HB 291-GUARANTEED REVENUE BONDS FOR VETERANS  8:15:40 AM CHAIR LYNN announced the first order of business was HOUSE BILL NO. 291, "An Act relating to the issuance of state-guaranteed revenue bonds by the Alaska Housing Finance Corporation to finance mortgages for qualifying veterans; and providing for an effective date." 8:16:19 AM BRYAN BUTCHER, Director, Government Relations & Public Affairs, Alaska Housing Finance Corporation (AHFC), presented HB 291 on behalf of the House Rules Committee, sponsor by request of the governor. He stated that the proposed legislation would place on the 2010 general election ballot a vote asking voters to approve an additional $600 million of state-guaranteed bonds to be issued by AHFC for the veterans' program. MR. BUTCHER related his understanding that "the veterans' program" was created in the U.S. Congress, and there was a small window during which states could take advantage of that program. Alaska was one of only five states to sign up, he said. The other four states were: Oregon, California, Texas, and Wisconsin. He indicated that prior to 1977, in order to qualify, a veteran could not have been out of service for more than 30 years. He said the veterans' program is the only one for which AHFC needs a general obligation pledge of the state in order to sell bonds. MR. BUTCHER said AHFC has worked with the U.S. Congress for 15 years to lift the restrictions and open the program up to more veterans. He indicated the reason for the lengthy effort was because only five states were involved. He stated, "We thought there might be interest in having all the states give this program for their veterans. Unfortunately, that's not the way most of Congress saw it." The requirement of 1977 was lifted from federal law, but only through an agreement that AHFC would be limited in selling only $10 million in bonds a year. He remarked that when considering homes that cost $300,000- $400,000, $10 million does not go far. After the restrictions were lifted, there were more eligible veterans in the state, but there was not much money. MR. BUTCHER reported that two years ago, the limit on AHFC was increased to $100 million, and now the program flourishes. He continued: And at this point, as we ran numbers, we realized that 2002 was the last time we had it go to a vote of the people. It was $500 million authorized. Over 70 percent of the state voted to have it done. And once we realized we now had a more brisk loan portfolio, we realized that in all likelihood, sometime in 2011 we were going to run out of funds for the program. So, if we didn't get it on the general election ballot this year, we may have to shut the program down well before we get to a 2012 general election. 8:20:07 AM CHAIR LYNN said he retired from the military in 1976, and he asked if he would be eligible today for the program. 8:20:22 AM MR. BUTCHER answered no, because currently a veteran cannot have been out of active duty for more than 25 years. CHAIR LYNN asked what the rationale was behind choosing 25 years as a cut-off point. He remarked, "A veteran is a veteran is a veteran." 8:21:04 AM MR. BUTCHER reemphasized the challenges of working with U.S. Congress as one out of only five states that adopted such a program. He explained that U.S. Congress was concerned that tax exempt bonds would take money out of the treasury. He said the program from 1977 ended, and he said the chair of the federal Ways and Means Committee told him he believes that everything that sunsets should do so. Mr. Butcher said that sentiment is frustrating those trying to keep this successful program running. To illustrate that success, Mr. Butcher relayed that Standard & Poor's reported a few weeks ago that AHFC's last bond issuance for its veterans' program had the lowest delinquency rate of any of the programs across the country. He indicated that the veterans' program is AHFC's most successful program. CHAIR LYNN responded, "I understand that, but ... philosophically it's discriminating against a whole bunch of veterans, and that discrimination really is age discrimination, too." 8:22:40 AM REPRESENTATIVE GRUENBERG said he is a Vietnam War veteran. He asked if a veteran is only allowed this loan once in a lifetime. 8:23:02 AM JOE DUBLER, Finance Director, Bonds, Alaska Housing Finance Corporation (AHFC), answered no. He said a veteran may participate multiple times, but may have only one loan out at a time. REPRESENTATIVE GRUENBERG declared a conflict of interest related to his forthcoming line of questioning. CHAIR LYNN declared a conflict of interest. REPRESENTATIVE SEATON noted that "this definition" is in federal law, not state law; therefore, the committee has no authority over it, but may comment on it. 8:24:25 AM REPRESENTATIVE GRUENBERG asked if AHFC could run a program at the state level that was identical to the federal program, but without [the 25-year] requirement. 8:25:12 AM MR. BUTCHER answered that the federal program allows AHFC to sell tax exempt bonds, which in turn allows AHFC to obtain a lower interest rate than it can through its "general program." Anyone who did not qualify under federal law would not be eligible for tax exempt bonds, so AHFC would have to sell taxable bonds. REPRESENTATIVE GRUENBERG asked, "So, is there federal money involved in this, or just tax exempt status?" MR. BUTCHER responded, "Just tax exempt status." REPRESENTATIVE GRUENBERG said that was not clear from the information provided. He said he had been under the impression that there was a "federal guarantee or federal money." 8:26:04 AM REPRESENTATIVE SEATON asked if the bonds are retired or are cycled into AHFC for reissuance of additional mortgage. 8:26:33 AM MR. BUTCHER responded that the payments AHFC gets from borrowers are used to pay off debt. He explained that under federal tax law and with certain restrictions, to the extent AHFC pays off debt, it is able to reissue debt. He continued: When we do that, for the purposes of state law and the voters' authorization under the guaranteed program, we reduce the amount of the voter authorization by the refunded amount, as well. In other words, we're not double counting for the state purposes. We do for the feds because they allow it, but for the state we're very conservative and do not. 8:27:24 AM REPRESENTATIVE SEATON stated his understanding that although AHFC can reissue, it has to go back to voters to get approval to guarantee the additional amount. MR. DUBLER confirmed that AHFC cannot issue general obligation bonds without the approval of the voters. 8:28:03 AM REPRESENTATIVE GRUENBERG asked Mr. Butcher if he foresees AHFC having a similar problem with U.S. Congress regarding a sunset of the current federal law. 8:28:24 AM MR. BUTCHER answered that the five states involved are continually working with U.S. Congress. Currently, AHFC is working to get the 25-year limit lifted so that the program would apply to all veterans and to obtain permission to have refinancing "as something that would qualify in the program." He credited Congressman Bill Thomas from California for his work on this issue. 8:29:28 AM REPRESENTATIVE SEATON said he would like an explanation of how the issue of active duty relates to [the Alaska National Guard]. 8:30:08 AM LAURIE HOLTE, Residential Lending Officer, Urban and Residential Loan Programs, Alaska Housing Finance Corporation (AHFC), stated that if a [National] Guard member has been called to active duty by the President for duty other than training, then he/she becomes eligible for the program upon completion of that obligation. Being called to duty by the State of Alaska is not considered federal duty, she specified. 8:31:06 AM REPRESENTATIVE SEATON offered his understanding that active National Guard members, having completed their initial period of duty, which would entitle them to honorable discharge or release, would qualify. He asked if they would remain eligible if they went off active duty status. MS. HOLTI answered yes. 8:32:48 AM MR. DUBLER, in response to Representative Wilson, said if a borrower does not pay back his/her mortgage, the corporation has options. In most cases, there would be a Veterans Administration or Federal Housing Administration (FHA) guarantee, and AHFC would be able to receive from those entities the difference between what AFHC is able to resell the house for and what the borrower still owes on the mortgage. In the mid- to late-'80s, the value of the homes being foreclosed was smaller than the balance on the mortgages; however, currently there is not a big decline in home value, so AHFC does not anticipate that problem in the current environment. In response to a follow-up comment from Representative Wilson, he confirmed that bonds are paid off using the payments received from veterans. 8:34:45 AM REPRESENTATIVE GRUENBERG shared that he participated in the Navy Reserve Officers' Training Corps (ROTC) program, from which he graduated in 1965. He noted that those in military academies are qualified, and he stated his assumption that is because people attending those academies are considered on active duty. He offered his understanding that ROTC participants are also considered on active duty during their college years, and he asked if any consideration had been made to include those in the ROTC. 8:36:38 AM MR. BUTCHER said he would bring that issue up during the next conference call between the five aforementioned states and get back to Representative Gruenberg with a response. CHAIR LYNN offered his understanding that ROTC participants do not qualify as being on active duty. 8:38:02 AM MS. HOLTI, in response to Representative Petersen, said a qualified veteran could use the program loan for a duplex, triplex, or fourplex, as long as one unit is occupied by the borrower. 8:38:20 AM REPRESENTATIVE PETERSEN offered his understand that this is a good time to have a bond sale, especially considering Alaska's "credit worthiness." He said he supports HB 291 and thinks a majority of Alaskans will vote to continue supporting this program. 8:39:22 AM REPRESENTATIVE P. WILSON questioned if the language in bill should be changed to reflect that the veteran who borrows money may do so for a multi-unit dwelling. She said, "So, what we're really saying is we're helping them start a business." 8:40:10 AM MR. DUBLER responded that the vast majority of loans given in this program are for single-family homes. The definition of residence for this purpose is "less than a fourplex". He stated his understanding that that language is found also in federal law. He said AHFC's first-time homebuyer program includes the same stipulation. He concluded, "So, it's a federal issue, I believe." CHAIR LYNN proffered that sometimes the ability to get income from the other units helps a person qualify for a home loan. MR. DUBLER confirmed that is correct. 8:41:46 AM REPRESENTATIVE SEATON asked if there is any state subsidy in this program. MR. DUBLER replied yes. He relayed that the current interest rate is 4.625 percent. 8:42:24 AM REPRESENTATIVE GRUENBERG asked if there would be an explanation of the proposed ballot measure in the election pamphlet. MR. BUTCHER said he believes there was an explanation in the 2002 election information. REPRESENTATIVE GRUENBERG said he wants a definition of "veterans" and "residences" provided to voters. 8:45:13 AM MR. BUTCHER said AHFC could provide those definitions. 8:45:36 AM REPRESENTATIVE P. WILSON stated that even though this is related to a federal program, the State of Alaska will be funding it and, therefore, will be responsible. MR. BUTCHER responded that that is correct. He clarified that there are federal restrictions. Federal law allows the state to choose whether to participate in the program. 8:46:18 AM CHAIR LYNN, after ascertaining that there was no one else who wished to testify, closed public testimony. 8:46:39 AM REPRESENTATIVE SEATON moved to report HB 291 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 291 was reported out of the House State Affairs Standing Committee.