Legislature(2011 - 2012)HOUSE FINANCE 519

04/04/2011 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
<Bill Held Over from 8:30 am>
Moved CSHB 121(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 121                                                                                                            
     "An Act  establishing the commercial  charter fisheries                                                                    
     revolving  loan fund,  the  mariculture revolving  loan                                                                    
     fund, and the Alaska  microloan revolving loan fund and                                                                    
     relating  to those  funds and  loans from  those funds;                                                                    
     and providing for an effective date."                                                                                      
3:08:50 PM                                                                                                                    
Co-Chair  Stoltze MOVED  to ADOPT  CSHB 121(FIN)  Work Draft                                                                    
27-GH1728\X (Kane, 4/1/11).                                                                                                     
Representative Doogan OBJECTED for purpose of discussion.                                                                       
Vice-chair Fairclough asked for an explanation of the CS.                                                                       
CURTIS THAYER, DEPUTY  COMMISSIONER, COMMERCE, COMMUNITY AND                                                                    
ECONOMIC  DEVELOPMENT, discussed  the changes  that appeared                                                                    
in the  CS. He relayed  that there  was a title  change that                                                                    
deleted the  language "relating to loans  made to commercial                                                                    
fisherman under the commercial fishing  loan act for product                                                                    
quality,  improvements,  and  energy  efficiency  upgrades."                                                                    
Section  1 on  Page 1  had  been deleted  from the  previous                                                                    
version that would have allowed  the Department of Commerce,                                                                    
Community,  and  Economic  Development (DCCED)  to  give  an                                                                    
interest   rate  reduction   to   commercial  fishing   loan                                                                    
borrowers if  50 percent  of the loan  was spent  on product                                                                    
produced or  manufactured in  Alaska. Language  was inserted                                                                    
on Page 3,  Line 17 that required an applicant  to provide a                                                                    
document   to  the   department  from   a  state   financial                                                                    
institution  that showed  the applicant  had  been denied  a                                                                    
loan  or that  the loan  was contingent  upon the  applicant                                                                    
receiving a  loan from the  Alaska Microloan  Revolving Loan                                                                    
Fund. Page 3,  Line 19 included new language  related to the                                                                    
"turndown"  provision that  an applicant  had been  denied a                                                                    
loan  for  the same  purpose  or  a  loan from  a  financial                                                                    
institution was contingent on an  applicant receiving a loan                                                                    
from  the  fund. He  explained  that  there was  a  turndown                                                                    
provision  for  the  microloan  that  was  mirrored  by  the                                                                    
charter boat fisheries loan. The  floor of the interest rate                                                                    
had  been increased  from 3  percent  to 6  percent for  the                                                                    
charter boat fishery  program (Page 6, Lines 4  and 14). The                                                                    
total balance of the outstanding  charter fisheries loan had                                                                    
been reduced  from $300,000 to  $200,000 (Page 4,  Line 16).                                                                    
Changes  to the  legislation had  been made  in consultation                                                                    
with  the  industry  to  ensure that  the  program  was  not                                                                    
competitive with other financial  institutions. The goal was                                                                    
to provide  bridge funding between  what the  private sector                                                                    
was  and was  not able  to finance  and to  produce economic                                                                    
development for the State of Alaska.                                                                                            
There being NO OBJECTION the CS was ADOPTED.                                                                                    
SUSAN  K.   BELL,  COMMISSIONER,  DEPARTMENT   OF  COMMERCE,                                                                    
COMMUNITY  AND ECONOMIC  DEVELOPMENT,  underscored that  the                                                                    
legislation  had resulted  from  extensive  outreach to  the                                                                    
economic  advisory  council,   trade  organizations,  Alaska                                                                    
Native   Claims   Settlement   Act   (ANCSA)   corporations,                                                                    
community leaders,  the financing community, and  other. She                                                                    
relayed that the goal was  to help diversify the economy and                                                                    
to  facilitate job  creation. The  department had  been made                                                                    
aware of the need for  increased access to capital in select                                                                    
areas  and  industry  sectors.  The  first  of  three  major                                                                    
components   included   the   facilitation   of   year-round                                                                    
mariculture  industry  development in  coastal  communities.                                                                    
She  discussed  that out  of  67  farms  that only  25  were                                                                    
currently producing (10 in Southeast  and 15 in Southcentral                                                                    
Alaska).  The  second  component   was  to  help  commercial                                                                    
charter operators  in Southcentral  and Southeast  Alaska to                                                                    
acquire charter  halibut permits that were  needed to comply                                                                    
with  new  federal  regulation.   She  emphasized  that  the                                                                    
department  anticipated over  500  permitees  with over  800                                                                    
applications.  The department's  objective was  to encourage                                                                    
Alaska ownership  and to increase  the economic  benefits of                                                                    
the  communities  where  permit holders  resided  through  a                                                                    
recirculation of  the earnings.  The third component  was to                                                                    
spur small  business development  through the creation  of a                                                                    
microloan program. Alaska was one  of the few states without                                                                    
a  microloan program  and funds  could be  used for  startup                                                                    
business costs,  working capital, inventory  expansion, etc.                                                                    
She communicated that the  programs complimented the state's                                                                    
small business  loan programs and provided  additional tools                                                                    
to diversify the economy and to sustain economic growth.                                                                        
Representative  Costello  wondered whether  the  legislation                                                                    
would  compete  with  the   Alaska  Commercial  Fishing  and                                                                    
Agriculture Bank (CFAB).                                                                                                        
WANETTA  AYERS,  DIVISION  DIRECTOR,  ECONOMIC  DEVELOPMENT,                                                                    
DEPARTMENT OF COMMERCE,  COMMUNITY AND ECONOMIC DEVELOPMENT,                                                                    
responded that  the CFAB lending  practices were  similar to                                                                    
other private  banking institutions and that  there had been                                                                    
turndowns   for    commercial   fishing   loans    in   some                                                                    
circumstances.  She detailed  that  borrowers  that did  not                                                                    
qualify for a CFAB loan  would be considered under the loans                                                                    
in the legislation.                                                                                                             
3:16:31 PM                                                                                                                    
Representative  Wilson asked  how  many of  the states  with                                                                    
microloan  programs used  private  banks  compared to  state                                                                    
financing.  Ms. Ayers  responded  that  the legislation  was                                                                    
modeled  after  the   Small  Business  Administration  (SBA)                                                                    
Microloan Program  and the loans were  typically provided by                                                                    
non-governmental organizations such  as economic development                                                                    
districts or non-profit community development corporations.                                                                     
Representative  Wilson  asked  whether   the  loans  in  the                                                                    
legislation would  be operated  and funded  by the  State of                                                                    
Alaska. Ms. Ayers replied in the affirmative.                                                                                   
Representative  Doogan  wondered  where  commercial  charter                                                                    
fishermen had  previously obtained loans. Ms.  Ayers replied                                                                    
that the loan  fund had been proposed to  help fishermen due                                                                    
to new  federal requirements  on limited entry  permits. The                                                                    
new requirement  presented a barrier  to entry that  most of                                                                    
the businesses had  not faced in the past.  She relayed that                                                                    
although a  business may qualify  for an asset loan  that it                                                                    
was unlikely a business  would qualify for private financing                                                                    
on a permit because it was a new requirement.                                                                                   
Representative Doogan  wondered how much a  loan would cost.                                                                    
Ms. Ayers  replied that  the department  had heard  that the                                                                    
charter halibut permit  for a "six pack"  license would cost                                                                    
up to $80,000.                                                                                                                  
Representative  Guttenberg wondered  where  the interest  of                                                                    
the  state   would  be   met  and   whether  the   loan  was                                                                    
specifically intended  to provide funding to  people who had                                                                    
been denied by another financial institution.                                                                                   
3:19:53 PM                                                                                                                    
Ms. Ayers  responded that the state's  interest in providing                                                                    
a  loan  to  a  qualified  borrower  was  satisfied  by  the                                                                    
creation  of a  greater public  good. She  relayed that  the                                                                    
objective  was to  concentrate Alaskan  ownership to  ensure                                                                    
that the  economic benefits accrued from  the activity would                                                                    
remain  in  Alaska.   She  noted  that  there   had  been  a                                                                    
significant   level  of   non-resident  charter   operations                                                                    
ownership in Southcentral and Southeast Alaska in the past.                                                                     
Representative  Guttenberg wondered  about  the surety  that                                                                    
the  debt would  be repaid  to the  state and  how the  loan                                                                    
requirements differed  between the state loan  and a private                                                                    
institution loan.  Ms. Ayers replied  that a  private lender                                                                    
would generally  have a lower  risk tolerance;  however, the                                                                    
state  would  still  require the  loan  to  be  sufficiently                                                                    
collateralized to secure the loan  value. She added that the                                                                    
state typically had a higher  risk tolerance and was able to                                                                    
exercise more  patience regarding  repayment terms  in order                                                                    
to meet the public purpose objectives of the fund.                                                                              
Representative Guttenberg  was supportive  of the  goals. He                                                                    
wondered  about  the history  of  repayment  and default  on                                                                    
loans  provided by  the state.  Ms. Ayers  replied that  the                                                                    
default rate was  very low and it was less  than one percent                                                                    
in the past fiscal year.                                                                                                        
Representative Gara  supported the legislation.  He wondered                                                                    
whether  the  standards in  the  loan  program were  similar                                                                    
those in  other loan  programs. Ms.  Ayers replied  that the                                                                    
same best practices  that were used on other  loans would be                                                                    
Representative Gara asked whether  overall the state did not                                                                    
lose money on the loan funds  as a result of the low default                                                                    
rate. Ms.  Ayers replied in  the affirmative.  She explained                                                                    
that in  the past  the state  had offered  extremely patient                                                                    
terms  under  certain  loan funds,  such  as  the  Fisheries                                                                    
Enhancement Revolving  Loan Fund,  and tended to  make loans                                                                    
in  the  commercial  fishing industry  because  historically                                                                    
there had  been a  lack of private  sector financing  in the                                                                    
area.  The state  had helped  the  fishing industry  through                                                                    
some  very  challenging times  and  had  been able  to  make                                                                    
modifications  and  work with  borrowers  to  help them  get                                                                    
right-side up on their loans.                                                                                                   
3:24:07 PM                                                                                                                    
Representative Gara reiterated his  support for the bill. He                                                                    
discussed that  another revolving loan fund  had been passed                                                                    
the prior year  to help small businesses  become more energy                                                                    
efficient;  however, it  was  currently  unfunded. He  hoped                                                                    
that legislators would consider  funding the program because                                                                    
private businesses in rural areas  did not qualify for Power                                                                    
Cost Equalization (PCE).                                                                                                        
Co-Chair  Stoltze mentioned  the Agriculture  Revolving Loan                                                                    
Vice-chair Fairclough discussed the fiscal notes.                                                                               
Co-Chair  Thomas thought  the DCCED  fiscal note  related to                                                                    
charter  fisheries should  be increased  to  $9 million.  He                                                                    
believed the  permit for a  license was between  $80,000 and                                                                    
$100,000 and in  order to be in a position  to provide loans                                                                    
to those  in need that  it would  be better to  increase the                                                                    
available   funds.  Commissioner   Bell  replied   that  the                                                                    
department had looked to make  sure the funds were viable at                                                                    
different  commercialization levels  and explained  that the                                                                    
increase to  $9 million  would expand opportunities  to more                                                                    
people in need of financing.                                                                                                    
Representative  Doogan  asked  for  an  explanation  on  the                                                                    
fiscal note  notation that specified the  capitalization had                                                                    
been  reduced  from  $5  million  to  $3  million  based  on                                                                    
clarification of  funding source.  Ms. Ayers replied  that a                                                                    
new source of federal funding  that the department had hoped                                                                    
for was not available;  therefore a lower capitalization had                                                                    
been recommended.  She added that the  department would take                                                                    
Co-Chair Thomas's recommendation  into account regarding the                                                                    
potential demand for the loan.                                                                                                  
Representative  Doogan  asked  whether  the  department  had                                                                    
decreased the amount  from $5 million to  $3 million because                                                                    
they  thought the  amount was  too high.  Ms. Ayers  replied                                                                    
that  the  amount  had  been  reduced  because  the  federal                                                                    
funding had not come through.                                                                                                   
Representative  Doogan  asked  about  the  reduction  to  $3                                                                    
Vice-chair Fairclough  believed that the department  had not                                                                    
wanted to  bring forward a  fiscal note that was  too large.                                                                    
She  clarified that  Co-Chair Thomas  had suggested  raising                                                                    
the amount to $9 million to increase access to more people.                                                                     
Representative Doogan  wanted to understand  the methodology                                                                    
in  the number  decrease that  was reflected  on the  fiscal                                                                    
Representative Wilson  asked whether the three  fiscal notes                                                                    
from DCCED  totaled $8.5 million.  Ms. Ayers replied  in the                                                                    
Representative  Wilson asked  whether there  would be  three                                                                    
additional positions  created. Ms. Ayers responded  that the                                                                    
department had requested one new position.                                                                                      
3:29:38 PM                                                                                                                    
Vice-chair  Fairclough  wondered  whether  the  fiscal  note                                                                    
dated  2/8/2011  that  included funding  for  two  full-time                                                                    
positions in the  amount of $169,000 had been  replaced by a                                                                    
fiscal note  dated 3/29/2011 that  included funding  for one                                                                    
full-time position  in the  amount of  $78,000. Commissioner                                                                    
Bell replied in the affirmative.                                                                                                
Vice-chair  Fairclough  informed  the committee  that  there                                                                    
should  be  a  total  of  four  fiscal  notes.  Three  notes                                                                    
included capital  for different funds and  one note included                                                                    
funding for one full-time position. Funding for the full-                                                                       
time position  was $78,000  in FY  12 and  $71,900 in  FY 13                                                                    
through FY 17.                                                                                                                  
Representative  Wilson  wondered   how  many  fishing  loans                                                                    
currently existed.  Ms. Ayers  replied that  currently there                                                                    
was the  Commercial Fishing Revolving Loan  Fund under which                                                                    
a  number of  eligible  purposes existed  and the  Fisheries                                                                    
Enhancement   Revolving  Loan   Fund  that   paid  for   the                                                                    
Aquaculture   Association  hatchery   Fisheries  Enhancement                                                                    
Representative Wilson  asked whether there would  be a total                                                                    
of five separate  funds that included the  current funds and                                                                    
those encompassed  in the  legislation. Ms.  Ayers clarified                                                                    
that there were  three separate loan funds in  the bill that                                                                    
included the mariculture fund,  the commercial charter fund,                                                                    
and the  microloan fund. She  noted that the  microloan fund                                                                    
was not specific to fisheries.                                                                                                  
Representative  Wilson  asked  for verification  that  DCCED                                                                    
currently administered  other loan funds. Ms.  Ayers replied                                                                    
in  the   affirmative.  She  reiterated  that   other  loans                                                                    
included  the  Fisheries  Enhancement   Loan  Fund  and  the                                                                    
Commercial  Fishing Revolving  Loan Fund  that helped  users                                                                    
with vessel  financing, refinancing, limited  entry permits,                                                                    
quota share purchasing, commercial purposes, etc.                                                                               
Representative Wilson  surmised that there was  currently no                                                                    
federal  funding available  to help  with the  programs. Ms.                                                                    
Ayers responded in the affirmative.                                                                                             
Co-Chair  Stoltze  supported  the legislation.  He  stressed                                                                    
that  the  loan  fund  helped  fisherman  in  Southeast  and                                                                    
Southcentral   Alaska  that   were   faced  with   financial                                                                    
difficulty  as a  result of  an external  federal government                                                                    
3:34:26 PM                                                                                                                    
Representative Doogan wondered whether  it was a reaction to                                                                    
the "two fish, one fish change".                                                                                                
Co-Chair  Thomas  replied  that  a permit  system  had  been                                                                    
created  in Alaska  that displaced  a significant  number of                                                                    
charter fishermen.  He explained that in  some circumstances                                                                    
lodges  held  permits  for  fishermen  that  they  employed;                                                                    
however,  the  fishermen  were   now  required  to  hold  an                                                                    
individual permit.  He opined that  an increase to  the base                                                                    
$3 million  in the  fiscal note was  important and  that the                                                                    
loan would help bring fishermen  back. He discussed that the                                                                    
state loan  program had  been in existence  for a  long time                                                                    
and that  the default  percentage was  very low.  He relayed                                                                    
that  the  state  was  able  to sell  a  permit  to  another                                                                    
fisherman if the current owner defaulted.                                                                                       
Vice-chair  Fairclough discussed  the  proposed revision  by                                                                    
Co-Chair Thomas  that would  change the  base amount  on the                                                                    
fiscal note related to the  Charter Fisheries Revolving Loan                                                                    
Fund from $3 million to $9 million.                                                                                             
Representative Wilson wondered why  funding could not be met                                                                    
through existing loans.                                                                                                         
Co-Chair  Thomas explained  that  the loan  fund  was a  new                                                                    
Representative Gara communicated  that the state's revolving                                                                    
loan funds were well run  and that they added jobs, improved                                                                    
the  economy,  and dealt  with  distress  in the  state.  He                                                                    
thought that  the increase  was smart and  did not  cost the                                                                    
state  anything and  in the  event  that the  state faced  a                                                                    
worse  fiscal  situation   the  legislature  could  consider                                                                    
reducing the amount at that time.                                                                                               
Representative  Doogan wondered  whether the  increase would                                                                    
be from $3 million to $9  million on the fiscal note labeled                                                                    
"Allocation: Com Charter Fisheries (RLF)."                                                                                      
Vice-chair  Fairclough  responded  in the  affirmative.  The                                                                    
committee  agreed  on  a  revised  fiscal  note  that  would                                                                    
increase  the Charter  Fisheries Revolving  Loan Fund  to $9                                                                    
Vice-chair  Fairclough   discussed  the  fiscal   note  that                                                                    
capitalized the microloan fund at $2.5 million.                                                                                 
Representative  Gara wondered  whether the  fiscal note  was                                                                    
sufficient  to make  a  real impact  on  the community.  Ms.                                                                    
Ayers   replied  that   the  department   believed  it   was                                                                    
3:38:51 PM                                                                                                                    
Representative Gara remarked that the number seemed small.                                                                      
Vice-chair  Fairclough  pointed  to  the  fiscal  note  that                                                                    
capitalized shellfish mariculture at $3 million.                                                                                
Representative  Wilson asked  how  long the  money would  be                                                                    
allocated  for the  mariculture loan  before the  department                                                                    
would reassess  whether other non-financial needs  were more                                                                    
prevalent. Ms.  Ayers replied that DCCED  monitored new loan                                                                    
funds to determine  how quickly the fund  was subscribed and                                                                    
would then make determinations.  She highlighted that proper                                                                    
outreach to  potential users was  important when a  new fund                                                                    
was available.  There was  at least one  new loan  fund that                                                                    
the  department was  currently  monitoring.  New funds  were                                                                    
typically   given    several   years   before    a   serious                                                                    
determination was made.                                                                                                         
Representative Wilson  wondered whether DCCED  would provide                                                                    
a report  to the  legislature and potentially  recommend the                                                                    
transfer  of  money  from  one program  to  another  if  the                                                                    
department had determined  that a loan was  not working. She                                                                    
noted  that sometimes  businesses  were  not successful  for                                                                    
non-financial reasons. She asked  whether the department had                                                                    
ever turned  any loans back  in. Ms. Ayers replied  that she                                                                    
would  need to  do  research on  turning  back capital.  She                                                                    
believed  that it  was more  likely  that in  cases such  as                                                                    
commercial fisheries  that the  fund had given  back through                                                                    
the successful funding of other activities.                                                                                     
Vice-chair  Fairclough   discussed  the  fiscal   note  that                                                                    
included funding for one full-time position.                                                                                    
Representative  Doogan  asked  for  an  explanation  of  the                                                                    
$2,400  capital  outlay item  listed  in  FY 12.  Ms.  Ayers                                                                    
responded  that   the  allocation  was  related   to  office                                                                    
equipment, furniture,  and other  items associated  with the                                                                    
creation of a new position.                                                                                                     
Representative  Doogan asked  for information  regarding the                                                                    
microloan funding  source that  began with  $5,300 in  FY 12                                                                    
and was reduced to $3,500 in  FY 13 through FY 17. Ms. Ayers                                                                    
replied that  the incremental  costs were  allocated between                                                                    
the two  funds [Micro-Loan  Fund and the  Commercial Charter                                                                    
Fisheries Fund]  in the first  year and was  carried forward                                                                    
in future years.                                                                                                                
Representative   Doogan  wondered   whether  the   full-time                                                                    
position would be allocated to  two different functions. Ms.                                                                    
Ayers responded  that he was  essentially correct,  but that                                                                    
many  individuals would  be involved  in the  entire lending                                                                    
process.  She  added  that DCCED  had  allocated  the  costs                                                                    
within the confines of the fiscal note.                                                                                         
3:43:46 PM                                                                                                                    
Representative Doogan wondered why  the new position had not                                                                    
been allocated  to Mariculture Revolving Loan  Fund as well.                                                                    
Ms. Ayers  responded that based  on the potential  volume of                                                                    
loans  DCCED believed  it could  accommodate  the fund  with                                                                    
current staff.                                                                                                                  
Representative  Edgmon  wondered  what  interest  rate  each                                                                    
program would offer if the programs took effect that day.                                                                       
Commissioner  Bell  replied   that  the  Commercial  Charter                                                                    
Fisheries  Revolving  Loan Fund  would  have  a floor  of  6                                                                    
percent  and  a  ceiling  of  10.5  percent.  The  Shellfish                                                                    
Mariculture  Revolving Loan  Fund would  have a  floor of  5                                                                    
percent and a ceiling of  9 percent. The Microloan Revolving                                                                    
Loan Fund would  have a floor of 6 percent  and a ceiling of                                                                    
8 percent. She referred to  the language "prime plus two" in                                                                    
the bill  that would  currently have  been 5.25  percent and                                                                    
was  close to  market  rates. The  department  had tried  to                                                                    
create programs that filled  public purpose, that recognized                                                                    
communication with the industry  interested in utilizing the                                                                    
loans, and to  find an appropriate comfort  level within the                                                                    
banking community.                                                                                                              
KEN   L.  LARSON,   PRINCE   WILLIAM   SOUND  CHARTER   BOAT                                                                    
ASSOCIATION,  FAIRBANKS  (via teleconference),  opposed  the                                                                    
bill in its present form. He  had operated a charter boat in                                                                    
Valdez  beginning  in  1984.   He  discussed  that  economic                                                                    
development  in  Alaska was  on  a  downhill slide  and  the                                                                    
implementation  of   GHLs  [Guideline  Harvest   Limit]  and                                                                    
charter halibut  permits [CHP] had  wiped out 35  percent to                                                                    
40 percent  of operators. He  believed that the one  fish 37                                                                    
inch rule  in Southeast was  the "death knell"  for charters                                                                    
in the  area. Operators in  Southcentral had been  told that                                                                    
they would be limited to the one fish rule under the catch-                                                                     
sharing plan the following summer.  He discussed that Alaska                                                                    
Department  of Fish  and Game  figures  indicated that  non-                                                                    
resident licenses had  dropped 18 percent from  2006 to 2010                                                                    
and the money  generated from the area had  dropped close to                                                                    
12  percent. He  stressed that  the state  had lost  several                                                                    
hundred million dollars since 2006  and that the decline had                                                                    
continued to  the Alaska tourism industry.  He believed that                                                                    
the state  was establishing a double  standard. He discussed                                                                    
the CFAB  loan program  had been  instituted when  the IFQ's                                                                    
for halibut long  liners were put in place in  1995 and were                                                                    
currently  at  a 3  percent  to  4  percent loan  rate.  The                                                                    
fisherman had  been forced  into a mold  in a  fishery where                                                                    
they made  up 10 percent to  15 percent of the  total catch.                                                                    
He wondered why  the fisherman that wanted  to purchase CHPs                                                                    
could not be  included in the CFAB program.  He relayed that                                                                    
it was difficult  to obtain loans and that  the state should                                                                    
tap into the  existing CFAB program instead of  setting up a                                                                    
new program.                                                                                                                    
3:50:32 PM                                                                                                                    
Representative  Wilson  asked  whether Mr.  Larson  believed                                                                    
that  his  recommendations  would   open  up  the  bill  for                                                                    
utilization  by a  broader group  of  operators. Mr.  Larson                                                                    
responded that he  thought it would help.  He explained that                                                                    
the problem was that many  fishermen were looking for a boat                                                                    
and a permit  and that $100,000 would not come  close to the                                                                    
costs needed.                                                                                                                   
Representative  Wilson  remarked  that  the  bill  had  been                                                                    
changed to $200,000.                                                                                                            
Vice-chair Fairclough  explained that a CS  had been adopted                                                                    
and  that   one  of  the  changes   the  Commercial  Charter                                                                    
Fisheries Revolving  Loan Fund was an  increase to $200,000.                                                                    
Mr.   Larson  believed   that   the   increase  would   help                                                                    
Vice-chair   Fairclough   asked   Mr.  Larson   whether   he                                                                    
maintained  his opposition  to the  bill. Mr.  Larson opined                                                                    
that  the  new  program  was unnecessary  because  it  would                                                                    
duplicate the current CFAB program.                                                                                             
Representative Doogan  referenced Page  4, Lines  15-16 that                                                                    
included the increase to $200,000.                                                                                              
Vice-chair Fairclough  read from  Page 4, Lines  15-16: "The                                                                    
total  balances  outstanding on  loans  made  to a  borrower                                                                    
under  AS 16.10.805  may not  exceed  $200,000." Mr.  Larson                                                                    
asked about  Page 3, Line  31 that included language  that a                                                                    
loan would not exceed $100,000.                                                                                                 
Vice-chair   Fairclough  replied   that  the   language  was                                                                    
referring to a different section of the code.                                                                                   
Mr.  Larson   queried  whether  the  available   amount  was                                                                    
$200,000  on  a  charter  halibut permit,  boat,  or  engine                                                                    
Vice-chair  Fairclough  responded  that  the  administration                                                                    
would provide clarity at the end of the public hearing.                                                                         
3:54:22 PM                                                                                                                    
PATRICK BOOKEY, SR., LUCK OF  THE IRISH CHARTERS, NORTH POLE                                                                    
(via  teleconference), was  opposed to  the current  form of                                                                    
the legislation. He  was a longtime Alaskan and  worked as a                                                                    
charter  operator.  He  expressed  that 35  percent  of  the                                                                    
charter operators  had been lost  under the  current charter                                                                    
halibut  permit and  that operators  were the  smallest user                                                                    
group. He was concerned that  private boaters would still be                                                                    
allowed  two fish  and that  the implementation  of the  one                                                                    
fish rule  would put charter  operators out of  business. He                                                                    
thought  the language  in  the bill  related  to the  amount                                                                    
available under the  loan was confusing. He  was troubled by                                                                    
the  requirement  that  an operator  must  have  a  physical                                                                    
license or residence in the state  for 24 months in order to                                                                    
qualify for  the program.  He thought  the CFAB  program was                                                                    
better because  the interest  rates under  the bill  were no                                                                    
better for  new fishermen.  He explained  that his  boat and                                                                    
12-pack permit  amounted to over  $300,000 and that  a buyer                                                                    
would not receive enough funding under the proposed loan.                                                                       
Vice-chair  Fairclough  noted  that   Mr.  Bookey  had  been                                                                    
referring Page 3, Lines 22-25.                                                                                                  
MARK   STEARNS,  ALASKAN   WOOD  MOULDING,   ANCHORAGE  (via                                                                    
teleconference),  spoke in  support of  the legislation.  He                                                                    
believed that  the microloan program  was broadly  based and                                                                    
would help a variety of  business owners. He had known small                                                                    
businesses that had been turned  down for loans despite good                                                                    
credit. He  believed that  the small  program would  help to                                                                    
bridge  the gap  during  challenging times.  He thought  the                                                                    
bill was necessary  and would be extremely  helpful to small                                                                    
businesses  that  created  jobs  and were  the  backbone  of                                                                    
Alaskan communities.                                                                                                            
4:00:40 PM                                                                                                                    
RODGER   PAINTER,   PRESIDENT,  ALASKA   SHELLFISH   GROWERS                                                                    
ASSOCIATION, JUNEAU, spoke in favor  of the bill. He thanked                                                                    
the   governor   for   introducing   the   legislation.   He                                                                    
appreciated a  loan fund  specifically for  small businesses                                                                    
because  there  was  a  tendency to  focus  on  large  scale                                                                    
economic  development. The  mariculture  loan addressed  the                                                                    
association's  revenue lag  from three  to eight  years. The                                                                    
bill  was   structured  recognize  the  problem   and  would                                                                    
encourage the  development of new  shellfish farms  in rural                                                                    
RICK    HARRIS,   EXECUTIVE    VICE   PRESIDENT,    SEALASKA                                                                    
CORPORATION, JUNEAU, referred to  written testimony that had                                                                    
been  provided  (copy  on  file).  The  corporation  was  in                                                                    
support of  the legislation and was  specifically interested                                                                    
in the mariculture loan. He  discussed that Southeast Alaska                                                                    
had   been   experiencing   large  outmigration   and   high                                                                    
unemployment.  SEALASKA  had  reviewed Department  of  Labor                                                                    
statistics from  1996-2034 that showed that  Ketchikan would                                                                    
lose 36  percent of  its population,  Prince of  Wales would                                                                    
lose  62  percent,  Skagway  would   lose  56  percent,  and                                                                    
Wrangell  would lose  56 percent.  The corporation  board of                                                                    
directors had decided that they  would begin rebuilding jobs                                                                    
in rural communities one person  at a time. He discussed the                                                                    
corporation's subsidiary  called Haa  Aani that  was focused                                                                    
on economic  development in  Southeast. Southeast  offered a                                                                    
range of resources that were  necessary for the mariculture;                                                                    
however, there was no capital  available for new businesses.                                                                    
He  discussed other  items that  were  necessary for  oyster                                                                    
farmers.  He  believed that  the  bill  would remove  oyster                                                                    
farmers' lack  of financing, which represented  their number                                                                    
one  obstacle.  He  hoped  that  the  $3  million  would  be                                                                    
available quickly in order to help put people to work.                                                                          
4:07:31 PM                                                                                                                    
PAUL FUHS,  PAC ALASKA,  JUNEAU, supported  the legislation.                                                                    
He expressed that the bill  provided good mid-level economic                                                                    
development in necessary  areas that represented substantial                                                                    
revenue and supported numerous jobs  throughout the year. He                                                                    
shared a  gooey duck with  the committee and  explained that                                                                    
it took approximately  six to seven years  for the shellfish                                                                    
to reach maturity: during the  time businesses did not bring                                                                    
in  revenue and  experienced  costs such  as  leases on  the                                                                    
tidelands.  Private  banks   would  not  provide  financing;                                                                    
therefore, a state loan program  was necessary. He explained                                                                    
that the  reason for  a new loan  program was  that existing                                                                    
programs were fully subscribed.  He noted that default rates                                                                    
on state loans were historically  very low. The farms needed                                                                    
start-up capital and would then become self-sustaining.                                                                         
Representative Gara  wondered why  gooey ducks were  not for                                                                    
sale in the  supermarket. Mr. Fuhs replied  that the primary                                                                    
market was overseas and that  most people in America did not                                                                    
know how to cook them.                                                                                                          
4:11:56 PM                                                                                                                    
Vice-chair Fairclough CLOSED public testimony.                                                                                  
Representative  Doogan asked  for  verification  of the  two                                                                    
financial limits  on the loan.  The first was that  the loan                                                                    
could not  exceed over $100,000  per year. The  second limit                                                                    
was that  the loan  could not total  more than  $200,000 per                                                                    
year. Ms. Ayers responded in the affirmative.                                                                                   
Representative  Gara  asked  whether  the  department  would                                                                    
reevaluate the  amount designated to the  microloan program.                                                                    
He thought that the allocation of $2.5 million was too low.                                                                     
Commissioner  Bell   responded  that  DCCED   had  initially                                                                    
thought that  the program could have  been supplemented with                                                                    
federal funding. The  department wanted to make  sure it was                                                                    
bringing forward loans that were  viable and functional. The                                                                    
loan  was mirrored  after the  SBA program  which designated                                                                    
$35,000 per individual  or $70,000 for two  or more parties.                                                                    
The  department's  research  had  indicated  that  the  loan                                                                    
activity was  less than the  amounts in  many circumstances.                                                                    
She explained that  loans may be in the range  of $15,000 to                                                                    
$20,000 and that not all recipients would reach the cap.                                                                        
Representative  Wilson wondered  why the  interest rate  for                                                                    
the charter fisheries  loan was 6 percent and  why the state                                                                    
could  not  use the  other  program  that currently  existed                                                                    
[CFAB]. Ms. Ayers replied that  CFAB could currently lend in                                                                    
the   categories  addressed   under  the   legislation.  She                                                                    
explained  that  an  individual   would  not  need  to  take                                                                    
advantage  of  the   loan  under  the  bill   if  they  were                                                                    
successful in obtaining financing through CFAB.                                                                                 
Representative  Wilson  wondered  why  a  person  would  not                                                                    
utilize  the  CFAB  program  instead  of  the  loan  program                                                                    
proposed  under the  legislation. Ms.  Ayers responded  that                                                                    
she was  not versed  in the  CFAB lending  program; however,                                                                    
she would have been surprised  to find that CFAB was lending                                                                    
below the current  prime rate. She would need  to verify the                                                                    
information  from  the   charter  operators  that  testified                                                                    
earlier in the meeting.                                                                                                         
4:17:28 PM                                                                                                                    
Commissioner  Bell notified  the  committee  that DCCED  had                                                                    
consulted  with  CFAB  and other  private  institutions  and                                                                    
there had been  no objection to the introduction  of the new                                                                    
Representative Wilson requested  verification on the current                                                                    
CFAB  interest  rate.  She  communicated  that  she  had  no                                                                    
objection to the loans, but  wanted to make certain that the                                                                    
loan money would  be accessible. Ms. Ayers  replied that she                                                                    
would provide  the information to  the committee.  She added                                                                    
that Richard Yamada with the  Alaska Charter Association had                                                                    
been unable  to stay to  testify; however, he  had testified                                                                    
on the association's support of the bill in the past.                                                                           
Representative  Wilson  expressed  her concern  that  the  6                                                                    
percent  interest  rate may  have  been  too high  for  cash                                                                    
strapped  businesses.  She  agreed   that  the  capital  was                                                                    
important. Ms. Ayers  answered that the 6  percent floor had                                                                    
been  reached  in  consultation   with  the  Alaska  Banking                                                                    
Association. She elaborated  that the state did  not want to                                                                    
offer a rate that was  significantly below market that would                                                                    
disadvantage the private lenders.                                                                                               
Representative Wilson  ascertained that  the reason  for the                                                                    
loan  program  was to  fill  a  niche  that was  not  there;                                                                    
however, the niche was only filled  at an interest rate of 6                                                                    
percent  or   above.  Ms.  Ayers  answered   the  state  was                                                                    
operating  as  a lender  of  last  resort and  that  private                                                                    
banking institutions would not  approve of such low interest                                                                    
rates in  a category that they  would be likely to  lend in.                                                                    
The terms  of the  loan fund had  been discussed  and vetted                                                                    
with   the  charter   association,   National  Oceanic   and                                                                    
Atmospheric   Association    (NOAA),   and    with   banking                                                                    
organizations. The department was  always on the lookout for                                                                    
gaps  that it  could fill  to ensure  access to  capital, to                                                                    
facilitate new  business entrants, and to  increase resident                                                                    
4:21:22 PM                                                                                                                    
Representative Costello  wondered why  there was  a 24-month                                                                    
residency requirement  in order to qualify  for the program.                                                                    
Commissioner Bell  responded that the  residency requirement                                                                    
was identical to those in existing revolving loan funds.                                                                        
Co-Chair Thomas told a personal  story about his son who had                                                                    
received a boat  and permit loan from the  state after being                                                                    
turned down by a bank.                                                                                                          
Representative  Gara   wondered  what  harm  there   was  in                                                                    
offering lower interest rates to  people who had been denied                                                                    
a loan by  a private bank. He found it  troublesome that the                                                                    
opinion of the private banks mattered.                                                                                          
Ms. Ayers  replied that the  department did not want  a rate                                                                    
that  was   unsupported  by   other  market   dynamics.  The                                                                    
department  thought that  a 6  percent loan  was viable  for                                                                    
applicants  that could  meet  the eligibility  requirements.                                                                    
She  highlighted halibut  charters in  particular where  the                                                                    
state  was   dealing  with  a  changing   federal  fisheries                                                                    
management regime and  a new barrier to  entry. New entrants                                                                    
would often  be eligible  for private  financing on  a boat,                                                                    
but may  need a  state loan for  the permit.  The department                                                                    
felt that there would be  a good balance between the private                                                                    
lenders and  the state loan programs  and that it was  not a                                                                    
situation in  which the banking  industry was  dictating the                                                                    
loan limits. All of the  interest floors and ceilings listed                                                                    
in the legislation were within the historical norms.                                                                            
Representative Gara wondered why the  state would impose a 6                                                                    
percent floor  if the  program could be  solvent at  a lower                                                                    
rate such as 4 percent. He  believed that a bank's choice to                                                                    
not offer  a loan should  not impact the interest  rate that                                                                    
the state offered.                                                                                                              
Representative Doogan noted that  the phrase "lender of last                                                                    
resort"  bothered  him  considerably. He  relayed  that  the                                                                    
presumption in the  statement was that an  applicant did not                                                                    
qualify for  a loan  through any normal  commercial standard                                                                    
which  put the  state in  a position  of providing  loans to                                                                    
substandard borrowers.  He thought the expectation  that the                                                                    
default  number would  be low  was  questionable. He  opined                                                                    
that  the  items in  combination  with  the argument  for  a                                                                    
relatively  high interest  floor  did not  sound like  items                                                                    
that would lead to a successful banking operation.                                                                              
Commissioner Bell  replied that  the term  sounded dramatic,                                                                    
but it was  a term that was commonly used  in commercial and                                                                    
public financing.  She reminded the committee  that the less                                                                    
than 1  percent default  rate was  very low.  The department                                                                    
was had financing staff that  reviewed loan applications and                                                                    
collateral and were in contact  with the borrowers regarding                                                                    
their payments.  She emphasized  the professionalism  of the                                                                    
organization  and that  DCCED had  looked for  the need  and                                                                    
terms  it could  offer and  prided itself  on its  increased                                                                    
outreach and  vetting. She stressed there  were many reasons                                                                    
a bank  may not loan  to a borrower  that were not  based on                                                                    
borrower  risk,  including the  makeup  and  weighting of  a                                                                    
bank's portfolio and lending limits.                                                                                            
4:28:42 PM                                                                                                                    
Co-Chair Thomas  discussed that  he had paid  as high  as 17                                                                    
percent on a commercial fisheries  related loan. He had seen                                                                    
gillnet  permits  that  had  been   bought  at  $150,000  to                                                                    
$180,000  drop  to  $30,000.  He  explained  that  some  had                                                                    
defaulted  but  that  the  state   rewrote  the  loans  when                                                                    
possible. He  had seen  people get  into trouble  through no                                                                    
fault of their  own and that people had  bought permits that                                                                    
were priced too high. He  relayed that permits for sale were                                                                    
popular and  would be bought.  He supported the  loans under                                                                    
the bill  and did not  think that  6 percent was  unfair. He                                                                    
told a personal story about fishing.                                                                                            
Representative  Doogan   was  impressed  by   the  testimony                                                                    
regarding the  default rates. He  was interested to  see how                                                                    
the unique aspects of the bill would work out.                                                                                  
Representative   Edgmon   supported  the   legislation.   He                                                                    
provided perspective  that the  committee had passed  a bill                                                                    
that  gave   Alaska  Industrial  Development   and  Economic                                                                    
Association  (AIDEA) the  authority  to work  with a  public                                                                    
sector  partnership and  allowed  them to  bond  up to  $400                                                                    
million per  year. He emphasized  that the funding  to AIDEA                                                                    
had been  large and that comparatively  speaking the current                                                                    
bill  represented "small  potatoes."  He  stressed that  the                                                                    
state had  provided assistance to  larger industry  and that                                                                    
the  state's  ability  to provide  small  businesses  better                                                                    
terms  than those  offered by  banks would  help to  provide                                                                    
them with incentives.                                                                                                           
Co-Chair  Stoltze MOVED  to  report CS  HB  121(FIN) out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.                                                                                                      
CSHB  121(FIN) was  REPORTED  out of  committee  with a  "do                                                                    
pass" recommendation and with three  new fiscal notes by the                                                                    
Department of Commerce,  Community, and Economic Development                                                                    
and one new  fiscal note by the House  Finance Committee for                                                                    
the   Department  of   Commerce,  Community,   and  Economic                                                                    
4:34:41 PM                                                                                                                    
AT EASE                                                                                                                         
4:42:41 PM                                                                                                                    

Document Name Date/Time Subjects
HB 121 - Treasures of the Tidelands - WA.pdf HFIN 4/4/2011 1:30:00 PM
HRES 3/16/2011 1:00:00 PM
HB 121
NCSL Revolving Loan briefing paper.pdf HFIN 4/4/2011 1:30:00 PM
HRES 3/16/2011 1:00:00 PM
HB 121
HB 121 - CCED - Letter of support - SWAMC.pdf HFIN 4/4/2011 1:30:00 PM
HRES 3/16/2011 1:00:00 PM
HB 121
HB 121 - Shellfish Production Stats - West Coast.pdf HFIN 4/4/2011 1:30:00 PM
HRES 3/16/2011 1:00:00 PM
HB 121
CSHB 121 Sectional Analysis.pdf HFIN 3/30/2011 1:30:00 PM
HFIN 4/4/2011 1:30:00 PM
HB 121
HB 121 - Alaskan Shellfish Grower's Association - Support.pdf HFIN 3/30/2011 1:30:00 PM
HFIN 4/4/2011 1:30:00 PM
HB 121
HB 121-CCED-Letter of Support-Taco Loco.pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB121-FN NEW CCED-DED-03-29-11(D).pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB121-FN NEW CCED-DED-03-25-11(B).pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB121-FN NEW CCED-DED-03-25-11(A).pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB121-FN NEW CCED-DED-02-15-11(C).pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB 121 CS WORK DRAFT version X 0040411.pdf HFIN 4/4/2011 1:30:00 PM
HB 121
HB 142 Breach of Contract-Leg Legal.PDF HFIN 4/4/2011 1:30:00 PM
HB 142