Legislature(2003 - 2004)
03/12/2003 08:36 AM House FSH
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON FISHERIES
March 12, 2003
8:36 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Peggy Wilson, Vice Chair
Representative Pete Kott
Representative Ralph Samuels
Representative Ethan Berkowitz
Representative David Guttenberg
MEMBERS ABSENT
Representative Cheryll Heinze
COMMITTEE CALENDAR
HOUSE BILL NO. 105
"An Act relating to loans to satisfy past due federal tax
obligations of commercial fishermen and to the commercial
fishing loan program."
- MOVED HB 105 OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 105
SHORT TITLE:COMMERCIAL FISHING LOANS
SPONSOR(S): REPRESENTATIVE(S)STEVENS
Jrn-Date Jrn-Page Action
02/14/03 0215 (H) READ THE FIRST TIME -
REFERRALS
02/14/03 0215 (H) FSH, RES, FIN
03/12/03 0509 (H) FSH RPT 3DP 3NR
03/12/03 0509 (H) DP: KOTT, WILSON, SEATON;
03/12/03 0509 (H) NR: BERKOWITZ, SAMUELS,
GUTTENBERG
03/12/03 0510 (H) FN1: (CED)
03/12/03 (H) FSH AT 8:30 AM CAPITOL 124
WITNESS REGISTER
CHERYL SUTTON, Staff
to the Joint Legislative Salmon Industry Task Force ("Task
Force")
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 105 on behalf of Senator Gary
Stevens, sponsor, and who is also a member of the Task Force.
GREG WINEGAR, Director
Division of Investments
Department of Community & Economic Development
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 105.
BRUCE TWOMLEY, Chairman
Commercial Fisheries Entry Commission (CFEC)
Alaska Department of Fish & Game
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 105.
BRUCE HENDRICKSON, Fisherman
Homer, Alaska
POSITION STATEMENT: Testified in support of HB 105 and
addressed a related concern - debt relief.
STEVE BROWN, President
Concerned Area M Fishermen
Homer, Alaska
POSITION STATEMENT: Testified in support of HB 105.
ACTION NARRATIVE
TAPE 03-13, SIDE A
Number 0001
CHAIR PAUL SEATON called the House Special Committee on
Fisheries meeting to order at 8:36 a.m. Representatives Seaton,
Wilson, Samuels, Guttenberg, and Berkowitz were present at the
call to order. Representative Kott arrived as the meeting was
in progress.
HB 105-COMMERCIAL FISHING LOANS
CHAIR SEATON announced that the only order of business would be
HOUSE BILL NO. 105, "An Act relating to loans to satisfy past
due federal tax obligations of commercial fishermen and to the
commercial fishing loan program."
Number 0247
CHERYL SUTTON, Staff to the Joint Legislative Salmon Industry
Task Force ("Task Force"), Alaska State Legislature, testified
that she was speaking on behalf of Senator Gary Stevens who is a
member of the Task Force and who was a Representative when he
sponsored HB 105. She stated that HB 105 is a fairly simple
bill that involves just a few changes and that most of the
language in the bill is already existing law. She explained
that basically HB 105 reinstates a provision that was previously
law during fiscal years 1995 through 1997 and also during 2001
through 2003. The provision allowed commercial fishermen to
obtain secured - and she emphasized "secured" - loans for
retiring Internal Revenue Service (IRS) debt.
MS. SUTTON said that it was obvious that the long-term crisis
facing the salmon industry affects the ability of fishermen to
pay taxes. She indicated that perhaps the most compelling point
is the seizing of limited entry permits, and the state's
interest in that regard. She said there are other elements of
the bill that are very important, and she referred to page 4,
Section 3, line 31, to the deletion of the word "promptly"
pertaining to foreclosed permits.
Number 0613
MS. SUTTON explained that the Task Force considers this to be
important because currently, if a permit is foreclosed, the
Division of Investments is compelled to immediately advertise to
sell that permit. She said this occurrence is not in the best
interest of the state or of the person whose permit was
foreclosed, and the Task Force is interested in providing for
some latitude by removing the word "promptly" from statute. In
this way, some latitude would be given to the Division of
Investments relative to the advertising and sale of that permit.
She indicated that there was also hope that through the
continuing work of the Task Force and the legislative body,
other provisions would be addressing permits and HB 105 would be
one element in that regard "in terms of reducing the numbers of
permits in areas, and so forth."
Number 0816
MS. SUTTON continued that [the committee] would probably want to
focus on the issue of receiving loans for retiring IRS debt.
She referred to the "Policies And Procedures" from the
Department of Community and Economic Development (DCED) in the
committee packets, indicating that the loans are not issued
"willy-nilly" but are secure, strict, collateralized loans. She
added that this aspect of the bill is a very big issue in
Western Alaska.
Number 0866
GREG WINEGAR, Director, Division of Investments, Department of
Community & Economic Development (DCED), testified that HB 105
makes several changes to the Commercial Fishing Revolving Loan
Fund (CFRLF) administered by the agency. He said it allows for
loans to be made to Alaskan harvesters in order to pay off
federal tax obligations jeopardizing permits. He said this is
very similar to a program that was in effect during 1995 through
1997 and also during 2001 to 2003. He said he anticipates the
program to be very small - perhaps five or ten loans per year -
saying that it provides another tool for certain harvesters to
deal with IRS-related problems, which, he added, is important.
MR. WINEGAR continued that the bill also makes a small change to
the refinancing program that allows harvesters to take advantage
of reduced interest rates when they occur. He noted that this
has been a popular program, as interest rates have been
declining dramatically within the past year or two, adding that
there is a quick and streamlined process for handling those
requests. He stated that current law requires that a 0.5
percent refinancing fee be charged for refinancing; HB 105 would
remove that requirement, resulting in a slight reduction to the
loan fund. He said this reduction would not adversely affect
the financial integrity of the fund, as this fund has performed
fairly well over the years, is totally self-sufficient, and does
not rely on general fund support. He said the fiscal note
reflects the small change that would take place regarding the
loan fund, noting that the feeling is that rates are pretty near
to the bottom right now, so the impact on the fund would be
fairly small.
MR. WINEGAR said that Section 3 of the bill makes a change to
the foreclosure statutes because currently the requirement is to
promptly advertise and sell permits. The change would allow for
more flexibility in handling permits in a manner that would
better serve the interests of the state and, in many instances,
of the borrower as well. He stated that the bill was generated
as a result of work done by the Task Force and that the
department supports HB 105.
Number 1069
REPRESENTATIVE SAMUELS asked what the default rate was when the
program was previously in existence.
MR. WINEGAR replied that there were a total of 307 loans over a
five-year period, 24 of which had gone through the foreclosure
process. He noted that the number of borrowers delinquent on
loans is an estimated 45 percent, with a number of those
individuals having extension requests and working out solutions
with the department. He explained that the program "kicked in"
in 1996 or 1997 and was followed by some pretty rough seasons,
indicating that he thought this had an effect on the portfolio.
Number 1139
CHAIR SEATON asked if the previously mentioned numbers of "307
and 24" fell under the federal tax program.
MR. WINEGAR replied that those numbers refer to loans that were
made under a loan program very similar to this one - and that
they refer to the tax obligation portion of the portfolio.
REPRESENTATIVE SAMUELS inquired about the rules, asking how far
back the debt was incurred; he wondered if, for example, it
could be "mired with the feds" for 10 years before coming to the
department for relief, or if it was the previous year's debt, or
if it was regulation that "you can't get the loan out of debt
that is over 'x' number of years old."
Number 1197
MR. WINEGER responded that there is quite a variety, explaining
that when the program was initially created there was a
substantial noncompliance problem in existence. He said that
the IRS was able to match up fish ticket information with tax
return information and found that there were a number of people
out of compliance, some for many years, and some for a few
years. He explained that there are not any restrictions
regarding how far back "they can go" and that it is taken on a
case-by-case basis. He stated that there is a maximum loan
restriction, and emphasized that these are loans, saying that
collateral needs to be provided and also that items typically
looked at for other loans are looked at in this situation as
well.
MR. WINEGAR, in response to a question from Chair Seaton about
refinancing, replied that the refinancing program is completely
separate from the tax obligation portion of the portfolio, and
allows for the refinancing of any loan that was made under the
Commercial Fishing Revolving Loan Fund. He said that anybody
who has a loan through the department who is still eligible
would qualify for the refinancing.
CHAIR SEATON referred to the fiscal note and asked if it
pertained to all loans or only pertained to the IRS.
MR. WINEGAR said the fiscal note related to the refinancing
portion of the bill. He stated that the actual tax obligation
portion of the bill does not have any fiscal impact at all
because it would be handled by existing staff. He restated that
the program would involve very few loans - perhaps 10 or 15
loans per year - and he also restated that the fiscal note
relates to removing the 0.5 percent fee for the refinancing
program.
Number 1346
REPRESENTATIVE GUTTENBERG referred to the earlier testimony
about the loans being fairly self-sufficient and the default
rate of about 45 percent; he questioned the correlation between
self-sufficiency and the default rate.
MR. WINEGAR responded that the portfolio has been in existence
for a long time, since 1972, and has been revolving for a long
time. He repeated that this program is a very small portion of
the loans that have been made during that period of time, saying
that over the life of the program, almost $360 million in loans
have been made.
CHAIR SEATON referred to Mr. Winegar's comment that the
refinancing program is currently "near the floor" and asked if
this pertained to the interest rates' being at a certain level
or if it pertained to a bottom interest rate's being charged on
the loans.
Number 1433
MR. WINEGAR responded that the interest rates are tied to the
prime rate and that it is "prime plus two." He explained that
essentially borrowers have taken advantage of the rates going
down over the past few years. He said the department's rates
are looked at quarterly and mirror what the prime rate is doing.
He said prime rates are at an all-time record low, which is not
to say that they couldn't go a little bit lower - in fact,
"recently the feds have considered another quarter-point drop
and they are meeting on the 18th." He said that the department
is figuring that the rates are pretty near to the bottom and
that the portfolio has already largely been refinanced. Mr.
Winegar noted that if the rates were to fall further, the fiscal
note would probably need to be adjusted.
Number 1490
CHAIR SEATON asked if there was a "floor interest rate" that
under statute could be charged, under these loans.
MR. WINEGAR said there is no floor but there is a ceiling at
10.5 [percent].
CHAIR SEATON asked for a typical profile of a person who might
be refinancing under the tax portion of this loan.
MR. WINEGAR replied that the largest majority of the portfolio
is from rural communities. He referred to the booklet in the
committee packet entitled "Volunteer Tax and Loan Program" as an
example of a way to get information to rural areas within the
state. He said that often it is people who have difficulties
filing returns or who have those kinds of difficulties and then
"come to us and ask for help."
CHAIR SEATON asked if, generally, this might pertain to a Bering
Sea crabber who also has a permit and just decided to not pay
taxes.
MR. WINEGAR confirmed that this is not the typical type of
borrower at all.
Number 1585
BRUCE TWOMLEY, Chairman, Commercial Fisheries Entry Commission
(CFEC), Alaska Department of Fish & Game, said that for years
the [CFEC] has had a relationship with the IRS because of being
assigned the duty to protect Alaskan fishermen's "right to fish"
that state law has always declared to be a privilege, but that
the IRS has always considered as an asset that could be seized.
He said when a limited entry permit is so seized, the risk is
that the permit, instead of staying in the hands of a local
Alaskan, will go to a nonresident who will get it at a "bargain
basement sale" sponsored by the IRS. He mentioned a short
anecdote that he suggested would put the loan program in
context. He related that in the course of extensive dealings
with the IRS over the years, he came to know Chuck Stromey (ph),
the former head of special proceedings in Anchorage, a fine
gentlemen, he said, who recognized the problem of achieving
compliance in rural Alaska. Mr. Stromey attended a meeting of
the Association of Village Council Presidents on the lower
Kuskokwim, after which he said, "My God, we're trying to collect
money from people who don't even know we exist!"
Number 1694
MR. TWOMLEY continued that the real function of the loan program
is that it gives people some hope and it gives the IRS something
else to look towards other than the permit. He said that
regarding people in the villages, the limited entry permit may
be the only item of cash value, so it would, unfortunately, be
attractive to the IRS and would also be an easy target. He said
the rates of noncompliance among small business fishermen aren't
that different from the rates of noncompliance among lawyers or
cab drivers. He said fishermen are a target because of this
"little prize" that has an easy cash value. He added that the
transferability aspect serves to keep local fishermen "in the
water" by supporting the fishermen and their family members and
villages.
Number 1748
MR. TWOMLEY continued that the loan program provides a tool for
negotiating with the IRS. He said the department has always
been able to persuade the IRS that there are easier ways to
solve these problems than "jerking Alaska fishermen out of the
water" and destroying their lives in the process. He said that
is why the [CFEC] has a stake in this and supports the
legislation.
Number 1788
BRUCE HENDRICKSON, Fisherman, testified that he was a salmon
fisherman from Area M and thanked the committee for HB 105,
saying that he thought that removing the 0.5 percent fee would
be helpful. He said he wanted to speak to the related issue of
debt relief for the salmon industry fisherman. He said that
this is a revolving loan fund and does not impact the state
budget, but he would never want to see a fisheries program
taking funds away from something such as a children's program.
However, he said he would like to see the revolving loan fund be
given the flexibility to "write down" loans to current market
values or close to market value because it's unrealistic to pay
back an asset for which 93 or 97 percent of the value is gone.
MR. HENDRICKSON continued that it is unrealistic for the state
or lending institutions to expect to be able to get the value in
the form of collateral, and [to assume] that the fishermen would
absorb that loss in order to pay for something that is only
worth 7 percent. He said the values are down to 7 percent
because the cash flows are down so badly, so fishermen don't
have the ability to repay. Mr. Hendrickson said fishermen will
not be making loans in the future if these assets are
foreclosed. He stated that permits that are seized, whether for
taxes or for nonperformance of the loan, would end up out of
state. He concluded by saying that he wants to "plant a seed"
and hopes that when the Task Force devises a plan for debt
relief, there will be consideration and support for a program
similar to what the farm program had through the federal land
bank for farmers.
Number 1962
STEVE BROWN, President, Concerned Area M Fishermen, said he was
representing a group of salmon permit holders on the Alaska
Kenai Peninsula and said that about 25 percent of the permit
holders in the fishery live in the Kenai Peninsula, mostly in
the Homer area. He spoke in support of HB 105, saying that it
is a fairly modest step in the right direction that will be
helpful to Alaskan fishermen in attempts to "weather the storm"
in the salmon industry. He said he applauds the efforts to
retain ownership in Alaskans' hands.
Number 2609
MR. BROWN continued that the 0.5 percent refinance fee is small
but valuable, saying that "as you know, interest rates are at
historic lows" and that if people can pay market rates on their
loans without having to shell out several hundred or, in some
cases, over a thousand dollars, then this is helpful. He
commented that this was the "tip of the iceberg" and noted that
there are four permit holders in his fishery who are in the
process of losing their permits, just within the past few
months, and he thinks that the "avalanche is just starting to
cascade down the mountain" and is going to gather speed unless
we "roll up our sleeves and figure out what we're going to do."
Number 2075
REPRESENTATIVE BERKOWITZ moved to report HB 105 out of committee
with individual recommendations and the [accompanying fiscal
note].
Number 2097
REPRESENTATIVE SAMUELS objected, commenting that the
aforementioned number of 45 percent [mentioned in testimony by
Mr. Winegar] is a large number and needs to be seriously
considered. He then withdrew his objection.
Number 2123
CHAIR SEATON asked if there was any further objection. There
being none, HB 105 was reported from the House Special Committee
on Fisheries.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Fisheries meeting was adjourned at 9:10
a.m.
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