Legislature(2001 - 2002)

03/04/2002 03:38 PM FSH

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                                        
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
CO-CHAIR   STEVENS  asked   how  many   total  loans   there  are                                                               
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                                                               
REPRESENTATIVE    COGHILL   asked,    "That   has    to   be    a                                                               
MR. WINEGAR said,  "They would have to come in  and reapply for a                                                               
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                                                                                                               
[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.                                                                                                         

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