02/24/2011 01:30 PM Senate LABOR & COMMERCE

          SB  68-COMMERCIAL FISHING & AGRICULTURE BANK                                                                      
                                                                                                                                
CHAIR EGAN announced SB 68 to be up for consideration.                                                                          
                                                                                                                                
2:13:16 PM                                                                                                                    
SENATOR  COGHILL, sponsor  of SB  68, said  his history  with the                                                               
Commercial Fishing  and Agriculture Bank  (CFAB) goes back  a few                                                               
years in that he has been impressed  by the record they have of a                                                               
private industry  approach on a  statutorily driven  problem. The                                                               
problem has  been how  to take  care of  some of  the agriculture                                                               
issues  and  how  to  do  some  capitalization  for  the  fishing                                                               
industry. Only a  couple of places in Alaska can  lend based on a                                                               
fishing permit  and one of  them is this  bank. The other  is the                                                               
Division  of Investments,  a state  run organization.  He prefers                                                               
the private model, which has done well.                                                                                         
                                                                                                                                
He said  CFAB is a creature  of statutes put together  and funded                                                               
by the legislature with the  idea of increasing loan capacity and                                                               
encouraging fishing and  agriculture in Alaska. This  bank is co-                                                               
op style and  has paid the state back its  original funding. This                                                               
bill now seeks to expand CFAB's authority by giving them the                                                                    
freedom to work as a prudent investor and lender.                                                                               
                                                                                                                                
2:17:26 PM                                                                                                                    
JOSH BANKS, intern for Senator Coghill, presented a sectional                                                                   
analysis of SB 68 as follows:                                                                                                   
                                                                                                                                
     Section 1:  removes the requirement that  one member of                                                                    
     the CFAB board of directors  be a resident farmer. This                                                                    
     does  not  restrict  the  governor  from  appointing  a                                                                    
     farmer  for  one of  the  positions  or a  farmer  from                                                                    
     seeking an appointment on the board.                                                                                       
                                                                                                                                
     Section 2: subsection  4 amends the powers  of the bank                                                                    
     in  two ways.  It  removes the  dollar limitations  for                                                                    
     loans being  used for tourism  in the state.  This will                                                                    
     allow  CFAB  to  stay competitive  with  other  lending                                                                    
     organizations. In addition to  this, subsections 8, 15,                                                                    
     and 16 will  allow CFAB to give loans to  those that do                                                                    
     not   meet   the   resident   or   resident   ownership                                                                    
     requirements  providing that  their operating  facility                                                                    
     is located in  the state of Alaska and  that a majority                                                                    
     of  the  interest  of that  organization  is  owned  by                                                                    
     United States residents. Subsections  10, 12 and 13 are                                                                    
     also amended  to expand the  current powers of  CFAB to                                                                    
     include the  provisions provided in subsections  15 and                                                                    
     16.                                                                                                                        
                                                                                                                                
     Section  3:  adds  an  audit  by the  DCCED  to  be  an                                                                    
     exception to the  records confidentiality provisions in                                                                    
     the CFAB statutes.                                                                                                         
                                                                                                                                
     Section 4:  amends records  confidentiality in  that it                                                                    
     will allow  the bank  to release  a list  of candidates                                                                    
     running  for  director to  the  voting  members of  the                                                                    
     bank.                                                                                                                      
                                                                                                                                
     Section  5:  allows  an  examination   of  CFAB  to  be                                                                    
     conducted by  the DCCED. This  revision is  to increase                                                                    
     the   credibility  of   CFAB.   This  examination   was                                                                    
     originally put  in the statutes, but  has recently been                                                                    
     removed due  to the  misconception that the  state pays                                                                    
     the full fees for  the examination. Initially the state                                                                    
     does pay  the fees, but  CFAB reimburses the  state for                                                                    
     them.                                                                                                                      
                                                                                                                                
     Section  6: repeals  two parts  of Alaska  statute. The                                                                    
     first part repeals the  definition of "resident farmer"                                                                    
     because  a  resident  farmer is  not  required  on  the                                                                    
     board. Second,  since CFAB is  a fully  private lending                                                                    
     organization, the prohibition of  its having a lobbyist                                                                    
     is repealed.                                                                                                               
                                                                                                                                
     Section  7:   limits  the  DCCED  from   conducting  an                                                                    
     examination within  the first year after  the effective                                                                    
     date.                                                                                                                      
                                                                                                                                
     Section 8: provides an immediate effective date.                                                                           
                                                                                                                                
SENATOR  COGHILL added  that in  order for  the bank  examination                                                               
provisions to properly take effect he  wanted the rest of the law                                                               
to go  into effect first and  not force a bank  examination right                                                               
away, but rather have it fall into the established cycle.                                                                       
                                                                                                                                
SENATOR DAVIS asked if the language would allow that to happen.                                                                 
                                                                                                                                
SENATOR COGHILL said  language asks to have it  take effect after                                                               
one year, so  a bank could go through an  examination cycle which                                                               
would give them a chance to do an annual report.                                                                                
                                                                                                                                
SENATOR DAVIS asked if it reverts back to the original language.                                                                
                                                                                                                                
SENATOR COGHILL  responded if the effective  date is immediately,                                                               
then  within one  year the  bank examination  could happen.  That                                                               
would allow one year's lapse so it would fall into a cycle.                                                                     
                                                                                                                                
2:24:58 PM                                                                                                                    
LEA  KINGERT, President  and CEO,  Alaska Commercial  Fishing and                                                               
Agriculture Bank  (CFAB), said  this bill  does many  things with                                                               
CFAB. The first item is  the statutory requirement for a farmer's                                                               
seat,  but currently  there  are  only two  people  who would  be                                                               
eligible to fill  that seat. It's not that they  don't want to do                                                               
agriculture  loans, but  they haven't  been  approached to  grant                                                               
many  of them.  The agriculture  industry has  other options  for                                                               
getting loans that they prefer to use.                                                                                          
                                                                                                                                
Second, she said  SB 68 also provides for  a periodic examination                                                               
of CFAB by  the state's bank examiners with  the resulting report                                                               
being  provided   to  the   legislative  auditor.   Ms.  Klingert                                                               
explained  that from  1989-2003 CFAB  used to  do audits,  but in                                                               
2003   for   reasons   she    doesn't   really   understand   the                                                               
administration  persuaded   the  legislature  to   eliminate  the                                                               
requirement.  But  this  kind  of  independent  and  professional                                                               
examination greatly  enhances CFAB's credibility with  its lender                                                               
and affects the borrowing terms  offered by that lender, which in                                                               
turn affects what they can offer to their membership.                                                                           
                                                                                                                                
Other  potential benefits  to CFAB  include a  reliable means  of                                                               
monitoring and evaluating the quality  and effectiveness of their                                                               
lending practices.  Even though  management and staff  take pride                                                               
in their professional competence  they welcome the opportunity to                                                               
have  a  qualified second  set  of  eyes evaluating  the  overall                                                               
results  of  their judgments.  Experience  has  taught them  that                                                               
distance  and  impartiality  bolstered   by  insight  into  other                                                               
financial  institutions'  practices  and experience  can  provide                                                               
valuable guidance.                                                                                                              
                                                                                                                                
MS. KLINGERT  said that  SB 68  also seeks  to remove  the dollar                                                               
limitations  that were  placed  on loans  for  tourism and  other                                                               
resource-based  activities when  CFAB acquired  the authority  to                                                               
make  such loans  in 2000.  CFAB  has not  made a  great deal  of                                                               
tourism  and   other  resource-based   loans,  but   they  remain                                                               
convinced that even the existing  modest level of diversification                                                               
has   added    to   CFAB's   overall   effectiveness,    to   its                                                               
creditworthiness and to the ability to serve its basic markets.                                                                 
                                                                                                                                
She   said  that   CFAB  doesn't   currently  have   any  pending                                                               
applications that exceed  the current limits, but  they are aware                                                               
of a  few past potential  opportunities that were  not encouraged                                                               
because   of  these   limitations.  They   simply  believe   that                                                               
inflationary effects  over time and the  tendency toward mergers,                                                               
acquisitions  and  consolidations  among subject  operators  will                                                               
sooner  or   later  cause  the  existing   limitation  to  become                                                               
problematic.                                                                                                                    
                                                                                                                                
MS. KLINGERT  said SB 68  also seeks to  permit CFAB to  make the                                                               
same kind of  loans for non-resident owners if  the operation has                                                               
a  bricks  and  mortar  presence  in  Alaska.  CFAB  already  has                                                               
authority to  make such  loans to a  seafood processor,  a timber                                                               
processor,  an  agricultural  processor  or  a  harvester.  Their                                                               
reasoning is the realization that  even though a lodge in Western                                                               
Alaska, for  example, may be  owned by an outside  corporation it                                                               
is  an enhancement  to the  local economy  and will  provide some                                                               
level  of  opportunities  to Alaskan  employees,  suppliers,  and                                                               
ancillary  operations.   It  is  another  element   of  potential                                                               
diversification    that    will   strengthen    CFAB's    overall                                                               
effectiveness.                                                                                                                  
                                                                                                                                
2:30:52 PM                                                                                                                    
CHAIR  EGAN  thanked  her  for   her  testimony  and  finding  no                                                               
questions, said  he would bring  SB 68 back before  the committee                                                               
at the next meeting.                                                                                                            
                                                                                                                                
2:31:42 PM