Legislature(2009 - 2010)BARNES 124
03/17/2010 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB363 | |
| HB412 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 412 | TELECONFERENCED | |
| *+ | HB 363 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 17, 2010
3:28 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Mark Neuman, Vice Chair
Representative Mike Chenault
Representative Bob Lynn
Representative Tammie Wilson
Representative Robert L. "Bob" Buch
Representative Lindsey Holmes
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 363
"An Act relating to the membership of the Alaska Industrial
Development and Export Authority."
- HEARD & HELD
HOUSE BILL NO. 412
"An Act establishing the Alaska microloan revolving fund; making
loans for commercial purposes from the fund; and relating to the
fund and loans; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 363
SHORT TITLE: AIDEA MEMBERSHIP
SPONSOR(s): COMMUNITY & REGIONAL AFFAIRS
02/23/10 (H) READ THE FIRST TIME - REFERRALS
02/23/10 (H) L&C
03/17/10 (H) L&C AT 3:15 PM BARNES 124
BILL: HB 412
SHORT TITLE: MICROLOAN REVOLVING FUND
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/26/10 (H) READ THE FIRST TIME - REFERRALS
02/26/10 (H) L&C, FIN
03/17/10 (H) L&C AT 3:15 PM BARNES 124
WITNESS REGISTER
ROB EARL, Staff
Representative Bob Herron
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 363 on behalf of the prime
sponsor, the House Community and Regional Affairs Standing
Committee, Co-Chaired by Representatives Bob Herron and Cathy
Munoz.
ERIN HARRINGTON, Staff
Representative Alan Austerman
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 363
on behalf of Representative Alan Austerman
TED LEONARD, Executive Director
Alaska Industrial Development & Export Authority (AIDEA) and
Alaska Energy Authority (AEA)
Department of Commerce, Community, & Economic Development
(DCCED)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 363.
ERIN HARRINGTON, Staff
Representative Alan Austerman
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 329.
CATHY JEANS, System Branch Manager
Division of Investments (DOI)
Department of Commerce, Community, & Economic Development
(DCCED)
Juneau, Alaska
POSITION STATEMENT: Presented HB 412, on behalf of the
administration.
GEOFF WHISTLER, Lending Section Manager
Division of Investments (DOI)
Department of Commerce, Community, & Economic Development
(DCCED)
Juneau, Alaska
POSITION STATEMENT: Testified during the discussion of HB 412.
MIKE BORGFORD, Executive Director
Made in Mat-Su
Wasilla, Alaska
POSITION STATEMENT: Testified during the discussion of HB 412.
ACTION NARRATIVE
3:28:30 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:28 p.m. Representatives Lynn,
Holmes, T. Wilson, and Olson were present at the call to order.
Representatives Buch, Chenault, and Neuman arrived as the
meeting was in progress.
HB 363-AIDEA MEMBERSHIP
3:28:45 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 363, "An Act relating to the membership of the
Alaska Industrial Development and Export Authority."
3:28:51 PM
ROB EARL, Staff, Representative Bob Herron, Alaska State
Legislature, explained that AIDEA's mission is to promote,
develop, and advance economic growth and diversification in
Alaska by providing various means of financing and investment.
He related that AIDEA fulfills this mission by providing Alaskan
businesses with long-term commercial and development financing
at a reasonable cost. He detailed that AIDEA is a public
development finance corporation independent of direct agency
control, although it is associated with Department of Commerce,
Community, & Economic Development (DCCED). A significant
percentage of the return on AIDEA's assets is redistributed as a
dividend and is deposited to the state General Fund (GF). He
noted that this year's dividend was $23 million.
MR. EARL related that currently, AIDEA consists of a five-member
board which includes the Commissioners of the Departments of
Revenue (DOR) and Department of Commerce, Community, & Economic
Development (DCCED), plus an additional department head
appointed by the governor, and two public members. This creates
a commissioner to private sector ratio of 3-2, which is the same
as the Alaska Energy Authority (AEA) board by statute. This
bill, HB 363, as written would restructure the board by
replacing two commissioners with two additional private sector
members. This would result in four private sector members and
the commissioner of DOR. The bill would require private sector
members to possess business expertise and leadership skills.
3:31:27 PM
REPRESENTATIVE HOLMES made a motion to adopt Amendment 1,
labeled 26-LS1503\A.1, Cook, 3/16/10, which read:
Page 1, lines 6 - 7:
Delete all material and insert:
"(1) the commissioner of revenue and the
commissioner of commerce, community, and economic
development; and"
Page 1, line 8:
Delete "four"
Insert "five"
Page 2, lines 1 - 2:
Delete all material and insert:
"(b) If a commissioner [MEMBER] described in
(a)(1) [OR (a)(2)] of this section is unable to attend
a meeting of the authority, the"
Page 2, line 13:
Delete "two"
Insert "three"
Page 2, line 17:
Delete "one member shall serve a two-year term"
Insert "two members shall serve two-year terms"
CHAIR OLSON objected for the purpose of discussion.
3:31:51 PM
ERIN HARRINGTON, Staff, Representative Alan Austerman, Alaska
State Legislature, provided some background on the interim work
on economic development that led to the introduction of this
bill. The research included information on other states'
successes on economic development efforts. One important
discovery was that these states attributed their success to
collaborative efforts by the private sector with government to
provide input on activities of state government as it related to
economic development. The informal group held ongoing
discussions and worked with Representatives Munoz and Herron to
integrate the private sector input into the bill.
3:33:45 PM
MR. EARL discussed Amendment 1. He explained the original bill
had removed the DCCED commissioner position from the board, but
discussions concluded it was important to keep the DCCED
commissioner on the proposed board due to the expertise he/she
can offer. Additionally, Amendment 1 would expand the board to
a seven-member board to allow subcommittees to be appointed and
for a broader pool of applicants for the governor to select
appointments.
CHAIR OLSON removed his objection. There being no further
objections, Amendment 1 was adopted.
3:35:07 PM
MR. EARL, in response to Representative T. Wilson, related that
he is open to regional representation.
REPRESENTATIVE T. WILSON asked whether private sector members
might have a conflict of interest issue.
MR. EARL answered that currently two public members serve on the
board. The board follows Roberts Rules of Order, which includes
provisions for addressing conflicts of interest.
3:36:18 PM
REPRESENTATIVE HOLMES recalled that the AIDEA board also serves
as the AEA board. She asked if the language that applies to the
public members is broad enough to encompass diversity, such as
AIDEA's interest in having someone serve that has an energy
background serve.
MR. EARL agreed the AIDEA board also serves as the AEA board.
He believed the language in HB 363 was broad enough to allow the
governor the discretion to address board member diversity. He
stated the sponsor is open to the idea of clarifying the energy
experience required of applicants.
3:37:21 PM
REPRESENTATIVE HOLMES assumed that would include people with
experience gained in energy cooperatives, or at the local
government level working with energy issues.
MR. EARL responded that it is not the sponsor's intent to
exclude persons with the experience mentioned.
3:38:07 PM
REPRESENTATIVE NEUMAN asked whether AEA and AIDEA boards are
joined.
MR. EARL answered that by statute the AIDEA and AEA boards are
the same board.
REPRESENTATIVE NEUMAN asked when reviewing projects, whether the
boards are involved in the discussion of projects such as the
renewable energy projects.
3:39:22 PM
TED LEONARD, Executive Director, Alaska Industrial Development &
Export Authority (AIDEA) and Alaska Energy Authority (AEA),
Department of Commerce, Community, & Economic Development
(DCCED), introduced himself.
3:39:53 PM
REPRESENTATIVE NEUMAN asked when considering the renewable
energy projects of up to $550 million, for the depth of
discussions that the AIDEA or AEA board membership holds and
whether specific projects are reviewed.
MR. LEONARD responded AIDEA has not been involved in the
analysis on AEA projects, but does consider its own contracts,
such as contracts pertaining to alternative energy programs. He
said he cannot really elaborate on the entire process that AEA
uses or when the AIDEA's board is also the AEA board. He
deferred to the Executive Director of the Alaska Energy
Authority to testify on that matter. He related that AIDEA can
be involved, as Mr. Earl mentioned, in the process of financing
energy projects. Currently, AIDEA is working to identify ways
to partner with AEA on projects. In fact, AIDEA and AEA's staff
are currently meeting with officials from the U.S. Department of
Energy to find ways to utilize the federal stimulus guarantee
programs to fund energy projects in the state.
3:41:56 PM
REPRESENTATIVE NEUMAN related Amendment 1 increased the private
sector members that serve on the AIDEA board, and asked whether
the expertise would include power generation experience or
different types of similar work. He further asked how conflicts
of interest would be resolved.
MR. EARL answered that under Amendment 1 there would be five
public members and two commissioners. He offered that the board
would follow Roberts Rules of Order and members would need to
declare a conflict of interest, and the board would vote on
whether a conflict exists. The expertise required for board
members would be left to the governor's discretion. No specific
requirement is specified in the bill to require an energy
expert, but he stated that he is open to the idea.
CHAIR OLSON pointed out that the appointment process would be
the same process as for other boards and commissions.
MR. EARL noted that AIDEA board members are not subject to
legislative approval.
3:43:41 PM
MR. LEONARD elaborated that the AIDEA board does have to follow
the Ethics Act. He affirmed that board members would be
required to identify a conflict of interest and with a larger
board he envisioned it would be easier to vote on those types of
issues. He suggested that the requirement for business
experience could be expanded to add "and industry experience."
He suggested that AIDEA, in working with the bill sponsor,
discussed the importance of having expertise from different
sectors including industry expertise, natural resource
extraction, logistics, energy, and communications. He pointed
out that industry could be added to provide legislative intent
that the qualifications of board members include a broader range
than what would normally be considered business expertise.
3:45:18 PM
CHAIR OLSON referred to page 1, lines 12 - 13, and suggested it
should read, "...has expertise in private sector business and
industry, and possess demonstrated leadership skills."
3:45:27 PM
REPRESENTATIVE HOLMES made a motion to adopt Conceptual
Amendment 2, on page 1, lines 12 - 13 after business, to insert
"and/or industry".
REPRESENTATIVE T. WILSON objected for purpose of discussion.
REPRESENTATIVE HOLMES offered her belief that this would
incorporate the language suggested by Mr. Leonard and would
ensure industry participation.
REPRESENTATIVE NEUMAN thought this language was an improvement.
REPRESENTATIVE T. WILSON removed her objection.
There being no further objection, Conceptual Amendment 2 was
adopted.
REPRESENTATIVE NEUMAN asked whether financial disclosures of
board members are required.
MR. EARL answered yes. Public financial disclosures are
required of board members.
3:47:10 PM
REPRESENTATIVE T. WILSON asked whether regional representation
should be considered. She did not want the pool to be too small
and asked whether regional representation should be required or
would happen naturally.
MR. EARL related it would be up to the governor, but did not
mind the additional direction.
3:48:05 PM
REPRESENTATIVE T. WILSON made a motion to adopt Conceptual
Amendment 3. She suggested regional membership should include
one rural member, one member from the Interior, and one member
from Southeast Alaska to provide better diversity on the board.
CHAIR OLSON suggested the committee could provide a letter of
intent, but offered his belief that it is already the intent of
AIDEA, the governor, and the co-sponsors to have regional
membership on the board. He noted the bill is co-sponsored by
members from Southcentral, Western Alaska, and Southeast Alaska.
REPRESENTATIVE T. WILSON said she thought regional
representation on the AIDEA board was important since energy
diversity exists in each of the communities.
REPRESENTATIVE T. WILSON offered to work with the bill sponsor
to develop language.
ERIN HARRINGTON, Staff, Representative Alan Austerman, Alaska
State Legislature, stated she has seen rural member defined as
someone representing a community of less than 2,500 people or
located off the road system. She was not certain how to
identify an Interior member.
REPRESENTATIVE T. WILSON withdrew Conceptual Amendment 3.
CHAIR OLSON related that language could still be developed to
address regional representation.
3:50:56 PM
REPRESENTATIVE BUCH expressed an interest in having the AIDEA
board include members representing a cross section of interests,
including small businesses and industry. Additionally, he
thought board member appointments should overlap to provide
continuity and consistency to the AIDEA board.
3:51:49 PM
REPRESENTATIVE NEUMAN referred to Section 1 and to the AIDEA
board composition. He thought legislative intent could be added
to provide regional representation on the board. In response to
Chair Olson, he offered his belief that the sponsors will be
willing to work with Representative T. Wilson on language and
said he did not wish to hold up the bill.
REPRESENTATIVE T. WILSON mentioned that there are five Judicial
Districts in Alaska, which may be a way to arrive at regional
representation.
3:53:42 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 363 and announced that it
would be held over.
HB 412-MICROLOAN REVOLVING FUND
3:54:30 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 412, "An Act establishing the Alaska microloan
revolving fund; making loans for commercial purposes from the
fund; and relating to the fund and loans; and providing for an
effective date."
3:58:07 PM
CATHY JEANS, System Branch Manager, Division of Investments
(DOI), Department of Commerce, Community, & Economic Development
(DCCED), explained that the Governor requested the bill be
introduced to strengthen the economy. This bill would create a
new loan program, the Microloan Revolving Fund, within the DCCED
to help small businesses access critically needed capital. The
bill would allow up to $35,000 for an individual loan and up to
$70,000 for two or more persons. The maximum term for the loan
would be six years. A loan under this program bears interest at
the rate of prime plus one percentage point, with a minimum
amount of not less than six percent per year, and a ceiling of
not more than eight percent per year. The fiscal note is $3.577
million from the AIDEA dividend, with $77,000 required to
provide for a loan officer and travel. She estimated
approximately 75 loans would be issued in the first year, 100
loans in the second year, and approximately 25 loans each year
thereafter. She offered the administration's strong support for
HB 412. She also said she believes this bill will help many
businesses succeed in Alaska.
MS. JEANS provided a section-by-section analysis of HB 412.
Section 1 would modify the uncodified code of Alaska to describe
findings related to the fund.
3:58:57 PM
REPRESENTATIVE NEUMAN asked for a description of a revolving
fund.
MS. JEANS answered a revolving fund is not a dedicated fund,
that principal and interest repayments to the fund are retained
to the fund, and operating funds are paid from the earnings.
REPRESENTATIVE NEUMAN asked whether the state would foreclose in
the event that someone defaulted on his/her loan.
MS. JEANS answered yes. The division has a special fund called
the Foreclosure Expense Fund, and any monies credited to the
account can be used to buy out liens to protect the state
assets. This may be necessary during a foreclosure proceeding
as it is sometimes necessary to contact the Attorney General's
office, which would accrue legal expenses, or it may be
necessary to hire a management company to view the property.
REPRESENTATIVE NEUMAN related his understanding that the money
would remain within the fund and is self contained.
MS. JEANS answered yes. She pointed out that operating expenses
and office equipment would require an appropriation from the
general fund (GF). In further response to Representative
Neuman, she agreed that any budget documents would indicate the
Microloan Revolving Loan Fund as the funding loan source.
4:01:47 PM
MS. JEANS related that Section 2 would create a new article in
AS 44.33 titled "Alaska Microloan Revolving Fund," which would
set out limitations and terms for the loans. The bill would
allow up to $35,000 for an individual loan and up to $70,000 for
two or more persons. The maximum term for the loan would be six
years. A loan under this program would bear interest at the
rate of prime plus one percentage point, with a minimum amount
of not less than six percent per year, and a ceiling of not more
than eight percent per year. Loans must be secured by
collateral and cannot be made to a person who has past due child
support obligations. This section would also create a special
account, the Foreclosure Expense Account.
4:02:37 PM
MS. JEANS stated that Section 3 would amend the uncodified code
adding a new section titled, "TRANSITION: REGULATIONS." This
section would authorize the DCCED to immediately proceed with
the adoption of regulations necessary to implement the changes
made in Section 2 of the bill. This section further stipulates
that the regulations may not take effect before July 1, 2010.
Section 4 stipulates that Section 3 of the bill takes effect
immediately. Finally, Section 5 indicates that except for
Section 2, the bill would take effect on July 1, 2010.
4:03:15 PM
REPRESENTATIVE BUCH referred to Section 2 to AS 44.33.965 in the
bill. He said that this provision encapsulates the requirements
but sets the prime rate as the indicator. He asked what would
happen in the event the prime is at a lower rate, such as 4
percent, since the limits are set at 6 and 8 percent.
MS. JEANS related that it could be set at the prime interest
rate plus one. Thus, if the prime interest rate is currently
set at 3.25 percent, plus one would put it at 4.25 percent, but
the floor is set so it cannot go below 6 percent. The division
would like to keep the rate between 6 and 8 percent since these
loans may be riskier loans. The division's goal was to not have
the rate too low as the loans may then directly compete with
banks.
4:04:31 PM
REPRESENTATIVE BUCH asked Chair Olson whether he had comments
based on his personal experience.
CHAIR OLSON recalled the Commercial Fisheries Agricultural Bank,
which had a preferential interest which was built into CFAB, but
parameters were used. He further recalled that the loans could
be used for vessels, gear, and permits.
REPRESENTATIVE BUCH asked whether this section would remove the
possibility to consider current conditions.
CHAIR OLSON offered his belief that AIDEA would keep 100 percent
of the loans since they are relatively small loans.
4:05:34 PM
REPRESENTATIVE T. WILSON referred to the condition that loans
would not be made to someone with past due child support. She
asked why the restriction for judgment is restricted to child
support.
MS. JEANS related that the program will look at an applicant's
credit report and reports are submitted monthly to credit
bureaus. In further response to Representative T. Wilson, she
said she was unsure why this provision specifies child support.
REPRESENTATIVE BUCH elaborated that sometimes the legislature
includes language to provide direction and a point of view,
which is likely why child support obligations are specifically
considered.
4:07:26 PM
GEOFF WHISTLER, Lending Section Manager, Division of Investments
(DOI), Department of Commerce, Community, & Economic Development
(DCCED), explained that child support obligations are not
reported on credit reports. Thus, if an obligor is behind on
his/her payment he/she must bring the account current and the
program must consider any judgments before granting a loan.
4:08:30 PM
REPRESENTATIVE T. WILSON asked whether any other obligations
should be considered that may not be on a credit report.
MR. WHISTLER responded that the Internal Revenue Service (IRS)
has certain rights when it files liens. He assured her that the
division checks with the IRS on all loans as a part of their
Memorandum of Understanding. The IRS typically will respond
within five days to let AIDEA know whether an applicant has an
outstanding obligation.
4:09:25 PM
MS. JEANS, in response to Representative Neuman, answered yes.
She offered a scenario in which an applicant could purchase a
garage and equipment for startup or expansion of a business.
REPRESENTATIVE NEUMAN asked whether a specific percentage of
collateral is necessary and if matching funds are available from
AIDEA.
MS. JEANS responded that there would not be matching funds from
AIDEA. However, the borrower is encouraged to have some working
capital to put into the business. Additionally, AIDEA can also
lend working capital for starting up a business, she stated.
4:11:56 PM
REPRESENTATIVE NEUMAN related that the loans must be secured by
collateral accepted by the commissioner. He asked whether a
certain amount is considered standard practice.
MR. WHISTLER answered that each item has a different collateral
value. For example, collateral could consist of equipment or
tools for snowmachine business, which may have a 50 percent
value, whereas real estate is about 80 percent, and recreational
boats could be considered at about 65 to 75 percent for security
purposes. The standard equity is about 10 percent in order for
business owners to also have some "buy in" to the business.
REPRESENTATIVE NEUMAN asked whether 20 percent equity would
satisfy AIDEA's requirements.
MR. WHISTLER said that it is hard to predict. If a person was
buying his/her property for repairing snowmachines, the person
may have 20 percent equity in the business, or may have equity
in his/her home that could be used as collateral.
REPRESENTATIVE NEUMAN related his understanding that each loan
would be individually determined as to the amount of collateral.
MR. WHISTLER answered yes.
4:14:02 PM
REPRESENTATIVE NEUMAN asked whether AIDEA would review community
need and niche for a business before granting a loan.
MR. WHISTLER agreed that AIDEA would obtain knowledge by holding
discussions with people in the community. He related that AIDEA
has several resource groups such as the Legislative Information
Office and the Mat-Su City and Borough offices. Certainly,
AIDEA would be interested in the market and if the business plan
is reasonable since they do not want businesses to fail.
REPRESENTATIVE NEUMAN asked whether a risk assessment is set up.
He said he thought the program is a great idea. He just wanted
to ensure that AIDEA has the necessary flexibility.
REPRESENTATIVE NEUMAN posed a scenario in which a person who
opened a refrigeration repair business had a student loan. He
asked whether the microloan program could be used to pay off the
student loan since the education and training was necessary to
the business.
MR. WHISTLER related that what Representative Neuman described
would be considered a refinanced loan by definition. He related
this is not currently an eligible purpose in this bill.
REPRESENTATIVE NEUMAN inquired as to whether a business owner
could pay for equipment purchased at a store. He asked how
AIDEA would monitor the process to ensure the loan is spent
appropriately.
MR. WHISTLER related that AIDEA currently provides for these
types of loans, such as through the Small Business Economic
Development and Rural Development Programs. The AIDEA would
control the disbursements based on the business plan and through
communications with the borrower. Thus, to pay for purchasing
equipment, the borrower would provide AIDEA with a detailed
invoice. In further response to Representative Neuman, he
agreed that conceptually the borrower could pay for equipment
for his/her business.
4:19:02 PM
MIKE BORGFORD, Executive Director, Made in Mat-Su, offered his
belief that this bill represents the most important piece of
legislation to be considered in the last 30 years. Currently,
his organization is comprised of existing businesses. He
offered his belief that this bill will offer existing businesses
opportunities to expand and be more viable in the marketplace.
He explained that he recently surveyed about 250 small
businesses, largely manufacturers, in the Mat-Su region and
Southcentral Alaska. The businesses he surveyed believe HB 412
would create a means for them to obtain raw materials and obtain
better deals in doing so. This bill could also make them more
competitive in the market in the Mat-Su Valley and in Anchorage.
He said members characterized HB 412 as a good bill. He
highlighted one concern his organization pointed out is the need
for the business to be located in Alaska. He recalled one of
the Made in Mat-Su members owns a business in Alaska but also
owns one in the Lower 48. He suggested the committee may wish
to tighten up the eligibility requirements.
4:22:09 PM
REPRESENTATIVE NEUMAN thanked Mr. Borgford for the tremendous
effort his organization makes for small businesses.
CHAIR OLSON announced that public testimony would be held open
for HB 412, which was held over.
4:23:08 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:23 p.m.