Sponsor Statement for HB 215 and HB 216

Alaska's education system currently suffers from obsolete, inadequate, and poorly maintained facilities. This problem is of long-standing duration, and in many places it has reached serious proportions. We simply have to do something to provide reasonable and safe places to house our students. HB 215 and HB 216 do just that.

HB 216 would establish the Education Facilities Finance Authority (EFFA) within the Department of Education, and the Education Facilities Fund (EFF) as an asset of the Authority. The EFFA would:

1. Sell EFFA bonds to directly finance construction of schools upon approval of specific projects by the Legislature.
2. Contract to pay up to 70% of net debt service on municipal bonds issued to finance municipal school facilities and up to 100% of net debt service on University of Alaska bonds, provided that each specific facility has been approved by the Legislature for a specified level of reimbursement.
3. Apply non-corpus balances of the EFF to debt service on EFFA bonds and to the specified percentage of net debt service under authorized reimbursement agreements for municipal school bonds and the university bonds.
4. Pledge assets of the EFF as security for EFFA bonds and for the EFFA's obligations under authorized reimbursement agreements for municipal school bond and University bond debt service.

The EFF would be managed by the Permanent Fund Corporation and would require no special or unique investment policy by the Permanent Fund. The initial capitalization would be accomplished by HB 215 in the form of a $1.2 billion appropriation from the Constitutional Budget Reserve Fund.

HB 216 contains authorization for several projects. Future legislatures could continue to authorize more bonds and reimbursement agreements within the financial capabilities of the EFF. The EFF would have bonding capacity equal to or exceeding the initial capitalization of $1.2 billion, without risking the corpus of the fund. Debt service will be from the earnings alone. Indeed, under reasonable projections, earnings will exceed the requirements of debt service.

Once enacted into law, HB 215 and HB 216 will accomplish the following objectives:

1. Provide funding, within months of becoming law, for critical rural and urban deferred maintenance and school construction projects and University of Alaska capital projects that are almost certainly not going to be funded for several years through normal legislative appropriation.
2. Resume funding of net debt service for school bonds of organized municipalities under contractual 70:30 reimbursement agreements, and provide for an indefinite continuation of this funding without annual appropriations.
3. Protect for future use that portion of the Constitutional Budget Reserve suitable for long-term investment, since the corpus of the newly-created Education Facilities Fund could not be drawn. The earnings of the new EFF would be used to cover the cost of the new projects, while the fund would continue to grow.

It is time to get our schoolhouses in order. Accordingly, I commend HB 215 and HB 216 to you and request your support.