Legislature(1993 - 1994)
02/10/1994 01:35 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATOR KELLY introduced SB 251 (COMMERCIAL FISH LOANS FOR CERTAIN OBLIGATIONS) to committee and invited the sponsor, SENATOR JACKO to explain his bill. SENATOR JACKO described the bill as an answer to the crisis in the fishing industry with 1100 fishermen statewide, who are in arrears with their taxes. In addition, he explained there are a number of people who are unable to meet their existing financial obligations to conventional lending institutions in Alaska. SENATOR JACKO further explained most of these loans are short term loans with high payments, and, because of the poor fishing seasons, the fishermen are getting behind in their payments. SENATOR JACKO also explained how the legislation would allow more flexibility to the Commercial Fishing Revolving Loan Program to loan money to fishermen who want to pay off their IRS debts, to refinance their current loans, and to pay their child support obligations. SENATOR JACKO defended the child support obligation, as attacked by the DAILY NEWS, as being a responsible act, and he defended the loans for fishermen in response to the crisis in the Alaska salmon industry. He described the long term low interest loan program, and introduced the idea of allowing the transfer of money from the revolving loan fund into the Fisheries Enhancement Revolving Loan Fund. SENATOR JACKO reviewed the packet material and stressed the main reason for the bill was in defense of a provision allowing the IRS to strip the fishermen of their limited entry permits, thereby destroying their means of earning a living for all time. He explained the hardship endured by the permit holder and crew when the permit is sold out of the village or out of State. He suggested all of these people could end up on the welfare roles. SENATOR JACKO concluded by explaining a person must be a resident of Alaska for two years, before being able to borrow from the revolving loan fund, and he explained the additional conditions for borrowing the money. He referred the committee members to a break down on the fishing loan information for Western Alaska in their packet of bill information, and he explained these were the people and the economy of his district. Number 413 SENATOR KELLY referred the committee to a proposed committee substitute for SB 251, which would delete the child support portion from the bill. In a discussion with SENATOR LINCOLN, SENATOR KELLY explained the change in obligations. Next he called on KATE TROLL, Executive Director for the Southeast Alaska Seiners, to testify. MS. TROLL explained she had discussed SB 251 with her executive committee, and she brought their concerns to the committee meeting. She quoted the executive committee as feeling the child support provision cast a negative image on commercial fishermen and found it objectionable. MS. TROLL went next to the suggested use of excess funds for the fisheries enhancement loan fund, and she expressed some concerns, although there was some appeal because it returns to assisting the needs of the fishing industry. She explained they didn't want the funds to be used to artificially prop up hatchery programs that are not likely to succeed, and in the process exhaust the Commercial Fishing Revolving Loan Fund. MS. TROLL felt the legislation, as presently drafted, has no safeguards to address this concern. MS. TROLL referred to an economic review by then SENATOR DICK ELIASON, which contained some of the options in SB 251 dealing with the requirement of more extensive public benefit cost analysis before providing more enhancement loans. She quoted this report to explain the concerns of the Southeast Alaska Seiners were not new or exclusive to the seiners. In light of their concerns, MS. TROLL presented some proposed wording to add to the end of Section 6(c), line 31 on page 4: only if the commissioner determines in consultation with the applicable Regional Planning Team that the hatchery seeking these funds is (1) providing a significant contribution to common property fisheries, (2) operating in a manner that is beneficial to Alaska's public interest, and (3) managing the facility in a financially viable manner with reasonable expectations of repayment. Number 466 MS. TROLL suggested to insure enough funds remain in the Commercial Fishing Revolving Loan Fund to meet anticipated and unanticipated needs of commercial fishermen, a simple guideline could be inserted, "...excess is what remains after retaining the previous year requested loan amount plus 20%." She thought adopting such a guideline, instead of relying on the commissioner's discretion in determining excess, would raise the comfort factor for commercial fishermen fearful of hatchery needs exhausting their loan fund. In conclusion, MS. TROLL said that given the State's financial situation and the Legislative Hatchery Review conducted in 1992, it appears the safeguards are warranted in this legislation, and she hoped the committee would give the amendment and guidelines serious thought. When SENATOR KELLY asked if she would support the bill, MS. TROLL said her board would support SB 251 if the legislation included the guidelines. SENATOR RIEGER assumed MS. TROLL was expressing skepticism about the value of hatchery bred fish, and whether it was certain species of salmon. MS. TROLL said their concerns were about the severe financial problems facing the hatcheries throughout the State, and they thought the likelihood of repayment was a serious question. She said her board has not taken a position against hatcheries in general, and said in Southeast there was a reliance on wild stocks, with hatcheries to supplement. She questioned the contribution by the hatcheries to common property fisheries and again urged the inclusion of the safeguards. SENATOR RIEGER followed up by asking MS. TROLL if she saw any trend in species produced in the hatcheries. MS. TROLL said the hatcheries in Southeast doing well have focused on chums, and also the hatcheries doing the best are located nearest the outside coast, rather than those inland that have quality problems. She described some "Mom and Pop" hatcheries in Southeast do make a significant contribution, but some use it as a ruse to harvest wild stock. MS. TROLL thought those who are likely to succeed and those beneficial to all users should be helped. Number 511 SENATOR SHARP said the thrust of those loans was the availability of up to six years of principal and interest deferral before payments had to be made. He said he would hesitate to "mix and match" the options to transfer more money into a fund at the commissioner's discretion. SENATOR JACKO said that was not the revolving loan fund, but the hatchery loans SENATOR SHARP described. SENATOR KELLY invited KRIS NOROSZ, a PSG Vessel Owner from Petersburg, to testify next. MS. NOROSZ said she was testifying on behalf of the Petersburg Vessel Owners Association and supported most of the remarks from MS. TROLL. In addition, she expressed concerns the hatcheries that receive state loan money should provide a benefit to the common property fisheries and, second, demonstrate economic feasibility. She was also concerned the funds, as referenced in the bill, would be further used to aid some hatcheries which are not currently economically viable. MS. NOROSZ wanted to be sure any loan made by the State to the hatcheries are a good investment, and she thought it important to include language outlining guidelines that must be met. She thought there was a need to define "excess," in Section 6, line 29 of SB 251, and to be sure hatchery needs will not deplete future funding available to the Commercial Fishing Revolving Loan Program. Next, SENATOR KELLY called on FRANK HOMAN, a commissioner on the Commercial Fisheries Entry Commission, to speak. MR. HOMAN testified on the impact of the Internal Revenue Service on limited entry permit holders, and he referred to the letter from the Commercial Fisheries Entry Commission on the IRS v. Alaska Limited Entry Permits, in Attachment A, which is a statistical breakdown of tax delinquencies. MR. HOMAN explained there has been a great deal of correspondence with the IRS over their ability to lien and seize limited entry permits, and he reviewed the court case that allowed this. He said there was a procedure in process that would draft regulations for the involuntary transfers, and during that time the IRS has filed another suit against the Commercial Fisheries Entry Commission. Number 554 MR. HOMAN said the IRS brought to the attention of the Commercial Fisheries Entry Commission the number of Alaskan fishermen who have difficulties with the internal revenue service, with figures ranging from 3 to 5 thousand. He explained in working with the IRS the commission has been able to secure a further break down on the size of the problem, and where the problem existed. MR. HOMAN referenced the Attachment A and claimed some of the figures are actual and some are estimates, but the significant figures are of Alaska residents, numbering 2,284 fishermen. Of that number, there are 1,111 with a balance due, which means they have filed their taxes, but there is a dispute over the tax, or the tax hasn't been paid. MR. HOMAN explained the remaining 1,173 fishermen are non-filers, fishermen who have not filed an income tax return at all, and the dollar amount owed is not known. He said the estimated amount due the IRS from the delinquent holders is $13.7 million from non- residents, and those who hold limited entry permits owe an estimated $3.9 million, with a total to the IRS of $17.6 million. He also explained all of these individual cases are open to negotiation. MR. HOMAN said that until this information was received from the IRS, the Limited Entry Commission had no idea of the problem, but were somewhat relieved to find the permit holders owe the IRS less than $10 thousand per permit. Of these 86% owe less than $20 thousand, which has probably accumulated from the last few years of poor salmon fishing in Alaska. Although runs have been up, world market conditions and prices have been down, and MR. HOMAN said a number of fishermen have been having trouble making ends meet. MR. HOMAN explained when they asked where the delinquencies were occurring, the IRS listed the rural regions of the state as the most severely impacted, but all regions are affected to a degree. TAPE 94-8, SIDE B Number 001 MR. HOMAN explained these statistics are a serious concern, and he said the commission feels in the rural area the loss of a permit is the loss of access to the economy, since it is the only way many of these people have of making a living. In the total picture of limited entry permits, MR. HOMAN claimed there were 56% of the permits owned by Alaskans in the rural area, and the fishermen, as well as their families, will suffer. MR. HOMAN explained the commission had been working with other groups and agencies to determine how they could assist in working with the IRS to prevent them from seizing the permits, while there is still a court case with them. From this, MR. HOMAN thought the state loan program might be able too assist in keeping the permits in Alaska - owned by Alaskans. They had discussed the problem with the Division of Investments in the Department of Commerce and Economic Development, with the hope the lower amounts owed could be borrowed from the revolving loan fund to help Alaskan residents retain their permits. MR. HOMAN thought the protection to the state was the value of the Limited Entry Permit as security to the Division of Investments or to the Commercial Fishing and Agriculture Bank (CFAB). He stated only two organizations could have a security interest in a permit, the Division of Investments and CFAB, limiting the permit holder to no other source of financing for a permit. MR. HOMAN described the manner in which the IRS could be paid off, and the State could sell the permit on the open market if the permit holder defaulted on the payments, without losing money. He explained how the possible solution would help those who are marginally in debt to the IRS, but might not help those who have serious trouble with the IRS. SENATOR KELLY asked how those who didn't file their income tax have any ability to pay. Number 052 MR. HOMAN explained he was only speaking of those with a balance due, but he was not sure what would happen to a non-filer. SENATOR RIEGER, in reference to the disputes with the IRS, asked what would happen if the Division of Investments filed a lien on the permit because the permit holder refinanced the taxes, and the next year the permit holder again fell behind with the IRS. He asked how it would be resolved, and who would get the permit. MR. HOMAN explained this scenario was part of the basis for the current suit by the IRS against the Limited Entry Commission, and he referred to a previous bill, SB 449, which laid out a series of conditions by which a limited entry permit would transfer on an involuntary seizure. He further explained one of the conditions was if there was a Division of Investments Loan lien, or one from CFAB against the permit, those liens would come before the IRS. MR. HOMAN said this was part of the dispute the Limited Entry Commission was having with the IRS over the seizure regulations. SENATOR RIEGER suggested, at worst, the IRS could be paid off again. MR. HOMAN said that would be possible. SENATOR LINCOLN referenced Attachment A to note that over one fifth of all the Limited Entry Permit holders are non-Alaska residents, and asked if this was correct. She surmised if the IRS were to get possession of the permit, it would go to a brokerage firm where it is sold to the highest bidder, and she was sure this number would increase to non-Alaska residents. She claimed it would be the "kiss of death" and for this reason she supported the committee substitute. SENATOR LINCOLN wanted the permits to remain in Alaska, along with the money generated by them. She described fishing boats coming up from the South 48, taking our resources and money before leaving. She thought everything possible should be done to keep the permits in Alaska, and she approved of the drafting in the committee substitute to address those expressed concerns. SENATOR SHARP referred to line 8 on page 1 and asked if the two year residency had ever been challenged in court. Number 101 MR. HOMAN explained it was a provision from the Division of Investments. SENATOR KELLY asked if the Commercial Fisheries Entry Commission supported the committee substitute for SB 251, and MR. HOMAN said they supported the part dealing with the IRS. SENATOR KELLY expressed some deep concerns because 1,173 permit holders did not bother to file to pay their income tax, and the legislation would give them authorization to fish. He was upset! He was not in favor of bailing out someone who owes the IRS $100 thousand. SENATOR RIEGER asked if there had been discussions as to whether the IRS should have a smaller threshold than the overall loan limits as dealt with in the statutes. MR. HOMAN said there had been no discussions with the Division of Investments, but assumed the IRS would have their own threshold. He did agree that those who owe hundreds of thousands of dollars probably wouldn't qualify for the Division of Investment's loan in the first place. SENATOR RIEGER understood the ceiling was $300 thousand for the loans, assuming there was adequate collateral. MR. HOMAN didn't feel qualified to speak to the number. SENATOR KELLY next called on GREG WINEGAR, Manager of the Juneau Lending Branch for the Division of Investments, to testify. MR. WINEGAR explained, in answer to a residency question from SENATOR SHARP, the Division of Investments has not been challenged on the two year residency provision, and he further explained some years ago the residency provision was five years. He said there was a challenge on the five years, and at that time the legislature choose to drop the residency requirement down to two years. MR. WINEGAR confirmed, in regards to the question on the loan limits, it is $300 thousand, but he thought the amounts requested were usually smaller amounts. He said a permit holder could come in with a large IRS debt and ask for a loan, but the division would apply the same criteria as loans under the other section of the program, such as debt service and sufficient collateral. In which case, he thought they would be looking at much smaller loans, but he indicated no objection to a smaller limit for that section. SENATOR KELLY wanted to know if the division loaned money to people who don't file their income tax, and MR. WINEGAR replied they didn't because one of the requirements of the application process was to provide the last three years of tax returns. SENATOR KELLY said the committee would not be changing that criteria in the legislation. SENATOR RIEGER asked, in reference to a foreclosure action, if foreclosing would be anticipated, and what kind of loan to value on IRS refinancing would MR. WINEGAR be examining. MR. WINEGAR quoted the statute as having a maximum of 90% against the collateral, but in many cases, he said the division looks at a lesser percentage. MR. WINEGAR described the processing of the loan, not only with the entry permit but with a Uniform Commercial Code filing to protect the interests of the division in the event the IRS should return to file a lien against the permit. He said the division would be in a superior position to the IRS as long as the documents have been properly recorded at the time of closing. SENATOR RIEGER questioned the number of foreclosures, and MR. WINEGAR said there has been some, but his office prefers to work with the fisherman on the problem. Number 159 SENATOR SHARP asked whether there was enough equity to help the fishermen, as far as current market value of the permits. He also asked if a new appraisal was needed and how he determined market value of an entry permit. MR. WINEGAR said his office relies on information provided by the Limited Entry Commission with figures based on prior sales of those permits. He said they also utilize information from brokerage houses for the price of the permits, but the main source of facts is the actual sale of permits received by the Limited Entry Commission. SENATOR SHARP confirmed his department would get an updated appraisal for the permit, and MR. WINEGAR agreed. SENATOR KELLY quoted information that past delinquencies from Alaskan residents totals $14 million and asked MR. WINEGAR if his department had that much money to loan. MR. WINEGAR said his department would not have that much to loan, but at this point, he said they anticipated $5 million over and above loan demand, and he reviewed the number of variables that could affect that amount including the number of payments received. SENATOR KELLY clarified MR. WINEGAR was discussing the Commercial Fishing Revolving Loan Fund and questioned whether this surplus would go into the Fisheries Enhancement Revolving Loan Fund. SENATOR JACKO explained the intention of the legislation was to loan out $14 million to cover all of the debts, and he said the fund would be unable to address many of the applications. He described the process used by the loan officers in deciding on the loans and whether they were a worthy risk based on past records. SENATOR JACKO said not every one would be relieved of their IRS problems. SENATOR KELLY asked MR. WINEGAR how he got more money to loan, and MR. WINEGAR explained it was a revolving fund, so as repayments are made, the money is loaned out again. He said there has actually been an excess in that fund for the last several years. SENATOR KELLY and MR. WINEGAR agreed there was no bonding; the fund was established previously when the State had more money, and there was currently an excess of $5 million. There being no more committee questions, SENATOR KELLY called on RAY GILLESPIE, representing the Association of Regional Aquaculture Associations, to testify. Number 201 MR. GILLESPIE said he represented four of the regional aquaculture associations, and he explained, when the legislation was first introduced, the associations took the bill back to their board of directors for review. He quoted each of the boards as responding favorably in support of the legislation in concept, specifically Section 6 which allows the Commissioner of Commerce the flexibility to move loan funds between the two revolving loan funds. MR. GILLESPIE quoted the boards as thinking this was a prudent move; that the department has the ability to determine when there is an excess, and they see no intent to short change the Commercial Fishing Revolving Loan Fund. SENATOR KELLY questioned the use of the money, and MR. GILLESPIE explained it would be primarily for capital loans for the regional aquaculture associations as distinguished from independent hatchery operators. He explained the capital loans would be used for improvements to the hatchery operations, and he further explained the regional hatchery operators have always paid off their operating loans. SENATOR KELLY asked BRYCE EDGMON from SENATOR JACKO's staff and MR. FINK from his to work together on concerns from the committee for the next meeting. SENATOR LINCOLN asked for a previous response from the sponsor, SENATOR JACKO. SENATOR JACKO wanted to answer some of SENATOR KELLY'S concerns about the non-filers, and he provided some history on the situation as it developed. He explained prior to the implementation of the Limited Entry Program, many of the rural fishermen viewed it more as a subsistence activity than a business. SENATOR JACKO said the canneries owned the boats, the gear, and the fishermen generally worked for a cannery. With the implementation of the Limited Entry Program, SENATOR JACKO explained the fishermen were encouraged to become independent businessmen, but culture differences, language problems, and a lack of business knowledge kept them from filing. He thought there had been an improvement and more of the fishermen are filing as more people in the rural areas are becoming educated. SENATOR JACKO said the reason this has become such a problem in recent years is because the IRS has implemented a program called Compliance 2000 to bring all self employed business people into compliance. He said it was easy to focus in on the fishermen because they have a fish ticket paper trail, which makes it easy to track. In addition, he said the IRS is going back ten years on the taxes with a high rate of interest. SENATOR KELLY discussed with MR. WINEGAR the problems of non-filers not being able to qualify for a loan unless they have tax records, and MR. WINEGAR talked about those who had amended their returns. Number 267 SENATOR SHARP expressed some concerns about Sections 3, 4, and 5 of the committee substitute and wanted to see some current data on the enhancement revolving fund. He noted the bill would be going to the Finance Committee, and he wanted to see some additional data before he looked at the bill in the next committee. SENATOR KELLY said the bill would be returned to committee next meeting. DONNA PARKER, from the Division of Economic Development in the Department of Commerce and Economic Development, asked to testify. MS. PARKER identified herself as a fisheries development specialist for the Department of Commerce and asked to remark on the portion of the bill that addressed an option for loaning funds for vessel refrigeration or other upgrades that would enhance the quality of the fish. She explained the salmon industry in the State of Alaska has been in serious trouble since 1988, mostly because of over supply in the world market place largely due to farmed fish, which has set the standard for quality. MS. PARKER described the economic loss to the State of Alaska because of the problems she outlined, and she supported the portion of the bill that would increase the quality of the fish. She said quality was an important component to successfully compete in the world market. She explained in Canada where most of the fishing fleet is refrigerated, they receive 20 to 40% higher wholesale prices than Alaska salmon. She further explained that 70% of the Alaskan fleet is unrefrigerated at this time, which has a negative effect on the quality of the fish, the price, and the revenues. SENATOR KELLY asked whether she was talking about freezer vessels or just refrigerators. Number 309 MS. PARKER described various kinds of cooling and freezing devices used by the fishing vessels. She said it was an option that was not currently available - but should be. SENATOR KELLY reiterated his promise to return SB 251 to committee at the next meeting.
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