SENATE BILL NO. 113 "An Act making activities of the Alaska Housing Finance Corporation subject to the Executive Budget Act, relating to appropriations to the Alaska Housing Finance Corporation; relating to bonds and bond anticipation notes issued by the Alaska Housing Finance Corporation; and providing for an effective date." SENATOR RICK HALFORD spoke to the bill. The bill was drafted in response to a Commonwealth North Report that dealt with the consolidation and maximization of return on state assets. AHFC was the third highest cash asset of the State Of Alaska behind the permanent fund and the constitutional budget reserve. Its cast value was somewhat in question because the corporation would not provided information on what the liquidated value would be. Instead, information was given about bond conveyances and provisions. The program included operations that would occur regardless of the state's cash situation, such as veteran's housing bonds since they were not subsidized and passed along a benefit from the federal government. It was a complicated issue. He referred to the great deal of feedback the Legislators had received. The bill was drafted to put AHFC under the Executive Budget Act and draw the corporation into the financial system of the state in such a way that the Legislature would be in control of the appropriation and expenditure processes as well as the authorization of future bonds. There were concerns from people who represented bondholders. There were other legitimate concerns about the requirement for appropriation, refunding bonds or debt service on existing bonds. Jeopardizing those items was not the intention of the legislation as far as drawing the system back under state control. If the original bond was authorized and could be refunded at a lower cost, the original authorization was the legislative action that said the appropriation process was followed as well as the constitutional entity behind it. In the same sense, the appropriation of the debt service on a bond that was already authorized would not need to go back through the process. He felt this addressed the concerns voiced. He speculated that the marketplace would love to see $2 billion stay in the account and was satisfied with the current system. He spoke about the state's budget appropriations and stressed that the money belonged to the people of Alaska. They had a right to know the worth and what the program was accomplishing. He didn't believe that was currently the case. He continued speaking to the merits of the bill. Senator Dave Donley felt that the Commonwealth North did an excellent study showing how the state could maximize its assets. AHFC was one of the largest public assets and until the Legislature had authority to implement the recommendations of the commonwealth study, there was no way to reach those goals. The intent of the legislature was to do that. JOHN BITTNEY, Legislative Liaison, Alaska Housing Finance Corporation, Department of Revenue, testified. He provided a letter to the committee expressing the position of the corporation. The corporation was concerned and perplexed with the bill. They were unaware that is was being drafted. The main concern was that AHFC was in the midst of issuing the debt that was authorized by SB 260 last year. The corporation had issued $92.4 million of that debt and did receive an upgrade from Standard and Forbes as part of that issuance. It was uncertain what the impact of this legislation would have on that rating. That could affect the timing and issuance of debt to complete the state capital projects authorized in SB 260 He pointed out that the corporation was already subject to the Executive Budget Act. The operating budget was presented to the Legislature for authorization. The same was done with the capital budget and the mortgage program. However, the extent that the corporation should be under the act had been discussed in the past. The bonding authorizations had always been left to the discretion of the corporation in terms of timing and the amounts. This would allow flexibility under the review and the public process of the board of directors to take advantage of the best timing, interest rates and other factors affecting the investment environment. He was dismayed because the corporation felt it already had a process that worked very well. AHFC provided $103 million annually to the state. That was used to leverage $200 million in bond issuance on behalf of the state. In addition to that, the corporation provided financing for purchases such as the Bank of America building for state office lease space as well as subsidized financing for the University of Alaska. This was the net of the hundreds of millions of dollars of mortgage activity the corporation provided inside the State Of Alaska. He apologized for any misperception that the representatives of the corporation did not provide adequate information. However, he said they would welcome any request and felt that if there was an intent to review the performance of the corporation, he believed that could happen without this legislation. Senator Loren Leman asked if the sponsor had worked with the corporation how would the bill be different. John Bittney said if the intent was to implement the suggestions of the Commonwealth study, they would have been willing to work with the Legislature to implement the programs. There was concern of whether or not the Legislature should approve each and every bond issuance. Section 8 was the main accounting section and would apply to every single home mortgage issuance saying the Legislature would have to appropriate each one. Section 10 would require front section language in each budget to accomplish. Co-Chair John Torgerson had asked the AHFC for a sectional analysis of the bill and asked if he had that with him. John Bittney did not and said the bond council and the tax council were working on drafting it. He also noted the request for the fiscal note and gave the reason it was not provided. He said it was a complex matter and detailed how loan program would have to be analyzed. It would need front section language. Co-Chair John Torgerson asked when the section by section overview would be available. John Bittney replied he could have that delivered later in the evening. Section 8 was the most egregious and would affect the ability for the corporation to do business. All the sections of the bill would severely impact the corporation's ability to conduct business. Section 7 would leave things as a status quo regarding authority for the grant fund within the corporation since that was done already. ERIC DYRUD, Co-Chair, Anchorage Board of Realtors Legislative Committee, testified via teleconference from Anchorage in opposition to SB 113. He suggested passing legislation requiring the corporation to submit reports rather than impede their operations. He invited the committee members to a legislative meeting the organization was holding on Monday. Senator Loren Leman accepted the invitation. He would not be able to give background to the bill since he did not draft it. Eric Dyrud gave the time and place of the meeting. DICK DOLMAN, VP Alaska Manager of a Seattle mortgage company, testified in opposition to the bill. He said this bill would place leg irons and hand cuffs on AHFC. AHFC was very successful and had a good reputation. He was one of the founders of the corporation. Its independence was what allowed it to be successful. He compared it to Fanny Mae and asked how that program would do if each of its loans had to be approved by Congress. ARLENE PATTON, State Coordinator with Alaska Housing and Urban Development, testified via teleconference from Anchorage. During FY98 Alaska benefited from over $780 million in federal resources. She limited her comments to the programs HUD relied on AHFC for funds to administer. She listed the positive recognition the corporation received. AHFC must have flexibility. Future opportunities would be jeopardized. She gave figures for the homeless rate in Alaska. "Please remember what we do today is for the long term." Co-chair Torgerson asked the testifier to point out the relationship with AHFC in contrast to HUD. He requested this be done in writing and faxed to his office. ARTHUR CLARK, Key Working Group Chairman, Alaska Association of Realtors for Industry Issues, testified via teleconference from Anchorage. His concern with bill was due to a lack of understanding regarding the bond market. He reminded that the corporation has been benefiting the state with dividends. Problems with communication and management must be addressed, he stated. SUE BENEDITTI, representing the Alaska Banker's, and Manager of First National Bank testified via teleconference from Anchorage. In her travels around U.S. she heard how respected the AHFC was. This was a missing opportunity for Alaskans. JUDY KEMPLEN, National Bank of Alaska and Northland Mortgage testified via teleconference from Anchorage. If Alaska Housing cannot maintain bonds then there would be higher interest rates for potential homebuyers, he warned. This would encourage substandard housing. JAN SIEBERTS, representing Alaska Bankers, employed at National Bank of Alaska testified via teleconference from Anchorage. Over the years, she had seen authority by Legislature over AHFC increased. More independence should be given to AHFC. The Banker's Association saw no purpose to this bill. CHARLES BLALOCK, representing Prudential Insurance testified via teleconference from Anchorage. He noted that twenty-five percent of business was first time homebuyers. He felt the bill just needed to be fine-tuned. JEWEL JONES, testified via teleconference from Anchorage on her concerns about section 8 and said she needed additional time to look at the impact of the bill. She had worked with Senator Rick Halford for many years and would continue to work with him regarding this matter. BILL BRUU, Treasure, Mat-Su HomeBuilders, testified via teleconference from Mat-Su. He was concerned that the bill smacked of "killing the golden goose". The Legislature was always trying to strangle Alaska Housing to get last little bit of cash, in his opinion. He asked who drafted the bill. Co-Chair John Torgerson responded that the bill drafters had. DENNIS WALDOCK testified via teleconference from Anchorage. He had many suggestions on improvements to the bill. Co-Chair John Torgerson requested he submit his suggested changes in writing to the committee. Senator Loren Leman wanted to hear from a representative of the real estate industry who could tell the committee the percentage of home sales with AHFC financing. There was no response. Co-Chair John Torgerson ordered the bill held in committee. He requested a sectional analysis from AHFC. Break 7:56 PM / 8:11 PM Tape: SFC - 99 #77, Side A 8:11 PM