Legislature(2003 - 2004)

03/12/2003 08:36 AM FSH

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 105-COMMERCIAL FISHING LOANS                                                                                               
CHAIR SEATON announced  that the only order of  business would be                                                               
HOUSE BILL  NO. 105, "An  Act relating  to loans to  satisfy past                                                               
due federal  tax obligations of  commercial fishermen and  to the                                                               
commercial fishing loan program."                                                                                               
Number 0247                                                                                                                     
CHERYL  SUTTON, Staff  to the  Joint Legislative  Salmon Industry                                                               
Task Force  ("Task Force"),  Alaska State  Legislature, testified                                                               
that she was speaking on behalf  of Senator Gary Stevens who is a                                                               
member of  the Task Force  and who  was a Representative  when he                                                               
sponsored HB  105.   She stated  that HB 105  is a  fairly simple                                                               
bill  that involves  just  a few  changes and  that  most of  the                                                               
language  in the  bill is  already existing  law.   She explained                                                               
that basically HB 105 reinstates  a provision that was previously                                                               
law during  fiscal years 1995  through 1997 and also  during 2001                                                               
through  2003.   The  provision allowed  commercial fishermen  to                                                               
obtain  secured  -  and  she emphasized  "secured"  -  loans  for                                                               
retiring Internal Revenue Service (IRS) debt.                                                                                   
MS. SUTTON  said that  it was obvious  that the  long-term crisis                                                               
facing the  salmon industry affects  the ability of  fishermen to                                                               
pay taxes.  She indicated  that perhaps the most compelling point                                                               
is  the  seizing  of  limited  entry  permits,  and  the  state's                                                               
interest in  that regard.  She  said there are other  elements of                                                               
the bill  that are very  important, and  she referred to  page 4,                                                               
Section  3, line  31,  to  the deletion  of  the word  "promptly"                                                               
pertaining to foreclosed permits.                                                                                               
Number 0613                                                                                                                     
MS. SUTTON  explained that  the Task Force  considers this  to be                                                               
important  because  currently, if  a  permit  is foreclosed,  the                                                               
Division of Investments is compelled  to immediately advertise to                                                               
sell that  permit.  She said  this occurrence is not  in the best                                                               
interest  of  the  state  or  of  the  person  whose  permit  was                                                               
foreclosed, and  the Task  Force is  interested in  providing for                                                               
some latitude by  removing the word "promptly" from  statute.  In                                                               
this  way,  some latitude  would  be  given  to the  Division  of                                                               
Investments relative to the advertising  and sale of that permit.                                                               
She  indicated  that  there  was   also  hope  that  through  the                                                               
continuing  work of  the  Task Force  and  the legislative  body,                                                               
other provisions would be addressing  permits and HB 105 would be                                                               
one element in  that regard "in terms of reducing  the numbers of                                                               
permits in areas, and so forth."                                                                                                
Number 0816                                                                                                                     
MS. SUTTON continued that [the  committee] would probably want to                                                               
focus  on the  issue of  receiving loans  for retiring  IRS debt.                                                               
She  referred   to  the  "Policies   And  Procedures"   from  the                                                               
Department of  Community and Economic  Development (DCED)  in the                                                               
committee  packets,  indicating that  the  loans  are not  issued                                                               
"willy-nilly" but are secure, strict,  collateralized loans.  She                                                               
added  that this  aspect  of the  bill  is a  very  big issue  in                                                               
Western Alaska.                                                                                                                 
Number 0866                                                                                                                     
GREG WINEGAR,  Director, Division  of Investments,  Department of                                                               
Community &  Economic Development  (DCED), testified that  HB 105                                                               
makes several  changes to the  Commercial Fishing  Revolving Loan                                                               
Fund (CFRLF) administered  by the agency.  He said  it allows for                                                               
loans  to be  made  to Alaskan  harvesters in  order  to pay  off                                                               
federal tax  obligations jeopardizing permits.   He said  this is                                                               
very similar to a program that  was in effect during 1995 through                                                               
1997 and  also during 2001 to  2003.  He said  he anticipates the                                                               
program to be very  small - perhaps five or ten  loans per year -                                                               
saying that  it provides another  tool for certain  harvesters to                                                               
deal with IRS-related problems, which, he added, is important.                                                                  
MR. WINEGAR continued that the bill  also makes a small change to                                                               
the refinancing program that allows  harvesters to take advantage                                                               
of reduced  interest rates when they  occur.  He noted  that this                                                               
has  been  a  popular  program,   as  interest  rates  have  been                                                               
declining dramatically within  the past year or  two, adding that                                                               
there  is a  quick  and streamlined  process  for handling  those                                                               
requests.    He stated  that  current  law  requires that  a  0.5                                                               
percent refinancing fee be charged  for refinancing; HB 105 would                                                               
remove that requirement,  resulting in a slight  reduction to the                                                               
loan fund.   He  said this reduction  would not  adversely affect                                                               
the financial integrity  of the fund, as this  fund has performed                                                               
fairly well over the years,  is totally self-sufficient, and does                                                               
not  rely on  general  fund support.   He  said  the fiscal  note                                                               
reflects the  small change  that would  take place  regarding the                                                               
loan fund, noting that the feeling  is that rates are pretty near                                                               
to  the bottom  right now,  so the  impact on  the fund  would be                                                               
fairly small.                                                                                                                   
MR. WINEGAR  said that Section  3 of the  bill makes a  change to                                                               
the foreclosure statutes because  currently the requirement is to                                                               
promptly advertise and sell permits.   The change would allow for                                                               
more  flexibility in  handling  permits in  a  manner that  would                                                               
better serve the  interests of the state and,  in many instances,                                                               
of the borrower  as well.  He stated that  the bill was generated                                                               
as  a  result  of work  done  by  the  Task  Force and  that  the                                                               
department supports HB 105.                                                                                                     
Number 1069                                                                                                                     
REPRESENTATIVE SAMUELS asked  what the default rate  was when the                                                               
program was previously in existence.                                                                                            
MR. WINEGAR replied  that there were a total of  307 loans over a                                                               
five-year period,  24 of which  had gone through  the foreclosure                                                               
process.   He noted  that the number  of borrowers  delinquent on                                                               
loans  is  an  estimated  45  percent, with  a  number  of  those                                                               
individuals having  extension requests and working  out solutions                                                               
with the department.   He explained that the  program "kicked in"                                                               
in 1996  or 1997 and was  followed by some pretty  rough seasons,                                                               
indicating that he thought this had an effect on the portfolio.                                                                 
Number 1139                                                                                                                     
CHAIR SEATON  asked if the  previously mentioned numbers  of "307                                                               
and 24" fell under the federal tax program.                                                                                     
MR. WINEGAR replied  that those numbers refer to  loans that were                                                               
made under  a loan program  very similar to  this one -  and that                                                               
they refer to the tax obligation portion of the portfolio.                                                                      
REPRESENTATIVE SAMUELS  inquired about the rules,  asking how far                                                               
back  the debt  was incurred;  he  wondered if,  for example,  it                                                               
could be "mired with the feds"  for 10 years before coming to the                                                               
department for relief, or if it  was the previous year's debt, or                                                               
if it  was regulation that  "you can't get  the loan out  of debt                                                               
that is over 'x' number of years old."                                                                                          
Number 1197                                                                                                                     
MR. WINEGER responded  that there is quite  a variety, explaining                                                               
that  when  the  program  was   initially  created  there  was  a                                                               
substantial  noncompliance problem  in existence.   He  said that                                                               
the IRS  was able to  match up  fish ticket information  with tax                                                               
return information and  found that there were a  number of people                                                               
out  of compliance,  some  for many  years, and  some  for a  few                                                               
years.    He  explained  that  there  are  not  any  restrictions                                                               
regarding how far  back "they can go"  and that it is  taken on a                                                               
case-by-case  basis.   He stated  that  there is  a maximum  loan                                                               
restriction,  and emphasized  that these  are loans,  saying that                                                               
collateral needs  to be  provided and  also that  items typically                                                               
looked at  for other  loans are  looked at  in this  situation as                                                               
MR. WINEGAR,  in response to  a question from Chair  Seaton about                                                               
refinancing, replied  that the refinancing program  is completely                                                               
separate from  the tax obligation  portion of the  portfolio, and                                                               
allows for  the refinancing of any  loan that was made  under the                                                               
Commercial Fishing  Revolving Loan  Fund.   He said  that anybody                                                               
who  has a  loan through  the  department who  is still  eligible                                                               
would qualify for the refinancing.                                                                                              
CHAIR  SEATON  referred  to  the  fiscal note  and  asked  if  it                                                               
pertained to all loans or only pertained to the IRS.                                                                            
MR.  WINEGAR said  the  fiscal note  related  to the  refinancing                                                               
portion of  the bill.  He  stated that the actual  tax obligation                                                               
portion  of the  bill  does not  have any  fiscal  impact at  all                                                               
because it would be handled by  existing staff.  He restated that                                                               
the  program would  involve very  few loans  - perhaps  10 or  15                                                               
loans  per year  -  and he  also restated  that  the fiscal  note                                                               
relates  to removing  the  0.5 percent  fee  for the  refinancing                                                               
Number 1346                                                                                                                     
REPRESENTATIVE  GUTTENBERG  referred  to  the  earlier  testimony                                                               
about  the loans  being fairly  self-sufficient  and the  default                                                               
rate of about  45 percent; he questioned  the correlation between                                                               
self-sufficiency and the default rate.                                                                                          
MR. WINEGAR  responded that the  portfolio has been  in existence                                                               
for a  long time, since 1972,  and has been revolving  for a long                                                               
time.  He  repeated that this program is a  very small portion of                                                               
the loans that have been made  during that period of time, saying                                                               
that over the  life of the program, almost $360  million in loans                                                               
have been made.                                                                                                                 
CHAIR  SEATON   referred  to  Mr.  Winegar's   comment  that  the                                                               
refinancing program  is currently "near  the floor" and  asked if                                                               
this pertained  to the interest  rates' being at a  certain level                                                               
or if it  pertained to a bottom interest rate's  being charged on                                                               
the loans.                                                                                                                      
Number 1433                                                                                                                     
MR. WINEGAR  responded that  the interest rates  are tied  to the                                                               
prime rate  and that it is  "prime plus two."   He explained that                                                               
essentially  borrowers have  taken advantage  of the  rates going                                                               
down over  the past few  years.   He said the  department's rates                                                               
are looked at quarterly and mirror  what the prime rate is doing.                                                               
He said prime  rates are at an all-time record  low, which is not                                                               
to  say that  they couldn't  go  a little  bit lower  - in  fact,                                                               
"recently  the feds  have considered  another quarter-point  drop                                                               
and they are  meeting on the 18th."  He  said that the department                                                               
is figuring  that the  rates are  pretty near  to the  bottom and                                                               
that  the portfolio  has already  largely been  refinanced.   Mr.                                                               
Winegar noted that if the rates  were to fall further, the fiscal                                                               
note would probably need to be adjusted.                                                                                        
Number 1490                                                                                                                     
CHAIR  SEATON asked  if there  was a  "floor interest  rate" that                                                               
under statute could be charged, under these loans.                                                                              
MR. WINEGAR  said there  is no  floor but there  is a  ceiling at                                                               
10.5 [percent].                                                                                                                 
CHAIR SEATON  asked for a typical  profile of a person  who might                                                               
be refinancing under the tax portion of this loan.                                                                              
MR. WINEGAR  replied that the  largest majority of  the portfolio                                                               
is from  rural communities.   He referred  to the booklet  in the                                                               
committee packet entitled "Volunteer Tax  and Loan Program" as an                                                               
example of  a way to  get information  to rural areas  within the                                                               
state.   He said that  often it  is people who  have difficulties                                                               
filing returns or  who have those kinds of  difficulties and then                                                               
"come to us and ask for help."                                                                                                  
CHAIR SEATON asked if, generally,  this might pertain to a Bering                                                               
Sea crabber  who also has  a permit and  just decided to  not pay                                                               
MR.  WINEGAR confirmed  that  this  is not  the  typical type  of                                                               
borrower at all.                                                                                                                
Number 1585                                                                                                                     
BRUCE  TWOMLEY, Chairman,  Commercial Fisheries  Entry Commission                                                               
(CFEC), Alaska  Department of  Fish & Game,  said that  for years                                                               
the [CFEC] has  had a relationship with the IRS  because of being                                                               
assigned the duty to protect  Alaskan fishermen's "right to fish"                                                               
that state  law has always declared  to be a privilege,  but that                                                               
the IRS has  always considered as an asset that  could be seized.                                                               
He said  when a limited  entry permit is  so seized, the  risk is                                                               
that  the permit,  instead of  staying in  the hands  of a  local                                                               
Alaskan, will go  to a nonresident who will get  it at a "bargain                                                               
basement  sale" sponsored  by  the  IRS.   He  mentioned a  short                                                               
anecdote  that  he  suggested  would  put  the  loan  program  in                                                               
context.   He related  that in the  course of  extensive dealings                                                               
with the IRS over the years,  he came to know Chuck Stromey (ph),                                                               
the  former head  of  special proceedings  in  Anchorage, a  fine                                                               
gentlemen,  he  said, who  recognized  the  problem of  achieving                                                               
compliance in  rural Alaska.   Mr. Stromey attended a  meeting of                                                               
the  Association  of  Village Council  Presidents  on  the  lower                                                               
Kuskokwim, after which he said,  "My God, we're trying to collect                                                               
money from people who don't even know we exist!"                                                                                
Number 1694                                                                                                                     
MR. TWOMLEY continued that the  real function of the loan program                                                               
is that it gives people some  hope and it gives the IRS something                                                               
else  to look  towards  other  than the  permit.    He said  that                                                               
regarding people  in the villages,  the limited entry  permit may                                                               
be the  only item of cash  value, so it would,  unfortunately, be                                                               
attractive to the IRS and would also  be an easy target.  He said                                                               
the rates of noncompliance among  small business fishermen aren't                                                               
that different from  the rates of noncompliance  among lawyers or                                                               
cab drivers.   He  said fishermen  are a  target because  of this                                                               
"little prize"  that has an easy  cash value.  He  added that the                                                               
transferability  aspect serves  to keep  local fishermen  "in the                                                               
water" by supporting  the fishermen and their  family members and                                                               
Number 1748                                                                                                                     
MR. TWOMLEY continued  that the loan program provides  a tool for                                                               
negotiating  with the  IRS.   He said  the department  has always                                                               
been  able to  persuade the  IRS that  there are  easier ways  to                                                               
solve these  problems than "jerking  Alaska fishermen out  of the                                                               
water" and destroying  their lives in the process.   He said that                                                               
is  why  the  [CFEC]  has  a  stake  in  this  and  supports  the                                                               
Number 1788                                                                                                                     
BRUCE  HENDRICKSON, Fisherman,  testified  that he  was a  salmon                                                               
fisherman  from Area  M and  thanked  the committee  for HB  105,                                                               
saying that  he thought that  removing the 0.5 percent  fee would                                                               
be helpful.  He  said he wanted to speak to  the related issue of                                                               
debt  relief for  the salmon  industry fisherman.   He  said that                                                               
this  is a  revolving loan  fund and  does not  impact the  state                                                               
budget,  but he  would  never  want to  see  a fisheries  program                                                               
taking funds  away from something  such as a  children's program.                                                               
However, he said he would like  to see the revolving loan fund be                                                               
given the  flexibility to  "write down"  loans to  current market                                                               
values or close  to market value because it's  unrealistic to pay                                                               
back an asset for which 93 or 97 percent of the value is gone.                                                                  
MR. HENDRICKSON  continued that it  is unrealistic for  the state                                                               
or lending institutions to expect to  be able to get the value in                                                               
the form of collateral, and  [to assume] that the fishermen would                                                               
absorb  that loss  in order  to pay  for something  that is  only                                                               
worth  7 percent.   He  said  the values  are down  to 7  percent                                                               
because  the cash  flows are  down so  badly, so  fishermen don't                                                               
have the ability  to repay.  Mr. Hendrickson  said fishermen will                                                               
not  be  making   loans  in  the  future  if   these  assets  are                                                               
foreclosed.  He stated that  permits that are seized, whether for                                                               
taxes or  for nonperformance  of the  loan, would  end up  out of                                                               
state.   He concluded by saying  that he wants to  "plant a seed"                                                               
and  hopes that  when  the Task  Force devises  a  plan for  debt                                                               
relief, there  will be  consideration and  support for  a program                                                               
similar to  what the  farm program had  through the  federal land                                                               
bank for farmers.                                                                                                               
Number 1962                                                                                                                     
STEVE BROWN, President,  Concerned Area M Fishermen,  said he was                                                               
representing  a group  of  salmon permit  holders  on the  Alaska                                                               
Kenai  Peninsula and  said that  about 25  percent of  the permit                                                               
holders in  the fishery  live in the  Kenai Peninsula,  mostly in                                                               
the Homer area.   He spoke in  support of HB 105,  saying that it                                                               
is  a fairly  modest step  in the  right direction  that will  be                                                               
helpful to Alaskan  fishermen in attempts to  "weather the storm"                                                               
in  the salmon  industry.   He said  he applauds  the efforts  to                                                               
retain ownership in Alaskans' hands.                                                                                            
Number 2609                                                                                                                     
MR. BROWN continued  that the 0.5 percent refinance  fee is small                                                               
but valuable,  saying that  "as you know,  interest rates  are at                                                               
historic lows" and  that if people can pay market  rates on their                                                               
loans without  having to  shell out several  hundred or,  in some                                                               
cases,  over  a thousand  dollars,  then  this  is helpful.    He                                                               
commented that this  was the "tip of the iceberg"  and noted that                                                               
there  are four  permit holders  in his  fishery who  are in  the                                                               
process  of  losing  their  permits, just  within  the  past  few                                                               
months, and  he thinks  that the "avalanche  is just  starting to                                                               
cascade down  the mountain" and  is going to gather  speed unless                                                               
we "roll up our sleeves and figure out what we're going to do."                                                                 
Number 2075                                                                                                                     
REPRESENTATIVE BERKOWITZ moved to report  HB 105 out of committee                                                               
with  individual  recommendations  and the  [accompanying  fiscal                                                               
Number 2097                                                                                                                     
REPRESENTATIVE    SAMUELS   objected,    commenting   that    the                                                               
aforementioned number  of 45 percent  [mentioned in  testimony by                                                               
Mr.  Winegar]  is  a  large  number and  needs  to  be  seriously                                                               
considered.  He then withdrew his objection.                                                                                    
Number 2123                                                                                                                     
CHAIR SEATON  asked if  there was any  further objection.   There                                                               
being none, HB 105 was  reported from the House Special Committee                                                               
on Fisheries.                                                                                                                   

Document Name Date/Time Subjects