he supports the language in the last part of Section 11. He referred to the fisheries and offered his belief that AIDEA has sufficient expertise to ensure that the economic impacts accrue to Alaska, whether it is through a tiered entry system that makes eligibility to Alaskan Corporations first, then to outside entities if sufficient funds exist. He emphasized his hope that the economic impact will accrue to Alaskans whether it is to the local economy or the state treasury. Although those approaches may be different ways of measuring success, "we're all Alaskans and we can all benefit from it. 4:43:36 PM STEVE TRIMBLE, President, Trimble Strategies, stated he is testifying today in support of HB 288, a bill that would create an Arctic infrastructure development fund within AIDEA. He read from a prepared statement, as follows [original punctuation provided]: The Arctic is the future of Alaska, and we must invest in infrastructure now if we are to have a place of meaning in the future of the global arctic frontier. Industry has responded to the call of public investment through the SETS fund and the time is now to further additional public-­private investments within Alaska. The era of "easy money" is approaching its end in our state and the age of "smart money" is now upon us. Enabling AIDEA through the creation of the Arctic Infrastructure Program/ Fund and the additional tools that CS Version N for HB 288 provides is an investment in "smart money" for the future of Alaska. I appreciate your consideration in hearing my testimony today in support of HB 288. [HB 288 was held over.]