SB 64-SCHOOL BOND DEBT REIMBURSEMENT  4:03:16 PM CHAIR DUNLEAVY announced the consideration of SB 64. He said it is the first hearing of the bill. SENATOR ANNA MACKINNON, Alaska State Legislature, sponsor of SB 64, read the sponsor statement. Alaska is facing a $3.5 billion revenue shortfall this year and projected into next year. One thing we can do to take care of Alaska is to take care of our fiscal house as quickly as possible. The current bill before you proposes to sunset current state aid regarding reimbursement for major maintenance and school construction. This is a measure that is outside of our control in anticipating our future debt- to-credit ratio needs. I understand that it is a valuable tool for communities that can provide bond indebtedness. This doesn't prevent schools from going forward and providing that indebtedness. She said she originally wanted an effective date of January 1, 2015. That date was rejected and is a policy consideration for the committee. It takes into account that people go to bond market in April and October and sell bonds. A municipality may be getting ready to market to sell bonds. She opined that January 1, 2015, is the correct date and the people of Alaska will understand that the state is not in the position to go forward with reimbursing at a higher level. The bill does not eliminate the program, but sunsets it for five years. 4:06:04 PM SENATOR GARDNER asked if January 1, 2015, is the correct date. SENATOR MACKINNON said yes; it is retroactive. She related that Legislative Legal expressed concern about retroactivity and the possibility that Anchorage might have a bond proposition that voters expect to be reimbursed for. CHAIR DUNLEAVY requested a sectional analysis. LAURIE PIERRE, Staff, Senator Anna MacKinnon, Alaska State Legislature, presented a sectional analysis of SB 64. She clarified that the year bonds are issued is listed in state statute. The most recent one was issued from October 1, 2006, to May 1, 2015. Legislative Legal suggested a May 1 sunset date so as not to affect that bond. 4:08:17 PM MS. PIERRE related that Section 1 sunsets the bond debt reimbursement provisions for school construction and major maintenance for five years, May 1, 2015 to July 1, 2020. Section 2 begins on page 6, line 21, and restricts the reimbursement of bonds authorized after May 1, 2015. Also, on page 7, lines 1 through 11, it deletes language relating to bonds authorized after May 1, 2015. Section 3 page 12, line 17, through page 13, line 2, inserts language relating to bonds authorized on or after July 1, 2020, and reduces reimbursement from 70 percent for standard projects to 50 percent, and from 60 percent for non-standard projects to 40 percent. 4:10:04 PM Section 4 restricts the commissioner from approving an application for bond debt reimbursement between May 1, 2015, and July 1, 2020. Section 5 restricts the commissioner from approving an application for bond debt reimbursement between May 1, 2015, and July 1, 2020. Section 6 repeals sections 1, 4, and 5 of this Act on July 1, 2020. Section 7 is the retroactivity clause and applies to Sections 1, 4, and 5. Section 8 states that Section 3 takes effect on July 1, 2020. Section 9 is the immediate effective date. 4:11:22 PM SENATOR STEVENS requested clarification of a hypothetical situation; if the voters of Anchorage approved a bond package on April 7, 2015, it would be funded at a 70/30 ratio, but other districts that vote at a later date would not have that opportunity. MS. PIERRE said that is correct. 4:12:28 PM MIKE ABBOTT, Chief Operating Officer, Anchorage School District (ASD), testified about concerns regarding SB 64. He said ASD relies on general obligation debt for all capital projects, at about 90 percent, with smaller contributions from legislative grants, federal sources, and the operating budget. ASD has taken advantage of multi-year bonding programs for capital projects and voters appreciate that approach. ASD hopes to continue that funding method. He explained that ASD's six-year capital improvement program anticipates going forward with debt reduction. New bonds have been sold at lower rates and old debts have been refinanced at lower rates. He said ASD is not involved in the state grant process and would not score well compared to other area projects. He concluded that ASD is uncertain if it could meet its capital requirements going forward with this bill. 4:17:28 PM SENATOR HUGGINS said Wasilla has had many new students and construction demands. He asked what the trend is in Anchorage. MR. ABBOTT replied that ASD anticipates a slight growth in enrollment over the next six years; a slight decline is anticipated next year. SENATOR HUGGINS asked for retrospective data. MR. ABBOTT said over the last five years the district has declined in enrollment by about three percent. 4:19:18 PM SENATOR STEVENS said the bill has unusual wording. He asked what is on the Anchorage ballot for April 7, and how the 70/30 split would work. MR. ABBOTT replied that there is a single bond proposal, Proposition 1, for a little over $59 million. About 2/3 of the bond is to be reimbursed at 60 percent and 1/3 at 70 percent, for a blended rate of about 64 percent. Of the $59 million, $56 million is for four elementary renewal projects. Individual costs range between $12 million and $19 million. No new school construction is planned within the six-year CIP. 4:22:12 PM CHAIR DUNLEAVY noted SB 64 is an attempt to get a handle on revenue and would provide breathing space for the state to replenish its coffers. He stated he would hold the bill in committee today. He thanked the sponsor and noted the bill goes to Senate Finance next. SENATOR MACKINNON said there are four major cost drivers in Alaska's budget; K-12, Health and Human Service - Medicaid growth, PERS/TRS, and school debt reimbursement, which has totaled $3 billion since FY 1972. The legislature has had no control except to step up and pay just under $120 million annually. She stated support for what ASD is doing, but maintained that it is time to reduce expenses. She stressed the need to retroactively date the bill to prevent large bonds in the fall. She concluded that SB 64 is totally about fiscal restraint. CHAIR DUNLEAVY asked Mr. Abbott about the 60 percent reimbursement and if ASD followed DEED guidelines. MR. ABBOTT explained that three of the elementary school projects are eligible for 60 percent reimbursement under DEED regulations because ASD is adding a small amount of square footage to try and improve the security of the front entrances. It is less expensive to add a few square feet rather than remodel an old structure. It would be eligible for 70 percent if that were not done, but would be more expensive. 4:28:02 PM SENATOR HUGGINS assumed there would be a retroactive date proposed. He asked what that would do to ASD's bond proposition. CHAIR DUNLEAVY asked Mr. Abbott to consider a proposed amendment to that effect. MR. ABBOTT explained that the ballot language authorized by the Anchorage Assembly describes school debt reimbursement as it is currently defined in statute - it is not guaranteed and is subject to appropriation. The voters are on the hook for the entire amount of the indebtedness and the entire amount of annual debt service. CHAIR DUNLEAVY commented on the trend of a declining student population in Alaska. He summarized that the bill is a result of the financial situation in the state. SENATOR MACKINNON noted SB 64 is a Senate Finance Committee bill. CHAIR DUNLEAVY held SB 64 in committee.