Legislature(1999 - 2000)
02/25/2000 03:23 PM House L&C
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* 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
February 25, 2000
3:23 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Andrew Halcro, Vice Chairman
Representative Lisa Murkowski
Representative John Harris
Representative Sharon Cissna
MEMBERS ABSENT
Representative Tom Brice
Representative Jerry Sanders
COMMITTEE CALENDAR
HOUSE BILL NO. 357
"An Act relating to the redemption of shares of certain Alaska
corporations."
- MOVED HB 357 OUT OF COMMITTEE
HOUSE BILL NO. 339
"An Act authorizing the Alaska Commercial Fishing and Agriculture
Bank to make loans relating to tourism and development or
exploitation of natural resources."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 357
SHORT TITLE: REDEMPTION OF CORPORATE SHARES
Jrn-Date Jrn-Page Action
2/09/00 2147 (H) READ THE FIRST TIME - REFERRALS
2/09/00 2147 (H) L&C, JUD
2/25/00 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 339
SHORT TITLE: CFAB LOANS FOR TOURISM & NAT RESOURCES
Jrn-Date Jrn-Page Action
2/04/00 2098 (H) READ THE FIRST TIME - REFERRALS
2/04/00 2098 (H) L&C, FIN
2/04/00 2098 (H) REFERRED TO LABOR & COMMERCE
2/25/00 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
REPRESENTATIVE LISA MURKOWSKI
Alaska State Legislature
Capitol Building, Room 406
Juneau, Alaska 99801
POSITION STATEMENT: Testified as sponsor of HB 357.
TERRY ELDER, Director
Division of Banking, Securities and Corporations
Department of Economic and Community Development
P.O. Box 110807
Juneau, Alaska 99811-0807
POSITION STATEMENT: Testified on HB 357.
JOHN LOWBER, Chief Financial Officer
General Communications, Incorporated
2550 Denali Street, Suite 1000
Anchorage, Alaska 99503
POSITION STATEMENT: Testified on HB 357.
JULIUS BRECHT, Attorney
Wohlforth, Vassar, Johnson & Brecht
900 West Fifth Avenue, Suite 600
Anchorage, Alaska 99501
POSITION STATEMENT: Testified on HB 357.
DAVID TAYLOR, Chief Financial Officer
Brady & Company, Incorporated
1031 West Fourth, Suite 400
Anchorage, Alaska 99501
POSITION STATEMENT: Testified in support of HB 357.
MORRIS SHEPARD, Vice-President of Finance
Reeve Aleutian Airways
4700 International Airport Road
343 West Sixth Avenue
Anchorage, Alaska 99503
POSITION STATEMENT: Testified in support of HB 357.
REPRESENTATIVE ELDON MULDER, Sponsor
Alaska State Legislature
Capitol Building, Room 507
Juneau, Alaska 99801
POSITION STATEMENT: Testified as the sponsor of HB 339.
ED CRANE, President
Alaska Commercial Fishing and Agriculture Bank
2550 Denali Street, Number 1201
Anchorage, Alaska 99503
POSITION STATEMENT: Testified on HB 339.
TERRY ELDER, Director
Division of Banking, Securities and Corporations
Department of Community and Economic Development
P.O. Box 110807
Juneau, Alaska 99811-0807
POSITION STATEMENT: Testified on HB 339.
MARK HICKEY, Board Director
Petersburg Energy
211 4th Street, Suite 105
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 339.
DAVID LAWER, President
Alaska Bankers' Association
101 West 36th Avenue
Anchorage, Alaska 99508
POSITION STATEMENT: Testified on HB 339.
FRANK HOMAN, Executive Director
Southeast Conference
213 3rd Street
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 339.
ACTION NARRATIVE
TAPE 00-19, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:23 p.m. Members present
at the call to order were Representatives Rokeberg, Halcro,
Murkowski and Harris. Representative Cissna arrived as the
meeting was in progress.
HB 357-REDEMPTION OF CORPORATE SHARES
CHAIRMAN ROKEBERG announced the first order of business would be
HOUSE BILL NO. 357, "An Act relating to the redemption of shares
of certain Alaska corporations."
REPRESENTATIVE LISA MURKOWSKI, Alaska State Legislature, came
forward to testify as the sponsor of HB 357. She stated that HB
357 is a relatively simple bill. It essentially allows a
corporation to issue preferred shares that are redeemable at the
option of the holder. Currently in statute this is not allowed.
She pointed out that the statutes were patterned after the
California Corporations Code. California has since made
revisions to their statutes, however, as have many other states.
This bill allows Alaskan corporations to raise capital another
way. She indicated she prefers to have the Department of
Community and Economic Development (DCED) address any specific
questions.
Number 0214
TERRY ELDER, Director, Division of Banking, Securities and
Corporations (DBSC), Department of Economic and Community
Development, came forward to testify on HB 357. He stated that
the division has reviewed HB 357, which allows corporations to
issue preferred shares redeemable at the option of the holder.
The division does not see a problem with this. It does not
impact any of their filing requirements. From an administrative
standpoint, the bill has no impact. From a policy standpoint, he
indicated the legislature would have to decide whether it is
appropriate. He said it is accurate that a number of states,
including California, allow this. In the division's review of
Title 10, it appears the bill gives corporations an option and
does not require them to do this. Corporations would be using
this option when they feel that it is in their interest in a
negotiated environment. There are other parts of Title 10 that
provide protections for shareholders from redemptions, which
would include these kinds of redemptions. Shareholders'
protections continue to be adequate in light of this option.
CHAIRMAN ROKEBERG asked Mr. Elder to put the policy issue in a
nutshell.
MR. ELDER explained that the statute currently allows the
corporations to issue preferred shares that are redeemable at the
option of the corporation. This allows them to issue redeemable
shares at the option of the shareholder as well as the
corporation.
Number 0418
JOHN LOWBER, Chief Financial Officer, General Communications,
Incorporated (GCI), testified via teleconference from Anchorage.
He has been in this capacity for about 15 years. He stated:
I am here today representing GCI and, as most of you
probably know, we are an Alaska company. We were
founded by Alaskans. We're headquartered in Alaska,
and we're one of only a handful of publicly traded
companies that are, in fact, headquartered in Alaska.
We and all of our subsidiaries are incorporated in
Alaska, and we like being an Alaskan company, and we
hope to continue to be incorporated in Alaska.
My interest in this bill is to make sure that Alaska
companies don't suffer any competitive disadvantages by
virtue of the fact that we are, in fact, incorporated
in Alaska. I submitted some written testimony which
also explains my interest that was based on some
practical experience that I had about a year ago, when
I actually did, indeed, try to raise about $20 million
by selling some preferred equity to a couple investors.
We negotiated the terms sheets, and only once we tried
to put the attorneys to the task of preparing the
definitive agreement did we find that state law would
not actually allow us to do what we had agreed to do.
So, we had to get in and make some changes to the deal
to salvage it. At that point, it came to my attention
that Alaska law really hadn't kept up with some of the
changes [to] the California law that it was based on;
the changes that they had made were not actually
implemented in Alaska. So, it looked like a little bit
of a hole there that perhaps, with a little effort,
could be plugged, so that down the road we wouldn't
bump into this restriction again.
From my perspective, the bill eliminates an existing
competitive disadvantage, and it would help Alaska
companies raise competitively priced capital, which I
think would be good for commerce in Alaska and would
continue to encourage companies such as ourselves to
incorporate in Alaska, which I think is a good thing
for the state.
CHAIRMAN ROKEBERG asked Mr. Lowber to explain what preferred
stocks are and to give an example of how the rights of redemption
on the part of a purchaser work.
Number 0600
MR. LOWBER explained:
A preferred stock is a (indisc.) of equity. There's
generally common shareholders, which everybody has a
right -- you know, you're basically at the end of the
food chain when it comes to having equity interest in
the corporation, all your secured creditors and so on.
Unsecured creditors are in line ahead of you, and you
get basically what's left. A preferred shareholder, as
the name implies, has a preference over the common
shareholders, so their rights are generally a little
bit above the common shareholders.
Generally what happens is you can raise equity through
selling shares to the common shareholders. Another
means of doing it is to sell preferred equity to an
investor in preferred in shares. In our particular
case, the deal that we struck -- well, in a typical
case, the money comes in to the corporation, and the
investor generally has a right to convert that
preferred stock down the road into common stock. And
if the common stock value, such as in the case of a
public company ... increases ..., the preferred
investor will eventually convert into common stock and
then generate a return on their investment when they
liquidate the common stock.
The redemption option really gives the preferred
shareholder an exit strategy in the event that things
don't go as planned, and that is if there's not an
economic incentive to convert into common stock, then
they have the right to go back to the corporation and
say, "I'd kind of like to get my money back," at which
time, then, the corporation would be able to redeem the
shares under certain previously negotiated
circumstances. So, it's basically an escape mechanism
for the preferred shareholder, and to the extent that
you're able to negotiate a term sheet that allows
reduction of risk - that is to say, an escape clause in
the event things don't go as planned - that generally
equates to a lower price for the equity for the
company. So, once again, reduced risk equates to
reduced return or reduced cost for the Alaska company.
Number 0755
CHAIRMAN ROKEBERG wondered if having the ability to have a "call
provision" on the terms of the issue significantly helps the rate
of the issue if the buyer had the election to call it.
MR. LOWBER asked if Chairman Rokeberg means redeem it.
CHAIRMAN ROKEBERG replied yes and that he means "to redeem it at
a point in time that may be on the term sheet."
MR. LOWBER answered:
Definitely. It's just an added protection for the
investor. People go into these things hoping and
expecting that they'll never actually get their money
back in the form of redemption. They expect that down
the road their investment will appreciate as the common
stock appreciates and ultimately they'll get to convert
that into common and then enjoy the ownership of the
common stock. It's basically an option to buy common
at a fixed price. So, to the extent that they have an
escape clause or a way to monetize that investment in
the event that the common does not appreciate, that
reduces risk and encourages them to agree to terms that
they otherwise might not agree to, ultimately, with the
idea of increasing flexibility for the company or
decreasing costs to the company.
Number 0871
JULIUS BRECHT, Attorney, Wohlforth, Vassar, Johnson & Brecht,
testified via teleconference from Portland, Oregon. He stated:
I am a past director of the Alaska Division of Banking,
Securities and Corporations, serving from 1976 through
1980. Since then, I have been in private practice in
Anchorage, and my practice is in the area of business
law, with a focus on securities, corporate and finance
law.
I'd first like to thank you for the opportunity to
appear before the committee to offer testimony on HB
357, a bill relating to share redemption. I
participated in the development and, later, the review
of proposals for a new Alaska corporate code in the
late-1970s and through the 1980s. That was a ten-year
effort, and it resulted in a bill being enacted by the
Alaska Legislature which became the Alaska Corporations
Code. The code became effective on July 1, 1989, and,
as you know, is codified at AS 10.06.
As comprehensive as that effort was, over a period of
ten years and then culminating with the enactment by
the Alaska legislature, corporate law is in need of
change with time. For example, the Alaska Corporations
Code provisions on redemption of shares found at AS
10.06.325 was based upon a similar provision of the
California Corporations Code at that time. The
California law had for some time prior to that
prohibited shares that are redeemable at the option of
the holder with limited exception. However, in 1983,
the California Code was changed expressly to allow
share redemption at the option of the holder.
What HB 357 provides is for amendment to the Alaska
Corporations Code pertaining to share redemption for
Alaska corporations. The primary focus of the bill is
on changes to section 325 [AS 10.06.325]. At present,
that section allows share redemption at the option of
the issuing corporation only. And further, it
prohibits an Alaska corporation from selling stock that
includes a right in the holder of the stock to require
the corporation to redeem the stock.
Number 1036
The changes to section 325 proposed by the bill before
the committee, in major part, simply revise the Alaska
corporate law to reflect the same changes adopted in
California relating to share redemption at the option
of the holder. A number of other states, which have
become commercial centers in this country, have similar
provisions regarding share redemption at the option of
the holder.
Based on my limited review - using a very low-tech
method of going to the library and pulling the statute
books from the various states, and only of a small
portion of those commercial states - I found that, in
addition to California, the states of Michigan, Ohio,
Connecticut, Delaware and New Jersey have similar
provisions.
Even with the enactment of HB 357, the share redemption
right would continue to be subject to other provisions
of the code which preclude the exercise of the
redemption right under certain circumstances. And this
really gets to the policy issue that ... you raised in
question to Director of Banking and Securities, Terry
Elder, and that is that even with the enactment of this
bill, the share redemption right would continue to be
subject to other provisions of the code that would
preclude the exercise of that redemption right under
circumstances.
Those circumstances are set out in section 358 [AS
10.06.358] of the code, and they deal with the
distribution to a corporation's shareholders such as,
as an example, on the exercise of share redemption
rights. That is, such an action would be prohibited
unless certain conditions are met and those conditions
are that the amount of a corporation's retained
earnings immediately before the proposed distribution
equals or exceeds the amount of the proposed
distribution or otherwise satisfies the conditions on
distributions set forth in that section of the code.
In my view, the proposed changes to section 325, do not
lessen the provisions of the code protecting
shareholders of a corporation. However, the proposed
changes will allow greater flexibility to a
corporation's board of directors in addressing capital
needs in present day financial markets as was outlined
by Mr. Lowber previously.
The other provisions of HB 357 make other changes to
the Alaska Statutes to accommodate these primary
changes to section 325. I have prepared a brief
section-by-section outline of the provisions of the
bill, and it is included along with my written
statement of testimony submitted to the committee
through the chairman.
In summary, the Alaska Corporations Code is, in my
view, presently in need of amendment to recognize the
needs of modern corporations, while retaining
shareholder protection as already adopted in those
other commercial states. Specifically, the amendment
is needed to incorporate changes to code provisions of
California on which section 325 is based.
Again, I thank you for the opportunity to present this
testimony before the committee, and I'm available if
you have any questions about the bill.
Number 1228
CHAIRMAN ROKEBERG asked, "Mr. Brecht, you were the director when
these provisions we're repealing were in place. Could you give
very briefly the rationale why they were in place at that time?"
MR. BRECHT specified that he predated the Alaska Corporations
Code. When he was the director of the Division of Banking,
Securities and Corporations, the prior business code was in
place, the Alaska Business Corporation Act. He became involved
in a review process that ultimately culminated in the drafting of
a proposed new code when he was still Director. After leaving
state government and going into private practice, he continued
his involvement through a committee of the Alaska Bar Association
that reviewed, deliberated and offered comment on the proposed
changes to the code. These changes were fashioned by the
Corporations Commission [Alaska Code Revision Commission] that
was set up by the Alaska State Legislature.
MR. BRECHT said that process took a better part of ten years
before it culminated in the drafting and submission of a bill to
the legislature. The bill ultimately became effective July 1,
1989. The prior code did not have provisions such as those being
proposed in HB 357. When the Alaska Corporations Code was
enacted, it was enacted based on prior version of the California
code dealing with share redemption. The California code was
subsequently amended and the amendment was not incorporated by
other amendments to the Alaska Corporations Code up to this
point.
Number 1341
CHAIRMAN ROKEBERG asked, "You don't recall the public policy
argument to have that in there?"
MR. BRECHT stated that it was based on the California code.
DAVID TAYLOR, Chief Financial Officer, Brady & Company,
Incorporated, testified via teleconference from Anchorage. He
has been in that position for 17 years. He said his company is
Alaska's largest insurance brokerage. It is a privately held
corporation and based in Anchorage. He is speaking in support of
HB 357 for many of the same reasons that have already been spoken
to. He thinks allowing Alaska corporations to remain competitive
in raising capital makes the bill revenue positive. The
increased economic activity facilitated would generate positive
corporate taxable income.
CHAIRMAN ROKEBERG thanked Mr. Taylor for stating that HB 357 is a
pro-business and pro-jobs development bill.
MORRIS SHEPARD, Vice-President of Finance, Reeve Aleutian
Airways, testified via teleconference from Anchorage. He stated
that he is in support of HB 357. He also stated that previous
testimony has adequately covered the reasons he supports the
bill. He believes any bill that can grant additional flexibility
helps the overall health of Alaska businesses.
CHAIRMAN ROKEBERG asked whether Mr. Shepard knows of any firms
that have had any problems because of this statute.
MR. SHEPARD answered that he has not had any problems with
respect to his company and does not know of any other firms that
have encountered this problem.
REPRESENTATIVE HALCRO made a motion to move HB 357 out of
committee with individual recommendations and the attached fiscal
note. There being no objection, HB 357 moved from the House
Labor and Commerce Standing Committee.
HB 339-CFAB LOANS FOR TOURISM & NAT RESOURCES
CHAIRMAN ROKEBERG announced the next order of business would be
HOUSE BILL NO. 339, "An Act authorizing the Alaska Commercial
Fishing and Agriculture Bank to make loans relating to tourism
and development or exploitation of natural resources."
REPRESENTATIVE ELDON MULDER, Alaska State Legislature, came
forward to testify as the sponsor of HB 339. He stated:
This bill simply allows for the diversification of
CFAB's [Alaska Commercial Fishing and Agriculture
Bank's] loan portfolio to provide for greater stability
and increase economic opportunity in the state of
Alaska. As you know, ... CFAB was created in 1980 to
provide loans for the commercial fishing and
agriculture communities. We invested, I believe, $32
million in preferred stock to CFAB and under a
repayment plan CFAB has in fact paid that money back to
the State of Alaska.
In '86 the supreme court identified CFAB as a private
entity. As such, it pays federal and state corporate
income tax, state auditing fees, and is subject to
legislative audits. In short, CFAB is now a private
lender operating within the free enterprise system with
limited ties to the State of Alaska, but those limited
ties really tie its arms behind its back.
This is the argument that they brought forward to me
that I've been sensitive to because, having been on
Budget and Audit [Joint Legislative Budget and Audit
Committee], we've had audits done consistently on CFAB,
and they've had their own auditors, and they
consistently give the bank, CFAB, favorable reviews,
but consistently note that the concentration of
agricultural and fishing industry loans result in an
unusual level of risk exposure and vulnerabilities, the
ups and downs of the industries. And we both know what
ups and downs in agriculture and fishing can do.
And I suspect ... that we're going to see a lot more of
those in the future. And as such, it really makes this
portfolio very, very vulnerable. And if we're
interested in maintaining this as a viable entity and
allowing it, and that's the problem we've done, Mr.
Chairman, we've created this entity, we keep its arms
tied behind its back and if we don't allow it to be
competitive it could very well suffer extreme duress in
the future.
This bill recognizes those underlying concerns and
resolves issues by allowing CFAB to make loans within
natural resource and within the tourism industry...this
is a bill that the CFAB corporation brought to me for
consideration. It was voted on by their membership
and, of those members who voted, 82 percent of them, I
believe, voted in support of doing this. They
recognize the narrow loan portfolio they have and the
need for some diversification.
But it surprised me, ... the amount of response that
I've gotten from various entities throughout the state
that recognize that this bill can provide an access to
a niche that's not currently being serviced. Now,
within natural resource development and also tourism
there are a lot of low level loans which, frankly,
don't register on the Richter scale of most banks or
lending institutions because they're not large scale.
They tend to be a little more speculative and, for time
and level of investment, the banks aren't going to give
them that much time or oversight, and it's just easier
just to say no and focus a lot more on the half
million, million dollar, two million dollar loans
because that will get them a greater net return.
Consequently, what happens with a lot of folks who are
interested in doing these enterprises, they have to go
to the venture capital market.
And for those of us who've been there before, at most
times what happens is these venture capitalists are
from out of state and in exchange for taking a piece of
your action, you know, 25, 50 percent, whatever it is
of your business, they'll give you some operating
capital to get started. The end result is we end up
with a lot of these businesses that are very
successful, but the money for them is going out of
state. And we're not really allowing that opportunity
to occur, or they just flat don't get financing at all.
Number 1814
I was surprised when we visited with the AVA [Alaska
Visitor's Association] group or the new ATIA [Alaska
Tourism Industry Association] group. They're very
interested and very supportive of the bill. We met
with the, I guess it's called, the AHA [Alaska
Hospitality Association] group, the beverage dispensary
folks and the restaurant folks. They were very
encouraged and very supportive of the bill because they
saw the opportunities that were there.
I think for a lot of us who don't go out into the
capital markets to try and get investment dollars to
try and expand or start a new business, we don't
realize how hard it is to go through the process of
getting conventional lending. It's a very difficult
process especially for a new business. And so this
will provide that opportunity. I think that CFAB has
proven itself to be an efficient, effective lender by
anyone's standards.
If you check within the commercial lending industry,
they will tell you that CFAB is a very well run lending
institution. I've got the confidence that they will
continue to do that, that they will make appropriate
loans that have appropriate level of risk that they can
stand. Ultimately, Mr. Chairman, I would hope that
sometime in the future that CFAB might actually,
because we've created them, that sometime they might
actually help us and provide some sort of a limited
dividend back to the State of Alaska. At this point in
time, however, I think it's just important to get this
going so that we can create and promote some additional
economic opportunities and diversification.
Number 1896
REPRESENTATIVE HARRIS wondered if CFAB is more of an investor-
owned bank.
REPRESENTATIVE MULDER replied:
Exactly. It is akin to a cooperative relationship.
So, as such, the profits go back in to the corporation,
but, as you'll hear Ed [Ed Crane] say, last year they
could do a lot more lending, but they didn't have
people to [lend to] because we've so narrowed their
focus or scope.
CHAIRMAN ROKEBERG asked Representative Mulder to provide the
committee with a citation of the supreme court case referred to
earlier.
REPRESENTATIVE MULDER said he believes that Ed Crane will be able
to provide the details of that case.
Number 1977
ED CRANE, President, Alaska Commercial Fishing and Agriculture
Bank, came forward to testify on HB 339. He stated that he is
unable to provide the legal cite for the supreme court case. He
indicated it was called the Alaska Coast Decision and it occurred
in March or April of 1986. He commented that CFAB actually is a
successful effort at privatization by the state, but would not
necessarily recommend it as the ideal way to go. It was a unique
method set out in statute for creating a private institution to
perform a public purpose. In the process of becoming a private
institution and functioning as one, CFAB has developed almost $20
million in equity which is owned by past and present CFAB
borrowers. This is significant since there are less than 1,000
stockholders.
MR. CRANE emphasized the basic purpose for CFAB's interest in HB
339 is to protect the $20 million invested by those stockholders.
He explained there are a number of corporations who have detected
a need for changes to existing statute in order to make business
and commerce easier for them. CFAB is the only corporation which
is incorporated under AS 44.81. He is here to affirm that the
Legislature was successful in the creation and maintenance of
CFAB. Nevertheless, there are still some needs.
MR. CRANE stressed the importance for diversification and warned
against putting all of CFAB's eggs in one basket. Lack of
diversification has been a problem for CFAB. He said there are
increasing signs that, as time goes on, there is potential for
the lack of diversification to impinge upon CFAB's ability to
borrow money. He commented that CFAB does business with two
types of money; equity and borrowed funds. Without the ability
to borrow, CFAB would basically be out of business.
Number 2212
MR. CRANE further stated:
Under our present borrowing arrangement, I refer to it
as an unlimited source of funds. It is not unlimited,
but within the projectable and practical needs, we
could triple our loan volume today, subject to the
quality of the loans that we made and still be in
compliance with the loan agreement that we have with
the National Bank for Cooperatives.
However, another side of that is, and I've discussed
this with some of you, there are increasing signs that
CFAB is a relatively insignificant part of the National
Bank for Cooperatives existence. We're up here in
Alaska. This is a huge institution focused on
completely different areas than commercial seafood.
CFAB is its only borrower that does the kinds of things
that we do.
We do represent now just something like three one
hundredths of one percent of that institution's total
loan volume. And I'm sure many of you may have had
experience or have heard of situations where it's
really easy to just dispose of those who are giving you
the biggest headache and providing the smallest level
of satisfaction.
We're quite concerned, and I want to stress we have a
good relationship, we have had a good relationship with
that bank. Nevertheless, the realities of life are
that being a small and strange piece of something does
not provide a lot of security. We have explored the
potential for alternative sources of financing over the
years.
Quite a number of different institutions that we've
talked to and, most recently within the past 12 months,
we've had separate conversations with each of the two
largest commercial banks in Alaska exploring the
possibility of one of them replacing the National Bank
of Cooperatives as CFAB's lender.
There was interest on each of those bank's part, and
there was a considerable effort of each of their parts
to study and analyze and reach a conclusion, but in the
final analysis they each came back and said, "No, we do
not want this additional exposure to the commercial
seafood business."
So, again, it is clear to us, has been clear to us for
some time, that we need to build some diversification
into CFAB's loan portfolio strictly as a defensive or
protective measure and not simply because, gee, we
think there's some great things out there for us to do.
And, even should this bill pass, I think I could safely
project that it would be a matter of several years
before we were talking about a meaningful
diversification, but it is a situation where we cannot
get there unless we start.
Number 2347
The last thing that I'd like to touch on, one of the
questions that has been raised is does CFAB in fact
have the competence or the capacity to move into some
totally new and arguably some challenging areas of
credit and I guess my response would be kind of a
qualified "yes". I suspect if this bill had passed
last night, we would not today be out on the streets
beating the drums for applicants in some of these
areas.
We've not committed a lot of resources to getting ready
for something that is beyond our capacity to make
happen. We will ease into whatever comes of this
effort and I guess I'd say, yes, we have well over a
hundred years of commercial loan experience within
CFAB. We are a small organization, 13 and a half
employees. That is 13 full-time and one part-time.
Nevertheless, another of the reasons that we're
addressing this now has to do with the composition of
that staff. You may not know it from looking at me,
but I'm getting close to retirement. As a matter of
fact, I do have an understanding with CFAB's board of
directors that I will likely retire in two to three
years. We have another senior person in the bank whose
horizon is just a little bit lower than that and will
likely be a year or two behind me.
So, we know that we're going to be making some major
changes. The board has already started to plan for
that. I have started to plan for that and we know that
we're going to be making some changes to the staff and
we see some clarity as to the role the bank will play
in the future as something that's important to help us
to understand the type of people and the type of
expertise and competence we'll need to assure is
available to the bank.
Under the statute, the board has complete and absolute
responsibility and authority to manage the affairs of
the bank, and I'm happy to say that our board is and
always has been a forward-looking group of individuals.
This is something that ... we have discussed at length
and which we are determined to deal with.... Our core
business is commercial fishing. Our stockholders are
commercial fishermen and a very small handful of
farmers. Our effort is to protect them and to continue
to be here to serve future generations of commercial
fishermen and farmers, as well as those in these other
industries or areas which we may find ourselves
serving.
Number 2471
CHAIRMAN ROKEBERG asked who is on the CFAB Board of Directors.
TAPE 00-19, SIDE B
MR. CRANE explained that there are seven members on CFAB's Board
of Directors. Five of the members are elected by the CFAB
membership, and two are appointed by the governor. All members
currently are fishermen, with the exception of one appointed
member who is a farmer.
CHAIRMAN ROKEBERG asked Mr. Crane if it is possible for a member
who pays off his or her loan to extract the capital.
MR. CRANE answered that the member generally waits. The way CFAB
stock program works is that everyone is required to buy five
percent. When a loan is paid off the borrower's stock stays in
place, but is available in the event he/she needs to borrow
again. While the equity remains in the bank, CFAB pays a
dividend on the stock which no longer has an outstanding loan
associated with it. CFAB has paid dividends in about eight of
the last nine years. The dividends have ranged from 6 to 8
percent.
MR. CRANE said there is some compensation for the use of the
capital. At the end of each fiscal year on May 31, the
management develops a recommendation for the Board to consider
the current and projected cash needs. They have been able to do
this almost every year for the last nine years. The borrower's
capital is, in effect, impounded for some period after using
CFAB. The basic reason for that is the most CFAB can borrow is
80 percent of the total loan volume. Theoretically, CFAB needs
at least 20 percent in capital. It is not realistic to ask the
borrower to buy $20,000 of stock for every $100,000 borrowed.
The philosophy is that when a person becomes a member of CFAB and
uses its services he/she has an obligation to provide some
capital beyond what his/her own specific needs are.
CHAIRMAN ROKEBERG wondered if that is because CFAB is a
cooperative corporation.
MR. CRANE said that is exactly why. The statute says
specifically that CFAB shall operate as a cooperative
corporation.
Number 0166
CHAIRMAN ROKEBERG asked if cooperative banks ever convert to
shareholder status.
MR. CRANE said he believes there are some financial institutions
in the Northeast and Midwest United States called cooperative
banks, which are somewhere between a commercial bank and a credit
union. As far as he knows, there is only one other institution
which functions in a similar capacity to CFAB called the National
Cooperative Bank. He is not aware of any that have ever changed
character.
CHAIRMAN ROKEBERG asked if the National Cooperative Bank is able
to lend directly to Alaska Native corporations.
MR. CRANE replied yes.
CHAIRMAN ROKEBERG wondered about Native tribes as well.
MR. CRANE said he believes their statutory definition of a
cooperative is quite broad, and it would quite likely involve
that. The National Cooperative Bank is one of the institutions
that CFAB in the past has discussed financing from. The National
Cooperative Bank was also concerned about CFAB's concentration in
seafood.
Number 0244
CHAIRMAN ROKEBERG asked for clarification that CFAB receives
funds from the National Bank of Cooperatives.
MR. CRANE said yes.
CHAIRMAN ROKEBERG asked how many basis points there are between
CFAB's borrowed money and lending money.
MR. CRANE said CFAB does not look at it that way. He said the
answer is about 3 percent. He explained that CFAB functions as a
cooperative and they periodically project the anticipated loan
demand, expenses and other things that effect them. CFAB seeks
from the National Bank of Cooperatives estimates of what will
happen with their interest rates. CFAB deals with dollars rather
than rates, and projects the ability to generate some reasonable
level of margins at the end of the year. They work back from
those dollars to establish a base interest rate. At the end of
the year, some or all of the margin will be allocated back to the
borrower and the other borrowers, proportionate to the interest
each has paid.
CHAIRMAN ROKEBERG asked if CFAB reassess their entire weight
structure and distributions annually because they are a
cooperative.
MR. CRANE said that is correct. CFAB sends a portion in cash,
and a portion is kept in their equity accounts. On a six-year
basis, they retire those retained margins. He said:
Even though we tell you you're getting a $1,500
interest rate credit, ... we may send you a check for
only $600 of that and a piece of paper for the other
$900, which is a form of equity. And then perhaps six
years from now we'll send you the check for that other
$900.
CHAIRMAN ROKEBERG asked: If a loan from CFAB were used to build
a tourist attraction, would the borrowers be members for life
until they met CFAB's requirements to extract their money?
Number 0424
MR. CRANE explained that once the borrowers buy class B preferred
stock, essentially there is no way they can get that money back
until CFAB is in a position to retire the stock of all the people
in that same year class.
Number 0495
REPRESENTATIVE MURKOWSKI said she is concerned with CFAB leaving
their area of expertise, which is fishing and agriculture, and
taking on riskier loans. She referred to Mr. Crane's comment
regarding diversification for the purposes of spreading the
wealth and stated her concern is that the shareholders may not be
given protection if CFAB takes on riskier loans. Her concern is
compounded by the fact that there will also be some staff and
management turnover in the next few years. She thinks she would
have a greater level of comfort with this expansion into the
great unknown of lending if it were not quite as broad as set
forth in the statute.
MR. CRANE said he is not sure what assurances he can give
Representative Murkowski. He said her concerns are very real and
that he also shares those same concerns. These concerns have
been discussed. He said, "My basic response is a 'trust me'
response, and I know that has limited currency down here in
Juneau." He offered assurance that no matter what comes out of
HB 339, CFAB will not rush into anything. He further commented:
To some extent, we're looking at a chicken-and-egg
situation. We have had no reason to this point to
develop, for example, to hire, perhaps, a loan officer
or two with broader experience than some of us have, or
to develop some of the expertise we're talking about.
I think I'd say again we're quite sensitive to the
dangers there.
Some of you have been around long enough to know that
when CFAB began its operations back in 1980, there was
a certain exuberance and vivre that resulted in some
spectacular, some very nice loans, and some spectacular
losses, and some painful headlines, and a big job of
climbing out of a hole. ...
Whether we were here at the time or not, there are many
of us who remember that or have seen that happen with
other institutions. We're not about to expose
ourselves. Again, our effort is to protect the equity
that CFAB has. As to the broadness of the scope of
this legislation, yes, it is broad, and that's
primarily to provide some flexibility to permit us to
establish a process of moving into new areas, and also
to avoid the necessity to come down here two years from
now, or three years from now, and go through this whole
process all over again with a different group of people
who've never heard of CFAB before and say, "We'll need
a few words changed here or we need something added
there."
We're not seeking the potential to commit suicide here.
We've done enough dumb things. We've done enough
things which turned out not to be as good as we thought
they were.... I don't know of any way to address that,
other than to higher and/or develop competence.
Number 0802
REPRESENTATIVE MULDER directed his comment to Representative
Murkowski and said he has been thinking about her concerns. He
explained that it comes back to a basic fiduciary responsibility
that has been entrusted with CFAB to manage their funds
appropriately. Because it is a basic fiduciary responsibility,
there are audits of their oversights. They have their own
internal audits which they have to respond to which would show
vulnerabilities or poor lending practices. CFAB is overseen by
the Division of Banking, Securities and Corporations, Department
of Community and Economic Development (DCED) who will point out
any vulnerabilities or any poor practices that may occur. An
annual report is also provided to the Legislature. There is a
series of checks and balances that CFAB has to go through that a
normal bank does not go through.
Number 0900
TERRY ELDER, Director, Division of Banking, Securities and
Corporations (DBSC), Department of Community and Economic
Development, came forward to testify on HB 339. He pointed out
that DBSC does examine CFAB and has examined them since 1987.
They conduct they same type of examination of CFAB as they do any
other banks or credit unions. If HB 339 passes and CFAB expands
their loan portfolio into other areas, DBSC does not believe
there would be any significant impact on the Division in terms of
the cost of doing examinations. The division shares the same
concerns expressed regarding the expansion into new areas of
lending. The expectation is that CFAB would do this without
reducing quality and in a planned way. He said:
I also do want to underscore that, assuming that it's
done in a responsible way and that there's concern
given for maintaining credit quality, then we would
certainly agree with the statements made here that
diversification of a loan portfolio across a broader
range of industries and the economy reduces the risk of
that portfolio and so we would agree with that. We
think that would improve the financial quality of CFAB.
In addition, one of our missions is, of course, to
promote a healthy and competitive financial industry in
Alaska, again, to the extent that this broadens the
number of institutions that are lending in these areas
increases competition doesn't reduce the financial risk
of CFAB and doesn't harm other institutions. We see
that as being consistent with our mission.
CHAIRMAN ROKEBERG asked, "A bank with $20 million in footing
lending into the oil patch, would you consider that a safe
investment?"
MR. ELDER said he thinks any bank or lending institution that has
to make loans bears a certain relationship to its capital. He
indicated 20 percent capital is high for banks.
CHAIRMAN ROKEBERG questioned, "With $20 million in footing?"
MR. ELDER replied yes.
CHAIRMAN ROKEBERG said that is small.
MR. ELDER agreed.
Number 1082
REPRESENTATIVE MURKOWSKI asked if DBSC regulates any other
institutions similar to CFAB. She also wondered if anything else
could be provided in terms of regulatory oversight that would
allow for enhanced protection of shareholders. She is still
concerned that CFAB is being allowed to act in the capacity of a
bank without regulatory protections that other banks have.
MR. ELDER replied that CFAB, from an examination standpoint, does
have similar protections. CFAB does not have protection of
depositors because there are no depositors. This makes CFAB
quite different from a bank. He pointed out that regulatory
oversight does not guarantee success. CFAB is relatively unique,
but the businesses industrial development (BID) codes might be
similar to CFAB.
REPRESENTATIVE MURKOWSKI asked if it is Mr. Elder's opinion that
the review process in place for CFAB now is workable and allows
security with respect to the loan portfolio and how it is
handled.
MR. ELDER said yes.
Number 1303
MARK HICKEY, Board Director, Petersburg Energy, came forward to
testify on HB 339. He stated:
Very briefly, let me just describe Petersburg Energy.
It is an Alaska-based oil exploration production
company and it is owned mostly by Alaskans. We
presently have leases on the North Slope of about
12,000 acres of State land and we are in the process
now of putting together an exploration program with the
intent pending on the results of that to pursue
production.
We support HB 339. We appreciate the efforts of
Representative Mulder to bring this together and the
co-sponsors. Whether having this as an option is
something we would ultimately take advantage of and
use, we're not in a position to be able to say, we're
not that far into our overall operation, whether or not
it would fit in all cases in terms of what they might
be able to do with us.... It does provide us, though,
an option that is not there to us today. And I think
Representative Mulder correctly described what would
otherwise be the case in terms of going into a large-
scale production situation for us where we might be
only able to do that by essentially exchanging a large
portion of our equity with an outside venture capital
firm or other oil company, and that may be what we have
to do and the way to go, but this would provide an
option we think that would be helpful.
Number 1424
REPRESENTATIVE MURKOWSKI wondered what the market is that is not
currently being met by the traditional lenders out there. She is
curious if Mr. Hickey is suggesting that within the oil industry
it is difficult to get the lending needed through the more
traditional institutions.
MR. HICKEY responded yes. He said he is not an expert in that
arena and is learning the process. He said:
I can tell you our partners who have been working in
this for a longer period of time, and I think we
mentioned this in our letter (February 21, 2000) have
had discussions with representatives of lending
institutions in this state and have been led to
understand that it is unlikely that this is the type of
activity that the more conventional institutions would
be interested in being involved with.
It obviously, at some point, comes down to case-by-case
circumstance and what some of the facts might be in a
particular proposal, but, as a general matter, that is
our expectation of what we are otherwise faced with.
We would be in a circumstance of going outside either
to, in terms of venture capital institutions or the
more conventional, I think, is probably obtaining some
type of partnership with a larger more established oil
company. This is an option that, again, may not work.
We're not at a point where we've worked through that in
detail, but we can envision, in at least a couple of
cases, where we could put something together within the
limits of what CFAB, as we understand, might be able to
do where we would be able to go into production. And I
can just give you an example. We have one of our
leases situated, and we feel we're situated
strategically in all of our leases, but one situated
between Milne [Point] and Kuparuk, very near production
activity today. It will not be overly expensive to get
into production depending on what we're able to find
with our exploration program. Having the access to
CFAB to put something together might make a difference
in terms of us continuing on our own versus having to
trade out some of the equity that we have.
Number 1598
CHAIRMAN ROKEBERG wondered what a rough estimate would be of
drilling the well.
MR. HICKEY guesses it would cost between $1.5 million and $3
million. At the lease he referred to previously, they have
existing pads they would be able to operate from through
directional drilling. The infrastructure development cost is not
that high.
Number 1655
DAVID LAWER, President, Alaska Bankers' Association, testified
via teleconference from Anchorage. He stated:
I'm afraid that the Banker's Association cannot support
this proposed legislation and I think primarily it's in
consequence of all of the things that have been stated
today in support of the bill. Quite frankly none of
the reasons given in favor of the bill present a reason
to expand the scope of lending of CFAB. CFAB was
created at a time in need when there was limited access
to commercial financing for commercial seafood
harvesters, processors and farmers.
Back in '78, '79, '80 that certainly was the case.
Alaska was a capital-poor region of the United States.
There wasn't a lot of commercial lending available.
That simply is not the case today. It's also the case
that CFAB has very, very well served its purpose. It's
served its purpose, as you heard, to the extent that it
now has excess capital to lend. It's purpose is not to
get bigger. It's purpose is to provide access to
financing commercial seafood harvesters, processors and
farmers. If it has more money to lend, it obviously
has served that purpose.
By the same token, it wasn't formed to provide a better
return to its stockholders or its members, if you will.
If I understood the testimony before, CFAB has and is
presently paying a dividend to its members of six to
eight percent. In point of fact, that's a better
return on equity than most commercial banks pay to
their stockholders.
I have heard testimony that perhaps the attractiveness
of this proposed legislation is that it provides some
alternative means of financing for small business at a
reduced rate. Indeed, they have the opportunity to do
that because, unlike banks, they are not regulated
which is now become the largest portion of the expense
for banks in providing financing.
Certainly it's not the case that there is no alternate
or substitute in other industries in besides fishing
and agriculture of small loans. It is the case that we
now have many banks and a considerable amount of
capital in this state and all of them are under the
federal law obliged by the Community Reinvestment Act
[Public Law 95-128] to provide lending, loans for small
businesses.
That's one of the principal ways that banks satisfy the
requirements of that legislation. So far, in Alaska,
they're doing it very well. There is no bank presently
in Alaska that has an unsatisfactory rating under the
Community Reinvestment Act. We have two that have
outstanding performance evaluations in that connection
which certainly suggests that loans to small businesses
are being provided.
In point of fact, if those examination results are
reviewed, it would be easy to determine that the vast
majority of the loans that Alaska banks make are to
small businesses. I know, in the case of the First
National Bank of Anchorage, my employer, that fully 91
percent of the commercial loans we make are made to
small businesses and we're not fully lent nor is any
other bank in the state.
There is plenty of access to capital for small business
in this state. It's not available at the same rate
perhaps that CFAB could provide because the commercial
banks that are presently making capital available are
subject to the regulations that drive up the cost.
Finally, it's the case that, as we've already heard,
the need that's being met perhaps is the need for loans
that commercial banks presently won't make at current
rates for venture capital purposes because of the risk
involved. And it doesn't sound like the risk is
something that advances CFAB's purposes.
Number 2084
FRANK HOMAN, Executive Director, Southeast Conference, came
forward to testify on HB 339. He commented:
The Southeast Conference is a nonprofit membership
organization that is to promote economical development
opportunity in Southeastern Alaska. It's comprised of
almost all of the communities of Southeastern plus a
number of private businesses from all fields. It has
over the years taken on a sort of a generalized role of
trying to stimulate business development and to promote
and support projects that do that for the community.
This legislation before you provides another
opportunity or another avenue for financing for
business. The group is aware of the activities of CFAB
and its fields of fishing and agriculture over the
years and has done a good job. The appeal to the
expansion into tourism and natural resource development
for Southeastern comes about because of the, as you all
know, the last 10 years the tremendous decline in the
timber industry and people are looking to diversify and
start up new businesses, particularly in the area of
tourism and other natural resources. And I guess one
of the most popular ones currently is the development
of water sources for bottled water. There's several in
place or being developed in Southeastern. I think from
our membership point of view it offers another
opportunity and just increases the ability to look for
funding for new businesses.
Number 2252
REPRESENTATIVE MURKOWSKI wondered if it is Mr. Homan's opinion
that there is a need that the present lending institutions are
not meeting.
MR. HOMAN replied that he does not have any studies or facts to
indicate that other than hearsay information. He said he has
heard that many small businesses have a difficult time with the
initial start up of their business. Many times they go to
commercial banks and have a difficult time. They end up having
to find a partner with another source of funding whether it's
small business administration or a state loan program.
TAPE 00-20, SIDE A
Number 0016
REPRESENTATIVE MURKOWSKI commented that she feels better after
having listened to Mr. Elder speak. However, she is still
concerned with the laundry list of things that CFAB would be
allowed to go into with respect to lending.
REPRESENTATIVE HARRIS asked Mr. Crane if he has had any
opposition from any other groups including commercial fishermen.
He does believe CFAB does a great deal of business with the
agricultural members.
MR. CRANE confirmed that CFAB does very little business with
them.
REPRESENTATIVE HARRIS wondered if CFAB has heard any comments
made by any members who are fishermen.
MR. CRANE replied yes. He explained a survey of their members'
views was conducted (included in the bill packet). Approximately
50 percent responded and offered comments. There were a number
of both positive and negative themes in those comments. Many of
the members expressed concerns similar to those of Representative
Murkowski. He said, "It's like buying a kid a big car for his
fourteenth birthday. You don't just hand him the keys and say,
'Go do it.'" He stressed again it is as much a concern at his
level and the Board level. He stated:
Another concern, and I think some of the comments today
suggest some confusion, another concern that was
expressed several times was, if you begin financing bed
and breakfasts or other kinds of operations, you'll
soak up the money that's available for commercial
fishermen.
That's, again, a theoretical concern. It's not a real
concern from several standpoints. We do not function
with a finite pool of money and I'm not certain what I
may have said or what may have been said that caused
the ABA [Alaska Bankers Association] representative to
say we have too much capital. We have unused borrowing
capacity at the moment, is what we have. But also,
because of the way CFAB is capitalized and the way we
borrow, assuming we maintain reasonable loan quality in
our loan portfolio, we're going to be able to continue
to borrow and we're not going to be running out of
money.
The last thing that was mentioned quite often was
concerns by members who mostly are commercial fishermen
for the potential for CFAB to be financing operations
that are in conflict with the interests or the
perceived interests of commercial fishermen. That
would involve things that might result in harm to fish
habitat or involve support of sport fishing operations
which are seen to be in competition with commercial
fishermen. Again, those are concerns that we all share
at the Board and management level, and we recognize
that there are certain things we'll need to avoid.
Number 0443
REPRESENTATIVE HARRIS remarked that it seems to him that nothing
would prohibit the board or the bank from loaning to tourism-
related or sport fishing-related interests if HB 339 passed. He
asked why Mr. Crane is concerned with what would happen to
commercial fishing interests.
MR. CRANE reiterated that the concern is to protect the structure
which CFAB has built, the equity which is in place now and the
equity which will be developed from future borrowers. He does
not see how CFAB can escape the fact that six of their seven
members on the Board are commercial fishermen and that the basic
mandate of CFAB is to provide financing in that area.
MR. CRANE indicated that CFAB is not looking to build any kind of
empire. It is simply a matter of building in enough
diversification of their assets in order for the core group of
fishing related assets can be preserved. He cannot commit to
anything that CFAB will or will not do. He stressed again that
each of the members are paid or receives some other reward for
doing a good job.
MR. CRANE commented there have been discussions regarding the
types of checks and balances are in place. The biggest control
comes from the fact that CFAB operates on borrowed money. The
National Bank of Cooperatives comes to CFAB at least once each
year and goes through CFAB's loan portfolio. At the conclusion
of each of those examinations, the National Bank of Cooperatives
decides which loans CFAB gets credit for. This is the biggest
and most significant point of control on CFAB.
Number 0729
REPRESENTATIVE MURKOWSKI asked if there is a limit that the
National Bank of Cooperatives allows CFAB to lend on a fishing
loan or if it is subject to the board's discretion.
MR. CRANE explained that there is no statutory limitation. CFAB
has established their own internal limitation which is 15 percent
of their capital accounts. This currently translates into $3
million, but they have not seen a loan that large in years. He
is not aware of any single loan limit in their loan agreement
with the National Bank of Cooperatives. He believes CFAB has to
send them certain documentation before making a loan over a
certain amount. He added:
In essence, they can tell us they're not going to give
us any credit on any loan. So, in effect, it's kind of
a lender liability kind of thing. They can't tell us
what we can or can't do, but they can say, "Hey, if you
do that, we're not going to lend you any money for it."
Number 0824
REPRESENTATIVE CISSNA wondered if it is accurate to describe
CFAB's success as being based largely on exploiting a market
niche to its fullest extent without broadening it. She also
asked if CFAB has done any studies to determine the needs of the
market.
MR. CRANE replied that nothing like that has been done a formal
basis. In response to Representative Cissna's initial question,
he explained that CFAB has been successful in an operating sense
because of the differences between CFAB and most other types of
lenders. He said:
Commercial fishermen tend to be relatively
unsophisticated financially. They know they need X
thousand dollars to buy a permit or a boat, but beyond
that; they're not the best record keepers. From our
standpoint, we have to do our business by mail and by
telephone, what we deal with from a credit
administrative standpoint, I would call messy
situations,...as a generality commercial bankers cannot
afford to spend the time working on and developing
because they're not large enough loans to justify the
expense that goes into them for the relatively small
return that's going to be derived.
Number 1029
CFAB, because it's mandated to do that, we have
developed...the ability to deal with those kinds of; we
don't have alternatives available to us. So, CFAB, in
spite of what Mr. Lawer may have said, CFAB, on a per
hundred dollars of loans outstanding, is a very
expensive operation. Much more expensive than most
commercial banks simply because of the time;...we may
make a seven-year loan and, unlike most of us perhaps
with our installment loans, it's not just a matter of,
okay, every year for seven years a payment rolls.
We can almost predict that during that seven years
there's going to be at least two bad seasons and
there's going to be a problem with collecting interest
for a particular year and it's going to have to roll
over to another year. The borrower is probably going
to ask us to release or exchange collateral a couple of
times. Good chance he's going to get in trouble with
his wife and there'll be some documentation related to
a divorce or something like that.... It's not an easy
business to do, and it's the reason that, as a
generality, that niche is there, ... or that other
lenders have shied away from that business.
REPRESENTATIVE CISSNA asked again if a market study has been
done.
MR. CRANE replied no.
Number 1133
REPRESENTATIVE HALCRO said he believes the history of CFAB needs
to be looked at. For 20 years, CFAB has been trusted and they
have not been proven wrong yet. In addition, he thinks the loan
portfolio was small enough that it would make CFAB more
conservative in their criteria and more stringent in their
requirements. He assumes CFAB would not jump both feet first
into the pool. He thinks their limited loan portfolio would tend
to make them more conservative and qualify their loan requests at
a higher degree. He stated that size in any lending institution
is never a guaranteed success.
CHAIRMAN ROKEBERG said that is a very good point. He asked Mr.
Crane about the amount of agriculture business CFAB is doing.
MR. CRANE commented that CFAB is doing very little business in
the arena of agriculture. CFAB has only one agriculture loan on
the books. He does not believe there have ever been more than
two or three at a time if timber is excluded. There were more
agriculture loans in CFAB's early days, but he noted there is not
a great market out there for agriculture credit. The state's own
Agriculture Revolving Loan Fund (ARLF) appears to deal with a
large percentage of what market there is out there.
CHAIRMAN ROKEBERG asked if the ARLF has a lower interest [rate]
or different terms.
MR. CRANE said he believes the interest rate has been lower and
there may be more liberal terms involved. He said, "The reality
is we're talking about Alaska farmers who need credit, and
they're getting credit, so it doesn't trouble us that the
revolving loan fund is there and doing what it does." He
indicated there also exists a Commercial Fishing Revolving Loan
Fund.
CHAIRMAN ROKEBERG explained that at the time CFAB was formed,
there was an enormous capital shortage. He said:
I am concerned that what you will want to do is expand
your charge in your portfolio, and yet, and we all
understand, that we actually passed a revision on the
Revolving Loan Fund bill,...and the supporting
documentation said there was like $53 million worth of
agricultural business going on in this state. So, it
is factor in this state.
In a certain sense, you failed in one area. ... You and
I have discussed the fact that you don't have any
aquaculture loans ... and it's a major Southeastern
type newer business, growing area that needs help
capital....
One of the concerns that I think has been expressed,
and I have, is the very broad language of the bill.
For example, geothermal (indisc.). What an
organization that has $31 million in footings is going
to be loaning into the oil patch, I'm not so sure. Do
you really want that authority to be able to do that?
MR. CRANE replied:
I would stress we don't (indisc.) the authority to be a
mandate, but I think, if you look at the language of
the bill, it raises a specter that, yeah, we might be
lending BP [British Petroleum] several billions of
dollars. I suspect not, but what it also does permit,
by discussing and treating the oil industry as it does,
is, the Fairbanks individual for example who wants to
buy a truck so that he can haul all the traffic back
and forth along the Dalton Highway, or some of the
other support areas where there are individual or
smaller needs or service needs, the person who wants to
gear up for some kind of contract service on the North
Slope.
And, again, as I said to Representative Cissna, we've
not made any great study where we're satisfied that
there is something out there. We don't know how much
of it we're competent to do. We don't know how much of
it might be available to us, but we are satisfied that
it's there. The broadness of...this bill, I should
say, is simply to provide some flexibility and
opportunity, not necessarily to imply that we're going
to blanket Alaska with loan funds.
CHAIRMAN ROKEBERG indicated HB 339 would be held over.
Number 1524
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:20 p.m.
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