Legislature(1995 - 1996)
03/01/1995 03:08 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 140 - SMALL FISH PROCESSOR SURETY BONDS Number 017 REPRESENTATIVE ALAN AUSTERMAN, PRIME SPONSOR OF HB 140, stated that over the years the fishing industry has changed from large conglomerates monopolizing the industry to today's small businessman that are starting to realize the necessity for marketing and processing in mixture. The present economy today is starting to require that fisherman start marketing their own fish, eliminating the need for the middle man. The small fisherman will not be processing the volume that the that the large conglomerates do. He has introduced this bill to reduce the cost of the surety bond from $10,000 to $2,000 for those processors who are processing 30,000 pounds of fish or less. Representative Austerman noted that this bill went through the Special Committee on Fisheries with a CS offered 2-22-95, for HB 140. CHAIRMAN KOTT entertained a motion to adopt CSHB 140(FSH) for review. He asked if there was an objection. Hearing none, he stated that they did have before them the CS for HB 140 version C dated 2-22-95. REPRESENTATIVE AUSTERMAN explained that the original bill did not include an amount to satisfy the final judgment if the processor were in default, they added this amount in the CS. BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT DIVISION, DEPARTMENT OF REVENUE, stated that the Department of Revenue prepared a zero fiscal note and didn't see any operating problems. REPRESENTATIVE NORMAN ROKEBERG asked how much the premium was for the bond. MR. BARTHOLOMEW stated that the premium would be paid by the person or entity being bonded. REPRESENTATIVE ROKEBERG asked if this was a large economic burden. Number 170 REPRESENTATIVE KIM ELTON commented that fisherman want to add value to their business. He said instead of just being a harvester of a raw resource, they feel they can enhance their ability to make money out of the industry. This bill lowers the burden on those who want to enter the processing end of the industry. REPRESENTATIVE ROKEBERG asked if anyone knew what the premium was on a $10,000 bond. CHAIRMAN KOTT answered that it was about a 1 percent premium. ROD MOURANT, ADMINISTRATIVE ASSISTANT TO REPRESENTATIVE PETE KOTT, stated that the estimate three to four years ago was a 1 percent ratio of cost to coverage. REPRESENTATIVE JERRY SANDERS clarified that on $10,000 it was $100. MR. MOURANT explained that it was an extremely low premium because the default rate had gone down considerably. There use to be a high incidence of non payment of wages by out of state fish processors. This is an attempt to guarantee that the workers and fisherman receive payment for the goods and services they provide. REPRESENTATIVE SANDERS asked how much 30,000 pounds of fish cost. He asked if a $2,000 bond would cover 30,000 pounds of fish. Number 238 REPRESENTATIVE ELTON replied no. REPRESENTATIVE ROKEBERG asked who was being protected with the bond, the purchaser or the seller. MR. BARTHOLOMEW answered that the bond was intended to protect the person that had provided labor to the processor, or to the fisherman that had sold fish to a processor. Number 252 CHAIRMAN KOTT asked Mr. Bartholomew to explain how the Department of Revenue works the bonding mechanism. MR. BARTHOLOMEW explained that if the employee or fisherman has not been compensated by the employer, they contact the Commissioner of Administration and the Income and Excise Audit Division and initiate action on the bond. Number 257 CHAIRMAN KOTT queried that if there wasn't a claim within two years, the bond was returned. MR. BARTHOLOMEW stated that the bond is renewed every two years, only if there hasn't been a claim against the bond. He stated that for all practical purposes, the bond remains with the Department of Revenue in the form of the certificate of deposit (CD) or an updated bond issued by an insurance company. Number 257 CHAIRMAN KOTT asked if the CD or bond draws interest. MR. BARTHOLOMEW answered that the interest earned on the securities accrues to the person that provided for them, not to the state of Alaska. Number 284 REPRESENTATIVE ROKEBERG asked why not do away with the bond, if we want to get rid of the burden on small processors. MR. BARTHOLOMEW replied that one reason to have the bond, is that the department maintains a list of whose bonds have been attached by people not compensated. Number 295 REPRESENTATIVE ELTON noted that if a company is in default, the size of the bond grows. The bond itself offers a certain amount of protection with the provision that the bond grows if the company is in default. He explained that it provides further protection to employees or fish sellers that may not know the history of the company. Number 305 REPRESENTATIVE AUSTERMAN pointed out that he would not like to see the bond dropped. He stated that for a clean operator the bond is $10,000, other operators get penalized. NUMBER 314 REPRESENTATIVE SANDERS observed that if someone was in default, their bond goes up the next time. This doesn't take care of their obligations of the first default. He stated the bond is higher if they ever apply for another, if they come back. REPRESENTATIVE AUSTERMAN commented that they didn't want to penalize the clean operators. Number 324 REPRESENTATIVE SANDERS asked if there were that many people wanting to process fish that didn't have $100. REPRESENTATIVE AUSTERMAN stated that he wasn't sure if that figure was correct. If 40 percent were actually putting up $10,000, that didn't sound right. Number 329 MR. BARTHOLOMEW stated that normally it's harder for a new business to get an insurance company to bond them. He stated that new business are often required to put up their own equity for the bonds. Number 339 CHAIRMAN KOTT asked how many CDs the department held. MR. BARTHOLOMEW answered that currently they had 550 bonds, of those 155 were CDs. CHAIRMAN KOTT commented that theoretically those 155 CDs could be the result of a new business' inability to get bonded. REPRESENTATIVE ROKEBERG asked what it cost the state to process such a diminutive item. MR. BARTHOLOMEW answered that the cost to the state was very small. He said that it definitely takes the time of some clerical people and tax examiners, but it's a small part of a much bigger program. He pointed out that there were seven claims against bonds last year for a total of $75,000. Number 397 DONNA PARKER, FISHERIES SPECIALIST, DIVISION OF ECONOMIC DEVELOPMENT, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, stated that she had been preparing a direct marketing manual for fishermen who want to market their own fish. She stated that she has interviewed dozens of fisherman as well as their buyers who are already doing this. The up front costs of licensing, permits, and things of this nature were considered a natural impediment to getting their operations off the ground. She stated that this legislation would be applauded by them. Number 422 CHAIRMAN KOTT referred to the letter Ms. Parker handed out. It states that the purpose of the bond is to protect fisherman and processor workers from companies that don't pay them in full. He asked if she felt that this purpose would be satisfied by reducing the bond from $10,000 to $2,000. MS. PARKER replied that these fisherman were only processing their own fish. They are not buying it from anyone else. In many cases, these are family operations or single person operations that don't have employees, and this would protect them too. Number 442 CHAIRMAN KOTT asked why 30,000 pounds was selected versus 50,000 or 100,000. REPRESENTATIVE ELTON explained that numbers are arbitrary. The history of the bonding process was that $10,000 was working well for the larger processors, and for the smaller processors $2,000 will work well. REPRESENTATIVE ROKEBERG asked if the Department of Commerce would consider doing away with it entirely for the small processor. MS. PARKER answered that she supported the sponsor's statement. REPRESENTATIVE SANDERS inquired if it would better serve the process if they left it at 10,000 for those with employees, and dropped it for those without. MS. PARKER responded that perhaps they could be totally exempt if they didn't have employees and they could prove that. CHAIRMAN KOTT asked how they keep track of the number of pounds processed. MS. PARKER replied that fish tickets were used. Number 483 REPRESENTATIVE ELTON agreed with Representative Sanders. He said that they are not only protecting the employees, they are protecting the seller. REPRESENTATIVE ROKEBERG commented this was like red tape. He said that if they were trying to help out small business people, they should get rid of this and not just lower it 80 percent. MS. PARKER stated that it was just brought to her attention that the statute includes an exemption from the bonding requirement for those with no employees. REPRESENTATIVE AUSTERMAN stated that he would consider it a friendly amendment to exempt anything under 30,000 pounds. Number 520 REPRESENTATIVE ROKEBERG made a motion to move the amendment. REPRESENTATIVE ELTON objected. He explained that, to some extent, he would want to know who is the fly by night company and who isn't. He said there was a benefit in knowing that the processor advertising your fish is going to be around to pay for those fish. Number 520 REPRESENTATIVE ROKEBERG stated that a $2,000 surety bond is no guarantee that the person is going to be successful. REPRESENTATIVE ELTON stated that having been a fisherman, he would be much more comfortable dealing with someone who has shown some amount of responsibility. REPRESENTATIVE AUSTERMAN pointed out that if the $2,000 is not sufficient to cover their claim the first time, it would jump to $10,000 then $20,000, and so on. CHAIRMAN KOTT agreed that there should be some amount of bonding. REPRESENTATIVE ROKEBERG made a motion to move CSHB 140(FSH), out of committee with individual recommendations and accompanying fiscal notes. Number 558 CHAIRMAN KOTT asked if there were objections. Hearing none, the motion passed.
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