Legislature(1999 - 2000)

04/04/2000 02:00 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
HOUSE BILL NO. 339                                                                                                              
                                                                                                                                
An Act authorizing the Alaska Commercial Fishing and                                                                            
Agriculture Bank to make loans relating to tourism and                                                                          
development or exploitation of natural resources.                                                                               
                                                                                                                                
Co-Chair Mulder explained that the legislation would expand                                                                     
the lending authority of the Commercial Fishing and                                                                             
Agriculture Bank (CFAB) and would enable it to make loans to                                                                    
Alaskan small business enterprises involved in natural                                                                          
resource development and tourism.  Presently, CFAB makes                                                                        
loans to Alaska residents engaged only in commercial                                                                            
agriculture or fishing.  The bank seeks expanded authority                                                                      
to provide financing opportunities to small Alaskan business                                                                    
entrepreneurs who generally have trouble obtaining                                                                              
commercial loans because of their relative small size and                                                                       
lack of financial experience.                                                                                                   
                                                                                                                                
Co-Chair Mulder noted that currently, CFAB's loan portfolio                                                                     
is very narrow and susceptible to ups and downs of the                                                                          
market.  The bill would allow CFAB to make loans to natural                                                                     
resource development and also tourism.                                                                                          
                                                                                                                                
Co-Chair Therriault MOVED to adopt the committee substitute,                                                                    
1-LS1285\I, Utermohle, 4/1/00, as the version of the                                                                            
legislation before the Committee.  [Copy on File].  There                                                                       
being NO OBJECTION, it was adopted.                                                                                             
                                                                                                                                
ED CRANE, PRESIDENT, COMMERCIAL FISHING AND AGRICULTURAL                                                                        
BANK (CFAB), ANCHORAGE, stated that when the bill was                                                                           
originally drafted, "general" language was used to provide                                                                      
as much flexibility as possible.  Some of that language has                                                                     
been found to be unacceptable.  Consequently, loan limits                                                                       
were added.                                                                                                                     
                                                                                                                                
Mr. Crane noted that the House Finance Committee substitute                                                                     
changes some of the original language. He outlined changes                                                                      
made to the proposed committee substitute that would make                                                                       
the bill more specific.                                                                                                         
                                                                                                                                
Mr. Crane explained that the Alaska State Legislature                                                                           
created CFAB in AS 44.81 in 1980.  The statute governs                                                                          
CFAB's operation and provided for its accountability to the                                                                     
Legislature and Administration.  Because CFAB is                                                                                
incorporated under that statute, it requires legislative                                                                        
approval for any changes in operational authority.                                                                              
                                                                                                                                
Twenty years ago, limited access to commercial financing by                                                                     
resident Alaska commercial seafood harvesters, processors                                                                       
and farmers, stimulated the need for CFAB as a private                                                                          
cooperative.  The State of Alaska responded by providing                                                                        
initial capital through the purchase of $32 million dollars                                                                     
of special preferred stock in 1980.  CFAB began making                                                                          
monthly payments in 1991 to the State, repurchasing                                                                             
increments of the stock.  In September of 1998, the stock                                                                       
repurchase agreement was completed as specified in statute                                                                      
and today CFAB is owned solely by its past and present                                                                          
borrowing members.                                                                                                              
                                                                                                                                
Mr. Crane continued, in 1986, the Alaska Supreme Court                                                                          
identified CFAB as a private entity.  AS 44.81 states that                                                                      
it is not subject to the Alaska Cooperative Corporation Code                                                                    
or the Alaska Banking Code.  It pays federal and state                                                                          
corporate income tax, state auditing fees and is subject to                                                                     
legislative audits.  In short, CFAB is now a private lender                                                                     
operating within the free enterprise system with limited                                                                        
ties to the State of Alaska.                                                                                                    
                                                                                                                                
CFAB's auditors, from both the public and private sector,                                                                       
give the bank favorable reviews but consistently note the                                                                       
concentration in agricultural and fishing industry loans                                                                        
resulting in an unusual level of risk exposure and                                                                              
vulnerability to the ups and downs of the industries.                                                                           
                                                                                                                                
Representative Grussendorf asked if the only new ability                                                                        
granted in the proposed legislation was that to loan to                                                                         
tourism.  Mr. Crane replied that it would be to either                                                                          
tourism and/or operators in the natural resources.                                                                              
Representative Grussendorf asked if there would be a limit                                                                      
on how each company could borrow.  Mr. Crane pointed out                                                                        
that there are no statutory limits on the size of a loan                                                                        
that can be made for fish and agriculture purposes.                                                                             
                                                                                                                                
Representative J. Davies observed that this would be a                                                                          
lending operation chartered by the State.  He asked the                                                                         
requirements to become a member of the bank to qualify for                                                                      
borrowing.  Mr. Crane explained that CFAB is operated as a                                                                      
cooperative with the customers as owners.  "Member" is                                                                          
defined as one of the stockholders of the board.  Any Alaska                                                                    
resident who is engaged in commercial fishing or agriculture                                                                    
can become a member by purchasing one share of stock.                                                                           
Representative J. Davies interjected that CFAB is a                                                                             
cooperative lending organization.                                                                                               
                                                                                                                                
Co-Chair Therriault reminded member's from where the entity                                                                     
originally came from.  The limited entry system had just                                                                        
started and it was important that the State guarantees that                                                                     
Alaskans had access to capital so that they could get the                                                                       
permits and keep them in Alaska's hands.  Co-Chair                                                                              
Therriault suggested that the original concerns have been                                                                       
diminished at this time. There is no shortage of loan                                                                           
programs in State government.  He did not see the compelling                                                                    
reason to implement the proposed legislation.                                                                                   
                                                                                                                                
Mr. Crane commented that it has not been a problem in recent                                                                    
years.  He agreed that the same circumstances do not appear                                                                     
to exist in relationship to tourism.  The bill is a                                                                             
defensive effort by CFAB.  The limited entry system does not                                                                    
have the same concerns as it did 25 years ago.  Today, it                                                                       
has greater concerns.  Many of the individuals in rural                                                                         
Alaska who were initial recipients of the loan are now                                                                          
reaching an age where they want to retire.  Many of them now                                                                    
want to sell their permit.  The needs have changed.  He                                                                         
believed that there is a need to continue the support for                                                                       
Alaska resident's ability to buy limited entry permits.  Co-                                                                    
Chair Therriault agreed that it is important to keep them in                                                                    
Alaskan's hands.  He voiced concern with expansion of the                                                                       
operation.  Mr. Crane clarified that CFAB must build                                                                            
diversification.                                                                                                                
                                                                                                                                
Co-Chair Mulder spoke to the State's compelling interest.                                                                       
He commented that CFAB has taken on a new life of economic                                                                      
expansion and opportunity.  He noted that there is a lot of                                                                     
frustration among the Alaskan people who are attempting to                                                                      
get the smaller loans.  The loans that CFAB is proposing are                                                                    
low-level loans which are not in the best interest of most                                                                      
banks.                                                                                                                          
                                                                                                                                
Co-Chair Mulder pointed out currently, only CFAB can loan on                                                                    
the limited entry permits.  He pointed out that there is a                                                                      
compelling reason, as the State interests are at stake.  Mr.                                                                    
Crane added that CFAB is acting as an agent for the State.                                                                      
There is no way to limit that privilege to one class of                                                                         
private lender.                                                                                                                 
                                                                                                                                
Co-Chair Mulder pointed out that limited entry and CFAB won                                                                     
the case with the Internal Revenue Service (IRS) to retain                                                                      
control of the permits.  To open that up to outside lenders                                                                     
would jeopardize the direction which the State intended to                                                                      
go.                                                                                                                             
                                                                                                                                
Vice Chair Bunde agreed that this is a unique Alaskan                                                                           
program.  He asked if there were similar programs like this                                                                     
available through other states.  Mr. Crane replied that the                                                                     
only one he was aware of was through a lending institution                                                                      
in Canada.                                                                                                                      
                                                                                                                                
(TAPE CHANGE, HFC 00 - 99, Side 2).                                                                                             
                                                                                                                                
Mr. Crane stated that the proposed bill would provide that                                                                      
CFAB continue to be a viable entity.                                                                                            
                                                                                                                                
Vice Chair Bunde suggested if it would be more accurate to                                                                      
change CFAB from a "bank" to a "revolving loan fund".  Mr.                                                                      
Crane replied that would not be a move that CFAB would make                                                                     
hastily.  He noted that CFAB has not yet fully considered                                                                       
all the legal documentation such a transition would require.                                                                    
                                                                                                                                
Vice Chair Bunde commented if supporting the legislation                                                                        
would be "questionable" given the Legislature's commitment                                                                      
to encouraging privatization.                                                                                                   
                                                                                                                                
Representative Foster inquired if there was a mechanism                                                                         
included in the proposal to cover concerns for bed and                                                                          
breakfast associations.  He asked if the board membership                                                                       
would change.  Mr. Crane thought that the legislation would                                                                     
address that concern.  Currently, the board consists of                                                                         
seven people; two members appointed by the Governor and the                                                                     
other five elected from the membership.                                                                                         
                                                                                                                                
In response to Representative Williams, Mr. Crane reiterated                                                                    
the original purpose of CFAB to insure that Alaska resident                                                                     
fishermen had sufficient access to capital to maintain                                                                          
participation in Alaska's fisheries.  Representative                                                                            
Williams inquired if the banking community supported CFAB at                                                                    
this time.  Mr. Crane replied those entities are "waving                                                                        
their arms" with concern about the legislation.  However, at                                                                    
the same time, there are joint ventures happening with the                                                                      
State.                                                                                                                          
                                                                                                                                
Representative Austerman pointed out that there are many                                                                        
commercial fishermen now considering the charter boat                                                                           
tourism industry.                                                                                                               
                                                                                                                                
SUSAN SPRINGER, (TESTIFIED VIA TELECONFERENCE), HERRING BAY                                                                     
MERCANTILE, TOURIST BUSINESS, SELDOVIA, spoke in support of                                                                     
the legislation and urged Committee support to extend the                                                                       
lending authority of CFAB to include resource development                                                                       
and tourism.                                                                                                                    
                                                                                                                                
She suggested that the legislation was the most important                                                                       
thing that Alaska could do to help small businesses so to                                                                       
have greater access to low interest business loans.  The                                                                        
existing loan process needs to be streamlined.  She noted                                                                       
that the conventional banking institutions in Alaska are not                                                                    
serving the small business people.                                                                                              
                                                                                                                                
Ms. Springer addressed her impressions of CFAB:                                                                                 
                                                                                                                                
? CFAB is well respected for its support of small                                                                               
business development through the Fisheries                                                                                      
Business Assistance Program;                                                                                                    
? Not many of the state-funded small business                                                                                   
assistance programs work as effectively as CFAB;                                                                                
and                                                                                                                             
? Access to start-up and operating capital is one of                                                                            
the primary challenges facing small Alaskan                                                                                     
entrepreneurs trying to establish themselves in                                                                                 
business.                                                                                                                       
                                                                                                                                
Ms. Springer pointed out that CFAB serves a "niche" to a                                                                        
specific clientele.  It will not pose a threat to the                                                                           
banking institutions.  She noted that CFAB shareholders are                                                                     
all Alaskan's and will continue to be Alaskan and that they                                                                     
have Alaska's interest at stake.  She emphasized that                                                                           
passage of HB 339 would give entrepreneurs a "shot in the                                                                       
arm".                                                                                                                           
                                                                                                                                
Representative J. Davies MOVED an amendment to Page 4, Line                                                                     
28, deleting "tourism" and inserting "tourists".                                                                                
                                                                                                                                
Representative Moses commented that if the bill passes, it                                                                      
would allow CFAB the authority to move more into the rural                                                                      
areas to provide loan financing for tourism facilities. He                                                                      
noted at present, CFAB could not finance a loan for a                                                                           
charter boat.  He stated that 99% of the financing                                                                              
undertaken in the commercial fishing business is done in the                                                                    
Seattle area.  Representative Moses added that the majority                                                                     
of the fishing industry is done in Seattle because Seattle                                                                      
is where most of the head business are located such as                                                                          
processor parent companies.  He interjected that definitely                                                                     
will not change with the Wells Fargo Bank take-over.                                                                            
                                                                                                                                
Representative Foster reiterated his concern about the                                                                          
composition of the Board's makeup.  Mr. Crane explained that                                                                    
the Board would also be expanded.  Currently, the Board                                                                         
functions with an oversight role.  The Board takes no part                                                                      
in the loan decisions; it only approves basic policy and                                                                        
standards.  CFAB will acquire additional expertise and that                                                                     
the Board is 100% behind the expansion.                                                                                         
                                                                                                                                
Co-Chair Mulder MOVED to report CS HB 399 (FIN) out of                                                                          
Committee with individual recommendations and with the                                                                          
accompanying fiscal note.                                                                                                       
                                                                                                                                
Representative Williams OBJECTED stating that the bill would                                                                    
compete with the private sector.  Following further                                                                             
comments, Representative Williams WITHDREW his OBJECTION.                                                                       
There being NO further OBJECTION, it was so ordered.                                                                            
                                                                                                                                
CS HB 399 (FIN) was reported out of Committee with a "do                                                                        
pass" and with a new zero fiscal note by Department of                                                                          
Community & Economic Development dated 4/3/00.                                                                                  
                                                                                                                                

Document Name Date/Time Subjects