House Finance discusses Mat-Su projects on General Obligation bond bill

Legislators that sit on the House Finance Committee heard presentations on Tuesday concerning House Bill 93, the Governor’s proposed General Obligation Bonds of $354.4 million in proposed bond issuance for infrastructure projects. The first two items listed on the GO bonds are in the Mat-Su with $8.5 million for the West Susitna access road and $9 million for the reconstruction of Houston Middle School.

“We’re in a period of historically low interest rates. The current bond interest rates are 2.35 percent which are lower than probably in any of our life times,” said Office of Management and Budget policy analyst Caroline Schultz.

HB 93 was heard for the first time in the House Finance Committee on Tuesday with staff from OMB and Legislative Legal detailing the process of issuing general obligation bonds. Of the $356.4 million, $354.6 of that would be for projects with another $1.8 million to issue the bonds. If passed by the legislature, a special election would be held within 90 to 120 days requiring a majority of residents vote for the bond package to pass. OMB staff presented that the GO bonds would save $273 million in the long term.

“The general story is we have a mature portfolio and it’s able to withstand the additional debt service that’s proposed by the bill,” said state debt manager for the Department of Revenue Deven Mitchell. “The state has in our opinion about a billion dollars of capacity to issue general obligation bonds and so it should be used judiciously.”

Marie Marx with Legislative Legal was then called upon to present the legal difficulties of the bill. Marx noted three possible issues that could be challenged if HB 93 passed as the single subject clause requiring all items fit one single issue, the definition of capital improvements as structures of permanence and project specificity. Members of House Finance questioned if deferred maintenance could qualify under capital improvements under the infrastructure bonds. Mitchell noted that previously passed bonds had included road improvements that were not new construction.

“The concern here is that HB 93 lists numerous and very varied projects. The overarching gen idea that the Governor identifies in the bill I believe to be infrastructure and I just wanted to bring to the legislator’s attention that infrastructure, it may work as a single subject but it’s very broad. If challenged a court may find that is just too broad to be permissible,” said Marx. “The more major the maintenance and the more major the construction the more likely a court would find that it is a capital improvement.”

Representative Bryce Edgmon questioned the timing of the GO bond package with over $1 billion in Federal funding still to be studied and distributed. Representative DeLena Johnson asked Alaska Industrial Export and Development Authority Alan Weitzner about what construction would be included in the $8.5 million for the West Susitna access road.

“I feel like there is quite a disparity in equitable distribution of the money,” said Representative Sara Rasmussen. “I see projects like the Houston Middle School replacement bond due to the earthquake. Anchorage voters took on the burden of I don’t know, probably $50 or 60 million of bond debt to replace one of our schools that was severely damaged in the earthquake, so it seems like some of these projects are probably more appropriate for the tax base in those districts or communities to look at as priorities.”

Rasmussen noted that the entirety of Anchorage received only $13 million in GO bond projects and the proposed amount for Houston Middle School was $9 million.

“One of the things we went into as we put together this list of projects was looking at existing lists or requests that had come from agencies in prior years, things that we couldn’t accommodate in prior capital budgets,” said OMB Director Neil Steininger. “One of the things here is if we’re incurring debt that we’ll have to pay back in debt service is ensuring that as we’re selecting the projects for the list, it’s things that we would have done otherwise, that we’re not creating new spending to incur debt, that really we’re taking advantage of low interest rates to accommodate need the state has in capital infrastructure.”

Houston Middle School was damaged in the 2018 November earthquake and the borough has received two insurance settlements to help pay for reconstruction, but still awaits determination from the Federal Emergency Management Agency on their 50 percent rule determination.

“There are a couple projects like the Houston Middle School that don’t quite fit that metric because that wasn’t from an existing list, but it was a need we knew existed in that community and the amount that we’re bonding for here is to cover the cost not covered by insurance in that community. The regional equity is always a piece of putting together a GO bond project list,” said Steininger.

Over 300 students from HMS have taken classes in 13 portable classrooms, or in the former Houston High School building with other high school students. Borough officials warned that if the cost to rebuild HMS at $34 million is not able to be verified by the borough this spring, the reopening of the school could be delayed by six to 12 months.

“I’m just wondering if the borough has any skin in the game,” said Representative Bart LeBon.