04/19/1995 05:02 PM House FSH

 HB 284 - AK COMMERCIAL FISHING & AGRICULTURE BANK                           
                                                                               
 Number 452                                                                    
                                                                               
 CHERYL SUTTON, Administrative Assistant to Representative Carl                
 Moses, testified saying, "HB 284 seeks to modify and refit the                
 Commercial Fishing & Agriculture Bank's (CFAB's) enabling statute             
 to reflect evolving commercial law and present day fishing                    
 economies needs.  CFAB was created in 1978 and much has changed in            
 both commercial law and fishing economies since that time.  There             
 are two significant changes which would be enacted with the passage           
 of HB 284.  The first is permanent ownership by the state through             
 retirement of all but $1 million of the state's initial investment            
 of $32 million.  Second, broadening of the purposes and                       
 circumstances for which a fisherman may use his limited entry                 
 permit as collateral.  Some of these include loans for lease or               
 purchase of quota shares, IFQs, other licenses, and the purchase,             
 construction, maintenance, repair or improvement of commercial                
 fishing boats, sites, gear and improvement."                                  
                                                                               
 ED CRANE, President, CFAB, said, "We're really not creating                   
 something new here.  We're simply redoing and revising, and                   
 mechanically this is the easiest way to handle what was intended."            
 He testified, "When CFAB was established by a 1978 act which was              
 implemented in 1980, the state of Alaska invested $32 million as              
 seed capital in the form of stock in CFAB.  And the statute                   
 provided for CFAB to retire, that it return all the money, to                 
 retire that stock within 20 years, by the year 2000.  The theory              
 was as that money was returned by the state, it would be replaced             
 by money invested by members, users, borrowers of CFAB.  That                 
 process has taken place.  Actually seven years ago, the state wrote           
 off the entire $32 million that has been carried for the last few             
 years as zero on the books of the state.  Nevertheless, we have               
 been retiring that stock.  We have now retired $21,750,000 to be              
 specific.  And also we have accumulated roughly sixteen and a half            
 million dollars of replacement equity that represents investments             
 of fishermen or borrowers or fisherman and farmers.  Unfortunately,           
 there was a catch, as near as I know, an inadvertent catch-22 in              
 the existing statute.  On the one hand it says that if CFAB does              
 not retire, fails to retire all of the $32 million in stock by the            
 year 2000, the Commissioner of Commerce can take steps to dissolve            
 the bank, to liquidate the bank.  Then, in another part of the                
 statute, it says that when CFAB has retired all of the $32 million,           
 the statute lapses.  Well, if the statute lapses, there is no CFAB,           
 it's gone.  So we had that particular concern that this bill                  
 addresses.  But in addition to that is the fact that CFAB, as we              
 discussed some time ago, CFAB is the only private entity,                     
 nongovernmental entity which has the statutory authority to accept            
 a lien on a limited entry permit and allow fishermen to use permits           
 as devices through which they can finance their operations."  He              
 then indicated that in order to justify CFAB's unique status with             
 the state, it is necessary for CFAB to retain $1 million in CFAB as           
 a "perpetual investment."  He pointed out there is considerable               
 responsibility and accountability to the state.                               
                                                                               
 Number 578                                                                    
                                                                               
 REPRESENTATIVE ELTON asked if Mr. Crane was comfortable with the              
 three year terms of board members appointed by the Governor.                  
                                                                               
 MR. CRANE said yes.                                                           
                                                                               
 REPRESENTATIVE ELTON pointed out that one of the board members is             
 required to be a "resident farmer."                                           
                                                                               
 MR. CRANE indicated that the original statute was even more                   
 restricting.  He said, "The original statute required that it be a            
 farmer with ten years of experience farming in Alaska.  Also in the           
 original statute, directors were required to be active members,               
 that is current borrowers, of CFAB."  He said CFAB has made very              
 few loans to farmers historically, due to the state's agricultural            
 loan program.                                                                 
                                                                               
 REPRESENTATIVE ELTON asked if that seat would be better designated            
 to a timber harvester or processor.                                           
                                                                               
 MR. CRANE indicated that the definition of commercial agriculture             
 can be found on page 17 of the bill and it includes forest                    
 products.                                                                     
                                                                               
 REPRESENTATIVE ELTON contended that a timber harvester would not be           
 a resident farmer.                                                            
                                                                               
 Number 639                                                                    
                                                                               
 MR. CRANE said probably not unless it was on their own land on a              
 sustained yield basis.                                                        
                                                                               
 REPRESENTATIVE ELTON asked about changes in indemnity for officers            
 and employees of CFAB.                                                        
                                                                               
 MR. CRANE said, "Our intention here is simply to say that CFAB's              
 directors and employees may have the same indemnification in                  
 insurance provisions as any private corporation in the state, no              
 more and no less."                                                            
                                                                               
 REPRESENTATIVE ELTON said he viewed page 8, paragraphs 14 and 15 as           
 granting questionably "broad authorization" to CFAB.                          
                                                                               
 MR. CRANE replied, "I cannot imagine our board doing anything                 
 spectacular, if you will, which would appear to be supportive of              
 one small segment of the total fishing community and not have a               
 significant reaction from other CFAB members.  (Indisc.) CFAB                 
 members over time, and it has taken us some time to get there, are            
 beginning to be more and more attuned to the fact that what CFAB              
 does directly affects their pocketbook."                                      
                                                                               
 TAPE 95-24, SIDE B                                                            
 Number 000                                                                    
                                                                               
 MR. CRANE continued, "It was written broadly, mostly because we did           
 not have anything specific in mind."                                          
                                                                               
 REPRESENTATIVE ELTON indicated that he is somewhat more comfortable           
 with those sections and asked about page 11, section 20, paragraph            
 5.  He said, "With that paragraph, if somebody runs up a huge bill            
 at Nordstroms, they can pledge their permit at your financial                 
 institution to pay off a Nordstrom's debt that has absolutely                 
 nothing at all to do with fisheries or timber or agriculture."                
                                                                               
 MR. CRANE replied, "We make loans for the purpose of commercial               
 fishing related purposes and for many fishermen, particularly those           
 that simply operate as sole proprietors as opposed to having their            
 fishing business incorporated.  There's essentially no distinction            
 between their personal obligations and their fishing obligations.             
 We have, to my knowledge, we have never been asked to finance the             
 kind of debt which you mentioned."  He added, "The other side of it           
 is we, it is not unusual for fishermen or a fisherperson to come to           
 us with kind of a panacea of obligations that often do include                
 credit card debt, miscellaneous, not necessarily Nordstrom's but              
 for the things that all of us use credit cards for and we will                
 include that in the financing, again, for working capital                     
 purposes."                                                                    
                                                                               
 Number 160                                                                    
                                                                               
 MR. CRANE continued, "It is difficult for anybody who has perhaps             
 only one payday a year to live from one payday to the next and it             
 is not unusual for persons in those circumstances to wind up in the           
 tenth month of their year with fuel bills, that is home heating               
 fuel bills, payable and credit card debt payable and a bill at the            
 grocery store that they've got to have taken care of before they              
 can actually obtain financing for their upcoming fishing season."             
                                                                               
 REPRESENTATIVE MOSES said that he suggests to fishermen friends to            
 pay with credit cards so they don't lose receipts, as they might              
 with paying cash.                                                             
                                                                               
 REPRESENTATIVE OGAN asked if the chairman's intent was to move the            
 bill out of committee today.                                                  
                                                                               
 CHAIRMAN AUSTERMAN said yes.                                                  
                                                                               
 Number 215                                                                    
                                                                               
 DICK ELIASON, CFAB Director, testified in support of CFAB, "I was             
 impressed with the operation of the bank.  I remember not too many            
 years ago, we looked upon CFAB as maybe even a mistake because                
 things were going wrong and a lot of bad publicity in the                     
 legislative bodies, and we were wondering if, in fact, it was going           
 to disappear.  However, within the last ten years they've made an             
 astounding comeback."  He stressed the importance of the bank to              
 the rural areas of the state where there are often few financing              
 alternatives.  He added, "Certainly, I'd have no qualms in saying             
 it was a bad deal if it was a bad deal because I don't have a                 
 vested interest, but, I'd just like to reassure you that it's                 
 working and I would like to see it continue to work (indisc.) good            
 service for the state and for the industry at large in Alaska."               
                                                                               
 REPRESENTATIVE ELTON asked, "Are you comfortable with the expansion           
 of duties into the venture capital kind of realm?"                            
                                                                               
 MR. ELIASON said yes, and added, "There was some speculation, that            
 maybe we shouldn't put this large a bill forward at this time                 
 because we know how busy the legislature is, especially this time             
 of the year.  But we thought that it has a lot of merit and there             
 is a lot of support out there."                                               
                                                                               
 Number 303                                                                    
                                                                               
 REPRESENTATIVE MOSES moved to pass the bill out of committee.                 
                                                                               
 There were no objections.