Legislature(2001 - 2002)
04/15/2002 03:31 PM House FSH
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON FISHERIES
April 15, 2002
3:31 p.m.
MEMBERS PRESENT
Representative Gary Stevens, Co-Chair
Representative Peggy Wilson, Co-Chair
Representative Drew Scalzi
Representative Fred Dyson
Representative John Coghill
Representative Mary Kapsner
Representative Beth Kerttula
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 456
"An Act relating to the commercial fishing loan program; and
providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 456
SHORT TITLE:COMMERCIAL FISHING LOAN PROGRAM
SPONSOR(S): REPRESENTATIVE(S)COGHILL
Jrn-Date Jrn-Page Action
02/19/02 2311 (H) READ THE FIRST TIME -
REFERRALS
02/19/02 2311 (H) FSH, RES, FIN
02/19/02 2311 (H) REFERRED TO FISHERIES
04/15/02 (H) FSH AT 3:30 PM CAPITOL 124
WITNESS REGISTER
ED CRANE, President
Alaska Commercial Fishing and Agriculture Bank (CFAB)
2550 Denali Street, Number 1201
Anchorage, Alaska 99503
POSITION STATEMENT: Testified in support of HB 456 and gave
specific information on behalf of CFAB.
GREG WINEGAR, Director
Division of Investments
Department of Community & Economic Development
P.O. Box 34159
Juneau Alaska 99803-4159
POSITION STATEMENT: Testified against HB 456 on behalf of the
Division of Investments.
JAMIE ROSS, Fisherman
(No address provided)
Homer, Alaska
POSITION STATEMENT: Testified against HB 456, saying he would
not want to see the state loan program changed.
JERRY SPENCER, Fisherman
2142 Trent Avenue
Tucson, Arizona 85716
POSITION STATEMENT: Testified on HB 456, saying the state
should see the value in getting some loan payments instead of
none.
CORA CROME
Petersburg Vessel Owners Association
P.O. Box 232
Petersburg, Alaska 99833
POSITION STATEMENT: Testified against HB 456, saying the state
loan fund helps bring new fishermen into the business.
PAUL SEATON
58395 Bruce Street
Homer, Alaska 99603
POSITION STATEMENT: Testified against HB 456.
KENNETH MACK, SR., Fisherman
5301 Trena Street
Anchorage, Alaska 99507
POSITION STATEMENT: Testified against HB 456.
BRUCE MARIFERN, Fisherman
P.O. Box 917
Petersburg, Alaska 99833
POSITION STATEMENT: Testified against HB 456.
MIKE HEIMBUCH
4540 Anderson Street
Homer, Alaska 99603
POSITION STATEMENT: Testified against HB 456 as a participant
in state and CFAB loans.
MARILYN MENISH MEUCCI, Fisherman
P.O. Box 1076
Petersburg, Alaska 99833
POSITION STATEMENT: Testified against HB 456.
STEVE BROWN, Fisherman
35717 Park Road
Homer, Alaska 99603
POSITION STATEMENT: Testified in opposition to HB 456.
ALAN OTNESS, Fisherman;
CFAB Board Member
P.O. Box 317
Petersburg, Alaska 99833
POSITION STATEMENT: Testified in support of HB 456.
BRUCE HENDRICKSON, Fisherman
P.O. Box 1439
Homer, Alaska 99603
POSITION STATEMENT: Testified on HB 456.
SUE ASPELUND
Cordova District Fishermen United
P.O. Box 939
Cordova, Alaska 99574
POSITION STATEMENT: Testified against HB 456.
GERALD (JERRY) McCUNE, Lobbyist
for United Fishermen of Alaska (UFA)
211 Fourth Street, Suite 110
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 456, saying that trading
one loan for another will not help the industry.
ACTION NARRATIVE
TAPE 02-10, SIDE A
Number 0001
CO-CHAIR GARY STEVENS called the House Special Committee on
Fisheries meeting to order at 3:31 p.m. Members present at the
call to order were Representatives Stevens, Wilson, Scalzi,
Coghill, and Kerttula. Representatives Kapsner and Dyson
arrived as the meeting was in progress.
HB 456-COMMERCIAL FISHING LOAN PROGRAM
[Contains discussion relating to SB 329]
CO-CHAIR STEVENS announced that the matter before the committee
was HOUSE BILL NO. 456, "An Act relating to the commercial
fishing loan program; and providing for an effective date."
Number 0105
REPRESENTATIVE COGHILL, sponsor of HB 456, presented the bill.
He said during a time when there are such significant issues in
the fishing industry, this bill would create no small stir. It
asks a fundamental question: "At what point does government
compete with another private entity; at what point do we
subsidize." He told the committee there are fishermen who are
servicing debt with private banks or the Commercial Fishing and
Agriculture Bank (CFAB). Others within the fleet have the same
types of loans with the state, and under certain conditions have
been allowed to extend or delay some of the servicing of their
debt. This situation puts certain fishermen at a disadvantage.
REPRESENTATIVE COGHILL informed members that HB 456 would limit
the scope of loans in the [Commercial Fishing Revolving Loan
Fund], reduce the prequalifying loan fee from $200 to $50, and
limit the amount that could be borrowed to $35,000. He said the
bill was not brought forth with the intention of hurting people,
and it would be wrong to change the terms of existing loans.
The industry has a growing liability and is overcapitalized. He
made it clear that CFAB would be able to buy [the loans], but
that it would not be mandated.
Number 0544
ED CRANE, President, Alaska Commercial Fishing and Agriculture
Bank (CFAB), testified that CFAB supports the bill. First, the
bill is good fiscal policy. Some basic problems of the fishing
industry in general, and the salmon fishery in particular, are
overcapitalization and excess effort. He cited specific
legislation that had gone through the House Special Committee on
Fisheries and other efforts to reduce the number of fishermen on
the grounds. He said buybacks and similar programs make no
sense when the state continues to "pour public money in [to the
fishing industry] on an indiscriminate basis."
Number 0782
MR. CRANE referred to page 7, Section 12, line 13, of the bill.
He said that portion would mandate the liquidation of existing
loans. He assured the committee that the liquidation would not
be a "fire sale." The intent is to turn [the loans] into cash
as the cash becomes available. He gave the example of a loan
with 12 years of payments outstanding; it would take 12 years to
liquidate the loan. He assured the committee that those people
with loans outstanding are constitutionally protected from their
loan's terms being changed.
Number 0970
MR. CRANE noted that Section 12 specifies that the liquidation
process may include the negotiated sale of loans and other
assets; CFAB is listed because it is the only private entity
that can take or enforce a lien on a limited entry permit. Mr.
Crane said CFAB had no interest in buying the Division of
Investments' loan portfolio, because of a lack of staff required
for such a task; furthermore, CFAB's lender would not be quick
to provide the money. If the Division of Investments were to
approach CFAB with specific loans for sale, however, CFAB might
consider buying them upon close consideration. He said CFAB
wasn't coveting the state's loan portfolio.
MR. CRANE pointed out that paragraph (2) of Section 12 allows
for a financial institution to be an agent to "do the job for
the Division of Investments." He said he could see CFAB filling
that role. Nothing [in the bill] mandates that appointment of
agency, but it does mandate the orderly liquidation process.
Section 11 requires the Commercial Fishing Revolving Loan Fund
to make an annual report to the legislature on the state of its
finances. He remarked, "It is time to change public policy to
deal with today's realities."
Number 1300
MR. CRANE explained that the second reason the bill is
attractive to [CFAB] is the equitability it promotes among
commercial fishermen. He characterized commercial fishing as
competitive. He posited that the state loans have created a
privileged class with tremendous advantages. He said the fund
has failed to require interest payments by approximately a third
of its borrowers; in at least a couple of cases, as many as four
years' interest hasn't been paid. In the past five years, the
fund has only collected approximately 80 percent of interest
due. Mr. Crane remarked, "Before the most recent payment
season, they had over $7 million in this so-called deferred-
interest account - this total of interest that has not been paid
by borrowers over the last several years."
Number 1467
MR. CRANE offered a hypothetical election funding analogy, as
well as an anecdote about a fisherman who was not paying
interest but who'd been successful enough in his fishing to take
his family to Disneyland.
Number 1715
MR. CRANE addressed a third issue, how he believes the loan fund
has actually been a grant fund. He characterized some of the
credit data CFAB had procured from the fund through the Freedom
of Information Act as "shocking." As commercial fishing has
gotten tougher, [the fund's] procedures have been liberalized
without analysis or discussion. He called it "outrageous" and
"disruptive to the market." He said it is hard for other
lenders to determine "who the survivors might be when we have
the Commercial Fishing Revolving Loan Fund out there doing
irrational things." There is an examination of every financial
institution in the state, but not for the fund.
Number 1871
MR. CRANE noted that his final point dealt with the relationship
between the Commercial Fishing Revolving Loan Fund and CFAB.
Created by the legislature, CFAB initially was funded by $32
million of state money, which was to be returned by the
fishermen with whom CFAB does business. He said CFAB now has
$20 million of equity that belongs to fishermen. Mr. Crane said
it is his job to protect that equity, but also said the
legislature has a responsibility in that task. He called the
state a predator, and said CFAB is being damaged by the Division
of Investments. He said CFAB pays state and federal taxes,
while the Division of Investments doesn't even pay filing fees.
The bill does not dismantle the Division of Investments, he
said. Rather, it would bring [it into a position where it was
not competing with private enterprise].
Number 2160
GREG WINEGAR, Director, Division of Investments, Department of
Community & Economic Development, testified before the
committee. He said the loan fund has a very long track record
of helping harvesters in the state, and has been successful
financially. The division has had to do some innovative things,
and the statutes were crafted with flexibility built in so that
the mission of promoting a predominantly resident fishery could
be achieved. He said the fund's policies have been implemented
to deal with a dramatically changed marketplace. The program
does not directly compete with CFAB, and most of the borrowers
would not qualify for CFAB or other private-lender loans.
MR. WINEGAR noted that there is a small amount of overlap
[between CFAB and the loan fund] because CFAB is the only
private lender that can secure a loan with a limited entry
permit. He told the committee the fund has a tremendous amount
of oversight; he spoke of the yearly audits the fund undergoes.
Mr. Winegar said the fund hasn't received any complaints from
harvesters about unfair advantage amongst their ranks. The fund
has been concentrating on its mission: promoting a
predominantly resident fishery. Pulling the plug on individuals
would not be a service to that mission. He said the bill would
adversely affect existing and future borrowers.
Number 2382
JAMIE ROSS, Fisherman, testified via teleconference. He voiced
strong opposition to the bill. He told the committee he had
taken five loans with the state, two of which had been paid off.
His boat was financed through CFAB. He said Mr. Crane failed to
stress that the only two financial entities that can
collateralize commercial entry permits are the State of Alaska
and CFAB. The state program was set up because of the special
nature of permits, which are use privileges, not property. If
the state program were taken out of that unique group of two,
CFAB would be the only entity entitled to finance those loans.
He said the state gives a better interest rate than CFAB, and
that is just good business.
MR. ROSS said he could appreciate Mr. Crane's trying to operate
his business in a competitive manner, but fishermen must do the
same. Fishermen would not be making a wise business decision to
pay high interest rates with shorter terms while the state
provides the opportunity to get extensions and survive the tough
times. He warned of the consequences for fishermen being forced
out of business. He told the committee of the success that the
Commercial Fishing Revolving Loan Fund helped bring him, and
said he would hate to see it changed in form. He said it is the
time to help people, and not look for ways to hurt them.
Number 2653
JERRY SPENCER, Fisherman, testified via teleconference. He said
he bought his Bristol Bay permit in 1997 for $180,000, but it
has since devalued to $20,000. He told the committee he didn't
make his state loan payment this year after making a gross of
$16,000. He said the state is charging late fees and a higher
interest percentage. He said some money coming back [to the
state] is better than none. He shared his assumption that the
state is "turning this over to CFAB to wash [its] hands of it."
He told of the hard times being experienced by Bristol Bay
gillnet fishermen. He expressed his wish to see some help from
the state.
Number 2825
CORA CROME, Petersburg Vessel Owners Association, testified via
teleconference. She expressed her organization's opposition to
HB 456. She told the committee that the fund provides entry-
level opportunities to those who want to get involved, and it
also helps people expand their businesses. Commercial fishing
is the primary - and in some cases, the only - industry in many
coastal communities. The loan program is funded by the interest
paid by fishermen. Even with Mr. Crane's number of 80 percent
of interest collected, it is not a grant program.
MS. CROME said fishermen are using this opportunity and helping
the economy of the state. Limiting the state loan to $35,000
would make CFAB the only lender for permits for the following
fisheries: herring seine; Southeast Dungeness crab, king, and
tanner crab; or salmon gillnet. That would not be good for
fishermen. She said the program has an admirable purpose, and
it shouldn't be modified. She characterized the bill as a step
in the wrong direction.
Number 2970
PAUL SEATON testified via teleconference, noting that he had
neither a CFAB nor a state loan. He stated his opposition to
the $35,000 limit on loans as written in HB 456.
TAPE 02-10, SIDE B
Number 2998
MR. SEATON expressed concern about CFAB's having a monopoly on
loans. He raised the issue of SB 329 and its allowance of
Community Development Quota (CDQ) corporations to purchase
limited entry permits. He said CDQ groups currently have the
ability under the state fund to be able to deposit, and loan
money to keep boats and permits within the state. This bill
would eliminate that possibility and allow CDQ corporations to
own permits - a circumstance he opposes. He said he wasn't
averse to lowering the amount of loans from 90 percent to 80
percent of value, as stated in the bill on page 4, line 6. He
suggested that in cases of foreclosure on non-performing loans,
perhaps the permits should be retired instead of reissued.
Number 2857
KENNETH MACK, SR., Fisherman, testified via teleconference. A
member of CFAB, he said the provision in Section 12 "that the
state would liquidate all loans" made it appear to him that the
whole portfolio would have to go. He said [the money made from
his halibut fishing] was keeping him in the salmon fishery; the
same is true for many people in his area. He told the committee
that $35,000 would not purchase very much [Individual Fishery
Quota (IFQ) for halibut]. He said he was currently trying to
refinance his vessel with a state loan because it is smart
business to take advantage of the low interest rates.
Number 2698
BRUCE MARIFERN, Fisherman, testified via teleconference. He
said he had a couple of loans through the Division of
Investments, one of which he'd paid off already. The other loan
was for a Prince William Sound permit bought a week before the
Exxon Valdez oil spill [ruined the fishery]; it was an expensive
permit, and the state was very helpful to him by allowing him to
make payments on the interest only. He said capping the loan at
$35,000 or even $75,000 would effectively eliminate a source of
money. The effect on the 2,000 fishermen who use the loan fund
would be tremendous if it were taken away. He characterized it
as a bad time to call all the notes, when so many fishermen need
help. He said he was not in support of HB 456.
Number 2621
MIKE HEIMBUCH testified via teleconference, noting that he is a
state and CFAB loan participant. He expressed his understanding
that the loan was instituted to shield [fishermen] from
financial institutions, and to promote resident fisheries. Even
with [CFAB's] reformed amortization policies, many people in the
state have a distaste for CFAB. He said he did not see CFAB as
a good alternative to the state loan program. This bill is set
up to push and enhance [CFAB's] reputation at the expense of the
state loan program; it is a bad deal.
Number 2555
MARILYN MENISH MEUCCI, Fisherman, testified via teleconference.
She told the committee she and her husband had paid off their
Bristol Bay permit loan, but still have a loan outstanding for
their boat. She voiced opposition to HB 456. She said the
[legislature] had not thought out clearly how the bill would
affect fishing families and their communities. Now is the time
to think of how to help fishing families. She said her family
does not take vacations, and her husband has taken jobs outside
of fishing in order to survive. She pointed out how Congress
stands behind farmers with money and loans. She said Alaska
should stand behind its fishermen and fishing communities.
Number 2497
STEVE BROWN, Fisherman, testified via teleconference, saying he
would echo many of the previous testifier's comments against HB
456. The $35,000 limit on the loan would not be much of a help;
it might as well be zero. He expressed concern about the
statutory changes regarding interest rates. Eliminating the
state's flexibility in modifying loans [would be a poor action].
He told the committee that an extension for a person isn't an
unfair advantage because those with their loans paid off are
tying their boats up and leaving the fisheries. Those who got
in at an unfortunate time are still working hard and trying to
survive. He said these fishermen appreciate the flexibility
being given by state, and the state should be applauded for
that, not punished.
Number 2365
ALAN OTNESS, Fisherman; CFAB Board Member, testified via
teleconference. He expressed concern for the longevity of
[CFAB] programs and members' equity. He characterized these as
trying times in the salmon industry. He extended his sympathy
for those affected, but said there are two groups: those with
CFAB loans and those with loans from the Division of
Investments. He said both groups are in trouble.
MR. OTNESS told the committee CFAB should not be punished by
what he considered the Division of Investments' predatory
practices. He said discrediting the $20 million in CFAB equity
was disconcerting to him. He said the issue was making things
equitable between both groups. The loan policies for the
Division of Investments haven't been consistent, and they need
to be examined and changed. If changes are not made, CFAB's
equity will go away as well. He expressed support for HB 456.
Number 2226
BRUCE HENDRICKSON, Fisherman, testified via teleconference. He
told the committee that the gillnet operation which he took out
a state loan to finance was worth ten cents on the dollar for
what he'd paid for it; if HB 456 is passed, he expects to see
CFAB attempt to take away his permit. He said, "House Bill 456
will be used to steal from those who have paid the largest share
of their life's earnings to acquire formerly overvalued assets."
The Division of Investments has done a good job carrying out a
mission far different from CFAB's.
MR. HENDRICKSON said he was encouraged by "former director
Richardson" to take out a loan from the state. Loan extensions
and modifications have helped to avert disaster in fishing towns
all over the state. He said CFAB hasn't granted extensions as
frequently because it is more oriented toward profits. Mr.
Hendrickson expressed his wish that if CFAB needs an infusion of
capital, it would get it from somewhere other than those with
the least to give. He suggested that the bill might be looked
at as a request [for the state] to help CFAB in some way.
Number 2072
REPRESENTATIVE DYSON expressed understanding that people have
strong feelings on the issue, but he warned that equating not
giving an extension on a loan with stealing is an overstatement.
He said people who issue loans should not be accused of being
thieves unless someone is willing to bring an indictment.
Number 1996
SUE ASPELUND, Cordova District Fishermen United, testified via
teleconference. She told the committee that her organization
could not support the legislation. She said HB 456 "guts" a
program upon which thousands of fishing families depend. An
evaluation of the program is appropriate, but she said this
isn't the appropriate time to make such wholesale changes to a
program with such huge ramifications to so many people. She
said "forced economic attrition" was not a prudent response to
the industry's crisis.
Number 1931
GERALD (JERRY) McCUNE, Lobbyist for United Fishermen of Alaska
(UFA), testified before the committee. He characterized [both
CFAB and Division of Investments loans] as very important to the
fishing industry. He reminded the committee that the loans
apply to residents only. He said many people are in trouble
because of failing fisheries. He gave examples of fisheries
composed of hardworking people who want to make their payments;
they have no recourse and no way to make money. He said trading
one loan for another would not help [the industry]. He
concluded, "If they are a little bit creative on one side or the
other, ... so be it. Let's try to keep these permits in the
hands of residents."
Number 1749
REPRESENTATIVE SCALZI said everything about commercial fisheries
must be looked at, including loans. He asked if the CFAB board
was in support of the bill, and if it was behind the drafting of
the bill.
MR. CRANE said the board was behind the bill, but it was not
behind its drafting.
REPRESENTATIVE SCALZI referred to Mr. Crane's comment that "the
commercial fishing industry effort is a bad risk." He asked if
eliminating the Division of Investment loans would make CFAB
less likely to invest in the commercial fishing industry.
MR. CRANE stressed that neither the bill nor CFAB was intent on
dismantling the Division of Investments. He clarified that he
did not believe financing commercial fishermen was a bad thing
to do "in a general sense." To continue to put public money
into an activity that is supposed to be giving money back makes
no sense, however. He asked that the legislature not call it a
loan program because [the division] does not make decisions like
a loan program would.
Number 1477
REPRESENTATIVE SCALZI asked why the issue had come to a head
recently, after 20 years of success.
MR. CRANE said the business of CFAB and the state's loan fund
have gotten tougher. He posited that as things have gotten
tougher, the division has gotten more "innovative" from a credit
standpoint. In the last four or five years, both the loan fund
and the industry have experienced more problems.
REPRESENTATIVE SCALZI asked Mr. Crane to validate some of the
improprieties he'd spoken of earlier, by sending some evidence
in writing. He asked specifically what was meant by the "one-
third getting the 'special deal.'"
Number 1358
MR. CRANE said there were 2,100 borrowers from the state fund;
700 of them have not paid interest for up to four years. He
said with government loan programs, "nobody knows what's there."
REPRESENTATIVE SCALZI asked if things were so subversive that an
audit was in order.
MR. CRANE said he'd been "an examiner" and that what he'd seen
in the division files was "outrageous."
REPRESENTATIVE SCALZI said he was informed by the division that
approximately 22 percent of its loans were in arrears because of
[the fishing industry's problems] in recent years. He asked the
amount of CFAB loans in arrears.
MR. CRANE replied that it was probably close to that same
amount. He said he didn't understand [Representative Scalzi's
figure] because the division was quoted a few weeks prior as
saying that only 3.5 percent of its loans were in default. He
expressed skepticism about such statistics that come from the
division, saying the way it accounts for delinquencies is
unorthodox.
Number 1187
REPRESENTATIVE DYSON agreed that for fishing to survive, it will
take more efficient effort and fewer boats. Fishermen will also
have to be able to move quickly from one fishery to another. He
said if all that is true, $35,000 doesn't seem helpful. He
asked how the figure was arrived at.
MR. CRANE said $35,000 is provided for certain kinds of loans in
the existing statute. He reminded the committee that the bill
provides for up to two loans for a total of $70,000. He said,
"That ... is within the context of the mission statement, ...
that they are to do business in those areas not adequately
served by the private sector." He told the committee that
anybody who is creditworthy can borrow from CFAB as far as
permits are concerned, and many institutions will finance
vessels.
Number 1027
CO-CHAIR STEVENS voiced his concern about the difference of
opinion between Mr. Crane and Mr. Winegar as to what the meaning
of "orderly liquidation" really is.
REPRESENTATIVE COGHILL said he'd gone to the drafter for a legal
opinion. He offered to amend [the bill] to clarify intent. He
asked Mr. Crane where he got his figure of $22 million on hand
at the [Division] if Investments.
Number 0950
MR. CRANE answered that the division had reported, as of
September 30, [2002], that it had $18 million cash on hand. He
offered his assumption that the division would receive combined
interest and principal payments of $10 million to $15 million
dollars in October. He said he would expect the division to
have $25 million or more in cash.
REPRESENTATIVE SCALZI asked if an applicant had to be turned
down by at least two lending institutions before the state would
pick up a loan.
MR. CRANE said that was no longer correct. The statute says
[the division] cannot make a quota-share loan to someone who is
eligible to borrow from another financial institution. He said
that policy is violated routinely.
Number 0762
REPRESENTATIVE SCALZI said it is a contradiction that [the
division and CFAB] are competing in the private sector. He told
Mr. Crane it seems it was set up statutorily that there is a
distinction between the private sector and people who cannot
qualify for other loan programs.
MR. CRANE said that only applies to quota-share loans.
Number 0692
REPRESENTATIVE COGHILL requested that the committee allow some
more hearings of the bill. The health of the fishing industry
is a broader discussion. He said stealing from people was not
his intention, but he'd like to limit [the state's involvement]
to those places where it is clearly outside of a competitive
area. He stated his openness to discussion on the $35,000
limit, but said there must be a discussion on capitalizing a
fishing industry when there isn't room for everybody. He said
he had no intention to cut anyone off. The bill would simply
say, "From this day forward ... we just can't afford to go down
this road any further." [HB 456 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Fisheries meeting was adjourned at 5:03
p.m.
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