HOUSE FINANCE COMMITTEE January 20, 1993 1:30 P.M. TAPE HFC 93 - 4, Side 2, #000 - end. TAPE HFC 93 - 5, Side 1, #000 - end. TAPE HFC 93 - 5, Side 2, #000 - end. TAPE HFC 93 - 6, Side 1, #000 - #272. CALL TO ORDER Co-Chair Ron Larson called the meeting of the House Finance Committee to order at 1:30 p.m. PRESENT Co-Chair Larson Representative Brown Co-Chair MacLean Representative Foster Vice-Chair Hanley Representative Grussendorf Representative Hoffman Representative Martin Representative Navarre Representative Parnell Representative Therriault ALSO PRESENT Representative Curt Menard; Representative Cliff Davidson; Representative Jerry Mackie; Senator Drue Pierce; Senator Steve Rieger; Senator Bert Sharp; Paul Fuhs, Commissioner, Department of Commerce and Economic Development; Guy Bell, Director, Division of Administrative Services, Department of Commerce and Economic Development; Darrel Rexwinkel, Commissioner, Department of Revenue; Tracy McGill, Director, Division of Administrative Services, Department of Revenue; Barry Hulin, CEO/Executive Director, Alaska Housing Finance Corporation, Department of Revenue. SUMMARY INFORMATION Agency Budget Overviews: Commerce & Economic Development Department of Revenue AHFC - Merger Implementation HAD Loan Purchase General Discussion HB 55 FY 94 OPERATING BUDGET & LOAN PROGRAMS DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT BUDGET OVERVIEW 1 PAUL FUHS, COMMISSIONER, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT (DCED), provided the Committee with Attachment objectives include building a strong economic base from which to design a fiscal policy. The DCEC program is divided into two pieces; regulating occupational licensing and to develop economic development resources, tourism and transportation. Attachment #1 provides a brief overview of the statutory functions of each organization within the Department as well as a departmental funding history and summary of the proposed changes for FY 94. The agencies within the Department are: 1. The Division of Measurement Standards 2. The Division of Insurance 3. The Division of Banking, Securities and Corporations 4. The Division of Occupational Licensing 5. The Alaska Public Utilities Commission 6. The Alaska Energy Authority 7. The Division of Administrative Services 8. The Commissioner's Office 9. The Office of International Trade 10. The Division of Investment 11. The Division of Tourism 12. The Alaska Tourism Marketing Council 13. The Alaska Industrial Development and Export Authority 14. The Alaska Seafood Marketing Institute 15. The Alaska Aerospace Development Corporation 16. The Alaska Railroad Corporation Commissioner Fuhs listed the major accomplishments within the Department during the past year including the completion of the Community Development Quota Program (CDQ) placing $25 million dollars into western Alaskan communities; the signing of a Memorandum of Agreement with a shipping company for the Northern Sea Route; the legal formation of the Northern Forum as an international organization; salmon research work; negotiated new air routes to Alaska to make up for the passenger air routes lost and completion of various studies from last year. Commissioner Fuhs provided the Committee with Attachment #2, SUSTAINING ALASKA'S ECONOMY. The handout itemizes specific projects for which the Department will be accountable. He added that the Department is more often using "user fees" rather than general fund money. 2 He noted the budget's increase offset by additional private industry contributions to both ASMI and the Tourism Marketing Council. The proposed budget includes a $120 thousand dollar increase over the FY 92 budget include and the formation of an Oil and Gas Division. Representative Brown questioned if the increase to the Division of Insurance's budget last year increased uncollected taxes. Commissioner Fuhs stated that increase resulted in $5 - $10 million dollars additional revenue dollars. Representative Brown asked for further discussion on the merit of the Oil and Gas Division. Commissioner Fuhs explained that currently there is not a strong advocacy for the oil and gas industry in the State of Alaska. The oil and gas leasing section also collects the taxes. Consequently, they can not talk to the oil and gas industries because of the legalities involved. He emphasized the importance of understanding and appreciating the economic growth of Alaska through the oil and gas industries. He felt that Alaska needs to advocate for the oil and gas industries for both federal and state regulations, pushing for oil and gas leasing procedures. He felt the State should advocate for regulations which will allow them to prosper similar to the fisheries, timber and mineral industries and the fisheries. Representative Martin noted his concerns with the increased DCED budget. GUY BELL, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, addressed the licensing concerns of Representative Martin. Representative Martin asked for a further evaluation of the revolving loan funds. Mr. Bell stated that all areas of receipts needing adjustment have been evaluated. Co-Chair Larson asked if collection had been received from the Alaska Public Utilities Commission (APUC). Commissioner Fuhs stated that was fully implemented. Two years ago, Co- Chair Larson noted that a one million dollar appropriation was made to capitalize the Alaska Aerospace Development Corporation into a revolving fund. He asked the need for a further appropriation. Mr. Bell stated the request was a technical error and the funding source would be transferred. Representative Brown asked for further information regarding tourism promotion and marketing. Mr. Bell replied that the private support increment has increased from fifteen to 3 twenty percent which would be a reduction in general fund money. Commissioner Fuhs stated that this percentage would continue into the future. Representative Hoffman asked which programs were available to assist rural Alaska in obtaining employment. Commissioner Fuhs stated that the best available program is the CDQ Program. There is a Fisheries Enhancement Program in the Yukon-Kuskokwim area and western Alaska. He emphasized that the fishing industry is one of the few resources available in those areas. Representative Hoffman pointed out that the current Administration has deleted fisheries from the budget. Commissioner Fuhs commented there is $600 thousand dollars in the capital budget this year for the Yukon area. He added it is difficult to find economic opportunities in village areas. Co-Chair Larson clarified that the DCED subcommittee would consist of Representative MacLean as Chair and members Representative Hudson, Representative Sanders, Representative Menard and Representative Nordlund. (Tape Change, HFC 93-5, Side 1). DEPARTMENT OF REVENUE DARREL REXWINKEL, COMMISSIONER, DEPARTMENT OF REVENUE, provided the Committee with Attachment #3, BUDGET OVERVIEW, FY 94, AGENCY REQUEST. The Department of Revenue (DOR) has two primary responsibilities: The administration and enforcement of Alaska's tax laws, and the investment of state funds. The other key responsibilities include the Permanent Fund Dividend Program, debt management and child support enforcement. The Department also provides support and financial advice to the following boards and authorities: 1. Alaska Permanent Fund Corporation 2. Alaska Housing Finance Corporation 3. Alaska Science and Technology Foundation 4. Alcoholic Beverage Control Board 5. Alaska Industrial Development and Export Authority 6. State Bond Committee 7. Alaska Municipal Bond Bank Authority 8. State Assessment Review Board 9. Royalty Oil and Gas Advisory Board 10. Alaska Medical Facility Authority 11. Alaska Gas Pipeline Financing Authority 12. Public School Fund Advisory Board 13. Alaska State Pension Investment Board 4 Representative Grussendorf referenced the chart on Page 10, Attachment #3. He questioned the reductions in auditor and accountant positions. He believes these positions to be extremely important to the State in order to collect revenues. Commissioner Rexwinkel agreed the positions are important, although the Department of Law ends up with the final settlement. Co-Chair Larson pointed out that four full time positions were deleted from the agency budget whereas five new positions were added. Commissioner Rexwinkel replied that it was the goal of the Department to become efficient. Representative Brown agreed with Representative Grussendorf and Co-Chair Larson. She pointed out that it would be difficult to have an equitable tax policy if categories of taxes are not being collected. Representative Brown asked about the determination agreement between the Department of Natural Resources and DOR for the Amarada Hess settlement. She asked if the proposed changes would require regulatory or statutory authorization. Commissioner Rexwinkel stated that this was yet to be determined and needed further review. Co-Chair Larson reiterated the need to retain an aggressive collection policy. Representative Martin recommended reducing the number of boards and commissions. He questioned the addition of the Fishermen Trust Fund receipts. Commissioner Rexwinkel replied that fund is part of the Department of Labor and is used to fund injured fishermen. The funds reside in the Department of Revenue for portfolio management. Commissioner Rexwinkel addressed the child support enforcement component of the budget summary. The purpose of the Child Support Enforcement Division is to enforce child support orders and to establish child support obligations. This reduces the public financing burden for welfare-related programs by protecting the custodial parents and children from the need to seek public assistance and by recovering for the State and federal governments a portion of each government's expenditures. Representative Navarre questioned the proposal to move charitable gaming back to DOR. Commissioner Rexwinkel felt it would be a good administrative move. Co-Chair Larson noted the DOR subcommittee would be chaired by Representative Martin and with members Representative Vezey, Representative Kott, Representative Grussendorf, and Representative Brown. 5 (Tape Change, 93-5, Side 2). ALASKA HOUSING FINANCE CORPORATION (AHFC) BARRY HULIN, CEO/EXECUTIVE DIRECTOR, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF REVENUE, spoke to the merger of the Alaska State Housing Authority and Housing Assistance Division (HAD). The effective date of the merger was 7/01/92 at which time 229 employees were transferred from the Alaska State Housing Authority (ASHA) Corporation. AHFC at that time had 126 employees creating a total of 390 employees. The ASHA positions were not subject to the Executive Budget Act and were not part of the State payroll. He added that the core of AHFC has declined since the merger and the rapid growth of employees has created a management challenge. Co-Chair Larson noted that press releases have indicated that the University of Alaska may ask AHFC to sell $164 million dollars of bonds for deferred maintenance. Mr. Hulin replied that as part of the merger, the building powers previously housed within ASHA came to AHFC. The referenced proposal addresses those powers previously associated with ASHA. The specifics of the University request have not yet been negotiated. Representative Martin stated that he does not support the merger. He provided the Committee with Attachment #4 which addressed questions and concerns regarding the merger. Mr. Hulin responded that AHFC will not act on the University issues without instruction from the Legislature. AHFC does not have the power to issue bonds and build buildings. The only powers which came with the merger are the old ASHA powers and there are no new powers available to AHFC. Mr. Hulin added that additional dialogue is needed with HUD. They are not happy with the concept of public housing being part of the Executive Budget Act. The State does not want to jeopardize funds coming into the State. The issue of privatizing AHFC would be virtually impossible. A state's power to issue tax exempt status can not be given away. The power could not be transferred to a private sector business. There is currently $3.2 billion dollars of debt secured by mortgages and cash. Many bond issues can not be called for certain periods of time. Representative Martin noted his concern with housing control. Mr. Hulin explained that AHFC inherited the Section VIII Programs and the ownership of sixteen units of low rent housing. Currently, there are long waiting lists of people in the Section VIII Programs. Landlords are not 6 being forced to rent to these people. Representative Hoffman stated that he did not support the merger. He asked if the Legislature had been provided information on the excess assets of AHFC. Mr. Hulin replied a letter was mailed 12/28/92 to the Senate President and the Speaker of the House regarding those concerns. Representative Hoffman questioned what portion of the excess assets would be tied up because of the refinancing program. Mr. Hulin replied the bottom line is that AHFC does not feel that they have excess assets. To date, $220 million dollars in cash has been given to the State for FY 93. Representative Hoffman asked if funds to the AHFC Program were at the same interest rate as offered to new buyers. Mr. Hulin stated that they are not. There are a number of Alaskans who either have credit problems or do not have equity in their property. The rural loan portfolio has never been able to be refinanced. AHFC felt that given that interest rates had fallen, it would make sense to investigate a refinancing program for people who had Alaska finance loans in order to be able to refinance on a simple basis. Currently, there are four sets of rates available. Representative Hoffman distributed Attachment #5 to Committee, ALASKA HOUSING FINANCE CORPORATION MORTGAGE REFINANCING letter from Senator Adams. Representative Hoffman asked how many rural loans have been made since the merger. Mr. Hulin offered to provide that information. Representative Hoffman emphasized that the merger will benefit the urban areas 15:1. Representative Hoffman asked for information regarding the "grants programs". Mr. Hulin asked if Representative Hoffman was addressing the homeless program. Last year, four grants were made in the winter of 1992 for a total of $250 thousand dollars which was approved by the Board of Directors. The areas represented are Anchorage, Seward, Kenai and Fairbanks. Representative Hoffman interjected that the power of appropriation is the responsibility of the Legislature. Representative Hoffman asked how much was contributed to the Economic Summit. Mr. Hulin replied that $10 thousand dollars had been contributed to that cause. Representative Hoffman pointed out that the Legislature should ask the Governor to make those contributions from the Governor's contingency fund. Co-Chair Larson asked if the rural housing loans were issued at a lower interest rate than the Alaska housing loans. Mr. Hulin replied that the rural housing portfolio total is $180 7 million dollars, whereas, the total portfolio is $3.2 billion dollars. Refinancing will be a function of how many loans exist. Mr. Hulin stated in FY 94, all grants will be included in the proposed budget. (Tape Change, 93-6, Side 1). Mr. Hulin added that there were a number of programs which came with the merger as part of a $8 million dollar fiscal note. Senator Rieger asked if the grants which did not appear in last year's budget amounted to $250 thousand dollars. Mr. Hulin stated they did. Representative Brown commented that AHFC staff specifically Mr. Hulin, have done a great job given the difficult situation. She asked that AHFC be sensitive to neighborhood concerns for the low income. Representative Hoffman questioned the fairness of efforts made for the homeless in rural Alaska. Mr. Hulin stated that homeless grants are not offered to communities; it is their responsibility to initiate the process of receiving those grants. Representative Hoffman emphasized that communities in rural Alaska often do not have the resources to receive the grants. Therefore, they do not have equal access to grants. Mr. Hulin replied that AHFC would try to do a better job in the future. Co-Chair MacLean pointed out that with the merger of AHFC and the HAD loans, there are certain requirements which have to be met - the building inspections and the energy efficiencies standards. She asked how these standards would be addressed in the rural areas. Mr. Hulin agreed that AHFC is aware of these problems. The inspection requirements are expensive and AHFC is currently working with the lenders in hopes of expanding the inspector base or possibly finding a place for those costs to be covered. AHFC is currently working with the National Bank of Alaska (NBA). Co-Chair MacLean asked who paid for the travel expenses of the inspectors. Mr. Hulin replied that they pay for their own travel which is then paid out of the fee charged the homeowner. Co-Chair MacLean asked who paid for the energy raters fee. Mr. Hulin replied that cost was paid by the homeowner and is $75 dollars. Co-Chair MacLean asked if they also would have to travel from the urban areas to the rural areas to rate the homes. Mr. Hulin stated they would. Co-Chair MacLean questioned AHFC's dedication to the rural 8 housing program. Mr. Hulin commented on legislation to move the cash flow of the rural loan portfolio which would be rededicated to rural lending. An analysis of that portfolio showed that 35% of the loans in the rural portfolio had been made in Kodiak. He hoped to improve that program for rural Alaska. AHFC is currently looking at programs to accommodate the needs of non-traditional housing in rural Alaska. Co-Chair MacLean asked if the non-conforming loans were being processed differently since the merger. Mr. Hulin replied they continued to be processed in the same manner. ADJOURNMENT The meeting adjourned at 3:45 P.M. 9