SSTA - 4/25/95 TAPE 95-20, SIDE A Number 001 SB 143 AHFC TRANSFERS TO GENERAL FUND; BONDS CHAIRMAN SHARP calls the Senate State Affairs Committee to order at 4:38 p.m. and brings up SB 143 as the first order of business before the committee. The chairman calls the first witness. Number 020 DAN FAUSKE, Executive Director, Alaska Housing Finance Corporation, testifying from Anchorage, thinks SB 143 represents a significant accomplishment, in that it would establish a prudent, manageable transfer of cash from AHFC to the state. It will also enable the corporation to issue bonds for University of Alaska deferred maintenance. Mr. Fauske notes he has submitted to the committee a press release from Standard & Poors (S&P) in support of the arrangement set out in SB 143. Number 095 BILL HOWE, Deputy Commissioner, Department of Revenue, distributes to committee members a draft copy of the agreement between the Commissioner of the Department of Revenue and AHFC. This agreement lists the proposed amounts of money that will be transferred from AHFC to the state. The amounts are: $70,000,000 in FY 1996, and $50,000,000 for FY 1997-FY 2000. Mr. Howe states AHFC and the Department of Revenue both feel this is a fair agreement. MR. HOWE informs the committee that if this agreement is approved, S&P will remove AHFC from a credit watch. Number 155 SENATOR RANDY PHILLIPS asks if other scenarios have been explored. Number 160 MR. FAUSKE replies other amounts and scenarios were discussed. But this was the agreement which was reviewed most extensively. SENATOR RANDY PHILLIPS asked if S&P is looking for stability. MR. FAUSKE responds that they are looking for stability and predictability. SENATOR RANDY PHILLIPS thinks it would be predictable for the legislature to take $235,000,000 right now, and not take anything else in the future. Are there any other scenarios S&P would approve? MR. HOWE believes S&P does not want to see more than the total amount the corporation earns per year taken out in any one year. However, he thinks there is some flexibility as to how much comes out when. Number 215 SENATOR RANDY PHILLIPS asks what happens if AHFC's bond rating is downgraded. MR. FAUSKE responds that if the bond rating went from AA to A, it would cost an additional $13,200,000 over the life of the bond. SENATOR RANDY PHILLIPS asked what the impact would be to individual borrowers. Number 235 MR. FAUSKE replies it would raise mortgage rates by a half to a full percent. Number 240 MR. HOWE adds that there are several larger risks seen by the administration than having the bond rating drop from AA to A. First, is the risk of ratings being withdrawn on outstanding bonds. That would have the effect of turning them into junk bonds. Secondly, the administration is concerned that AHFC will be unable to float new bonds. Number 265 CHAIRMAN SHARP thinks the legislature will have to give assurances regarding how much money will be withdrawn, and when it will be withdrawn. Hopefully we can arrive at a solution that will offer stability, while still returning some money to the general fund. Number 295 WENDY REDMAN, University of Alaska, urges passage of SB 143. Number 320 SENATOR LEMAN makes a motion to discharge SB 143 from the Senate State Affairs Committee with individual recommendations. CHAIRMAN SHARP, hearing no objection, orders SB 143 released from committee with individual recommendations.