AIDEA can assist Alaskans through its ability to develop, own and operate basic installations and facilities within the state, especially those which advance the prosperity of a region. Roads, ports, airports, infrastructure for tourism destination facilities or other public use facilities which are essential for the economic well being of an area and are able to produce adequate revenues to repay the bonds sold to finance the project are considered eligible projects. Specifically:

Project Eligibility

Detailed information regarding the scope and characteristics of the project is submitted to the Authority for review. Staff and legal counsel determine whether or not the project is eligible and satisfies the development criteria for AIDEA participation and if the project can meet tax-exempt financing status under the U.S. Internal Revenue Code. AIDEA statutes define a project as: 1) a plant or facility used or intended for use in connection with making, processing, preparing, transporting, or producing in any manner, goods, products, or substances of any kind or nature or in connection with developing or utilizing a natural resource, or extracting, smelting, transporting, converting, assembling, or producing in any manner, minerals, raw material, chemicals, compounds, alloys, fibers, commodities and materials, products, or substances of any kind; 2) a plant or facility demonstrating technological advances of new methods and procedures and prototype, commercial applications for the exploration, development, production, transportation, conversion, and use of energy resources; and 3) infrastructure for a new tourism destination facility or the expansion of a tourism destination facility.

The following are the most relevant criteria for obtaining the Authority’s participation in the project:

1.  The project and its development under AS 44.88 must prove to be economically advantageous to the state and to the general public welfare and must contribute to the economic growth of the state;

2.  The project applicant is financially responsible;

3.  The project is economically and financially feasible and able to produce revenue adequate to repay the bonds or loans with which it is financed;

4.  The project will provide for any related increased demand on public facilities.

5.  The project will provide or retain employment reasonably related to the amount of financing by the Authority, considering the amount of investment per employee for comparable facilities, and other relevant factors;

6.  The scope of the project is sufficient to provide a reasonable expectation of benefit to the economy of the state;

7.  The project is in compliance with applicable law; and

8.  Issuance of the bonds is not expected to affect adversely the ability of the state or any political subdivision of the state to market other bonds. The Alaska State Legislature must approve all projects over $10 million.

Project Financing Plan and Features

The Authority will undertake its own economic analysis and financing plan for the project (third party review). The cost of the analysis may be included in the total cost of the project to be repaid through user fees. The study includes not only development cost estimates, but also maintenance and operating cost projections, market analysis and a table detailing sources and uses of funds.

The third party economic analysis and financing plan must include an estimate of the total cost of the project and a description of the sources of money that will be used to finance the project. The finance plan must also include an estimate of the operational costs of the completed project, as well as a description of the source of the money that is to be used to pay the operational and maintenance costs.

In addition to these requirements, the Authority’s Board of Directors has directed staff to give preference to projects that do not require financial assistance above and beyond the collective benefits that the project is capable of producing.

Various components that might be included in this type of benefit calculation include:

• Annual taxes paid to state and local government;

• Value added from in-state construction
  »  Construction employment
  »  Alaska fabricated components;

• Annual operating payroll
  
• Consequential benefits
  »  Other related payroll
  »  Other in-state goods and services

While the components listed are not intended to be all inclusive, they are intended to illustrate the types of benefit calculations that staff will perform when negotiating its return on investment. There is a floor, of course, below which AIDEA cannot go: cost of money plus a minimum fee for the use of our credit rating, capital reserve funds and financing ability.

Land and Title Interest of Facility

The Authority requires the project sponsor to provide AIDEA with clear title or lease to the portion of land on which AIDEA’s portion of the project would be developed. This would be a condition of the agreement so long as debt was outstanding. Once the debt is retired, title could revert back to the project sponsor at fair market value, unless reversion is prohibited by the financing mechanism used. Bond counsel will evaluate this issue.

The project sponsor should be prepared to provide information on land ownership, acquisition costs, if any, and environmental baseline information available.

Development and Construction Contact Issues

The project sponsor should provide the Authority with a written engineering report outlining the current status of design and permitting activities.

In addition, a detailed milestone chart or CPM schedule outlining the development sequence of events (up to the in-service date) should be provided along with any preliminary engineering drawings and a definitive cost estimate.

The parties will need to determine the roles and assignment of design and construction responsibilities best suited for undertaking a joint approach for project development. Decisions resulting from these discussions will determine what contracting and procurement methods will be employed. It could well be that the Authority’s only active role in the project would be financing and oversight, leaving all other development responsibilities to the project sponsors.

In all likelihood the project, if developed under the Authority’s Development Finance Program, would be classified as a "public works project" thereby requiring that Davis-Bacon Wages be paid during the construction phase.

Maintenance and Operations Responsibilities

Under any scenario to be considered by the Authority, it would be AIDEA’s intention to assign maintenance and operating responsibilities back to the project sponsor.

Since the Development Finance program’s inception in 1986, AIDEA has ownership of five projects ranging from the DeLong Mountain Transportation System (road and port at the Red Dog Mine near Kotzebue) to the Skagway Ore Terminal, Unalaska Marine Center Dock, Federal Express Aircraft Maintenance Facility and the Healy Clean Coal Project. The Authority continues to assess the economic benefit and feasibility of many other projects.
    

Project Life Cycle

A guide for project developers

The Alaska Industrial Development and Export Authority (the "Authority" or "AIDEA"), through its Development Finance Program, can assist Alaskans by its ability to develop, own and operate specific infrastructure and facilities within Alaska, especially those that advance the prosperity of a region. AIDEA refers to the facilities that it owns and operates as its "projects." Roads, ports, airports, utilities, infrastructure for tourism destination facilities or other public use facilities may qualify as projects. The projects must be essential for the economic well being of an area and able to produce adequate revenues to repay the bonds sold to finance the project. In addition to public use facilities, the Development Finance Program can be used to assist in the development of a public facility for a single user such as a value-added industry.

Project Introduction and Eligibility Determination

The Development Finance process usually initiates through a meeting where the project developer seeking AIDEA’s financial assistance introduces their potential project to Authority staff. If the potential project is appropriate to the development finance process, staff will explain the benefits of tax-exempt financing, along with the limitations under the U.S. Internal Revenue Code, the Authority’s costs associated with a financing, and the requirements likely to be included in a lease and user agreement. If the project developer is interested in pursuing a development project and lease, staff of the Authority then initiates collection of information necessary to complete the findings that must be made under AS 44.88.095(c) and (d).

General information regarding the scope and characteristics of the project is submitted to the Authority for review. Staff and legal counsel determine whether or not the project is eligible and satisfies the development criteria for AIDEA participation and if the project can meet tax-exempt financing status under the U.S. Internal Revenue Code. Bond counsel reviews the preliminary information provided by the project developer and provides an opinion on the project’s eligibility for tax-exempt financing. If the opinion concludes that the project qualifies for tax-exempt financing, an eligibility resolution will be presented for approval to AIDEA’s Board of Directors at the next available board meeting. Passage of this resolution establishes a date from which project costs can be reimbursed from bond proceeds and should not be interpreted as a commitment to finance.

Prior to proceeding with the next phase of the Development Finance process (a detailed feasibility study/finance plan), the Authority requires that the developer requesting funds execute a loan agreement and promissory note. Conditions of the loan agreement require that the project developer or its guarantor have sufficient financial resources to repay the funds spent on the Authority’s due diligence analysis, upon demand, whether or not the project proves feasible. This agreement and note provide for full reimbursement to AIDEA for feasibility analysis, legal fees, and out of pocket costs should, for any reason, the Authority not finance the project. Should the Authority enter into a financing agreement with the project developer, the Authority may, to the extent feasible, include all costs incurred under the agreement as qualified costs to be financed as part of the project. Board approval is required prior to entering into a cost reimbursement agreement and expending funds for due diligence analysis.

Initial Due Diligence Analysis

Utilizing the information provided by the project developer, AIDEA’s staff initiates its determination to confirm whether the proposed project qualifies for financing under the Development Finance Program. AIDEA’s statutes provide strong guidelines in making such a determination. AIDEA statutes define a project as:

"1) a plant or facility used or intended for use in connection with making, processing, preparing, transporting, or producing in any manner, goods, products, or substances of any kind or nature or in connection with developing or utilizing a natural resource, or extracting, smelting, transporting, converting, assembling, or producing in any manner, minerals, raw material, chemicals, compounds, alloys, fibers, commodities and materials, products, or substances of any kind; 2) a plant or facility demonstrating technological advances of new methods and procedures and prototype, commercial applications for the exploration, development, production, transportation, conversion, and use of energy resources; and 3) infrastructure for a new tourism destination facility or the expansion of a tourism destination facility."

The following are the most relevant criteria for obtaining the Authority’s participation in the project:

1.  The project and its development under AS 44.88 must prove to be economically advantageous to the state and to the general public welfare and must contribute to the economic growth of the state;

2.  the project applicant is financially responsible;

3.  the project is economically and financially feasible and able to produce revenue adequate to repay the bonds or loans with which it is financed;

4.  increased demand on public facilities that might result from the project will be provided for;

5.  the project will provide or retain employment reasonably related to the amount of the financing by the Authority, considering the amount of investment per employee for comparable facilities, and other relevant factors;

6.  the scope of the project is sufficient to provide a reasonable expectation of the benefit to the economy of the state;

7.  the project is in compliance with applicable law; and

8.  issuance of the bonds is not expected to adversely affect the ability of the state, or any political subdivision of the state, to market other bonds. The Alaska State Legislature must approve all projects over $10 million.

Due Diligence Analysis (Project Financing Plan)

The core of the business decision to undertake a project is the due diligence analysis or finance plan. Generally, the Authority undertakes its own economic analysis and financing plan for the project utilizing a third party, under the guidance of staff, to conduct the majority of due diligence tasks. The contemplated business structure generally dictates the comprehensiveness of the Authority’s due diligence analysis and the quantity and detail of information that the project developer submits to the Authority. (Click here for an example of due diligence information)

The project developer should be aware that records of the Authority are subject to the State Public Records Act. Under appropriate circumstances proprietary business information submitted to the Authority may be protected from disclosure. Should the project developer wish to submit proprietary information it wants protected they should label it as CONFIDENTIAL.

Term Sheet

Once the foregoing due diligence information is available and under review, the Authority may provide a preliminary term sheet to the project developer. This preliminary term sheet summarizes the parties’ prior discussions and understandings. The term sheet may contain, among other items, a general description of the proposed business structure, the basic financing term, financing costs including those associated with the use of the Authority’s credit rating, capital reserve funds and financing ability, financing rate, any required credit enhancements or guarantees, and a description of any special funds that need to be established. Final terms and business structure are generally defined as the due diligence process progresses and more details are known from negotiations leading to the lease and user agreement.

Land and Title Interest of Facility

The Authority requires the project developer to provide AIDEA with clear title or lease to the portion of land on which AIDEA’s portion of the project would be developed. This would be a condition of the financing agreement so long as debt was outstanding. Once the debt is retired, title could revert back to the project developer at fair market value, unless reversion is prohibited by the financing mechanism used. Bond counsel will evaluate this issue.

The project developer should be prepared to provide information on land ownership, acquisition costs and, if applicable, environmental baseline information.

Lease and User Agreement

With the feasibility and credit aspects determined through the due diligence process, a lease and user agreement is negotiated among the parties. This master agreement is often a "take or pay" contract that reflects the parties understanding regarding the financing, construction, use, maintenance, and operation of the project.

Development and Construction Contract Issues

The project developer should provide the Authority with a written engineering report outlining the current status of design and permitting activities. In addition, a detailed milestone chart or CPM schedule which displays the sequence of development events (up to the in-service date) should be provided along with any preliminary engineering drawings and cost estimates.

Following review of the engineering and scheduling information, the parties determine their respective roles and assignments for design and construction which are best suited for undertaking a joint approach for project development.

The project, if developed under the Authority’s Development Finance Program, would be classified as a "public works project" thereby requiring that Little Davis-Bacon prevailing wages be paid during the construction phase. Other procurement requirements likely to be required are public solicitation of all bids and proposals and the utilization of Alaska bidders and product preference with respect to the award of all contracts.

The parties’ respective roles and obligations during construction are documented in a Project Management Agreement that often accompanies the master Lease and User Agreement as an appendix. The Project Management Agreement provides, among other terms, for the Authority’s review and approval of the project’s plans and specifications and the budget for the project.

Federal and Alaska Statutory Requirements

Concurrent with the above process there are Alaska statutory requirements that AIDEA must adhere prior to financing a project through the issuance of bonds:

AS 44.88.095(c) – (g)

AS 44.88.172

AS 44.88.173

AS 44.88.177

The federal Tax Equity and Fiscal Responsibility Act (TEFRA) requires that the applicable elected representative (in AIDEA’s case the governor) approve the bond issue following a public hearing held in a location which is convenient for residents of the unit and for which there was reasonable public notice. The intent of the hearing is to take public comment on the issuance of tax-exempt bonds for project financing. The TEFRA hearing is usually held in conjunction with, or immediately after, the 44.88.095(f) hearing.

AIDEA Board Resolutions

AIDEA board resolutions are an integral part of the development finance process. Board resolutions can provide the following functions: 1) authorize the Executive Director to enter into negotiations with potential project participants; 2) provide approval of project reimbursement agreements; 3) certify that projects qualify under the Development Finance Program (AS 44.88.172); and 4) approve project operating agreements.

Pursuant to AS 44.88.095(c) before entering into a lease or other agreement the Authority shall find on the basis of all information available:

1.  The project is economically advantageous to the state and the general public welfare;

2.  the project applicant is financially responsible (credit analysis);

3.  the demand on public facilities can be supplied reasonably; and

4.  the project will provide/retain employment consistent with the size of the investment

Furthermore, pursuant to the requirements of AS 44.88.095(d) before adopting a resolution approving the project under AS 44.88.172 (Development Finance Program) for which bonds must be issued, the Authority shall further find that:

1.  The project is economically and financially feasible and able to produce revenue adequate to repay the bonds;

2.  the project complies with applicable law; and

3.  issuing the bonds is not expected to adversely affect other credit instruments of the state.

Timeline

Many development finance activities can be conducted somewhat concurrently to ultimately obtain a point where the project can be financed and a lease and user agreement executed. These activities and approximate duration’s are as follows:

The above schedule is dependent on a variety of factors which may include, but are not limited to, the complexity of the proposed business structure, the quality and the content of information presented to the Authority by the sponsor.

AIDEA's Existing Development Finance projects

Since the Development Finance program’s inception in 1986, AIDEA has ownership of seven projects ranging from the DeLong Mountain Transportation System (road and port at the Red Dog Mine near Kotzebue) to the Skagway Ore Terminal, Unalaska Marine Center Dock, Federal Express Aircraft Maintenance Facility, Snettisham Hydroelectric Project, the Healy Clean Coal Project, and the Alaska Seafood Center. The Authority continues to assess the economic benefit and feasibility of many other projects.

» Project Fact Sheets

» Virtual Tour of the Red Dog Mine