SENATE BILL NO. 171 An Act relating to the contracting and financing authority of the Alaska Industrial Development and Export Authority, giving approval of the issuance of the authority's revenue bonds, and delaying the termination date of the authority's business assistance program; and providing for an effective date. Co-chair Pearce directed that SB 171 be brought on for discussion and pointed to a letter of support from TESORO as well as information from the Mat-Su Borough (copies on file in the original Senator Finance bill file for SB 171 at the Legislative Finance Division). DON MOORE, Manager, Matanuska-Susitna Borough, came before committee. Senator Kerttula observed that recently distributed material relating to the Midrex project indicates that the borough has already funded $2,095,000. Mr. Moore responded affirmatively. Senator Kerttula further noted that when the state provided moneys for the road to Point MacKenzie, funding was justified not only by the new lands project, but by expectation of ultimate construction of a port. With connection via causeway to Anchorage, it was expected that Pt. MacKenzie would become the industrial area of Anchorage. (Senator Kelly arrived at the meeting at this time.) Senator Sharp also noted a letter of support for the project from Mayor Jim Sampson of the Fairbanks North Star Borough (copy on file). Co-chair Pearce queried members regarding additional questions on either the fuel consortium project or continuation of the small business program contained within SB 171. No questions were raised. Co-chair Pearce directed that the meeting be briefly recessed. RECESS - 8:15 a.m. RECONVENE - 8:20 a.m. When the meeting was reconvened, Senator Rieger posed a question regarding AIDEA payment of dividends to the state similar to those paid by AHFC. Mr. Snell pointed to recent independent analysis conducted by Bartle Wells Associates on behalf of the Legislative Budget and Audit Committee. That analysis indicates that harm might occur to AIDEA's bond rating should moneys be removed from the authority. Mr. Snell acknowledged that the legislature has the ability to appropriate unrestricted surpluses from AIDEA. He reiterated that such action would have a material affect on access to capital. Mr. Snell stressed that dividends provided to the state by AIDEA are in the form of jobs and economic development. Senator Rieger advised that he had not come to the same conclusion as the analysis. He suggested that the appropriate form of a dividend would be a fraction of the annual earnings of the corporation. This is particularly true since the authority appears to be moving in the direction of equity ownership rather than merely serving as a financier. In response to a further comment by Senator Rieger, Mr. Snell acknowledged that last year AIDEA generated revenues of $40 million. He noted that a portion of the revenue is restricted by Red Dog Mine bonds, leaving approximately $21 or $22 in unrestricted revenues. Co-chair Pearce directed attention to revised amendment no. 1 which she explained would add projects and funding amounts to title language and authorize AIDEA to issue bonds to finance the Midrex project at Port MacKenzie in the amount of $50 million. Senator Kerttula MOVED for adoption. Senator Rieger OBJECTED. Senator Kelly referred to amendment no. 2 and asked if funding the Anchorage airport fueling facility via a general obligation rather than revenue bond would allow the facility to be taxed by the Municipality of Anchorage. Mr. Snell explained that development/finance projects where AIDEA retains ownership include agreements relating to payments in lieu of taxes. Under those agreements the principal users must reach agreements with local municipalities. That type of agreement would be used for this project as well. (Senator Jacko arrived at the meeting at this time.) In response to inquiries from Co-chair Frank and the above- noted objection posed by Senator Rieger, JOHN OLSON, Deputy Director, Development, AIDEA, Dept. of Commerce and Economic Development, came before committee. He pointed to a packet of information (copy on file in the original Senate Finance file for SB 171) and explained that it attempts to address three concerns, raised at the previous meeting, relating to: 1. Presentation of the projects in the early stages of development. 2. Ownership by AIDEA rather than the rendering of merely financial services by the authority. 3. AIDEA's general obligation pledge versus issue of revenue bonds. Speaking to the need for authorization while the projects are in the early stages of development, Mr. Olson pointed to statutory safeguards enacted by the legislature to guide AIDEA in the conduct of its business. He noted that private development projects often reach the point where they must proceed at a time when the legislature is not in session. Mr. Olson next outlined safeguards set forth within AS 44.88.095(c and d). Directing attention to the third item above, Mr. Olson explained that "general obligation" and "revenue" are terms used to separate bonds that do or do not have the full faith and credit of the authority. Buyers view all bond issues as revenue bonds. AIDEA attempts to place as many projects as possible under "revenue" status because AIDEA's "general obligation" credit is finite. It varies depending upon AIDEA's balance sheet. This credit is used carefully and when necessary to get a project moving once all statutory safeguards have been addressed. AIDEA is compensated for use of its pledge by an interest rate markup and earnings from the project once the debt is paid off. Mr. Olson next spoke to ownership status, advising that by retaining ownership, AIDEA can obtain tax-exempt bonds for the project. The development/finance program envisioned in AS 44.88. 172 takes advantage of this provision in the IRS code for ports, airports, and various utility projects. These projects are to be operated by the private sector. Lack of ownership would require issuance of taxable bonds which would substantially diminish the advantages of AIDEA and the competitive position of the project. Under those circumstances the project may not go forward. Funding for projects is safeguarded by statutory requirements and prudent use of authority assets. Mr. Olson further spoke to reimbursement agreements, feasibility analyses, and user agreements and noted requirements associated with each. Discussion followed between Senator Rieger and Mr. Snell regarding financial consequences of the recently announced layoffs and closure of the Skagway ore terminal. Mr. Snell advised that the company remains in full compliance with all payments to the authority. AIDEA is concerned regarding the credit worthiness of the company. The company is the victim of a depressed metals market. AIDEA believes that in the long term the project will provide anticipated returns. Senator Rieger maintained his objection to adoption of revised amendment no. 1. He concurred in legislative action to demonstrate support for the project, desire to see it go forward, and intent to approve state participation upon appropriate terms, but questioned whether approval of $50 million in bonds was an appropriate expression of that support. Co-chair Frank said that as a policy matter the legislature must decide whether it has confidence in AIDEA to make a proper determination of whether or not the project is feasible. He concurred that if the proposed legislation contained a loan commitment or granted credit, action would be premature. Passage of the legislation indicates the project fits politically and conceptually, and if it meets all statutory safeguards, it should go forward. Co-chair Pearce called for additional comments. None were forthcoming. She then directed that the roll be called on revised amendment no. 1: YEA: Sharp, Kerttula, Kelly, Jacko, Frank, Pearce NAY: Rieger Revised amendment no. 1 (Midrex) was thus ADOPTED on a vote of 6 to 1. Co-chair Pearce next directed attention to amendment no. 2 which she explained would delete the word "revenue" from language relating to the Anchorage airport fueling facility project. Senator Sharp MOVED for adoption. No objection having been raised amendment no. 2 was ADOPTED. Co-chair Pearce directed that both revised amendment no. 1 and amendment no. 2 be incorporated within a Senate Finance Committee Substitute for SB 171. She then queried members regarding disposition of the bill. Senator Kerttula MOVED that CSSB 171 (Finance) pass from committee with individual recommendations. Senator Jacko OBJECTED. Co-chair Pearce directed that the roll be called on passage of CSSB 171 (Finance): YEA: Kelly, Kerttula, Rieger, Sharp, Frank, Pearce NAY: Jacko The motion for passage of CSSB 171 (Finance) CARRIED on a vote of 6 to 1, and CSSB 171 (Finance) was REPORTED OUT of committee with a zero fiscal note from the Dept. of Commerce and Economic Development. Co-chairs Pearce and Frank and Senators Kelly, Kerttula, and Sharp signed the committee report with a "do pass" recommendation. Senator Rieger signed "no recommendation." Senator Jacko signed but made no recommendation. [See pages 20-21 for further action on this bill.] SENATE BILL NO. 171 An Act relating to the contracting and financing authority of the Alaska Industrial Development and Export Authority, giving approval of the issuance of the authority's revenue bonds, and delaying the termination date of the authority's business assistance program; and providing for an effective date. Senator Kerttula MOVED to rescind committee action passing CSSB 171 (Finance) from committee. No objection having been raised, IT WAS SO ORDERED. CSSB 171 (Finance) was again before committee. SENATOR JOHNNY ELLIS came before committee, asking that the substance of SB 16 (AIDEA BONDS: ANCHORAGE SEAFOOD FACILITY) be incorporated within CSSB 171 (Finance). He then offered an amendment to that effect. (Recording problem. Minutes relating to action on CSSB 171 (Finance) and testimony on SB 57 reflect transcription of shorthand notes. There is no recording.) Co-chair Pearce directed that the amendment be designated Amendment No. 3 and called for objections. She also advised of her preference for inclusion of all three projects contained in CSSB 171 (Finance) within title language. Senator Kerttula MOVED for adoption of Amendment No. 3 and a listing of the projects within title language. Senator Kelly initially OBJECTED and then WITHDREW his OBJECTION. Senator Rieger reiterated his earlier expressed concern regarding lack of information associated with projects within the bill. Co-chair Pearce called for a show of hands on the motion. The motion CARRIED on a vote of 5 to 1, and AMENDMENT NO. 3 and the TITLE CHANGE were ADOPTED. Senator Kerttula then MOVED for passage of CSSB 171 (Finance) with individual recommendations. No objection having been raised, CSSB 171 (Finance) was REPORTED OUT of committee with a zero fiscal noted from the Dept. of Commerce and Economic Development. Co-chair Pearce and Senators Kelly, Kerttula, and Sharp signed the committee report with a "do pass" recommendation. Senator Rieger signed "no recommendation." Senator Jacko signed without making a recommendation.