SENATE BILL NO. 181 "An Act making the interest rate for the Alaska Housing Finance Corporation's small community housing mortgage loans the same as the interest rate on mortgage loans purchased under the corporation's special mortgage loan purchase program from the proceeds of the most recent applicable issue of taxable bonds before the origination or purchase of the small community housing mortgage loans." This was the second hearing for this bill in the Senate Finance Committee. Co-Chair Donley indicated he had a proposed committee substitute to distribute to Committee members for consideration. AT EASE 9:10 AM / 9:17 AM Co-Chair Donley moved for adoption of CS SB 181, 22-LS0488/S as a working draft and explained the changes. He noted the original version of the bill eliminates the one-percent subsidy within the Housing Assistance Loan Fund (HALF) program. The committee substitute, he stated, retains this subsidy for the first $100,000 value of a residential purchase and would limit availability to only those communities with an average cost of living equal to, or greater than, 125 percent of the statewide average. Senator Hoffman objected and shared he had a conversation with representatives from the Alaska Housing Finance Corporation (AHFC) where he learned that limiting availability of the subsidy to any amount less than $200,000 would jeopardize the dividend provided to the state treasury. He commented that this limitation would also "cripple the housing program in many rural areas of the state." stressed the existing allowances are necessary to ensure the continuation of the program's ability to offer lower interest rates. He requested a representative of the Corporation address the benefits of the program. Co-Chair Kelly announced public testimony had been heard during the bill's previous hearing and was concluded. Co-Chair Donley added that his intent is to only adopt the committee substitute at this meeting and hold the bill for future review. He invited written comments on the committee substitute. Co-Chair Kelly asked what, if any impact the proposals in the committee substitute would have on the annual AHFC dividend to the State of Alaska. JOHN BITNEY, Legislative Liaison, Alaska Housing Finance Corporation, Department of Revenue testified that he saw the committee substitute as "legislation that would limit use of the program." Co-Chair Donley clarified the $100,000 limitation only applies to the first $100,000 of a home loan. A loan over that amount could still be obtained, with the portion above the limit accrued at the regular interest rate, he stressed. Senator Austerman commented that public testimony should be allowed on the changes in the committee substitute. Mr. Bitney stated he understood the language to imply that the corporation may not use money to subsidize any amount that exceeds $100,000. He pointed out this does not change other statutes governing the calculation procedure determining the one-percent reduction below the normal rate. Therefore, he advised, language reconciliation may be necessary to overcome the conflict. Mr. Bitney continued, noting the committee substitute also limits the corporation from issuing loans under this program only to those areas with a higher cost of living. This, he emphasized, changes the program itself and would probably limit the loan activity to the extent that AHFC would earn less money and subsequently the dividend would be smaller. He qualified that because the committee substitute was just released, he had been unable to research the matter fully. Co-Chair Kelly requested an analysis from the corporation and that the witness work with Co-Chair Donley and Senator Hoffman to determine the best way to carry out the intent of the legislation without drastically reducing dividend payments. Co-Chair Donley recalled Senator Hoffman's earlier comments that the existing interest rate subsidy program is parallel to the first time homebuyers program. Co-Chair Donley understood there is a limit to the amount that could be borrowed under the first time homebuyers program and asked if this were correct. Mr. Bitney affirmed and stated the acquisition limit for the price of a home in Anchorage is $179,000, and for areas outside of Anchorage the limit is $160,000. Co-Chair Donley asked if first time homebuyers program is available statewide. Mr. Bitney answered it is, but pointed out that the real estate market in many areas is such that the first time homebuyers program could not be utilized because home prices are higher than the maximum allowed. Co-Chair Donley stated that while the HALF program has no financial needs criteria, the first time homebuyer program does have limitations if the borrower has significant assets. Mr. Bitney confirmed that as well as an acquisition limit; the first time homebuyers program is for low to moderate-income borrowers. Co-Chair Donley asked if in light of these factors, the first time homebuyers program really is comparable to the HALF program. Mr. Bitney responded that the comparison is shown through the historical use of the program. He informed that 85 percent of loans issued under the HALF program have been made to borrowers earning less than $100,000 annually. He stated the average income of borrowers under the HALF program is less than that of the urban borrowers of the tax exemption program. While he admitted there are exemptions to the norm, such as with the $400,000 loan granted under the HALF program, he stressed that the program is used primarily by borrowers with similar incomes and for the purchase of similar homes as the borrowers under the tax exemption program. Co-Chair Kelly again asked how the provisions in the committee substitute would impact the AHFC dividend. Co-Chair Donley stated he wanted an analysis of the financial ramifications of the committee substitute from AHFC. Senator Hoffman withdrew his objection and the committee substitute was ADOPTED. Co-Chair Kelly ordered the bill HELD in Committee.