Legislature(1995 - 1996)
05/03/1996 10:15 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 284(FIN)
"An Act relating to the Alaska Commercial Fishing
and Agriculture Bank."
Amy Daugherty, staff aide to Alan Austerman introduced this
bill. She referred to the last page of the bill, page 17
and deleted the words of the last line, "on or". Co-
chairman Halford asked that the amendment that was adopted
and then inadvertently deleted from the draft and the bill
went all the way through the process without the amendment
be explained either by staff or CFAB.
Ed Crane, President of CFAB was invited to join the
committee. He said the particular amendment in question was
adopted unanimously by the House Finance Committee and it
some how disappeared when the bill was subsequently
transmitted onto House Rules and the House Floor. It was an
amendment that is anticipated Senate Finance Committee will
restore as was the intent of the House Finance Committee.
This bill was occasioned in anticipation of full private
ownership of CFAB which is one of the primary objectives of
the founding fathers back in 1978. There was a requirement
for CFAB to become fully privately owned no later than the
year 2000; that all of the State's investment must be
retired by then. CFAB has retired $25 million of the State
investment and the remaining $7 million will be retired over
the next thirty months. Rather than waiting until the year
2000 that day will soon be upon us. He explained three
general categories of the bill. One, the clarification of
inconsistencies and filling in gaps and the resolution of
uncertainties as referred to in sections 9, 12, 15, 23, 24
and 26. Two, the accommodation of changes in commercial
fishing economics and commercial fishing laws that have
occurred since the original statute was written as referred
to in sections 15, 17 (paragraph 6), 18 (paragraph 5), 19,
20, 21 an 22. Three, to recognize that Alaska Statute 44.81
which applies only to CFAB is a restrictive statute which is
always going to be subject to strict interpretations by the
Court and in which certain inconsistencies present real
dangers to a company like CFAB, which operates in a world
quite sensitive to litigation as referred to in sections 17
(paragraph 14) and 18 (paragraphs 1, 8 and 9). Questions
were raised in House Finance Committee which resulted in
legislative auditors spending considerable time at CFAB
during the interim. They took a long look at the
legislative history of CFAB. In this bill the
accountability was retained to the Legislature and the
State. The Governor will continue to appoint two directors
to CFAB's Board of Directors and the annual report including
an independent auditors report is required be submitted to
the Legislature and the Governor. CFAB remains subject to
annual bank examination. On any given day any legislator
can propose changes to CFAB statute.
Co-chairman Halford asked how the bank treated the residency
of borrowers. Mr. Crane said statute provided loans can be
made only to residents for which the duration required is
one year. He referred to their credit policy and read it
into the record.He said they encounter very little
questionable practices and maybe 2 - 3 applications have
been denied because of residency. Co-chairman Halford
referred to section 10(b) on page 4. Mr. Crane said the
specific section does conform. The language was crafted
about nine years ago under the late Senator Bennett. He
related the difficulty in being able to find directors to
serve as there are no special privileges attached to being
on the board of directors. The majority of board members
are fishermen and in general they must be borrowers before
they become members of CFAB. He advised that there can be a
bad season due to any number of reasons, which do not
necessarily reflect poor character, poor credit practices or
any type of misconduct or ethical problem. With borrowers
generally, including directors who are borrowers, when those
situations occur, expectations are modified and there can be
a delinquent loan for twelve months. There needs to be room
for a director who is a fishermen borrower to be able to
deal with the things that happen to fishermen borrowers.
Co-chairman Halford said he believed this was strange
language regarding the board of directors and was too
permissive. Senator Sharp said he was also surprised with
the permissive language. Federal regulations and real banks
are severely limited in loaning to directors and officers.
This kind of allowance was permissive. Mr. Crane said the
bank examiners were aware of this situation. There has been
occasion to act on this matter by the board and
consideration was given to the examiner's view at the time.
Within the past two years there was a director reflecting an
economic rather than ethical weaknesses and was advised
formally that unless certain things were done with respect
to his loan by a certain date, his membership on the board
would be revoked. The qualities that make a person a good
and valued director are not necessarily the same qualities
which make him or her a good fisherman or borrower. Senator
Sharp concurred but felt a delinquent director allowed to
borrow from their own bank may lead to further
complications. That lowering of tolerance is why there is
such prohibition in the banking institutions. Senator Frank
also concurred and said there had been a substantial change
in the last fifteen years in regulations and practices of
banking in general. He suggested deleting the words
"chronically and irredeemably" on page 4, line 30.
Mr. Crane said that CFAB is regulated and this $35 million
institution is subject to strict scrutiny through State bank
examiners, it's own auditors, an exhaustive examination by
it's lenders, legislative audit and IRS audit. The policies
and practices of CFAB which could change, do not permit
special treatment for director loans. Senator Frank still
felt the language was permissive in requiring the board to
remove someone. Senator Sharp concurred. Senator Zharoff
felt there was no problem in leaving the wording as it was
since it had been there since inception. Mr. Crane advised
that there are seven members of the board, two appointed by
the Governor. He further explained the phrase of "natural
persons" as being distinct from legal persons. CFAB has
made a few farming loans and the main reason for that was
because there is little bankable commercial agriculture in
Alaska. Timber is classified as agriculture.
Senator Sharp asked how members were compensated for
attending board meetings and Mr. Crane said the current
practice of CFAB had been for modest compensation, $50/hour
up to $350/day maximum. Total compensation last year for
seven members of the board of directors was $13,000.
Senator Sharp proposed an amendment on page 4, line 30 to
read "maintains a chronic substandard borrowing relationship
with the bank shall be removed from the board." Mr. Crane
noted with regards to changing "may" to "shall" that CFAB
was a private institution and said it was not needed to have
a statute directing something like that. How would this be
enforced? Otherwise there was no objection to the rest of
the amendment. Senator Sharp felt the latitude for the
board and management to define "chronic substandard
borrowing" was left in. However he felt what was fair for
other borrowers should also be fair for directors.
After brief miscellaneous discussion by the committee
members Senator Sharp moved amendment #1(a) and without
objection it was adopted. Amendment #1(b) was also moved
and failed; later it was rescinded without objection and
Senator Sharp re-moved this amendment #1(b) and with the
objections of Senators Zharoff and Phillips being duly noted
it was adopted. Senator Zharoff moved amendment #2, page 17
line 31 to delete "on or" and without objection it was
adopted. Senator Zharoff further moved amendment #3 on
behalf of the sponsor and without objection it was adopted.
Amendment #4 was also moved by Senator Zharoff and it was
held pending.
ADJOURNMENT
Co-chairman Halford recessed the meeting at 12:00 noon to
call of the chair.
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