HOUSE FINANCE COMMITTEE April 25, 2000 10:10 A.M. TAPE HFC 00 - 136, Side 1. CALL TO ORDER Representative Bunde called the House Finance Committee meeting to order at 10:10 A.M. PRESENT Vice Chair Bunde Representative Foster Representative G. Davis Representative Grussendorf Representative Austerman Representative Moses Representative Bunde Representative Phillips Representative Williams Representative Mulder, Representative Therriault and Representative J. Davies were not present for the meeting. ALSO PRESENT Diane Barrans, Executive Director, Alaska Postsecondary Education Commission, Alaska Student Loan Corporation, Department of Education and Early Development. SUMMARY SB 270 An Act relating to return of contributed capital, or payment of a dividend, to the state by the Alaska Student Loan Corporation; and providing for an effective date. SB 270 was reported out of Committee with a "do pass" recommendation and with a fiscal note by the Alaska Student Loan Corporation dated 2/11/00. SENATE BILL NO. 270 An Act relating to return of contributed capital, or payment of a dividend, to the state by the Alaska Student Loan Corporation; and providing for an effective date. DIANE BARRANS, EXECUTIVE DIRECTOR, POSTSECONDARY EDUCATION COMMISSION, ALASKA STUDENT LOAN CORPORATION, DEPARTMENT OF EDUCATION AND EARLY DEVELOPMENT, explained that SB 270 is the partner bill to HB 373. These two bills are identical and would allow the Alaska Student Loan Corporation to determine if in any year that there is a net income of $2 million dollars or more, to provide a return of contributed capitol to the State of Alaska. The bill provides that no less than 10% and no more than 35% of that net income may be made available to the State. Ms. Barrons asked member's support of the legislation. Vice Chair Bunde inquired if that percentage would leave enough capitol in the Alaska Student Loan Corporation for contingency options. Ms. Barrans clarified that the Alaska Student Loan Corporation, prior to making the determination, would insure that loan demands were already accounted for. Those funds are set aside and built into the cash flow. It would be after that, the return to capitol would be made to the State. Representative Williams questioned the Corporation's mission. Ms. Barrans replied that the mission is to provide low cost, economic assistance to Alaskans seeking post secondary education. Additionally, it is to authorize schools to operate in the State of Alaska. Representative Williams suggested that given the "low cost" mission, why is the loan program making enough money to pay some out to the State. Ms. Barrans replied that the interest on the Alaska Student Loan Corporation is quite low. It is between 5% and 8%. The reason that they are able to provide contributed capitol, is that the payment that the State originally gave to the corporation was $306 million dollars for loans. The intent is to return some of that funding back to the State. Representative Williams suggested that this would be a "hidden tax" to the students. He pointed out that the legislation would make the student loan program too high and suggested that paying a dividend does not coincide with the mission of the Department. Vice Chair Bunde shared some of the thoughts voiced by Representative Williams, however, argued on behalf of the State which has subsidized these loans. Ms. Barrans pointed out that there are some interest free periods on each of the loans. As long as the student is in school, there is zero interest charged. The actual rate that the student pays is substantially less than the face rate on the note. She added that the interest rate also is substantially less than any other lending institution would provide. Representative Williams countered that the original investment of $300 million dollars was to help the loan program help the students get established. Representative Williams did not accept that interest should be providing a State dividend. Representative Grussendorf pointed out that the Alaska Student Loan Corporation had not initiated this legislation on their own. The Legislature has been "after" some public corporations to make good on their original investments. Representative Williams argued that these dividends should be used for the students. Representative Grussendorf reiterated that the Legislative Body has been after this money for the last ten years. Representative Phillips inquired if the Board established the interest rates or had the Legislature directed it. Additionally, she inquired if it was the Legislature that took away the "forgiveness" clause contained in the loans. Ms. Barrans replied that forgiveness was eliminated in 1988 by the Legislature. A couple of years later, the interest rate was changed from a fixed rate of 8%, to a formula tied to what the corporation pays on it's bonds plus an additional amount for program expenses and costs. Vice Chair Bunde pointed out that the Alaska Student Loan Program was about to "go broke" before they hired Ms. Barrans. The Corporation has currently turned that situation around and are now making money. Representative Austerman agreed that passage of the legislation is the proper thing to do. He suggested that paying back the loans is an important part of the learning experience for the students. A free program is not a good idea for any student. Representative Foster asked if funding the Alaska Scholars Program, as recommended by the Governor, was the intended use for these funds. Ms. Barrans commented that the funds had not yet been earmarked. Representative Williams recommended that the missions and measures should be consistent for each of the departments. He commented that the Legislature is not being consistent. Representative Williams recommended investing more in those students that stay in State to go to college. Vice Chair Bunde stated that would essentially be a public policy decision. He added that the Alaska Scholars Program would reduce the need for in state student loans. Representative Foster MOVED to report SB 270 out of Committee with individual recommendations and with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. SB 270 was reported out Committee with a "do pass" recommendation and with a fiscal note by the Alaska Student Loan Corporation dated 2/11/00. ADJOURNMENT The meeting adjourned at 10:25 a.m. H.F.C. 4 4/25/00 am