Legislature(1999 - 2000)
03/31/2000 03:24 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 339-CFAB LOANS FOR TOURISM & NAT RESOURCES CHAIRMAN ROKEBERG announced the next order of business is HOUSE BILL NO. 339, "An Act authorizing the Alaska Commercial Fishing and Agriculture Bank to make loans relating to tourism and development or exploitation of natural resources." Number 0707 SUSAN SPRINGER, Proprietor, Herring Bay Mercantile, testified via teleconference from Soldotna. She stated she has owned small businesses in Seldovia since 1989. For the past six years, she has owned a retail gift shop. In the summer of 1994, she and her husband purchased a lot from the city, constructed a building and opened Herring Bay Mercantile less than a year later. Because of their income and expense ratio at the time, they did not seek conventional bank financing and, instead, relied on family financing. She feels fortunate to have had that available, otherwise they could not have undertaken the building and opening of their business. Herring Bay Mercantile made a profit its very first season and has been profitable each year since then. She said their business contributes sales tax, property tax, revenues to the community, provides a service for residents and a draw for tourists. It employs people in areas ranging from snow plowing to computer consulting. She said it "donates to absolutely everybody." She commented that since their business has been successful the Homer branches of the National Bank of Alaska and the First National Bank of Anchorage have made field trips to Seldovia urging them to borrow money because they are a very low credit risk. She pointed out that six years ago, when their balance sheet was not as appealing, their business possessed the same qualities that it does now. These qualities are vision, talent and tremendous drive which helped make their business a success. She said she feels strongly that there are more potential entrepreneurs like herself out in rural Alaska and many communities stand to benefit from new business. However, how many of those potential entrepreneurs do not qualify for conventional bank loans, but still have the skills to be successful. MS. SPRINGER further commented that she and her husband purchased a commercial fishing vessel through CFAB [Alaska Commercial Fishing and Agriculture Bank]. They found CFAB to be thorough, helpful and easy to deal with. In 1996 and 1997, she served on a statewide task force that evaluated the effectiveness of small business assistance programs. The task force found that CFAB was well respected for its support of small fisheries business development through the fisheries business assistance program which was operated by the Alaska Business Development Center. The task force hired Dr. Julia Melkar (ph) of the University of Georgia's Department of Public Administration and Urban Studies. Dr. Melkar (ph) developed and mailed out approximately 4,000 surveys to small Alaskan businesses. Nearly 1,500 of those surveys were filled out and returned, which is a 42 percent response rate. Of the 1,500 who responded, around 40 percent were from urban Alaska and 60 percent were from rural Alaska. One of the questions the survey asked was: In your opinion, what is the single most important thing that the State of Alaska can do to assist small businesses? Although there was a wide range of responses, the most frequent response was that there is a need for state assistance in access to capital, marketing and financial management. The respondents were very specific about the need for access to low-interest loans for business start-up. The respondents also felt the state should make loans readily available over the long-term. They felt that existing loan processes should be streamlined by limiting the amount of paperwork and redundancy. Assistance with loans was viewed as a way for small businesses owner to finance start-up costs and have ready access to capital which then could be utilized for equipment, renovations, marketing, advertising and other things. MS. SPRINGER commented: If the conventional banking establishment in Alaska is doing an adequate job of reaching out to and serving small business people and potential small business people, then why did our survey find that access to capital is one of primary challenges to small, Alaskan entrepreneurs trying to establish themselves in business? Last month, the First National Bank of Anchorage reported 1999 reduced net earnings of about $28 million. CFAB's 1999 gross earnings were in the neighborhood of $3 million, yet the First National Bank of Anchorage and the Alaska Banking Association apparently opposed this bill. The earning statements alone should tell you that CFAB serves a niche clientele and I don't believe it poses a significant threat to the prosperity of the conventional banking establishments. In conclusion, I serve on the boards of the Alaska Tourism Marketing Council, the Alaska Travel Industry Association and I'm also in my second term on the Seldovia City Council. And if these three bodies share one common niche and one common scene, it is the need to support small businesses and enhance economic development in Alaska. I think that you have before you, with HB 339, the opportunity to give Alaskan entrepreneurs a tremendous shot in the arm, and the lovely part of this is that you don't have to scrape together any scarce state dollars in order to do so. Number 0985 CHAIRMAN ROKEBERG asked why CFAB would have any different lending standards than a commercial bank. MS. SPRINGER replied that she does not think it is the lending standards, but rather the lending climate. The task force found that the conventional banking climate was not user friendly to small entrepreneurs. Many people did not know how to write a business plan in order to satisfy the requirements of the conventional banking community. There are all kinds of state programs that walk some of these people through writing a business plan because of that. The focus of CFAB has been oriented towards more small loans and more user friendly [loans]. It is her assumption and her expectation that CFAB would serve this niche market better than the conventional banking establishment presently does. Number 1057 JERRY WEAVER, Senior Vice President and Manager of Commercial Loans, National Bank of Alaska; and Secretary/Treasurer, Alaska Bankers Association, testified via teleconference from Anchorage. With respect to the proposed committee substitute (CS) for HB 339, he stated that the Alaska Bankers Association finds it significantly improved. However, the bill still has one flaw that would cause opposition to it. The proposed bill would effectively permit CFAB to make loans to all Alaskan business enterprises while preserving a very important niche monopoly for CFAB; this has been one of their concerns with CFAB since the first day. He pointed out that CFAB is an exclusive, private lender and the only one which can legally finance the purchase of state limited entry permits, which are now viewed by the market place as collateral. Therefore, the ability to finance those permits should be permitted to all lenders. He noted that CFAB began giving this exclusive, private lending niche 19 years ago when the marketplace was vastly different than it is today with IFQs [Individual Fishing Quotas], CDQs [Community Development Quotas] and other intangible fishing rights that are associated in the industry. The banking industry actively finances those now. He stated, "Mr. Chairman, if this small amendment is added to HB 339, the Alaska Bankers Association will become an active supporter of this legislation." CHAIRMAN ROKEBERG asked Mr. Weaver if he is aware that the fishing community and the state wish to maintain a limited entry permit not as personal property for the purpose of making it "not attachable by the IRS as chattel and, additionally, so as to not allow for the sale of limited entry permits to non-Alaska residents." MR. WEAVER replied that the IFQ would certainly be almost identical and it would be argued that it is not personal property. He said he thinks it's time to recognize that there should not be one exclusive lender. Mr. Weaver related his belief that if more loans were permitted against these permits, the value would rise and the cost of borrowing against them would be less for the commercial fishing industry. Number 1241 REPRESENTATIVE HALCRO made a motion for the adoption of the proposed committee substitute for HB 339 [LS1285\G, Utermohle, 3/9/00]. There being no objection, CSHB 339 (L&C), Version G, was adopted by the House Labor and Commerce Standing Committee. Number 1294 REPRESENTATIVE HARRIS made a motion to move CSHB 339(L&C) out of committee with individual recommendations and the attached fiscal notes. REPRESENTATIVE MURKOWSKI objected for the purpose of discussion. She appreciates what the sponsor of the bill has done in an attempt to accommodate her concerns. She said: This is wide open. If we're going to open it to tourism and natural resources and oil drilling and gas drilling and coal and everything else under the sun, CFAB shouldn't be called CFAB anymore. It's a fishing and agriculture and it seems like we've strayed a long way from the purpose. Some side bars have been put in here, but I'm still uncomfortable. As I read, we can make these loans up to $5.5 million and as long as you use just a majority of it in tourism -- and the definition of tourism is very broad [and] very expansive. And the definition of natural resources are very expansive and I'm just not comfortable with it. REPRESENTATIVE HALCRO explained that, at a previous hearing on HB 339, the committee debated the financial footing of CFAB. He agrees with Representative Murkowski. He stated: This brings to mind another piece of legislation that's floating around out there where you've got the Joint Insurance Association [JIA] wants to act as an insurance company...like CFAB, set up for a very specific reason when the market needed and the small guys needed help, and now that they have solid footing in going forward, they want to act like a bank. And I say, if they want to act like a bank, or, in the other case, act like an insurance company, more power to them, but they need to play by the rules. I know we're all sensitive on this committee to government competing with private enterprise, but this is one of those things where I think you have to step back and say, "Okay. Yeah, it might be good for the small guys, but, in the end, should they be playing under the same rules as everybody else in the same competitive market place." CHAIRMAN ROKEBERG commented that the bill is also troubling for him, specifically with respect to underwriting. He stated: I seem to sense the implication from testimony that a vote against this bill is like a vote against small business. I just want to go on the record saying that I've been a small business person for over 30 years in the State of Alaska and I've never needed a state subsidy. REPRESENTATIVE MURKOWSKI removed her objection. CHAIRMAN ROKEBERG stated that CSHB 339(L&C) moved out of the House Labor and Commerce Standing Committee with no objection.
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