Legislature(2001 - 2002)
03/01/2002 01:10 PM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 368-FISHERY ENHANCEMENT LOANS Number 0010 CO-CHAIR DREW SCALZI announced the first order of business, HOUSE BILL NO. 368, "An Act authorizing the commissioner of community and economic development to refinance and extend the term of a fishery enhancement loan." [Before the committee was CSHB 368(FSH).] Number 0089 JOHN MANLY, Staff to Representative John Harris, Alaska State Legislature, presented HB 368 on behalf of Representative Harris, sponsor. Mr. Manly told the committee the bill would allow the commissioner to reduce interest rates and perhaps extend the term on the fisheries enhancement loan to ensure that the hatcheries are more viable. Number 0275 GREG WINEGAR, Director, Division of Investments, Department of Community and Economic Development (DCED), explained that [HB 368] would allow aquaculture associations to refinance existing loans and thereby take advantage of lower interest rates [presently] in effect; the process is similar to that for a homeowner refinancing a home loan. He said [DCED] has the ability under the commercial fishing revolving loan fund. Mr. Winegar mentioned that similar legislation was passed a few years ago. He said a number of commercial fishermen are also refinancing their loans at this time MR. WINEGAR indicated although there will be an impact on the [revenue], as shown in the fiscal note, this won't adversely impact the fund, which is very strong; furthermore, the fund is completely revolving and doesn't get any money from the general fund, so it won't impact the integrity of that fund. He pointed out that lowering the interest rate on these loans will improve the financial picture of [aquaculture] associations, so it will increase their ability to service existing debt. Finally, [HB 368] will not have an negative impact from an administrative standpoint. There is a very streamlined process in place to handle these kinds of requests and it won't create any difficulties, he said. In response to a question from Co-Chair Scalzi, he said DCED has no difficulties with [HB 368]; the official position is neutral. CO-CHAIR SCALZI asked Mr. Winegar if he had contacted the Department of Revenue and [determined] that the fiscal impact would be minimal to the fund itself. MR. WINEGAR answered in the affirmative. Number 0516 JOHN CARTER, Director, Douglas Island Pink & Chum, Inc. (DIPAC), testified before the committee. He reported that during a presentation of the fish caucus, the McDowell Group had demonstrated that the enhancement program across the state has become a serious economic engine for Alaska. He said, "In the last ten years, the economic output - the first wholesale value - was something on the order of $1.4 billion." Given the troubled times occurring now, he said those kinds of numbers are very important. In 2000, it was over $200 million, and approximately $7 million to $10 million in sport-fish revenue through charters and so forth. MR. CARTER told members the McDowell Group's presentation was interesting because [it highlighted] how many areas of the state are impacted. He said the situation is "use or pay." It used to be that the state, through the Alaska Department of Fish and Game (ADF&G), paid for the enhancement program in Alaska with annual appropriations. He explained that fishermen pay a percentage to their regional [aquaculture association] for the enhancement and cost-recovery, so the state doesn't really have to pay out anything. MR. CARTER referred to questions about the general fund. He offered his thinking that there's a positive impact because the raw fish tax adds up to between $1 million and $2 million annually, which goes into the general fund. A similar amount goes to communities where the money was raised or where the fish were caught. He said he thinks it's good business to allow refinancing; in private industry, it's going on across the country. It would help hatcheries become more financially sound and, in many cases, would allow more fish to get to the fishermen. In the case of DIPAC, for example, he said a lot of what "we" do is for the sport fish community; it's one more chance to allow "us" to do that work. He told the committee that he would appreciate support of [HB 368]. CO-CHAIR SCALZI remarked that it was a very good presentation at the fish caucus; moreover, the hatcheries did a great job showing the financial impact to the state. He referred to an information sheet and said about 11 hatcheries will be affected by [HB 368]. He said if the loans are received today, they could be as low as 6 percent, compared to 9 percent. He pointed out that the savings on the interest the hatcheries [realize] goes directly to the common property; moreover, it would offset the expenses of running a hatchery, so there is more available for the harvesters. He remarked that any savings to the hatchery is, in turn, put back into the economy. Number 0871 DAVE COBB, Business Manager, Valdez Fisheries Development Association (VFDA), testified via teleconference. Mr. Cobb told the committee [HB 368] is one of the "tools" needed by the commercial fishing industry and the hatchery system to remain competitive in today's global fisheries environment. The refinancing of hatchery loans at the prevailing interest rate will allow most hatcheries to reduce their annual loan payments and cost of operations significantly, he said. Any reduction in the overall operation budget of VFDA will mean more fish to the commercial fishermen in the area. MR. COBB said VFDA believes although this bill is important to the state hatchery system, it is only one of many changes that must occur if the Alaskan fishing industry is to survive. The hatchery system established by the legislature in 1974 has met or exceeded expectations, he suggested. The commercial common property harvest [of] hatchery salmon exceeds 1 billion pounds; there has been an ex-vessel value of more than $340 million over the last ten years. Every opportunity the hatchery system has to become more cost-effective and cost-efficient only makes good business sense, he added. MR. COBB told members, "We have been good stewards of the public funds entrusted to us to raise fish; this bill allows us to manage those funds more effectively and efficiently." He suggested the competitive playing field has changed for Alaska from a strong market presence to massive global competition in dumping fisheries products on the market at less than the cost of production. Alaska, VFDA, and all industry players must change in order to survive in this competitive global marketplace, he said. He reiterated that [HB 368] makes good business sense and will have no impact on the general fund dollars. Number 1034 REPRESENTATIVE FATE remarked that [HB 368] is a good bill. He referred to [page 3, paragraph (11)] and suggested adding, "or a condition which jeopardizes the fishery or the hatchery," after the word "borrower". He indicated this would give the commissioner a better tool in ascertaining the condition of that fishery and possibly allowing a blanket reduction of term, if applied for. He indicated that [the suggested change] would create fairness and extend the bill to do a better job. MR. WINEGAR said he didn't have any difficulty with adding that language, which would [result in] broader abilities. He added that the current wording also works well. CO-CHAIR SCALZI expressed concern about an unforeseen consequence. REPRESENTATIVE KERTTULA asked Mr. Winegar if there is a risk of having a problem with his fiduciary duty in the trust. MR. WINEGAR explained that each [borrower] would be looked at on an individual basis, which is how [the department] handles this. REPRESENTATIVE KERTTULA asked Mr. Winegar how a fishery is looked at, and whether the [suggested language change] is unnecessary and runs the risk of "opening you up somehow." MR. WINEGAR reiterated that each would be looked at on an individual basis, to ensure that the particular aquaculture association is in good standing. He said he didn't think the [suggested language change] would preclude [the department] from doing so. He said there is a streamlined process, but the [borrower] would need to apply for the refinancing. Number 1336 REPRESENTATIVE STEVENS requested clarification of the "conditions" in the [suggested language change]. REPRESENTATIVE FATE offered the example of a borrower that is a fleet [belonging to a company]. He remarked, "If that fleet were to go under because you didn't extend the term, it would affect the fishery, and that has to be taken into consideration." He said he was thinking beyond just the individual borrower and of the effect it might have on a fishery under certain circumstances. He said he wanted to expand [the language] so the department wasn't "hand-tied." The perception would be that there would be an even playing field. This goes beyond the perception, he said - it goes to the actual world of finance where things can happen. He mentioned the recent Enron [financial collapse] and how it affected the entire financial world. CO-CHAIR SCALZI expressed concerns that the present fisheries and the state of the loan programs are very "touchy." He said he can appreciate the concern and the broadening of the term, but without having a lot of discussion about what [the suggested language change] would mean from a legal standpoint, it might be [better] to leave it as it is. In regard to hardship on the borrower, the department has a good latitude of how far [a borrower] can go, he said. He said he would be nervous about tying the fishery in, because the fisheries are in jeopardy now. Moreover, he said he wouldn't want to put undue pressure on the department to extend a loan that was bad. REPRESENTATIVE FATE agreed it warranted discussion. He recounted a personal experience that made him familiar with what can happen when these loans occur. CO-CHAIR MASEK referred to backup in the bill packet. Currently, she said, DCED is unable to refinance loans from the Fisheries Enhancement Revolving Loan Fund for the hatchery system; similarly, prior to 1993, loans from the other fund - the Commercial Fisheries Revolving Loan Fund - could not be refinanced. This change [provides] that the hatcheries would be asking for comparable changes for their industry, resulting in more fish to commercial and sports fishermen, she read. She indicated that if HB 368 is enacted, she would like more equality in the expenditure for sport-catch species for king and coho salmon because currently pink and chum salmon are primarily targeted. She remarked that she'd like it [applied equally]. CO-CHAIR MASEK continued to read, "Currently, approximately 40 percent of Alaska's entire salmon harvest is enhanced fish." She continued, "Salmon are also produced that are taken by resident and nonresident sports fishermen and utilized in the personal use fisheries." From that perspective, she said, favorable financing rates would be a normal business practice. She indicated she is a cosponsor of HB 368. She mentioned that she would like to move HB 368 out of committee because the bill could help in all parameters of fishing. CO-CHAIR SCALZI said the amount of fish that goes to sport and personal use is in excess of a substantial amount that is paid for through the "commercial fisheries enhancement pact." He said it's very beneficial to both sport and personal use, as well as commercial use, even though it's paid for out of the revenue through the enhancement pact. Number 1745 REPRESENTATIVE McGUIRE moved to report CSHB 368(FSH) out of committee with individual recommendations and the accompanying zero fiscal note. There being no objection, CSHB 368(FSH) was moved out of the House Resources Standing Committee.
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