Legislature(2017 - 2018)SENATE FINANCE 532
04/27/2018 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB56 || HB76 || HB304 | |
| Presentation: Revolving Loan Funds | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 56 | TELECONFERENCED | |
| += | HB 76 | TELECONFERENCED | |
| += | HB 304 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 56
"An Act relating to limitations on certain commercial
fishing loans made by the Department of Commerce,
Community, and Economic Development."
CS FOR HOUSE BILL NO. 76(FSH)
"An Act relating to the mariculture revolving loan
fund and loans and grants from the fund; and providing
for an effective date."
CS FOR HOUSE BILL NO. 304(FIN)
"An Act relating to the Alaska microloan revolving
loan fund and loans from the fund."
9:08:15 AM
Co-Chair MacKinnon relayed that the committee had multiple
bills in committee that pertained to changes in revolving
loan fund programs.
9:09:11 AM
AT EASE
9:12:19 AM
RECONVENED
9:12:49 AM
Co-Chair MacKinnon reiterated that there were multiple
bills in committee pertaining to the subject matter and
that the sponsors of those bills had not been asked to
speak at the meeting. She said that the meeting was not a
hearing on any of the bills in particular but was to create
a baseline of understanding on the programs involved and
their fiscal impact. She noted that there were private
sector loan programs available that were equivalent to the
revolving loans, which begged questions about why the state
was doing work that could be done by the private sector,
whether the state programs were profitable, and how much
benefit they provided to Alaskans.
^PRESENTATION: REVOLVING LOAN FUNDS
9:14:01 AM
BRITTENY CIONI-HAYWOOD, DIRECTOR, DIVISION OF ECONOMIC
DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, discussed the presentation, "Division of
Economic Development INVESTMENTS Loan Programs," (copy on
file).
Ms. Cioni-Haywood presented Slide 2, "Administration of
Loan Programs":
The Division of Economic Development (DED) has been
tasked with administering revolving loan funds (RLFs)
for more than 45 years. Currently, DED administers and
services ten loan funds for the Department of
Commerce, Community, & Economic Development (DCCED).
These programs were primarily designed to support
industries and areas of the state that are not
adequately serviced by the private sector or to fulfil
a public policy goal. Financing may not be readily
available or feasible due to constraints on the types
of collateral, or because of a high level of risk.
Ms. Ciono-Haywood shared that revolving loan funds, or
RLFs, are an important tool in the economic development
toolbox. These funds have real world impacts on Alaskan's
lives. They strengthen our important industries, create
long term employment, and increase private sector lending
and investment. Without a diverse portfolio of loan funds,
economic development stagnates. Especially in rural,
underserved, or distressed areas of the state. The State of
Alaska understood this and created revolving loan funds
that have successfully operated for more than 45 years.
9:14:46 AM
Ms. Cioni-Haywood turned to Slide 3, "Overall Loan
Programs":
• Total number of active loans: 2,020
• Total principal outstanding: $199.05 million
• Total number of loan officers: 8
9:15:07 AM
AT EASE
9:15:30 AM
RECONVENED
Co-Chair MacKinnon relayed that she had asked Senator von
Imhof about the ratio of loan officers to outstanding loan
program in the private sector.
Senator von Imhof asserted that it was difficult to
ascertain the ratio with the information depicted on the
slide. She explained that some funds were administered
differently than other funds and had different methods of
application, tracking, and monitoring.
Co-Chair MacKinnon clarified that the committee was
interested in the positions inside each program, the
workload for each position, and whether there could be a
reduction or elimination of positions based on their
workload.
9:17:18 AM
AT EASE
9:18:16 AM
RECONVENED
Ms. Cioni-Haywood stated that if the information was not in
the presentation to the satisfaction of the committee, she
would provide more information at a later date.
Senator Micciche extrapolated from Slide 3 that there was
an average of 252 loans per position, with and average of
$24 million in value.
Co-Chair MacKinnon thought there was a more in-depth issue
whether it was a matter of simple math or if there was a
disparity of who was handling large sums of money and what
was the delinquency rate.
Ms. Cioni-Haywood stated that all loan officers handled all
types of loans, and there were not specific loan officers
for specific loan programs.
Vice-Chair Bishop asked whether the loan officers executed
other loans within the division outside of the revolving
loans.
Ms. Cioni-Haywood stated that the division provided minimal
support to the Division of Community and Regional Affairs
for their bulk fuel program.
Ms. Cioni-Haywood showed Slide 4, "Active Loan Programs":
• Small Business Economic Development Fund
• Rural Development Initiative Fund
• Alaska Microloan Revolving Loan Fund
• Commercial Fishing Revolving Loan Fund
• Commercial Charter Fisheries Revolving Loan Fund
• Fisheries Enhancement
• Mariculture Revolving Loan Fund
• Alaska Capstone Avionics Loan Program
• Alternative Energy Conservation Loan Fund
Ms. Cioni-Haywood explained these funds are completely
self-sustaining and require no on-going general fund
support. The cost to administer the funds is paid solely
from the earnings. The mature funds have performed
robustly, paid for their operations, and weathered numerous
instances of economic volatility to grow well beyond their
initial capitalization. Over the years, these programs have
assisted thousands of Alaskans. DED also provides loan
servicing for other State agencies. Over the years, DED has
developed the in-house level of expertise and
infrastructure required to readily accomplish the complex
loan servicing functions needed.
9:21:29 AM
Co-Chair MacKinnon asked how agriculture loans were
managed. She wondered whether those loans were under an
additional program
Ms. Cioni-Haywood explained that agriculture loans were
housed within the Division of Agriculture in the Department
of Resources.
Co-Chair MacKinnon asked whether Ms. Cioni-Haywood knew of
how many loan programs existed within state government.
Ms. Cioni-Haywood recalled that Alaska Industrial
Development and Export Authority (AIDEA) had loan funds,
student loan funds existed, as well as the agricultural
loan funds.
Senator von Imhof stated that she had relevant information
in her office (a poster listing various state loan funds).
9:22:27 AM
AT EASE
9:24:01 AM
RECONVENED
Co-Chair MacKinnon and Senator von Imhof held the poster so
as to enable viewing by the video stream.
Senator von Imhof listed loans on the poster. She noted
that the information on the poster was several years old.
She summarized that the State of Alaska did a lot of things
to stimulate the economy. She said that the main question
was whether the state was getting enough return on all the
loan programs.
Co-Chair MacKinnon thought the information on the poster
was important to all Alaskans. The committee wanted to
ensure that funds were being used as they should be, and
not in competition with the private sector.
9:25:58 AM
Ms. Cioni-Haywood reviewed Slide 5, "Small Business
Economic Development Revolving Loan Fund":
Initial Capitalization: $6.7 million
Current fund value: $10 million
As of March 31, 2018:
• 47 Outstanding Loans
• $5.8 million Outstanding
• Delinquency Rate of 4.6%
• Average Loan is $106,300
Ms. Cioni-Haywood explained that the Small Business
Economic Development Revolving Loan Fund was created in
1987 through a federal grant from the Economic Development
Administration (EDA) and matching funds from the state.
The program is intended to finance the startup and
expansion of small businesses that create significant long-
term employment in areas of the state that were
experiencing economic difficulties. DED administers the
SBED on behalf of the Alaska Industrial and Export
Authority through a servicing contract. DED is reimbursed
from the fund's earnings and no general fund appropriations
are necessary.
Co-Chair MacKinnon pointed out that there was a document
with more detail, a white paper detailing each loan, in
member files (copy on file).
Senator von Imhof referenced the first two numbers on the
slide and asked whether there was $10 million to grant
available currently, $5.8 million outstanding and $4.2 left
to grant out.
Ms. Cioni-Haywood answered in the affirmative. She added
that the initial capitalization was $6.7 million, the fund
had grown to $10 million, and there was $5.8 in outstanding
principal in loans.
Senator von Imhof asked about the fund growth and wondered
whether the value of the loans was higher or had more money
been put into the Revolving Loan Fund.
Ms. Cioni-Haywood explained that there had been earnings on
the fund, as well of repayments to constitute the majority
of the fund growth.
Senator von Imhof had additional questions that she would
send via email.
9:28:44 AM
Vice-Chair Bishop asked whether the entire fund was owned
by AIDEA.
Ms. Cioni-Haywood answered in the affirmative, and stated
that the division actively managed the fund, but did not
own it.
Co-Chair MacKinnon asked when the fund was last audited.
Ms. Cioni-Haywood answered that the fund was audited
annually by an independent auditor.
Co-Chair MacKinnon understood that the Division of
Legislative Budget and Audit had not reviewed the practices
in the loan programs.
Ms. Cioni-Haywood responded that all of the loan funds were
audited, as part of the statewide audit, on an annual
basis.
Ms. Cioni-Haywood continued to address Slide 5. She shared
that over the 31-year life of the SBED it has created or
saved over 1,000 jobs, leveraged over $41 million in
private funds, and produced over $20 million in loans. She
continued to explain that loans cannot be made if a bank is
willing to finance the entire project. Applicants must
first apply to a bank and receive either a denial or a
letter stating that they are only willing to finance part
of the project. Loans must result in the creation of jobs
in the target community. Matching funds are required at a
ratio of 1.5 to 1, or 60% of the funds must come from non-
governmental sources. The fund started at $6.69 million and
has grown to over $10 million today.
9:30:39 AM
Co-Chair MacKinnon asked about delinquency rates and
underlying provisions for issuing a loan, such as matching
funds.
Ms. Cioni-Haywood stated that the program worked with the
borrowers. There were instances in which there were
modifications made to the loan. There were instances in
which the division would work with borrowers to get them
back on track should they fall delinquent.
Co-Chair MacKinnon asked whether there were standardized
procedures for delinquency and modifications for the loans
under discussion.
Ms. Cioni-Haywood stated that she could only speak to how
the department handled the loans and was not sure how AIDEA
handled the matter. She AIDEA had a 90-day delinquency. She
relayed that DCCED looked at loans on a case-by-case basis.
She said that once loans had been delinquent 30 days, DCCED
actively began to work the loan.
Co-Chair MacKinnon asked whether there were standardized
policy and procedures for the application process and for
instances of delinquency.
JIM ANDERSEN, DEPUTY DIRECTOR, DIVISION OF ECONOMIC
DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, explained that most of the loan programs had
the criteria built into either regulations or statutes. He
said that the revolving loan program was done through Title
10 of the Economic Development Act through the federal
government. He said that at 16 days delinquent the loans
under the program were worked and that a person with a
delinquent loan could not qualify for further credit. He
said that the collections staff worked "soft collections"
up to "enforced collections." He stressed that the work was
done to recover the funds and get them back in the loan
fund so that they could continue to revolve.
Co-Chair MacKinnon asked if refinancing was an option for a
delinquent loan that could extend the terms of the loan.
Mr. Anderson replied that the ability to extend was an
option. He said that it would need to be determined that
rehabilitation could be achieved through refinancing or and
extension.
9:35:18 AM
Senator Micciche had seen the value of the loans. He asked
whether data was kept on the program since 1987 to track
the success of businesses created under the loans.
Mr. Anderson relayed that the federal government required
extensive data collection on the program and the jobs
created in communities as a result of the loans. He said
that jobs created were tracked for most of the programs. He
noted a program that had spurred $41 million in private
investment as a result of the loan program.
Senator Micciche observed two of loan funds that had a
higher delinquency rate. He asked whether the two loan
funds were considered higher risk because of the businesses
associated with the loans.
Mr. Anderson replied that the Alaska Microloan Revolving
Loan and the Small Business Economic Development loans were
from relatively small funds, so one loan showed up as a
higher percentage; the law of large numbers.
9:38:00 AM
Senator von Imhof asked how the state secured collateral
for the loans. She asked whether personal guarantees were
required from borrowers.
Mr. Anderson shared that personal guarantees were required
every 100 percent of the time. He said that the division
took a Unified Commercial Code-1 (UCC) financing statement
on all loans. He furthered that a lien was taken on
anything that the state spent its money on, deeds of trust
and security agreements were also implemented.
Vice-Chair Bishop asked whether the division managed fund
for AIDEA.
Ms. Cioni-Haywood answered in the affirmative.
Vice-Chair Bishop asked whether there was an RSA agreement
with AIDEA for the loan officers to execute the loans.
Ms. Cioni-Haywood stated that there was a memorandum of
agreement between the department and AIDEA.
Co-Chair MacKinnon recalled that some of the bills in
committee were proposing increased loan values for larger
loans. She thought 4.6 was a higher rate of delinquency
than she was comfortable with. She asked how increasing the
size would help Alaskan businesses but put at risk more of
the fund capitalization amount to other lenders. She
wondered about a proposal to turn one loan fund into a
grant.
9:40:43 AM
Ms. Cioni-Haywood stated that HB 56 (looking to change the
loan limits) was in the Commercial Fishing Revolving Loan
Fund and was one of the departments oldest and largest
funds. The overall limit that would be lent would not
change, only certain sections of the program. She noted the
fund had not kept up with the market as far as the price of
fishing vessels, which required more flexibility for
borrowers and to allow the fund to do what it had been
established to accomplish.
Ms. Cioni-Haywood stated that HB 76 had a grant program
established within the bill, which was modelled off the
Fisheries Enhancement Program. She related that within the
program there had been money established for the planning
and construction of hatcheries, most of the grants had been
utilized early on and were limited to one type of hatchery.
9:43:21 AM
Co-Chair MacKinnon reiterated her question about whether
more grants from the fund if it would erode borrowing
power.
Ms. Cioni-Haywood answered that allowing for grants would
make it more difficult to revolve the loan fund, but not
impossible.
Co-Chair MacKinnon asked whether it would limit the
borrowing capability for others.
Ms. Cioni-Haywood answered that the grants would be
distributed, which would limit the amount of money
available for loans.
Senator von Imhof wondered why borrowers were not
qualifying for traditional bank loans.
Mr. Anderson stated that under the Commercial Fisheries
Loan Fund Program (CFRLF) the division dealt with Limited
Entry Permits. He explained often the person trying to buy
a boat was young and without much capital to invest. He
asserted that the program allowed people begin earning a
living and building a net worth, which also building the
credit necessary to procure traditional financing.
9:46:32 AM
Senator von Imhof asked whether there was a way that banks
could participate.
Mr. Anderson responded that he did not know.
Senator von Imhof wondered why the state should assume the
risk when private banks would not assume the risk.
Mr. Anderson stated that the CFRLF was created to keep
fisheries largely resident. He shared that the intent had
been to invest in residents to build the legacy industry.
The loan program had been in existence for over 45 years
and had been successful in meeting its goals.
Vice-Chair Bishop asked whether an 18-year-old fisher could
have a commercial limited entry permit, which could provide
some surety on the loan.
Mr. Anderson stated that 80 percent of the purchased permit
was considered collateral on the loan.
Vice-Chair Bishop asked whether the permit was ultimately
owned by the state.
Mr. Anderson replied that the state had an equitable
interest in the permit, but not an ownership interest. The
permit belonged to the state and could be revoked anytime
without compensation.
9:49:24 AM
Co-Chair Hoffman thought the program had worked well for
the state, and that the control to keep the permits in
Alaska was better kept under the current system. He
believed that the risk to the state of the programs was
minimal, especially when considering the amount of jobs and
income they provided to the state.
Senator Micciche thought that a permit was not security. He
pointed out that an individual never had ownership. He
pointed out that the value in a vessel was not a
traditional asset. He agreed that the program had worked
well and had been well run.
9:52:52 AM
Co-Chair Hoffman commented that even wit the program the
state had a major problem with permit holders exiting the
state at an alarming rate over the past decade. He believed
that this program helped to slow the exodus out of the
state and provided jobs for Alaskans.
Senator von Imhof reminded the committee that there were 9
programs in the presentation that varied in a number of
ways. She thought that the "revolving" loan fund did not
really revolve. She thought that the risk to the state
should be appropriately mitigated.
9:55:23 AM
Co-Chair MacKinnon wondered why the state did not terminate
fishing permits after 10 or 20 years after the permit
holder left the state.
Co-Chair Hoffman thought it was a constitutional issue. He
said that the bigger question was how to bring the permits
back to Alaska. He said that the Bristol Bay Native
Corporation had been allowed to acquire permits and then
sell them to fishermen. He thought that the state needed to
research the issue and noted that the permits were being
purchased by people with more financial resources and
technical resources than Alaskans could afford.
Co-Chair MacKinnon knew there had been buy-back programs in
the past. She wondered why more permits were not issued for
smaller lengths of time, in order to limit the volume and
price. She though that if the permits could not be returned
due to the interstate commerce clause, perhaps other
permits that created competition in state waters could aid
Alaskans.
Co-Chair Hoffman thought the industry had to be highly
capitalized, and shorter permits brought the economics into
question. The salmon only ran during a certain timeframe,
which complicated the issue.
9:59:21 AM
Senator Micciche thought there was a lot of things the
state would do differently if it were not for the
constitution. He stated that the Interstate Commerce Clause
was problematic for Alaska more than other states.
10:01:10 AM
Senator Stevens had heard that the department did not
consider that the loan programs were in competition with
banks. He surmised that more permits would have left the
state were it not for the loan program. He noted that young
people should be supported in braking into the industry. He
revisited the point that the loans were only given when
bank loans were denied.
Ms. Cioni-Haywood stated that not all but many of the loan
programs did require a bank denial for financing. There
were overlaps between the division's constituencies and the
private sector, but they were not identical. She said that
the primary purpose was to provide loans to Alaskans and
industries that could not get traditional financing, which
was why a bank denial was required for many of the
programs. She reiterated that program participants were
staring out and ran small operations, typically in rural
areas. She added that the loan limits were low, and the
microloans were even smaller, which limited the competition
factor with banks.
10:04:02 AM
Senator Stevens asked whether the division was receiving
complaints from the banking industry related to the loans.
Ms. Cioni-Haywood had not discussed the matter and had not
been approached on the subject. She recognized that there
was talk of competition and a shared constituency. She
stressed that there were significant differences between
the state loan programs and bank loans.
Vice-Chair Bishop stated that his family had five permits
in 1977. He said that his family would procure financing
from a bank for equipment but had to get a DCCED loan to
open a fish processing plant. He said that after his family
had built some equity, they were able to benefit from
private banks.
10:06:12 AM
Ms. Cioni-Haywood spoke to Slide 6, "Rural Development
Initiative Fund":
Initial Capitalization: $3.42 million
Current fund value: $7.5 million
As of March 31, 2018:
• 42 Outstanding Loans
• $4.3 million Outstanding
• Delinquency Rate of 0.0%
• Average Loan is $95,100
Ms. Cioni-Haywood stated that the Rural Development
Initiative Fund was created in 2000 to provide financing to
small businesses and create long-term, meaningful
employment in rural communities. This program provides
capital that is difficult to obtain in rural Alaska. RDIF
replaced a similar program administered for many years by
the Department of Community and Regional Affairs. DED
administers the RDIF on behalf of the Alaska Industrial
Development and Export Authority through a servicing
contract. DED is reimbursed from the fund's earnings and
no general fund support is necessary. Over the 18-year
life of the RDIF, over 600 jobs have been created or saved
as a result of these loans. She furthered that RDIF loans
are usually used for the start-up or expansion of small
businesses. Loans must result in the creation of jobs in
the target community, and a reasonable amount of non-state
money (at least 10%) must be invested in the project.
Often, the projects are a combination of a bank loan,
borrower capital, or seller financing in addition to RDIF.
Since the inception of the RDIF, loans have been made to
diverse business sectors across the State. RDIF funds can
be used in a variety of ways to create or retain jobs. Loan
examples Taxi Company, Newspaper, Freight Vessel, RV
Park, Dress Shop, Pet Grooming, Computer Repair, Auto Parts
Store, Sanitation Company, Dare Care Center, Etc. The
fund started (2000) at $3.42 million and has grown to over
$7.5 million today.
10:08:07 AM
Ms. Cioni-Haywood discussed Slide 7, "Alaska Microloan
Revolving Loan Fund":
Initial Capitalization: $2.5 million
Current fund value: $2.58 million
As of March 31, 2018:
• 9 Outstanding Loans
• $185,000 Outstanding
• Delinquency Rate of 6.0%
• Average Loan is $20,600
Ms. Cioni-Haywood relayed that the Alaska Microloan
Revolving Loan Fund was created in 2012. This legislation
established the public policy goal of promoting economic
development in Alaska by assisting small businesses and
entrepreneurs who are not currently in a position to seek
traditional financing. This access will facilitate startup,
expansion, and job creation throughout Alaska, with a
specific policy emphasis on rural communities. The goal is
for the business to become stable enough for traditional
bank financing and refinance the microloan as additional
capital needs become necessary. Applicants can use these
funds for working capital, equipment, construction, or
other commercial purposes. A reasonable amount of non-state
funds is usually at least 10% but is determined at the time
the project is evaluated. A bank denial is required for
loan requests of $35,000 and above. This threshold for a
bank denial was developed in consultation with the private
finance community at the time the original legislation was
developed. She said that loan growth is developing; out of
33 applications received, 14 loans have been made. The fund
started at $2.5 million and has grown slightly to $2.58
million today. ($2,587,237 = Growth of $87,237) She
concluded that the delinquency rate is from one loan.
10:09:49 AM
Ms. Cioni-Haywood displayed Slide 8, "Commercial Fishing
Revolving Loan Fund":
Initial Capitalization: $60.2 million
Current fund value: $128.7 million
As of March 31, 2018:
• 1,671 Outstanding Loans
• $95.5 million Outstanding
• Delinquency Rate of 1.9%
• Average Loan is $55,300
Ms. Cioni-Haywood related that the CFRLF was created in
1972 to ensure Alaskans had access to their fisheries. The
program promotes Alaskan ownership and the development of
predominantly resident fisheries. The fund has played a
major role in keeping Alaska's fisheries resident, and has
been an effective tool for assisting the next generation of
Alaskans to enter the fisheries. The average age of a
borrower is more than 7 years younger than the average age
of a permit holder. The fund is totally self-sufficient and
has received no general fund support since FY1985. In spite
of the extreme challenges the commercial fishing industry
has faced over the years, the fund has continued to
generate solid cash flow to cover loan demand and operating
costs. Over the 46-year life of the fund thousands of
Alaskans have been assisted by this program.
Loans can be used by resident fishermen for:
• The purchase of Limited Entry permits for salmon,
herring, crab, and other fisheries limited by the
State and federal government.
• To purchase, refinance, or upgrade vessels, for
product quality, engine efficiency, improvements, or
repairs.
• To purchase gear such as; nets, brailer bags,
outboards, or gear to diversify into other fisheries.
• To purchase of Individual Fishing Quota Shares to
catch halibut and black cod.
• We also have a program to pay past due taxes to IRS
where the limited entry permit might be in danger of
being seized by IRS, and the resident might lose their
ability to make a living. This also serves the State's
interest in preserving the nature of limited entry
permits and maintaining domain over its natural
resources.
Competition: It is important to point out that the
constituencies served by the CFRLF, CFAB, and private
sector lenders are not identical. While there is some
overlap, one of the primary purposes of the CFRLF is to
provide loans to Alaska commercial harvesters that do not
have access to traditional financing. These borrowers tend
to be just starting out, run a small operation, live in a
rural cash economy, or may not be familiar with financing.
The low loan limits built into the program also ensures
that the CFRLF does not become a primary lender. In
creating the CFRLF, the Legislature felt it was important
to help Alaskans maintain control of their fisheries by
supporting a predominately resident fleet, in spite of the
fact that many did not fit the standard lending model.
While this does increase the overall risk of the CFRLF
portfolio, the Division of Economic Development has
developed policies that are intended to strike a balance
between maintaining a healthy loan fund and being flexible
enough to work with borrowers through difficult time (Bank
turndown required for Sections (B), (C), (E), however we
would like to note that under Sections (A), (D), (F), and
(11), a turndown letter is not required. In particular,
Section (A) refers to limited entry permits and the product
quality and fuel efficiency loans.) The fund started at
$60.2 million and has grown to over $128.7 million today.
10:11:23 AM
Co-Chair MacKinnon asked for the date the fund was created.
Ms. Cioni-Haywood stated it was created in 1972.
Senator von Imhof understood the purpose of the CFRLF. She
thought that it would be helpful to see a look back of how
the loan had worked overtime; such as, borrower numbers and
delinquency rates. She felt that an honest critique of the
CFRLF would be helpful.
Co-Chair MacKinnon interjected that she wanted to see some
standardization of loan requirements. She did not see the
point of applying unique requirements to different loans.
She stressed that there should be efficiency for loan
officers in providing some basic criteria for economic
opportunities. She thought that the uniqueness of the
programs made work difficult for loan officers.
Co-Chair MacKinnon commented on the diverse nature of the
committee members' background.
10:15:28 AM
Vice-Chair Bishop looked at the initial capitalization of
$60.2 million and mused about the 1977 capitalization and
subsequent capitalizations up to 1985.
Co-Chair MacKinnon thought that the loans were a part of
the conversation about how Alaska would solve its budget
problems.
10:17:22 AM
Ms. Cioni-Haywood looked a Slide 9, "Commercial Charter
Fisheries Revolving Loan Fund
Initial Capitalization: $5 million
Current fund value: $5.08 million
As of March 31, 2018:
• 1 Outstanding Loans
• $26,600 Outstanding
• Delinquency Rate of 0.0%
Ms. Cioni-Haywood noted the Commercial Charter Fisheries
Revolving Loan Fund was created in 2012 in response to the
National Marine Fisheries Services instituting the Charter
Halibut Limited Access program. This legislation
established the public policy goal of promoting resident
ownership of Charter Halibut Permits by Alaskans that may
not be able to obtain financing elsewhere. Refinance: To be
able to refinance a charter vessel for up to $100,000, the
applicant must have a regular long term note in place for a
minimum of 12 months before it can be considered for
refinancing by this program. This program can only be used
to purchase a charter halibut permit for up to $200,000 or
refinance an existing vessel loan for up to $100,000.
Package deals cannot be financed.
The fund started at $5 million and has grown slightly to
$5.08 million today. ($5,085,553 = $85,553 growth)
(Due to the delayed rule making by the Federal Government
and the complex package sales of these permits, loan growth
has been slow under the fund since inception. The fund is
narrow in scope, and is not effective in assisting charter
operators outside of purchasing a halibut charter permit)
(Most or all of the funds were re-appropriated during this
session. The final outcome will be determined in conference
committee.)
10:18:21 AM
Co-Chair MacKinnon asked where the corpus of the funds
resided and whether they were being invested.
Ms. Cioni-Haywood stated that the assets were managed by
the Department of Revenue, Division of Treasury.
10:18:57 AM
Ms. Cioni-Haywood referenced Slide 10, "Fisheries
Enhancement Revolving Loan Fund":
Initial Capitalization: $84.7 million
Current fund value: $123.3 million
As of March 31, 2018:
• 122 Outstanding Loans
• $88.3 million Outstanding
• Delinquency Rate of 0.0%
• Average Loan is $516,400
Ms. Cioni-Haywood stated that the FERLF program was created
in 1976 and has been instrumental in the development of
Alaska's salmon hatcheries. The program is intended to make
loans available to Regional Aquaculture Corporations and
Private non-profit Aquaculture Corporations for the
planning and implementation of salmon enhancement and
rehabilitation activities. The development of Alaska's
hatchery program has been an evolutionary process. Several
attempts at the hatchery production of salmon have been
undertaken by the federal government and private industry
but were largely unsuccessful because hatchery technology
was crude and underdeveloped. This program sought to
overcome the problems of the past and facilitate the
development of a viable salmon enhancement system. Over the
42 years of this program there has been great strides in
technology and production, and despite the extreme
volatility experienced in the development of Alaska's
hatcheries, the fund is meeting its mission and has
continued to generate solid cash flow to cover loan demand
and operating costs. There are 29 salmon hatcheries
currently operating in the state. 25 facilities are
operated by private nonprofit corporation. In 2017 alone,
the commercial fleet caught about 47 million hatchery-
produced salmon. This harvest was worth an estimated $331
million in first wholesale value and $162 million in ex-
vessel value. The fund started at $84.7 million and has
grown to over $123 million today. ($123,360,787)
Co-Chair MacKinnon asked about the timeline reflected for
the delinquency rates shown on the presentation slides.
Ms. Cioni-Haywood stated that the delinquency rates
reflected the delinquency rate as of March 31, 2018.
Co-Chair MacKinnon felt that the delinquency rates were not
properly represented. She spoke of an issue with a project
in Kake, Alaska.
Ms. Cioni-Haywood informed that the delinquency rate looked
at the percentage of loans in the portfolio that were past
due on payments. She shared that in the situation in Kake
the decision had been made to discontinue the loan, which
shifted to an attempted facilitated sale that failed and a
foreclosure process had been implemented. She said that the
state would recoup as much as possible from the held
assets. She did not believe that the entire situation had
been resolved. She believed that $2.5 million had been
recovered.
10:23:10 AM
Co-Chair MacKinnon thought there needed to be an audit of
the chain of events in Kake. She wondered how an $18
million loan could be granted when the recipient had only
$2 million in assets to start. She understood that there
was volatility in the hatchery business but wondered how
the state could have failed to assess more obvious risks.
10:24:28 AM
AT EASE
10:26:43 AM
RECONVENED
Ms. Cioni-Haywood replied that there was significant
volatility within the hatchery industry. She cited hurdles
such as the farmed fish crisis, the Exxon-Valdez oil spill,
and lost fish runs. She explained that the Kake hatchery
had suffered water supply and quality issues as well as
runs that did not return. She said that the loans had been
made over a substantial period of time and that reconciling
the issue had also taken time.
Co-Chair MacKinnon appreciated the comments. She stated
that the issue was how the department responded to the
challenges and protecting the states assets. She cited the
delinquency rate on Slide 10, and wondered how it was so
low, and whether loans were being written off.
Ms. Cioni-Haywood affirmed that the delinquency rate was
correct. She said that as of March 31, the division had not
had a late loan payment. She stated that once a loan was
non-performing, and the possibility of rehabilitation did
not exist, the loan was no longer classified as a loan
receivable and was no longer included in the calculation of
the delinquency ratio. She said such accounts would be
reclassified as a judgement, or doubtful, account and was
reflected in the comprehensive annual financial report
(CAFR).
10:30:19 AM
Co-Chair MacKinnon requested a written definition (from
regulation) as how delinquency was determined. She asked
whether the slide reflected a lookback from a year or 3
months ago.
Mr. Anderson reiterated that the delinquency rate was a
snapshot in real time. When a loan became unrecoverable,
the division followed a standard charge-out process. The
payments on the loans were done once per year, which
allowed hatcheries to process cost recovery, get payments
form processers, and make payments. He said that the
hatcheries utilizing the loans right now were making on
time payments and were not delinquent.
Co-Chair MacKinnon clarified that the committee wanted a
delinquency rate that considered the lifetime of the
program. She said this would determine how many loans the
division was writing off. She appreciated the value of the
philosophy behind the loans but needed assurances that
loans should be increases and extended.
10:33:15 AM
Senator von Imhof thought that the bad debt write-off
should be included in the presentation. She felt that
listing a zero percent delinquency rate and not including
any information from CAFR made the presentation incomplete.
Vice-Chair Bishop looked at the fund on Slide 10 and asked
about the initial capitalization of the fund.
Co-Chair MacKinnon reiterated that the fund had not
received any operating funds since 1976.
Mr. Anderson understood that the fund capitalizations had
ended in the late 1970s.
10:35:17 AM
Senator Micciche hoped that the department could provide
the requested information on delinquency. He asked about
cost recover for the Fisheries Enhancement Revolving Loan
Fund. He wondered whether the department could cost recover
after a loan had been called, to try to recoup some cost.
Ms. Cioni-Haywood stated that hatcheries did cost-recovery
in order to recoup their costs and b=payback their loans.
She said that the cost recovery she had referred to was
after the foreclosure of the Kake Hatchery, there were
still fish out at sea, so the state entered into a contract
in order to harvest those fish once they returned.
Senator Micciche asked whether it was a terminal fishery or
would fish return to the area.
Mr. Anderson that it was a terminal harvest and that when
the hatchery failed there had been fish in the barn, which
the state now held a lien against; including eggs.
Unfortunately, some of the runs had failed but the coming
summer had better indications.
10:37:47 AM
Senator Micciche believed that all Alaskans benefitted from
hatchery production. He was interested to see if there had
been other delinquent loans in past years.
Co-Chair MacKinnon reiterated that the conversation
recognized that the programs were helpful to Alaskans but
that the cost associated with the programs could be
problematic. She said that legislation related to the loans
could not move unless the committee had a full financial
understanding of cost to the state.
10:39:36 AM
Ms. Cioni-Haywood presented Slide 11, "Mariculture
Revolving Loan Fund":
Initial Capitalization: $5 million
Current fund value: $5.1 million
As of March 31, 2018:
• 6 Outstanding Loans
• $597,000 Outstanding
• Delinquency Rate of 0.0%
• Average Loan is $99,500
Ms. Cioni-Haywood stated that the Mariculture Revolving
Loan Fund was created by the Legislature in 2012. This
program is intended to help develop Alaskan owned
mariculture operations and diversify economic opportunities
in coastal communities by providing financing to
mariculture businesses that may not have other financing
available. She said recipients must have a permitted
mariculture farm location in Alaska and must have
experience/training in the mariculture industry. She
furthered that applicants must be an Alaskan resident for
24 consecutive months prior to us receiving the
application. Loans cannot be made to pay costs incurred
more than 12 months before receipt of application. May not
have any child support arrearage. The fund started at $5
million and has grown slightly to $5.1 million today.
($5,136,186 = $136,186 growth)
10:40:30 AM
AT EASE
10:40:45 AM
RECONVENED
Co-Chair MacKinnon referenced HB 76. She asked about
removing the one-time limitation for grants, which would
devalue the amount available for others through the
revolving loan program. She asked whether the bill
contained an enhancement program.
Ms. Cionid-Haywood believed there was a separate
enhancement bill (HB 128).
Ms. Cioni-Haywood turned to Slide 12, "Alaska Capstone
Avionics Revolving Loan Fund":
Initial Capitalization: $4.8 million
Current fund value: $5.2 million
As of March 31, 2018:
• 5 Outstanding Loans
• $156,000 Outstanding
• Delinquency Rate of 0.0%
• Average Loan is $31,200
Ms. Cioni-Haywood stated that the Alaska Capstone Avionics
Revolving Loan Fund was created by the Legislature in 2008
as part of a joint industry effort to improve aviation
safety and economic efficiency in Alaska by financing the
installation of a new generation of avionics. The Federal
Aviation Administration (FAA) required a commitment from
the State of Alaska to make the avionics accessible before
it was willing to complete the $900 million-dollar
infrastructure build out of the Capstone/NextGen Avionics
system. The Alaska Capstone Avionics Revolving Loan Fund
met this need and the build out has proceeded. However, due
to slow governmental rulemaking, the general aviation
community has not yet embraced the technology and most
likely there will not be widespread adoption of the system
until the FAA mandate requires it in 2020. DED believes as
this date approaches the fund will see heavy use (Program
is set to sunset in 2020) (FAA rules will require after
January 1, 2020 that aircraft that fly into controlled
airspace are outfitted with ADS-B.) All aircraft must at a
minimum, be equipped with an Automatic Dependent
Surveillance - Broadcast (ABS-B) data link system or sign
an intent to equip loan agreement allowing up to 36-months
from date of Promissory Note to equip aircraft with ADS-B.
ADS-B: This equipment broadcasts the position of the plane
to other aircraft and ground stations. Aircraft in Alaska
equipped with the Capstone avionics had 47% fewer accidents
and 33% fewer fatalities. The fund started at $4.8 million
and has grown slightly to $5.2 million today. ($5,208,259 =
$408,259 growth)
Co-Chair MacKinnon asked if the state set a date to
extinguish the program by 2020 whether that would motivate
people to access the funds sooner rather than later.
Ms. Cioni-Haywood considered Co-Chair MacKinnon's question.
She said that she could not speak to how the industry would
react to that hypothetical.
Co-Chair MacKinnon acknowledged that she had asked an
unfair question. She wondered how the state could get
implementation of timelier product utilization.
10:44:31 AM
Senator Olson stated that Capstone was a significant
investment that many private pilots would not invest in
without excessive resources. He said that air taxis sought
waivers to operate without Capstone. He said that it was
true that there had been a significant decrease in
accidents, but he did not think it was solely attributable
to Capstone.
Senator von Imhof was familiar with Capstone, and knew it
was very costly. She noted that technological advances were
helping to lower cost. She agreed with Co-Chair MacKinnon
that the loan was not widely publicly known. She praised
the Capstone avionics but lamented the price.
10:46:53 AM
Senator Micciche questioned the Sport Fish Charter Loan
Fund, which he believed was underutilized. He asked whether
advertising was done in industries so that people knew
about the loans available to them.
Ms. Cioni-Haywood responded that several outreach methods
were used to inform people about the loans. She deferred to
Mr. Anderson.
Mr. Anderson said that outreach was conducted and in
various ways, through newsletter and direct contact with
stakeholder organizations.
10:48:59 AM
Ms. Cioni-Haywood showed Slide 13, "Alternative Energy
Conservation Revolving Loan Fund":
Initial Capitalization: $2.5 million
Current fund value: $2.75 million
As of March 31, 2018:
• 0 Loans Outstanding
Ms. Cioni-Haywood stated that the purpose is to provide
commercial business owners access to affordable loans to
purchase, construct and install alternative energy systems
or energy conservation improvements in commercial
buildings.
Must be for the purchase, construction or installation of
alternative energy systems or energy conservation
improvements in commercial buildings. Applicant must be an
Alaskan resident for 12 consecutive months prior to us
receiving the application. Loans may not be made to pay
costs incurred 4 months prior to us receiving the
application. Must result in alternative energy production
or energy conservation. Must not have no child support
arrearage. The fund started at $2.5 million and has grown
slightly to $2.75 million today. ($2,756,331 = $256,331
growth)
Co-Chair MacKinnon reiterated her desire for information
pertaining to the Kake project and the financial timeline
of that loan. She added that she wanted information about
the delinquency rate over the life of each loan.
10:51:19 AM
MIKE NAVARRE, COMMISSIONER, DEPARTMENT OF COMMERCE,
COMMUNITY, AND ECONOMIC DEVELOPMENT, relayed that he had
spoken to committee members and understood the concerns
held by the committee. He listed the various talking points
that would be followed up on by the department. He did note
that the Kake loan situation spanned 40 years and included
a number of loans and several different administrations. He
said that the pieces of legislation before the committee
did identify areas where the loans could be improved.
Co-Chair MacKinnon discussed housekeeping.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 042718 DCCED 2018 Investments SFIN 4.27.18.pdf |
SFIN 4/27/2018 9:00:00 AM |
Revolving Loan Funds |
| 042718 DCCED Revolving Loan Funds - White Papers.pdf |
SFIN 4/27/2018 9:00:00 AM |
Revolving Loan Funds |