Legislature(2011 - 2012)CAPITOL 120
01/26/2012 05:00 PM House FISHERIES
| Audio | Topic |
|---|---|
| Start | |
| HB261 | |
| HCR13 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 261 | TELECONFERENCED | |
| *+ | HCR 13 | TELECONFERENCED | |
HB 261-COMMERCIAL FISHING ENTRY PERMIT LOANS
5:04:13 PM
CHAIR THOMPSON announced that the first order of business would
be HOUSE BILL NO. 261, "An Act relating to loans for the
purchase of commercial fishing entry permits; and providing for
an effective date."
5:04:53 PM
REPRESENTATIVE BRYCE EDGMON, Alaska State Legislature, speaking
as one of the joint prime sponsors of HB 261, explained that HB
261 seeks to increase Alaskan ownership of Alaska fisheries by
enabling a greater number of fishermen who don't qualify for
conventional loans, either through a normal institution or
through the Commercial Fisheries Agriculture Bank [to purchase
limited entry commercial fishing permits]. He then pointed out
that the committee packet includes a document that lays out the
various sections of the Commercial Fishing Revolving Loan
program, which may be helpful. This legislation would allow,
under Section B of the Commercial Fishing Revolving Loan Act, a
small number of Alaskan fishermen who don't qualify for a
conventional loan to avail themselves of loans through the
Commercial Fishing Loan program and capitalize on the historic
low interest rates. The legislation would decrease the loan
percentage by 2 points below prime and have a floor of 3
percent. By raising the ceiling from $100,000 to $200,000, as
HB 261 proposes to do, fishermen from the Southeast seiners,
Prince William drift gillnet fleet, Alaska Peninsula drift
gillnetters, and the many Bristol Bay drift gillnetters would be
incorporated into the program. He then turned to the "graying
of the fleet" in Alaska and estimated that the average age of
limited entry permit holders is 49-50. Therefore, the hope is
that HB 261 will provide a small "leg up" to the younger
fishermen. The Commercial Fishing Loan fund rates are currently
at 5.25 percent and if payments are made on time and the loan is
held for about 12 months, the interest rate can decrease to
about 4.25. Representative Edgmon opined that the interest rate
can be decreased to 3 percent without unduly impacting a loan
fund that has performed well over the years. In fact, it has
capitalized about $81 million. Presently, the loan fund allows
fishermen to make energy efficiency improvements to their
vessels, primarily by purchasing engines, at a 3 percent
interest rate.
5:08:50 PM
REPRESENTATIVE EDGMON acknowledged that there has been concern
expressed that HB 261 may increase permit costs or unfairly
impact other private institutions. However, in the 1980s most
of the limited entry permits in Alaska were originally financed
through conventional banks or self-financing while only 15
percent of the permits were tied to this original loan program.
Therefore, there won't be a great amount of Alaskans who will be
able to participate in this program. He then related that data
illustrates the activity involving the value of salmon permits
tracks the prices on the grounds that the fishermen actually get
paid. He then directed attention to the Department of Commerce,
Community & Economic Development (DCCED) fiscal note, which
expresses concern that HB 261 would inadvertently allow for the
refinancing of some existing loans, approximately 255 a year.
The fiscal note discusses the $4 million loss in the first six
years that would result if HB 261 goes into effect. Therefore,
Representative Edgmon proposed that the committee address the
aforementioned provision with an amendment provided to the
committee as grandfathering in existing loan holders wasn't the
original intent. He reiterated that the goal of HB 261 is to
provide an opportunity for young Alaskan fishermen who can't
qualify for a conventional loan.
5:11:18 PM
REPRESENTATIVE MILLER inquired as to how many permits might be
involved in the first or second year following enactment of the
legislation.
REPRESENTATIVE EDGMON reiterated that anecdotally it won't be a
large number of fishermen [who qualify]. Although the real
demand won't be known until the program is in place, the
Commercial Fisheries Entry Commission (CFEC) and the financing
division of the Division of Economic Development might be able
to offer better projections.
5:12:07 PM
REPRESENTATIVE MILLER acknowledged that the legislation would
seem to mostly assist Alaskan fishermen, but wasn't sure the
legislation includes language specifying that.
REPRESENTATIVE EDGMON reiterated that Alaskan fishermen reside
in almost any of the 228 communities in the state. He noted
that the committee packet should include a list of all the
fisheries, which would illustrate that the reach is extensive.
Permit values, he reminded the committee, can fluctuate and thus
some of the fisheries that may not qualify this year may in the
future.
REPRESENTATIVE AUSTERMAN, in response to Representative Miller,
clarified that the statutes involved in the loan program that HB
261 addresses is one in which strictly Alaskans can participate.
REPRESENTATIVE EDGMON added that the statute specifies that the
fishermen have to have fished two years of the last five years
[within Alaska].
5:14:09 PM
REPRESENTATIVE HERRON asked if the [loans] are limited to the
fisheries specified or is it statewide.
REPRESENTATIVE EDGMON said that he provided examples of
fisheries that would qualify given the permit values as of
today. Therefore, perhaps other fisheries would qualify in the
future. He opined that this program will help some fishermen,
but not a great range of the fishermen that live throughout the
state.
5:15:55 PM
REPRESENTATIVE PRUITT inquired as to why those who would utilize
this program would not be able to obtain a loan through a
commercial bank.
REPRESENTATIVE EDGMON explained that the Commercial Fishing
Revolving Loan fund was created by the state to provide a leg up
to Alaskan fishermen, particularly given the high cost of
entering the fishery. The loan fund would provide Alaskan
fishermen an opportunity to compete against the many fishermen
who are from out-of-state. Representative Edgmon offered that a
typical profile of someone who would use this loan program is a
young person without the credit history to obtain a loan from a
commercial bank to enter into the fishing industry.
REPRESENTATIVE PRUITT asked what the delinquency rate is for
this loan program. He further asked if lowering the interest
rate will provide the opportunity for more folks to utilize this
loan.
REPRESENTATIVE EDGMON clarified that it's a revolving loan fund,
into which those who obtain loans pay them back. The fund pays
for the loan proceeds and all the administrative costs. The
program has been very successful. In fact, over the past nine
or so years the loan fund has paid back several million in
excess funds to the Alaska Department of Fish & Game (ADF&G).
In the last 20 or so years, the list of eligible applicants has
gradually increased due to the overall success of the portfolio.
The pool of applicants now includes community quota entities,
tenders, and small loans for fishermen. In short, the program
has performed very well.
5:20:02 PM
REPRESENTATIVE AUSTERMAN inquired as to the language in HB 261
that lowers the existing interest rate.
5:20:49 PM
TIM CLARK, Staff, Representative Bryce Edgmon, Alaska State
Legislature, clarified that the language in HB 261 that details
the lower interest rate is located in Section 4 on page 2, line
30.
5:21:23 PM
REPRESENTATIVE AUSTERMAN highlighted that the committee packet
includes a memorandum that discusses the amount of funds that
has returned to ADF&G from the Commercial Fishing Revolving Loan
Fund (CFRLF). For instance, from 2004-2011 over $10 million has
returned to the state coffers.
5:21:56 PM
REPRESENTATIVE PRUITT asked then what impact reducing the
interest rates would have on ADF&G.
MR. CLARK explained that the transfers of earnings from the fund
into the ADF&G operating budget were stopped after fiscal year
2010. At that time [the transfers to ADF&G] were a little over
$1.3 million a year. During the three years since fiscal year
2010, the earnings have remained in the CFRLF. My understanding
is that the transfers won't resume because the practice was
stopped following an audit and recommendation by the Legislative
Budget & Audit Committee. The fund, arguably, is stronger than
ever, he remarked.
REPRESENTATIVE PRUITT asked if the audit recommended not
terminating the transfers because the fund wasn't stable and the
goal was to shore it up, or was there another reason to
discontinue the transfers.
MR. CLARK related that even as substantial transfers were being
made to ADF&G's operating budget, the loan fund itself continued
to make earnings great enough such that the overall
capitalization continued to increase. He related his
understanding that the loan fund continues to accrue
capitalization and will grow faster now that the transfers have
stopped.
5:24:42 PM
REPRESENTATIVE AUSTERMAN added that part of the discussion that
has taken place over the last few years in the House Finance
Committee is trying to determine exactly where the funding goes
from one department to the next rather than from one department
into the general fund. He related his belief that the dividends
will go into the general fund rather than being hidden in the
Alaska Department of Fish & Game's budget. He reminded the
committee that the fund was started with state dollars and
continues to pay dividends back to the state. All the operating
costs come out of the fund prior to the dividend. He said that
the fund has been a fairly successful operating fund.
5:26:03 PM
REPRESENTATIVE EDGMON pointed out that the fiscal notes do not
show any additional positions being added to the financing
section or the Commercial Fisheries Entry Commission.
5:27:26 PM
REPRESENTATIVE PRUITT asked whether the reason the loan funds
are no longer being directed to ADF&G is because the fund wasn't
stable. He further inquired as to the potential impact of a
decrease in the interest rate to the fund.
5:28:18 PM
WANETTA AYERS, Director, Economic Development Section, Division
of Economic Development, Department of Commerce, Community &
Economic Development, highlighted the practice of doing an
operating transfer to ADF&G as well as some transfers in the
past to the Department of Environmental Conservation. However,
that practice was discontinued at the end of fiscal year (FY)
2010 for two reasons. As mentioned earlier, there was a broad
directive to discontinue the practice from the legislature and
the Office of Management & Budget (OMB). The other reason is
that within the practice of operating a loan fund of this nature
it isn't a lending best practice to burden the fund with any
operating expenses other than activities directly related to the
loan fund itself. The lending activity, corrections accounting,
and the administration of the fund are seen as allowable
operating expenses from the proceeds of the funds. With regard
to the impact of an interest reduction, she acknowledged that
there is a public policy objective in terms of creating
opportunities for new entrants into commercial fishing and
obtaining participation from Alaskans in commercial fishing.
Still, the impacts of reduced interest rates have to be taken
into consideration in terms of new loan demand as well as
existing and prospective borrowers under both sections. With
respect to new loan demand, she anticipated that there will be
the interest rate reduction based on the loan demand of about
$1.2 million a year. Last year, there were about 20 new loans
under Section B. She explained that the fiscal note does
anticipate an impact due to the 255 existing loan holders that
choose to refinance at the lower interest rate. With an average
current interest rate of 6.5 percent over the portfolio of the
loans, a reduction to 3 percent would need to be considered over
the life of the loans going forward. She further recommended
taking into consideration the viability of the fund itself.
Although the impact of this proposal would perhaps balance out
over the long term, there would be a reduction of funds
available for lending to all borrowers based on the reductions
resulting from a lower interest rate.
5:32:39 PM
REPRESENTATIVE PRUITT surmised then that this proposal may
impact future participants in the loan program. He
characterized that as a policy decision.
5:33:40 PM
IZETTA CHAMBERS began by clarifying that although she works with
the marine advisory program at the university, she is speaking
on behalf of herself. Ms. Chambers reminded the committee that
the seafood industry is the number one employer in the state.
She emphasized that the maximum benefit should accrue to Alaska
residents. The average price for a Bristol Bay driftnet permit
last year was over $143,000. This legislation would help
alleviate a cap on lending and would allow Alaskans to engage in
permit acquisition and become involved in a serious economic
engine, particularly in the Bristol Bay region. She opined that
the existing $100,000 cap is antiquated and hasn't been adjusted
for the increasing costs of permits. In the Bristol Bay region,
the lack of collateral has been a difficulty, which provides
nonresidents an edge on securing loans for permits. For
example, an individual who lives on land that is a 99-year
shareholder lease or lives on a [Alaska] Native allotment, those
lands can't be used as collateral. Therefore, since the
enactment of the Commercial Fisheries Limited Entry Act there
has been a steady loss of permits in the region. Each permit
that leaves the region represents a job lost to the region. She
then related her agreement that the graying of the fleet is a
prevailing problem as the average age of a commercial fisherman
in Alaska is 48. Therefore, there need to be incentives for
younger people to enter the fishing industry and the changes in
HB 261 would provide such. In conclusion, Ms. Chambers said
that she would like for HB 261 to go further. In fact, she
related that she would like a brokerage agreement to be reached
to allow local permits to go through a local brokerage before
being sold outside.
5:37:40 PM
MELVIN GROVE, President, Prince William Sound Charter Boat
Association, stated that he is in support of and in opposition
to HB 261, depending upon how it goes. He related his
assumption that if this would go along with a halibut permit
that currently (indisc.), maybe he would support HB 261. He said
that he feels like a second class citizen, in some respects in
terms of HB 121 and HB 261. This legislation, HB 261, allows
the loan applicant to get a 2 percent below prime rate whereas
the interest rate in HB 121 is the prime rate plus 2 percent and
can't be less than 6 percent or more than 10.5 percent a year.
"This is just crazy, to me," he said. Therefore, he suggested
that if HB 261 is passed, then the interest rate for commercial
charter operators, particularly the halibut charter operators,
should be the same. He related that in June and July of last
year the Valdez area was down over 300 angler days, which
amounts to 50 charters who didn't obtain permits or sold
permits. Mr. Grove told the committee that if he could obtain a
low interest loan, he could run another boat and employ two to
three capitans full-time. He stated that he is totally opposed
to the difference in interest rates between charter and
commercial operators.
5:41:26 PM
KEN LARSON related that he operates a small salmon and halibut
charter operation out of Valdez for eight months of the year.
He questioned whether the limited entry halibut charter permit
holders would qualify for the loan program envisioned in HB 261.
If the limited entry halibut charter permit holders do qualify
for the loan program proposed in HB 261, he said he supports the
bill, whereas if that's not the case he opposes it.
5:42:50 PM
MS. AYERS related her belief that the limited entry halibut
charter permit holders would not qualify for the loan program
proposed in HB 261 because this is specific to limited entry
permits. She related her further belief that statute
specifically does not include limited entry halibut permits.
5:43:38 PM
MR. LARSON remarked that the halibut charter fishery is either a
limited entry permit fishery under the CFEC or it's not. If the
[halibut charter fishery] isn't a limited entry fishery, then he
opined that halibut charter permit holders are being
discriminated against. He emphasized that he has a real problem
with the aforementioned. If the aforementioned is the position
of the legislation, then he is opposed to it. He highlighted
that in Valdez over the last couple of years there has been a
decrease from a high of over 30 halibut charter operators in the
limited entry program to less than a dozen. There are going to
be very few permits left in Valdez. He added that although the
permits have primarily migrated to Homer, they are gone [from
Valdez]. Therefore, the opportunity for the public is
decreasing.
5:44:42 PM
CHAIR THOMPSON, referring to AS 16.10.310(A), related his
understanding that Ms. Ayers was correct [that HB 261 doesn't
apply to limited entry halibut permits].
REPRESENTATIVE AUSTERMAN interjected that this legislation
[refers] to statute regarding a salmon permit. He then recalled
there is legislation creating a halibut charter boat loan
program to address this situation.
MR. LARSON asked if Representative Austerman is referring to HB
121, which has an interest rate with a floor of 6 percent and a
ceiling of 10.5 percent a year. Still, he characterized the
rate [in HB 121] as discriminatory. He said that he didn't
realize that HB 261 only addresses the salmon fishery loan
program.
5:46:02 PM
REPRESENTATIVE EDGMON remarked that Mr. Larson and Mr. Grove
raise valid points, which arose when the program was amended in
the past. Although Representative Edgmon said he, personally,
would support [extending it to other fisheries], HB 261 is
working within the constraints of the CFRLF that has been around
for 30 years. With the advent of charter boats and other
fisheries that don't participate in this, there is probably room
to consider it in HB 121. However, he cautioned the committee
regarding radically altering the purpose of the CFRLF, and
suggested that it would better be addressed [in separate
legislation].
5:47:48 PM
GERRY MCCUNE, Lobbyist, Cordova District Fishermen United,
pointed out that the committee packet contains written testimony
from Cordova District Fishermen United. He clarified that a
commercial bank cannot loan on a permit, per statute only CFAB
and the Division of Investments can do so. When limited entry
was created, the theory behind corporations not being able to
hold permits was to protect permits and keep them in
communities. A commercial bank can't hold a permit as
collateral, and therefore one can't obtain a loan using a permit
[as collateral]. As pointed out by the sponsor, it is difficult
to purchase permits, the price of which are driven by the price
on the grounds and the seasons. In fact, two good seasons in
Prince William Sound have driven the price up for Bristol Bay
[permits]. He mentioned that in Kodiak, the seine fishery is
struggling with some of the fisheries and some of the permits
haven't moved too much. The legislation, HB 261, attempts to
raise the limit to the reality of today.
5:50:24 PM
CHAIR THOMPSON, upon determining no one else wished to testify,
closed public testimony.
5:50:45 PM
CHAIR THOMPSON moved to adopt Amendment A.1, labeled 27-
LS0968\A.1, Bullard, 1/26/12, which read:
Page 3, following line 2:
Insert a new bill section to read:
"* Sec. 5. The uncodified law of the State of
Alaska is amended by adding a new section to read:
APPLICABILITY. (a) The increase in balances
outstanding permitted by AS 16.10.320(d), as amended
by sec. 2 of this Act, on loans made to a borrower
under AS 16.10.310(a)(1)(B), applies only to a person
who first receives a loan under AS 16.10.310(a)(1)(B)
on or after the effective date of this Act.
(b) AS 16.10.320(l), added by sec. 4 of this
Act,
(1) applies only to loans made on or after
the effective date of this Act; and
(2) does not apply to the refinancing of a
loan made under 16.10.310 - 16.10.370 before the
effective date of this Act."
Renumber the following bill section accordingly.
There being no objection, Amendment A.1 was adopted.
5:51:49 PM
REPRESENTATIVE AUSTERMAN directed attention to a letter of
opposition in the committee packet from CFAB. He said that he
doesn't agree with much of the discussion in the letter, which
seems to relate having two banks plus CFAB denying the loans.
He related his understanding that's already the case.
Furthermore, CFAB was originally a state-funded bank, but has
since paid the state back its seed money. Still, CFAB is a
state bank, he commented. He informed the committee that there
is legislation regarding eliminating the clause that allows CFAB
to loan funds to people outside of the state.
5:55:18 PM
REPRESENTATIVE PRUITT said he appreciated providing loans to
Alaskans, but expressed the need to determine whether it will
prevent as many people from utilizing the loan if it is expanded
from $100,000 to $300,000. Expanding the legislation beyond its
current focus will muddy the waters. Still, the questions
regarding whether it's appropriate to offer certain interest
rates to one group over another does seem to warrant
consideration.
5:55:51 PM
REPRESENTATIVE AUSTERMAN moved to report HB 261, as amended, out
of committee with individual recommendations and the
accompanying fiscal notes. There being no objection, CSHB
261(FSH) was reported from the House Special Committee on
Fisheries.
5:56:00 PM
The committee took an at-ease from 5:56 p.m. to 6:02 p.m.