Legislature(2009 - 2010)HOUSE FINANCE 519
03/30/2010 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB410 | |
| HB412 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 410 | TELECONFERENCED | |
| + | HB 412 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 412
"An Act establishing the Alaska microloan revolving
fund; making loans for commercial purposes from the
fund; and relating to the fund and loans; and
providing for an effective date."
2:13:21 PM
GREG WINEGAR, DIRECTOR, ALASKA DIVISION OF INVESTMENTS,
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT,
informed the committee that HB 412 would create a new loan
program aimed at helping small Alaskan businesses access
critically needed capital to start new businesses and to
grow existing ones. He noted that the program is modeled
after a similar program operated through the Small Business
Administration (SBA) that is available in 46 other states
but not in Alaska because of SBA lender criteria that no
institution has met.
Mr. Winegar detailed that the maximum loan given through
the program would be $35,000 for an individual and $70,000
for two or more individuals. There would be a residency
requirement. The loan proceeds could be used for a variety
of purposes, including working capital, equipment, and
construction. The maximum loan term would be 6 years,
patterned after the SBA program. The loans must be
collateralized and the interest rate would be prime plus 1
percentage point with a floor of 6 percent and a ceiling of
8 percent. In terms of capitalization, the fiscal note
includes $3.5 million that would come from AIDEA,
contingent on passage of HB 411. Operating expenses at
$77,700 would be included to hire a loan officer. He noted
that the department worked hard to keep the fiscal note as
low as possible.
Mr. Winegar continued that the fund would be set up as a
revolving fund; all repayments would come back into the
fund and new loan requests would come out of it. In
addition, the operating expenses would be covered from
earnings of the fund, similar to other programs. He
reported that the department was projecting about 75 loans
in the first year, 100 in the second, and then the fund
could maintain about 25 loans per year from the initial
capitalization.
2:16:39 PM
Co-Chair Hawker queried the prime rate plus one proposed
for the program. Mr. Winegar responded that most other
programs in the department were based on prime rate so it
was used to be consistent. The rate could be geared to
another index.
Representative Kelly asked why there was a cap if the rate
was prime plus. Mr. Winegar answered that the cap was put
in to offer protection in case of a high interest rate
environment.
Representative Kelly registered concerns as the program
would be converted from one with a spread to one with a
"give-away" element.
Co-Chair Hawker asked whether the notes would be six-year
fixed-rate notes. Mr. Winegar answered in the affirmative.
He noted that other program regulation required quarterly
review and adjustment; at the time the loan is given, the
rate is fixed for the term of the loan.
Co-Chair Hawker asked whether a variable rate program had
been considered, which would benefit the consumer in low-
rate periods but protect in high-rate ones. Mr. Winegar
responded that the agency had considered the option; they
thought the fixed rate would be make it easier for a
borrower to plan. He acknowledged the fund could be set up
as a floating rate.
2:19:39 PM
Representative Foster thought the program was good for
rural Alaska. He queried plans to communicate about the
program in rural areas. Mr. Winegar replied that the
program would be handled like other programs, with outreach
work, advertisement, and attendance at various conferences.
He noted a contract with the Alaska Business Development
Center to assist in outreach efforts. He also anticipated
using the Small Business Development Center at the
University of Alaska.
Representative Foster queried examples of collateral
sufficient to secure the loan. He wondered the lowest level
of collateral acceptable. Mr. Winegar answered that
standards would be set through regulation; the language was
broad to allow as much flexibility as possible to work with
businesses. Deeds of trust on property and inventory would
apply. The term of the loan would be geared based on
collateral. The provision would provide maximum flexibility
to secure the loan in the best way possible; however, the
language does not require a certain type of collateral.
Representative Austerman commented that research on
economic development has confirmed the need for small
businesses to have access to funds through reasonable
loans. He questioned the fiscal note, related to the flow
of funds. He noted that currently the state receives a
dividend from AIDEA that goes into the general fund and
that funding for the proposed program would come out of
AIDEA dividend receipts. He thought the $3.5 million
requested should be general funds. He also questioned the
$77,700 for the position, which was coming out of AIDEA
dividends. He assumed the position would be in the Division
of Investments through reimbursable service agreement (RSA)
funds from AIDEA. He wanted to fund the position with the
general funds through the normal process.
2:23:22 PM
Representative Fairclough queried the definition (page 3,
lines 15 and 16) of an Alaska resident. She pointed to
eligibility language (starting on line 4 and on line 10):
"to meet the residency requirements of (a) of this section,
the applicant (1) must physically reside in the state and
maintain a domicile in the state during the twelve
consecutive months before the date of the application for
the program, but may not declare or establish residency in
another state or receive residency or a benefit based on
residency from another state." She asked how the
stipulation applied. Mr. Winegar replied that the intent
was that residency was maintained over the 12-month period.
Representative Fairclough questioned the possibilities of
what the language could mean. Co-Chair Hawker agreed that
the question was important to consider.
Representative Doogan thought that microloans were much
smaller. He queried why the agency considered the loan
amounts available as microloans. He also asked what kind of
loans would be expected. Mr. Winegar responded that the
loan amounts and the term "microloan" came from the SBA
program, as did the $3.5 million limit. The types of loans
expected were for working capital for a small business, to
be used for leasehold improvements or equipment.
Representative Doogan wondered whether the loans might be
too small as expenses were so much higher in rural Alaska.
Mr. Winegar answered that there were two other programs for
small businesses in rural Alaska, including the Rural
Development Revolving Loan Fund, which would offer larger
loans for smaller communities. The program proposed in HB
412 would fill a need not filled by the other programs. He
emphasized that all areas of the state would qualify for
the microloan program, whereas other the programs are for
smaller areas. The proposal would fill a gap that SBA
covers in most other states.
2:28:51 PM
Representative Kelly asked whether the agency had
considered funding the program "upstream" of AIDEA. Mr.
Winegar answered that the position would initially be paid
for out of the dividend and then would come out of
revolving fund, along with other expenses. Other funding
options had been considered at the Office of Budget and
Management (OMB) level; the proposed option was considered
the best one.
Co-Chair Hawker thought an eligibility requirement in the
section on loan limits should be moved to the eligibility
section. He pointed to page 3, line 28 about not making a
loan to person with a past due child support obligation. He
called it the only "moral turpitude" clause in the
provision and asked why other groups such as convicted sex
offenders or felons were not listed. He asked why child
support was targeted. Mr. Winegar replied that the language
was modeled on other legislation and that the same language
was in all AIDEA programs. He acknowledged the possible
need to change the placement of the language.
Co-Chair Hawker questioned whether other restrictions might
be appropriate.
Co-Chair Hawker directed attention to the findings section
on page 1, line 9, the declaration "essential for the on-
going economic health and well-being of the state and its
citizens and families." He asked whether there were
families that were not citizens. Mr. Winegar did not know
where the language originated.
Co-Chair Hawker moved to line 12 in the findings section,
"economic growth and self-employment in small business is
hampered." He did not recall seeing the word "hampered"
elsewhere in statute.
Representative Gara wondered whether the business had to be
located in the state of Alaska. Mr. Winegar responded that
line 17 on page 2 stipulated that loans would be made to
eligible applicants to be used for working capital,
equipment, and so on "by a business located in the state."
2:33:57 PM
Co-Chair Hawker requested clarification of earlier comments
about "stiffer compliance requirements" that were not being
utilized. He asked how the legislation could justify
deviating from the underwriting standards of the SBA. Mr.
Winegar responded that there had to be an intermediary
lender in order to have a SBA microloan program. Lenders
have to meet certain criteria; no one in the state has met
the criteria.
Co-Chair Hawker asked whether the provision applied only to
the microloan program. Mr. Winegar answered in the
affirmative. He reported that the agency had talked to SBA
about the possibility of the state qualifying as a lender,
but states were not eligible.
Co-Chair Hawker informed the committee that staff had noted
that the test for child support does not show up on credit
reports, so the language indicates a way to address the
issue.
Representative Foster queried whether information about
collections should be in the fiscal note. Mr. Winegar
replied that collections are done in-house and figured in.
He added that the loan officer is also a collection officer
and can do collections.
Representative Fairclough referred to page 2 of the fiscal
note and requested an update on the status of other
legislation that would affect the fund. Mr. Winegar replied
that there were two bills: HB 411 in the House Resources
Committee and SB 301 in the Senate Finance Committee.
2:38:54 PM AT EASE
2:41:02 PM RECONVENED
MIKE BURGFORG, EXECUTIVE DIRECTOR, MADE IN MAT-SU
ASSOCIATION, MAT-SU (via teleconference), testified in
support of the legislation. He reported that his
organization represented value-added manufacturers in the
Mat-Su. He stated that the organization's 245 members and
affiliates strongly support HB 412 because small business
will qualify for the first time. Other programs do not
support businesses in the area. He spoke to concerns about
the money volume. A survey showed that members would be
looking for smaller than $35,000 to $70,000 loans. The
greatest concern among members was capital for the purchase
of raw materials in order to be more competitive in the
market. He stressed the importance of the legislation to
small businesses in the state.
Co-Chair Hawker asked whether the business community
represented had difficulty accessing small lines of
commercial credit through traditional financing
institutions. Mr. Burgforg replied that most of the members
queried had difficultly because of the size of their
businesses. They could take personal loans, which did not
build their businesses. The microloan program would help
build business and establish credit, making them more
viable and better business partners in the community.
Co-Chair Hawker queried underwriting criteria. Mr. Winegar
responded that the agency would establish underwriting
criteria through the regulatory process. The goal was to
leave flexibility so that each business could be considered
separately.
2:46:45 PM
Co-Chair Hawker summarized that the intent of the program
is to be able to accommodate concerns of small businesses
such as those represented by the Made in Mat-Su
Association. Mr. Winegar agreed.
Vice-Chair Thomas pointed to letters of support from the
Bristol Bay Economic Development Corporation, Anchorage
Development Corporation, and others, including commercial
fishermen.
HB 412 was HEARD and HELD in Committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Letter from Governor HB410.pdf |
HFIN 3/30/2010 1:30:00 PM |
HB 410 |
| Sectional Analysis HB410.pdf |
HFIN 3/30/2010 1:30:00 PM |
HB 410 |
| HB 412 Sectional Analysis.pdf |
HFIN 3/30/2010 1:30:00 PM |
HB 412 |
| HB 412 Transmittal Letter.pdf |
HFIN 3/30/2010 1:30:00 PM |
HB 412 |
| Micro loans.pdf |
HFIN 3/30/2010 1:30:00 PM |
HB 412 |
| Microloan Support Letters.pdf |
HFIN 3/30/2010 1:30:00 PM |
HB 412 |
| HB 412 Support Letter.pdf |
HFIN 3/30/2010 1:30:00 PM |
HB 412 |
| admin@aidea org_20100401_145122.pdf |
HFIN 3/30/2010 1:30:00 PM |
HB 410 |