Legislature(1993 - 1994)
04/16/1994 01:05 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 251
"An Act relating to the commercial fishing revolving
loan fund and the fisheries enhancement revolving loan
fund."
SENATOR GEORGE JACKO maintained that the fishing industry is
undergoing an economic crisis due to weak markets. He
observed that fishermen have experienced difficulty in
meeting their loan and tax obligations. He asserted that
the legislation would make the Commercial Fishing Revolving
Loan Fund more flexible in order to meet the needs of the
fishing industry.
Senator Jacko explained that the legislation would allow IRS
debts that threaten ownership to be paid from the Commercial
Fishing Revolving Loan Fund. Loans would be one time only
and capped at $30,000. The legislation contains a three
year sunset. He emphasized that there are 12,000 permits in
arrears to the IRS.
Senator Jacko noted that the legislation would also allow
the department to refinance loans up to $300,000 thousand
dollars incurred by borrowers for the purchase of a
commercial fishing vessel or for gear. He discussed factors
which have lead fishermen into fiscal difficulties.
(Tape Change, HFC 94-128, Side 1)
Senator Jacko observed that the legislation also amends the
Fisheries Enhancement program to provide authority to the
Department of Commerce and Economic Development to use
excess funds in the fisheries Enhancement Revolving Loan
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Fund for the purposes of the Commercial Fishing Revolving
Loan Fund. He maintained that loan priority will be
established through regulation. Expenditures would be
prioritized in the following manner:
1. Limited Entry Permits
2. Vessels
3. Gear
4. Refinance loans
5. Hatcheries
Senator Jacko observed that loans would be categorized as
(a) or (b) loans. The (a) loans would be made to finance
the purchase of limited entry permits. The (b) loans would
be made for repair, restoration, or upgrading of existing
vessels and gear or purchase or limited entry permits, gear
or vessels. Loans are distinguished on page 1, line 7
through page 3, line 23. He discussed requirements of the
loan. He observed that fishermen would need to be current
in their IRS filings in order to apply for the loans. He
noted that there is a two year Alaska residency requirement.
A lack of employment opportunity in the area of residence or
economic dependency on the fisheries must be demonstrated.
The applicant must have been active in the fisheries for
three of the last five years. The applicant must have a
commercial fishing license for the year immediately
proceeding the loan application.
In response to a question by Representative Navarre, Senator
Jacko clarified that payments would be made directly to the
IRS. He reiterated the loans would be one time eligibility.
He observed that the $30,000 thousand dollars loan cap would
address 80 percent of the IRS obligations.
Senator Jacko explained that limited entry permits cannot be
used as collateral for loans.
Representative Hanley argued that the federal government
would not take permits if holders attempt to contact and
negotiate for repayment of obligations. He did not see the
need for the state to assume the risk of repayment. Senator
Jacko maintained that the program would act as assurance to
the IRS for a means of repayment in order to achieve an
executed agreement.
Representative Navarre noted that payment can be suspended
for one year upon a showing of good cause. He observed that
the tax liability could have been incurred through
activities other than commercial fishing. He questioned the
constitutionality of the program.
Senator Jacko emphasized the goal of the program is to
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prevent loss of limited entry permits to the IRS.
Representative Parnell echoed concerns that tax obligations
could be the result of other activities. Representative
Therriault hypothesized that the tax liability would not
have to be associated with commercial fishing.
Representative Navarre suggested that the state negotiate
with the federal government to allow state purchase of
seized permits.
FRANK HOMAN, COMMISSIONER, LIMITED ENTRY COMMISSION provided
members with a chart summarizing tax delinquencies among
permit holders (Attachment 1). He gave a brief history of
the Commissioner's interactions with the IRS. The
Commissioner was unable to reach an agreement with the IRS
in regard to seized permits. He emphasized that the state
will not lose money as a result of the program. Permits
would be held as collateral. He reviewed areas of the state
having difficulty with tax delinquencies as detailed in
attachment 1.
In response to a question by Representative Therriault, Mr.
Homan explained that the IRS did not want restrictions
placed as to how they could discharge the permits. He noted
that all transfers must come through the Limited Entry
Commission. He observed that if the state is given first
right at permit purchase the bidding may not be as active.
Representative Navarre queried the status of permits under
dispute by both the federal and state governments for the
default of payments. Representative Hanley observed that
the federal government generally wins in state/federal
disputes.
Representative Hanley expressed concern that the
difficulties experienced by the fishing industry are not
temporary.
In response to a question by Representative Therriault, Mr.
Homan further discussed the permit as collateral for the
loan. Representative Therriault noted that the permit is
generally used as collateral for its purchase. He asked if
provisions are included to allow loans not to exceed the
equity of the permit. Mr. Homan stressed that it would be a
criteria of the Division of Investment.
RAY GILLESPIE, testified on behalf of four aquaculture
associations. He noted that aquaculture associations
support the legislation. He referred to provisions on page
6, which allow the Commissioner of Department of Commerce
and Economic Development to move excess money from the
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Commercial Fisheries Revolving Loan Fund to the Fisheries
Enhancement Revolving Loan Fund in order to refinance loans.
He noted that loans were made at higher than current
interest rates. The ability to reduce loans for aquaculture
associations would indirectly benefit fishermen. He noted
that aquaculture association loans are secured by a
volunteer enhancement tax. The enhancement taxes cannot be
repealed until loans are paid.
Representative Hanley summarized that reduction of interest
rates would reduce payments to the Funds. He discussed the
operation of the Funds. He expressed concern that the
legislature retain its ability to control the amount loaned
through the fund programs.
Co-Chair MacLean noted that the department has projected
that $14 million dollars will be available for loan
activity, $9 million dollars will be used to satisfy normal
loan demand, and $5 million will be used for the applicants
of the bill. Fifty percent of any remaining funds could be
transferred to the Fisheries Enhancement Revolving Loan
Fund.
(Tape Change, HFC 94-128, Side 2)
Representative Hanley stressed that priorities for loan
payments should be set in statute.
Mr. Gillespie replied that the Commercial Fisheries
Revolving Loan Fund demands will be the top priority, before
any funds are transferred. He maintained that any funds
transferred must be determined to be an excess of the
demands of the Commercial Fisheries Revolving Loan Fund as
determined by the Commissioner.
Co-Chair MacLean observed that the Department has determined
that there will be no excess funds available in the current
fiscal year.
Mr. Gillespie explained that the impact of reductions would
be experienced in future years. At that time the
Commissioner could exercise discretion to transfer excess
funds.
Representative Hanley questioned the amount needed to
refinance the loans. Senator Jacko pointed out that the
demand for hatchery loan refinancing will be more than is
available.
KENT DAWSON, NORTHWEST SEAFOODS, SILVER LINING SEAFOODS
spoke in support of the provision to allow hatcheries to
lower their debt burden. He maintained that the health of
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the hatcheries is directly related to the health of the
fishing industry.
He noted that hatcheries operated by the aquaculture
associations cannot secure bank refinancing since the state
holds their collateral.
GREG WINEGAR, LOAN MANAGER, DEPARTMENT OF COMMERCE AND
ECONOMIC DEVELOPMENT stated that refinancing hatcheries
loans would be separate from the legislation. He clarified
that loans can be refinanced under the Commercial Fisheries
Revolving Loan Fund. If money was available the department
could refinance under the Fisheries Enhancement Revolving
Loan Fund. Discussion pursued regarding refinancing
interest rates. He anticipated that there will not be funds
available for transfer in FY 95.
Representative Navarre discussed loan financing requirements
and mechanisms. Mr. Winegar explained that the legislation
would allow the department to refinance other than state
held loans.
Representative Navarre questioned if loans could be provided
based on the value of collateral. He suggested that
sections referring to loans for tax obligations be deleted
in order to assure that constitutional problems do not
occur.
Representative Brown discussed delinquent revolving loan
fund loans. Mr. Winegar clarified that permanent fund
dividends can be garnished.
Co-Chair MacLean provided members with AMENDMENT 1 (copy on
file). Amendment 1 would delete "one-half of". She
explained that the amendment would allow the entire surplus
balance from the Commercial Fisheries Revolving Loan Fund to
be transferred to the Fisheries Enhancement Revolving Loan
Fund. She maintained that future surplus funding should be
available for hatchery loans.
Senator Jacko explained that the provision to allow only
half of the surplus funds to be transferred was adopted to
assure that Commercial Fisheries Revolving Loan Fund retain
sufficient funds.
In response to a question by Representative Navarre, Mr.
Winegar noted that $44 million dollars have been
reappropriated from the Commercial Fisheries Revolving Loan
Fund to the General Fund after loan demand. There has not
been excess funds in the Fisheries Enhancement Revolving
Loan Fund.
Representative Navarre noted that the amendment could reduce
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money appropriated back to the General Fund for general
appropriations. Discussion pursued in regards to the effect
of section five on legislative appropriations.
Co-Chair MacLean MOVED to ADOPT AMENDMENT 1. Representative
Navarre OBJECTED. A roll call vote was taken on the MOTION.
IN FAVOR: Therriault, Foster, Larson, MacLean
OPPOSED: Brown, Hanley, Martin, Navarre, Parnell
Representatives Hoffman and Grussendorf were not present for
the vote.
The MOTION FAILED (4-5).
Representative Foster MOVED to report HCS CSSB 251 (FIN) out
of Committee with individual recommendations and with the
accompanying fiscal notes. The motion was held pending in
order to allow members to allay constitutional concerns.
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