Legislature(2009 - 2010)BARNES 124
03/17/2010 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB363 | |
| HB412 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 412 | TELECONFERENCED | |
| *+ | HB 363 | TELECONFERENCED | |
HB 412-MICROLOAN REVOLVING FUND
3:54:30 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 412, "An Act establishing the Alaska microloan
revolving fund; making loans for commercial purposes from the
fund; and relating to the fund and loans; and providing for an
effective date."
3:58:07 PM
CATHY JEANS, System Branch Manager, Division of Investments
(DOI), Department of Commerce, Community, & Economic Development
(DCCED), explained that the Governor requested the bill be
introduced to strengthen the economy. This bill would create a
new loan program, the Microloan Revolving Fund, within the DCCED
to help small businesses access critically needed capital. The
bill would allow up to $35,000 for an individual loan and up to
$70,000 for two or more persons. The maximum term for the loan
would be six years. A loan under this program bears interest at
the rate of prime plus one percentage point, with a minimum
amount of not less than six percent per year, and a ceiling of
not more than eight percent per year. The fiscal note is $3.577
million from the AIDEA dividend, with $77,000 required to
provide for a loan officer and travel. She estimated
approximately 75 loans would be issued in the first year, 100
loans in the second year, and approximately 25 loans each year
thereafter. She offered the administration's strong support for
HB 412. She also said she believes this bill will help many
businesses succeed in Alaska.
MS. JEANS provided a section-by-section analysis of HB 412.
Section 1 would modify the uncodified code of Alaska to describe
findings related to the fund.
3:58:57 PM
REPRESENTATIVE NEUMAN asked for a description of a revolving
fund.
MS. JEANS answered a revolving fund is not a dedicated fund,
that principal and interest repayments to the fund are retained
to the fund, and operating funds are paid from the earnings.
REPRESENTATIVE NEUMAN asked whether the state would foreclose in
the event that someone defaulted on his/her loan.
MS. JEANS answered yes. The division has a special fund called
the Foreclosure Expense Fund, and any monies credited to the
account can be used to buy out liens to protect the state
assets. This may be necessary during a foreclosure proceeding
as it is sometimes necessary to contact the Attorney General's
office, which would accrue legal expenses, or it may be
necessary to hire a management company to view the property.
REPRESENTATIVE NEUMAN related his understanding that the money
would remain within the fund and is self contained.
MS. JEANS answered yes. She pointed out that operating expenses
and office equipment would require an appropriation from the
general fund (GF). In further response to Representative
Neuman, she agreed that any budget documents would indicate the
Microloan Revolving Loan Fund as the funding loan source.
4:01:47 PM
MS. JEANS related that Section 2 would create a new article in
AS 44.33 titled "Alaska Microloan Revolving Fund," which would
set out limitations and terms for the loans. The bill would
allow up to $35,000 for an individual loan and up to $70,000 for
two or more persons. The maximum term for the loan would be six
years. A loan under this program would bear interest at the
rate of prime plus one percentage point, with a minimum amount
of not less than six percent per year, and a ceiling of not more
than eight percent per year. Loans must be secured by
collateral and cannot be made to a person who has past due child
support obligations. This section would also create a special
account, the Foreclosure Expense Account.
4:02:37 PM
MS. JEANS stated that Section 3 would amend the uncodified code
adding a new section titled, "TRANSITION: REGULATIONS." This
section would authorize the DCCED to immediately proceed with
the adoption of regulations necessary to implement the changes
made in Section 2 of the bill. This section further stipulates
that the regulations may not take effect before July 1, 2010.
Section 4 stipulates that Section 3 of the bill takes effect
immediately. Finally, Section 5 indicates that except for
Section 2, the bill would take effect on July 1, 2010.
4:03:15 PM
REPRESENTATIVE BUCH referred to Section 2 to AS 44.33.965 in the
bill. He said that this provision encapsulates the requirements
but sets the prime rate as the indicator. He asked what would
happen in the event the prime is at a lower rate, such as 4
percent, since the limits are set at 6 and 8 percent.
MS. JEANS related that it could be set at the prime interest
rate plus one. Thus, if the prime interest rate is currently
set at 3.25 percent, plus one would put it at 4.25 percent, but
the floor is set so it cannot go below 6 percent. The division
would like to keep the rate between 6 and 8 percent since these
loans may be riskier loans. The division's goal was to not have
the rate too low as the loans may then directly compete with
banks.
4:04:31 PM
REPRESENTATIVE BUCH asked Chair Olson whether he had comments
based on his personal experience.
CHAIR OLSON recalled the Commercial Fisheries Agricultural Bank,
which had a preferential interest which was built into CFAB, but
parameters were used. He further recalled that the loans could
be used for vessels, gear, and permits.
REPRESENTATIVE BUCH asked whether this section would remove the
possibility to consider current conditions.
CHAIR OLSON offered his belief that AIDEA would keep 100 percent
of the loans since they are relatively small loans.
4:05:34 PM
REPRESENTATIVE T. WILSON referred to the condition that loans
would not be made to someone with past due child support. She
asked why the restriction for judgment is restricted to child
support.
MS. JEANS related that the program will look at an applicant's
credit report and reports are submitted monthly to credit
bureaus. In further response to Representative T. Wilson, she
said she was unsure why this provision specifies child support.
REPRESENTATIVE BUCH elaborated that sometimes the legislature
includes language to provide direction and a point of view,
which is likely why child support obligations are specifically
considered.
4:07:26 PM
GEOFF WHISTLER, Lending Section Manager, Division of Investments
(DOI), Department of Commerce, Community, & Economic Development
(DCCED), explained that child support obligations are not
reported on credit reports. Thus, if an obligor is behind on
his/her payment he/she must bring the account current and the
program must consider any judgments before granting a loan.
4:08:30 PM
REPRESENTATIVE T. WILSON asked whether any other obligations
should be considered that may not be on a credit report.
MR. WHISTLER responded that the Internal Revenue Service (IRS)
has certain rights when it files liens. He assured her that the
division checks with the IRS on all loans as a part of their
Memorandum of Understanding. The IRS typically will respond
within five days to let AIDEA know whether an applicant has an
outstanding obligation.
4:09:25 PM
MS. JEANS, in response to Representative Neuman, answered yes.
She offered a scenario in which an applicant could purchase a
garage and equipment for startup or expansion of a business.
REPRESENTATIVE NEUMAN asked whether a specific percentage of
collateral is necessary and if matching funds are available from
AIDEA.
MS. JEANS responded that there would not be matching funds from
AIDEA. However, the borrower is encouraged to have some working
capital to put into the business. Additionally, AIDEA can also
lend working capital for starting up a business, she stated.
4:11:56 PM
REPRESENTATIVE NEUMAN related that the loans must be secured by
collateral accepted by the commissioner. He asked whether a
certain amount is considered standard practice.
MR. WHISTLER answered that each item has a different collateral
value. For example, collateral could consist of equipment or
tools for snowmachine business, which may have a 50 percent
value, whereas real estate is about 80 percent, and recreational
boats could be considered at about 65 to 75 percent for security
purposes. The standard equity is about 10 percent in order for
business owners to also have some "buy in" to the business.
REPRESENTATIVE NEUMAN asked whether 20 percent equity would
satisfy AIDEA's requirements.
MR. WHISTLER said that it is hard to predict. If a person was
buying his/her property for repairing snowmachines, the person
may have 20 percent equity in the business, or may have equity
in his/her home that could be used as collateral.
REPRESENTATIVE NEUMAN related his understanding that each loan
would be individually determined as to the amount of collateral.
MR. WHISTLER answered yes.
4:14:02 PM
REPRESENTATIVE NEUMAN asked whether AIDEA would review community
need and niche for a business before granting a loan.
MR. WHISTLER agreed that AIDEA would obtain knowledge by holding
discussions with people in the community. He related that AIDEA
has several resource groups such as the Legislative Information
Office and the Mat-Su City and Borough offices. Certainly,
AIDEA would be interested in the market and if the business plan
is reasonable since they do not want businesses to fail.
REPRESENTATIVE NEUMAN asked whether a risk assessment is set up.
He said he thought the program is a great idea. He just wanted
to ensure that AIDEA has the necessary flexibility.
REPRESENTATIVE NEUMAN posed a scenario in which a person who
opened a refrigeration repair business had a student loan. He
asked whether the microloan program could be used to pay off the
student loan since the education and training was necessary to
the business.
MR. WHISTLER related that what Representative Neuman described
would be considered a refinanced loan by definition. He related
this is not currently an eligible purpose in this bill.
REPRESENTATIVE NEUMAN inquired as to whether a business owner
could pay for equipment purchased at a store. He asked how
AIDEA would monitor the process to ensure the loan is spent
appropriately.
MR. WHISTLER related that AIDEA currently provides for these
types of loans, such as through the Small Business Economic
Development and Rural Development Programs. The AIDEA would
control the disbursements based on the business plan and through
communications with the borrower. Thus, to pay for purchasing
equipment, the borrower would provide AIDEA with a detailed
invoice. In further response to Representative Neuman, he
agreed that conceptually the borrower could pay for equipment
for his/her business.
4:19:02 PM
MIKE BORGFORD, Executive Director, Made in Mat-Su, offered his
belief that this bill represents the most important piece of
legislation to be considered in the last 30 years. Currently,
his organization is comprised of existing businesses. He
offered his belief that this bill will offer existing businesses
opportunities to expand and be more viable in the marketplace.
He explained that he recently surveyed about 250 small
businesses, largely manufacturers, in the Mat-Su region and
Southcentral Alaska. The businesses he surveyed believe HB 412
would create a means for them to obtain raw materials and obtain
better deals in doing so. This bill could also make them more
competitive in the market in the Mat-Su Valley and in Anchorage.
He said members characterized HB 412 as a good bill. He
highlighted one concern his organization pointed out is the need
for the business to be located in Alaska. He recalled one of
the Made in Mat-Su members owns a business in Alaska but also
owns one in the Lower 48. He suggested the committee may wish
to tighten up the eligibility requirements.
4:22:09 PM
REPRESENTATIVE NEUMAN thanked Mr. Borgford for the tremendous
effort his organization makes for small businesses.
CHAIR OLSON announced that public testimony would be held open
for HB 412, which was held over.