SENATE BILL NO. 46 "An Act relating to the Alaska Municipal Bond Bank Authority; authorizing the Alaska Municipal Bond Bank Authority to issue bonds or notes for a regional health organization; and providing for an effective date." 9:10:10 AM Senator Hoffman announced that SB 46 was introduced because of the number one rating of the Yukon Kuskokwim Health Corporation in a national federal government outreach program to improve health care out of 37 participants. The bill would allow the corporation to increase its size from a 90,000 square foot hospital adding an additional 130,000 square feet. The addition would more than double the size of the hospital, which would, over time provide 200 new permanent positions in the health care field. The legislation would drastically improve the health care of the largest Alaska Native population in the state. TIM GRUSSENDORF, STAFF, SENATOR LYMAN HOFFMAN, referred to the backup materials available to the members and also some individuals present to answer any questions. Mr. Grussendorf looked at the Sectional Analysis (copy on file). He wondered if he should address every new section. Co-Chair MacKinnon replied that she would like to know the intent of the sections. Mr. Grussendorf continued to discuss the Sectional Analysis. Section 1. Amends AS 44.85.005 to include legislative findings relating to health care and nonprofit regional health organizations. Mr. Grussendorf shared that page 2, line 6 was stating that the health care organizations were using the local municipalities to access the bonds, but it added another procedure in the process. He looked at line 8, which was related to the nonprofit regional organizations access to the bond bank. Mr. Grussendorf looked at Section 2: Amends AS 44.85.101(a) to include a policy to assist regional health organizations. 9:16:19 AM Senator Olson assumed that all 638 contractors were defined as the Regional Health Corporation. Mr. Grussendorf agreed to provide a copy of the definition. Co-Chair MacKinnon stated that there was a description of a variety of items. She believed Section 6 of the bill would the definition of "regional health organization" would be described in AS 18.28.100(6). She explained that the definition had a criteria for the Regional Health 4000. She felt that the definition should have further examination. Senator Olson surmised that the specific definitions were not included in the presentation. Mr. Grussendorf replied in the affirmative. Senator Olson understood that the legislation opened up the ability for a 368 contractor that provided health benefits to the region to access construction bonds. Mr. Grussendorf replied in the affirmative and deferred to Mr. Winkelman for more information. He stressed that the application process still required the due diligence. Senator Olson surmised that the bill cleared up the ambiguity as to whether the communities had authority to apply for the bonds. Mr. Grussendorf responded that the communities did not currently have the authority to bond, and the legislation allowed the corporations to access the bond. Senator Olson remarked that there were many facilities that were in need of improvement. He wondered if the legislation allowed for other 360 contractors to access the bonds. Mr. Grussendorf replied in the affirmative. Senator Olson shared that there was a health organization in his district that was closed because of inadequate facilities. He wanted to ensure that those organizations could access the bonds through this legislation. Mr. Grussendorf responded that he believed that those organizations could access the bonds. Senator Dunleavy looked at page 4, line 9, and surmised that there could be several health organizations that would request a $250 million bond package. Senator Hoffman deferred to Mr. Mitchell. 9:22:08 AM DEVEN MITCHELL, EXECUTIVE DIRECTOR, ALASKA MUNICIPAL BOND BANK, stated that the intent of the legislation was to create one $250 million cap for the potential lending authority. Senator Dunleavy wondered if the $250 million was total lending authority for all requests combined or total per request. Mr. Mitchell responded that the $250 million was the total lending authority for all requests. He furthered that, if there was ambiguity, the bill should have an amendment to ensure that it was a total limit. Senator Dunleavy requested that the wording of the legislation may have some ambiguity, so the language may need to have an amendment. Co-Chair Kelly wondered if other health care organizations could apply for the bond, or if the legislation only applied to the Yukon Kuskokwim Delta. Mr. Mitchel replied that it was an authorization that would be available for any organization that qualified within the definition. Senator Dunleavy remarked that the $250 million was the cap, and wondered if an organization could apply for the entire $250 million. Mr. Mitchell responded that an organization could apply for the entire $250 million. Senator Dunleavy concluded that the $250 million was the total available for one entity or twenty entities. Mr. Mitchell agreed. Senator Dunleavy looked at page 5, line 4, and queried the definition of "special fund." Mr. Mitchell replied that it was language that would allow for a pledge of an enterprise activity within the overarching organization. He stated that every application must undergo a credit review process. Senator Dunleavy wondered what the types of revenue the corporations could pledge. Mr. Mitchell replied that they could pledge other revenues like Medicare, Medicaid, insurance, or individual payments. Co-Chair Kelly wondered how the bill would be compensated. He understood that the bill was compensated through lease payments. Mr. Grussendorf deferred to Mr. Winkelman. Senator Olson stated that he had questions for Mr. Mitchell. 9:27:05 AM TREY ACTESON, CEO, SOUTHEAST ALASKA POWER AGENCY, testified in support of amending the legislation. He felt that the access to the bond bank should also include joint action agencies. He stated that the Southeast Alaska Power Agency (SEPA) was a not-for-profit joint action agency that was an umbrella organization of the municipalities. He stated that SEPA was formed to serve the wholesale power needs of three municipalities, including Petersburg, Ketchikan, and Wrangell. Senator Olson wondered remarked that the legislation would provide better health care, and he felt that the amendment would provide electricity at a cheaper rate. Mr. Acteson replied that the amendment would allow the agency to borrow money at a lower rate. Senator Olson asked if he was incorrect in his summation. Mr. Acteson misunderstood the question. Senator Olson stressed that the legislation was intended to provide construction dollars to health care facilities that were in need of better facilities. He understood the amendment as not providing electricity, but rather cheaper electricity to those that already have electricity. He did not see the value of a life-health situation within the amendment. He felt that the amendment would interfere with the bill's intention. Mr. Acteson replied that the amendment would bring cheaper power. Co-Chair Kelly remarked that the cap was $250 million. Co-Chair MacKinnon commented that there was always a concern that additions to the bill may not be helpful to advancing the bill. Vice-Chair Micciche agreed that allowing the amendment would fit the bond bank mission, but he wondered if the objective was met by the SETS fund. He felt that there was another fit that would be better for SEPA. Mr. Acteson replied that there were some limitations that did not fit the needs of SEPA. He felt that the SETS fund was more expensive. He remarked that access through this legislation would provide the lowest cost option to serve the municipal power needs. 9:33:21 AM Co-Chair Kelly wondered how the agency was different than other power organizations. Mr. Acteson replied that SEPA was created to serve projects in the municipal area. He stated that SEPA was created through state statute, but felt that there may have been an oversight in the original transition. Co-Chair Kelly surmised that SEPA was not listed as an option. Vice-Chair Micciche understood that SEPA was not interested in the $250 million cap, but rather wanted access to the bond bank. Mr. Acteson agreed. Senator Olson apologized for his aggressive exception. Senator Dunleavy wondered if there would be a cap for other groups. Co-Chair MacKinnon explained that there would be a cap for other entities, but that amount had not yet been discussed. 9:36:47 AM DAN WINKELMAN, PRESIDENT AND CEO, YUKON KUSKOKWIM HEALTH CORPORATION, (YKHC) testified in support of the legislation. He stressed that the access to the bond bank was important for the residents of the Yukon Kuskokwim Delta for increased permanent high paying jobs and increase the healthcare services. He stressed that the bill did not have any impact on the state general fund. Co-Chair Kelly queried the details of the payment mechanisms. Mr. Winkelman replied that the payments would be made through the third party resources: copays, private insurance, etc. A trust account would be set up, and the revenue streams would be pledged to the bond bank. Senator Hoffman remarked that the corporation would normally access the bond bank through the municipalities. He wondered how YKHC worked with the other communities to conclude that this was a better alternative. Mr. Winkelman replied that his predecessor had worked to the Bethel on bonding. He remarked that bonding was complicated, and there were some communities that did not want to bond, because they would essentially act as a conduit for the corporation's application. 9:43:16 AM Senator Olson commented that the mortality rate had declined drastically in Bethel. He remarked that there were some plans to make the best health center in the state. Mr. Winkelman replied that the plan was to renovate the existing hospital, and build a 130,000 square foot primary care clinic. Senator Olson stressed that Bethel should move toward becoming a medical hub. He wondered how much of the $250 million cap would be needed for the renovations. Mr. Winkelman replied that the project could was close to the cap. Senator Olson queried the plans if there were other contractors who had expressed interest in the funds. Mr. Winkelman deferred to Mr. Mitchell, and furthered that as the payments were made to the bond bank, the money may become available to other organizations. Senator Olson asked if there were other 638 contractors that were qualified under the current listed requirements. Mr. Winkelman responded that if the large regional organizations would meet the requirements. 9:49:17 AM Senator Dunleavy queried the definition of "special fund." Mr. Winkelman replied that he believed that the municipal bond bank must have a recapture mechanism. The special fund would be the third party collections, and the organization would pledge its revenue stream to the bond bank. Co-Chair Kelly asked for a definition of a "638 contractor." Mr. Winkelman replied that it referred to Public Law 638, which was the Indian Self Determination Act that allowed for the formulation of the native corporations. Co-Chair MacKinnon wondered how many participants were 100 percent covered by Indian Health Service. Mr. Winkelman asked for a question restatement. Co-Chair MacKinnon asked how much of the revenue stream was 100 percent Medicaid reimbursed dollars from the Indian Health Service. Mr. Winkelman replied that the collections for the current year was $70 million, which would be pledged to the Municipal Bond Bank. Co-Chair MacKinnon thought that federal dollars could not be used as a backer for the revenue stream. Mr. Winkelman agreed, and clarified that the funds would be in a trust, and the trust would be pledged directly to the bond bank. He stated that the trust included Medicaid, Medicare, private insurance, and self pays. Co-Chair MacKinnon queried how much of the services were 100 percent covered by Medicaid. Mr. Winkelman agreed to provide that information. Senator Olson remarked that it would be difficult to find the exact percentage of those covered by Medicaid. Co-Chair MacKinnon stressed that the state had never entered into an agreement with a non-government agency to use the credit of the state. 9:54:28 AM Co-Chair Kelly wanted to ensure that the use of Medicaid, or other funds from the federal government were not counted multiple times in savings. Co-Chair MacKinnon understood that there were great health care needs in Alaska. Co-Chair Kelly commented that there should be an understanding that the savings were in a place that the state could oversee. Co-Chair MacKinnon kept the public testimony open. Vice-Chair Micciche wondered who paid the debt if the borrower defaults. Mr. Mitchell replied that the bond bank program was structured with a moral obligation debt to the state. A fund of approximately $50 million in the case of a possible default. Vice-Chair Micciche surmised that the state's sequester of Medicaid and other state payments would protect against default. He stressed that the state was obligated for repayment any time there was a default on a bond bank loan. Mr. Mitchell replied in the affirmative. 9:59:38 AM Co-Chair MacKinnon wondered what would be required to increase the authority to add the $250 million for the corporation's request. Mr. Mitchell responded that it depended on the debt structure. He stated that the reserve fund was funded to the maximum tax, so there was an Internal Revenue Service (IRS) limit on the size of the reserve and still qualify to issue tax exempt bonds. He shared that they were at 125 percent of average debt service. The program was very mature, so the bonds were issued regularly for 40 years. He remarked that the outstanding debt declined each year. Senator Dunleavy queried the list of the three largest projects that recently had access to the bond bank. Mr. Mitchell replied that the largest recent project was the Blue Lake Hydroelectric Project in Sitka. The next highest project was in the City of Ketchikan Hospital. The third largest was the current project. Senator Dunleavy wondered if the corporation was eyeing the $250 million strictly for the project, or was the money for any and all health corporation projects. Mr. Mitchell replied that the amount was available to any and all health corporation projects. He furthered that the corporation was eyeing the entire amount. Senator Dunleavy asked if the corporation wanted the entire $250 million. Mr. Mitchell replied in the affirmative. Senator Dunleavy remarked that, if the corporation received the $250 million, it would be by far the largest project funded by the bond bank. Mr. Mitchell replied in the affirmative. Co-Chair MacKinnon looked at page 4, line 7 of the legislation, and remarked that the existing statute stated that the principle amount should not exceed $87 million. She wondered if that was a cap for an individual project request, or a cap for the fund. Mr. Mitchell replied that it was the authorization that was established the prior year for UA for power and heat projects. Co-Chair MacKinnon wondered if there was a cap on projects that were presented to the municipal bond bank. She remarked that the larger entities probably would not approach the bank. Mr. Mitchell replied that there was a $1.5 million limit for municipalities. 10:06:27 AM Senator Dunleavy felt that the process was backward. He wondered if part of Mr. Mitchell's role was to evaluate risk. Mr. Mitchell replied that there was an external financial advisor to evaluate risk. Senator Dunleavy queried the concerns for the state regarding the $250 million bond. Mr. Mitchell replied that it was a large project. He stated that if the commissioner of the Department of Health and Social Services (DHSS) provided information that says that the project was beneficial to the state, he would move the project further toward advancement. Senator Dunleavy wondered if it was possible for the committee to hear an opinion from DHSS and the risk. Co-Chair MacKinnon felt that the outlooks from DHSS was mandatory. She did not know how DHSS would substantiate the cost savings, because they were anticipated cost savings. She felt that the conversation should be tied to Medicaid regarding anticipated health cost savings. Co-Chair Kelly wondered if there were additional comments. Mr. Mitchell replied that the statute was intended to stand over time, rather than a one-time opportunity for the particular organization. Vice-Chair Micciche supported the project. He wondered if there were concerns about continued legislation that had modifications to the bond bank. Mr. Mitchell responded that the concern was the reason for the specific limitation in the statute, which provided an opportunity to consider a new undertaking for the bond bank. He felt that the state should limit its credit extension, even on a moral obligation basis. He felt that the legislation provided a tie between the state and organization to allow for the bond possibility. Vice-Chair Micciche asked if there was a concern that other entities would desire legislation to access the bond bank. Mr. Mitchell stated that he was concerned with that possibility. He stressed that there should be a strong consideration of the needs of the state when determining alternative financing potential for the bond bank program. 10:12:22 AM Senator Olson queried the number of times that the bond bank needed to access the reserve fund. Mr. Mitchell replied that the bond bank had never accessed the reserve fund. Senator Olson wondered how many other entities met the qualifications for the loan. Mr. Mitchell replied that he was not aware of any other entities that would qualify for this particular loan. Senator Dunleavy noted that a testifier had already attempted to amend the bill. He remarked that there may be a rush to take advantage of the bond bank. Vice-Chair Micciche remarked that part of the agreement was that the facilities were owned by a municipality to tax to pay the debt. He wondered how this situation was different from the municipality. Mr. Mitchell responded that there was a service area that had approved a general obligation on itself. He stated that the larger municipalities that used the loan for purposes of financing enterprise activities was beneficial to the bond bank, as there was a statutory ability to intercept state aid that would otherwise flow to the municipality. 10:17:28 AM Vice-Chair Micciche wondered if there was power to tax based on the greater insurance to the ability pay or lesser insurance to the ability to pay. Mr. Mitchell responded that the power to tax was a greater insurance to the ability to pay, and was a credit enhancement. Vice-Chair Micciche felt that there would be hesitant to interrupt a revenue stream on a bond, when considering that future health services could suffer in the region. Mr. Mitchell agreed. Co-Chair MacKinnon wondered why the capital item request was not included in the fiscal note. Mr. Mitchell replied that the money would be borrowed, so the reserve fund was approximately one-third bond funding and two-thirds cash funding. Co-Chair MacKinnon wondered if the reserve was two-thirds bond. Mr. Mitchell clarified that the reserve was two- thirds cash. Co-Chair MacKinnon looked at page 2, line 6, and wondered if there were many municipalities that provided partnership services with nonprofit organizations to deliver health care. Mr. Mitchell responded that there were a number of hospitals that were owned by municipalities and then were operated by nonprofits. There was only one nonprofit that owned and operated a health facility, which was Wildflower Court. Co-Chair MacKinnon questioned the word "many" versus the word "some." She wondered who was affected by the legislation, with the $250 million proposition. Mr. Mitchell acknowledged the question. Co-Chair MacKinnon wondered if there should be a certificate of participation (COP) in the application, or was there a higher interest rate. Mr. Mitchell replied that a COP would be an opportunity for the state to operate and pay for an improvement. The project within the legislation would use a form of credit enhancement provided by the state to lower the cost, so the organization could pay for their own improvement. 10:22:35 AM Co-Chair MacKinnon looked at page 5, line 9, and wondered if there should be a limit on the definition for a regional health organization. Vice-Chair Micciche commented that he understood the attempt of the legislation, and supported the concept. He wanted to ensure that the integrity of the bond bank was protected. Senator Hoffman understood that the finances of the concept must be fully vetted, and remarked that the bond bank had an outstanding history of vetting proposals. He stressed that the communities that used the health center span across an area of land equivalent to the state of Washington. There were 56 communities that were predominantly Alaska Native, with the lowest education rate and highest needs for medical attention. Some of the boundaries against transportation and communication limited the access to the health care facilities. He felt that the legislation provided an opportunity to improve the health care of those individuals. The participation of the corporation would be selected to expand a health care facility to a world class level facility. He furthered that there would be an increase of 200 new permanent positions in the hospital. He stressed that the improved health care would have great benefit, and the economy would be enhanced by providing the jobs. 10:30:53 AM Senator Olson felt that the measure was a preventive move by the corporation, because there were great infant mortality, drug abuse, and suicide rates in the region of the state. He commended the organization for this proposal. Senator Dunleavy requested a presentation on bond concepts for the state. SB 46 was HEARD and HELD in committee for further consideration. 10:32:50 AM AT EASE 10:32:55 AM RECONVENED