UPDATE: House tables $2 Million loan bill for LBJ
The LBJ Medical Center is not getting any additional funding for its operations because the House majority agreed yesterday to table in committee the Senate version of the $2 million loan to be refinance loan under the $20 million loan from the ASG Retirement Fund. Today is the last day of the 3rd regular session.
Unless the governor calls a special session — and one of the issues on the agenda deals with additional funds for LBJ — the next time the $2 million refinance loan will be taken up is when the Fono convenes in July, for the 4th session of the 32nd Legislature.
At the conclusion of the House Retirement, Health and Hospital Committee hearing yesterday morning on the $2 million bill, the majority agreed to report to the bill to the floor for passage in second reading during the House session.
However, Committee chairman Rep. Pulele’iite L. Tufele during the session said this issue is not an easy one and the final decision should not be rushed. He moved to have the bill returned to committee for further review and that motion was approved by a majority vote.
However, Rep. Tapumanaia Galu Satele Jr., said that from his count of the vote, there were only five faipule who showed hands to support returning the bill to committee and requested the vote to be carried out again. He also pointed out that the Fono has no more session days left to debate this measure, with lawmakers going into recess, while the LBJ hospital is still in need of additional revenues.
House Speaker Savali Talavou Ale responded that the vote was a majority and therefore the bill is back with committee for further review.
The committee met earlier in the day to hold discussions on both the House and Senate versions of the bill. The decision was made to focus on the Senate version so that the final committee decision could be reported to the floor thereafter for second reading. It could then be moved for final reading today — the last day of the session.
Committee members were presented with amendments to the Senate bill, which would bring the Senate's version in line with the House version of the bill. In particular, the amendments would hike the excise tax for beer, alcohol, tobacco and cigarettes to pay for the $2 million refinancing, in order to keep the original $20 million 10-year term in place, as well as providing additional revenue sources to repay the new debt.
(The Senate version does not have have a hike in excise tax, identifying only the excise tax currently levied as the funding source.)
Also presented to members were letters from the ASG Employees Retirement Fund as well as the actuary report supporting the House version of the bill.
House Vice Speaker Talia Fa’afetai Iaulualo said the Retirement Fund has provided sufficient information to support the amendments to the Senate’s version based on the House version.
He said he fully supported moving the Senate bill forward, with amendments.
However, Rep. Larry Sanitoa argued that there is still no clear indication as to how much the government is expected to collect from the proposed rate hikes, which are going to be an added burden to consumers, especially the business community.
He suggested extending the term of the loan beyond 10-years without adding another tax hike.
He, along with Reps. Taotasi Archie Soliai and Vailoata E. Amituana’i pointed out that they were surprised by the proposed amendments because a previous committee discussion — held Tuesday — noted that current revenue sources to fund the $20 million loan, as well as ASG assets as collateral, was sufficient for the $2 million refinance.
Taotasi also agreed with Sanitoa that the new tax hikes will become another burden to the community, especially with the current bad economy, which includes the extremely high cost of living. He noted that the Fono recently passed legislation with a new 2% wage tax — that is to repay the $3 million loan for the hospital from the Workmen’s Compensation Account — and this is already an added burden to the territory’s workforce.
Taotasi, Sanitoa and Vailoata said that time is running out for the current session and making any amendments to the Senate version will further delay passing this bill. (If amendments are made, the Senate will need to approve them — and Samoa News understands that senators will not support any new hikes in taxes and fees.)
Pulele’iite agreed with the concerns that additional taxes will be a burden to the community but said that this new information from the Retirement Fund is important to further strengthen the bill’s language, adding that the Retirement Fund board confirmed its approval of the House version, not the Senate version.
Retirement Fund board chairman Aleki Sene Sr. informed Pulele’iite in a Mar. 6 letter that the board held a special meeting that day “and unanimously approved” the House version (H.B. 32-35) and submitted the required actuarial study on the impact of the proposed bill.
The study was conducted by the off-island firm, SageView, who reported that the long term assumed rate of return on assets of the fund is currently 8%.
It also says that terms of the $20 million loan include an interest rate of 7.5% and a term of 10 years, while the refinancing required the additional $2 million to be paid in full by the end of the initial term — about 5.5 years remaining — at the same rate as the initial loan (7.5%).
“Since the loan interest rate is lower than 8%, the loan will potentially create a loss, because the interest payments will be lower than the long term assumed rate of return,” wrote SageView official William M. Dowd.
“Over the remaining term, the difference in interest rates results is a total of approximately $30,000 in reduced interest payments. This is not a material amount in the operation of the Fund and, in actuality, whether or not there will be a loss will depend on a comparison of the total return on the loan versus the total return on other assets that could have been held during the term of the loan,” Dowd explained.
As to the funding source, Dowd said he has no way of knowing whether the tax and fee increases are sufficient to cover the cost of the loan payments, “but the fact that the ASG is obligated to make the payments from other available sources, if necessary, provides additional security” for the Retirement Fund.