Legislature(1993 - 1994)
03/23/1994 08:30 AM FSH
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON FISHERIES March 23, 1994 8:30 a.m. MEMBERS PRESENT Representative Carl E. Moses, Chair Representative Cliff Davidson Representative Harley Olberg, Vice Chair Representative Irene Nicholia MEMBERS ABSENT Representative Gail Phillips COMMITTEE CALENDAR *HB 424: "An Act amending the Commercial Fishing Loan Act to increase the maximum amount of certain authorized loans and to remove certain barriers to eligibility for subsequent loans by borrowers who have previously obtained loans under that loan program." HEARD AND HELD IN COMMITTEE (*First public hearing) WITNESS REGISTER JEFF LOGAN, Legislative Staff to Representative Joe Green Alaska State Legislature P.O. Box 1182 Juneau, Alaska 99811-1182 POSITION STATEMENT: Gave sponsor statement on HB 424. GREG WINEGAR, Manager Juneau Lending Branch Division of Investments Department of Commerce & Economic Development P.O. Box 34159 Juneau, Alaska 99803-4159 POSITION STATEMENT: Answered questions on HB 424. MICHAEL HEIMBUCH, Legislative Staff to Representative Gail Phillips Alaska State Legislature P.O. Box 1182 Juneau, Alaska 99811-1182 POSITION STATEMENT: Commented on HB 424. PREVIOUS ACTION BILL: HB 424 SHORT TITLE: FISHERY LOAN PROGRAM SPONSOR(S): REPRESENTATIVE(S) GREEN JRN-DATE JRN-PG ACTION 02/02/94 2219 (H) READ THE FIRST TIME/REFERRAL(S) 02/02/94 2219 (H) FSH, L&C, STATE AFFAIRS, FINANCE 03/23/94 (H) FSH AT 08:30 AM CAPITOL 17 ACTION NARRATIVE TAPE 94-15, SIDE A Number 001 CHAIRMAN CARL MOSES called the House Special Committee on Fisheries meeting to order at 8:38 a.m. He noted members in attendance. HB 424 - FISHERY LOAN PROGRAM The only order of business to come before the committee was HB 424 "An Act amending the Commercial Fishing Loan Act to increase the maximum amount of certain authorized loans and to remove certain barriers to eligibility for subsequent loans by borrowers who have previously obtained loans under that loan program." JEFF LOGAN, LEGISLATIVE STAFF TO REPRESENTATIVE JOE GREEN, sponsor of the measure, indicated that Representative Green was in another meeting. He explained that HB 424 is a result of discussions Representative Green had over the interim with a constituent. The constituent is a commercial fisherman and found himself restricted by a subsection in the law that may not need to be there to serve the interests of the state in a loan program. The Fisheries Loan Program is not an aspect of the law that Representative Green has spent a lot of time on. Mr. Logan said if there needs to be improving changes in the legislation, Representative Green would be open to it. MR. LOGAN explained that under the loan program there are two different sections. There is an "A" loan which is a loan for permits. They go up to $300 thousand. There is also the "B" loan which is a loan for gear, permits and vessels. A person may borrow up to $100 thousand. Mr. Logan said the problem is AS 16.10.320 (i) states that if you first get a "B" loan, you are not eligible for the "A" loan. So if you already have a vessel or gear under the "B" program, you cannot apply to get a permit under the "A" program. Mr. Logan explained that a few years ago when the value of permits increased a great deal, those participants who were working under the "B" loan needed to increase the amount of their loan because the cost of the permits went up. Once they were in the "A" program, they couldn't participate in receiving a "B" loan. Mr. Logan said what is proposed in HB 424, Section 3, is to repeal that restriction. If you are eligible for one, you would be eligible for both. MR. LOGAN said while making the change, the drafters of the bill noted there were a few other subsections that needed to be conformed to. In doing that, it created something in Section 2 that we don't want. Section 2 says, "Two or more individual commercial fishermen who each satisfy the requirements specified in AS 16.10.310(a)(1)(B) may jointly, whether operating as a corporation, partnership, joint venture, or otherwise, obtain a commercial fishing loan for the repair, restoration, or upgrading of an existing vessel and gear, for the purchase of gear, and for the construction or the purchase of a fishing vessel. A loan granted under this subsection may not exceed $100,000..." Mr. Logan explained with the dynamic bottom fishery and the Individual Fishery Quotas (IFQs) coming up, this may put into statute a restriction that is not Representative Green's intent at all. The problem would be that an individual fishermen applying would be eligible for $100 thousand, but if it would be for a permit they would be eligible for $300 thousand. Yet two fishermen together could get $200 thousand. He noted that Greg Winegar from the Division of Investments is in attendance. REPRESENTATIVE CLIFF DAVIDSON pointed out that Representative Green represents an area of Anchorage and asked what prompted his interest in such a loan program. MR. LOGAN explained there are some constituents who are commercial fishermen in District 10. MR. LOGAN said in trying to figure out why the restriction was in statute, he spoke to the Division of Investments. They weren't exactly sure but they had some ideas. Mr. Logan said in the committee member's packets there is a memorandum from Legislative Legal as to why it was in statute, but it isn't exactly clear. GREG WINEGAR, MANAGER, JUNEAU LENDING BRANCH, DIVISION OF INVESTMENTS, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT, discussed the history of the restriction that is in the statute. He said a number of years ago there was a program called Fishermen's Mortgage and Note which was set up for rural fishermen. In the early 1980s, the state made a decision to get the state out of the lending business in regards to commercial fishing vessels. The Commercial Fishing and Agricultural Bank (CFAB) and the Alaska Industrial Development and Export Authority (AIDEA) were created. At that time, the idea was to let those entities do vessel financing. For a couple of years, this program only allowed the state to make loans for limited entry permits. In the mid-1980s it was decided that there was a lot of rural fishermen that were having trouble getting loans through the traditional sources so they created what was called the Fishermen's Mortgage and Note Program, which was targeted at rural fishermen that couldn't get loans any place else. Mr. Winegar said that program was combined with the Commercial Fishing Program and that is what Section "B" is. The language goes back to the old Fishermen's Mortgage and Note Program which said that the Section "B" loans were targeted at rural fishermen who couldn't get loans elsewhere. REPRESENTATIVE DAVIDSON said the effect would be a diminished amount as far as the overall fund is concerned to those people who reside in rural Alaska. MR. WINEGAR said it would increase loan demand by increasing the dollar amount from $100 thousand to $300 thousand. It would also mean there would be more borrowers eligible by removing the restriction. The demand would increase overall. That should be taken into consideration along with SB 132 which deals with individual fishing quotas and HB 381/SB 251 which makes changes to the program. REPRESENTATIVE DAVIDSON informed the committee that he has a problem with the legislation. The people that we are trying to benefit by some of the loan programs are people who are left out of the normal traditional loan stream. By expanding the reasons for getting loans from any fund will impact what is available for those who are trying to get involved through youthful entry. Representative Davidson said as a representative from a coastal fishing area, the more difficult we make it for youthful entry into the fisheries, the dimmer our future is. Number 225 CHAIRMAN MOSES asked if the overall limit of $300 thousand would change. MR. WINEGAR explained the overall limit for the program would stay at $300 thousand. It increases the limit under Section "B" from $100 thousand to $300 thousand. The overall limit for the whole program is $300 thousand. Number 236 REPRESENTATIVE IRENE NICHOLIA said if somebody received a loan for $100 thousand under the "B" Program and wanted to use the "A" Program to get $300 thousand for a total of $400 thousand, is a person able to do that. MR. WINEGAR explained that a person could receive $100 thousand under the "B" Program and then they would be eligible for $200 thousand under the "A" Program for a total of $300 thousand. CHAIRMAN MOSES asked if the criteria for borrowing is the same for both programs. MR. WINEGAR explained the eligibility is different. Under Section "A," you must have been a two year resident and have actively participated in a fishery three of the past five years, including the preceding season. Under Section "B," the residency is the same but you have to be economically dependent on fishing for a livelihood or be in an area where you have no other sources of financing available. The other difference is under Section "B," you are not eligible if you can get the financing elsewhere. He noted that restriction doesn't apply to Section "A." Number 261 CHAIRMAN MOSES asked if the requirements can be changed under regulation. MR. WINEGAR said as far as eligibility goes, he would say no. No changes have been made as to what the statute requires in regards to eligibility. He said they have further defined, by regulation, what things mean. Mr. Winegar explained the term "active participation" was debated at great length. The division implemented regulations to define what was meant by "active participation." He referred to the financial aspects of the loans and said each loan is reviewed on an individual basis and there are a number of factors that are weighed. REPRESENTATIVE DAVIDSON said he would like to know what some of the different fishing organizations feel about the impact on their loan funds. He indicated he isn't ready to vote on the legislation yet. Number 325 MICHAEL HEIMBUCH, LEGISLATIVE STAFF TO REPRESENTATIVE GAIL PHILLIPS, referred to Section "B" of the bill and said the loan program is a way to help people in Western Alaska become more competitive whether it was through the purchase permits or boats. We have reached a point in time when the industry has evolved a lot. The idea behind the bill is to help residents. Mr. Heimbuch said that people who went and got Section"A" loans probably didn't consider the ramifications of not being able to upgrade their vessels. As the industry progressed, the need for vessel loans to keep pace with the industry has increased. Mr. Heimbuch referred to money being taken away from the total amount of money available for loans within the total "A" and "B" Sections of the Division of Investments, there always seems to be plenty of money there for these loans. If they are distributed between Section "A" and Section "B" in a different way, he wouldn't think it would affect the overall amount of money available. Mr. Heimbuch said he views the bill and the evolution of the program as being one to help residents get competitive vessels into the industry. Number 370 REPRESENTATIVE DAVIDSON referred to a memorandum from the Department of Commerce and Economic Development and said they indicate that loan demand for Section "B" loans would increase. That would increase demand on the commercial fishing loan fund. MR. HEIMBUCH said when a person applies for a Section "A" loan, they are eligible to use different kinds of collateral. The collateral value of your boat could be used to get a Section "A" loan. A loan could be structured in a way that you could get money to finance a vessel through either part of the loan program. REPRESENTATIVE DAVIDSON said if you have the "A" or "B" loan, why can't you leverage from commercial loan opportunities what you're seeking overall. If you have one loan, you are halfway there. He indicated he thought the loans were to help people who aren't even halfway there. MR. HEIMBUCH said the biggest differential is the ability to use that permit as collateral which is only available through the State of Alaska. CFAB, for most people who review it, is not a great organization to get a loan through. The State of Alaska is the only place for people who are halfway there, part way there, or are all the way there, can really reasonably finance their loan. He continued to discuss loan programs. CHAIRMAN MOSES said there are a lot of fishermen in the Chignik/Perryville/Ivanof Bay area where they went to "fly-by-night" financial deals and were financed at 17 or 18 percent with five to seven year terms. He asked if the legislation would help those people. MR. HEIMBUCH said he thinks that SB 251 and HB 381 would help in those cases. Those bills contain a provision where existing debt can be refinanced. Under current statute, it can't be done. CHAIRMAN MOSES announced that the bill would be held for further review. Number 419 ADJOURNMENT There being no further business to come before the House Special Committee on Fisheries, CHAIRMAN MOSES adjourned the meeting at 9:07 a.m.