Legislature(2011 - 2012)BARNES 124
03/16/2011 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HJR8 | |
| HB121 | |
| HB106 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 121 | TELECONFERENCED | |
| += | HB 106 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HJR 8 | TELECONFERENCED | |
HB 121-LOAN FUNDS:CHARTERS/MARICULTURE/MICROLOAN
1:23:04 PM
CO-CHAIR SEATON announced that the next order of business is
HOUSE BILL NO. 121, "An Act establishing the commercial charter
fisheries revolving loan fund, the mariculture revolving loan
fund, and the Alaska microloan revolving loan fund and relating
to those funds and loans from those funds; and providing for an
effective date." [Before the committee was CSHB 121(FSH).]
1:23:43 PM
CURTIS THAYER, Deputy Commissioner, Office of the Commissioner,
Department of Commerce, Community & Economic Development
(DCCED), said HB 121 would create a suite of three new revolving
loan funds that would help Alaska entrepreneurs build their
businesses and contribute to the state's economy. Revolving
loan funds have a proven track record in the state and are
administered within the department's financing section. These
new revolving loan funds would make it easier for entrepreneurs
to invest in business expansion, which would stimulate economic
activity. The bill would incentivize the development of the
shellfish mariculture industry, assist Alaska charter operators
in acquiring halibut permits to transition to the new regulatory
and management regime instituted by the National Oceanic and
Atmospheric Administration (NOAA); and would seed
microenterprise development across the state.
MR. THAYER explained that the Commercial Charter Fisheries
Revolving Loan Fund would provide access to capital for Alaskan-
owned charters. It would repatriate permits to Alaskans and
would increase economic benefits to Alaska by re-circulating
earnings from this sector into Alaska. He informed members that
an interest rate change in a previous committee of referral
could conflict with the private sector loan program and the
department is working with that committee to rectify this
conflict as the bill moves forward.
1:25:22 PM
MR. THAYER said the Mariculture Revolving Loan Fund would
provide a spark to a growing industry with great year-round
potential for coastal Alaska communities and entrepreneurs.
Currently, 67 farms are permitted in the state, but only 25 of
them are producing farms - 10 in Southeast, 15 in Southcentral.
Twenty years ago in British Columbia, mariculture was a $500,000
industry; today it is a $30 million industry because the
province seeded these mariculture forms. Alaska's mariculture
economy is currently at $473,000 and this revolving loan fund
would act to seed this industry.
MR. THAYER stated that the Alaska Microloan Revolving Loan Fund
would help small businesses grow by providing loans for start-up
costs, working capital, inventory expansion, and other
commercial purposes. Alaska is one of a few remaining states
without a microloan program, which has a proven track record in
other states and through the Small Business Administration
(SBA). He reminded members that last year this very same bill
passed the House 40-0, and said that this year it is packaged
with some other revolving loan funds.
1:26:28 PM
MR. THAYER noted that these programs would complement two
existing small business loan programs administered by the
Division of Economic Development - the Small Business Economic
Development Revolving Loan Fund and the Rural Development
Initiative Fund, both of which are geared toward long-term
financing. Small businesses are the number one creator of
private-sector jobs, so HB 121 would be good for Alaska's
economy and families because it would spur sustainable economic
growth in the state. The department is on a mission to foster a
business climate in Alaska that is conducive to job creation and
economic growth. The department is examining how it operates in
an effort to be more responsive to the needs of the business
community and deliver services that are relevant and useful to
the private sector. Recent realignment of resources and
services within the department has bolstered the state's
economic development toolbox and is reasserting the state's role
in creating a business-friendly environment in Alaska.
MR. THAYER added that the department has spent a lot of time
listening to the private sector. The commissioner recently
formed an economic advisory task force comprised of industry
leaders that has been instrumental in reaching out to the
private sector. This was done through non-governmental
organizations, trade associations, helping this administration
plot a productive course to economic development. Additionally,
the department solicited input from non-governmental
organizations, trade associations, Alaska Regional Development
Organizations (ARDORs), Alaska Native Claims Settlement Act
(ANCSA) corporations, and legislators. A commonly heard theme
has been to increase financing options for small businesses
because access to critically needed capital can be the
difference between simply getting by, and thriving. He said HB
121 is a step in the right direction and urged its passage.
1:28:03 PM
CO-CHAIR SEATON requested an explanation about the relationship
of microloans in terms of HB 121 and ARDORS.
MR. THAYER replied that, currently, one of the twelve ARDORS in
the state has a very successful microloan program that is in the
Kenai Borough. In the past the department and borough have
discussed working together and having the department possibly
operate the borough's fund. The department would continue to
work with the ARDORS individually and actually prefers that
people work with the ARDORS first before coming to the state.
Since only this one ARDOR is providing a microloan program, the
majority of the state does not have one. In further response to
Co-Chair Seaton, Mr. Thayer confirmed that the microloan
provision of HB 121 would not override or necessarily replace a
microloan program from an ARDOR, but if an ARDOR wanted to work
with the department in doing a microloan program this provision
would enable it.
1:29:15 PM
REPRESENTATIVE P. WILSON asked whether a person who has a
microloan from an ARDOR would also be able to get a microloan
from the state.
MR. THAYER deferred to the director of the Division of Economic
Development for an answer.
WANETTA JO AYERS, Division Director, Division of Economic
Development, Department of Commerce, Community & Economic
Development, replied it is conceivable that there could be
circumstances where that would happen, but the borrower would
have to have the collateral in place to make that possible. The
circumstances of that individual borrower, the project, and the
kind of collateral that the borrower can bring forward would
have to be looked at.
REPRESENTATIVE P. WILSON observed that two of the three
revolving loan funds are water related. She presumed that the
microloan fund would be available for any other kind of
business.
MS. AYERS responded that is correct.
1:30:40 PM
REPRESENTATIVE HERRON understood that a microloan is what
financial institutions call pre-bankable.
MS. AYERS answered that in terms of that specific definition she
would say that most of these borrowers would have issues in that
by definition they would have been turned down by an existing
private lender, but may be able to achieve the circumstances of
the microloan fund in order to get to a credit decision.
REPRESENTATIVE HERRON agreed, saying his understanding of this
proposed legislation is that microloans are for individuals who
have lack of collateral. He asked whether a person's employment
and credit history are considered.
MS. AYERS replied that all of those factors would be considered
by a loan officer prior to being taken to a committee for a
decision.
1:32:06 PM
CO-CHAIR FEIGE asked whether these loans would be made to people
who previously had not qualified for commercial loans.
MR. THAYER responded yes, there is a turn-down provision by a
commercial institution before a person goes to the state.
CO-CHAIR FEIGE presumed these loans are inherently more risky
than standard commercial loans.
MR. THAYER answered yes.
CO-CHAIR FEIGE inquired whether the interest rates should be
higher than what has been indicated in order to account for the
risk.
MS. AYERS replied that characterizing these as riskier loans is
correct; however, that risk would be mitigated largely through
collateral requirements. The interest rates are what would be
common with other comparable microloan programs offered in other
states.
CO-CHAIR FEIGE asked what collateral would be acceptable to the
commissioner.
MS. AYERS responded that in the past, collateral has included
real property, fishing vessels, gear and equipment, and in some
cases inventory is considered. Based on the risk and assessment
of the loan officer, a determination will be made about how much
collateral is required for achieving the loan. The national
average microloan value is about $12,000 to $13,000. [The
division] is requiring anything above $35,000 to have the turn
down and expects it will be close to or slightly higher than
that number.
1:34:40 PM
REPRESENTATIVE GARDNER said she is very glad to see that someone
with past-due child support obligations cannot receive a loan.
She inquired how the department would track whether a borrower
had fulfilled the requirements in Section 1 of the bill. She
further inquired whether the sponsor would be receptive to
requiring a report to the legislature regarding repayments.
MS. AYERS, regarding Section 1, explained that the department
has several objective measurements as to whether things are
manufactured in the state of Alaska, including the Alaska
product preference statute and the Made in Alaska standard.
There would be ways for borrowers to determine whether a
particular vendor had achieved those standards. Additionally,
that is guidance for the loan officers as well.
MR. THAYER pointed out that both of the aforementioned programs
are run by DCCED.
MS. AYERS, regarding the reporting standard, noted that the
department does provide an annual report that indicates loan
origination and servicing activities, as well as performance
standards such as defaults and delinquencies.
1:37:01 PM
REPRESENTATIVE HERRON asked what the prediction is for the rate
of successful microloan repayment.
MS. AYERS answered that [the department] believes it will be in
the range of 90-95 percent. While there is no definitive source
that provides a national average, the MicroCapital Monitor
estimates that the average default rate is about 5 percent,
which tracks fairly well with the department's Small Business
Economic Development Revolving Loan Fund.
1:37:53 PM
REPRESENTATIVE P. WILSON inquired as to what the default rate is
for the Commercial Fishing Revolving Loan Fund.
MS. AYERS replied that she does not have that specific number on
the top of her head, but in general for last year the default
rate was less than 1 percent for the entire portfolio.
1:38:24 PM
CO-CHAIR SEATON opened public testimony.
PAUL FUHS, Pack Alaska Sea Farms, said he first went to work for
Pack Alaska Sea Farms to help untangle some extremely complex
regulatory issues, but he came to believe so much in this
industry and its potential that he became a part-owner of one of
these farms, primarily focusing on geoducks. The farms began
putting in seed about eight years ago and the first successful
harvest of geoducks was just this last month. An adult geoduck
ideal for the Chinese and Japanese markets weighs about one-and-
a-half to two pounds.
MR. FUHS said the timing of this loan program is good because
the technology has now been proven. People mortgaged their
houses and drained their bank accounts to get to this point. It
takes six to seven years for a geoduck to reach market size, so
the fairly long loan repayment terms in the bill are balanced
with the lifecycle of these animals. Justification for the
state to establish this program is that it is hard for a bank to
give a loan when the person cannot show any revenue coming in
for six or seven years. Additionally, there are lease expenses
to the Department of Natural Resources (DNR); for example, his
farm pays an annual lease to DNR of about $10,000.
1:40:33 PM
MR. FUHS said economic development is another reason for doing
this. In addition to the farmer, there is quite a chain of
people involved in the product. Behind the numbers of overall
harvest is the boat that is hired for planting, the mechanics
who work on the boat, the people the fuel is purchased from, the
processing of the geoducks which is done during the salmon
offseason thereby allowing processing staff to work longer, the
purchase of seed from the Seward hatchery, the transportation of
the seed, and the shipping of the product. During his time as
the commissioner of the Department of Commerce, Community &
Economic Development quite a few years back, the loan programs
for fisheries were very successful with a very low default rate
and therefore he expects the same with this.
1:41:52 PM
SEAN RUDDY stated that he has an oyster farm in Kachemak Bay and
is part of the Kachemak Shellfish Mariculture Association and
the Kachemak Shellfish Growers Co-op. He has been farming
oysters for about eight years and this would be a very
beneficial fund, especially for new farmers. In this business
it takes a long time to become profitable. Furthermore, it
takes many resources, including money, to make it happen. He
had to buy his own boat, build his own boat, customize gear, get
gear to hold the oysters on the farm, pay his DNR fees as well
as Department of Environmental Conservation (DEC) fees, along
with the labor of working on the farm. He urged the committee
to approve the loan fund.
1:43:26 PM
GERRY ANDREWS offered his agreement with all of the testimony
provided by Mr. Thayer. He said he has owned Icy Bay Oyster
Company since 2005 as a startup. He has yet to produce an
oyster, but that is not because he didn't try. One big hurdle
for an individual like himself coming into the industry is the
financing and not having that legacy of production, and this has
slowed down getting into production. As a result he has changed
his business plan and is now looking at purchasing a farm in
Kachemak Bay and becoming a member of the Kachemak Bay Shellfish
Mariculture Association and also the greater community of the
[Alaska Shellfish Growers Association]. He urged the committee
to move HB 121 forward.
1:45:19 PM
MEGHAN CLARK, Crabby Sisters, testified that her Anchorage-based
seafood company brought its product of gluten-free Alaska king
crab cakes to market this past January. Over the last two years
her company has developed a strong relationship with its local
small business development center and have taken over 40 hours
of group trainings and seminars. Additionally, she [and her
business partner] routinely meet with their business advisors,
specifically focusing on the development of their company's
current financial analysis and future projections. Her
company's market research and development and current production
numbers demonstrate a high consumer and commercial demand for
its product, and this demand means growth and expansion. To
achieve this growth her small, local manufacturing business will
need a loan to meet its cash flow needs. Unfortunately, it has
been her experience that despite her ability to demonstrate good
character, capacity to repay, favorable market conditions, and
previous small business experience, her company is simply
categorized as a startup lacking marketing history, which is a
red flag for financial institutions. This microloan legislation
would assist in breaking down this barrier to expansion by
providing sufficient cash flow to grow her Alaska business at a
healthy and steady pace.
1:47:25 PM
TIM DILLON, City Manager, City of Seldovia; Executive Director,
Seldovia Holding Corporation, said the community of Seldovia,
like many small coastal communities in Alaska, has had a
struggling economy for years. "Things are starting to come back
and this kind of an opportunity, this kind of a loan fund, would
be a huge shot in the arm for a small community like Seldovia."
He encouraged the committee to move HB 121 forward.
1:48:29 PM
ADAM GALINDO, Taco Loco, stated that he is representing Taco
Loco products. He is a strong supporter of HB 121. Taco Loco
is an established business that is one of Alaska's largest food
manufacturers, but it is having a hard time securing capital to
grow its business and create jobs without having to pay 12
percent interest and put 35 percent down to the banks that the
business has dealt with for many years. The current economy is
putting a crunch on a lot of Alaska businesses and
manufacturers. He urged that HB 121 be passed from committee.
CO-CHAIR SEATON closed public testimony on HB 121 after
ascertaining that no one else wished to testify.
1:50:03 PM
REPRESENTATIVE P. WILSON inquired whether the startup funding
for the provisions of HB 121 would come from the "Commercial
Fishing Revolving Loan".
MS. AYERS replied no, that is not part of the proceeds from the
Commercial Fishing Revolving Loan Fund. In response to further
questions from Representative P. Wilson, she confirmed that
under the current fiscal note the funding would come from the
general fund. Currently, capitalization for the Microloan
Revolving Loan Fund would be $3.5 million, for the halibut
commercial charters revolving loan fund it would be $5 million,
and for the [Alaska] Mariculture Revolving Loan Fund it would be
$3 million. She said there would also be a separate operating
cost but she does not have that amount in front of her.
CO-CHAIR SEATON interjected that fiscal note number 1 would
provide $169,000 for operating expenses in Fiscal Year 2012 and
it would be approximately the same amount for subsequent years.
1:52:53 PM
REPRESENTATIVE MUNOZ asked whether current loan funds are
accessible to business people involved in mariculture or the
commercial charter fisheries.
MS. AYERS responded that there is not currently something that
is designated for these specific activities of mariculture or
sport fish. With regard to microloans, there are two funds more
designed for long-term financing: the Small Business Economic
Development Loan and the Rural Development Initiative Fund.
However, both of those funds have certain restrictions,
geographic restrictions, and other complications due to federal
requirements that make it difficult to lend on a statewide
basis.
1:54:02 PM
CO-CHAIR FEIGE allowed that it sounds from the testimony like
there is a fair amount of difficulty in getting standard
financing through normal commercial channels. However, he is
loathe to put the state in the position of being a bank because
the state would then be competing with banking institutions,
although he recognizes that in this case it does have a certain
degree of merit. He inquired of the committee and Mr. Thayer
whether it would be wise to put a sunset on this, keeping in
mind that while economic times may be tough currently they could
be rosy in 10 years.
REPRESENTATIVE P. WILSON commented that for the "commercial
fishermen's revolving loan" the fisherman's boat or permit is
the collateral so that person will do everything possible to
keep from losing his or her boat because that is the person's
only livelihood. She asked what the collateral would be in the
case of a shellfish farmer who might have another livelihood
besides the shellfish farm or is retired and undertaking the
farm as an investment.
1:56:55 PM
CO-CHAIR SEATON pointed out that many times the collateral for
the loan also includes the person's house or other real estate,
not just the boat. Oftentimes a boat does not matter because
the borrower needs to have other collateral for backup on the
loan. He cautioned that since this is a revolving loan fund, a
term on it would create uncertainty for prospective borrowers.
People would be unable to make business decisions when the
sunset date is approaching. He pointed out that the legislature
does have the ability to make adjustments in the future to the
revolving loan funds if it is found that they are necessary.
REPRESENTATIVE HERRON noted that Ms. Ayers earlier confirmed
that this is a pre-bankable model. Had Ms. Ayers said that the
repayment rates might fall below 90 percent, then he would have
been concerned. But a 95-97 percent repayment rate should be
looked at in a positive way and not be looked at overly
critically because the important part in this repayment plan is
the borrowers. He said he thinks it is an important finance
method that the state should deploy.
1:59:45 PM
CO-CHAIR FEIGE questioned whether DCCED would support a sunset
provision in the bill.
MR. THAYER answered that if it is the will of the legislature,
then the department would support a sunset provision for the
success of the loan program moving forward. However, while HB
121 was being drafted the department worked with the Commercial
Fishing and Agriculture Bank (C-FAB) and the banking community
to be very careful not to compete with the private sector. The
department would like to see this bill pass.
2:01:37 PM
The committee took an at-ease from 2:01 p.m. to 2:05 p.m.
2:05:49 PM
REPRESENTATIVE MUNOZ said she likes HB 121 because it addresses
the funding problems that certain industries in Alaska have.
She understood that the first years for a new shellfish grower
are very cost intensive and it takes seven to eight years before
any income is derived. She asked whether the loans that are
specifically for mariculture farmers would take that into
account.
MR. THAYER replied that it does and a borrower may defer the
interest for up to six years, subject to an arrangement with the
Division of Economic Development loan officer. This was
addressed by the prior committee, the House Special Committee on
Fisheries, he noted.
2:07:05 PM
REPRESENTATIVE MUNOZ inquired whether the $169,000 in operating
costs during the first years would come from the general fund or
the revolving loan fund.
MR. THAYER responded that those costs would be funded through
the fund itself. In further response, he confirmed that
interest payback/revenue generation would occur in 2012, the
first year of operation, and in 2013.
2:08:21 PM
REPRESENTATIVE MUNOZ moved to report CSHB 121(FSH) out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 121(FSH) was
reported from the House Resources Standing Committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HRES 3.7.11 HB 106 Coastal Management Program.PDF |
HRES 3/7/2011 1:00:00 PM HRES 3/16/2011 1:00:00 PM HRES 3/18/2011 1:00:00 PM HRES 3/28/2011 1:00:00 PM HRES 3/30/2011 1:00:00 PM |
HB 106 |
| CSHB 121 Sectional Analysis.pdf |
HRES 3/16/2011 1:00:00 PM |
HB 121 |
| House Bill 121 Hearing Request RES.pdf |
HRES 3/16/2011 1:00:00 PM |
HB 121 |
| HB121 Version D.pdf |
HRES 3/16/2011 1:00:00 PM |
HB 121 |
| HB 121 (FSH) Explanation of Changes.docx |
HRES 3/16/2011 1:00:00 PM |
|
| HB 121 - Treasures of the Tidelands - WA.pdf |
HFIN 4/4/2011 1:30:00 PM HRES 3/16/2011 1:00:00 PM |
HB 121 |
| NCSL Revolving Loan briefing paper.pdf |
HFIN 4/4/2011 1:30:00 PM HRES 3/16/2011 1:00:00 PM |
HB 121 |
| HB 121 - Alaskan Shellfish Grower's Association - Support.pdf |
HRES 3/16/2011 1:00:00 PM |
HB 121 |
| HB 121 - CCED - Letter of support - SWAMC.pdf |
HFIN 4/4/2011 1:30:00 PM HRES 3/16/2011 1:00:00 PM |
HB 121 |
| HB 121 - Shellfish Production Stats - West Coast.pdf |
HFIN 4/4/2011 1:30:00 PM HRES 3/16/2011 1:00:00 PM |
HB 121 |
| AEDC Letter of Support HB 121.pdf |
HRES 3/16/2011 1:00:00 PM |
HB 121 |
| ACMP Coastal District Comments I.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| ACMP Coastal District Comment II.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| Summary of ACMP Coastal District Concerns.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| AMCP_Powerpoint_3-11 (2).pdf |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-TroutUnltd.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-ConstituantLtrs.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-Bill.Larry.GMO.LTR.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-Interior.Del.Ltr.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-FDA.Health&HumanSvc.response.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-NOAA opinion.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| AKDISPATCH.ARTICLE.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| Washington Post Article.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| Bloomberg Article.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-Frankenfish.top50.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| Begich-Time Response.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8 Resources Request.doc |
HRES 3/16/2011 1:00:00 PM |
|
| Sponsor Statement HJR8.doc |
HRES 3/16/2011 1:00:00 PM |
|
| HJR 8 - Fiscal Note.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| HJR 8 - Congressional Delegation Letter of Support - All Members.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-UFA Support.PDF |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-ATA.Ltr.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-SAFA.Ltr.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| HJR8-CenterFoodSafety.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| HB 121 Power Point Presentation.pptx |
HRES 3/16/2011 1:00:00 PM |
|
| CS HB 106 Workdraft Version B.pdf |
HRES 3/16/2011 1:00:00 PM HRES 3/18/2011 1:00:00 PM HRES 3/30/2011 1:00:00 PM |
HB 106 |
| Legislative Audit Memorandum and response.pdf |
HRES 3/16/2011 1:00:00 PM |
|
| ACMP Approved Coastal District Enforceable Policies.pdf |
HRES 3/16/2011 1:00:00 PM |