Legislature(2013 - 2014)HOUSE FINANCE 519

03/21/2014 08:30 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 121 COMMERCIAL FISHING & AGRICULTURE BANK TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 306 EVAL. INDIRECT EXPENDITURES; TAX CREDITS TELECONFERENCED
Heard & Held
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 21, 2014                                                                                            
                         8:36 a.m.                                                                                              
                                                                                                                                
8:36:03 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Stoltze called the House Finance Committee meeting                                                                     
to order at 8:36 a.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Daniel  George, Staff,  Representative Bill  Stoltze; Brodie                                                                    
Anderson,    Staff,     Representative    Steve    Thompson;                                                                    
Representative  Eric   Feige,  Sponsor;   Michael  Paschall,                                                                    
Staff, Representative Eric Feige;  Doug Glenn, Board Member,                                                                    
Commercial  Fishing  and  Agriculture Bank;  Lela  Klingert,                                                                    
President, Commercial Fishing and Agriculture Bank.                                                                             
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Mr. Fonder, Director, Tax Division, Department of Revenue.                                                                      
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 121    COMMERCIAL FISHING & AGRICULTURE BANK                                                                                 
                                                                                                                                
          HB 121 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HB 306    EVAL. INDIRECT EXPENDITURES; TAX CREDITS                                                                              
                                                                                                                                
          HB 306 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HOUSE BILL NO. 306                                                                                                            
                                                                                                                                
     "An Act  relating to tax credits  and administration of                                                                    
     tax  credit  programs;   requiring  the  Department  of                                                                    
     Revenue  to report  indirect expenditures;  relating to                                                                    
     the   duties   of   state   agencies;   requiring   the                                                                    
     legislative   finance  division   to  analyze   certain                                                                    
     indirect  expenditures;  relating  to lapse  dates  for                                                                    
     appropriations for capital  projects; repealing certain                                                                    
     statutes   authorizing   indirect   expenditures;   and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
8:37:47 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman MOVED  to  ADOPT  the proposed  committee                                                                    
substitute  for  HB  306, Work  Draft  28-LS1396\H  (Nauman,                                                                    
3/20/14).                                                                                                                       
                                                                                                                                
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
                                                                                                                                
DANIEL   GEORGE,   STAFF,   REPRESENTATIVE   BILL   STOLTZE,                                                                    
explained  the  changes  in  the  CS.  He  stated  that  the                                                                    
technical changes in the bill  related to a staggered repeal                                                                    
of some of the tax credits.                                                                                                     
                                                                                                                                
Co-Chair  Stoltze  asked  that  the word  "sunset"  be  used                                                                    
rather than the word "repeal."                                                                                                  
                                                                                                                                
Mr. George looked  at page 1, and  noted that Representative                                                                    
Reinbold was  added as a sponsor.  He looked at page  5, and                                                                    
remarked that the previous Section  6 was removed, which was                                                                    
a  lapsing of  appropriations or  allocations for  grants to                                                                    
unincorporated  communities,  if  substantial work  was  not                                                                    
started within  five years.  He looked at  page 6,  lines 15                                                                    
through 30, which were new Sections  8, 9, and 10. He looked                                                                    
at page 7, and the new  Section 7. He stated that Section 14                                                                    
was newly  inserted. He  remarked that  on lines  29 through                                                                    
31, new contingency  language was added. He  looked and page                                                                    
8, and noted the new Sections 19, 20, 21, and 22.                                                                               
                                                                                                                                
Representative Holmes  asked for  detail on how  the changes                                                                    
in the CS impacted the bill.                                                                                                    
                                                                                                                                
BRODIE  ANDERSON,  STAFF,   REPRESENTATIVE  STEVE  THOMPSON,                                                                    
stated that Section 6 was  removed, and Sections 8,9,10, 11,                                                                    
and 12 related  to the staggered sunset  dates. He explained                                                                    
that  Sections 13,  14, 15,  and 16  were related  to sunset                                                                    
dates for the Wind brindle  Scholarship Tax Credit, the Film                                                                    
Tax Credit,  the Veteran Employment  Tax Credit,  the Salmon                                                                    
Utilization  Tax  Credit,  the  Education  Tax  Credit,  the                                                                    
Salmon Production  Development Tax  Credit, and the  CDQ Tax                                                                    
Credit.  The  transition  language remained  the  same.  The                                                                    
contingency language  was in Section  18. He  announced that                                                                    
Sections 19, 19, 20, 21, and  22 were the dates in which the                                                                    
previous  sections would  go into  effect  which were  2016,                                                                    
2018, and 2020.                                                                                                                 
                                                                                                                                
8:42:45 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stoltze WITHDREW  his  OBJECTION.  There being  NO                                                                    
OBJECTION, the proposed committee substitute was adopted.                                                                       
                                                                                                                                
Representative Thompson  spoke to the bill.  The tax credits                                                                    
had been  put in  many years  earlier with  good intentions,                                                                    
but  the legislature  needed  to  take a  hard  look at  the                                                                    
credits to  determine whether the original  intent was still                                                                    
effective.                                                                                                                      
                                                                                                                                
Representative  Wilson understood  that  the  part that  had                                                                    
been removed  related to unorganized  areas and  grants. She                                                                    
queried  the reason  behind that  removal. Co-Chair  Stoltze                                                                    
replied  that  the  section drew  attention  away  from  the                                                                    
larger focus of the tax credit issues.                                                                                          
                                                                                                                                
Representative Wilson  wanted to  make sure the  bill didn't                                                                    
do something she did not know.                                                                                                  
                                                                                                                                
Representative  Thompson   relayed  that  the   process  was                                                                    
currently  well  established  in the  department.  He  asked                                                                    
about  the CDQ  tax credit.  Mr. Anderson  replied that  the                                                                    
credit would be extended.                                                                                                       
                                                                                                                                
Representative Munoz  spoke to  the two  year cycles  in the                                                                    
bill. She  wondered if  it was  a one-time  occurrence, once                                                                    
the cycles  were achieved. Mr.  Anderson replied  that there                                                                    
was  the actual  true sunset  date, the  extension, and  the                                                                    
review cycle set up through  Department of Revenue (DOR) and                                                                    
the  Legislative Finance  Division (LFD).  The review  cycle                                                                    
schedule would be  every two years and the  sunsets would be                                                                    
the specific dates  for the tax credits in  Title 43. Future                                                                    
legislatures would  have to offer legislation  to extend the                                                                    
credits. He stated that the  tax credits that were specified                                                                    
in  the legislation  were easily  definable  with plenty  of                                                                    
information.                                                                                                                    
                                                                                                                                
Representative Munoz asked  if the items came  up for review                                                                    
under the  two year  cycle after  their initial  review. Mr.                                                                    
Anderson replied that  those items would be  reviewed by DOR                                                                    
and LFD.                                                                                                                        
                                                                                                                                
8:48:02 AM                                                                                                                    
                                                                                                                                
Representative  Munoz   queried  the  repeal  date   of  the                                                                    
education tax  credit. Mr. Anderson replied  that the credit                                                                    
would be reviewed in 2018.                                                                                                      
                                                                                                                                
Vice-Chair  Neuman pointed  to  Section 6  and  asked if  it                                                                    
dealt with reappropriations. Mr.  Anderson answered that the                                                                    
section  was  related to  the  unexpended  balances for  the                                                                    
department.  It  referred   to  the  Capital  Appropriations                                                                    
Status  Report,  which  allowed   for  the  ability  of  the                                                                    
legislature to reappropriate funds.                                                                                             
                                                                                                                                
Co-Chair  Stoltze   noted  that  the  section   allowed  the                                                                    
legislature  to   reappropriate  funds  or  to   extend  the                                                                    
credits. Mr. Anderson agreed.                                                                                                   
                                                                                                                                
Vice-Chair  Neuman  surmised  that   Section  6  related  to                                                                    
capital  appropriations  to  the departments.  Mr.  Anderson                                                                    
agreed.                                                                                                                         
                                                                                                                                
Vice-Chair Neuman  asked if the bill  contained a definition                                                                    
for   "substantial."  Mr.   Anderson   responded  that   the                                                                    
municipalities   had  criteria   for  what   was  considered                                                                    
substantial.                                                                                                                    
                                                                                                                                
Vice-Chair Neuman suspected it was  the case. He stated that                                                                    
he would work with the sponsor on the item.                                                                                     
                                                                                                                                
Representative  Gara asked  about  the film  tax credits  in                                                                    
Section 13.  He wondered when  the credit would  repeal. Mr.                                                                    
Anderson replied that the sunset was in 2016.                                                                                   
                                                                                                                                
Representative  Costello  discussed   the  bill's  6  fiscal                                                                    
notes.                                                                                                                          
                                                                                                                                
Co-Chair  Stoltze remarked  that the  fiscal notes  would be                                                                    
updated to reflect the CS.                                                                                                      
                                                                                                                                
Co-Chair  Austerman  believed  the bill  was  excellent.  He                                                                    
spoke  to   his  initial  reservations,  but   once  it  was                                                                    
understood and the  bill was broken into a  timely basis, he                                                                    
was confident in the legislation.                                                                                               
                                                                                                                                
Representative Thompson  MOVED to  REPORT CSHB  306(FIN) out                                                                    
of  committee   with  individual  recommendations   and  the                                                                    
accompanying fiscal notes.                                                                                                      
                                                                                                                                
Representative Gara OBJECTED for discussion.                                                                                    
                                                                                                                                
Representative Munoz  asked a question about  the DOR fiscal                                                                    
note.                                                                                                                           
                                                                                                                                
8:56:08 AM                                                                                                                    
                                                                                                                                
Mr. George relayed that the  office had been in contact with                                                                    
the governor's office requesting updated fiscal notes.                                                                          
                                                                                                                                
Representative Holmes  supported the  bill. She  was curious                                                                    
about 10 positions in the fiscal notes.                                                                                         
                                                                                                                                
MR. FONDER,  DIRECTOR, TAX  DIVISION, DEPARTMENT  OF REVENUE                                                                    
(Via  Teleconference),   anticipated  that  the   number  of                                                                    
positions  would   decrease  substantially  in  FY   15.  He                                                                    
stressed expenditures would not be occurring in FY 15.                                                                          
                                                                                                                                
Representative Munoz wondered if  there would be an increase                                                                    
in the number of positions  beyond the years outlined in the                                                                    
fiscal notes. Mr.  Fonder replied that it  would probably be                                                                    
similar  to the  out years  in the  fiscal note  that was  a                                                                    
total of 3 positions.                                                                                                           
                                                                                                                                
Co-Chair Stoltze stressed that  the department would not get                                                                    
more money than it needed.                                                                                                      
                                                                                                                                
9:00:13 AM                                                                                                                    
                                                                                                                                
Representative  Gara was  working to  determine the  current                                                                    
sunset   date  for   the  film   credit   program.  He   was                                                                    
uncomfortable speeding  up the sunset  date of the  film tax                                                                    
credit.                                                                                                                         
                                                                                                                                
Co-Chair Austerman  spoke to his  backing of  the commercial                                                                    
fishing industry and  the need to treat it  equally to other                                                                    
industries  in  the  state. He  only  supported  items  that                                                                    
worked. He  believed that  credits would  justify themselves                                                                    
when they came up for review  in the future. He believed the                                                                    
credits  should all  be treated  equally. He  stated it  was                                                                    
necessary to review  the credits. He did not  believe it was                                                                    
right to pick out specific credits.                                                                                             
                                                                                                                                
Representative  Costello  was  uncomfortable  reporting  the                                                                    
bill out of committee without the updated fiscal notes.                                                                         
                                                                                                                                
Co-Chair Stoltze would hold the bill.                                                                                           
                                                                                                                                
HB  306  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
9:04:33 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:08:45 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Stoltze discussed that HB  306 would be heard later                                                                    
with the updated fiscal notes.                                                                                                  
                                                                                                                                
HOUSE BILL NO. 121                                                                                                            
                                                                                                                                
     "An  Act relating  to the  examinations, board,  loans,                                                                    
     records,   and  lobbying   contracts   of  the   Alaska                                                                    
     Commercial Fishing and  Agriculture Bank; and providing                                                                    
     for an effective date."                                                                                                    
                                                                                                                                
9:09:41 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   ERIC  FEIGE,   SPONSOR,  read   a  prepared                                                                    
statement pertaining to the bill's purpose:                                                                                     
                                                                                                                                
     The Commercial Fishing and Agriculture Bank is a great                                                                     
     example of the government starting a project and then                                                                      
     stepping back  and allowing the  project to  succeed in                                                                    
     the private sector.                                                                                                        
                                                                                                                                
     Created  33  years ago,  the  bank  was created  by  an                                                                    
     initial investment  of $32 million  from the  state. As                                                                    
     required by the creating  statutes, the bank has repaid                                                                    
     the  state's investment  and is  now  a private  entity                                                                    
     owned by its members.                                                                                                      
                                                                                                                                
     Because the  bank was created under  specific statutes,                                                                    
     it is not regulated the  same as other banks and credit                                                                    
     unions operating  in the  state. The  specific statutes                                                                    
     that created  CFAB assure it  continues to  fulfill its                                                                    
     original  purpose of  assisting the  commercial fishing                                                                    
     and agricultural industry.                                                                                                 
                                                                                                                                
     The bank's  board of directors  desires to  improve the                                                                    
     operating  ability of  the bank  by requesting  several                                                                    
     changes in its operating statutes.                                                                                         
                                                                                                                                
     HB 121 expands the types of  loans the bank can give to                                                                    
     commercial  tourism  and natural  resources  industries                                                                    
     and removes the maximum  loan amounts provided to these                                                                    
     borrowers.  HB   121  also  expands  the   category  of                                                                    
     borrowers  to  include  non-resident  owned  businesses                                                                    
     that are physically located  within Alaska, expands the                                                                    
     eligibility  of  the  bank's small  loan  program,  and                                                                    
     gives   the  board   the  ability   to   set  its   own                                                                    
     compensation level.                                                                                                        
                                                                                                                                
     Finally, to  provide CFAB with additional  resources to                                                                    
     capitalize  its   ability  to  provide  loans   to  its                                                                    
     members,  the  CFAB  board  is  requesting  the  Alaska                                                                    
     Banking  Commission   to  begin  auditing   the  bank's                                                                    
     operations, as is  done with other banks  in the state.                                                                    
     The cost of the audits are  borne by the bank and not a                                                                    
     cost to the state.                                                                                                         
                                                                                                                                
     Michael  Paschall  of  my  staff  will  now  provide  a                                                                    
     sectional  analysis of  the bill  followed  by a  short                                                                    
     presentation by  bank president Lea Klingert  and board                                                                    
     member Doug Glenn.                                                                                                         
                                                                                                                                
MICHAEL PASCHALL, STAFF, REPRESENTATIVE ERIC FEIGE, read                                                                        
the sectional analysis:                                                                                                         
                                                                                                                                
     Section 1:  This section adjusts  the lending  power of                                                                    
     the  bank  by  eliminating   the  borrowing  limits  on                                                                    
     certain types  of loans. It also  removes the residency                                                                    
     requirement for  certain types of capital  loans if the                                                                    
     facility  is  located  within  the  state  as  well  as                                                                    
     expands  the  types  of  loans that  may  be  given  to                                                                    
     nonmembers. It  also makes loans available  for certain                                                                    
     tourism operations and for  operations dedicated to the                                                                    
     development or exploitation of natural resources.                                                                          
                                                                                                                                
     Section  2:  It  adds  commercial  agriculture  to  the                                                                    
     current  provision  allowing  loans to  nonmembers  for                                                                    
     commercial fisheries in certain areas.                                                                                     
                                                                                                                                
     Section 3:  Changes the dollar  limitation on  loans to                                                                    
     nonmembers from $25,000 to $50,000.                                                                                        
                                                                                                                                
     Section  4: Increases  the debt  to capital  ratio from                                                                    
     eight percent to 25 percent.                                                                                               
                                                                                                                                
     Section  5:  Confirming  language  containing  to  bank                                                                    
     examinations added  in section  seven. Also  corrects a                                                                    
     typographical error in statue.                                                                                             
                                                                                                                                
Co-Chair Stoltze wondered if Section 5 related to credit-                                                                       
worthiness. Mr. Paschall replied in the affirmative. . He                                                                       
continued reading the sectional.                                                                                                
                                                                                                                                
     Section 6: Allows the bank  to make available a list of                                                                    
     those eligible  to serve as  director to  those members                                                                    
     eligible to vote.                                                                                                          
                                                                                                                                
     Section 7:  Provides that  the Department  of Commerce,                                                                    
     Community,  and Economic  Development  shall audit  the                                                                    
     bank at least once every thirty-six months.                                                                                
                                                                                                                                
     Section  8: Repeals  AS  44.81.020(f) setting  director                                                                    
     compensation   and   AS   44.99.030(a)(2)   prohibiting                                                                    
     lobbying by the bank.                                                                                                      
                                                                                                                                
Co-Chair Stoltze asked about the  repealer in Section 8. Mr.                                                                    
Paschall  replied  that  the  first  repealer  repealed  the                                                                    
director's  compensation,  which  was set  in  statute,  and                                                                    
allowed  the  board  to set  the  compensation.  The  second                                                                    
statute currently prohibited lobbying by the bank.                                                                              
                                                                                                                                
Co-Chair Stoltze assumed  that it was a repealed  a limit in                                                                    
compensation.  Mr. Paschall  replied  that  it repealed  the                                                                    
statute that set the compensation.  He continued reading the                                                                    
sections:                                                                                                                       
                                                                                                                                
     Section  9: Delays  the  audit  established in  section                                                                    
     seven until  one year after  the effective date  of the                                                                    
     Act.                                                                                                                       
                                                                                                                                
     Section 10: Makes the Act effective immediate.                                                                             
                                                                                                                                
9:15:15 AM                                                                                                                    
                                                                                                                                
DOUG   GLENN,   BOARD   MEMBER,   COMMERCIAL   FISHING   AND                                                                    
AGRICULTURE BANK, spoke to his  background. He discussed his                                                                    
business.  He explained  that  CFAB had  enabled  him to  go                                                                    
forward on  his business. He  had been a member  since 2012.                                                                    
He read a statement about CFAB:                                                                                                 
                                                                                                                                
     CFAB  was a  result  of legislation  introduced in  the                                                                    
     late 1970s  for the  purpose of providing  financing to                                                                    
     the  commercial  fishing  and agriculture  industry  of                                                                    
     Alaska.  It operates  and  is the  sole  subject of  AS                                                                    
     44.81. Many  basic policies, strategic,  or operational                                                                    
     changes  that  most  business  would  enact  by  simply                                                                    
     revising their  business plan. It required  the support                                                                    
     of the  Alaska State  Legislature and  new legislation.                                                                    
     CFAB  was committed  and structured  to serve  resident                                                                    
     individuals and  smaller companies in a  highly focused                                                                    
     and  specialized manner.  Many of  the individuals  and                                                                    
     business  whom CFAB  serves  would  not otherwise  have                                                                    
     access  to  loan  funds  for  reasonable,  constructive                                                                    
     terms.                                                                                                                     
                                                                                                                                
9:19:06 AM                                                                                                                    
                                                                                                                                
Representative  Thompson asked  about  the  CFAB bylaws.  He                                                                    
asked if  Mr. Glenn  was eligible  for a  loan while  on the                                                                    
board. Mr. Glenn replied in the affirmative.                                                                                    
                                                                                                                                
LELA   KLINGERT,    PRESIDENT,   COMMERCIAL    FISHING   AND                                                                    
AGRICULTURE BANK, stated  that the CFAB board  had no active                                                                    
purpose  in   the  lending  portion.   The  board   did  not                                                                    
participate in credit decisions.                                                                                                
                                                                                                                                
Representative Thompson  believed it  seemed strange  that a                                                                    
board member would be borrowing from the bank.                                                                                  
                                                                                                                                
Co-Chair  Stoltze   commented  on  Mr.   Glenn's  upstanding                                                                    
character.                                                                                                                      
                                                                                                                                
Representative Guttenberg wondered who  made the decision to                                                                    
allow borrowing.  Ms. Klingert  replied that  it was  a loan                                                                    
committee,  which  was  comprised  of  management  and  loan                                                                    
officers.                                                                                                                       
                                                                                                                                
Representative  Guttenberg   queried  the   decision  making                                                                    
authority  of the  board that  was different  than the  loan                                                                    
committee.  Ms.  Klingert  replied   that  there  were  many                                                                    
structures in  the credit industry. She  stated she provided                                                                    
the financial condition to the  board, but was sanitized and                                                                    
not  specific  to  the individuals.  The  board  drafts  the                                                                    
credit policy,  and the loan  committee operates  under that                                                                    
policy.                                                                                                                         
                                                                                                                                
Co-Chair Austerman asked for detail  on the CFAB membership.                                                                    
Ms. Klingert responded  that in order to become  a member or                                                                    
a borrower, one must be a  member of CFAB. She stated that a                                                                    
member  was  required to  purchase  stock  in the  co-op  to                                                                    
become a member, a borrower, and a stock holder.                                                                                
                                                                                                                                
Representative Wilson  asked for  a description of  the CFAB                                                                    
mission.  Ms.  Klingert  shared  that  in  2000  the  bank's                                                                    
statute  had  been  revised  to allow  CFAB  to  enter  into                                                                    
tourism and  resource based industry. Primarily,  95 percent                                                                    
of  CFAB's  loan  portfolio   was  comprised  of  commercial                                                                    
fishing  loans. The  remaining 5  percent was  split between                                                                    
agriculture and tourism.                                                                                                        
                                                                                                                                
Representative   Wilson   asked   again  about   a   mission                                                                    
statement. Ms.  Klingert replied that its  mission statement                                                                    
was to be the premier lender to the fishing industry.                                                                           
                                                                                                                                
Representative  Wilson noted  that  the legislation  allowed                                                                    
for  non-resident borrowers.  She  wondered if  there was  a                                                                    
requirement  to  stay  within a  certain  percentage  for  a                                                                    
specific industry.                                                                                                              
                                                                                                                                
9:25:50 AM                                                                                                                    
                                                                                                                                
Ms. Klingert  replied that there  was nothing  as formalized                                                                    
as  outlining specific  percentages. The  economy and  basic                                                                    
structure of  the bank limited  the percentages.  She shared                                                                    
that the  reason to  expand into  tourism and  resources was                                                                    
for diversification,  primarily due to the  consolidation of                                                                    
the commercial fishing industry.                                                                                                
                                                                                                                                
Representative  Wilson wondered  why the  bank could  not be                                                                    
its own  entity and  no longer connected  to the  state. She                                                                    
wondered  why the  bank could  not go  out on  its own.  Mr.                                                                    
Klingert answered  that there were parameters  that excluded                                                                    
CFAB from the coop code,  the banking code, and other codes.                                                                    
She  stressed  that  CFAB  would   not  survive  if  it  was                                                                    
privatized.                                                                                                                     
                                                                                                                                
Representative Munoz  wondered how the banks  rates compared                                                                    
to commercial  rates. Ms. Klingert  replied that  the bank's                                                                    
rates were comparable to other banks.                                                                                           
                                                                                                                                
Representative Munoz asked  about CFAB's accountability. Ms.                                                                    
Klingert replied that the bank  reported to the legislature.                                                                    
The statute  dictated how  the bank  was structured  and the                                                                    
parameters under which it operated.                                                                                             
                                                                                                                                
Co-Chair Austerman  communicated that CFAB had  been created                                                                    
by the  legislature. Over the  years the bank had  been able                                                                    
to  repay  the  state.  The  bank  was  successful.  It  was                                                                    
included in statute because the  legislature had created it.                                                                    
The bank did  not ask for money and paid  back everything it                                                                    
had been given.                                                                                                                 
                                                                                                                                
9:30:59 AM                                                                                                                    
                                                                                                                                
Representative  Guttenberg stated  that  the bank's  success                                                                    
was also  the legislature's  success. He wondered  about the                                                                    
financial  health of  the bank.  Ms. Klingert  answered that                                                                    
the  bank was  healthy and  strong;  it had  $35 million  in                                                                    
loans. She stated  that CFAB had not recorded  any losses to                                                                    
date in  the last 20 years.  She had lived and  breathed the                                                                    
program for 26 years.                                                                                                           
                                                                                                                                
Representative Gara wondered if the  bank had concern with a                                                                    
limited pool  of funds  that it may  impact. He  wondered if                                                                    
the bill would  divert money away from the  other items. Ms.                                                                    
Klingert  replied  that  the  bank  leveraged  by  borrowing                                                                    
additional money. She believed the  bank could get up to $84                                                                    
million in  loans. She  did not feel  that the  current loan                                                                    
structure would  be substantial enough to  create the issue.                                                                    
The bank  had loaned to  tourism and mining since  2000. She                                                                    
stated that the non-resident  section of the legislation was                                                                    
to allow  CFAB to lend to  people within the state  that may                                                                    
not meet the bank's strict residency requirements.                                                                              
                                                                                                                                
9:35:11 AM                                                                                                                    
                                                                                                                                
Representative Gara  stated that the program  mostly applied                                                                    
to Alaskans.  He wondered about  the policy of  lending non-                                                                    
capped amounts  to non-residents. Ms. Klingert  replied that                                                                    
there  were individuals  in the  tourism industry  that were                                                                    
borrowing  from CFAB,  but had  not  received much  interest                                                                    
from the mining  industry. Many of the  tourism companies in                                                                    
the state were not majority owned by Alaskans.                                                                                  
                                                                                                                                
Co-Chair  Stoltze noted  that  he had  been  contacted by  a                                                                    
number  of individuals  about the  legislation who  were all                                                                    
commercial fishermen.                                                                                                           
                                                                                                                                
Vice-Chair Neuman  pointed to Section  2, which  stated that                                                                    
the bank  may make  small loans  to qualified  borrowers who                                                                    
were not members of the bank.  He wondered if it reflected a                                                                    
policy  change.  Ms.  Klingert   replied  that  the  section                                                                    
related to serving rural areas  of the state, where becoming                                                                    
a member was cost-prohibitive.                                                                                                  
                                                                                                                                
Vice-Chair Neuman  asked for verification that  a person did                                                                    
not have  to be a member.  Ms. Klingert replied that  it was                                                                    
not necessary within that particular section.                                                                                   
                                                                                                                                
Vice-Chair Neuman  looked at Section  4, and noted  that the                                                                    
total amount of  money that may be loaned  under the section                                                                    
may not  exceed 25  percent of the  total capital.  He noted                                                                    
that  there was  a  greater than  300  percent increase.  He                                                                    
queried  the current  total  capital.  Ms. Klingert  replied                                                                    
that the  total capital the  bank could lend was  just under                                                                    
$20  million. Through  the legislation,  CFAB increased  the                                                                    
dollar  amount that  could be  lent to  an individual  under                                                                    
that section.                                                                                                                   
                                                                                                                                
Vice-Chair Neuman  wondered if  the policy was  standard for                                                                    
other banks. He thought it  sounded high. Ms. Klingert could                                                                    
not speak to other banks.                                                                                                       
                                                                                                                                
Co-Chair Stoltze asked if she  did not have knowledge of the                                                                    
banking industry or simply preferred  not to speak about the                                                                    
other banks.                                                                                                                    
                                                                                                                                
9:40:09 AM                                                                                                                    
                                                                                                                                
Ms. Klingert did not want to speak for other banks.                                                                             
                                                                                                                                
Co-Chair  Stoltze   asked  about  industry   standards.  Ms.                                                                    
Klingert  understood that  commercial  banks  had limits  on                                                                    
what  they would  lend to  a specific  industry in  order to                                                                    
limit risk.                                                                                                                     
                                                                                                                                
Vice-Chair Neuman  did not know  why commercial  banks would                                                                    
care about the  issue as long as they got  their money back.                                                                    
He  did not  believe the  commercial banks  would allow  the                                                                    
proposed  amount  outlined   in  legislation.  Ms.  Klingert                                                                    
answered that banks  were required to have  a certain amount                                                                    
of capital  that they leveraged  for loans. She  stated CFAB                                                                    
was lending  its own money; therefore  its requirements were                                                                    
much  different. She  believed  commercial  banks split  the                                                                    
risk between industries. The bank  currently had $20 million                                                                    
in capital and $35 million out in loans.                                                                                        
                                                                                                                                
Vice-Chair  Neuman  pointed to  the  bill  title related  to                                                                    
engaging  lobbyist  services.   Ms.  Klingert  replied  that                                                                    
currently the bank was prohibited from hiring a lobbyist.                                                                       
                                                                                                                                
Co-Chair  Stoltze surmised  that  it  had probably  occurred                                                                    
when the Alaska Railroad. Ms. Klingert agreed.                                                                                  
                                                                                                                                
Vice-Chair  Neuman  stressed  that  CFAB  still  established                                                                    
under statute  that the  state entity  did not  compete with                                                                    
commercial  banks. He  wondered if  the legislation  allowed                                                                    
CFAB  to   hire  lobbyist.  Ms.  Klingert   replied  in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Vice-Chair Neuman  asked if the bill  contained the lobbyist                                                                    
information  in another  location. Co-Chair  Stoltze replied                                                                    
that there was a repealer contained in the legislation.                                                                         
                                                                                                                                
Representative Edgmon  looked at Section 7,  and queried the                                                                    
difference between an audit and examination.                                                                                    
                                                                                                                                
9:46:34 AM                                                                                                                    
                                                                                                                                
Ms. Klingert  replied that  there was  a timeframe  that was                                                                    
established  based   on  the   staffing  of   Department  of                                                                    
Commerce, Community and Economic Development (DCCED).                                                                           
                                                                                                                                
Co-Chair Stoltze  wondered if  the amount  of time  had been                                                                    
suggested. Ms. Klingert replied in the affirmative.                                                                             
                                                                                                                                
Representative Edgmon asked  if the audit was a  term of art                                                                    
in the  sponsor statement.  Ms. Klingert replied  that there                                                                    
was a difference  in an audit and an  examination. The audit                                                                    
did go  through to  look at the  financial side.  She stated                                                                    
that CFAB was audited every year by statute.                                                                                    
                                                                                                                                
Representative  Edgmon surmised  that the  banking examiners                                                                    
would ensure that  the expanded CFAB was  complying with the                                                                    
statutes.  He  understood that  it  would  be a  high  level                                                                    
overview, because  the fiscal note  had $5,700  intended for                                                                    
examination. Ms. Klingert agreed.                                                                                               
                                                                                                                                
Representative  Costello asked  about Section  8 related  to                                                                    
the repeal  of lobbying prohibition. She  wondered about the                                                                    
change to allow for lobbyist.                                                                                                   
                                                                                                                                
9:50:02 AM                                                                                                                    
                                                                                                                                
Ms. Klingert answered  that over the past  several years not                                                                    
having a  person in  Juneau to represent  the bank  had been                                                                    
challenging.   The   bank   currently   staffed   under   10                                                                    
individuals,  and  believed having  a  person  in Juneau  to                                                                    
represent its  interests would be beneficial.  There were no                                                                    
immediate plans to retain a lobbyist.                                                                                           
                                                                                                                                
Representative Costello  wondered if  DCEED had  the ability                                                                    
to   comment  on   legislation.  Ms.   Klingert  asked   for                                                                    
clarification on the question.                                                                                                  
                                                                                                                                
Representative  Costello stated  that  the  fiscal note  was                                                                    
from the  Division of Banking  and Securities.  She wondered                                                                    
if  the relationship  between  CFAB and  the  state did  not                                                                    
provide  enough  communication  through  another  branch  of                                                                    
government. Ms. Klingert  replied DCEED may not  be the best                                                                    
choice to  represent CFAB.  She stressed  that there  was an                                                                    
open communication with DCCED, but  did not feel that it was                                                                    
the mission of DCEED to look out for CFAB.                                                                                      
                                                                                                                                
Co-Chair Stoltze felt  that CFAB had a bad  product to sell.                                                                    
He thought  the organization  had been  trying to  package a                                                                    
poor product in the past.                                                                                                       
                                                                                                                                
Representative Holmes  remarked that the increase  from 8 to                                                                    
25 percent related  to how much the bank could  lend under a                                                                    
specific  type   of  loan.  Ms.  Klingert   replied  in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Representative  Holmes was  struggling with  whether or  not                                                                    
CFAB was  a private  or public entity.  She wondered  if the                                                                    
expansion in the  types of loans was seen  as competing with                                                                    
other  local  banks  and  how the  expansion  fit  into  the                                                                    
existing market.                                                                                                                
                                                                                                                                
9:55:10 AM                                                                                                                    
                                                                                                                                
Ms.  Klingert replied  that the  agency also  struggled with                                                                    
the  issue. She  the bank  may compete  with banks,  but not                                                                    
really  a big  competitor  in commercial  banks' world.  The                                                                    
bank took  much time on  its borrowers, which  was something                                                                    
that  would not  be cost  effective for  a larger  bank. She                                                                    
felt that  the fact that  the bank existed  provided lending                                                                    
opportunities to borrowers who would  not receive them if it                                                                    
was not there.                                                                                                                  
                                                                                                                                
Representative  Holmes  wondered  if   there  had  been  any                                                                    
discussion from  private banks or  credit unions  related to                                                                    
the bill.                                                                                                                       
                                                                                                                                
Mr. Paschall relayed that the  banking industry did not have                                                                    
a position on  the bill. He stated that CFAB  was very small                                                                    
compared to  business on commercial banks.  He stressed that                                                                    
there long  list of criteria  for its loans. He  stated that                                                                    
there was  some criteria established  by the court,  but did                                                                    
not  see  that any  of  the  changes  made the  changes.  He                                                                    
responded  to the  lobbying question.  He stressed  that the                                                                    
entity was  located in  Anchorage and from  time to  time it                                                                    
needed  to  respond  to issues.  It  was  currently  totally                                                                    
prohibited from hiring any type  of lobbyist; therefore, the                                                                    
entity  had to  send  a  board member  to  Juneau to  answer                                                                    
questions. He pointed  to a statute that  required an annual                                                                    
report and  audit. The entity  was asking to be  examined by                                                                    
the banking commission.                                                                                                         
                                                                                                                                
Representative Gara  believed the  bank was a  state entity.                                                                    
He noted that  7 of the 9 board members  were elected by the                                                                    
members  of  CFAB. He  wondered  if  the inclusion  of  non-                                                                    
resident members would receive  favorable treatment over the                                                                    
residential projects.  Ms. Klingert asked  for clarification                                                                    
on the question.                                                                                                                
                                                                                                                                
Representative  Gara asked  if the  board members  may favor                                                                    
outside-owned businesses. Ms. Klingert  replied that she did                                                                    
not feel that there would  be enough non-resident loans made                                                                    
to create that issue.                                                                                                           
                                                                                                                                
Representative  Gara  noted  that  the  board  was  7  to  9                                                                    
members, which was up to the bank.                                                                                              
                                                                                                                                
Co-Chair Stoltze spoke to another  repealer related to board                                                                    
compensation. He  suspected that  there could  be unintended                                                                    
consequences,  but  felt that  the  issue  of favoring  non-                                                                    
residents was an issue.                                                                                                         
                                                                                                                                
10:04:22 AM                                                                                                                   
                                                                                                                                
Representative Costello wondered why  CFAB did not just hire                                                                    
legislative  liaison. She  wondered if  the option  had been                                                                    
considered or  pursued. Ms. Klingert  was not  familiar with                                                                    
the issue.                                                                                                                      
                                                                                                                                
Co-Chair  Stoltze  asked  for  further  information  on  the                                                                    
issue. Mr. Paschall responded that  the issue was related to                                                                    
whether or not CFAB was a state entity.                                                                                         
                                                                                                                                
Vice-Chair   Neuman  liked   the   purpose   of  the   bill,                                                                    
particularly the  expansion into agriculture  industries. He                                                                    
wondered   loan  structures   compared   to  other   banking                                                                    
institutions.  He noted  large  increases in  the amount  of                                                                    
money  available.  He  discussed  concerns  that  because  7                                                                    
members  of  the board  were  elected  by  the board  and  2                                                                    
appointed by  the governor, so  there was an  opportunity to                                                                    
disallow Alaskans to the limited  amount of money there were                                                                    
an  opportunity  that the  money  could  all go  to  outside                                                                    
organizations instead  of Alaskan  companies.   Mr. Paschall                                                                    
believed a  change would  be possible to  make to  solve the                                                                    
issue.                                                                                                                          
                                                                                                                                
Representative  Wilson followed  up  on Vice-Chair  Neuman's                                                                    
question. She  wanted to  verify that the  board had  no say                                                                    
over  who got  the loans  even if  they competed  with other                                                                    
businesses in  Alaska. She wanted  to ensure that  the state                                                                    
would not be competing with itself.                                                                                             
                                                                                                                                
10:10:08 AM                                                                                                                   
                                                                                                                                
Ms. Klingert replied  that the board set  the credit policy,                                                                    
but did not dictate who money  would go. She stated that the                                                                    
concerns could  be addressed  by the  examiners in  order to                                                                    
ensure that  it operates within  the statute. She  felt that                                                                    
the examination  process would provide the  legislature with                                                                    
a better understanding of the organization of CFAB.                                                                             
                                                                                                                                
Representative Wilson replied that  there could be two boats                                                                    
fishing for  the same thing,  but one business  office could                                                                    
be in Alaska  and the other could be in  another state. Both                                                                    
would fit under the  provision, but allowed the non-resident                                                                    
entity to become eligible for  the credit. She felt that the                                                                    
legislation may put the Alaska business at a disadvantage.                                                                      
                                                                                                                                
Co-Chair Stoltze spoke in favor of the board.                                                                                   
                                                                                                                                
Representative Wilson  stressed that  she was  attempting to                                                                    
make a point.                                                                                                                   
                                                                                                                                
Co-Chair Austerman The entity  helped balance to ensure that                                                                    
everyone  was   covered.  He   did  not   want  to   have  a                                                                    
conversation about ways to make  CFAB a better organization.                                                                    
He did not want to lose sight of the issue.                                                                                     
                                                                                                                                
Co-Chair Stoltze CLOSED public testimony.                                                                                       
                                                                                                                                
Co-Chair Stoltze  pointed to general  support for  the bill.                                                                    
The  committee  would work  to  resolve  the several  issues                                                                    
pointed out by committee members.                                                                                               
                                                                                                                                
Representative Gara spoke about  outside tourism. He did not                                                                    
like  that commercial  fishing guides  were from  outside of                                                                    
Alaska  employed   by  fishing   lodges  owned   by  outside                                                                    
entities. He was concerned about the outside competition.                                                                       
                                                                                                                                
Co-Chair Stoltze  felt that the  members concerned  had been                                                                    
clearly  outlined,   and  hoped  to  address   many  of  the                                                                    
addressed issues.                                                                                                               
                                                                                                                                
Mr.  Paschall appreciated  the  committee's discussion.  The                                                                    
sponsor would work on the issues with finance staff.                                                                            
                                                                                                                                
HB  121  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
10:20:37 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 10:20 a.m.                                                                                         

Document Name Date/Time Subjects
HB 306 - Version H - 3.20.2014.pdf HFIN 3/21/2014 8:30:00 AM
HB 306
HB 121 2013 CFAB Annual Report.pdf HFIN 3/21/2014 8:30:00 AM
HB 121