2:04:23 PM SB 65-AIDEA: PROCUREMENT; PROJECTS  CHAIR EGAN announced SB 65 to be up for consideration. MARK DAVIS, Economic Development Officer, Alaska Industrial Development and Export Authority (AIDEA), introduced himself. TED LEONARD, Executive Director, Alaska Industrial Development and Export Authority (AIDEA), introduced himself and thanked the committee for inviting them to testify. He stated that SB 65 is in a series of bills that continue to update AIDEA's ability to help the Alaskan economy grow and to more effectively promote job growth. Specifically, it would do three things: amend the Procurement Code so that AIDEA could adopt regulations to govern its own procurement process. This would be giving AIDEA powers similar to what Alaska Housing Finance Corporation (AHFC) and other corporations have. However, AIDEA would still have to use competitive bidding principles that are used throughout the State Procurement Code. It would still have to provide venders reasonable and equitable opportunities to participate in the procurement process. This would allow AIDEA to be more effective with the private sector as it developed projects, which is their main process through their procurement code. MR. LEONARD said they believe the State Procurement Code was designed for a certain purpose and AIDEA is "a little off- center" of that based on the fact that it works with the private sector to develop projects. 2:06:24 PM He said the second thing this measure would do is enable AIDEA to directly invest in a Limited Liability Corporation (LLC) or a corporation for the purpose of owning or participating in the development and ownership of a project. It could only be for the project; it couldn't be a corporation that AIDEA could do many things with. It would be a specific purpose entity that could only be used to own that project. Last year, he explained, with the help of this committee, AIDEA passed legislation under the project development section of its code that allowed their ability to participate in a project by owning just a share or a portion of a project. As they started going through that process, they found out that the most effective vehicle the private sector likes to use is a specific- purpose, Limited Liability Corporation or a corporation. Since that's not specifically allowed in the statute, AIDEA can't use that vehicle to provide that type of ownership model. 2:07:43 PM MR. LEONARD said the third change is in sections 3 through 5 that update and expand the types of development projects AIDEA can participate in. Several years ago they went through a strategic plan and identified seven or eight economic sectors that they believe AIDEA could help through investing in economic infrastructure. The definitions and current code target AIDEA's projects to tourism, energy, natural resources and industrial manufacturing only. This measure would expand those definitions and ensure they could actually help the economic sector with things like communications, health care, logistics and ensuring a healthy federal presence in Alaska (an important part of Alaska's economy). SENATOR DAVIS joined the committee. MR. DAVIS commented that the sectors they want to add are based on things that had actually been requested. For example, AIDEA was approached by a federal agency that wanted them to construct, finance, and then lease back to the federal agency, a facility that would support the bases and the military in Alaska. Unfortunately, the Department of Law (DOL) said AIDEA is not authorized to do that. So, this bill attempts to modernize what they do and current statute does not authorize AIDEA to do communication, health care or military projects. 2:10:30 PM SENATOR MENARD said whenever the legislature increases AIDEA's ability to deal with LLCs and corporations, they also increase the risk, and that is why the legislation was written that way. She asked what the increased risk to AIDEA would be if this bill goes forward. MR. LEONARD responded that one of the reasons the private sector uses LLCs and corporations is to shield their liability more to the amount that is invested in a program. But when AIDEA owns a project or a portion of it, they actually put up its whole balance sheet to back it. So, this amendment will modernize AIDEA's ability to protect its assets and actually decreases its risk. He added that when the project development legislation was originally written, LLCs were not even part of Alaska law. Regarding the potential risk of exposure by expanding AIDEA's ability to develop more projects, he explained that they believe partnering with the private sector in a project instead of being the sole owner, as long as they go through the full due diligence process, will make the projects even better, and will actually give AIDEA more tools to help fulfill its mission. SENATOR MENARD asked if they could amend AS 44.88.900(c) so roads could be a component. MR. DAVIS answered that there is a legal issue about whether AIDEA can build a road that does not actually go to a natural resource project or to a project that would be expanded under these definitions. So, for instance, the DeLong Mountain Transportation Corridor at Red Dog that AIDEA owns, goes directly from the mine to the port, and is statutorily correct. But if AIDEA were going to build an industrial road, say in the Ambler mining district; that would be a corridor; so they would partly fund it. But the actual roads to the mines or the rigs would be built by somebody else. He explained that the models of developing roads have changed, and a lot of states are developing the basic industrial road up to an area. Then each company is responsible for getting the next couple of miles out to their own project, which is appropriate. The trouble is AIDEA could issue a bond, and the bond council has to be very sure it can legally be done. So, again that is why they are seeking clarification from the legislature. 2:15:07 PM SENATOR MENARD stated that it says "may" not "shall". MR. DAVIS said that is correct. He added that they were approached by the federal government to build a health care facility with a Native corporation in rural Alaska, a project that can't be done with conventional financing because it's in a non-conforming area and banks don't want to lend out there. If it was leased to the federal government, there is very little risk to AIDEA and it's a good project. Again, leasing to the military is of limited risk. Actually, some of their proposed projects have good rates of return with limited risk. SENATOR MENARD asked them to talk about the communication piece. MR. LEONARD replied that AIDEA could be involved in bringing broadband to rural Alaska; the federal government and everyone is looking at being able to bring faster communications into the rural areas. If AIDEA had this as a sector, they could invest with a utility in the big towers that would be needed. And again, as long as you are partnering with a utility, the risk is fairly limited, and with the federal government being involved that makes it even more limited. He said that AIDEA would have to somehow tie broadband into helping with one of their projects, like a mine's communications. Tying it to one of the four definitions is a circular activity and they would prefer that it be "straight cut." He stressed that the definition has to truly show that a project is going to provide an economic development benefit for AIDEA to be involved. SENATOR MENARD mused that MatSu is involved in fiber optic right now for its schools, so that wouldn't be an economic issue. MR. LEONARD responded if the utilities were involved, AIDEA would have to see the projects themselves and decide what kind of economic development it was. This bill would allow them to be in that sector. MR. DAVIS said they were approached Monday by one of the largest telecommunications companies in the state with a proposal to take broadband to particular areas of rural Alaska. But it can't expand beyond that without "mezzanine financing," which AIDEA could provide. Doing a whole project at once cuts the cost down measurably, but until the statute is changed, they can't discuss it. If this bill goes through, AIDEA would see if there is an economic model that could provide broadband to a large part of the state that could be used with the company, and then be paid back over time. 2:19:32 PM DANIEL WHITE, Associate Vice Chancellor for Research, University of Alaska Fairbanks (UAF), supported SB 65. He was charged by Chancellor Brian Rogers to lead the Office of Intellectual Property and Commercialization for the University, and one critical element of economic development is moving research and development and technology into the private sector. When UAF licenses technology to the private sector, those businesses gain competitive advantage in the global market. In order for this critical link in economic development to occur, businesses have to have the capability to take advantage of these emerging opportunities. This often requires capitalization, facilities and equipment. SB 65 would allow AIDEA to help businesses take advantage of these opportunities, to contribute to the University's mission of putting R&D into the private sector and provide long term economic development opportunities. It will benefit small businesses that lead to job growth and economic diversification for the state. CHAIR EGAN said that completed public testimony and that SB 65 would be held in committee.