Legislature(1999 - 2000)
02/07/2000 05:08 PM House FSH
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON FISHERIES
February 7, 2000
5:08 p.m.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Fred Dyson
Representative Jim Whitaker
Representative Bill Hudson
Representative Mary Kapsner
Representative Hal Smalley
MEMBERS ABSENT
Representative Carl Morgan, Co-Chair
COMMITTEE CALENDAR
HOUSE BILL NO. 238
"An Act establishing a federal tax obligation loan program under
the commercial fishing loan program."
- MOVED HB 238 OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 238
SHORT TITLE: TAX OBLIGATION LOAN PROGRAM FOR FISHERS
Jrn-Date Jrn-Page Action
5/14/99 1409 (H) READ THE FIRST TIME - REFERRAL(S)
5/14/99 1409 (H) FSH, RES, FIN
2/07/00 (H) FSH AT 5:00 PM CAPITOL 124
WITNESS REGISTER
GREG WINEGAR, Juneau Lending Branch Manager
Division of Investments
Department of Community & Economic Development
PO Box 34159
Juneau, Alaska 99803-4159
POSITION STATEMENT: Answered questions regarding the commercial
fishing revolving loan fund.
BRUCE C. TWOMLEY, Chairman/Commissioner
Commercial Fisheries Entry Commission
Department of Fish & Game
8800 Glacier Highway, Suite 109
Juneau, Alaska 99801-8079
POSITION STATEMENT: Answered questions regarding the commercial
fishing revolving loan fund, and declared the commission's support
of HB 238.
JERRY LIBOFF
(Address not provided)
Dillingham, Alaska 99576
POSITION STATEMENT: Testified in support of HB 238.
TERRY HOEFFERLE, Representative
Bristol Bay Native Association
PO Box 310
Dillingham, Alaska 99576
POSITION STATEMENT: Testified in support of HB 238.
ACTION NARRATIVE
TAPE 00-01, SIDE A
Number 0001
CO-CHAIRMAN JOHN HARRIS called the House Special Committee on
Fisheries meeting to order at 5:08 p.m. Members present at the
call to order were Representatives Harris, Dyson, Kapsner and
Smalley. Representatives Hudson and Whitaker arrived as the
meeting was in progress.
HB 238 - TAX OBLIGATION LOAN PROGRAM FOR FISHERS
CO-CHAIRMAN HARRIS announced the first and only order of business
as House Bill 238, "An Act establishing a federal tax obligation
loan program under the commercial fishing loan program."
Number 0066
REPRESENTATIVE MARY KAPSNER, Alaska State Legislature, sponsor of
HB 238, explained the bill would reinstitute a previously existing
program that was widely supported. The program assists fishermen
in paying back-taxes to the Internal Revenue Service [IRS], thereby
rescuing limited entry permits from their continued threat of
seizure. The program was initially created in 1993 in the wake of
threats by the IRS to seize permits of fishermen who were found to
owe back-taxes. She noted that the program is a revolving loan
fund. It draws from the existing fishermen's loan fund. It
provides loans of up to $30,000 with a payback interest rate of
10.5 percent. The money goes back into the fund for reissuance to
others with back-tax problems.
REPRESENTATIVE KAPSNER further noted that the bill isn't just aimed
at assisting delinquent tax payers; it assists all fishermen in the
state. She cited that, in 1996, the IRS seized a $30,000-permit
held by a Kenai fisherman and sold it for only $5,005. That action
had the effect of devaluing all commercial fishing permits. She
also noted that the IRS is under no obligation to resell a permit
to Alaska fishermen due to a commerce clause.
REPRESENTATIVE KAPSNER explained that, before sunset in 1997, the
program provided 288 loans at a value of $6.06 million to fishermen
from every region of the state. In 1997, her predecessor
[former-Representative Ivan Ivan] introduced such a bill that made
it through the committee process in the House of Representatives,
but was held hostage in the Senate Resources Committee for an
unrelated reason.
REPRESENTATIVE KAPSNER stated, in conclusion, that although tax
compliance has dramatically improved among Alaska fishermen since
the early part of this last decade, there still exists a need for
the program. The IRS still staunchly opposes the state's view that
fishing permits cannot be legally seized. And, unfortunately, the
number of fishermen with tax delinquencies has climbed since the
sunset of the program in 1997.
Number 0413
REPRESENTATIVE FRED DYSON asked Representative Kapsner what the
payment performance has been of those who have received a loan.
REPRESENTATIVE KAPSNER replied, she thinks, it has been very high.
She deferred the question to Mr. Greg Winegar of the Department of
Community & Economic Development.
Number 0479
GREG WINEGAR, Juneau Lending Branch Manager, Division of
Investments, Department of Community & Economic Development, came
before the committee to answer Representative Dyson's question. He
noted that the repayment record runs about 10 percent higher than
the rest of the portfolio. They are high-risk loans. He also
noted that the delinquency rate runs at 27 percent compared to 17
percent for the rest of the portfolio. A number of them either
have "workouts" in place or the division is working with them on
extensions. They would still show as delinquent, however, until
their paperwork is completed. The division does not expect all of
them or very many of them to actually default.
Number 0551
REPRESENTATIVE KAPSNER stated, for the record, that this is a
one-time-only-loan program. If a fisherman falls behind on his
payment with the IRS at another time, that fisherman cannot apply
for a loan again.
Number 0572
REPRESENTATIVE DYSON asked Mr. Winegar what the state holds for
security if there is a default.
MR. WINEGAR replied in most cases, if not all cases, it's the
limited entry permit. In some cases, there is other collateral,
but in most cases it's the permit that is held.
REPRESENTATIVE DYSON asked Mr. Winegar whether the Division of
Investments or the IRS would get the first "bite" if there was a
concurrent default.
MR. WINEGAR replied in the event of a concurrent default the
division would be first in order to make the loan. In fact, part
of the requirements for the program is to file all returns with the
IRS. In cases where the balance is larger than what can be handled
through the loan, the individual would be subordinated to the
division's interest.
REPRESENTATIVE DYSON asked Mr. Winegar what the delinquency rate
was when the program was in effect.
MR. WINEGAR replied the delinquency rate was low in the early years
because it was just getting started. The delinquency rate is at
its highest now.
REPRESENTATIVE DYSON asked Mr. Winegar, What percentage of the
value of the permit will the division loan?
MR. WINEGAR replied the maximum allowed by statute is 90 percent.
The division, typically, does not loan higher than 80 to 85
percent, however.
REPRESENTATIVE DYSON asked Mr. Winegar whether the percentage is
addressed in law or regulation.
MR. WINEGAR replied the maximum is addressed in statute - 90
percent. But policy dictates that the division loan less than that
in most cases. He reiterated the division typically loans to 85
percent, at the most.
Number 0795
CO-CHAIRMAN HARRIS asked Mr. Winegar to explain how the fishermen's
loan fund came about. Since it revolves, is it somewhat similar to
the agricultural revolving loan fund?
MR. WINEGAR replied the program was created in 1972 to help
Alaskans maintain control of the fisheries in the state. He cited
a series of appropriations, approximately $60 million, were made to
the program up until FY [fiscal year] 1985. The fund has not
received any general fund monies since that time. It has been
completely revolving and, in fact, has paid back all of the $60
million to the general fund. The division typically loans
approximately $15 million a year. There is a sufficient cash flow
in the fund to handle those loans, and to pay for the operation of
the program. It essentially has been self-sufficient since 1985.
Number 0894
REPRESENTATIVE BILL HUDSON asked Mr. Winegar whether the program is
similar to CFAB [Commercial Fisheries and Agricultural Bank].
MR. WINEGAR replied CFAB is a separate program; it is not part of
a state agency. He explained that it is a fisherman's co-op owned
by fishermen.
REPRESENTATIVE HUDSON asked Mr. Winegar what the approximate
balance is of the fishermen's loan fund.
MR. WINEGAR replied the portfolio is around $90 million, which
revolves and depends on the amount loaned and repaid. He
reiterated the division, typically, has around $15 million
available a year.
REPRESENTATIVE HUDSON asked Representative Kapsner whether she has
any idea how much of the portfolio would be drawn upon.
REPRESENTATIVE KAPSNER replied she doesn't know the exact amount;
she does know that the applicants have to be current on their IRS
obligation and there has to be a threat of seizure. In other
words, they can't be in a "major" default.
REPRESENTATIVE HUDSON remarked that he likes the bill. He was a
cosponsor when former-Representative Ivan Ivan introduced the same
bill a few years ago. He hates to see the IRS seize permits and
sell them at a lesser value. He asked Mr. Bruce C. Twomley of the
Department of Fish & Game whether the IRS has been successful in
actually taking possession of any permits.
Number 1065
BRUCE C. TWOMLEY, Chairman/Commissioner, Commercial Fisheries Entry
Commission, Department of Fish & Game, came before the committee to
answer Representative Hudson's question. He noted that there have
been sales of limited entry permits for various reasons, but those
sales have not been completed and the permits have not been
transferred to date.
Number 1105
CO-CHAIRMAN HARRIS asked Mr. Twomley to state the position of the
Commercial Fisheries Entry Commission on the bill.
MR. TWOMLEY replied the commission supports the bill and the
comments of the sponsor. He noted that in 1997 the bill passed the
House of Representatives by a margin of 34 to 4.
MR. TWOMLEY further stated that, like a lot of small businessmen
who don't have withholdings, it's very easy to slip into trouble
with the IRS. That, coupled with uncontrollable factors such as
run failures and market failures, make fishermen more vulnerable.
Yet other small businessmen do not face the risk of losing their
livelihood when faced with an IRS enforcement. He also noted that
the limited entry permit is a big target for enforcement because it
is easy to identify and evaluate, and for many it is the only item
of cash-value that they hold. Furthermore, as practitioners in the
field have testified to in the past, the program makes a
difference, otherwise many are left without hope and are confused
and frightened by notices from the IRS. The program makes all the
difference, he said, in having these individuals come forward and
achieving voluntary compliance.
Number 1271
REPRESENTATIVE DYSON stated, given the volatile nature of the
state's fisheries, a loan for 90 percent is perhaps unwise from the
position of the institution making the loan. He is thinking about
changing that number to 75 or 80 percent. He asked Mr. Twomley why
that would be a bad idea.
MR. TWOMLEY replied the loan program is a principal means by which
Alaskans get their limit entry permit, and a special element of the
program was designed for rural Alaskans who often have difficulty
getting credit from other sources. If there is a lead line to the
problems that some of the fisheries have fallen into, it's that
some of the permits, that were previously more expensive, have come
within reach and reducing the percentage would cutoff
opportunities.
REPRESENTATIVE DYSON stated 90 percent may make sense for buying a
permit, but he's not sure that figure makes sense for tax
obligations or repairs to a vessel. He asked Mr. Twomley to
clarify whether the 90-percent limit is for all categories in the
loan program.
MR. TWOMLEY deferred the question to Mr. Winegar.
[THE RECORD REFLECTS THAT MR. WINEGAR'S TESTIMONY IS INTERMITTENTLY
AUDIBLE.]
MR. WINEGAR replied 90 percent is the maximum. He reiterated that
the division typically loans less than that for certain types of
applications. He cited a loan for gear and vessel repairs as
examples.
REPRESENTATIVE DYSON asked Mr. Winegar whether it's correct to say
that the division loans less than 90 percent for tax obligations.
MR. WINEGAR replied that is correct in most cases. He noted that
there might have been some loans that were fairly close to 90
percent.
REPRESENTATIVE DYSON asked Mr. Winegar whether he can assume that
the division is professional, mature and wise enough so that the
law doesn't need to be changed in order to protect them from making
"dumb" loans.
MR. WINEGAR replied he doesn't know how to answer that question.
Number 1511
REPRESENTATIVE HAL SMALLEY applauded Representative Kapsner for
bringing this type of legislation forward. It's good for Alaska,
the industry, and it protects the value of the permits. He is well
aware of what can happen to the value of a permit, especially in
the Cook Inlet area. He asked Representative Kapsner whether an
applicant who had a loan in the past would be treated as a new
customer since the program sunset.
REPRESENTATIVE KAPSNER deferred the question to Mr. Winegar.
MR. WINEGAR replied according to Section 2, of the bill,...(indisc.
-- paper shuffling).
REPRESENTATIVE KAPSNER stated she would accept a friendly amendment
to stipulate the preclusion of an individual from applying again
for a loan.
REPRESENTATIVE SMALLEY asked Representative Kapsner whether she
knows how many fishermen in her area who previously qualified may
want to qualify now.
REPRESENTATIVE KAPSNER replied she doesn't have any numbers from
her area.
Number 1596
REPRESENTATIVE JIM WHITAKER asked Representative Kapsner whether
there is a reason to preclude an individual who has successfully
secured a loan and paid it off from securing a loan again.
REPRESENTATIVE KAPSNER replied she would want to include as many as
possible, given the $15 million available. She said, "You don't go
back for seconds when some people haven't had their first try yet."
She reiterated that she is open to amendments to ensure that
everybody gets what they need.
REPRESENTATIVE WHITAKER asked Mr. Winegar whether the demand is
greater than $15 million at this specific time. He further asked
whether he anticipates a point when the fund would be depleted.
MR. WINEGAR replied he suspects that the demand would be less now
than during the previous life of the program. The problem is not
as big as it was back then, and $15 million should be able to cover
the loan amounts. He further noted that when the program was first
initiated there was some concern by various representatives that
fishermen would come back year after year, which is probably where
the one-time clause came from.
Number 1735
REPRESENTATIVE WHITAKER stated if a loan program is successfully
making loans at a rate of 10.5 percent, which is a fairly favorable
lending rate today, he doesn't see a reason why not to allow a
fisherman to secure a loan more than once.
MR. WINEGAR replied, from his standpoint, he would not have a
problem...
REPRESENTATIVE KAPSNER stated, to Representative Whitaker, when the
bill was initially introduced there was concern that every year or
every couple of years the same fishermen would come back asking for
help. She said, "We want our applicants to make sure that they
know that this is a one-time deal; that they can only get
bailed-out once."
Number 1794
CO-CHAIRMAN HARRIS stated there's a one-time provision for tax
obligation, but a fisherman could come back multiple times for boat
upgrades, for example. He asked Representative Kapsner whether his
statement is correct.
REPRESENTATIVE KAPSNER replied that statement is correct.
CO-CHAIRMAN HARRIS stated, according to his understanding, when
this program was first initiated the fishing community said it
would not "go after it" again, which is why there was a sunset
provision. He asked Representative Kapsner whether she is familiar
with those terms. He then asked whether she suspects there might
be some problems with legislators indicating that the fishing
community is going against what they said in the past.
REPRESENTATIVE KAPSNER replied she wasn't a legislator when this
program was born. She cannot speak to promises made when it came
about. She does know, however, that the program has strong support
in the fishing community. She noted that other fishing co-ops and
enterprises have tax obligation loan programs. She cited the
Norton Sound Economic Development Corporation, a CDQ [Community
Development Quota] organization, has a similar program, except it
is not accessible to anyone outside of its region. She wants to
provide something similar to that on a statewide level.
CO-CHAIRMAN HARRIS wondered whether Representative Hudson can speak
to the history of the bill.
REPRESENTATIVE HUDSON replied he can't remember, but he's sure the
documentation is filed somewhere. According to his recollection,
the IRS was moving in on the permits and flooding the market. The
state was concerned that would increase the value of a permit for
some and decrease the value for others. The program was set up
with a sunset provision, similar to a lot of other new programs.
He said,
If the program is working, and people are being served,
and they have the funding, you know, in the program to
make the loans, it's a, you know, it's a reasonable thing
to at least consider legislatively reimposing it.
Number 1950
REPRESENTATIVE DYSON made a motion to move HB 238 out of committee
with individual recommendations. There being no objection, it was
so ordered.
REPRESENTATIVE HUDSON made a motion to rescind his motion in order
to take public testimony. There being no objection, it was so
ordered.
Number 2019
JERRY LIBOFF, testified via teleconference from Dillingham, as a
tax preparer and commercial fisherman. He has lived in the area
for 35 years. He prepares approximately 300 income taxes for
individuals throughout the villages. He has also helped a number
of people complete their tax obligation loan. The program has
worked wonders for getting people back online and saving their
permit for their family and for the community. He noted that
everybody he has helped has kept current in repaying the state. He
called it a win-win situation all the way around in that the
permits have remained in the hands of Alaskans and that the program
doesn't really cost the state any money. He complimented the
committee members for moving the bill forward.
Number 2093
TERRY HOEFFERLE, Representative, Bristol Bay Native Association,
testified via teleconference from Dillingham. He expressed his
appreciation for the consideration given to the bill. It will
continue to do wonders, he said, in trying to help keep limited
entry fishing permits in Bristol Bay and other fishing communities
around the state.
CO-CHAIRMAN HARRIS closed the meeting to public testimony after
inquiring whether or not anybody else from Dillingham or Bethel
would like to testify.
Number 2179
REPRESENTATIVE DYSON made a motion to move HB 238 out of committee
with individual recommendations and attached zero fiscal note.
There being no objection, HB 238 so moved from the House Special
Committee on Fisheries.
ADJOURNMENT
There being no further business before the committee, Co-Chairman
Harris adjourned the House Special Committee on Fisheries meeting
at 5:40 p.m.
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