CSHB 386(FIN) - RE AK INDUS. DEVELOP & EXPORT AUTHORITY SENATOR GREEN moved to adopt SCSCSHB 386(TRA) as the working document before the committee. There being no objection, the motion carried. LYDIA JONES, Senate Transportation Committee Aide, explained the committee substitute as follows. HB 386 was introduced to extend the life of the Alaska Industrial Development and Export Authority (AIDEA) which is scheduled to sunset this year. The Senate Transportation Committee substitute extends AIDEA's bonding authority to July 1, 2000. A number of projects for which legislative approval is requested are contained in the bill. Among those are the Red Dog Mine and the port at the City of Nome. The committee substitute added the issuance of bonds to finance the improvement and modification of existing facilities at the Anchorage International Airport in the amount of $179 million; bonds in the amount of $70 million to finance the design and construction of a port at Pt. MacKenzie to be owned by Authority; issuance of bonds not to exceed $70 million to develop a railroad right-of-way and utility corridor to gain northern access to Denali National Park; issuance of bonds to finance improvement and expansion of the port facilities at the City of Seward for $20 million; and bonds to finance the construction and improvement of the Hatcher Pass Ski Resort, phase one, located in the Mat-Su Borough, not to exceed $15 million; and Section 25 provides detailed information about the right-of-way for the railroad and utility corridor. CHAIRMAN WARD asked about the expiration date. MS. JONES answered the expiration date of AIDEA's bonding authority was amended to the year 2000 because, while AIDEA has an excellent track record with its projects, the Legislature would like to have oversight of those projects and be informed of how they are proceeding. SENATOR LINCOLN asked Ms. Jones to expand on Section 25 in relation to Kantishna Holdings, Inc. MS. JONES noted that Mr. Joe Fields of Kantishna, Inc. was participating via teleconference. She explained Kantishna, Inc. is developing a project to gain northern access to Denali National Park. SENATOR LINCOLN asked Mr. Fields to describe the area referred to in the bill and how vast that area is. MR. FIELDS replied this land extends into Denali National Park to the West of Healy. The description in the bill is a portion of the townships in that area which contain the most likely final right- of-way for the Denali railway system. SENATOR LINCOLN asked Mr. Fields how many miles this area will extend. MR. FIELDS answered the area will extend, from the Alaska Railroad, about 20 miles to the West, to the eastern boundary of Denali National Park. SENATOR LINCOLN asked who is involved in Kantishna Holdings, Inc. MR. FIELDS replied Kantishna Holdings, Inc. is an Alaskan corporation that has proposed the development of the Denali Railway System. It currently holds an access permit across some of the lands in this area, and it has made a petition to the Secretary of the Interior for the balance of a right-of-way to the Kantishna- Wonder Lake area. SENATOR LINCOLN asked who the board members are. MR. FIELDS stated the Kantishna Holdings, Inc. board is comprised of Ken Murray, Jr. from Fairbanks, Lawrence Irving, Jack Williams, and himself. SENATOR LINCOLN asked if those four are the principal owners of Kantishna Holdings, Inc. MR. FIELDS said they are. KEITH LAUFER, Financial and Legal Affairs Manager of AIDEA, made the following comments. AIDEA supports HB 386, which will extend AIDEA's funding authority and create new facilities and jobs and help diversify Alaska's economy. AIDEA provided the committee with a detailed sectional analysis of the Finance Committee version of the bill. The bill contains four major components. The first extends AIDEA's bonding authority, which would otherwise sunset July 1, 1998. If AIDEA's authority was to sunset, AIDEA would be prevented from issuing development bonds under $10 million and from issuing conduit bonds. Bonds in the amount of over $10 million always require legislative approval. Conduit bonds can be issued without any credit implication to the state or to AIDEA but allow for tax exempt financing of qualified projects. Again, AIDEA will be required to get legislative authorization of projects over $10 million. MR. LAUFER continued. The second major aspect of the bill is that it merges AIDEA's export guarantee program and its business assistance guarantee program. The ten year old export assistance program has never been used. AIDEA commissioned a study to find out why that was the case and found that while exporting businesses are supported by other AIDEA programs, this program was not effective because it was designed after other states' programs that have strong manufacturing bases and it had some requirements that did not work well. For example, it had a 25 percent value-added component in Alaska which prevented the use of the program for trans-shipment or other types of exports that are common. The bill modifies the export program and merges it into the business assistance program which has worked fairly well. The program will cover services, not just manufacturing, and it covers distributors and trading companies. It only requires export insurance at AIDEA's discretion. Currently export insurance is required for all transactions regardless of location. MR. LAUFER explained the third aspect of the bill is the confidentiality provision. AIDEA has no such provision right now. AIDEA is subject to the general rules under the Public Records Act which require AIDEA to release documents under the terms of the Act. The default is that all records are public records; there is no exception for records submitted by applicants such as tax returns, business plans and the like. Instead, AIDEA must apply a Supreme Court test that requires it to balance the public's right to know versus the privacy interest of the applicant. SENATOR GREEN asked where that language is contained in the bill. MR. LAUFER stated it is in Section 8 of the bill. He stated the current bill contains a provision that specifies categories of documents, that if confidential when submitted to AIDEA, could be kept confidential at the applicant's request. The Legislature and the Legislative Budget and Audit Division would always have access to all information. The last aspect of the bill pertains to project authorizations. The Finance Committee's version of the bill contained two project authorizations; one for an expansion and modification of the port at the Red Dog Mine (the DeLong Mountain Transportation System) to provide a direct float-out facility. At present, Cominco Alaska uses barges to lighter concentrates out to ocean going vessels. The proposed project would extend the existing pier about one-half mile, and provide for dredging so that ocean-going vessels could be directly loaded. The project is very significant and will lower the costs of Cominco's operation thereby making Cominco's operation more secure in the state's investment. The project also has ancillary environmental benefits in that the concentrate will not have to be handled as often. That project is in a very preliminary stage. AIDEA believes the project to be a very good one. AIDEA is concerned about its concentration of debt in one particular project; AIDEA has over $200 million currently invested in the facilities at the port. This additional $80 million is a significant portion of AIDEA's $1.3 billion in assets. At present, AIDEA believes this project will be structured as a revenue financing, non-recourse to the Authority, based solely on Cominco's credit. That method will alleviate much of AIDEA's concentration concern as well as the rating agencies' and bond insurers' concerns. MR. LAUFER informed committee members the second project included in the House Finance Committee version of HB 386 is an expansion and modification project for the port at the City of Nome which provides for a new entrance channel to the harbor for safety and other reasons. That $30 million project is in a preliminary stage. It appears that $26 million could be funded through Army Corps of Engineer funds, so a substantial portion of AIDEA's involvement in this project would be short term. Again, there are a lot of due diligence and statutory requirements AIDEA would have to meet before it would invest in this project, but it looks promising at this stage. SENATOR HALFORD stated he believes the Legislature should have access to most of the confidential information if it is to be effective in its oversight capacity. He noted trade secrets and income tax returns of individuals are far different than business plans, credit reports, and other things the Legislature will need to have. MR. LAUFER responded AIDEA has been advised that the Legislature will continue to have access to all information. SENATOR HALFORD stated the Legislative Budget and Audit Division will have such access, the Legislature will not. He stated legislators who are willing to keep the information confidential should have access. CHAIRMAN WARD suggested Mr. LAUFER verify that the Legislature will have access with the Attorney General's Office. SENATOR LINCOLN asked for clarification about the additional amount to be invested in the Red Dog Mine. MR. LAUFER replied $80 million. The investment to date is about $230 million. SENATOR LINCOLN asked Mr. LAUFER if he had the opportunity to read the Senate Transportation Committee substitute prior to the meeting. MR. LAUFER said he read it in the last few minutes. SENATOR LINCOLN asked Mr. LAUFER if he had any comments he wanted to share on the version. MR. LAUFER stated he does not know what a lot of the projects are about so it is difficult for him to comment on them. He noted that typically, AIDEA has waited for projects to be further advanced before it got project authorization, because when AIDEA goes out into the bond financing market, that market treats all authorizations as though the bonds will be issued. When they look at AIDEA's finances, they will figure AIDEA will issue all of the bonds regardless of the stage of the project which will cause some difficulty. CHAIRMAN WARD asked if AIDEA has a mechanism in place to ensure that the public's interest is protected in the process. MR. LAUFER replied AIDEA would have to meet a number of statutory requirements before it could invest in any of these projects. He clarified he was addressing the financing concerns AIDEA may experience when it goes to the financing markets. CHAIRMAN WARD said he would hope AIDEA would take a prudent man rule and protect Alaska's interests. ROGER HEAD, principal of the Hatcher Pass Development Corporation, gave the following testimony in support of HB 386. The Hatcher Pass development project has been seriously considered for about 15 years, and AIDEA has reviewed previous proposals for the project. Both the Department of Natural Resources (DNR) and the Matanuska- Susitna Borough have put a high priority on this project. The Mat- Su Borough believes that in the near term, Hatcher Pass is one of the major economic development projects available to the borough. DNR believes this project is part of an overall winter and summer tourism plan. Previous proposals for the Hatcher Pass project were fairly grandiose in scale, and never reached fruition. DNR requested a proposal for a new lease in 1994. The proposed development that occurred as the result of that lease was a project estimated to cost about $25 million. Hatcher Pass Development Corporation, the Mat-Su Borough, and AIDEA reviewed the economic feasibility of that particular project and concluded that although the project offered great opportunities for both the state and the Mat-Su Borough, its size was too large to be feasible. The lease was sold about 1+ years ago to Davis Constructors. Davis Constructors undertook a study to determine how the project could be changed to meet the objective of the Mat-Su Borough and the State, which was to create a four season resort. The project plan was also pared down so that the first phase was financially feasible. That work has been ongoing for the past year, and a proposal was submitted to the National Bank of Alaska as the direct contact to use AIDEA's guarantee for financing. At the beginning of this year, NBA indicated that the debt-equity ratio of 90:10 did not provide the security it required. NBA recommended a debt equity ratio in the neighborhood of 25 to 30 percent. Since that time, four milestones have occurred. The first is that DOTPF made the Hatcher Pass road improvement project one of its highest priorities after the Mat-Su Borough contributed some funds to that project. That road is an integral part of the project's infrastructure. The Matanuska-Susitna Electric Association found a way to reduce the cost, from $2 million to $.5 million, for providing electricity to the project by using an overhead line and decided to participate and contribute to the project with its development fund. Third, the Mat-Su Borough reached an agreement with DNR whereby it will take over the lease property. The lease funds will be injected by the Mat-Su Borough into the initial development phase of the project. Fourth, DNR is planning to privatize Independence Mine. The recent contributions are narrowing the gap to where the Hatcher Pass Development Company believes it is very close to meeting the ratio requirement. It believes undertaking financing with AIDEA is logical. Ski areas tend to be a little bit more difficult to finance than other developments. MR. KYLE RANDISH, Vice President of the Hatcher Pass Development Company, described the project for committee members with the use of charts. When Hatcher Pass Development Company bought out the project, its goal was to down scale the project to make it economically feasible. It is proposing a four-phase development plan. The first phase will be the development of a ski area. The second phase will include infrastructure development for the ski area and to support the village. The third phase is the village concept and the fourth phase will include more mountain improvements. The ski area will have two detachable chair quad lifts, a base facility, lighting on the mountain, and a snow making system at the lower elevations. The goal of phase one is to establish a skier experience equivalent to what is available in the market in an economically feasible manner. The chair lifts are state-of-the-art. During the second phase, power, gas, water, and other developments will take place to accommodate the village scheme. The village concept will be a four seasons resort destination spot. The complex will offer some small hotels, small retail stores, a convention center, a golf course, and some residential development. As the village concept is developed, more skier business should develop and the ski area size should increase. SENATOR WILKEN thanked Mr. Head and Randish for attending the meeting. PAUL FUHS, port consultant for the Port of Nome, described the Nome port project through the use of illustrations. The existing port was built in 1917 by the U.S. Army Corps of Engineers. The 75 foot jetty is too small for the equipment coming in to the port. Because of the Community Development Quota Program, the number of fishing boats coming into Nome has increased. Over the last ten years, ten people died trying to come in and out of the port because of dangerous wave breaks in one spot. The causeway was built during oil field development in Norton Sound, but was shut down due to litigation. It contains cargo areas, but those areas are exposed to rough weather. Nome is a trans-shipment port: it serves 23 villages in the area. Senator Stevens and his staff met with the U.S. Army Corps of Engineers and negotiated an 18 month time frame to complete the project. A new breakwater and channel entrance will be the main navigation features that improve the safety and usability of the port. The Port of Nome prefers AIDEA financing because if the Corps of Engineers and the federal government do the procurement, it will take two years to get the project out to bid. Using AIDEA (Section 204E) financing will save an entire construction season. Also, if the federal government finances the project, the project would have to be done in one bid. By using AIDEA financing, the movement of the rock from Cape Nome, dredging, and other projects, can be completed using local contractors. With AIDEA financing, in the first year, 80 percent will be paid back to AIDEA and the community will take the rest of the debt ($5-6 million) as long term debt through AIDEA and pay that off with port revenues. SENATOR HALFORD asked if the Corps of Engineers has the money appropriated to do the project. MR. FUHS said that it does. SENATOR HALFORD asked if the Corps of Engineers will pay AIDEA back. MR. FUHS said it will pay AIDEA back 80 percent of the money as soon as it has certified that the project is complete. The project is based on an 80-20 share; the local government has to come up with 20 percent of the money. AIDEA will be reimbursed for roughly $20 million in the first year when the project is complete, and $6 million will be financed long term. SENATOR HALFORD asked how $20 million will amount to 80 percent of the project's total cost of $30 million. MR. FUHS said the total cost is estimated at $26 million but the figure is not exact yet. The community might want to extend the seawall to protect the front end of the spit. The dredged material will be used to fill in the jetty to make it usable property. SENATOR WILKEN asked about the purple area of the chart. MR. FUHS explained the purple notations are the bathometric markings which show the surveys of the elevations in the area to ensure that the project will stand up to rough weather. The community spent $550,000 on a feasibility study to which the federal government contributed a like amount. $250,000 of that amount was spent on modeling the port in a wave tank against the conditions of the 1974 storm in Nome. MR. FUHS stated the Community Development Quota Program contributed $550,000 and the community put in the rest. The only state money in the project is from a $200,000 community development block grant. SENATOR HALFORD asked what the tide level is in that area. MR. FUHS stated the tide is only about a meter; two at the maximum, but there is hold back from the storms because the area is so shallow. SENATOR WILKEN asked if the docking facilities will be upgraded. MR. FUHS said they will in the small boat harbor area, however those upgrades do not qualify for federal funding so they will be financed with local money. SENATOR HALFORD asked who owns the spit. MR. FUHS replied it is owned by about 20 entities, among them the city and the Native corporation. He added when this project got started, he was hired as the acting city manager of Nome, and the 14C3 land reconveyance to the Native corporation was resolved. SENATOR HALFORD commented this project will create a lot of high value downtown beachfront property. MR. FUHS agreed. He noted a gold seam runs through part of the area where the Beema (ph) is working, and it contains arsenic. The arsenic will be sealed into the bottom of the old channel so technically one whole area will be a toxic waste dump with zero value as far as the federal government is concerned. CHARLOTTE Maccay, Senior Administrator of Environmental and Regulatory Affairs for Cominco Alaska's Red Dog operation, stated Cominco is asking the Legislature to approve the Red Dog portion of the AIDEA funding bill which provides for further upgrade of the DeLong Mountain transportation system port site by converting the lightering barge load-out facility to an ocean vessel direct loading facility. The direct loading facility will open the port to other regional uses and other future resource extraction projects in the region. It provides cleaner, and a reduced number of, transfers of materials from port to vessel; it reduces marine wildlife exposure to moving vessels; and it improves productivity while greatly reducing shipping costs. Cominco has been successful in bringing economic development to rural Alaska and with NANA shareholder and Alaska hire. She noted she submitted detailed written testimony to committee members and was available to answer questions. CHAIRMAN WARD thanked Ms. Maccay for the tremendous amount of materials she supplied to the committee. JOHN KEY, General Manager of Cominco Alaska, stated he was also available to answer questions. Committee members had no questions of Ms. Maccay and Mr. Key. MIKE SCOTT, Manager of the Mat-Su Borough, stated his appreciation to committee members for hearing HB 386 and for including the Hatcher Pass and Point MacKenzie projects. The Hatcher Pass development project has been in place for several years and is now close to becoming reality. The Point MacKenzie project has been a borough priority for many years. The Mat-Su Borough is the largest area of the state without a port. At this point, some federal funding for this project is working its way through Congress. SENATOR HALFORD commented, regarding the confidentiality provision in the bill, he believes some things should be on the list but others should be a matter of public record. He believes income tax statements, cash flow statements, and trade secrets should not be a matter of public record, but financial statements, profit and loss statements, credit records, appraisals, if part of the collateral, marketing strategies, and market surveys should not be kept confidential. He repeated the list is too expansive. MR. LAUFER commented he was unable to get a representative from the Attorney General's Office to attend. He stated the issue is the separation of what the Legislature should have access to and what information should be a matter of public record. AIDEA's understanding was that any legislator would have access, providing the information was kept in confidence. AIDEA would be in support of amending the bill to clarify that provision. With respect to the specific items mentioned by Senator Halford, one of AIDEA's largest programs is its loan participation program in which AIDEA buys bank participation. Under the laws that apply to banks, all of that information is required by law to be kept confidential. SENATOR HALFORD questioned how this system has been working for years. MR. LAUFER replied AIDEA gets requests regularly and goes through the Supreme Court balancing test: the privacy interest versus the public interest. Generally, no one is happy with the decision AIDEA makes so it tried to create, in the bill, a list to give people guidance as to what information would be public and what would be confidential. The original bill allowed AIDEA to promulgate regulations. Representative Therriault questioned why AIDEA did not want to put a list in statute. AIDEA preferred Representative Therriault's approach and the bill was amended. The list is representative of the type of requests AIDEA receives and where the problems have occurred related to those requests. SENATOR GREEN asked if the bill could contain a stipulation requiring any person who plans to get an AIDEA loan through a bank to sign a waiver and comply with AIDEA's standards rather than the bank's. MR. LAUFER said certainly, and that has been the case up until now. The problem has been that AIDEA gets requests from competitors for information. AIDEA is not allowed, under current law, to inquire as to motives or anything; the information is deemed public record. AIDEA was hoping, through the legislative process, to get clearer standards as to what information could be held in confidence. AIDEA believes the list is representative of the kind of information that is normally considered confidential. The bill requires that the information be kept confidential before it is submitted, and often many of the borrowers' financial statements are already public at the time they are submitted. The bill would not apply to any of that information. SENATOR HALFORD stated, as an example, a high profile airline got an AIDEA loan. The airline had a lot of property listed at certain values and some of those properties had DEC problems. That information was generally public. If this bill passes, that kind of information would not be public. He believes the public has the right to know the appraised value of the collateral. MR. LAUFER responded the appraisal item is a particularly sensitive one for banks because AIDEA has had cases where appraisals of property were used by local assessors to reassess the property value. The bill contains exceptions in the appraisal section because AIDEA felt that certain appraisal information had to be public, but the banks were hesitant to allow the entire appraisal to be made public. CHAIRMAN WARD asked if there was further testimony on SCSCSHB 386 (TRA) at this time and noted his intention to pass the bill out of committee. There was no further testimony. CHAIRMAN WARD asked Senator Halford to work with the AIDEA representatives to prepare a committee substitute to be passed out of committee on Thursday. SENATOR HALFORD questioned whether the Chairman would like him to offer an amendment at this time. CHAIRMAN WARD said he also wanted to work with the group to remove some of the items that were included by the House Finance Committee. There being no further business to come before the committee, CHAIRMAN WARD repeated his intention to move the committee substitute out of committee on Thursday, and adjourned the meeting at 4:17 p.m.