Legislature(1993 - 1994)
01/21/1994 08:00 AM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CHAIRMAN WILLIAMS stated the committee will be taking up SB 132, a bill that is the Senate companion measure to HB 123, which the committee had heard and passed last session. He reminded committee members, since the Senate bill arrived at the House before the House bill arrived in the Senate, the Senate bill becomes the vehicle used. Number 113 MR. SMITH stated he does not expect any impediments to achieving the time frame. He estimated approximately 8,000 applications will be reviewed and processed. Mr. Smith told members he did not want to speak to the merits of SB 132, but will only speak on the timing. He said if the state is interested in joining the pool of entities allowed to finance quota shares, doing so during this session of the legislature would be appropriate. Number 140 SB 132: LOANS FOR IFQs CHAIRMAN WILLIAMS stated the committee will take up SB 132, the companion measure to HB 123. He informed members that the version of HB 123 which the committee adopted last year was different from both the original HB 123 and the current version of SB 132. He believed the changes adopted by the committee improved the bill, made it more responsive to the needs of small boat fishermen, ensured the loans would not compete with private sector banks, and enhanced the bill's purpose of keeping IFQ shares in the hands of Alaskans. CHAIRMAN WILLIAMS explained the committee substitute drafted for SB 132 and found in committee folders, amends the bill to match the language approved last year. He stated the sponsor of SB 132, Senator George Jacko, has no objection to the changes. He told members a draft letter of intent in their folders contains language adopted last session, which suggests the Commercial Fishing and Agriculture Bank (CFAB) also make loans available for IFQ share purchases. He said the second paragraph in the letter is suggested to meet Senator Jacko's concern on making it clear that passage of the loan bill in no way implies either endorsement or condemnation of the IFQ program itself, and that the goal is strictly to keep the fisheries Alaskan-owned. Number 175 BRYCE EDGMON, STAFF, SENATOR GEORGE JACKO, relayed Senator Jacko's support of the committee substitute. He noted the bill amends the commercial fisheries loan program to allow loans to fishermen for the purchase of IFQ shares, and added that currently, the loan program does not have the ability to give Alaska fishermen the opportunity to get financing for purchasing IFQ shares. He stated Senator Jacko believes it is important for Alaska fishermen to have this opportunity and get involved in the halibut and sablefish fisheries. Number 193 REPRESENTATIVE JOHN DAVIES asked what the bill does in terms of providing loans not available through banks, and asked Mr. Edgmon to comment on the bill possibly eliminating competition between private banks and the state making loans. MR. EDGMON said he would like to defer the questions to the Division of Investments. REPRESENTATIVE DAVIES said he would hold the question. MR. EDGMON stated in order to qualify for a loan to the program, a person has to be turned down by two private institutions. Number 211 REPRESENTATIVE JOE GREEN said if an applicant has to be turned down by two private institutions and then applies to CFAB for a loan, the loans must be high risk and asked what the likelihood of repayment on loans will be. MR. EDGMON clarified that to qualify for an IFQ loan, it is not two institutions the applicant must be turned down at, but rather the applicant could not get a loan elsewhere. He said the intent of the legislation is to make the opportunity available for potential IFQ purchasers. Number 240 MR. SMITH explained one of the unique features of IFQs which separates them from the limited entry permit system is if someone holds the quota share, they can catch the fish and there is a virtual guarantee a certain poundage will be allocated annually. He felt that if a loan is made on quota share, and the terms of the loan include repayment based on fishing activities, there is not a risk of funding a noncompetitive, ineffective fisherman. Number 260 REPRESENTATIVE GREEN wondered why an applicant would have difficulty getting a private loan. MR. SMITH replied he was not sure. MR. EDGMON stated another important characteristic of the IFQ program is there are no time limits. Number 270 REPRESENTATIVE DAVIES asked if a default occurs on the loan, does the state take ownership of the share. Number 280 GREG WINEGAR, LOAN MANAGER, DIVISION OF INVESTMENTS, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, replied the state would take possession of the shares and would then attempt to sell them immediately. CHAIRMAN WILLIAMS asked Mr. Winegar to comment on the types of loans to be available. MR. WINEGAR stated the IFQ loan program is very similar to Section B loans, which are targeted to individuals unable to get financing elsewhere, and there is intent language in this bill which sets up the program in the same way. He continued there has been a lot of success with the Section B program and noted the loans are higher risk, but there have not been significant defaults. Number 303 CHAIRMAN WILLIAMS inquired as to the reasons why some fishermen cannot get loans. MR. WINEGAR replied there are a number of reasons. He said the program was initially set up to target rural Alaska because there were many rural fishermen who felt financing through traditional sources was difficult. He added that standard lending institutions are somewhat conservative in their lending, and many fishermen would be borderline and may not qualify for bank financing, but would qualify in the state program. REPRESENTATIVE PAT CARNEY asked how the interest rate for this program compares to bank interest rates. MR. WINEGAR said the current interest rate is 8% and the rate is tied to the prime, plus two, which is an attractive rate. Number 340 BRIAN PAUST, MEMBER, MARINE ADVISORY PROGRAM UNIVERSITY OF ALASKA, said he is generally in favor of SB 132, with the provision that the loan program be available only to Alaska residents. He stated he would comment solely on the educational needs associated with IFQs and the IFQ loan program, and said there are significant educational responsibilities associated with the bill. He stated that fisherman have a significant need for basic instruction concerning the optimal use of IFQs. MR. PAUST felt something must be learned from the (indiscernible) and halibut IFQ experience. He stated the Marine Advisory Program would like to participate with the state and the National Marine Fisheries Service in developing a workshop series and a publication reviewing all aspects of the administration and use of IFQs. He felt this effort would target strategies for the optimal use of IFQs by participating fisherman, and in the use of IFQs in transferring high quality Alaska seafood products into the world. Number 375 RAYMON SPARLIN, SEWARD, testified via teleconference and gave his support to SB 132. He said he has experience with the state loan program and feels it is the best loan program in the country. He stated there are a few items which need to be clarified including whether CFAB is a private sector bank. He told committee members he is glad there is an awareness of the problem that quota shares may be in the hands of wealthy corporations and asked if at all possible, that quota shares be kept in the hands of those who actually do the fishing and deliver the fish on their own permit. Number 410 NANCY LANDE, SEWARD, testified via teleconference and stated she is not in support of SB 132 and felt it was premature. She questioned if IFQs are used for collateral and a default occurs, will the federal government allow the state to have the quota shares or will there be a competition between the two governments for the shares. She noted there is a $300,000 cap on the loans, and stated if quota shares go as they have in a similar Canadian program, selling for $10 a pound or a 30,000 pound gross, and the market price for halibut stays at the present level, it will be difficult for a person to make payments even though they are guaranteed that amount of poundage. Number 450 (CHAIRMAN WILLIAMS noted for the record that REPRESENTATIVE HUDSON joined the Committee at 8:50 a.m.) CHAIRMAN WILLIAMS said the IFQ program will begin in March 1995 and any time concerns will be taken care of. Number 465 JERE MURRAY, SELDOVIA, via teleconference, read a statement which was faxed to the committee (on file.) Number 530 CHAIRMAN WILLIAMS asked Mr. Smith if he would like to comment. MR. SMITH said the quote attributed to him about the "orgy of transfers" was made before the advisory panel for the North Pacific Fisheries Management Council. He stated because there will be a large number of people receiving an initial issuance of a quota share who may not be present participants in the fisheries, and likewise, a number of people participating at a level higher than the quota share issued to them, there will be a rapid market for quota share developing. CHAIRMAN WILLIAMS again reminded everyone that SB 132 does not imply the support of the IFQ program. Number 585 REPRESENTATIVE BILL HUDSON asked what number of permits will remain in Alaska. MR. SMITH replied he did not want to speculate, but of the total number of people who are going to receive initial issuance of quota shares, about 80 percent are Alaskans. He thought approximately 60 percent of the poundage initially allocated will go to Alaskans. He added he would be happy to get the correct numbers if the committee desired. Number 600 REPRESENTATIVE HUDSON asked if the loan program will be limited to Alaska residents and what the residency requirement will be. Number 620 MR. WINEGAR stated the current residency requirement is two years. REPRESENTATIVE HUDSON asked if the residency requirement is being challenged. MR. WINEGAR said at this point it has not been challenged. Number 633 REPRESENTATIVE GREEN asked in regard to IFQs being issued to fishermen from past records who may not be fishing now, would those people reenter the fishery or put their shares up for sale. MR. SMITH replied he did not know, and added that the program rules specify if people have been participants in the fishery as owners of vessels or leased vessels in 1988, 1989, or 1990, they are eligible to receive some initial issuance of quota share, computed on their fishing history back to 1984. He stated if people have departed from the fishery, some may be induced to return to it or they may be interested in transferring it as soon as they receive it. Number 679 REPRESENTATIVE GREEN stated with the current fiscal problem, he is concerned about IFQs being issued to people who do not plan to fish. He wondered if there are any safeguards against an Alaskan fisherman getting an IFQ, getting a loan and then selling the share to a non-Alaskan. MR. SMITH said the program is neutral with respect to state residency requirements as it is a federal program. REPRESENTATIVE CARNEY said Mr. Murray's comments were ended by a statement that the program could increase the value of quotas. Number 716 MR. SMITH stated he did not understand Mr. Murray's comment, but if the assertion was that the value of quota would go up over time, he would not disagree. CHAIRMAN WILLIAMS said the quota will go up by bringing more poundage to an IFQ, and in order to participate in a loan program, you have to actively be participating in the fishery. TAPE 94-2, SIDE B Number 000 REPRESENTATIVE CARNEY felt the availability of financing will make it likely people can pay a higher price if the poundage is available. MR. WINEGAR pointed out the availability of financing could have an effect on the price but with or without the state loan program, private financing will be available. Number 008 REPRESENTATIVE CARNEY noted the state loan program will have a lower rate of interest than most commercial banks and money will be more readily available. MR. WINEGAR replied that was correct and added there is a provision that if a person qualifies for bank financing, they cannot get a loan through the state program. Number 017 REPRESENTATIVE DAVIES said he does not see anything in the program which limits speculation. MR. SMITH replied there are elements where you do not have to be a fisherman depending upon the nature of the entity which received the quota share in the beginning, but after initial issuance, subsequent transfers must go to individuals who have 150 days experience in commercial fishing. He added that quota share by itself is not of much value except on paper; the real value of quota share is that it is the means by which individual fishing quota is provided to fishermen. REPRESENTATIVE DAVIES said he disagreed. MR. SMITH said if the Division of Investments repossesses quota share under the loan program, they hold paper but cannot fish it. Before fishing can occur, the share has to be transferred to someone who is eligible to receive and fish the IFQ which accompanies it. REPRESENTATIVE CARNEY asked if there are any specifications on the amount of quota which can be transferred. Number 051 MR. SMITH replied the restriction is the overall cap on what percentage of the total quota share pool one person can hold. REPRESENTATIVE CARNEY inquired what the cap is. MR. SMITH stated the cap is one-half of one percent in the halibut fisheries in the Gulf/Bering Sea, and one percent in Southeast halibut fisheries. REPRESENTATIVE HUDSON inquired how much money is available in the loan portfolio. MR. WINEGAR replied approximately $14 million. REPRESENTATIVE HUDSON said he was not talking just about IFQs but also limited permits and other loans. MR. WINEGAR replied the department has received approximately 275 extension applications this year out of about 1200. Number 082 REPRESENTATIVE HUDSON wondered what effect expanding access to limited funds will do to existing loan applicants or needs. MR. WINEGAR said language in SB 132 provides that financing for other parts of the program are handled first before financing for IFQs is available, so it should have no effect. He said the department is anticipating having $5 million available over and above the loan demand for other parts of the program. REPRESENTATIVE HUDSON asked what kind of criteria will be used to approve loans. MR. WINEGAR said the same type of criteria currently used on the existing program will be used. REPRESENTATIVE HUDSON wondered if that was collateral, years of experience, etc. MR. WINEGAR stated that is correct and debt service, past credit, all sources of income, etc. is also reviewed. Number 108 REPRESENTATIVE HUDSON asked if there is any opportunity to modify existing rules to provide for some regional economic interest to be considered when distributing quotas. MR. SMITH replied the program does have a community development quota component for communities on the Bering Sea coast and the Aleutian Islands. He added that any additional modifications will have to be developed by the North Pacific Management Council. REPRESENTATIVE HUDSON felt the CDQ program should have been expanded in other areas because in Kodiak, for example, there are many fishermen who have small quotas. He pointed out the area is heavily involved with large vessels coming up from Seattle that produce large quotas, and when the shares are distributed, nonresident boats will be dominant in the region and small boats will face a tough economic situation. REPRESENTATIVE HUDSON felt the legislature and the committee should be doing everything possible to gain an analysis of how regions along the coast are going to be negatively impacted by the quota system, and also do everything possible to expand the community development quota program or some application of the CDQ program within the IFQ program. He requested Mr. Smith to identify, if possible, where the overbalance of the nonresident through the IFQ program is going to exist. REPRESENTATIVE HUDSON stated the information requested will help him better understand the financial implications of the program. He also asked if there is statistical information available as to how many loans will be made, and whether reducing the loan amount to $100,000 will have an appreciable effect. Number 160 MR. SMITH replied he would revisit the data which has been developed as to the probable allocation of quota share and make it available within a week. REPRESENTATIVE DAVIES asked if there is also information regarding the residency of people. MR. SMITH stated there probably is and added the information was developed by the staff of the North Pacific Fisheries Management Council. REPRESENTATIVE GREEN stated he is concerned that IFQ loans might also have a 25 percent or greater default rate and felt combining CDQs and IFQs, especially in areas that are impacted adversely, enabling a viable quota, is a great idea. Number 195 CAROLYN NICHOLS, SITKA, testifying via teleconference, said she believed that if the state is going to loan for IFQs, they should either do it or not do it, but the findings and intent section should be deleted. She felt that section adds nothing to the loan program and is insensitive to many fishermen. She stated the findings and intent section is out of place and felt a loan program on IFQs should have the same setup as the existing boat and permit loan program. CHAIRMAN WILLIAMS said the committee substitute for SB 132 does change that section and added that the intent language reads as follows: "It is also the intent of the House Resources Committee, that passage of this bill in no way implies either legislative support for, or opposition to, the IFQ program, only a commitment to ensuring that Alaskans have as much opportunity as possible to acquire quota shares if-or-when the IFQ program is implemented." Number 223 REPRESENTATIVE DAVIES stated the committee had heard public testimony, illustrating the problem of not having the exact materials the committee has at the teleconference, and requested whenever there are teleconferences, the most current documents be faxed to those locations. Number 339 REPRESENTATIVE HUDSON MOVED to adopt the draft committee substitute as HCS CSSB 132 (RES). CHAIRMAN WILLIAMS asked for objections to the motion and, hearing none, HCS CSSB 132 (RES) was ADOPTED. REPRESENTATIVE HUDSON MOVED to adopt the House Resources Committee Letter of Intent for HCS CSSB 132 (RES). CHAIRMAN WILLIAMS asked for objections to the motion and, hearing none, the House Resources Committee Letter of Intent for HCS CSSB 132 (RES) was ADOPTED. CHAIRMAN WILLIAMS asked for a motion to move SB 132 out of committee. Number 350 REPRESENTATIVE HUDSON stated, prior to entertaining that motion, he would like to get the information requested on the impact of SB 132, particularly on the economics of some of the regional areas in the state. MR. SMITH said he would have information for the committee by January 28, 1994. CHAIRMAN WILLIAMS responded the committee will hold SB 132 for one week until the information is received.