Legislature(1995 - 1996)
03/11/1996 03:10 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 11, 1996
3:10 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Norman Rokeberg, Vice Chairman
Representative Beverly Masek
Representative Jerry Sanders
Representative Brian Porter
Representative Kim Elton
Representative Gene Kubina
MEMBERS ABSENT
All members were present.
COMMITTEE CALENDAR
* HOUSE BILL NO. 490
"An Act relating to grants and other financial assistance
authorized or made by the Alaska Science and Technology Foundation
for the BIDCO assistance program."
- PASSED OUT OF COMMITTEE
* HOUSE BILL NO. 502
"An Act relating to the auctioning of real estate."
- PASSED OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 490
SHORT TITLE: FINANCIAL ASSISTANCE TO BIDCO
SPONSOR(S): REPRESENTATIVE(S) B.DAVIS, Robinson, Willis, Brown,
Elton
JRN-DATE JRN-PG ACTION
02/09/96 2693 (H) READ THE FIRST TIME - REFERRAL(S)
02/09/96 2693 (H) L&C, STATE AFFAIRS, FINANCE
02/21/96 2847 (H) COSPONSOR(S): WILLIS, BROWN
02/22/96 2862 (H) COSPONSOR(S): ELTON
03/11/96 (H) L&C AT 3:00 PM CAPITOL 17
BILL: HB 502
SHORT TITLE: CONDUCTING AUCTIONS OF REAL PROPERTY
SPONSOR(S): REPRESENTATIVE(S) G.DAVIS, Navarre
JRN-DATE JRN-PG ACTION
02/12/96 2726 (H) READ THE FIRST TIME - REFERRAL(S)
02/12/96 2726 (H) LABOR & COMMERCE, FINANCE
03/11/96 (H) L&C AT 3:00 PM CAPITOL 17
WITNESS REGISTER
JONATHAN SPERBER, Legislative Aide to
Representative Bettye Davis
Alaska State Legislature
State Capitol Building, Room 430
Juneau, Alaska 99801
Telephone: (907) 465-3875
POSITION STATEMENT: Provided sponsor statement for HB 490.
JAMES KENWORTHY, Executive Director
Alaska Science and Technology Foundation
4500 Diplomacy, Suite 515
Anchorage, Alaska 99508
Telephone: (907) 272-4333
POSITION STATEMENT: Testified on HB 490.
REPRESENTATIVE GARY DAVIS
Alaska State Legislature
Capitol Building, Room 420
Juneau, Alaska 99801
Telephone: (907) 465-3835
POSITION STATEMENT: Sponsor of HB 502.
NORM "BUD" BLAKELY, Auctioneer
P.O. Box 537
Soldotna, Alaska 99669
Telephone: (907) 262-3536
POSITION STATEMENT: Testified in support of HB 502.
KEN LANCASTER, Broker
Beluga Realty
Box 104
Soldotna, Alaska 99669
Telephone: (907) 260-3575
POSITION STATEMENT: Testified in support of HB 502.
ACTION NARRATIVE
TAPE 96-20, SIDE A
Number 001
The House Labor and Commerce Standing Committee was called to order
by Chairman Pete Kott at 3:10 p.m. Members present at the call to
order were Representatives Kott, Masek, Sanders, Porter and Elton.
Members absent were Representatives Rokeberg and Kubina.
HB 490 - FINANCIAL ASSISTANCE TO BIDCO
CHAIRMAN KOTT noted that the first item of business was HB 490 and
called upon Jonathan Sperber to introduce the bill.
Number 030
JONATHAN SPERBER, Legislative Aide to Representative Bettye Davis,
sponsor of HB 490, presented the sponsor statement:
"Under current law, the ability of the Alaska Science and
Technology Foundation to authorize new financial assistance without
legislative approval will sunset on June 30th of this year. House
Bill 490 would extend the sunset date to June 30, 2000.
"The 18th Legislature appropriated $3 million to establish a BIDCO
fund, BIDCO standing for Business and Industrial Development
Corporation Act, but Governor Hickel vetoed $2 million and no
additional appropriations have been made. The BIDCO fund has thus
been severely underfunded since it was established in 1992.
"A successful BIDCO generally requires about $3-5 million in
capitalization. Both the state and private sectors have determined
that the $1 million in the BIDCO fund is not enough to allow an
otherwise acceptable request for proposal to be funded. House Bill
490 would authorize the Alaska Science and Technology Foundation to
make grants to BIDCOs, thus overcoming this funding obstacle.
"BIDCOs provide emerging, small- and medium-size businesses with
financing, management support and technical assistance. BIDCOs
provide flexible financing for businesses with economically sound
financing needs, but which are considered too risky by conventional
lenders. BIDCOs compensate for taking greater risks by providing
a much greater degree of hands-on support and management
assistance, thus reducing the risk and facilitating the growth of
their portfolio companies. Incentives are also included to assist
businesses that are minority-owned or located in distressed areas."
Number 201
JAMES KENWORTHY, Executive Director, Alaska Science and Technology
Foundation (ASTF), testified via teleconference from Anchorage. He
cited three reasons why the legislation was a good idea. "First of
all," he said, "there are (indisc. -- coughing) up here that are in
the risk capital business. I would think of BIDCOs as doing less
risky deals than venture capital. They're not all equity deals.
It's a much broader range of businesses in Alaska, as there have
been in Michigan, that would qualify for the debt/equity financing
that BIDCOs can provide. Secondly, we're able to leverage our
funds. Our spreadsheet analyses show that we think about $6
million is the critical mass for the size of BIDCO capitalization
needed to launch these types of financial institutions. The
legislature, by earmarking $1 million of our budget, pretty much
hamstrung us from being able to have a successful proposal come
through our RFP process. We would like to recommend that if the
legislature would extend the $1 million sunset, the ASTF board has
voted to put $2 million of our earnings into it, basically putting
$3 million of public funds to be matched one-to-one by the private
sector. We think that's the proper critical mass to launch a
BIDCO. And we think it's most important for the infrastructure of
the state that that kind of institution be established outside the
public sector, in the private sector, with operators that could
provide hands-on management experience in the (indisc.) these
start-up or turn-around business situations and be risking their
own capital in picking out those deals.
Number 388
MR. KENWORTHY continued: "And lastly, the way we've constructed
the formulas, essentially, for the loaned state funds to be paid
back, is it's a performance-based formula, where essentially the
more jobs, in effect, payroll, that is created and the more sales
of the business, the less they have to pay back the fund. That's
how this subsidy is, basically, it puts the private sector into
this riskier market (indisc.). If they do good deals that create
jobs and sales, then (indisc.) economic development and their loan
to ASTF is hereby reduced. If they don't do good deals, wherever
located, then they will still have the full obligation of the
state's funds in launching the BIDCO."
Number 457
CHAIRMAN KOTT asked about Mr. Kenworthy's indication that ASTF
would take $2 million from its earnings to endow the fund, which
currently had $1 million in it.
MR. KENWORTHY replied, "Right. The legislature in the current bill
gave us $1 million of our earnings and said, `put it toward
BIDCOs.' So we would take $2 million of unobligated funds from
ASTF and put that in the same pot, essentially, creating a $3
million-dollar public fund that we would put an RFP out and say
should be matched one-to-one by the private sector, creating a $6
million capitalized institution."
Number 511
CHAIRMAN KOTT asked whether a grant made by using the endowment
would be an actual grant or a loan.
MR. KENWORTHY explained it was in the form of a loan, with the
statute allowing ASTF to set the terms of that loan. In effect,
ASTF lent funds, at a rate approximating prime, to the successful
proposer, who would then loan that money to businesses. Every
year, ASTF would audit sales and payrolls of the businesses to
determine increases of jobs and sales. By the degree to which they
could show growth in those firms, BIDCOs would reduce their
obligation to repay funds to ASTF. Payback to the state would be
in increased economic development.
Number 597
CHAIRMAN KOTT referred to Mr. Kenworthy's comment that in order for
a BIDCO program to be successful, there needed to be a certain
amount of capitalization, with $6 million being the suggested
amount. Chairman Kott asked if that amount was compatible with
other states.
MR. KENWORTHY replied, "In the Michigan program, they launched 12
BIDCOs. The smallest one was capitalized at only one-and-a-half,
and that's the only BIDCO that had to merge with a larger BIDCO.
The average was $8-10 million and almost all those BIDCOs have now
had a second round of financing. So, the banks have come in and
further private investment has come in. So, for the $20-30 million
the state put up to launch 12 BIDCOs, that was matched, first of
all, by the private sector, two-to-one. And there's been a second
round of financing and that created, basically, $200 million of
capital. We think, based upon that experience and adjusting for
the realities up here, we'll be asking for a one-to-one match. We
think that this $6 million is the minimum size that creates a
critical mass, because ... for your start-up costs, for the hands-
on management, you basically have to look at what interest they
could earn on that money to fully staff a BIDCO and provide those
kinds of management services."
Number 684
CHAIRMAN KOTT mentioned that the BIDCO assistance program had been
created in 1992, before he was in the legislature. The
appropriation made to the program in 1992 was $3 million, of which
the previous administration vetoed $2 million. Representative Kott
asked whether Mr. Kenworthy recalled the reason for the veto.
MR. KENWORTHY replied, "I'm sorry, I can't, even though I testified
as the person running the Michigan technology program at the time.
But I don't think it was related to the Hickel Administration's
position on BIDCOs. I think it was related to the budget issue at
the time."
Number 720
CHAIRMAN KOTT asked: "Do you envision just making a one-time $2
million influx of money through your earnings, or would this be a
continuous process?"
MR. KENWORTHY responded, "A one time, for two reasons. First of
all, we think it's important to capitalize that institution in the
private sector and not have them dependent on ongoing state
support. And secondly, because of the higher rates of return we're
earning this year, because of the permanent fund taking capital
gains, we have the ability to do that this year. We would not
necessarily have the ability to do it next year."
Number 763
REPRESENTATIVE BRIAN PORTER asked why the bill referred, in most
sections, to grants instead of loans.
MR. KENWORTHY replied, "Because our statutory authority allows us
to make grants, essentially. So, the statute says we can grant to
the BIDCO assistance fund, but we structure those grants in the
form of a loan that must be repaid."
REPRESENTATIVE PORTER said he understood the sliding scale on
interest for ability to meet goals of the program. "But just so
that the record is clear," he stated, "what we're really saying
here is you're restructuring a loan, as opposed to a grant that
there is no requirement for repayment."
MR. KENWORTHY replied, "Correct."
Number 847
CHAIRMAN KOTT asked Mr. Kenworthy to point out the area in the bill
that would "lead us to believe that what you will be capitalizing
is, in fact, $2 million on a one-time basis." He added, "It seems
to me that in 1992, the legislature, while giving up their
statutory oversight authority for those grants, if you will,
retained some authority through the appropriation process by
appropriating from the general fund, I assume, $3 million. In this
particular case, you're asking us to give up all authority for
oversight. So, I'm curious as to what section of the bill I can
turn to that will suggest that we're only looking at a one-time
shot in the arm of $2 million, which would basically restore
legislative intent, at least in 1992."
Number 0898
MR. KENWORTHY indicated he was giving a budget answer, not a legal
answer. He said he understood they were asking for the amendment
to the bill just to extend the sunset date of the $1 million
allocation that the legislature already had made. "At the same
time," he said, "the board has made a parallel commitment to put $2
million in additional funds into the BIDCO fund. So, this
legislation does not speak to the additional $2 million we're
talking about, it just speaks to not sunsetting the $1 million."
Number 937
CHAIRMAN KOTT asked about assurance that this board or future
boards would not continue to appropriate money beyond what would
have been expected back in 1992.
MR. KENWORTHY responded, "You would have no other assurance except
that annually ... the ASTF comes back to the legislature and tells
them how we've allocated our funds, by project. And the
legislature can, in the future, as it does now, earmark some of our
earnings for non-ASTF purposes. I think there's a credibility
issue there that we would want to continue to address."
Number 977
REPRESENTATIVE BEVERLY MASEK referred to Section 7, page 2, line
30, which said, "the board of directors shall require that a fair
and reasonable return to the foundation". She wanted to know what
"fair and reasonable" meant.
MR. KENWORTHY indicated the primary goal was not repayment, but to
set up a private sector institution that eventually created enough
jobs and economic activity in Alaska "so that we're repaid by that
economic growth, not repaid to ASTF." He said, "If ASTF was
seeking to be fully repaid, then we would not, in effect, in any
way be sharing the additional risks of doing a BIDCO, and an
effective private market could already have done that. The reason
that the banks are not in this market is because it is a higher
risk than return from how they raise their funds. So, we have to
use our public funds, essentially share that risk, and purchase
economic growth."
Number 1090
REPRESENTATIVE MASEK indicated she understood that BIDCOs were not
set up to pay anybody back for money that would come from the
grants. She asked what interest would be paid to the grantor.
MR. KENWORTHY clarified, "This will be in the form of a deal that
must be repaid." He added that it would be a loan with terms set
at the time of the investment.
Number 1148
REPRESENTATIVE MASEK again asked what was meant by "fair and
reasonable".
MR. KENWORTHY said, "The terms that the board looked at last year,
when we had proposals in front of us, was to loan the funds at
prime and to (indisc.) a credit system." For every increase of
sales of 1.5 percent, the principal of the loan would be reduced a
certain amount. There would be a jobs credit as well. "We tried
to restructure the loan so that if we got the appropriate level of
economic activity, the loan would earn out in approximately ten
years," he added.
Number 1214
CHAIRMAN KOTT asked whether the "fair and reasonable" return
specifically dealt with monetary return or whether there was a
return that combined monetary plus economic benefit.
MR. KENWORTHY responded, "Well, it's a monetary return, but the
more economic return there is, the less they have to pay back [to]
ASTF. The experience in Michigan was that, then, the credit system
was earned out in five to ten years. And that allows them to be
recapitalized, essentially, and to have more conservative money
come in and have a second or third round of financing with
businesses."
Number 1257
CHAIRMAN KOTT asked, "As a BIDCO, if I came to you and asked for a
grant of, say, a half a million dollars, would I have to repay a
half a million dollars back to the endowment?"
MR. KENWORTHY replied, "If you formed a BIDCO and were successful
in our RFP process, and we selected you to negotiate these terms,
in effect, we would put $3 million in and at the end of the year,
you would owe us $3 million plus prime.... And each year, we would
monitor the economic activity of the deals that that BIDCO invested
in. We would count the payroll and the sales.... And the degree
to which they had increased payroll and sales, we would reduce the
principal you owed to ASTF."
Number 1310
REPRESENTATIVE JERRY SANDERS explained he had not been in the
legislature in 1992. He asked for examples of things that had been
funded in Michigan, as well as examples of things ASTF was
considering funding in Alaska.
MR. KENWORTHY emphasized that ASTF would not be making the
decisions of which businesses to fund. The private operators of
the BIDCOs would make those decisions. In Michigan, 30-35 percent
of the deals were in manufacturing turn-around situations. "We
have them up here right now, with natural resource processing
firms," he said. "They don't have the assets to qualify for bank
lending but, essentially, if they can re-equip themselves and
reorganize the business, those firms would be paying a higher-than-
prime rate and giving up a warrant or small-equity kicker to
compensate for the extra risk. And so, that's, I think, the best
market they would serve up here. So, that's about 30-35 percent.
The other about 30 percent were service firms, but they were
service firms that were selling their services nationally." Mr.
Kenworthy noted that when BIDCOs lent money, they usually received
prime plus two or prime plus three, in addition to receiving a
piece of the business in the form of an equity or warrant kicker.
Mr. Kenworthy noted that the remaining 30 percent were "in
commercial."
REPRESENTATIVE SANDERS indicated he did not see how any of this
applied to Alaska.
Number 1425
REPRESENTATIVE PORTER asked if a BIDCO requested money to utilize
in a business or if it was an intermediary group or agency looking
for someone else in business to give money to.
MR. KENWORTHY replied, "The latter. Think of the BIDCO as a risk
capital financial institution." He added it was like an investment
bank.
REPRESENTATIVE PORTER asked if the loan portion was between the
actual business and the BIDCO. "And you're saying you'll deplete
the amount that the BIDCO will repay you, based on how good they
did with their business loans themselves," he suggested.
MR. KENWORTHY agreed.
Number 1483
REPRESENTATIVE NORMAN ROKEBERG referred to an indication in the
packet that ASTF had issued a Request for Proposals (RFP) in
October and received two bids that had been turned down. He asked
Mr. Kenworthy to explain who those bidders were.
MR. KENWORTHY replied, "It was an open process. We granted
confidential status to the bids themselves. But it's certainly a
matter of record who applied." He said of three original bids, two
finalists were selected. One was the Kenai economic development
corporation, for which he did not know the exact name. The second
proposal was from Bart Wagman and Dave Rose in affiliation with
Northrim Bank. "And both were turned down," Mr. Kenworthy said,
"because neither came up with the half a million required by the
legislation." He explained that the legislation had set a minimum
match, with authority to raise that match. He said that
capitalizing a financial institution at $1.5 million was too low an
amount to cover operating expenses. They now look at the $6
million as being the proper critical size, based on the Michigan
experience.
Number 1571
REPRESENTATIVE ROKEBERG asked if this legislation would require the
funding of $2 million more, with a one-to-one match. He asked
whether a BIDCO operator would end up with a $6 million
capitalization and have to bring $3 million to the table, or
whether it could be shared among more than one BIDCO.
MR. KENWORTHY responded, "I think $6 million would only capitalize
one BIDCO."
REPRESENTATIVE ROKEBERG asked if Mr. Kenworthy knew of anyone
interested in bringing another $3 million of private money to the
table.
MR. KENWORTHY replied, "There have been some expressions of
interest, but until the legislature extends the sunset date, and
until it's more widely known that the ASTF is willing to put more
funds into it, I wouldn't expect serious proposers to go out and
start raising the necessary capital. There's enough interest in
this that I'm putting the time in to try to ... ask the legislature
to put this bill in. And I think the analysis of the previous bids
shows that there would be that degree of interest." He added that
ASTF financed technology deals at three stages, a proof of concept
stage, a prototype stage and a commercialization stage. "We're
starting to see a number of deals up here that, in effect, BIDCOs
could do if they were here," Mr. Kenworthy said, citing examples.
Number 1697
REPRESENTATIVE KOTT asked if those programs would not just be
conducted under the ASTF mission, rather than through a BIDCO.
MR. KENWORTHY said, "I think we're better off getting to the
prototype stage and proving out the technology. And when you get
to the (indisc.) stage, I think it's best to have the private
sector risking their own money to do that. And we don't have a
group of people up here who are experienced doing equity lending
and doing that investment banking function. And I think unless we
can capitalize institutions in the private sector, we're not going
to ... have that base of people who are experienced at putting
those deals together. ASTF is creating a cadre of people who are
entrepreneurs. We need another cadre of people who can help
finance those businesses. And we need to work on both sides of
that equation at once."
Number 1737
REPRESENTATIVE SANDERS said, "I assume BIDCO is a group of people
that make these decisions."
MR. KENWORTHY replied, "Yes, it's a financial institution that
would be regulated by the state."
REPRESENTATIVE SANDERS asked if it was already in existence.
MR. KENWORTHY said, "No, there is no BIDCO formed right now.
Essentially, if the proposal was acceptable and they capitalized a
BIDCO, then they would apply for a BIDCO license from the state
financial institutions bureau." Unlike banks, which were regulated
for both risk and fraud, the BIDCOs would just be regulated for
fraud and disclosure, Mr. Kenworthy said. They were a risk
institution and investors in the BIDCO would be told that.
Number 1770
REPRESENTATIVE SANDERS asked who would operated a BIDCO.
MR. KENWORTHY replied, "The private sector board that made a
successful proposal would operate the BIDCO."
REPRESENTATIVE SANDERS asked who made the decision to give them the
money.
MR. KENWORTHY answered, "ASTF would run an RFP, would make an award
decision, give the BIDCO time to complete the financing, and at the
point at which they raised their half of the match, then they would
establish a BIDCO and as a company, as a corporation that had an
agreement with ASTF to only loan funds in Alaska for these types of
deals, they would start operating."
Number 1825
REPRESENTATIVE PORTER asked Mr. Kenworthy whether, as a condition
of furnishing funds to the village of Tyonek, ASTF had received the
standard nondiscrimination pledge and waiver of any alleged
sovereign immunity before granting that.
MR. KENWORTHY answered that the board had approved the grant at its
last meeting but had not yet finalized the negotiation.
REPRESENTATIVE PORTER suggested that, since getting into the
village of Tyonek required a 24-hour notice and their approval,
those elements should be considered.
Number 1916
REPRESENTATIVE ROKEBERG asked whether an equity kicker was
something the BIDCO or ASTF would do.
MR. KENWORTHY explained, "The terms of the deal between the
operators of the BIDCO and the businesses they finance are their
business. But based on the Michigan experience, they can't ask for
too high an interest rate, because that's what their enormous cash
needs demand on the businesses in the early years. So, in return
for a more spread-out schedule in taking risks, they generally get
prime plus two or three points and then they take a warrant or an
option to buy so many shares, or a piece of the company. In many
cases, the principals of the BIDCO are helping manage that company
or identify management to put that company together."
Number 1916
REPRESENTATIVE ROKEBERG asked about return back to the principal of
the foundation.
MR. KENWORTHY replied, "Those terms will be set in the agreement
between ASTF and the BIDCO, and that's where the formula of how
much money they owe back to ASTF and the formula of how they can
repay that loan through sales and jobs, in effect, would be set."
He added, "Unless you do that, you can't get private investors to
help capitalize a higher-risk institution."
Number 1954
REPRESENTATIVE ROKEBERG asked if there was not also a venture
capital fund in Alaska.
MR. KENWORTHY said the Polaris Fund did "all equity deals ... and
that's a much narrower, higher-risk, higher-reward market than
BIDCOs; BIDCOs are the middle-risk market." He said ASTF hoped to
establish a network outside the state to foster a broker match
function. "But we're not going to be helping to capitalize those
deals," he said.
Number 2000
REPRESENTATIVE ROKEBERG stated his understanding: "A BIDCO is like
a bank and it is a high-risk, venture-capital-type bank that would
loan funds and expect payment like a bank. But they would make
arrangements, as you've just described, in terms of their equity
being able to reduce them. So, this would be a financial
institution that would be capitalized with your grant and the
infusion of private money."
MR. KENWORTHY replied, "That's a correct description. I'll just
make one modification. Venture funds tend to do all equity deals.
They put money in and there's no assets there. They're just funds.
They own a piece of the company. And that's much higher risk.
Maybe there's two deals a year up here that would qualify for
venture capital in Alaska." He explained that BIDCOs were middle
risk because they were lending funds to businesses. "So," he said,
"there's assets there that could be attached and they're doing some
equity on top of that." He said there was a much broader range of
businesses that would qualify for that less-costly financing than
venture capital. "But it is far more riskier than banks," he said,
"which only lend on assets. If you think of the three different
windows, the highest risk is venture capital with all equity. The
BIDCO is middle risk; it's a mixture of debt and equity. And then
there's organizations like AIDEA, which essentially are pretty
bankable asset-based lending. Three levels of risk and reward."
Number 2096
CHAIRMAN KOTT referred to repayment of principal and interest back
to ASTF and asked if that would end up in ASTF's earnings account
or elsewhere.
MR. KENWORTHY said, "It would end up in our earnings. The
legislature could reappropriate it for other purposes as we do our
budget each year."
Number 2107
REPRESENTATIVE MASEK referred to Section 4, page 2, line 18, of the
bill, which read, "The board may exempt grants of $5,000 or less
from peer review." She asked for an explanation.
MR. KENWORTHY replied, "In ASTF's current statute, we do not have
to do technical or scientific reviews on grants under 5K. We
currently do some level of review for every grant we do."
REPRESENTATIVE MASEK asked what "peer review" meant.
Number 2156
MR. KENWORTHY answered, "Peer review tends to be scientific experts
we find in the field of the proposal. In addition, since I became
director seven months ago, for technology deals, we also do a
business review in which we'll have scientists assess the
technology and we'll have business people assess the business or
economic logic of it. And on top of that, the board, of course,
that the Governor appoints, of people who have some experience
growing technology-based businesses, and they look at all the
reviews and make a decision."
REPRESENTATIVE MASEK asked why it was necessary to remove the peer
review.
MR. KENWORTHY responded, "I think the amendment that's being
proposed will not change ASTF's current requirement not to have the
peer review things under 5K. It will not change our operating at
all. Currently, ... grants under 20K get a staff peer review and
then the board reviews each of them individually."
REPRESENTATIVE KOTT asked if that was under current statute, under
the ASTF program, for projects less than $5,000.
MR. KENWORTHY replied, "Right. We have that authority but we don't
use it."
Number 2209
REPRESENTATIVE MASEK referred to Section 5, which the sectional
analysis indicated removed endowment grants awards from the
consistency requirement of the section. She asked why that
requirement was being removed.
MR. KENWORTHY indicated he did not have that in front of him and
could not answer the question.
REPRESENTATIVE KOTT clarified the question: "Why are we carving
out an exception for this particular endowment grant from the rest
of the grants under ASTF?"
Number 2285
MR. KENWORTHY reiterated that it was not in front of him. He
speculated that there might be one of two reasons. "One is," he
said, "there's a requirement that half our grants have to be for
less than 100K. Does that section refer to that? And secondly,
there's a requirement that our grants be for research and
development in commercialization activities. So, since BIDCOs ...
do not invest in (indisc.) commercialization activities directly,
we are talking about financing a bank that will do those kinds of
deals, in part."
REPRESENTATIVE ROKEBERG commented, "A BIDCO is not a research or
development project, it's a BIDCO. So, you've got to exempt it,
that's all."
Number 2339
CHAIRMAN KOTT asked what the status was of the $1 million
appropriated in 1992.
MR. KENWORTHY replied, "We have set that aside in our budget
projections. We've carried those funds over each year; it was
Section 19 in our authorization language last year that allowed us
to do that, as well as other multi-year grant funds. So, it
carried it over." He indicated it had not been formally escrowed
but had been set aside in their budget projections, for use if the
legislature extended the June 30th deadline and ASTF found a
proposal to fund. "Otherwise, I believe the funds will lapse to
ASTF," he added.
Number 2371
CHAIRMAN KOTT asked if the $1 million was drawing interest.
MR. KENWORTHY said, "It's drawing interest because we only draw
down our earnings to the permanent fund as we need them. So the
interest is currently captured in the interest earnings of the
endowment."
Number 2395
REPRESENTATIVE ELTON moved that HB 490 move out of committee with
the attached zero fiscal note and individual recommendations.
REPRESENTATIVE ROKEBERG objected.
CHAIRMAN KOTT noted there was a motion to move HB 490 with
individual recommendations and accompanying zero fiscal note. He
acknowledged the objection.
Number 2401
REPRESENTATIVE ROKEBERG asked Representative Elton, as co-sponsor
of the bill, why the year 2000 was proposed.
REPRESENTATIVE ELTON explained the sunset date was 1996. If that
date was not changed, the forum or process would no longer be
there.
Number 2424
REPRESENTATIVE ROKEBERG said, "If you move it to the year 2000, the
million bucks just sits there for four years, although it's not
hurting the state particularly." He noted that he supported the
BIDCO concept.
REPRESENTATIVE ELTON added, "The simple and short answer for the
date is it extends the sunset date and under the provisions of this
bill, too, the BIDCO would be capitalized at the $3 million level
rather than the $1 million level."
CHAIRMAN KOTT asked, "Representative Elton, wouldn't the
capitalization occur within 12 months if this bill were to pass,
that we would find ASTF capitalizing the fund at the tune of $2
million, which we'd bring up to $3 million, then we're looking for
a partnership out there?"
Number 2456
REPRESENTATIVE ELTON said, "And you'd have until the year 2000, I
think, to do that." He suggested if HB 490 did not pass, the $1
million would lapse back because there would be no authority for
the BIDCO process without it.
REPRESENTATIVE ROKEBERG reiterated his support of the BIDCO
concept. He suggested it would not be easy to find a partner who
would come up with the $3 million. "But four years is an awful
long time," he added.
Number 2482
CHAIRMAN KOTT asked Mr. Kenworthy to comment on whether four years
was necessary.
TAPE 96-20, SIDE B
Number 001
MR. KENWORTHY said, "No, I don't think so, but please don't give me
less than two. It takes about six months to get through the whole
RFP process again. I'll have to go back on the street, do an RFP
and comment period, give people time to make a proposal, and the
finalist round. And in Michigan, it usually took about 12 to 18
months once a commitment was made. And Michigan did not run on a
competitive RFP process. It ran on sort of a serial admission
process because they were launching many BIDCOs at a time. But it
took proposers generally 12 to 18 months to finally come up with
the cash to meet the match, even after they had a commitment from
the state based upon their business plan." To be safe, he
suggested a minimum of two years but added that three years would
be nice.
Number 046
CHAIRMAN KOTT said, "Just again, to reiterate, if nothing happens
by June 30 of this year, will that $1 million lapse back into the
Science and Technology fund?"
MR. KENWORTHY said, "Correct."
CHAIRMAN KOTT asked if it was available for appropriation.
(Indisc. -- several overlapping comments and coughing)
MR. KENWORTHY indicated it would be available for expenditure by
the legislature.
Number 080
REPRESENTATIVE ELTON said, "I'm going to argue in favor of the
four-year sunset because I think if you make it too much shorter,
I would hate to see the pressure be to approve one of the bids they
might get in the first round, simply because they may run out of
authorization time if they decide to reject the first round of bids
and start over. And I think that I'd rather have them feel free to
reject and not see a time pressure of two or three years."
CHAIRMAN KOTT responded, "I think we've just heard Mr. Kenworthy
saying he'd like a minimum of two and, ideally, three. But now
we're going more than the ideal."
MR. KENWORTHY clarified he was not criticizing the four years. He
suggested it might be a moot issue because the legislature had
authority to appropriate when those funds lapsed. He said he would
inform the legislature each year, at budget time, about the status
of the organization."
Number 133
REPRESENTATIVE GENE KUBINA referred to the second page of the ASTF
position paper on BIDCOs and noted that ASTF had recommended four
years. "And that was their recommendation and I believe that was
the amount of years in the original BIDCO legislation," he said.
CHAIRMAN KOTT concurred. "It was four years originally, but here
we are four years later and we still have a million dollars and
nothing has been done," he said.
REPRESENTATIVE PORTER stated that unless ASTF actually encumbered
that money to a BIDCO, it was available for appropriation every
year, regardless.
Number 167
REPRESENTATIVE ROKEBERG said, "I'd like to move a conceptual
amendment to change the 2000 to 1999." He noted that was on
page3, Section 8, line 7.
REPRESENTATIVE KUBINA objected for the purpose of discussion.
CHAIRMAN KOTT stated there was a motion to amend line 7 of the bill
from 2000 to 1999 and noted the objection.
REPRESENTATIVE ROKEBERG said, "I was under the impression it would
be available for reappropriation."
REPRESENTATIVE PORTER said, "It is, unless they actually take the
money and encumber it with a deal with a BIDCO and transfer it to
a BIDCO to do business, however they've made the deal." He
referred to a superior court decision dealing with the
constitutional budget reserve issue of what was and was not
available for appropriation. "All of those kinds of funds that are
just laying out there are available for appropriation," he said.
REPRESENTATIVE ROKEBERG responded, "So the legislature, in its
wisdom, could appropriate it (indisc.).
REPRESENTATIVE PORTER replied, "That's right, next year, the whole
thing, right back."
REPRESENTATIVE ROKEBERG said, "Because I was concerned if we went
up the $3 million level and (indisc. -- overlapping conversations).
REPRESENTATIVE PORTER reiterated it was still available unless they
used it.
Number 235
REPRESENTATIVE ELTON referred to earlier testimony and said, "If we
capitalize it at the $3 million level, as proposed in this bill,
this is probably enough for one BIDCO. And I would hate to see us
get into a position where they go up for an RFP, they select a
BIDCO, they give that BIDCO, as Mr. Kenworthy said, 12 to 18 months
to find the private capital, and 14 months later, the BIDCO comes
back and says, `sorry, we can't capitalize it.' A three-year time
limit may mean that that's the last shot they've got. A four-year
time limit may mean they can start the process over and try to
create a new BIDCO."
Number 282
REPRESENTATIVE ROKEBERG pointed out a college education took four
years and that was two terms in the Army. "That's a long time," he
said.
REPRESENTATIVE ELTON said he wished the RFP process could be
condensed.
REPRESENTATIVE ROKEBERG indicated he would like the program to come
to fruition and not languish for a number of years without
activity. He said that was the reason he had brought the amendment
forward.
CHAIRMAN KOTT suggested that in the same respect, they did not want
people rushing in and later finding out it should have been worked
out more thoroughly. "Like Representative Elton suggests," he
said, "if one fails, for whatever reason, at least they have one
more shot at it." He reiterated Representative Porter's comment
that as long as the money was not encumbered, it was always
available for appropriation. He thought there would be a strong
urge to encumber those dollars to avoid appropriation by the
legislature.
Number 335
REPRESENTATIVE ROKEBERG withdrew his amendment.
CHAIRMAN KOTT noted that the conceptual amendment had been
withdrawn and that there was still a motion to move the bill out of
committee. There being no objection, HB 490 moved from the House
Labor and Commerce committee with individual recommendations and
attached zero fiscal note.
HB 502 - CONDUCTING AUCTIONS OF REAL PROPERTY
Number 376
CHAIRMAN KOTT announced HB 502, "An Act relating to the auctioning
of real estate," was the next order of business.
REPRESENTATIVE GARY DAVIS, sponsor of HB 502, said he doesn't know
how many people in the state realize that you have to have a real
estate brokers license to auction off real estate. He said he
didn't think you'd need a real estate license to be an auctioneer.
Representative Davis said HB 502 corrects that situation. He told
the committee he doesn't know why the original statute was written,
but maybe there were some "fly by night" auctioneers in the state
several years ago. The legislation makes it legal for an
auctioneer to auction off real estate. The language in the bill is
meant to allow a real estate auction to be performed by an
auctioneer who has developed specific qualifications. If a person
has completed a certified program in auctioneering and that program
includes a course in real estate sales, then that person can
auction real estate as long as a licensed real estate broker is
present to supervise. This way, experts in both fields of
auctioneering and real estate will be present to conduct their
specified duties without inflicting an unnecessary hardship on the
auctioneer. Representative Davis pointed out that there are
boroughs and cities that have foreclosure auctions. He noted there
are auctioneers in the state that do have a real estate brokers
license, but there are also several who don't.
Number 513
CHAIRMAN KOTT said if he wanted to auction off real estate, as an
auctioneer, he would not only have to have an auctioneer license
but also a real estate license.
REPRESENTATIVE DAVIS said he believes that is true. He noted the
license is a real estate "brokers" license.
REPRESENTATIVE SANDERS said he knows real estate auctioneers who
aren't brokers, they're real estate salesmen.
Number 532
REPRESENTATIVE ROKEBERG said the committee has information which
discusses the license requirements under AS 08.88.161, which says,
"Unless a licensed real estate broker, associate broker salesman,
etc., they may not auction." That is the prohibition. So it's any
licensed real estate agent or above.
REPRESENTATIVE ELTON asked what the process of an auction is. He
said he has always considered an auctioneer as a middle person who
promotes a sale and not the person that consummates the sale.
Representative Elton said he thought sale was consummated between
the owner and the new buyer. He asked if that is the way that an
auction usually works or does the property transfer to the
auctioneer who then transfers it through the auction process.
REPRESENTATIVE DAVIS said he isn't sure of the answer. He asked if
there was anyone on teleconference waiting to testify.
CHAIRMAN KOTT said there was Mr. Blakely. REPRESENTATIVE DAVIS
said he may be able to answer the question.
Number 612
REPRESENTATIVE PORTER pointed out there are auctions where the
auctioneer actually owns the property. Normally the auctioneer
doesn't own the property but he does cut the final deal for selling
by virtue of sole if it's an open auction. He said the terms of
the sale contract would be the last bid that was awarded to bid.
REPRESENTATIVE ELTON said that would set the value, but somebody
else might actually be conducting the sale.
REPRESENTATIVE PORTER said the auctioneer would offer the property
in compliance with the owner's specifications.
REPRESENTATIVE ELTON asked if the owner or the owner's agent could
be a realtor.
Number 664
REPRESENTATIVE ROKEBERG asked if there was a licensure for
auctioning in Alaska.
REPRESENTATIVE DAVIS said he would defer the question to Mr.
Blakely.
Number 691
NORM "BUD" BLAKELY, Auctioneer, referred to a letter in the
committee files dated July 8, 1993, and said the letter was written
by him in conjunction with Ron Johnson, a real estate broker. At
the time the letter was written, Mr. Johnson was on the Real Estate
Board. Mr. Johnson brought the issue before the board. He said he
was told that this is a state law and in order for him to be able
to sell any type of real estate, he would have to get a real estate
license. Mr. Blakely informed the committee he went to school to
become an auctioneer and has had, from time to time, opportunities
to sell real estate, but under the present statute he cannot do so.
He said he would like to be able to sell real estate. He noted he
doesn't want to sell real estate full time and doesn't want to have
to take the classes or the time to sell real estate. Mr. Blakely
referred to the question regarding auctioneers having to have a
license and said they are licensed through the state like any other
business.
CHAIRMAN KOTT asked Mr. Blakely to guess how many auctioneers there
are that hold dual licenses.
MR. BLAKELY responded that he has no idea how many there are.
CHAIRMAN KOTT asked if the number of auctioneers is small.
MR. BLAKELY said he doesn't have any idea, but said he thinks there
may be about 12 in the Anchorage area.
REPRESENTATIVE PORTER asked if the license Mr. Blakely holds is a
regular business license or if it is an occupational license with
certain criteria and training required in auctioneering.
MR. BLAKELY said he thinks the state requires a business license.
He noted he went to a school in Montana that has certain criteria
which he had to meet. He said he was tested at the end of the term
and was given a certificate from that school.
REPRESENTATIVE PORTER asked if that is a requirement for an
occupational license.
MR. BLAKELY said he doesn't think it is in the state of Alaska, but
pointed out some states require it.
Number 827
REPRESENTATIVE KUBINA said his thoughts of an auctioneer is a guy
that is up there almost "yodeling," calling out, and recognizing
people who are giving bids. He said to him the bill sounds like it
is saying that you can have an auctioneer doing that. He referred
to subparagraph (2) and said it seems to him that there would be a
person doing the calling and a licensed broker who would actually
make the transaction.
CHAIRMAN KOTT said that is his interpretation of the bill.
REPRESENTATIVE PORTER noted you don't have to be a veterinarian to
auction off a horse.
Number 908
REPRESENTATIVE DAVIS said Representative Kubina's statement is
correct. The transfer of real estate is a legal document, so an
auctioneer wouldn't want that responsibility to make sure the
process moves forward correctly when it comes to the consummation
of the deal. He said that the bill says that a broker needs to be
present for those purposes.
REPRESENTATIVE ROKEBERG asked how many people would be affected by
the legislation.
REPRESENTATIVE DAVIS pointed out there was testimony indicating
that we don't know how many auctioneers are in the state, but there
was a guess of 12 in the Anchorage area.
REPRESENTATIVE ROKEBERG asked if there are licensed real estate
brokers and competent auctioneers in the state of Alaska.
REPRESENTATIVE DAVIS said he thinks there are two.
REPRESENTATIVE ROKEBERG pointed out that there has been real estate
auctions going on in the state of Alaska for a number of years.
REPRESENTATIVE DAVIS said he isn't sure how the court house
foreclosure auctions/sales are have been pursued.
REPRESENTATIVE ROKEBERG said there have been a number of auctions
in the state of Alaska for real property over the years. He said
he doesn't think there has ever been a problem before. The fact of
the matter is several auctioneers are licensed real estate agents
that do perform this function.
KEN LANCASTER, Broker, Beluga Realty, came before the committee to
testify. He said he fully supports Representative Davis' bill
agrees totally with his sponsor statement. Mr. Lancaster informed
the committee said he has been in real estate and has been licensed
for 20 years. He said he believes there is one licensed real
estate broker auctioneer combination on the Kenai Peninsula, one in
Anchorage and he has heard of one in Fairbanks. He said there is
a lot of property being auctioned off, obviously not by realtors,
and that's where the possibility of some misdoing could happen. If
there isn't a realtor involved, maybe it isn't being done properly.
Number 1116
CHAIRMAN KOTT asked Mr. Lancaster if he is suggesting that there
are about three people in the state that have a dual license.
REPRESENTATIVE ROKEBERG said he would like to point out that there
is not a license procedure for auctioneers in the state and he has
introduced a bill that would address the licensing of auctioneers.
REPRESENTATIVE PORTER said it seems to him that there is a
requirement in the Municipality of Anchorage to license
auctioneers.
REPRESENTATIVE ROKEBERG said it seems to him it is just a business
license.
REPRESENTATIVE PORTER said he thinks that in addition to the state
business license, the Municipality of Anchorage requires an
auctioneer license with occupational criteria.
REPRESENTATIVE ROKEBERG referred to selling real estate and asked
how often auctions are used.
MR. LANCASTER informed the committee that auctions aren't a common
element of real estate marketing, but they do come up occasionally.
He said there are probably about six a year that he is aware of.
He noted with state sales, many auctions are related to
subdivisions with recreational property.
MR. LANCASTER informed the committee that in other countries one of
the rules is that after property is on the market so long, like six
months, it automatically goes to auction. Their auctioneers are
licensed professionally by the country. He noted New Zealand is
one he is familiar with.
Number 1290
REPRESENTATIVE PORTER said from the testimony he has heard, there
just could be some auctions of real estate going on where the
auctioneer doesn't have a real estate license and the bill would
provide some additional protection.
REPRESENTATIVE ROKEBERG asked Mr. Lancaster if he has ever used an
auction to sell property.
MR. LANCASTER said he hasn't. He explained he has never found the
opportunity to have that licensed auctioneer in the vicinity where
they could do that. What typically happens, those sales are held
over and are taken to Anchorage or Homer to auction them off with
Dick Sinhorst (Sp.?) or Gold Strike Realty of Anchorage.
Number 1401
MR. BLAKELY pointed out an auctioneer is a professional like any
other. He said he has had an opportunity to sell a subdivision for
an estate but he couldn't do it because he was not a licensed real
estate person. Mr. Blakely referred to cities and boroughs that
sometimes have auction sales on properties which are delinquent for
taxes and said he isn't able to do that without obtaining a real
estate license. He said he really doesn't want to sell real estate
as a real estate sales person.
Number 1471
REPRESENTATIVE KUBINA made a motion to move HB 502 with individual
recommendations.
REPRESENTATIVE ROKEBERG objected. He said he has given committee
members a letter from the Alaska Association of Realtors objecting
to HB 502. He said he thinks the reason there is one word in the
real estate licensing statute where realtors are (indisc.) perhaps
professional profession, but they are certainly a licensed
profession with significant education, continuing education, and
other safeguards for the consuming public that requires that they
perform their jobs in a responsible manner. Representative
Rokeberg said there is no licensure for auctioneers in Alaska. He
said a constituent in his district requested he introduce a bill
that requires licensing of auctioneers, but because of the crunch
of business, it hasn't been able to be pursued. However, he thinks
there is a need for this type of thing and as a result, he is very
concerned that we would allow a totally unlicensed person to have
the ability to market real estate. Notwithstanding the fact, the
bill rightly conjoins the operation of auctioneering with a
licensed broker. Representative Rokeberg said HB 502 is an
addition to the real estate law. It is a number of pages long and
is an intrusion of the auctioneers into the real estate title and
statute. He noted there are individuals who are dually qualified
to do this, they have businesses and are protecting a business they
have worked hard for. By passing HB 502, we could be allowing
people who are unlicensed auctioneers to encroach on certain areas
and could possibly destroy certain businesses that are in
existence. Representative Rokeberg said he thinks HB 502 should be
put in a subcommittee.
Number 1692
REPRESENTATIVE KUBINA said as he reads the bill, it gives all real
estate people who don't feel comfortable about (indisc.) people, to
be sitting right next to an auctioneer as he auctions off real
estate and then the real estate broker would still do all the work.
He said the bill gives the ability to have things auctioned, to all
real estate people and not only the three in the state.
REPRESENTATIVE ROKEBERG indicated the bill would allow auctioneers
to enter the real estate market sales. As things currently are, it
offers real estate people to get into the auctioneering business
and visa versa. It certainly isn't a total effort for auctioneers
to enter into real estate with the caveat that a broker be present,
which he thinks is a strong recommendation in the legislation and
it serves the purpose that the realtors are objecting to.
REPRESENTATIVE ELTON said he would like to point out that not only
does a real estate broker or an associate broker have to be
present, they have to be supervising. The bill allows a broker to
contract with an auctioneer to move a piece of property. He said
he sees the bill as something that enhances the realtor and gives
the realtor another option.
REPRESENTATIVE ROKEBERG said he thinks he heard testimony that
there has been real estate auctions in Alaska that were probably
carried out without the auctioneer being a licensed broker. There
has been clear breaches of this existing statute previously. The
reason there probably hasn't been problems is that there is no
enforcement. The Real Estate Commission has one executive director
and one or two investigators in which to police their entire
industry of 2,200 people. He asked Chairman Kott if he could tell
him how many enforcement people the Department of Commerce has to
enforce their licensing. They've got very little. He said he is
looking at the (indisc.). The bill would allow someone to conduct
a real estate auction because they say there is nothing forbidding
it. They could say, "Well, we're under the supervision of a
broker." Right now, the only enforcement procedure to police this
is to have it done under the Department of Commerce, the Real
Estate Commission and the executive director and investigators. By
passing this bill, it would be taken out from underneath them.
REPRESENTATIVE PORTER said if there are or aren't enough resources
to do inspections, there are aren't enough resources to do
inspections under this bill or under the existing situation. He
said he would submit whoever is supposed to be doing those things,
all they have to do is get a copy of the newspapers to find out
where the auctions are and who is doing them. It is not that tough
of a deal. Representative Porter said he sees HB 502 as
eliminating perhaps several of those sales that aren't occurring
under the correct supervision, enhancing realtors positions to do
more and perhaps taking a little work away from three people, which
isn't a big deal when you're balancing the betterment for the most.
He said he would submit that the committee move HB 502.
Number 2103
REPRESENTATIVE ROKEBERG withdrew his objection.
CHAIRMAN KOTT said there is a motion to move HB 502 from committee
with individual recommendations and the accompanying zero fiscal
note. He asked if there was an objection. Hearing none, HB 502
moved from the House Labor and Commerce Committee.
ADJOURNMENT
CHAIRMAN KOTT adjourned the House Labor and Commerce Committee
meeting at 4:40.
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