HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE February 8, 2000 8:15 a.m. MEMBERS PRESENT Representative John Harris, Co-Chairman Representative Andrew Halcro Representative Lisa Murkowski Representative Fred Dyson MEMBERS ABSENT Representative Carl Morgan, Co-Chairman Representative Reggie Joule Representative Albert Kookesh COMMITTEE CALENDAR HOUSE BILL NO. 304 "An Act relating to issuance and sale of revenue bonds to fund drinking water projects, to creation of an Alaska clean water administrative fund and an Alaska drinking water administrative fund, to fees to be charged in connection with loans made from the Alaska clean water fund and the Alaska drinking water fund, and to clarification of the character and permissible uses of the Alaska drinking water fund; amending Rule 3, Alaska Rules of Civil Procedure; and providing for an effective date." - MOVED OUT OF COMMITTEE PREVIOUS ACTION BILL: HB 304 SHORT TITLE: CLEAN WATER FUND/DRINKING WATER FUND Jrn-Date Jrn-Page Action 1/21/00 1969 (H) READ THE FIRST TIME - REFERRALS 1/21/00 1969 (H) CRA, JUD, FIN 1/21/00 1969 (H) FISCAL NOTE (DEC) 1/21/00 1969 (H) ZERO FISCAL NOTE (REV) 1/21/00 1969 (H) GOVERNOR'S TRANSMITTAL LETTER 1/21/00 1969 (H) REFERRED TO COMMUNITY & REGIONAL AFFAIRS 2/08/00 (H) CRA AT 8:00 AM CAPITOL 124 WITNESS REGISTER DAN EASTON, Director Division of Facility Construction & Operation Department of Environmental Conservation 410 Willoughby Avenue, Suite 105 Juneau, Alaska 99801-1795 POSITION STATEMENT: Presented HB 304 and answered questions. MIKE BURNS, Program Manager Municipal Grants & Loans Division of Facility Construction & Operation Department of Environmental Conservation 555 Cordova Street Anchorage, Alaska 99501-2617 POSITION STATEMENT: Answered questions concerning HB 304. CRAIG TILLERY, Assistant Attorney General Environmental Section Civil Division Department of Law 1031 West 4th Avenue, Suite 200 Anchorage, Alaska 99501-1994 POSITION STATEMENT: Offered clarification with regard to who qualifies for these loans. LARRY HANCOCK, City Manager City of Cordova P.O. Box 1210 Cordova, Alaska 99574 POSITION STATEMENT: Testified that the City of Cordova strongly supports the passage of HB 304. ACTION NARRATIVE TAPE 00-7, SIDE A Number 0001 CO-CHAIRMAN called the House Community and Regional Affairs Standing Committee meeting to order at 8:15 a.m. Members present at the call to order were Representatives Harris, Halcro, Murkowski and Dyson. Representatives Morgan, Joule and Kookesh were not in attendance. HB 304-CLEAN WATER FUND/DRINKING WATER FUND CO-CHAIRMAN HARRIS announced that only order of business before the committee would be HOUSE BILL NO. 304, "An Act relating to issuance and sale of revenue bonds to fund drinking water projects, to creation of an Alaska clean water administrative fund and an Alaska drinking water administrative fund, to fees to be charged in connection with loans made from the Alaska clean water fund and the Alaska drinking water fund, and to clarification of the character and permissible uses of the Alaska drinking water fund; amending Rule 3, Alaska Rules of Civil Procedure; and providing for an effective date." Number 0083 DAN EASTON, Director, Division of Facility Construction & Operation, Department of Environmental Conservation (DEC), commented that HB 304 is an exciting piece of legislation, which is part of a package that also proposes some changes in regulation. This combination of legislation and regulation amendments would make some substantial changes to how the loan programs are operated. He informed the committee that HB 304 has the following two objections. One objective is to save the state $1.5 million each year, in general funds (GF). The other objective is to make water and waste water loan programs self-supporting. REPRESENTATIVE DYSON moved to open the hearing on HB 304. There being no objection, HB 304 was before the committee. Number 0340 MR. EASTON informed the committee that "we" [Division of Facility Construction & Operation, DEC] operate two loan programs, which make loans to communities to build water and waste water projects. These two loan funds are similar to the permanent fund in that they were created in statute and accounted for separately in the funding for the treasury. He pointed out that money comes from three sources. The primary source of funding is the yearly grant from the U.S. Environmental Protection Agency (EPA), which must be matched on a 5:1 basis. Currently, that grant is being matched with state general funds, which amounts to $7.5 million for the Drinking Water Fund and $8 million for the Clean Water Fund. Therefore, $1.5/$1.6 million would come from the state GF. Before the funds are loaned, the funds earn interest. He explained that money is taken out of the fund to loan to communities to build clean water and/or waste water projects. Upon completion of the project, the community repays the loan with interest. Therefore, the money returns to the fund. REPRESENTATIVE DYSON inquired as to the difference between the Clean Water Fund and the Drinking Water Fund. MR. EASTON explained that the Clean Water Fund loans money for waste water projects while the Drinking Water Fund loans money for drinking water projects. He further explained that the Clean Water Fund does not include drinking water because the fund was established under the federal Clean Water Act, which primarily deals with waste water. MR. EASTON pointed out that HB 304 has two parts. Sections 1-17 deal with providing the agency bonding authority for the Drinking Water Fund. The agency already has such authority for the Clean Water Fund. The second part of HB 304, Sections 18-22, deal with providing the agency the authority to establish a long-term way to pay for the program's operating costs. MR. EASTON addressed the portion of the legislation which deals with the bonding authority. He referred to a diagram entitled, "Proposed Fund Capitalization Process" which is similar to the diagram entitled, "Existing Fund Capitalization Process." The difference is that under the proposed fund capitalization process there is an option with regard to the $1.5/$1.6 million that comes into the loan funds under the existing fund capitalization process. He explained that the option under the proposed fund capitalization process would allow the following. With bonding authority and enough interest in the loan fund, interest earnings could be taken out of the fund and used to retire bond debt. Furthermore, those bond proceeds could actually be used to supplant the state GF match. Mr. Easton clarified that with bonding authority the state agency would sell bonds for $1.5 million and use the bond proceeds for a match. Then the interest earnings would be taken from the fund to retire the bond debt. Therefore, the bonding mechanism would replace the need for the $1.5 million in GF each year for each of the loan funds. CO-CHAIRMAN HARRIS asked if, every year, the agency spends all the money it receives from both the state match and the federal grant, plus administration. MR. EASTON replied yes. CO-CHAIRMAN HARRIS surmised then that the balance in the fund at the end of every year is zero. MR. EASTON clarified that there is always some money in the fund that has been returned to the fund and has not yet been loaned out and/or grant money that has not yet been loaned out. There is always a balance in the fund. He agreed with Co-Chairman Harris' assessment that this is not grant money to communities but rather a loan. CO-CHAIRMAN HARRIS surmised then that the principal in interest being paid is being funneled back into the fund. He asked if Mr. Easton projected to earn enough interest off the return investment in order to pay the bond every year. MR. EASTON answered yes. Number 0857 REPRESENTATIVE DYSON inquired as to the fate of those communities that need clean water or waste water treatment, but do not have the resources to repay. MR. EASTON emphasized that this is one program, a loan program. There are also two grant programs. One of the grant programs serves the larger communities while the village safe water program serves the smaller communities. REPRESENTATIVE MURKOWSKI recalled that Mr. Easton had identified that one of the purposes of Section 1 is to establish the bonding authority for the Drinking Water program. Why has this bonding process not been used in the past to finance these loans? MR. EASTON deferred to Mr. Burns. Number 0968 MIKE BURNS, Program Manager, Municipal Grants & Loans, Division of Facility Construction & Operation, Department of Environmental Conservation, noted that the agency just acquired bonding authority for the Clean Water Fund about 3.5 years ago. After that there were several changes in the EPA program, which caused a slight drop in demand at that time. Since that time, demand has accelerated. He also noted that one bonds only when necessary. MR. BURNS explained that because of the success of the Clean Water program in its first six or seven years, a large corpus was built up in the fund. In the last three years, all of the corpus has been lent off. All of the assets are in progress in one form or another. REPRESENTATIVE MURKOWSKI commented that this type of arrangement appears to be an easy way to facilitate the money back into the loan and pay off the bonded indebtedness. She asked again why this bonding process has not been used before; was the financial where-with-all not available? MR. BURNS informed the committee that this particular bonding device has only come about recently. Only one other state has used this [bonding device]. The Internal Revenue Service (IRS) and the EPA have approved this bonding device. He agreed with Representative Murkowski that this particular bonding device was not available before. Number 1123 REPRESENTATIVE DYSON referred to the DEC's fact sheet entitled "Loan Fund Bonding and Fee Authority Legislation" dated February 1, 2000, and read the following, "In addition to the annual contribution of state and federal capitalization money, ...." He then referred to page 1 of the fiscal note, which shows a GF match of minus $1.5 million. MR. EASTON explained that the minus $1.5 million in GF would be saved. There would also be a plus of $1.5 million in bond proceeds. He further explained that the fiscal note shows a decrease in the GF match in the amount of $1.5 million while the Drinking Water Fund bond receipts increased by $1.5 million. REPRESENTATIVE DYSON inquired as to the amount of the annual state contribution; is it minus $1.5? MR. EASTON replied it is zero. He specified that it is the $70,000 that it will cost to go through this bonding process. In further response to Representative Dyson, Mr. Easton stated that currently it costs $1.5 million. REPRESENTATIVE DYSON asked if the delta comes from the EPA grant funds. MR. EASTON answered that the delta comes from taking the money out of the loan fund versus taking it from the GF. In further response to Representative Dyson, Mr. Easton said that he expected the EPA grant to amount to $8 million for the Clean Water Fund and $7.5 million for the Drinking Water Fund. In further response to Representative Dyson, Mr. Easton did not anticipate that money to be enough. He pointed out that the second part of HB 304 is present because "the pipe has an end to it." Although no one knows for certain, the EPA says that the last year it will ask to make the grant for the Clean Water Fund is fiscal year(FY) 2003 and fiscal year 2008 for the Drinking Water Fund. REPRESENTATIVE DYSON understood then that for three years, the fund will receive about $15 million, while in another eight years the fund would receive about half of that. That will build up and the fund will perpetuate itself because the community is repaying. Number 1374 REPRESENTATIVE HALCRO asked if there have been any repayment problems with communities that have been repaying the principal and interest on these loans. MR. EASTON replied no, there is a zero delinquency rate. There has never been a late payment. REPRESENTATIVE HALCRO inquired as to the history of the EPA grants. MR. EASTON answered that the EPA grants have remained relatively constant for the last few years. However, there has been a slight increase in the Clean Water grant while the Drinking Water grant has been fairly stable. REPRESENTATIVE DYSON inquired as to who the committee is referred to in the legislation. MR. EASTON answered that the State Bond Committee is the committee that determines where the money will go. The State Bond Committee already exists and consists of three commissioners appointed by the governor. MR. BURNS, in further response to Representative Dyson, explained that the State Bond Committee consists of the Commissioner of the Department of Revenue, the Commissioner of the Department of Economic Development and the Commissioner of the Department of Administration. The State Bond Committee has been in place for many years. Number 1500 REPRESENTATIVE DYSON indicated his assumption that the State Bond Committee does not have the expertise to evaluate a sewer plant, for example. Therefore, he further assumed that the agency would prepare that committee with a brief which it would review and approve or disapprove. MR. BURNS agreed with Representative Dyson's assessment. In further response to Representative Dyson, Mr. Burns said that the State Bond Committee has never turned down a package the agency brought before it. He specified that the agency has only brought one package before the State Bond Committee. REPRESENTATIVE DYSON commented, "So, all the years that one portion of this has been in place, you've only used it once?" MR. BURNS noted that some of the developments are fairly "fresh." MR. EASTON interjected that this one will be used every year. MR. BURNS, in response to Representative Dyson, specified that the Clean Water Fund has been in place since 1989. He further specified that [the agency] received bonding authority on the clean water side only 3.5 years ago. Furthermore, it takes about a year to get a bond proceed issue out. REPRESENTATIVE DYSON surmised then that the delinquency rate, which Representative Halcro inquired about earlier, is one for one. MR. EASTON clarified his understanding that Representative Halcro's question referred to whether the communities had been repaying the loans. He reiterated his response that the communities had been repaying the loans. REPRESENTATIVE DYSON surmised then that on the bonding portion, the delinquency rate is one for one. He asked how long the bonding authority has been in place. MR. BURNS pointed out that the agency has received approval of the package, but no bonds have been issued. He indicated that the agency is looking to HB 304 to create a more efficient package with the drinking water side. Number 1652 REPRESENTATIVE HALCRO returned to the issue of these programs due to be phased out. When that occurs, how will the debt be repaid? MR. EASTON emphasized that the programs are not intended to be phased out. However, the EPA grants will stop in FY03 and FY08. By that time, the funds will be self-supporting. He informed the committee that these are large funds. For example, the Clean Water Fund will have approximately $140 million in FY01 while the Drinking Water Fund will have $65 million at that time. Those amounts will have substantially increased by the time the grants end. Mr. Easton explained that when these programs were established, the idea was that the EPA gave money and the state contributed money. Therefore, the funds grew and once the fund was a certain size, money would be loaned to communities. That money would return back to the fund with interest, and therefore the funds would be self-sustaining. Furthermore, the funds should actually continue to grow even without any money from the EPA or the state. REPRESENTATIVE HALCRO surmised then that after the grants end, the agency would not return to the legislature to ask for any GF. MR. EASTON agreed that would not happen with HB 304. Without HB 304, the agency would have to come before the legislature and request funds in order to continue the programs. REPRESENTATIVE MURKOWSKI asked if her understanding that this financing mechanism does not place an obligation to the state other than the match into the loan fund would be correct. Those monies go out to the communities that does the project. The communities are obligated [with regard to maintenance], but the state is not. MR. EASTON replied yes. Number 1824 CO-CHAIRMAN HARRIS related his understanding that the agency anticipates, once the EPA grants end, that one of the funds will have about $140 million and a smaller amount in the other fund. He again asked if the agency spends all the funds it receives for those programs. Co-Chairman Harris thought Mr. Easton's answer earlier was yes, although that could not be the case if the fund is to grow to $140 million. MR. EASTON clarified that the agency does not spend the money, but it is committed to loans. Everything in both the funds is committed to loans, but it is not entirely loaned out. He emphasized that only a tiny fraction of the fund is spent on operating costs. The money in the fund is either money that is actually in the hands of the communities or money that is intended for the communities. MR. EASTON informed the committee that the communities do not repay the fund until after the project is completed. He explained that there may be an agreement with a community to build a project for $3 million. Those payments may be made over the course of the next three years at the rate of maybe $200,000 every couple of months. Once the project is completed, the community has a year to collect money for the service and then the community begins repayment. CO-CHAIRMAN HARRIS surmised then that when the EPA grants end, the bonding authority is no longer necessary because the state will not have an obligation to match the grants. MR. EASTON agreed with that assessment. He did note that the only reason the agency will probably ask to maintain bonding authority is that bonding authority could be used for other purposes besides the match. REPRESENTATIVE DYSON asked what a community would need to do in order to qualify for a project under either of these programs. Number 2000 MR. EASTON replied that the community would basically need to comply with department regulations, which may require that they submit plans for review. The community must also show how it will repay the agency. REPRESENTATIVE DYSON asked if eight people could qualify for a project under either of these programs. MR. EASTON clarified that those who qualify for these loans would be a municipality as defined by state law. REPRESENTATIVE DYSON understood then that to qualify for these loans, a group would have to be organized under state law. He asked if HB 304 includes any language that would qualify tribal governments, if the state eventually recognizes tribal governments. MR. EASTON asked if a tribal government would be considered a municipality under state law. REPRESENTATIVE DYSON said that was not his understanding. He then commented that a second class city would not qualify as it is not classified as a municipality. MR. BURNS pointed out that a second class city is classified as a municipality in Alaska. REPRESENTATIVE DYSON reiterated his question regarding whether tribal governments, if recognized, would qualify for these loans. MR. EASTON said that he did not know. If tribal governments were recognized by the state as a municipality, then tribal governments would qualify for these loans. Number 2121 REPRESENTATIVE DYSON asked if HB 304 says that in order to qualify, the entity must be a municipality. MR. BURNS interjected that statute already says that in order to qualify the entity must be a municipality. REPRESENTATIVE DYSON inquired as to where that is located in statute. REPRESENTATIVE MURKOWSKI referred Representative Dyson to page 9, which references the municipality requirements. MR. BURNS said that the citation should be the first line of the Chapter 46 statutes. REPRESENTATIVE HALCRO inquired as to who would be responsible for maintenance once the system is complete and repayment begins. MR. EASTON answered that the local community would be responsible for maintenance of the system. REPRESENTATIVE MURKOWSKI asked how this would tie in with the Denali Commission and its work with safe and clean water. MR. EASTON informed the committee that the Denali Commission is not currently funding water and sewer projects. The loan programs being discussed today do not serve the smaller communities. The Denali Commission charter seems to be geared toward smaller, rural communities in the state. Although the smaller communities would be eligible for these loans, the smaller communities tend to be more fully served by the Village Safe Water Program. CO-CHAIRMAN HARRIS commented that the program being discussed seems almost exclusively intended for communities with a projected income stream or tax base. Co-Chairman Harris asked Mr. Easton to continue his presentation. Number 2252 MR. EASTON stated that much of his presentation had been covered through the questions. He turned to the second part of HB 304, which requests the authority to split the repayment stream. He then referred to a graph entitled "CW & DW Set-Asides & Program Support Revenue." He directed the committee's attention to the line referencing the money coming in that is used to pay program operating costs, which is identified as the federal set-asides. He explained that the reason the line falls between FY03 and FY04 is because one of the federal grants end. That is also the case for the fall between FY08 and FY09. He noted that he would return to this. MR. EASTON informed the committee that a small portion of the federal grants can be used by the agency to pay for program operating costs. When those grants stop, the ability to use a portion to pay for the program's operating costs also ends. Therefore, HB 304 would allow the repayments from the communities to be split into two parts and a small portion could be used to pay for the program's operating costs. Mr. Easton then referred to a diagram entitled, "Proposed Loan Fund Schematic." This diagram illustrates the split that occurs with repayment. He explained that HB 304 establishes an administrative fund which consists of an income account and an operating account. A portion of the community repayments comes into the income account. Through the budget process, the agency asks the legislature to appropriate some money from the income account to the operating account. Through the operating budget process, the agency requests that money be transferred from the operating account to the DEC operating budget. He pointed out that the diagram entitled, "Proposed Loan Fund Schematic" illustrates the changes that would occur under HB 304. Number 2489 REPRESENTATIVE MURKOWSKI commented that some of the material referring to how the program administration costs are covered says that 5 percent is designated to pay for the administration program. She asked if that 5 percent is from the repayment from the communities. If that is the case, then she may have misunderstood Mr. Easton's earlier statement that indicated that program support would have to go through the legislative appropriation process and come out through the operating budget. MR. EASTON clarified that the percentage is actually 0.5 percent. He reiterated that HB 304 would allow this money to be split, which would be defined in regulation. Currently, the communities pay about 4.3 percent on their loans. The funds have done well and the agency is in a position that it can lower interest rates now. Therefore, the agency would like to do the following by regulation. First, it would want to decrease the interest rate on the community loans to 2.5 percent. Second, the agency would want to take 2 percent and place that in the loan fund and place that .5 percent in the income account. He explained that the .5 percent is based on projections with regard to how much money will be repaid and what would be required to cover the program's operating costs once the federal grants end. MR. EASTON posed the question of what would happen if the agency collected too much money. If that happened, the agency could request that the money be appropriated back to the corpus of the loan or money could be loaned out directly from the income account. On the other hand, if the .5 percent was not enough money to cover the program's operating costs, then that percentage would be increased by regulation to the point at which it would cover the operating costs. Mr. Easton commented that this is a very predictable system. Furthermore, he was confident that .5 percent will cover the operating costs. REPRESENTATIVE MURKOWSKI inquired as to who administers the loan fund. She also asked what the rate of return has been historically. She understood that the fund is doing well enough to reduce the interest rate to the communities to 2.5 percent. What happens if the market takes a down turn? She asked if it would be prudent to keep the interest rate at its current level. Number 2689 MR. BURNS answered that this fund is administered by the Treasury Division of the Department of Revenue. MR. EASTON stated that the rate of return has been about 6 percent. MR. BURNS noted that 5 percent has been the average rate of return. MR. EASTON turned to Representative Murkowski's question regarding what would happen if 2.5 percent is not enough. He said that it is not exactly a flat 2.5 percent. He explained that the interest rate remains 2.5 percent until the municipal bond index reaches 8 percent. At that point, the 2.5 percent begins to fluctuate as a percentage of the municipal bond index. REPRESENTATIVE MURKOWSKI commented that she was a bit perplexed. If it is known that there is a finite time period within which the EPA grants are received and the desire is to build up the fund so that it can maintain itself, would it not be prudent to keep the interest rate at 4.3 percent. MR. EASTON reiterated his confidence that the interest rate can be reduced to 2.5 percent. He acknowledged that the fund would grow faster and be larger with the 4.3 percent. However, the intent is to balance the demand for loans with the health of the funds and make the loans as attractive as possible. REPRESENTATIVE DYSON returned to his concerns with regard to who qualifies for these loans and if tribes would qualify, which is a point that he needed resolved in order to vote for this bill to move out of committee. He referred to Section 1, which refers to "municipalities and other qualified entities under AS 46.03.032 and 46.03.036". He informed the committee that AS 46.03.032(1) says that "'other qualified entity' means an intermunicipal or interstate agency" and then refers to AS 29.35.010(13). That statute, AS 29.35.010(13), says "to enter into an agreement, including an agreement for cooperative or joint administration of any function or power with a municipality, the state, or the United States;". He asked then if the 200 plus tribes that are on the Department of Interior's list qualify as an "other entity" and allow the agency the authority to make these loans to tribes. Who can provide a definitive answer on that? Number 2957 CRAIG TILLERY, Assistant Attorney General, Environmental Section, Civil Division, Department of Law, testified via teleconference from Anchorage. He referred to Section 20, the Drinking Water Fund, which provides the authority to provide financial assistance to municipalities for municipal drinking water system projects. He offered to go back and affirm that the term municipality does not [refer to tribes - per the secretary's log notes]. TAPE 00-7, SIDE B Number 2975 REPRESENTATIVE DYSON asked if Mr. Tillery would have any problems with deleting the language "and other qualified entities" from HB 304. MR. TILLERY said that he would have to review AS 46.03.032 and thus could not provide the committee with a definitive answer at this point. However, he believed that he would eventually be able to assure the committee that the authority of HB 304 to implement the Drinking Water Program is limited to municipalities. REPRESENTATIVE DYSON noted that Mr. Tillery would also need to explain why the language "and other qualified entities" is included on page 1, line 11, and probably elsewhere. MR. TILLERY interjected that the specified language is existing law. REPRESENTATIVE DYSON recognized that the specified language is existing law. However, he inquired as to why that language needs to remain if loans will only be made to organizations recognized under state law. MR. TILLERY referred to AS 46.03.032, existing law, and pointed out that "other qualified entities" would refer to entities qualified under federal law. "With the new portion under HB 304, that is strictly limited to municipalities. But the existing law does go to municipalities and other qualified entities." Mr. Tillery understood Representative Dyson to be asking if HB 304 could be used to amend the Clean Water Fund authorization to limit it from its current status. REPRESENTATIVE DYSON inquired as to the location of the language in HB 304 that says money can only go communities organized under state law. MR. TILLERY referred to Section 20(b)(1). The language allowing the Alaska Drinking Water Fund to function, limits financial assistance "to municipalities for drinking water system projects". That is different than existing law, AS 46.03.032, for the Clean Water Fund. REPRESENTATIVE DYSON referred to page 8, line 23, and inquired as to where there is complimentary language for the Clean Water Fund. MR. TILLERY directed Representative Dyson to AS 46.03.032(d)(2). He commented that subsection (a) is sort of the parallel authority for the Drinking Water Fund. He noted that existing law is broader than the law being sought with HB 304. REPRESENTATIVE DYSON commented that he was lost. Number 2749 MR. TILLERY clarified that he was trying to say that the Clean Water Fund is broader as it refers to "municipalities and other qualified entities." He reiterated that existing law is broader than the law being sought for the Drinking Water Fund with HB 304. REPRESENTATIVE DYSON said that he understood then that HB 304 is altering the Drinking Water Fund. He informed the committee of his understanding that follows. If the state recognizes tribes and tribes qualify as "other qualified entities," then the Clean Water Fund would be available to tribal governments. Furthermore, HB 304 does not effect that. MR. TILLERY agreed with Representative Dyson. With regard to the "ifs" posed by Representative Dyson, Mr. Tillery did not know the answer. If tribes do qualify as "other qualified entities," then the Clean Water Fund would apply [be available to tribal governments]. He reiterated that what is being done today, HB 304, will not effect that. MR. BURNS informed the committee that he attended the Senate Community & Regional Affairs Committee meeting when the language "other qualified entity" was inserted into the legislation achieving bonding authority for the Clean Water Fund. At the time, Senator Torgerson was the Chair of that committee. Mr. Burns said that he knew the committee's intent. That committee wondered if a housing authority adjacent to the boundary of a municipality could apply through the municipality for [the Clean Water Fund]. He believed that it is fairly clear that the "other qualified entity" would have to go through the municipality, and therefore the loan from the state would still be to the municipality. REPRESENTATIVE DYSON requested that the U.S. code referred to with regards to this language be pointed out. He then offered to find that. Number 2588 REPRESENTATIVE HALCRO inquired as to the agency's granted bonding authority. Does the agency have to come before the legislature to obtain approval for the amount the agency is going to bond in a year. Are there any side boards based on how many bonds are sold? MR. EASTON explained that the agency is limited to a total of $15 million per program, under existing statute. The agency does not need to go before the legislature to sell up to $15 million, it only needs to seek permission from the State Bond Committee. He specified that this is the case if HB 304 passes. REPRESENTATIVE HALCRO said that he wanted to make sure that there are some sort of side boards every year. REPRESENTATIVE MURKOWSKI referred to the DEC's fact sheet entitled, "Interest Structure and Fee Rate Regulation Amendments." She asked if these are proposed regulations or regulations that are currently in place. MR. EASTON answered that the regulations have been drafted, but have not been public noticed which is the first step in the formal rule-making process. That formal regulation amendment process has not yet started. REPRESENTATIVE MURKOWSKI pointed out that one of the changes in the proposed regulations discontinues the federal requirement for using Davis Bacon wages on clean water construction projects and allows DEC to use Alaska's Department of Labor rates instead. MR. EASTON deferred to Mr. Burns. MR. BURNS explained that several portions of the Clean Water Act have expired and are no longer mandatory upon the state. Originally, the federal requirements were required to be in the regulations in order to begin the program. Therefore, this is merely housekeeping. Number 2375 LARRY HANCOCK, City Manager, City of Cordova, testified via teleconference from Cordova. He informed the committee that the City of Cordova currently uses the Alaska Clean Water Fund and the Alaska Drinking Water Fund for a total of $2.8 million. Mr. Hancock said: These two funds are the best sources of funds available to our community for financing of capital clean water and drinking water projects. These programs in conjunction with the DEC construction grants, have been used almost exclusively to upgrade our water and waste water systems in our landfill refuse disposal system. Without these funds, compliance orders from the EPA and the DEC, resulting from infrastructure failure would not be met. These are mandatory programs that we must comply with and without this source of funds we would not be able to do that. MR. HANCOCK informed the committee that Cordova's only other source of capital construction money is through the sale of bonds or through loans with commercial institutions. He pointed out that loans with commercial institutions have a much higher interest rate than those available through the Drinking Water and Clean Water Funds. For example, Cordova is currently in the process of a municipal bond sale which will result in a projected interest rate of over 5 percent. This is a significant difference in comparison to the Drinking Water Fund of 3.5 percent. He noted that if HB 304 results in a decrease in interest rates for the Drinking Water and Clean Water Funds, Cordova would save, for each 1 percent drop in the interest rate, close to $700,000 over the term of the loans. MR. HANCOCK said that if the state has to reduce revenue sharing and cannot return maintenance money to the state [municipality], the only option is for the community to reduce its expenditures. If the state can help by reducing its interest rate, then communities may be able to make up for the decrease in revenue sharing. Furthermore, if the housekeeping can improve the management of the loans, the communities will have less difficulty in dealing with the construction grants and loan department in DEC. In conclusion, Mr. Hancock stated that the City of Cordova strongly supports the passage of HB 304. REPRESENTATIVE MURKOWSKI inquired as to how long Cordova has taken advantage of these bonds. MR. HANCOCK explained that Cordova has two fairly new loans, but the projects are still in the construction process and no money has been drawn against the loan. He believed that a third loan is three years old. In further response to Representative Murkowski, Mr. Hancock answered that repayment has not been a problem. However, he noted that it is a detailed process qualifying for these loans. [The agency] is as tough in its qualification standards as is any banking institution. CO-CHAIRMAN HARRIS, in response to Representative Dyson, specified that HB 304 next moves to the House Judiciary Committee and then the House Finance Committee. REPRESENTATIVE DYSON announced that he would not stop the movement of HB 304 and would get his questions answered. CO-CHAIRMAN HARRIS closed the public testimony at this time. Number 2112 REPRESENTATIVE MURKOWSKI moved to report HB 304 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, it was so ordered. ADJOURNMENT There being no further business before the committee, the House Community & Regional Affairs Standing Committee meeting was adjourned at 9:24 a.m.