Legislature(2017 - 2018)ADAMS ROOM 519
04/11/2018 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB221 | |
| HB304 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 221 | TELECONFERENCED | |
| += | HB 255 | TELECONFERENCED | |
| + | HB 304 | TELECONFERENCED | |
| + | HB 384 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 11, 2018
9:06 a.m.
9:06:17 AM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 9:06 a.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Representative Harriet Drummond, Sponsor; Stephanie Butler,
Executive Director, Alaska Commission on Postsecondary
Education, Department of Education and Early Development;
Kelly Cunningham, Analyst, Legislative Finance Division;
Britteny Cioni-Haywood, Director, Division of Economic
Development, Department of Commerce, Community and Economic
Development.
PRESENT VIA TELECONFERENCE
None
SUMMARY
HB 221 WORKFORCE & ED RELATED STATISTICS PROGRAM
CSHB 304 (FIN) was REPORTED out of committee with
a "do pass" recommendation and with one
previously published zero fiscal note: FN1(CED).
HB 304 MICROLOAN REVOLVING FUND & LOANS
HB 221 was REPORTED out of committee with a "do
pass" recommendation and with two previously
published zero fiscal notes: FN1(CED) and
FN2(LWF).
HB 384 REGULATORY COMM OF AK; BROADBAND INTERNET
HB 385 was SCHEDULED but not HEARD.
Co-Chair Foster reviewed the agenda for the day.
HOUSE BILL NO. 221
"An Act relating to the duties of the Alaska
Commission on Postsecondary Education; relating to a
statewide workforce and education-related statistics
program; relating to information obtained by the
Department of Labor and Workforce Development; and
providing for an effective date."
9:08:05 AM
Co-Chair Foster indicated that the bill had been heard on
April 2, 2018 and public testimony has been closed.
9:08:52 AM
REPRESENTATIVE HARRIET DRUMMOND, SPONSOR, introduced
herself. She reported that failure to pass the bill would
result in a great deal of wasted work and lost
opportunities for the state. She elaborated that the bill
clarifed the authority of the Alaska Commission on
Postsecondary Education (ACPE) to receive and analyze de-
identified existing data. She stated that the current
Memorandum of Understanding (MOU) would likely not be
renewed and expired the current fiscal year. The potential
loss of data would result in the destruction of
approximately 10 years of data and difficulty in attracting
additional funding. She reported that about $800 thousand
to $1 million, representing roughly 25 percent of the
federal grant, was invested in developing file preparation
necessary to load the data. A data base without use would
need funding to be reestablished. Cross sector analysis for
outcomes reports would be inefficient and cost 25 percent
more to generate. The bill provided the opportunity for the
legislature to receive data needed to best allocate scarce
educational and training resources. The state would realize
the full potential of the original $4 million grant that
created the "Outcomes Database".
9:11:43 AM
Representative Wilson MOVED to ADOPT Amendment 1 (copy on
file):
Page 3, following line 19:
Insert a new subsection to read:
"(d) The commission shall provide a method
for an individual whose information is received
under this section, AS 14.42.030(e)(7) and (8),
and AS 23.20.110 to opt out of the individual's
unit record being used for the purposes of this
section."
Reletter the following subsection accordingly.
Vice-Chair Gara OBJECTED for discussion.
Representative Wilson reviewed the amendment. She explained
that the amendment offered an opt out provision. The
amendment would allow anyone who objected to their
information being utilized could opt out.
Representative Drummond responded that the adoption of the
amendment would result in a fiscal impact note. She pointed
out that it was not possible to opt out of the data
collection for the Outcomes analysis and much of it was
required by federal law. An opt out provision required the
storage of personal information in order to track
individuals that opted out and halt further tracking, thus
nullifying the de-identified process for the database. The
person that wanted to opt out was required to provide a
full name, signature, date of birth, and social security
number and apply to the Outcomes Database. The database was
not designed to provide data on individuals since the data
was de-identified.
9:13:56 AM
Representative Guttenberg understood the intent of the
amendment but surmised that the data was aggregated and de-
identified and opting out would create an identifier. He
asked whether he understood correctly.
STEPHANIE BUTLER, EXECUTIVE DIRECTOR, ALASKA COMMISSION ON
POSTSECONDARY EDUCATION, DEPARTMENT OF EDUCATION AND EARLY
DEVELOPMENT, responded in the affirmative. She added that
the identified information would have to be saved to be
removed from the database.
Vice-Chair Gara objected to the amendment because the APCE
stated that the Outcomes Database did not contain an opt
out option and he did not understand the need for the
amendment since the information remained confidential.
Representative Wilson believed people had a right to
protect their information and that people collecting
unemployment were unaware that the data was being
collected.
A roll call vote was taken on the motion.
IN FAVOR: Pruitt, Thompson, Tilton, Wilson
OPPOSED: Grenn, Guttenberg, Ortiz, Gara, Foster
The MOTION FAILED (4/5).
Co-Chair Foster directed Vice-Chair Gara to review the
fiscal notes.
9:17:57 AM
AT EASE
9:20:39 AM
RECONVENED
Vice-Chair Gara reviewed the fiscal notes. He reported that
the zero fiscal note from the Department of Commerce,
Community and Economic Development (DCCED) (FN1 (EED) was
appropriated to the APCE. The second zero fiscal note from
the Department of Labor and Workforce Development (DLWD)
(FN2 (LWF) was appropriated to Employment and Training
Services.
9:21:41 AM
Representative Wilson referred to the analysis from page 2
of the DLWD fiscal note where it indicated a cost was
associated with the bill. She read the fiscal note
analysis:
This legislation would allow the department to
disclose data employers submit for mandatory
unemployment insurance (UI) reporting to the Alaska
Commission on Postsecondary Education in support of a
statewide workforce and education related statistics
program. However, 20 CFR 603 prohibits the use of the
UI Administrative Grant to pay for costs associated
with disclosures. Therefore, the requestor must pay
for all costs associated with the disclosure of
permissible records.
The department is unable to estimate costs associated
with these disclosures without knowing the number and
frequency of requests. No change to the budget is
anticipated at this time.
Representative Wilson surmised that there was a cost, but
it was presently unknown. Ms. Butler responded that she had
worked with DLWD and acknowledged that the department was
very careful to ensure it was fully compliant when dealing
with data collection funded through the federal government.
Typically, the ACPE would enter into a Request for Services
Agreement (RSA) and pay for the cost of DLWD's staff time.
She expected the cost to be "minimal." Representative
Wilson preferred that a representative from DLWD answer the
question.
9:24:04 AM
KELLY CUNNINGHAM, ANALYST, LEGISLATIVE FINANCE DIVISION,
had spoken with the department and confirmed that the
requester of the data was required to pay. The Department
of Labor and Workforce Development had sufficient authority
to enter the RSA and charge and collect for the data.
Representative Wilson asked if a fiscal note should have
been generated by ACPE. Ms. Cunningham deferred the answer
to Ms. Butler.
Ms. Butler replied that currently the cost was unknown but
expected that the cost was minimal. She added that the
department entered the RSA process with DLWD annually for
data sharing. Representative Wilson asked where the funds
to pay for the program originated. Ms. Butler responded
that the funds were Interagency Receipts (IA) funded by the
student loan corporation. Representative Wilson asked
whether corporation funding was the interest paid on
student loans. Ms. Butler responded that Representative
Wilson was correct.
Vice-Chair Gara added that both agencies had not requested
additional funding. He pointed out that both department's
fiscal notes stated that they did not anticipate any fiscal
impact from the legislation and both believed they could
absorb the minimal cost.
9:27:05 AM
Representative Wilson stated that someone paid for the
cost. She wanted to make sure that it was on the record
that most of the costs were paid with the high interest
charged to students.
Vice-Chair Gara MOVED to report HB 221 out of Committee
with individual recommendations and the accompanying fiscal
notes.
There being NO OBJECTION, it was so ordered.
HB 221 was REPORTED out of committee with a "do pass"
recommendation and with two previously published zero
fiscal notes: FN1(CED) and FN2(LWF).
9:28:41 AM
AT EASE
9:31:37 AM
RECONVENED
HOUSE BILL NO. 304
"An Act relating to the Alaska microloan revolving
loan fund and loans from the fund."
9:32:19 AM
BRITTENY CIONI-HAYWOOD, DIRECTOR, DIVISION OF ECONOMIC
DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, reported that the bill amended the micro
revolving loan fund. She explained that the fund was
created by the legislature in 2012. The purpose of the fund
was to encourage entrepreneurs to capitalize on ideas and
ingenuity. The fund promoted economic development by
assisting small and micro businesses that were unable to
access traditional financing. The bill would incentivize
the startup and expansion of small and micro businesses
with emphasis on rural communities. The fund was initially
capitalized with $2.5 million and currently the balance was
$2.3 million. The fund financed 14 loans to date. She
related that new businesses created 80 percent of the new
jobs in the country and the bill would help Alaska
incentivize economic development during the economic
downturn. Small scale startups had difficulty securing
funding. An effective microloan program could help rural
Alaskan startups and small businesses that could serve as
an economic anchor for their communities. She indicated
that the loans were available for working capital,
equipment, and construction or other commercial purposes.
The loans were exclusively for Alaskan owned and operated
businesses and the applicant needed to be a resident 12
months prior to the application date. The loans were only
valid for expenditures that dated 6 months prior to the
date of the application. The maximum loan amount was $70,
000 and any loan over $35,000 required a bank denial
letter. The legislature had previously asked that the
division analyze loan funds to ensure they were effective.
Currently, the terms and conditions of the micro revolving
loan fund were not flexible enough to allow micro
businesses to take advantage of the program. The proposed
changes in the bill would help facilitate growth in the
sector. She reviewed the sectional analysis.
Section 1: Amends the ceiling loan amount to correct
an oversight in the original legislation to require a
bank denial for loans above $35,000.
Section 2: Increases the maximum loan term from 6
years to 15 years and amends the minimum interest rate
from 6.00% to 4.00%.
Section 3: Defines that any statutory change is not
retroactive.
Ms. Cioni-Haywood added that the bill also increased the
interest rate calculation by one percent. Currently, the
interest rate is prime plus one percent and the bill
changed it to prime plus 2 percent. The interest rate
calculation change accommodated increased risk and brought
the interest rate inline with other loan programs.
Co-Chair Foster asked what the prime rate was presently.
Ms. Cioni-Haywood answered that the prime rate was 4.75
percent. She added that the interest rates changed
quarterly.
9:37:28 AM
Representative Pruitt asked about the effect of the change
from 6 to 15 years and how it would affect the size of the
requested loans. Ms. Cioni-Haywood replied that currently
the average loan was roughly $20 thousand. She elaborated
that the loans were underwritten, and the division
scrutinized the business's finances and decided what amount
"made sense for the particular business." She thought if
the loans were extended out the amount of the loans would
increase slightly. The point of the provision was to
lengthen the cash flow. She suggested that the debt for a
$70,000 loan extended out over 6 years was very large for a
small business and it avoided the risk. Representative
Pruitt asked Ms. Cioni-Haywood how she thought the
sustainability of the fund would be affected. He guessed
that the fund might grow capital due to the longer period
of amortization. Ms. Cioni-Haywood responded that she
thought he was correct. She added that the interest earned
on the money was used to make other loans to potentially
more businesses. She noted that the length of the loans
could affect the revolving quality of the fund, however she
believed such an impact would be minor due to the small
amount of the loans.
9:40:39 AM
Representative Pruitt asked why the interest rate was
reduced from 4 percent to 6 percent. Ms. Cioni-Haywood
reported that the nation had been in a low interest rate
environment, but inflation fears was driving the rate
upwards. She noted that the interest rate of 6 percent was
considered high and was "probably" the reason the fund was
underutilized. The division wanted to strike a balance
between being "good stewards" of the state's money and
making loans to further economic development.
Representative Wilson wondered how many individuals decided
not to take out a loan from the fund. Ms. Cioni-Haywood
reported that there had been a number of potential loans
that had been given an estimation of the loan payment and
did not proceed besides the 10 withdrawn loan applications.
Representative Wilson suggested to add a sunset date, since
there had not been much use of the fund. Ms. Cioni-Haywood
had hoped to grow the fund and increase utilization, and a
sunset might be a deterrent. Representative Wilson thought
that a sunset was a better approach for the state's
revolving loan funds, so underutilized funds could be used
elsewhere in the budget to spur economic development.
9:43:21 AM
Representative Thompson asked whether the loans had a fixed
interest rate. Ms. Cioni-Haywood replied in the
affirmative. Representative Thompson wanted to ensure that
the quarterly change in interest rates did not apply to
existing loans. Ms. Cioni-Haywood clarified that the loan
interest was fixed for the life of the loan. She added that
since the interest rate was tied to the prime rate they
were adjusted quarterly.
Representative Tilton asked why someone would be denied
traditional financing. Ms. Cioni-Haywood responded that
typically, some of the reasons for a bank loan rejection
were insufficient credit history or insufficient or
unacceptable collateral, lack of historical income, high
unsecured debt or judgements, lack of relative experience,
or high risk industry. Representative Tilton asked about
the current terms of a traditional loan. Ms. Cioni-Haywood
was unsure of the rate of an equivalent commercial loan.
She offered that often banks had risk based interest rates
and did not share the information. Representative Tilton
asked for clarification about what the division considered
acceptable collateral. Ms. Cioni-Haywood responded that the
division looked for an equivalent value that usually
comprised of the equipment being purchased or property.
9:46:24 AM
Representative Guttenberg had a conversation with a
representative of several banks. He assured them that he
did not want the state to be in competition with the banks.
He felt the program provided loans to individuals that
otherwise could not obtain a loan. He had provided an
example of a small scale woodcutter wanting to by a skidder
and a trailer without a credit history who was denied a
commercial loan. He asked if his example applied to the
types of individuals that requested a loan from the
microloan fund. Ms. Cioni-Haywood responded in the
affirmative. She reiterated that any loan request over $35
thousand needed to show a bank loan rejection letter. She
mentioned the division employed the five "C's" of credit.
Representative Tilton referred to the 14 loans currently in
the program, she wondered what areas of the state the loans
were applied. Ms. Cioni-Haywood responded that most of the
loans were from Southeast Alaska and the remaining were
scattered throughout the state. Representative Tilton asked
how knowledge of the program was disseminated. Ms. Cioni-
Haywood responded that the division worked through ARDORs
(Alaska Regional Development Organizations), other local
organizations, and outreach trips to spread information
about the program. Representative Tilton commented that she
had not been aware that the state "was in the loan
business."
9:50:29 AM
Vice-Chair Gara liked the way the bill was proposed and
liked that the administration thought of ways to improve
the program. He shared that the legislature demonstrated
its ability to address loan funds that were not working.
He did not favor a sunset on the bill.
Representative Wilson did not believe that the legislature
was examining state loan funds and was merely "grabbing"
underutilized funds based on an assumption that the fund
was underperforming. She ascertained that a sunset analyzed
the program to determine whether changes were necessary or
that it was not working. She supported a sunset date and
viewed it as a positive effort.
9:52:29 AM
Vice-Chair Gara offered that a sunset would end the program
and required a brand new bill to pass both bodies to
continue the program. A sunset did not simply provide the
opportunity to revisit the program and he termed the
process as "difficult."
Representative Thompson stated that the indirect
expenditure bills included sunset dates that forced the
legislature to review a program's efficacy. He felt that a
sunset provided the opportunity to review a program.
Co-Chair Seaton suggested that some of the sunset
provisions also required an audit and wanted to avoid the
expense. He suggested requiring a report presented to the
legislature that examined the program's efficacy. He
thought a report would be sufficient without having to
incur an audit expense.
9:55:21 AM
Representative Guttenberg related that the Department of
Commerce, Community and Economic Development (DCCED)
subcommittee looked at its loan funds and the department
recommended some "reabsorption" of funds from programs that
were not functioning properly. He did not favor a sunset
due to the finance subcommittee process. He noted that the
subcommittee did remove funds from loan programs that were
considered over-capitalized. He maintained that the
opportunity to examine the programs already existed.
Representative Wilson asked when the loan fund was
established. Ms. Cioni-Haywood responded that the fund was
established in December 2012. Representative Wilson did not
want an audit and surmised that it was not statutorily
required in the current scenario. She believed that loan
funds were being randomly removed by the legislature and
the governor's office without discussion regarding the
efficacy of the programs.
Ms. Cunningham replied that Representative Wilson was
correct that an audit was not mandated.
9:59:28 AM
Representative Tilton thought a sunset was a beneficial way
to determine whether a loan fund was working effectively.
She asked whether the loans were performing well. Ms.
Cioni-Haywood indicated that the loans had done "okay" and
revolving loan funds took some time to work optimally. She
added that the division had discovered issues with other
loan funds. The administration felt that the current fund
fit in with the administration's statewide economic
development strategy and had a beneficial impact for
"nontraditional lifestyle micro businesses."
10:01:18 AM
Representative Tilton mentioned the collateralization. She
wondered what would be done if assets had to be taken. Ms.
Cioni-Haywood reported that the division had an active
collections department and had one microloan fund loan that
was not performing and considered delinquent. She was
working with the borrower to develop a new payment
schedule. The division worked with borrowers until it made
no further sense and pursued repossession of the
collateral. Representative Tilton asked how the state
recouped the funds from the repossessed collateral. Ms.
Cioni-Haywood explained that the division posted items for
sale on their website through a sealed auction process.
Representative Kawasaki recounted that Ms. Cioni-Haywood
had mentioned that the revolving loan funds needed time to
develop. He asked if the microloan fund had been in
existence long enough to properly determine whether the
proposed changes in the bill were necessary. Ms. Cioni-
Haywood replied in the affirmative. She shared that the
department had received 33 applications, and some were
withdrawn or inactivated for various reasons. Most
applicants backed out when the payment schedule was
determined. She believed that having the flexibility to
tailor terms for a specific loan would increase the success
of the programs. She offered that not all loans would be
amortized for 15 years and the division would look at the
type of collateral and what amount of time made sense for a
specific business.
10:05:22 AM
Representative Kawasaki wondered how a sunset date would
work. Ms. Cioni-Haywood reported that the Community Quota
Entity (CQE) loan program recently sunsetted. She voiced
that current loans were being serviced and no new loans
issued. She thought that fund's money went back to the
general fund (GF).
Co-Chair Seaton remembered a sunset bill for the education
tax credits that wasn't accompanied by a report. He felt
that sunsets should be accompanied by a report.
Co-Chair Seaton MOVED to ADOPT Conceptual Amendment 1 which
would require a report about the status of the fund
provided to the legislature each year. He stated the
following:
"The department shall report to the legislature by
January 15, 2022 on the activity, effectiveness, and
suggestions for improvement of the loan fund."
Representative Wilson OBJECTED for discussion.
Representative Wilson asked whether the division had done
any similar type of reporting in the past. Ms. Cioni-
Haywood responded that the division had answered a number
of requests from the Legislative Finance Division regarding
loan funds. The information was provided in a narrative
format reporting the number of loans, balance, and fund
activity. She was uncertain whether the division had
reported on a specific loan fund. Representative Wilson
recounted that the education tax credit bill discussion
included making a change to the program and was more
thorough than a simple discussion. She wondered about the
timing of the report.
10:10:08 AM
Co-Chair Seaton responded that the report would be due by
the 15th of January 2022. He elaborated that he wanted a
detailed report and not "just some numbers," that included
suggestions for improvements if necessary.
Representative Wilson agreed with the amendment.
Representative Kawasaki appreciated that Co-Chair Seaton
clarified the motion. He thought the information was easily
accessible and suggestions for improvement achievable. He
maintained that the word "effectiveness" was subjective.
However, he favored the amendment.
Representative Pruitt asked if there would be a cost to
providing the report. Ms. Cioni-Haywood thought the
information was mostly maintained and the reporting could
be absorbed by the division.
10:12:23 AM
Representative Pruitt asked if the same reporting should be
applicable to other loans especially since the work was not
a financial burden to the department. Ms. Cioni-Haywood
responded that the division would happily provide the
information to the legislature. In the past, the division
had provided information regarding the loan funds and
similar requests could be accommodated without additional
costs to the department. She reported that most of the
revolving loan funds had been working very well. The
commercial fishing revolving loan fund functioned optimally
for decades.
Representative Guttenberg would not speak against the
amendment but believed it was redundant. He reported having
received and reviewed the information on every loan in
DCCED in the finance subcommittee in the current year with
the administrative services director of the department. He
thought it should be a "normal course of events" each year
and was carried out by the subcommittee chair.
Representative Kawasaki agreed with Representative
Guttenberg that the reporting should be a normal course of
events and favored the amendment especially since the cost
to DCCED was minimal. He asked how Ms. Cioni-Haywood would
administer the report. Ms. Cioni-Haywood replied that it
was a good question and assumed that administrative
services would "tag" the mandate and alert the division.
Representative Kawasaki suggested putting the reminder on
their outlook calendar.
10:17:23 AM
Representative Thompson had a problem with the sunset date
of January 15, 2022. He stated that a sunset bill was
required to pass in 2021 to avoid sunsetting the program.
Co-Chair Seaton clarified that the date reflected the
report due date not the sunset.
Vice-Chair Gara suggested moving forward with the amendment
and the bill.
10:18:20 AM
Representative Pruitt thought Co-Chair Seaton's point was
valid. He was concerned with the workload of requiring
DCCED to provide reports on all its loans at different
times. He suggested that all DCCED's loans should require
the same report on the same date and the information should
be streamlined. However, he decided not to add the
amendment to HB 304 so the bill could easily move forward
in the process.
Representative Wilson WITHDREW her OBJECTION.
There being NO OBJECTION, Conceptual Amendment 1 was
ADOPTED.
Co-Chair Foster asked Co-Chair Seaton to restate the
amendment for recording purposes.
Co-Chair Seaton repeated his amendment:
"The department shall report to the legislature by
January 15, 2022 on the activity, effectiveness, and
suggestions for improvement of the loan fund."
Representative Pruitt agreed with the amendment and
supported the bill.
Representative Tilton asked for the number of staff the
division had to support the loan programs. Ms. Cioni-
Haywood reported that the division had 9 loan officers, 4
collections officers, 6 staff in a loan closing section and
an uncertain number of accounting staff servicing all 10
revolving loan programs. Representative Tilton wanted to be
sure the state was servicing its own loans. Ms. Cioni-
Haywood confirmed that the loans were serviced by the
division from start to finish.
10:22:41 AM
Representative Wilson asked if the banks issued loans for
individuals with past due child support. She noted that the
state prohibited loaning to individuals with past due child
support. She deduced that a small business would help the
individual gain income. Ms. Cioni-Haywood was unsure what a
bank would require. However, the state did not make any
type of loan if there was past due child support.
10:23:35 AM
Co-Chair Foster OPENED public testimony.
Co-Chair Foster CLOSED public testimony.
Vice-Chair Gara reviewed the fiscal note. He reported the
zero fiscal note for DCCED, FN1 (CED) appropriated and
allocated to the Investments.
Co-Chair Seaton MOVED to report CSHB 304 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal note.
There being NO OBJECTION, it was so ordered.
CSHB 304 (FIN) was REPORTED out of committee with a "do
pass" recommendation and with one previously published zero
fiscal note: FN1(CED).
Co-Chair Foster reviewed the agenda for the following
meeting at 1:30 pm.
ADJOURNMENT
10:26:38 AM
The meeting was adjourned at 10:26 a.m.