The Alaska Housing Finance Corporation and its CEO Dan Fauske have been Alaska's go-to solution for fiscal problems. The independently run state housing agency years ago took on the task of converting the state's multimillion-dollar tobacco settlement payments into immediate cash by using its Wall Street expertise to issue bonds backed by the regular industry payments. That was done at the behest of the Alaska Legislature and governor, and it helped bail the state out of a budget crunch.
More recently, legislators trying to jump-start a small natural gas pipeline from the North Slope that was not attracting private industry backing again turned to AHFC and Fauske. The involvement of the highly regarded housing team helped persuade fellow legislators to commit $400 million or more to one more pipeline study, this time a smaller capacity one aimed primarily at serving the Anchorage-area population center.
"If we have one entity in the state of Alaska that's worked well for all Alaskans under all political regimes, it's been Alaska Housing Finance," said Rep. Mike Hawker, R-Anchorage, explaining why a housing agency was selected to spearhead a pipeline.
Late in the last legislative session, a new problem arose for legislators, when they lost confidence in the management of the Knik Arm Bridge and Toll Authority. The solution: The talented housing agency folks would also handle the billion-dollar toll bridge project.
The goal, said sponsor Rep. Mia Costello, R-Anchorage and a member of the House Finance Committee
, was to "bring our best team forward as partners" to bring new credibility to the bridge project.
Legislators have praised the agency and Fauske as an almost infallible solution to any problem.
"AHFC is taking on a role in state government that I've never seen in my legislative lifetime," said Sen. Johnny Ellis, Senate Democratic leader and a legislator since 1986.
Over the years, AHFC has been viewed by many legislators as the goose that laid the golden egg, making Fauske one of the highest-paid employees. His annual salary of $366,015 will continue in his new job.
Behind the curtain, though, things are not all well.
While legislators have largely ignored the $4.5 billion agency during oversight hearings, it's had a series of financial losses and been forced to slash the dividends it pays the state. In 2010 it lost $10 million, in 2011 it lost $13 million, and in 2013 it lost $30 million, forcing the dividend reductions.
As legislators moved to heap duties on AHFC, ranging from the favored housing program to entirely new lines of business such as pipelines and bridges, they've shown little evidence of being aware of the agency's financial difficulties.
That's not his fault, Fauske said.
"This hasn't been hidden from anyone, this has been discussed, for those who pay attention," he said.
Fauske said "all" legislators know about AHFC's losses. "We certainly testified to that fact," he said.
That testimony took place the House and Senate Finance Committees, Fauske asserted, though was unable to say when.
AHFC staff testimony and PowerPoint presentations reviewed by the Alaska Dispatch occasionally refer to future "challenges," but make no mention of past or future losses.
AHFC staff said that in 2011, the Alaska Budget Report, a subscription newsletter relied on by many legislators, revealed the shrinking dividend.
House and Senate Finance Committee co-chairs did not return phone calls Wednesday.
Rep. Les Gara, D-Anchorage, serves on the House Finance Committee and said he recalls no testimony about losses -- and was surprised to hear of them.
"They've paid a dividend for a number of years, so if they've started to lose money, that's not information that I've been given," he said.
Gara is skeptical of both the small natural gas pipeline plan and the Knik Arm bridge project. Information about AHFC losses might have been useful to legislators evaluating the corporation's role in the projects, he said.
The annual dividend AHFC pays to the state has been slashed, but in past years AHFC has dipped into savings to keep paying the dividend in spite of the lack of profits, compounding the losses to the corporation.
Fauske said that legislators could have discovered AHFC's losses if they'd reviewed its finances, and should have known it was losing money when it stopped paying for some programs, forcing the state to make up the difference.
"Well, it's in our financials, and the programs that we funded (in the past) were funded out of the general fund, meaning that the corporation didn't have the money to fund them," Fauske said.
Gara said AHFC has been profitable for years, and hasn't even been asked about what's happening currently.
"I think we've all been led to believe that they've been making money," he said. Legislators might have been less likely to expand their duties if they'd known that, he said.
Rep. Costello, who sponsored the bill moving KABATA to AHFC, said she and most legislators were unaware of the losses at the corporation when the House approved her bill, but expects it to be discussed in the Senate next year.
"We didn't know anything about AHFC that would give us anything other than confidence in the vote that the House took that would move KABATA," she said.
The financial "challenges" facing AHFC appear to stem not from its own actions, but the turmoil facing the larger economic world. The federal government, in an effort to boost the economy, has until recently driven down interest rates to unprecedented lows with Fannie Mae and Freddie Mac's home loan programs.
AHFC's business model is to borrow money from Wall Street on a tax-free basis and lend it to Alaskans, but now those customers can get cheaper loans elsewhere.
That's left AHFC facing a three-pronged challenge:
• It's making fewer new loans;
• The corporation's profitable existing loan portfolio is diminishing due to refinancings, and
• It can't get good returns on the money it's borrowed and is waiting to lend out.
"I'm not looking for excuses, but a lot of this stuff was so far out of our control that, believe me, if there was anything we could have done about it, we would have," Fauske said.
When the financial problems hit, AHFC thought they'd recover much more quickly than has been the case, he said.
The corporation uses its profits to fund more and better housing programs adapted to unique Alaska needs that other states don't fund, he said. That many not be able to be continued.
"We have to analyze going forward, do we continue doing some of these things or do we shut certain things down," he said.
New AHFC Executive Director Bryan Butcher, formerly Fauske's right-hand man at the housing corporation, said he fully understands the scope of task he's inheriting.
"With the ultra-low interest rates offered by Fannie and Freddie, it's pretty much priced AHFC right out of the market," he said.
While those rates have been a huge positive for Alaskans, he said, they've hurt AHFC. Now that rates appear to be rising, it may make AHFC's loans more competitive.
Even so, AHFC will face challenges in recouping business, Butcher said.
"The real challenge for AHFC is to bring the value to Alaskans that they used to," he said. "The banks and mortgage companies get used to not doing business with you."
Fauske said AHFC's financial difficulties had nothing to do with his decision to leave the executive director position for the gas pipeline development job.
"If you are insinuating that I'm leaving because of financial duress here, I take great exception to that," he said.
Contact Pat Forgey at pat(at)alaskadispatch.com