Legislature(2001 - 2002)
03/04/2002 03:38 PM FSH
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 287-EXEMPT ENTRY PERMITS FROM CREDITOR CLAIMS CO-CHAIR STEVENS announced that the next matter before the committee was HOUSE BILL NO. 287, "An Act relating to the exemption of commercial fishing entry permits from claims of creditors, to loans to satisfy past due federal tax obligations of commercial fishing entry permit holders, and to loan origination charges for loans made by the commercial fishing loan program to refinance a debt obligation; and providing for an effective date." Number 1859 REPRESENTATIVE SCALZI moved to adopt the proposed committee substitute (CS), version, 22-LS1106\J, Utermohle, 2/27/02, as the working document. [No objections were stated, and Version J was treated as the working document.] REPRESENTATIVE SCALZI said the bill is very important to the state and the commercial fishing industry in general. It will make clear and consistent the point that "commercial fishing entry permits are not property, but instead they constitute a use privilege." Commercial fishing entry permits should be viewed as occupational licenses. The bill also eliminates the loan-origination charge for refinancing loans. He said the bill also removes the "sunset" clause that is a part of the provision. He explained that the particular loan is for federal tax obligations of up to $30,000. Under the bill, the loan would be available once a year instead of the current once-in-a- lifetime provision. Number 1651 REPRESENTATIVE KERTTULA asked how many times the [tax obligation] loan would be made available. REPRESENTATIVE SCALZI said the "once-in-a-lifetime" provision would change to a "once a year" basis. Number 1585 MARY McDOWELL, Commissioner, Commercial Fisheries Entry Commission, Alaska Department of Fish and Game, testified before the committee. She said she would speak to Sections 1, 5, 6, and 7. She characterized those as the ones that would clarify and firm up the legal status of limited entry permits under Alaska law. She said, "The State of Alaska has always held the position that limited entry permits are not property and cannot be seized by creditors." She said the state has fought any attempt by the Internal Revenue Service (IRS) or other creditors to seize permits. She said that some statutes are not as clear and concise on that point as they could be. Leaving the legal status of permits open in any way to varying interpretations could be detrimental to the state, to fishermen in the limited entry system, and to fisheries management in that system. MS. McDOWELL cited AS 16.43.150(e) as stating: An entry permit constitutes a use privilege that may be modified or revoked by the legislature without compensation. She characterized this legal status as an important part of the fisheries management system. It ensures the state maintains control of fishing privileges. Ms. McDowell said HB 287 [Section 5] adds the flat statement, "They are not property." Number 1465 MS. McDOWELL pointed out that if anyone could argue that permits could be construed as property, it might very well destabilize the whole system. Under these circumstances, fisheries allocations could be subject to challenges under takings, permit market values could be subject to harmful fluctuations, and the state could lose control of fishing privileges to the courts. She went on to say that with many fisheries struggling at the present time, it is important to make sure statutes are as clear and consistent as possible. Number 1420 MS. McDOWELL referred to Section 1 of [Version J]. She said in Title 9 of the current law, entry permits are included in the list of types of property individuals are entitled to exempt from civil procedure. She said this exemption could imply that permits are property. The bill removes the permits from the section in Title 9, and inserts precise language in the Limited Entry Act itself. She pointed out that page 7, line 26 [Section 5] of Version J spells out that permits are not property. MS. McDOWELL directed the committee to Section 6. On page 7, lines 30-31, the bill inserts language into statute that makes it clear that the only time a person may request the transfer of an entry permit due to an execution on the permit is when that execution is for the purpose of enforcing a lien recorded with the commission under the statute for the Child Support Enforcement Division. MS. McDOWELL then referred to Section 7. She said in Version J, page 8, lines 19-24 spell out that permits are exempt from all claims of all creditors. Exceptions are made only for fishing loans taken out under the Division of Investments or the Commercial Fishing and Agriculture Bank (CFAB), and for Child Support Enforcement Division authority to place a lien on a permit. MS. McDOWELL said the bill goes a long way toward clarifying the state's long-held position on the legal status of limited entry permits. She said the entry commission fully supports [Version J] and urges passage of the bill. Number 1281 REPRESENTATIVE SCALZI asked Ms. McDowell to qualify why there is an exemption for child support. Number 1248 MS. McDOWELL said there is some concern that leaving child support in could undermine the state's position, but she characterized child support as a special circumstance. She said the state has always looked at child support as a high priority. Therefore, it is clear in the bill that permits are not property, but there are references to a "lien against permits" that is left in the bill. Number 1179 REPRESENTATIVE KAPSNER asked how divorce proceedings would affect entry permits. MS. McDOWELL said that permits can only be in the name of one person. She said she knew of instances of divorce where a value was assigned to a permit and it was split as marital property, but the permit itself cannot be split. Number 1118 REPRESENTATIVE COGHILL asked if the exemption for federal tax- relief had been used regularly. MS. McDOWELL said it is not used heavily but it does protect permits. She said if the Internal Revenue Service were to take permits and auction them off, it would sell them for pennies on the dollar. The result of that would be a weakening of the whole limited entry system. MS. MCDOWELL said that the limited entry system is important to the way fisheries are managed in the state. She added that it is important that the state maintain control of the system. Number 0963 GREG WINEGAR, Director, Division of Investments, Department of Community & Economic Development, testified before the committee. He said the bill would change his program slightly. The tax obligation program would be extended by the bill. He characterized the program as not one of large volume, but said it is very important as "another tool" to protect someone from losing a limited entry permit. He said that the bill would also eliminate the half-percent fee for refinancing. The low interest rates have made the refinancing program very popular in recent years. MR. WINEGAR said the refinancing program would have a small impact on the loan fund, but added that it would not affect the general fund. He said the impact would not undermine the financial integrity of the loan fund. The revolving fund is totally self-sufficient and has not received any general fund money since 1985. He pointed out that the application process is streamlined, so there is not a large administrative burden. He explained that there is a provision that if the bill passes, but is not signed into law before the sunset date, the refinancing portion would still go into effect. REPRESENTATIVE COGHILL asked about Section 3 and whether it was a half-percent charge. MR. WINEGAR told Representative Coghill that was correct. REPRESENTATIVE COGHILL asked if the half percent would help carry some of the administrative costs and why we're giving that up. Number 0717 MR. WINEGAR said that the largest chunk of the division's portfolio has already been refinanced, or is in the process, as a result of the low interest rates. REPRESENTATIVE COGHILL said the cost of labor is not going to go down. He expressed his belief that the fee should be maintained, and that there are other things getting relief in the bill. He asked if changing [Section 3] from a once-in-a- lifetime federal-tax-relief opportunity, to one that may be invoked once a year, would "change the criteria at all for this." MR. WINEGAR said the purpose would be the same, but it would give people the opportunity to receive help once a year. Number 0504 REPRESENTATIVE COGHILL said he could appreciate why the change was made, but he said he was worried about unintended consequences under mismanagement. He asked Mr. Winegar what he would say as a lender if somebody is the fourth time around on this? MR. WINEGAR told Representative Coghill that he raised a good point and said, "It still is a loan." He said the division would determine if a loan should be made to an individual from a financial standpoint. He made clear that "four times in a row" would be something closely scrutinized along with credit, capacity for repayment, collateral, and other issues. REPRESENTATIVE COGHILL said a situation of legal precedence might be set whereby a court trial might allow individuals to use the tax-relief provision many times. Number 0446 REPRESENTATIVE SCALZI said Representative Coghill had good points and asked Mr. Winegar if there had been a great problem of people defaulting on the loans. He asked if it would be more appropriate to offer the tax-relief opportunity every five years instead of once a year. MR. WINEGAR said the delinquency rate for the particular portfolio was "a little bit higher than the normal portfolio, but not much higher." He said as far as looking at a "once a year" or a "once in every five year" tax-relief provision, the division would be looking at the applications as loans, and year-after-year applications by an individual would cause concern. CO-CHAIR STEVENS asked how many total loans there are outstanding. Number 0310 MR. WINEGAR said in the life of the program - going back to fiscal year 1995 - there had been 306 loans. He said that there were 241 on the books presently. REPRESENTATIVE COGHILL asked, if there were a continuous federal tax default situation, what the protocol would be to "close that loan down." Number 0251 MR. WINEGAR said that if a prospective borrower is not in good standing with the Internal Revenue Service, a loan is not granted. REPRESENTATIVE COGHILL asked, "That has to be a reauthorization?" MR. WINEGAR said, "They would have to come in and reapply for a loan." Number 0188 REPRESENTATIVE KERTTULA asked where the "once a year" language came from. REPRESENTATIVE SCALZI said, "More than once, you had to have something. Your IRS bill comes through once a year." Number 0075 REPRESENTATIVE COGHILL asked what the typical loan "size" and "length" are. He asked, "How many times could they do a federal default on that loan?" MR. WINEGAR said the average loan size is in the $15,000 range, and the average term is from five to ten years. He said collateral for the loan is a limited entry permit, and that puts the division in a superior lien position to the IRS. TAPE 02-7, SIDE A 0001 [A question by Representative Coghill was cut short by the changing of tapes.] MR. WINEGAR said the division would have the recourse of foreclosing on the loan. REPRESENTATIVE COGHILL said once there was a foreclosure on the federal level, "foreclosing, at that point, would just be pulling the permit." MR. WINEGAR agreed that would be the most likely outcome, but not all loans are secured by permits. He said [pulling the permit] would be the option if nothing else could be worked out with the borrower. Number 0080 REPRESENTATIVE KAPSNER said she believed the loan goes up to $25,000 and must be paid off within 15 years. She said the beauty of the loan is that the IRS is not allowed to seize the permit; it stays within the state and is then preferably sold to an Alaska resident. She mentioned the benefit of the state's being able to sell it at market value - thereby ensuring the integrity of the value of permits in a fishery. Number 0233 GERALD (JERRY) McCUNE, Lobbyist for United Fishermen of Alaska (UFA), testified before the committee. He said the UFA supports the bill. He characterized the removal of the half-percent fee to refinance as especially helpful. He said the UFA smiles upon the way the bill protects people's livelihood by shielding permits from creditors and the IRS. He pointed out that in many areas of the state, commercial fishing entry permits are the only means of making a living. MR. McCUNE, returning to Representative Kapsner's earlier question, said that a permit owned before marriage belongs to the same person after a divorce. If a permit is purchased during a marriage and a divorce ensues, the permit becomes common property and must either be sold and the money divided, or payment for half the value must be paid to the other party. Number 0427 SUE ASPELUND, Cordova District Fishermen United, testified before the committee. She characterized the bill as "yet another tool in the box" for fishermen facing a hard set of circumstances in the industry. The program is not a huge one, but for many people it will make the difference between feeding their families or not. She said the bill gives the industry a "buffer" of time to help it rebuild. Number 0528 BRUCE HENDRICKSON, Commercial Fisherman, testified via teleconference. He told the committee of an idea he had while looking at [the bill]. He made reference to AS 16.10.333. He pointed out that permits are worth a fraction of their former values. He suggested adding: In the event that the value of the permit declines to less than one third of the purchase price at the time ... the loan foreclosure may come due, the state or CFAB may write down the value of the permit to reflect the average of the two most recent sales in order to renegotiate a basis for the obligor that would give that person a chance to refinance their loan at the same level that a new buyer would be able to finance the purchase of that same permit. MR. HENDRICKSON said before a permit is foreclosed on, a person should have a chance to refinance the loan at the same level at which a new buyer would be able to finance the same permit. He said he did not want to see the state's resources given away. REPRESENTATIVE SCALZI asked the committee if there were any questions or problems with the bill. REPRESENTATIVE COGHILL said he had some individual concerns about the removal of the half-percent fee for refinancing and said he would do some homework on that, as well as the "once a year" provision. Number 0793 REPRESENTATIVE SCALZI moved to report CSHB 287, version 22- LS1106\J, Utermohle, 2/27/02, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 287(FSH) was moved out of the House Special Committee on Fisheries.