CS FOR SENATE BILL NO. 279(STA) "An Act authorizing and relating to the issuance of bonds by the Alaska Housing Finance Corporation for safe and clean water and hygienic sewage disposal facility capital projects and other capital projects; providing for the repayment of the bonds and bond costs; relating to the dividend paid to the state by the Alaska Housing Finance Corporation; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken stated this bill "authorizes Alaska Housing Finance to issue bonds for $25 million in capital projects. The bond proceeds will fund Village Safe Water projects and other projects. The debt service payment will be deducted from Alaska Housing Finance annual State dividend." DAN FAUSKE, Chief Executive Officer and Director, Alaska Housing Finance Corporation (AHFC), Department of Revenue, read testimony into the record as follows. Senate Bill 279 will provide $25 million for village safe and clean water and hygienic sewage disposal facility projects and other capital projects. The Village Safe Water projects that will be funded with bond proceeds have historically been funded through cash appropriations annual dividend to the State. Estimated debt service on the $25 million of bonds based on current interest rates is approximately $3 million per year for ten years. These debt service payments per Sections 2 and 4 of the bill would be deducted from AHFCs annual dividend provided for by AS 18.56.089(c). Preliminary indications from rating analysis that there will be no negative impact upon the Corporation's ratings from this proposed issuance. Those indications are given based upon the passage of this bill and SB 274, which replaces the Housing Assistance Loan Fund [HALF], the Rural Revolving Loan Fund with the housing assistance loan program. That bill is scheduled next [and are] hand in hand in order for us to accomplish what we're trying to do. Co-Chair Wilken noted that an additional $40 million is necessary to fully fund the proposed FY 05 capital budget. He informed that a proposed amendment would authorize the AHFC to sell $20 million more in bonds than the current version of the bill to be used to offset the $40 million deficit to the capital budget. Senator Hoffman noted the witness' indication that SB 274 would replace the HALF program and asked if the program would operate differently. Mr. Fauske answered that the programs would continue to function in the same manner and that the proposed change is to the "accounting measure for the Corporation to attempt to fix a liquidity problem that has been generated because that fund technically doesn't revolve anymore." He clarified the legislation would impose changes as to "who would qualify", but assured that "the technicalities of the program will remain absolutely the same." Co-Chair Wilken announced that because this legislation coincides with changes proposed in SB 274, the Committee should receive an overview of the latter bill. Co-Chair Wilken ordered SB 279 HELD in Committee until later in the meeting. CS FOR SENATE BILL NO. 279(STA) "An Act authorizing and relating to the issuance of bonds by the Alaska Housing Finance Corporation for safe and clean water and hygienic sewage disposal facility capital projects and other capital projects; providing for the repayment of the bonds and bond costs; relating to the dividend paid to the state by the Alaska Housing Finance Corporation; and providing for an effective date." The Committee heard this bill earlier in this meeting. Mr. Fauske reread a portion of his earlier statement. Co-Chair Wilken noted a list of proposed projects attached to the sponsor statement [copy on file]. Amendment #1: This amendment would increase the amount of bonds that would be issued to finance capital projects other than village safe water projects from $5,181,700 to $25,181,700. Co-Chair Green moved for adoption. Co-Chair Wilken objected for an explanation. Mr. Fauske explained this amendment would increase the amount of bond proceeds available for capital projects from $25 million to $45 million. He relayed that the decision was made to not pursue the purchase of $40 million in State-owned buildings and the Corporation was asked if more than $25 million in bond proceeds could be provided. Mr. Fauske stated that after consultation with the bond rating agencies, the Corporation determined the proposed amount could be achieved without resulting in a negative affect on the Corporation's bond rating. He noted that Standard and Poors and Moody approved the proposal immediately, although Fitch deliberated for a week before approving the proposed amount with the stipulation that it be no higher. He attributed the approvals with the "faith" the rating agencies have with AHFC and the Legislature because "agreements in the past have been honored and the debts have been paid." Mr. Fauske furthered that the Corporation is also "comfortable" with the proposed amount. Co-Chair Wilken reiterated that the proposed FY 05 capital budget requires an additional $40 million to fully implement and this proposal would provide $20 of that amount. Senator Hoffman clarified that funding for the FY 05 capital budget would be $20 million less than the amount needed for the Governor's proposed expenditures. Co-Chair Wilken affirmed. There was no objection and the amendment was ADOPTED. Senator Bunde asked if AHFC was aware of the aforementioned Division of Legislative Audit report and questions of the Legislature regarding efficient use of bond proceeds and the role of AHFC in determining how those proceeds are spent. Co-Chair Wilken directed AHFC to become familiar with the audit. He commented that mismanagement of funds had occurred and that the Corporation would be pressured to better manage monies. Co-Chair Wilken asked whether an updated fiscal note would be required to reflect the adoption of the amendment. Mr. Butcher affirmed and listed amount of fiscal note would be approximately $6 million. Co-Chair Wilken indicated the bills would be held to await receipt of updated fiscal notes. Senator Bunde opined that if the AHFC was unable to manage money satisfactory, the Legislature should limit the amount of funds it manages. Co-Chair Wilken ordered the bill HELD in Committee.