Legislature(1995 - 1996)
02/27/1995 05:05 PM House FSH
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON FISHERIES
February 27, 1995
5:05 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Chairman
Representative Carl Moses, Vice-Chair
Representative Gary Davis
Representative Scott Ogan
Representative Kim Elton
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
Presentation: Alaska Commercial Fishing and Agriculture Bank
Presentation: Division of Investments, Department of Commerce
and Economic Development
HB 141: "An Act relating to the appointment of members of the
Board of Fisheries."
PASSED OUT OF COMMITTEE AS CSHB 141 (FSH)
WITNESS REGISTER
ED CRANE, President
Alaska Commercial Fishing and Agriculture Bank (CFAB)
2550 Denali Street, Suite 1201
Anchorage, AK 99509-2070
Phone: 276-2007
POSITION STATEMENT: Provided presentation for the Alaska
Commercial Fishing and Agriculture Bank
MARTIN RICHARD, Director
Division of Investments
Department of Commerce and Economic Development
P.O. Box 34159
Juneau, AK 99803
Phone: 465-2510
POSITION STATEMENT: Provided presentation Division of Investments,
Department of Commerce and Economic
Development
GERON BRUCE, Legislative Liaison
Department of Fish and Game
P.O. Box 25526
Juneau, AK 99811-5526
Phone: 465-4100
POSITION STATEMENT: Supported CSHB 141 (FSH)
JERRY MCCUNE, President
United Fishermen of Alaska
211 Fourth Street, Number 112
Juneau, AK 99801
Phone: 586-2820
POSITION STATEMENT: Supported CSHB 141 (FSH)
PREVIOUS ACTION
BILL: HB 141
SHORT TITLE: TERM OF FISH & GAME BOARD MEMBERS
SPONSOR(S): REPRESENTATIVE(S) AUSTERMAN, Grussendorf, Elton
JRN-DATE JRN-PG ACTION
02/01/95 199 (H) READ THE FIRST TIME - REFERRAL(S)
02/01/95 199 (H) FSH, RES
02/15/95 (H) FSH AT 03:30 PM CAPITOL 124
02/20/95 (H) FSH AT 05:00 PM CAPITOL 124
02/20/95 (H) MINUTE(FSH)
02/21/95 431 (H) COSPONSOR(S): ELTON
02/27/95 (H) FSH AT 05:00 PM CAPITOL 124
ACTION NARRATIVE
TAPE 95-12, SIDE A
Number 000
CHAIRMAN ALAN AUSTERMAN called the meeting to order at 5:05 p.m.
He noted for the record Representatives Elton and Moses were
present and that a quorum was present.
Number 015
ED CRANE, President, Alaska Commercial Fishing and Agriculture Bank
(CFAB), testified saying, "CFAB was established through legislation
which occurred back in the 1978 and 1979 legislative sessions,"
and, "The intent was to attempt to create in Alaska and for Alaska
fishermen and farmers, a private cooperative financing institution
which would be analogous to what was then called a production
credit associations (or) a cooperative farm loans in the lower 48."
Representative Gary Davis joined the committee at 5:07 p.m.
MR. CRANE resumed, "Of course any institution or any kind of
business, particularly a business which is going to be involved in
finance, making loans, must have a source of funds. More
particularly must have some base capital, initial capital. The
state of Alaska put $32 million into CFAB in the form of a stock
purchase. Ever since its inception, CFAB's largest single stock
holder has been the state of Alaska to the tune initially of $32
million. It was and is a requirement of the statute today that
that capital be retired, the stock be repurchased by the year 2000.
As of this moment, we have retired $21,500,000. There is still
$10,500,000 outstanding and we are retiring $250,000 a month."
MR. CRANE continued, "It is a private institution but again,
private by statute, the statute directs it to be private and we act
as a private institution. We're subject to state income taxes and
subject to federal income taxes and subject to all the things that
main street businesses are subject to. But yet, the state is the
largest stockholder. It's mandated by its statute to be a
cooperative but it's exempt from the state's cooperative act, and
there's a number of reasons for that. It's called a bank. That's
the name the legislature bestowed on it. But it's exempt from the
provisions of the Alaska State Banking Code."
Number 142
MR. CRANE added, "What CFAB has been able to accomplish? It hasn't
all been good. CFAB started business with an air of exuberance,
flamboyance, and also at a period of time in the early 1980s when
inflation was running at double digit rates. There was, not only
in CFAB, and not only in Alaska, and not only in the seafood
business, but I think almost universally in America, there was an
anticipation that you could borrow your way to success." He said,
"CFAB did in the first couple years put a lot of loans on the books
but then came time to try to collect some of those loans and along
1984, just a few years after it started, CFAB very nearly self-
destructed. And the next few years were kind of tough but for the
most part, CFAB has been able to recover from those early
misadventures and poor judgments. Today we're a fairly
conservative organization." He gave examples describing the
differences in CFAB and said, "It's really difficult to take a one
size fits all approach."
Representative Scott Ogan joined the committee at 5:14 p.m.
Number 324
CHAIRMAN AUSTERMAN voiced concern about a prevailing perception
that many loans are in delinquency.
MR. CRANE said, "The raw statistics can be extremely misleading and
confusing. On the one hand, I have the responsibility to tell you
exactly what our records show, at the same time I must provide some
explanation because we maintain the records the way we do for
internal informational purposes and also to accommodate the
accounting requirements for being a cooperative and not necessarily
for providing raw data for the purposes of comparisons with other
institutions," and indicated the seasonality of payments is unique
with CFAB since there are a lot of fishing industry loans. He
said, "For commercial fishermen, in general, they have one payday
a year and in general, one loan payment a year."
MR. CRANE continued, "Over time, CFAB's loan portfolio, over a span
of at least going back to 1985, has averaged between 20 and 25
percent of its dollars delinquent at any one point in time. I'm
not at all uncomfortable with that." He explained, "Assuming a
delinquent borrower is communicating and cooperative with CFAB, and
assuming that we can determine that he's not fallen prey to some
bad habit or something bad has happened to him, that he's still the
same fisherman we loaned money to, we'll work with him a long long
time because if we don't, if we go and foreclose on his vessel
mortgage or on his permit lien, we're simply going to sell that to
another fisherman that looks just like him. So we actually pride
ourselves in being willing and able in dealing with difficult
accounts over a long period of time."
Number 460
CHAIRMAN AUSTERMAN asked for specific a percentage of bad loans.
ED CRANE replied, "We have made something over $600 million dollars
in loan advances since CFAB was established and through the end of
our fiscal year, May 31, 1994, we've had net losses of $19,400,000.
$15 million of that was before 1985. So really, it's only been $4
million dollars over the last ten years."
Number 498
REPRESENTATIVE OGAN said, "You've had $4 million dollars in
foreclosures since 1984?"
MR. CRANE said, "That $4 million is the actual losses that we've
incurred."
CHAIRMAN AUSTERMAN pointed out that some of the defaults were due
to industries other than commercial fish.
MR. CRANE said, "Yes, CFAB historically has financed and is
authorized to finance, not only individual fishermen, harvesters,
but also processors, farmers and agricultural processors, including
timber processors. Actually, my estimate would be, of the $19
million in losses that CFAB has incurred in its history, probably
$13 million or more of that has been in loans to processors, or
people who wanted to be processors, or timber operators or
something other than individual harvesters. Even now, a good 40
percent of our total dollars which are delinquent are for loans of
that kind."
REPRESENTATIVE OGAN asked about a collateral formula for obtaining
a loan.
MR. CRANE indicated there is not one formula used and added, "We're
not at all unmindful of collateral. Essentially, we base our loans
on what the applicant, the fisherman, and CFAB are able to project
as available debt service."
Number 598
REPRESENTATIVE OGAN regarding CFAB stated, "The people of Alaska
are the stockholders and if they had a voting share in the
corporation and you had a problem going into arrears with these
loans, do you think these stockholders would be happy?"
MR. CRANE said, "CFAB has recorded losses in two of its 20 years of
existence. CFAB has not lost any state money. CFAB has only three
sources of funds. One is that initial state investment of $32
million. The state has said in the statutes, `We want it all
back.' Then we also borrow money from the bank for cooperatives,
they very definitely want theirs back. Then our only other source
of funds is the capital of our customers, our borrowing members.
And in the final analysis, those are the people who have lost the
money."
REPRESENTATIVE OGAN said, "I would like to raise the level to more
of what a commercial bank would do to make sure there's enough
assets there."
MR. CRANE indicated that that "would be impossible to accomplish."
Number 677
REPRESENTATIVE KIM ELTON referred to the $4 million in losses
incurred since 1985, and said he was surprised the losses were so
low. He added, "What is a commercial bank write off? I would
assume that you're not that far out of line."
MR. CRANE said, "I really don't know how it would compare to
another institution. We feel pretty good about it."
CHAIRMAN AUSTERMAN asked, "If you were traded on the stock market,
would you be paying a dividend each year?"
MR. CRANE said, "I would expect so. Again, as a cooperative, CFAB
doesn't have profits per se, whatever excess income there is is
either given back to our borrowers, the people who pay the interest
in the form of cash, or additional equity in the bank, the last few
years it has been fifty-fifty, or it's used to pay taxes or
retained in an unallocated surplus account. Yeah, we would be
paying a dividend."
TAPE 95-12, SIDE B
Number 000
MR. CRANE explained that losses are also covered by CFAB's
borrowing members.
Number 010
MARTIN RICHARD, Director, Division of Investments, Department of
Commerce and Economic Development (DCED), began his overview. He
said, "The Division of Investments is involved in loan
administration. We administer 11 programs for the DCED, three of
them are active lending programs. We also service for five other
state agencies. So we're not just involved with commercial fishing
but commercial fishing is one of our largest." He added, "The last
appropriation into the Commercial Fishing Revolving Loan Fund was
made in 1985. Over the 22 years of the program, we've actually
lent out $271 million to some 4,000 something loan accounts. Our
current portfolio is around $65 million. Cash balance in the fund
is right now I think about $14 million, and we have returned to the
general fund about $56 million dollars to date. The commercial
fishing fund is probably the healthiest revolving loan fund in the
history of the state of Alaska."
MR. RICHARD described the different types of loans within the
commercial fishing loan program and the specifics of those
programs. He then described the Soft Collections Program
instituted in FY 87 saying, "We've been very successful with that
and simply, if a payment is missed within 30 days, the borrower
gets a telephone call from a loan officer trying to find out what
happened and if we can be any help in straightening out their money
priorities or things of that nature. We've had very good response
to that program and it's still in existence today."
Number 249
CHAIRMAN AUSTERMAN asked how much money was originally invested
into the Commercial Fishing Revolving Loan Fund.
MR. RICHARD replied, "Approximately $60 million was appropriated to
the fund over a period of about 12 years, by the state, from the
general fund and since that time, since about 1985, money has been
appropriated back to the general fund to the tune of about $56
million."
CHAIRMAN AUSTERMAN noted a higher default rate in 86 through 89.
MR. RICHARD indicated those were bad years for the fishing
industry.
Number 275
REPRESENTATIVE OGAN asked, "If someone defaults on a loan, are they
eligible for a loan again?"
MR. RICHARD said, "I don't know if there's anything that
specifically prohibits them from getting another loan. However, to
my knowledge, we have never made a loan to someone who has
defaulted to us."
REPRESENTATIVE GARY DAVIS commented that the loan program extended
to pay IRS tax debt should perhaps sunset although he preferred the
permits going into the state's possession.
MR. RICHARD said, "These loans are capped at $30,000 and remember
we have a three year sunset for that section. So they're only
available for a short period of time," and, "That essentially
represents 98 limited entry permits that would have been sold off
by the IRS."
CHAIRMAN AUSTERMAN asked if it is likely the sunset will be
extended.
Number 335
MR. RICHARD said, "I think the sunset is going to be a reality.
What has happened here is the fishermen, to a large extent, thought
the permit was untouchable and once court cases determined
otherwise, the IRS stepped up there effort substantially to take
those permits. So hopefully, we're looking at a situation that was
pretty much a one time deal and if during the next three years,
these people don't get their affairs with the IRS straightened out,
I don't know that we'll be able to help them anyway."
Number 346
CHAIRMAN AUSTERMAN asked about future cases which might have IRS
problems.
MR. RICHARD replied, "Hopefully, most people realize that the IRS
means business with these permits."
CHAIRMAN AUSTERMAN called an at ease for two minutes.
HFSH - 02/27/95
Number 410
HB 141 - TERM OF FISH AND GAME BOARD MEMBERS
CHAIRMAN AUSTERMAN brought forth CSHB 141 (FSH), for the purpose of
discussion.
GERON BRUCE, Legislative Liaison, Department of Fish and Game,
described the two changes brought forth in the committee substitute
(CS). He pointed out the first change on page 1, line 11, deleted
"a successor is qualified to serve on the board" and replaced it
with "an appointed successor's term begins." The second change
modified the transition section of the bill to affect only the
members appointed after January 1, 1995, for the next three years
thereafter.
REPRESENTATIVE OGAN stated that he wanted his support for this
legislation on the record because he supports depoliticizing the
Board of Fish process.
REPRESENTATIVE DAVIS asked if votes of appointed Board of Fish
members are legal before those individuals are confirmed.
MR. BRUCE indicated that he believed Title 39 specified that
appointed members have all powers of a confirmed board member.
He added, "The idea for this bill did come from the Fisheries
Policy Transition Team and it was an unanimous recommendation from
that team."
REPRESENTATIVE OGAN moved that the CS be adopted.
Hearing no objection, it was so ordered.
Number 449
REPRESENTATIVE ELTON said, "It's also important to note that the
transition team that recommended this, had representatives from the
sport, the commercial and the subsistence segments of the
industry."
JERRY MCCUNE, President, United Fishermen of Alaska, testified in
support of CSHB 141 (FSH). "We do support this bill 100 percent.
I think it will take a lot of the confirmation battles out of the
legislature. We'll be able to have more public candidates put
their name forth knowing that they're not under the gun. Knowing
that you have to be confirmed, sitting on the board, makes it
pretty tough to make any kind of decisions because you're going to
be under the microscope when you get back. So I think this will be
healthy."
Number 470
REPRESENTATIVE OGAN moved CSHB 141 (FSH) out of committee with
individual recommendations.
Hearing no objection, it was so ordered.
ADJOURNMENT
CHAIRMAN AUSTERMAN adjourned the meeting at 6:22 p.m.
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