02/04/2014 10:00 AM House FISHERIES
| Audio | Topic |
|---|---|
| Start | |
| HB177 | |
| Overview: Department of Revenue Tax Division - Salmon Product Development Tax Credit | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 177 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON FISHERIES
February 4, 2014
10:02 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Eric Feige
Representative Lynn Gattis
Representative Bob Herron
Representative Craig Johnson
Representative Kurt Olson
Representative Jonathan Kreiss-Tomkins
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 177
"An Act relating to interest rates on loans from the commercial
fishing revolving loan fund and the community quota entity
revolving loan fund; and providing for an effective date."
- MOVED CSHB 177(FSH) OUT OF COMMITTEE
OVERVIEW: DEPARTMENT OF REVENUE TAX DIVISION - SALMON PRODUCT
DEVELOPMENT TAX CREDIT
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 177
SHORT TITLE: COMMERCIAL FISHING LOANS
SPONSOR(s): REPRESENTATIVE(s) EDGMON
03/20/13 (H) READ THE FIRST TIME - REFERRALS
03/20/13 (H) FSH, FIN
04/02/13 (H) FSH AT 10:00 AM CAPITOL 120
04/02/13 (H) Heard & Held
04/02/13 (H) MINUTE(FSH)
01/28/14 (H) FSH AT 10:00 AM CAPITOL 120
01/28/14 (H) Heard & Held
01/28/14 (H) MINUTE(FSH)
02/04/14 (H) FSH AT 10:00 AM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE BRYCE EDGMON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified in support of proposed Amendment
1, during the hearing on HB 177, as sponsor of HB 177.
TIM CLARK, Staff
Representative Bryce Edgmon
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented proposed Amendment 1, during the
hearing on HB 177, on behalf of Representative Edgmon, sponsor.
LEA KLINGERT, President and CEO
Commercial Fishing and Agriculture Bank (CFAB)
Anchorage, Alaska
POSITION STATEMENT: Responded to questions, during the hearing
on HB 177.
BRUCE TANGEMAN, Deputy Commissioner
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Presented the departmental overview of the
Salmon Product Development Tax Credit.
TIM COTTONGIM, Fish Group Manager
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Responded to questions during the overview
of the Salmon Product Development Tax Credit.
ACTION NARRATIVE
10:02:18 AM
CHAIR PAUL SEATON called the House Special Committee on
Fisheries meeting to order at 10:02 a.m. Representatives
Seaton, Johnson, Olson, and Feige were present at the call to
order. Representatives Kreiss-Tomkins, Herron, and Gattis
arrived as the meeting was in progress.
HB 177-COMMERCIAL FISHING LOANS
10:02:38 AM
CHAIR SEATON announced that the first order of business would be
HOUSE BILL NO. 177, "An Act relating to interest rates on loans
from the commercial fishing revolving loan fund and the
community quota entity revolving loan fund; and providing for an
effective date."
CHAIR SEATON identified the adopted working document as
committee substitute (CS) for HB 177, labeled Version 28-
LS0607\O, Bullard, 3/26/13.
10:03:56 AM
REPRESENTATIVE JOHNSON moved to adopt Amendment 1, labeled 28-
LS0607\O.2, Bullard, 1/30/14, which read as follows:
Page 1, line 13, through page 2, line 1:
Delete all material and insert:
"(B) [AT A RATE] of more than 10 1/2
percent a year; [OR]
(C) that is less than the prime rate, as
defined in AS 44.88.599, minus three percentage
points; or
(D) [AT A RATE] that is less than three
percent a year [THE COST OF FUNDS TO THE STATE];"
10:04:10 AM
REPRESENTATIVE FEIGE objected for purposes of discussion.
10:04:15 AM
REPRESENTATIVE JOHNSON explained that the amendment establishes
limits to the floor of the loan program, and provide security to
the fund; a policy procedure. He said that, with adoption of
the amendment, he could support HB 177.
REPRESENTATIVE BRYCE EDGMON, Alaska State Legislature, stated
support for the amendment, and said it is a positive addition to
the bill.
10:05:52 AM
TIM CLARK, Staff, Representative Bryce Edgmon, Alaska State
Legislature, explained that Amendment 1 will be inserted in
Section 1 of the bill, and he paraphrased the new language for
the amended subsection (2), which read as follows:
"(2) may not bear interest at a rate
(A) exceeding the prime rate, as defined by AS
44.88.599, plus two percentage points;
(B) [AT A RATE] of more than 10 ½ percent a year;
[or]
(C) that is less than the prime rate, as defined
by AS 44.88.599, minus three percentage points; or
(D) [AT A RATE] that is less than three percent a
year [THE COST OF FUNDS TO THE STATE];
MR. CLARK stressed that under the proposed CS, as amended, for
any loan made from the Commercial Fisheries Revolving Loan Fund
(CFRLF), all of the above statements must be true. Further, the
subsection now provides a "floating" ceiling to the interest
rate tied to the prime rate, and a "fixed" ceiling of ten and
one-half percent, as well as a "floating" floor tied to the
prime rate, and a "fixed" floor of three percent. Without the
proposed amendment, he pointed out that HB 177 would allow a
loan to be offered for as much as six percent below the prime
rate. Directing attention to the committee handout, titled
"Amendment to CSHB 177(FSH)", page 3, he paraphrased the
language, which read as follows [original punctuation provided]:
Without the amendment, if the prime rate were, for
example, 8 percent, it would be lawful to make a loan
at an interest rate as little as three percent.
In other words, the loan could be offered by as much
as 6 percent below prime, since the only "floor" is a
minimum 3 percent a year.
With the amendment, if the Prime Rate were 8 percent,
it would only be lawful to make a loan at an interest
rate as low as 5 percent.
In other words, the loan could only be offered for as
much as 3 percent below prime, as defined by (2)(C).
Subsection (2):
"(2) may not bear interest at a rate
(A) exceeding the prime rate, as defined by AS
44.88.599, plus two percentage points;
(B) [AT A RATE] of more than 10 ½ percent a year; [or]
(C) that is less than the prime rate, as defined by AS
44.88.599, minus three percentage points; or
(D) [AT A RATE] that is less than three percent a year
[THE COST OF FUNDS TO THE STATE];
MR. CLARK finished with an example of a product quality
improvement loan offered at two percent below the prime rate,
under HB 177, paraphrasing from the committee handout, page 4,
which read as follows [original punctuation provided]:
If the Prime Rate were at 8 percent, the interest rate
on the loan would be 6 percent a year, well within the
Subsection (2) parameters.
Under Subsection (2), all these statements are true:
(A) 6 percent does not exceed the Prime Rate plus two
percent.
(B) 6 percent a year is not more than 10 ½ percent a
year.
(C) 6 percent a year is not less than the Prime Rate
minus 3 percent.
(D) 6 percent a year is not less than 3 percent a
year.
However, if the Prime Rate were at 3.25 percent, as it
is today, the interest rate on the loan would hit the
fixed 3 percent floor in (D), and so the rate would be
3 percent.
10:09:23 AM
REPRESENTATIVE FEIGE removed his objection. There being no
further objection, Amendment 1 was adopted.
10:09:47 AM
CHAIR SEATON closed public testimony on HB 177.
10:11:09 AM
REPRESENTATIVE OLSON recalled that the original structure of
Commercial Fishing and Agriculture Bank (CFAB) was to provide
loan and operational funds to vessel owners who might not
otherwise obtain standard market loans.
LEA KLINGERT, President and CEO, Commercial Fishing and
Agriculture Bank (CFAB), agreed.
REPRESENTATIVE OLSON said that his review of the current vision
statement appears to be different than what was originally
intended, and he paraphrased the statement, which reads as
follows [original punctuation provided]:
To be the PREMIER LENDER to the commercial fishing,
agriculture, timber, tourism and resource based
industries of Alaska.
To provide prompt, courteous service and financing
customized to meet the specific needs of our
borrowers.
REPRESENTATIVE OLSON expressed his understanding that CFAB
served clients who, due to a lack of or a questionable credit
history, would not qualify for a standard market loan. Further,
he stated his belief that CFAB did not generally serve as a
primary underwriter.
MS. KLINGERT stated her understanding that CFAB was created due
to requests from the fishing and agriculture industries, whose
needs were not being met through the commercial banks. She
said:
It is also my understanding that we were created with
the idea that we would replace the state program at
some time. We were never the lender of last resort;
... the division was supposed to be the lender of last
resort. The way I've always looked at it is that the
state department kind of gets it in the crawling, CFAB
does the walking, and then you hope that they're
running and they go off to the commercial, the larger
institutions, at that point.
REPRESENTATIVE OLSON emphasized that to be the premier lender
would place CFAB in direct competition with private sector
banking institutions.
MS. KLINGERT explained that CFAB is a private lending
institution and does compete with other entities but loan size
is a limiting factor. The agency provides a service as a
private, tax paying, agency.
REPRESENTATIVE OLSON stated support for the bill.
10:15:12 AM
REPRESENTATIVE HERRON moved to report CSHB 177, Version 28-
LS0607\O, Bullard, 3/26/13, as amended, out of committee with
individual recommendations and the accompanying fiscal notes.
Without objection, CSHB 177 (FSH) was reported from the House
Special Committee on Fisheries.
The committee took a brief at-ease at 10:16 a.m.
^OVERVIEW: Department of Revenue Tax Division - Salmon Product
Development Tax Credit
OVERVIEW: Department of Revenue Tax Division - Salmon Product
Development Tax Credit
10:16:03 AM
CHAIR SEATON announced that the next order of business would be
an overview from the Department of Revenue Tax Division
regarding the Salmon Product Development Tax Credit.
10:16:14 AM
BRUCE TANGEMAN, Deputy Commissioner, Department of Revenue
(DOR), directed attention to the committee handout titled "State
of Alaska Department of Revenue Salmon Product Development Tax
Credit Overview, A Presentation to the House Fisheries Committee
February 4, 2014," and said the tax credit was enacted in 2003,
with the passage of HB 90, to address downturns in the Alaskan
salmon industry. It was intended to encourage "new investment
in new equipment for new products, not new investment for old
equipment for the same products." The original law granted
processors a credit against the fisheries business tax (FBT) for
expenditures promoting the manufacture of a value-added salmon
product (SPD) credit. It also granted a credit against the FBT
for expenditures promoting manufacture of marketable products
from salmon waste, known as a utilization credit. The
qualifying SPD credit expenditures covered equipment used for a
comprehensive list of activities including filleting, skinning,
portioning, mincing, forming, and extruding. He explained that
the qualifying utilization credit expenditures allowed for
equipment producing marketable products from waste. The credits
were limited to 50 percent of the expenditure with an annual
limit set at 50 percent of tax on salmon. The credits were not
designed to reduce the municipal share, which he pointed out is
"carved off the gross and distributed to the communities, then
any tax credits, which would reduce the revenues, are taken
against the state share." A three year carryover is allowed for
companies to claim unused credits; the tax recaptured if
equipment is sold, removed from service or ceases to be
qualified before the end of the third year. The date for
putting qualified property into service under the original
legislation was 12/31/05.
10:21:35 AM
MR. TANGEMAN proceeded to describe the amendments that have been
made since the inception of the original bill. The first was in
2006, under SB 164, which refined the definition of qualifying
expenditures, "making it clear that processors should be
producing new, innovative salmon products in order to benefit
from this program." The senate bill added to the list of
qualifying expenditures the costs to convert traditional canning
equipment to include pop-top canning. In addition, SB 164
identified non-qualifying expenditures as well, and he
paraphrased from the list provided on page 7 of the committee
handout, which read as follows:
Vehicles, forklifts, conveyors, cranes, pumps and
other transporting equipment
Knives, gloves, tools, supplies, materials and other
equipment that is not processing, packaging or product
finishing equipment
Other equipment which is incidental to production,
packaging or finishing of value-added salmon products
Overhaul, retooling or modification of existing
equipment; except pop-top canning conversion
MR. TANGEMAN paraphrased the definition for the term "value
added salmon product, as provided under SB 164," which read as
follows [original punctuation provided]:
... the product of a salmon that is processed beyond
heading, gutting, or separation in a manner that
materially enhances the value of the salmon product,
such as shelf-stable, retort pouched, smoked, pickled,
or filleted salmon, ikura, leather, or jerky ...
MR. TANGEMAN said that SB 164 also identified products that do
not qualify as value-added salmon products, a list which
includes products subjected to only one or more of heading,
gutting, freezing, packaging, quality assurance practices, or
value retention practices; salmon skeins or other unprocessed
salmon products whether fresh or frozen; canned salmon, except
for salmon products in a pop-top can; and products produced out
of the state. The true goal, he said, was that only a value
added product would qualify for this state tax credit. The
amendment also extended the date for putting qualified property
into service through 12/31/08; however, the utilization credit
was not extended and subsequently experienced sunset on
12/31/05.
10:24:06 AM
MR. TANGEMAN explained that additional amendments were made in
2008 via HB 321, which served to expand the list of qualifying
equipment. He paraphrased the sponsor's intent for the
amendment, which read as follows [original punctuation
provided]:
The Salmon Product Development Tax Credit encourages
and accelerates the development and production of
value-added salmon products in Alaska by providing an
economic incentive to make the necessary investments
in new technology and equipment.
MR. TANGEMAN further noted that HB 321 added fillet line
conveyor systems to the list of qualifying expenditures. A new
provision introduced under legislation required the Department
of Revenue (DOR) to provide a process for applicants to obtain
credit pre-approval of planned expenditures. Finally, HB 321
extended the date of putting qualified property into service
until 12/31/11.
10:25:21 AM
MR. TANGEMAN said the final amendment was passed in 2010, under
HB 344, and added ice machines to the list of qualifying
expenditures and extended the date for putting qualified
property into service until 12/31/15. He paraphrased the
sponsor's intent to be as follows [original punctuation
provided]:
Extending the tax credit beyond its current sunset
date of December 31, 2011 will allow the industry to
continue the progress that is being made in developing
and producing salmon products that will keep Alaska's
fisheries competitive in world markets.
10:26:01 AM
MR. TANGEMAN introduced two statistical charts. The first,
handout page 14, indicates the gross revenue and credits claimed
against that revenue, and shows significant swings that have
occurred between FY 04 and FY 13. The second, handout page 15,
he pointed out, includes the pre-approval requests, which he
observed have not been fully utilized. Assistance is available
to help investors understand the parameters of the program.
10:27:25 AM
CHAIR SEATON asked how the pre-approval process is handled; is
thee a letter stipulating "if you do this project, as designed,"
or wording to that effect, to ensure qualification.
MR. TANGEMAN deferred.
10:27:56 AM
TIM COTTONGIM, Fish Group Manager, Tax Division, Department of
Revenue (DOR), said there is a form on the department's web page
for processors to complete and submit. This form requires
department approval or rejection and that action generates an
appropriate cover letter to accompany the accepted or denied
request.
CHAIR SEATON underscored the importance of this program, which
is generally recognized as an integral means for the industry to
improve and maintain product quality standards for worldwide
marketing purposes.
10:29:33 AM
REPRESENTATIVE FEIGE ascertained that the current legislation is
functioning well, and asked if there was any reason to consider
changing the model.
MR. TANGEMAN responded that unless the industry brings specifics
forward, DOR has no current recommendations.
10:30:38 AM
CHAIR SEATON reported concern from the industry that the
department may alter the equipment usage definitions, effecting
current processors abilities to qualify for the credit, and he
asked if the department has any intent to implement regulation
that would dramatically change the status quo. He provided the
example that an ice machine could be intended for use on salmon
under the 50 percent requirement, but in order to stimulate the
processors to operate on a 12 month basis, other products would
need to be handled and the equipment utilized accordingly. If
DOR has the intention of making regulation changes along these
lines, he opined, such action would prove restrictive to the
industry.
MR. COTTONGIM responded that a draft regulation was issued for
public response, but, under review, resulted in the department
realizing the need to maintain the current practices.
10:34:05 AM
CHAIR SEATON observed that the popularity of the original pop-
top can is being surpassed by consumer interest in an economical
can size. The legislation qualifies pop-top cans without
consideration of size, and he asked whether the department is
taking measures to meet this innovative development; whether the
small size can is required to be a pop-top.
MR. TANGEMAN indicated that at this point the department has not
taken a stance and remains open to industry recommendations.
CHAIR SEATON underscored that it is important to be aware of the
changing market demands and to institute new innovations for
product improvement in order to insure Alaska's position at the
forefront of the industry.
10:37:17 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Fisheries meeting was adjourned at 10:37
a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 177 Blank CS.PDF |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 CFRLF Historical Information.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 CFRLF Overview with Example Programs.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 Current and HB177 Interest Rates.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 Product Quality and Engine Efficiency Loans Through 3.6.13.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 Sectional Summary.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 Sponsor Statement.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 CSHB177(FSH) Sectional Summary.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| UFA SUPPORT HB 177 Revolving Loan Fund 4.1.2013.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| House Special Committee on Fisheries.pdf |
HFSH 4/2/2013 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB177-DCCED-DED-03-29-13.pdf |
HFSH 1/28/2014 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 Product Quality and Engine Efficiency Loans as of 1 15 2014.pdf |
HFSH 1/28/2014 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 Power Point Presentation.pdf |
HFSH 1/28/2014 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 CDFU support.pdf |
HFSH 1/28/2014 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 Amendment to CSHB177(FSH).pdf |
HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 CSHB177(FSH) Amendment Powerpoint.pptx |
HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| SPD Overview pdf.pdf |
HFSH 2/4/2014 10:00:00 AM |
Salmon Product Development Tax Credit |
| House Fisheries Committee Follow Up 02-03-14.pdf |
HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| Rep Johnson HFisheries 02-03-14.pdf |
HFSH 2/4/2014 10:00:00 AM |
HB 177 |