Legislature(2013 - 2014)BARNES 124
02/05/2014 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB207 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 207 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 5, 2014
1:19 p.m.
MEMBERS PRESENT
Representative Eric Feige, Co-Chair
Representative Dan Saddler, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Mike Hawker
Representative Craig Johnson
Representative Kurt Olson
Representative Scott Kawasaki
Representative Geran Tarr
MEMBERS ABSENT
Representative Paul Seaton
COMMITTEE CALENDAR
HOUSE BILL NO. 207
"An Act establishing the Board of Agriculture, Conservation, and
Development; transferring the powers and duties of the Natural
Resource Conservation and Development Board to the Board of
Agriculture, Conservation, and Development; transferring to the
Department of Commerce, Community, and Economic Development the
authority to approve loans from the agricultural revolving loan
fund; terminating the Natural Resource Conservation and
Development Board; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 207
SHORT TITLE: AGRICULTURE; AGRICULTURAL LOANS
SPONSOR(s): REPRESENTATIVE(s) FEIGE
04/12/13 (H) READ THE FIRST TIME - REFERRALS
04/12/13 (H) RES, FIN
02/05/14 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
MICHAEL PASCHALL, Staff
Representative Eric Feige
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 207 on behalf of the sponsor,
Representative Feige.
EDMUND FOGELS, Deputy Commissioner
Office of the Commissioner
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 207.
KRISTIN CURTIS
Legislative Auditor
Division of Legislative Audit
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided information on the audit of the
Agricultural Revolving Loan Fund.
ACTION NARRATIVE
1:19:39 PM
CO-CHAIR DAN SADDLER called the House Resources Standing
Committee meeting to order at 1:19 p.m. Representatives
Saddler, Johnson, Hawker, Olson, Feige, Kawasaki, and P. Wilson
were present at the call to order. Representative Tarr arrived
as the meeting was in progress.
HB 207-AGRICULTURE; AGRICULTURAL LOANS
1:20:02 PM
CO-CHAIR SADDLER announced that the only order of business is
HOUSE BILL NO. 207, "An Act establishing the Board of
Agriculture, Conservation, and Development; transferring the
powers and duties of the Natural Resource Conservation and
Development Board to the Board of Agriculture, Conservation, and
Development; transferring to the Department of Commerce,
Community, and Economic Development the authority to approve
loans from the agricultural revolving loan fund; terminating the
Natural Resource Conservation and Development Board; and
providing for an effective date."
1:20:39 PM
CO-CHAIR FEIGE, sponsor of the bill, explained that the bill was
intended to help the commercial agriculture industry and the
state government be more effective and more in-line with each
other. He said that the current Board of Agriculture and
Conservation had been set up under statute as a loan approval
board for the Agricultural Revolving Loan Fund, but as it did
not have an advisory or regulatory role, it was therefore not
constituted as an official channel of communication between the
industry and the state government. He reported that the board
provided advice, but did not have any statutory power.
1:22:19 PM
CO-CHAIR FEIGE noted that, as there had been a number of
concerns raised about this bill previous to this hearing, a
committee substitute (CS) had been prepared after discussions
with the Board of Agriculture and Conservation, the Natural
Resources Conservation Development Board, the Alaska Association
of Conservation Districts, and the State Farm Bureau. He
reported that many of these suggestions were used in the
proposed bill and that there were several proposed amendments
that should also be considered.
1:24:12 PM
REPRESENTATIVE P. WILSON moved to adopt proposed committee
substitute (CS) for HB 207, labeled 28-LS0675\C, Martin,
1/22/14, as the working document. There being no objection, it
was so ordered.
1:24:30 PM
MICHAEL PASCHALL, Staff, Representative Eric Feige, Alaska State
Legislature, began his PowerPoint presentation titled "HB 207."
He acknowledged that there was still more work and discussion on
the proposed CS. He pointed to slide 2, "Why HB 207?" and
relayed that there had been concerns with a lack of formal
communication for the policies of agriculture in Alaska between
the agriculture industry and the state government. He stated
that the Board of Agriculture and Conservation was limited in
its membership, as any loan applicants were not eligible for the
board, although loan holders were eligible. He reported that
potential loan applicants did not want to share personal and
business financial information with friends or business
competitors who may serve on the board, as the board reviewed
these loan applications. He suggested that there was too much
autonomy and not enough oversight for the soil and water
conservation districts, as there were not any regulations
written pertaining to the districts. He noted that the recent
audit by the Legislative Audit Division had expressed concern
for the management by the Board of Agriculture and Conservation
of the Agriculture Revolving Loan Fund (ARLF), and that some of
these concerns were now addressed in the proposed bill. He
mentioned the depletion of the principal in the Agriculture
Revolving Loan Fund as also being a point of concern.
1:27:02 PM
MR. PASCHALL moved on to slide 3, "What HB 207 Will Do." He
suggested that the Board of Agriculture and Conservation and the
Natural Resources Conservation Development Board be combined
into a single board that would be named the Board of
Agricultural, Conservation, and Development (BACD), which would
provide input to state agencies on agriculture, conservation,
food production, and land use, and would oversee the soil and
water conservation districts. It would also serve as the
managing group for the Alaska District, which represented the
unorganized soil and water areas. The proposed bill would move
the loan approvals by the ARLF to the Department of Commerce,
Community & Economic Development, with an appeal process back to
the board and the commissioner of Department of Natural
Resources. He pointed out that the intention of the proposed
bill had always been for only the loan approval process to be
moved, not the management of the fund. He stated that the
proposed bill would also authorize this new board to oversee the
soil and water districts.
1:28:16 PM
REPRESENTATIVE P. WILSON asked why the bill proposed to only
move the loan approval process to the Department of Commerce,
Community & Economic Development.
MR. PASCHALL explained that the issue for an individual not
wanting to share financial information when submitting an
application for a loan, as well as the applicant for a loan not
being eligible for membership on the board, had necessitated the
move of the loan approval process to avoid any conflicts. He
directed attention to the audit report, which recommended
relocation of the entire fund. He offered his belief that this
was not in the best interest for agriculture as the policies of
the loan fund should be set by those in the agricultural
industry. This proposal now allowed oversight from another
agency.
1:29:43 PM
CO-CHAIR FEIGE added that the intention of the proposed bill was
to improve the "communication path" and get the best advice for
state government available from the experts, as leaving the loan
approval process with the board would exclude advice from these
others. This would also allow membership on the board to be
opened up as wide as possible to attract a wider spectrum of
talent.
1:31:09 PM
REPRESENTATIVE KAWASAKI asked about the genesis of the Board of
Agriculture and Conservation and the Natural Resources
Conservation Development Board.
MR. PASCHALL explained that the Board of Agriculture and
Conservation was essentially a renaming and restructuring of the
Agriculture Revolving Loan Fund board about 15-20 years
previously. He was unsure for the creation of the Natural
Resources Conservation Development Board.
CO-CHAIR SADDLER reported that there were about 120 state
boards.
1:32:11 PM
MR. PASCHALL moved on to slide 4, "Current Board Composition,"
and explained that the composition of the Board of Agriculture
and Conservation included four members from commercial
agriculture production, one member from a soil and water
conservation district, one member from a statewide agricultural
promotional organization, and one member with general business
or financial experience. The Natural Resources Conservation
Development Board included five resident bona fide land users
from the five major land areas of the state, and the
Commissioner of Department of Natural Resources or a designee,
the Director of Agriculture, which was a non-voting position.
These board memberships were combined into a new board with 12
voting members, slide 5, "New Board Composition." These members
included five members engaged in commercial production
agriculture, five land users from the soil and water
conservation district, one member with general business or
financial experience not involved in commercial production
agriculture, and one member with experience in preparation,
storage, processing, marketing or other items of food products,
and not involved in commercial production agriculture. He
pointed out that the three non-voting members would be the
commissioners of DNR and DEC, as well as the Chancellor of
University of Alaska Fairbanks, or a designee from the
Cooperative Extension Service or the School of Natural Resources
and Agricultural Sciences.
1:34:08 PM
MR. PASCHALL directed attention to slide 6, "Current BAC
Duties," and stated that the current duties were to administer
and make loans from the ARLF, adopt regulations to carry out the
board's function to manage the ARLF, enter into agreements to
carry out the duties of the board, and recommend land to be
classified as agricultural through the land bank. He declared
that the essential purpose of the current Board of Agriculture
and Conservation was for loan approval.
1:34:48 PM
MR. PASCHALL addressed slide 7, "Current NRCDB Duties," and
stated that these duties included advice to the Commissioner of
DNR for the exercise of powers, duties, and functions of the
commissioner. The duties also included reviewing reports
concerning the use of soil resources, conducting public hearings
and meetings to determine whether land was being used in a
manner consistent with sound soil and water conservation
practices, and reviewing conservation plans for the sale of
agricultural land. He stated that the board recommended action
to provide for the effective and orderly development of
agricultural, forest, and grazing land, and reviewed appeals
regarding the sale or lease of agricultural or grazing land, as
well as advised the soil and water conservation districts in the
state. He mentioned that the board also served as the Board of
Supervisors for the Alaska District.
1:35:39 PM
CO-CHAIR SADDLER asked if any of the duties of the NRCDB were
federally mandated.
MR. PASCHALL responded that he would have to review the federal
statutes; however, the concept of the soil and water districts
was required by the US Department of Agriculture (USDA) for the
use of federal funds for agriculture within the areas of the
districts. He explained that the producers in those districts
were eligible for USDA funds.
CO-CHAIR SADDLER shared that it was necessary to ensure that the
proposed board did not abrogate any responsibility to the
federal departments.
MR. PASCHALL acknowledged that the duties of the proposed board
now included two new duties, slide 8 and slide 9, "BACD Duties."
In addition to advising DNR, it would also advise the
Departments of Environmental Conservation and Fish & Game
pertaining to land use and function of traditional soil and
water district responsibilities. He pointed out that the
proposed board would also supervise the soil and water districts
in the state. He reported that this new board would also review
ARLF loan denial appeals and write guidelines for loan approvals
from the ARLF. He said it would make recommendations to the
University of Alaska Cooperative Extension Service and the
School of Natural Resources and Agricultural Sciences for
programs and activities that would further the promotion,
regulation, and protection of the agricultural and food industry
and broaden the economic basis of the state. He added that it
was necessary to have a board to make formal recommendations to
the agencies and state government that worked with agriculture
and food production.
1:38:22 PM
CO-CHAIR FEIGE commented that inclusion of the University of
Alaska Cooperative Extension Service in the proposed bill
improved the communication and information flow to the farmers
and the industry.
MR. PASCHALL pointed out that the proposed board would advise
the Commissioners of DNR, DEC, and ADF&G on the promotion,
regulation, and protection of the agricultural and food industry
to broaden the economic base of the state and to protect the
consumers, slide 10, "BACD Duties." He directed attention to
the list of policy items, which included agriculture, land use,
resource conservation, food safety and security, pesticides and
herbicides, and noxious and invasive plants.
1:39:30 PM
MR. PASCHALL examined slide 11, "Fiscal Notes," which reflected
that the fiscal note was included in multiple funding sources.
He directed attention to the fiscal notes from DEC, Department
of Commerce, Community & Economic Development (DCCED), and DNR
and summarized the net effect of all of these fiscal notes for
FY 2016. He shared that DEC and DCCED stated that there would
not be any net cost from the proposed board. He explained that
the current board had an allocation from the general fund of
$116,500 through DNR, and that the estimate of cost would be
$173,800 in FY 16. Of this cost difference, $57,300, $17,300
was the estimate for writing new regulations and the remaining
$40,000 would be for loan approval and services provided. He
offered his belief that this cost would be lowered in the
proposed CS, Version C.
1:42:15 PM
MR. PASCHALL summarized slide 12, "Advantages," and said that
the changes for the new Board of Agriculture, Conservation, and
Development would provide an efficient and formal avenue for
communication between farmers, land users, and the
administration. It would allow the farmers and land users more
input into administration policy, and would allow loan approvals
from the ARLF to be handled faster and more efficiently. There
would be fewer meetings to allow improved efficiency within the
administration and this would realize a modest cost savings. He
noted that fewer funds would be removed from the ARLF for
administrative purposes, thereby retaining more of the ARLF's
capital.
CO-CHAIR FEIGE pointed out that HB 207 would also improve
customer service and decrease the delays for the handling of the
loans.
1:44:42 PM
CO-CHAIR SADDLER, addressing the proposed duties of the combined
board, asked if there were any limitations to what the board
could advise.
MR. PASCHALL expressed his belief that the limitations fell into
the existing definitions in statute, except in the cases where
new definitions had been written. He noted that this was an
advisory role, so these were suggestions for what benefited the
agricultural and food industry, and its promotion, regulation,
and protection. Anything beyond this scope would be beyond the
purpose of the board.
1:46:08 PM
REPRESENTATIVE JOHNSON asked if a sectional analysis of the
proposed bill would be presented.
MR. PASCHALL, in response, paraphrased from the sectional
analysis which had been prepared by the Division of Legal and
Research Services, dated January 27, 2014. [Included in members'
packets]. He stated that Section 1 essentially established the
new board, eliminated the existing board, and defined the board
membership. He relayed that Section 2 dealt with a specific
limitation in statute, which stated that members of the board
could not obtain loans, and this had been changed to
specifically allow them to process and obtain loans. He said
that Section 3 required that the board meet four times annually,
with one meeting at the capital while the other three meetings
were not to be held in the same location. He pointed out that
Section 4 was a new section which addressed the powers and the
duties of the board, and he offered his belief that he had
already presented these details. He relayed that this included
new powers as well as the existing powers of the combined
boards. Moving on to Section 5, he reported that the Director
of the Division of Agriculture would now be responsible for the
overall management and policy of the Agricultural Revolving Loan
Fund (ARLF). He said that Section 6 now required five voting
members of the board to constitute a quorum, while Section 7
allowed the board to adopt regulations to carry out its duties,
including the establishment of fees. Section 8 made a
conforming amendment for a reference to the new board. Section
9 defined "agriculture" for purposes of this chapter, and
determined that the use of "board" in this new chapter
referenced the new board. He explained that Section 10 added a
new section pertaining to loans from the ARLF, requiring the
Department of Commerce, Community & Economic Development to
approve loans from the fund. As it also spelled out the
existing types of loans, he clarified that most of this language
for the types of loans was already in existing statute.
1:49:40 PM
REPRESENTATIVE KAWASAKI directed attention to Section 7 and what
was envisioned for the system of fees.
MR. PASCHALL, in response, said that ARLF required an
application fee to apply for a loan, as did most of the state
loan programs managed by DCCED. He said that the language was
part of the existing statute, although it had been moved to a
different portion of the statute.
1:50:45 PM
REPRESENTATIVE P. WILSON directed attention to page 5, line 9,
of the proposed CS, and asked if this had been included in the
earlier version.
MR. PASCHALL said that the language was already in statute, and
it allowed the board to enter into contracts to carry out its
purpose. He gave an example for the buying or selling of loans
in the fund.
1:52:07 PM
MR. PASCHALL continued with Section 10, explaining that this
section set out the types of loans for approval. He described
that Section 11 removed the reference to the fixed rate of
interest on a farm development, chattel, or irrigation loan.
Section 12 changed the reference from the board to the
Department of Commerce, Community & Economic Development, and
Section 13 changed the reference from the board to the
Department of Natural Resources. Section 14 removed the
reference to fixed rate interest on the farm processing loans,
and Section 15 deleted language pertaining to the parameters of
interest rates on loans.
1:53:11 PM
MR. PASCHALL explained that Section 16 allowed the Department of
Commerce, Community & Economic Development to restructure
certain loans under the guidelines approved by the board,
opining that only one outstanding loan still qualified, and that
Section 17 required that funds from assignments of proceeds that
were overpayments of loans were to be deposited into the ARLF.
CO-CHAIR SADDLER asked if those proceeds were interest.
MR. PASCHALL explained that the existing language said that a
loan payment, both principal and interest, would be deposited
into the ARLF. He noted that federal payments needed to be
assigned to the loan fund, and paid into the ARLF, instead of
into the general fund.
CO-CHAIR SADDLER asked if payments of principal and interest
currently went to the general fund or the ARLF.
MR. PASCHALL replied that they were currently deposited into the
Agricultural Revolving Loan Fund (ARLF), and that there were not
any structural changes proposed.
CO-CHAIR SADDLER asked for a reason to this section.
MR. PASCHALL explained that most of the language was existing
statute amended to refer to DNR instead of the Board of
Agriculture to clarify that there were not any future questions
for interpretation.
1:55:20 PM
REPRESENTATIVE P. WILSON asked if there was anything in the
proposed bill that directed funding away from the general fund.
MR. PASCHALL offered his belief that there was not any intention
to change funding, other than to realize that the primary
function of the Board was to administer the ARLF. He noted
that, as the proposed board was no longer reviewing loans, that
funding was not necessary. He pointed out that fees to
administer the loans, as well as service fees, were all
deposited into the fund.
1:56:46 PM
MR. PASCHALL directed attention to Section 18, noting that this
section had been moved from its original location, which
required that excess proceeds collected would be refunded to the
loan holder. He explained that Section 19 was a reference from
the board to DCCED, and that Section 20 amended the definition
of "nonfarm use." Section 21 allowed the legislature to
appropriate money from the fund for the cost of administering
the fund, which was the current language, and Section 22
required the board to administer the ARLF, which was also
existing language, only slightly adjusted to expedite emergency
loans through DCCED.
1:58:15 PM
CO-CHAIR SADDLER asked if this emergency authority existed in
the current structure.
MR. PASCHALL explained that, under the current process, the
application paperwork must be submitted 30 days prior to the
board meeting, although there was a provision to allow three
members of the board to review the application if it was
necessary more quickly.
1:58:58 PM
MR. PASCHALL directed attention to Section 23, noting that it
added a new sub-section which pertained to the interest rates of
the loan, allowing the board to set the rate lower under certain
predefined policy circumstances. He said that Section 24
spelled out the definitions of "agricultural," "board," and
"department" in this section. He pointed out that Sections 25 -
34 had conforming language dealing with movement of the
functions of the current board to the proposed board.
MR. PASCHALL explained that Section 35 would change the
definition of "board" to the Board of Agriculture, Conservation,
and Development, Section 36 repealed statutes, and Section 37
provided a transition from the two existing boards to the
proposed board.
MR. PASCHALL stated that Section 38 allowed the agency to adopt
regulations prior to the change in boards actually going into
effect, while Section 39 set out the effective dates for
Sections 37 and 38. Section 40 provided an effective date,
January 31, 2015, for the proposed bill.
2:00:50 PM
REPRESENTATIVE JOHNSON expressed his concern that, as a quorum
of only five was necessary, a small segment of the board could
gather and make all the decisions.
MR. PASCHALL shared that there had been discussions for the
composition, numbers, and quorum of the proposed board, and he
offered his belief that this problem could be addressed.
REPRESENTATIVE JOHNSON suggested that a possible solution would
be to allow telephonic attendance.
MR. PASCHALL declared that this had been included in one of the
amendments currently being drafted.
2:02:17 PM
REPRESENTATIVE JOHNSON asked how the interest rate was
established.
MR. PASCHALL explained that it was based upon a rate similar to
that charged by private institutions providing agricultural
loans in Alaska, although he admitted there were not many
private institutions providing these loans. He noted that the
rate was usually slightly lower than the rate offered by the
Alaska Rural Rehabilitation Corporation and the Farm Services
Agency. He directed attention to the audit, which listed these
loan rates.
REPRESENTATIVE JOHNSON reflected on similar legislation which
had established guidelines.
CO-CHAIR FEIGE noted that this issue had been raised by another
committee member, and that an amendment was prepared to provide
a minimum interest rate to cover the administrative costs.
2:04:29 PM
REPRESENTATIVE JOHNSON mused that it was important for boards to
have the proper makeup in order to prevent one segment from
controlling the board. He declared his dislike and concern for
an even number of board members and asked it to be addressed.
2:05:44 PM
REPRESENTATIVE P. WILSON inquired why one of the four required
meetings each year must be in Juneau, as most farming takes
place in the Railbelt.
MR. PASCHALL explained that it was an important consideration
for the board to be representative across the state so that
statewide agriculture and conservation expertise could be
provided, and that this was an existing requirement for the
Natural Resource Conservation and Development Board. He opined
that it was common for boards to have at least one annual
meeting in the state capital, as the Legislature and loan
administrators were located there. He said that different
venues better allowed individuals the opportunity to meet with
the board face to face.
2:07:54 PM
REPRESENTATIVE HAWKER offered to simplify a complicated concern
for the macro view of the proposed bill. He noted that there
were "a number of pieces at play here," which included the ARLF,
the Natural Resource Conservation and Development Board, and the
Board of Agriculture and Conservation. He stated that the
duties under the former soil and water conservation board were
now proposed to be included in the proposed Board of Agriculture
and Conservation. He offered his belief that the Board of Soil
and Water Conservation was established in 1949.
CO-CHAIR FEIGE confirmed that it had been established in 1949,
in conjunction with the soil and water conservation districts,
as a result of the Dust Bowl.
CO-CHAIR SADDLER asked for clarification that the reference was
for the Alaska Soil and Water Conservation District.
REPRESENTATIVE HAWKER replied that he was referencing Title 41,
Chapter 10, regarding soil and water conservation.
CO-CHAIR SADDLER replied that Representative Hawker had referred
to the Board of Soil and Water Conservation.
REPRESENTATIVE HAWKER explained that this board was established
under AS 41.10.
CO-CHAIR SADDLER asked for clarification to the proper name of
the board.
REPRESENTATIVE HAWKER replied that the board which had been
established was the Natural Resource Conservation and
Development Board (NRCDB), and that it was this board which
would be eliminated under the proposed bill. He noted that the
duties of the board were very broad, and were directed at the
management and conservation of state soil and water resources.
He pointed out that this board, with its broad responsibilities
for public resources, was being eliminated and merged into the
Board of Agriculture and Conservation, a more narrowly focused
board. He pointed out that the current Board of Agriculture
existed in Title 3, under agriculture, animals, and food. He
stated that the duties of this broadly managed, statewide, soil
and water conservation board were being merged into a board
specifically titled under agriculture, animals, and food. He
pointed out that the Agricultural Revolving Loan Fund, also
under Title 3, was established in 1953 as the core for the
benefit and development of agriculture, animals, and food in the
state. He stated that this narrow focus did not include the
broader focus for management of soil and water resources.
2:13:54 PM
REPRESENTATIVE HAWKER reported that, subsequent to all of this,
with the ARLF and the soil and water conservation board both
functioning, the Board of Agriculture had been created in 2000,
with only one real function as listed in Title 3, the management
and daily operations of the ARLF. He suggested that there was a
long history of concern for the effective management by the
Board of Agriculture, referencing a "scathing audit about
mismanagement within the ARLF, the Board of Agriculture" and he
questioned whether this performance had improved. He
acknowledged the current audit which had indicated existing
serious concerns.
2:16:24 PM
REPRESENTATIVE HAWKER questioned why all of the statewide
responsibilities for soil and water conservation were being
moved into a more recently created, "arguably dysfunctional
board" titled under "agriculture, animals, and food" which he
characterized as having a very narrow focus for one industrial
segment, promoting agriculture, within the state. He offered
his belief "that we're doin' somethin' wrong here." He declared
that the board proposed for elimination had a much broader
charge for responsibility of statewide water and soil
conservation issues under Title 41. He stressed that this
regulatory board responsible for protecting water and soil
conservation was being moved into an advocacy board responsible
for economic development in a small sector of the state economy.
He questioned whether proposed HB 207 "gets us to where we want
to be." He asked for clarification whether his interpretation
was correct.
2:19:07 PM
MR. PASCHALL expressed his agreement with most of what had been
stated, although he opined that the NRCDB was only advisory, and
not regulatory. He pointed out that the repeal, revision, and
addition of statute were all contained in AS 03, AS 38, AS 39,
and AS 41. He deferred to Legislative Legal Services for the
reason to placement of the proposed board in AS 03.
CO-CHAIR SADDLER suggested the need for an explanation to the
NRCDB and its composition, activities, issues, and authorities.
2:20:34 PM
EDMUND FOGELS, Deputy Commissioner, Office of the Commissioner,
Department of Natural Resources (DNR), explained that one of his
duties was to oversee the Executive Director for the Natural
Resource Conservation and Development Board (NRCDB) and interact
with the board. He noted that the board offered advice to the
commissioner and that it met four times annually. He stated
that its advice was "tremendously valuable" to both DNR and the
soil and water conservation districts. He described the board
as the link between management of the districts, and that DNR
was pursuing ways to make the board even more effective.
2:22:19 PM
MR. FOGELS, in response to Co-Chair Saddler, explained that the
work of the board covered a broad spectrum which included
resource conversation and agriculture. He said that he had
become a huge fan of the soil and water conservation districts,
describing them as a quasi-governmental agency that had a wide
variety of support means.
2:23:11 PM
REPRESENTATIVE HAWKER declared that the soil and water
conservation districts were also created in 1949 under AS
41.10.130, and that the duties of the board were enumerated
under AS 41.10.100 to support those districts as they were far
beyond agricultural responsibilities.
2:24:13 PM
CO-CHAIR SADDLER asked Mr. Fogels if there would be a diminution
of the combined boards' ability to fulfill the functions of the
soil and water conservation districts.
MR. FOGELS offered that the DNR interpretation of the proposed
bill was that all the necessary duties would remain in order to
do the jobs. He stated that effectiveness would be determined
by work load. He stated that, based on his attendance at the
meetings, "this was one of the hardest working boards that we
have in the state, and my hat's off to those board members." He
noted that the duties of the board would change with the
proposed bill, as it would also be offering advice to DNR on
agricultural issues, which was a current duty of the NRCDB.
2:25:53 PM
REPRESENTATIVE P. WILSON referred to the letter from the
Fairbanks Soil & Water Conservation District, dated January 31,
2014 [Included in members' packets], which declared that it did
not support proposed HB 207 and expressed concern that this
"would dilute the desires of those we serve and radically change
the mission and the operation of soil and water districts across
the state." She asked whether there had been any discussion
with this group.
CO-CHAIR FEIGE replied that he had talked with people on the
NRCDB, and the Alaska Association of Conservation Districts,
which he described as the umbrella organization for the soil and
water conservation districts. He declared that there was not
intent to diminish the information and advice currently provided
by the NRCDB to the state, hence the retention for the proposed
board of all the current responsibilities. He said that some of
the language in the proposed bill was designed specifically to
give more power to the board, including the writing of
regulations or supervising the districts. He reported that the
intent was for the board members to be the "resident experts, to
know far more and have a more diverse opinion about the soil and
water conservation issues or the agricultural issues across the
state." He declared his intent to place as much influence and
authority as possible with the board as it would give the
industries a much greater say in governmental policies. He
expressed his agreement that, although this was a change from
the current board, it did not diminish the influence of the
existing board structures, but instead offered a much greater
voice for input by the industry. He pointed out that the
agricultural industry in Alaska was in a gradual, steady
decline, and that a greater voice may be able to change that and
boost local economies.
REPRESENTATIVE P. WILSON asked whether there would be elections
for the board membership, and whether there had been personality
problems among the board members.
CO-CHAIR FEIGE replied that the new board appointments would be
up to the governor, and he expressed his desire that the current
board members continue their service. He declared that the
current BAC had done a lot of good work, and had done a lot to
improve the management of the ARLF, as well as the requirements
for loans. He opined that it was still necessary for the board
to have more regulatory authority, with a more formal voice for
advice to DNR, DEC, and ADF&G.
2:31:49 PM
REPRESENTATIVE KAWASAKI asked about the history of the NRCDB,
and he shared his concern with those concerns stated by
Representative Hawker.
MR. FOGELS, in response to Representative Kawasaki, related the
history of the board, as told to him by the executive director
of NRCDB. He said that soil and water conservation districts
had been created during the Dust Bowl to "get their hands dirty
and fix the resources in the soil." He offered his
understanding that the territorial legislature in Alaska created
the Alaska Conservation Board in 1947, which later morphed into
the NRCDB. He allowed that the conservation districts were also
created during that period to respond to local natural resource
issues.
REPRESENTATIVE KAWASAKI asked if, as a purpose of the
conservation district was to be agile, the proposed bill make
this more difficult.
MR. FOGELS offered his belief that he could make it work as long
as he had the proper resources and a good board. He did not
expect there to be much change. He stated that the issues with
the soil and water conservation districts were not with
management, but with a lack of available resources. He shared
that each district was only as good as the energy of the people
within that district.
2:35:23 PM
CO-CHAIR FEIGE directed attention to Version C, page 5, line 4,
and noted that "to advise and regulate" had generated a lot of
interest. He clarified that the inclusion of "regulate" within
the powers of the board ensured that the people in the industry
had a say for the actions in the soil and water conservation
districts, as opposed to leaving it unclear and open to
interpretation. He declared that it was not his intention to
"upset the applecart in the way soil and water conservation
districts work." He allowed that "regulate" offered a wide
range of response, but it placed the destiny of those districts
"in the hands of people from the industry and from the districts
across the state, not in some current or future state agencies."
2:37:09 PM
REPRESENTATIVE TARR expressed similar concerns for the board
functions, and she related her recent experience with a soil and
water conservation district. She asked about the current
primary function for the approval of loans by the BAC, and for
its proposed advisory role. She asked if there would be any
conflicts between the proposed board and DNR.
MR. FOGELS replied that DNR craved more input on agricultural
policy and issues from the current board, noting that currently
there were a lot of big agriculture issues in the state. He
offered examples for the issues of agricultural land disposal,
and the difficulty for obtaining a loan to build a dwelling on
agricultural land.
REPRESENTATIVE TARR asked if the language in this proposed bill
would accomplish that, or would it be more appropriate to simply
make changes to the current BAC, and increase its ability to
bring input to DNR.
MR. FOGELS replied that the proposed bill offered the
opportunity for input on agricultural policy.
2:40:43 PM
KRISTIN CURTIS, Legislative Auditor, Division of Legislative
Audit, Alaska State Legislature, reported that the division had
completed an audit on the Agricultural Revolving Loan Fund
(ARLF), dated June 24, 2013. She recounted that the purpose of
the audit was to examine the performance and administration of
the fund, and to compare its administration to that of other
loan programs and industry best practices. She stated that the
goal of the evaluation was to identify ways to improve the
fund's performance and efficiencies, with an emphasis for
whether the fund should be administered through a different
state agency. She pointed out that a copy of the audit was
included in the members' packets. She declared that the audit
noted many instances of administrative deficiencies with many
opportunities for increased efficiency. Based on these
findings, the division concluded that moving the administration
and loan decisions of ARLF to the DCCED, Division of Economic
Development, may improve the efficiency and effectiveness of the
loan program and help ensure the future solvency of the fund.
She pointed to the detailed conclusions of the audit, page 13,
which stated that the fiscal condition of ARLF was a result of
the agricultural policy decisions made over the past 30 years by
the executive and legislative branches of the Alaska state
government.
MS. CURTIS said that many of the lending and management
decisions were made in support of the agricultural industry,
rather than for maintenance of the fiscal health of the fund.
Since inception, the equity of the fund had declined by 69
percent. She pointed to a positive note, as the audit concluded
that the default rates were reasonable at the program level,
between 1 and 5 percent over the past five years, as listed on
page 27 of the report. She reported that the audit identified
numerous administrative deficiencies, which, if not corrected,
could possibly contribute to future loan losses, and were listed
at the bottom of page 14. She offered some examples of the
deficiencies, which included ineffective and inefficient
processes for loan evaluation and approval, property management,
and loan management. She listed some troublesome deficiencies
which included additional loans given to borrowers who had
experienced substantial financial losses and had difficulty
meeting prior loan obligations, as well as new loans to
borrowers without prudent considerations of prior defaults. She
shared that the audit had also found that its regulations did
not promote consistent fiscally responsible decisions, and these
regulations would be improved by incorporating industry best
practices.
MS. CURTIS shared that ARLF was compared to other loan programs,
and that other boards similar to the Board of Agriculture and
Conservation were not commonly used for lending decisions. She
stated that it was more common for lending decisions to be made
by professional lending staff or by committees with lending
expertise. She noted that there were inefficiencies in the ARLF
administration, which were discussed on page 17. She said that
ARLF administrators did not use an automated loan system for
loan processing, reporting, or monitoring, and had not obtained
USDA farm service agency loan guarantees for ARLF loans to
mitigate any potential loan losses, even though the program was
eligible.
2:44:35 PM
MS. CURTIS directed attention to page 23, which detailed a
recommendation to move the Agricultural Revolving Loan Fund to
the DCCED's Division of Economic Development, as this division
currently administered 13 state run loan programs. She offered
her belief that the ARLF would benefit from this economy of
scale, and the automated loan system. She opined that the
program would benefit from loan expertise and standardization.
She offered two recommendations to the ARLF administrators.
Referring to page 24 of the audit, she recommended that ARLF
administrators amend the regulations to promote industry best
practices, as the current regulations did not include criteria
for approving loans and did not provide sufficient guidelines
for the evaluation of collateral. She also recommended that
ARLF administrators pursue disposal of business properties and
revise the property leasing rates to provide a return on ARLF
assets. She reported that ARLF currently owned two active
business properties, a slaughtering facility and the Alaska Farm
Co-operative. She pointed out that the operation of businesses
was not within the statutory authority granted to ARLF, as its
statutory objective was to promote the more rapid development of
agriculture as an industry by means of long term, low interest
loans. She reported that Alaska statute stated that property
acquired by ARLF through foreclosure, default, or other means
should be disposed of to maximize the state's return. Instead
of pursuing disposal of the aforementioned slaughtering facility
and co-operative, policy decisions continue to be made to
operate these businesses. She said that the slaughtering
facility continued to incur annual losses and that the co-
operative did not offer any financial return, with a cumulative
effect for a reduction to the ARLF assets. She re-stated the
recommendation for disposal of both these business properties,
with a revision of leasing rates, to provide an adequate return
on these ARLF assets.
2:46:47 PM
REPRESENTATIVE KAWASAKI reflected on the aforementioned
recommendations and opined that the proposed policy decision to
combine the two boards was separate from a decision regarding
the administration of the ARLF. He asked whether a move of the
ARLF administration to DCCED as well as implementation of the
suggested recommendations for regulation amendments and disposal
of the business properties would suffice for a cleaner audit of
ARLF in the future.
MS. CURTIS, in response, asked to clarify the administration of
the ARLF fund.
REPRESENTATIVE KAWASAKI explained that the ARLF fund
administration would be through DCCED.
MS. CURTIS reported the audit had concluded that, although the
BAC board worked hard, it operated under competing priorities
for supporting the agricultural industry and maintaining the
health of the Agricultural Revolving Loan Fund, a tension that
had existed for many, many years. She noted that prior audits
had also been critical of administration to the fund. She
pointed out that, as there had also been a recommendation for
improvement of the regulations, more guidance for regulation to
the approval process and industry best practice would address
these criticisms. She stated that disposal of the business
properties would address this practice, as it was not authorized
in statute.
2:49:50 PM
REPRESENTATIVE P. WILSON asked if any attempt had been made to
sell the aforementioned slaughter company.
MS. CURTIS offered her understanding that there had been
attempts to dispose of the property, the last time in 2006,
although this had included a requirement for a buyer to continue
operation and accept all animals. She relayed that there had
not been any responsive bidders at that time.
2:50:28 PM
MS. CURTIS, in response to Representative Olson, reported that
the earliest audit for ARLF was from 1984, and that these audits
over the past 30 years had continued to reveal many of the same
findings. She referenced footnote 20 on the first
recommendation, which identified some of the old findings that
had been reiterated.
2:51:08 PM
REPRESENTATIVE OLSON asked if five years would be an adequate
amount of time to "clean this up under the proposed combination
of responsibilities."
MS. CURTIS replied that five years would be more than sufficient
to address all three recommendations and to see an improvement.
2:51:41 PM
REPRESENTATIVE OLSON suggested that a reasonable sunset clause
be added to the proposed bill.
MS. CURTIS acknowledged that there had not been a lack of audits
over the years, though it was debatable whether there had been
any improvements as a result of those audits. She expressed
agreement that five years would be sufficient, if the
improvements were actually implemented.
2:52:13 PM
CO-CHAIR SADDLER asked if Representative Olson recommended a
five year sunset clause on the combined board.
REPRESENTATIVE OLSON expressed his agreement, although he was
not offering a sunset clause at this time.
2:52:33 PM
CO-CHAIR FEIGE, reflecting that the capital in the ARLF had been
steadily depleting since its inception, asked whether the
problems were a result of legislative or executive branch
action, or mismanagement by the Board of Agricultural
Conservation.
MS. CURTIS directed attention to page 13 of the audit report,
which outlined exactly how the money had been depleted. She
referenced the $29 million in defaulted loans, and she offered
her belief that this result was a combination of the loan
approval system, the administration, and the economy. She
pointed to the $13 million for funding operations in the
Division of Agriculture, and remarked that this was a policy
decision for use of the funds which was not reflective of the
administration. She reported that $10 million was appropriated
back to the general fund, and that $3.5 million had been used to
purchase and run the aforementioned slaughtering facility.
2:53:49 PM
REPRESENTATIVE JOHNSON asked for clarification whether the
slaughter facility had been repossessed or purchased.
MS. CURTIS explained that the facility was built in the mid-
1980s with a general fund loan of $2 million, which was
subsequently absorbed by the ARLF as a second trust deed. When
the facility "quickly went under," the ARLF bought the property
and paid off the first creditor. She stated that the property
had not been received by a loan default.
2:54:31 PM
REPRESENTATIVE KAWASAKI reflected on the discussion for the
combination of the two boards and the transfer for the
administration of the ARLF and asked if it was conceivable that
the proposed board would also introduce "similarly poor
regulations dealing with the ARLF, or similarly bad disposal of
business property regulations."
MS. CURTIS replied that she had no comment for what could happen
as auditors reviewed history and made recommendations for
approval.
REPRESENTATIVE KAWASAKI asked if this recommendation would
include a merger of the two boards for future administrative
decisions.
MS. CURTIS replied that her division had not considered the
merger of the two boards and did not have an opinion for this
decision. She acknowledged the difficulty for the audit report,
as there were many possible answers for fixing the problems.
She reported that these deficiencies had resulted in a
conclusion to move the fund administration, although other
options had been fiercely debated.
2:56:28 PM
REPRESENTATIVE JOHNSON asked for clarification that, although
the two boards were being merged, the lending and the financial
aspects of the ARLF were being moved to Department of Commerce,
Community & Economic Development.
CO-CHAIR FEIGE explained that the fund would continue to operate
essentially as it did currently. The applications would be
prepared and processed through the Division of Agriculture, and
would be directed to an individual at DCCED for final approval.
The proposed new board would set the guidelines for
qualifications for this individual as well as any requirements
to be placed on the application process, but the final approval
would be made outside the board. He noted that an appeal would
be returned to the board for a decision.
REPRESENTATIVE JOHNSON offered his belief that the proposed
changes included "having the same people do the same work that
have had a dismal report and the check written by a different
person." He suggested that there were not any changes, other
than who would write the check, although there had been bad
reports for the preceding 30 years.
CO-CHAIR FEIGE offered his belief that this policy call had been
made in the best interest for agriculture.
2:58:34 PM
REPRESENTATIVE TARR offered her understanding that the initial
approval was with [DCCED] and that any appeal would be addressed
by the proposed board. She asked if, during the audit of other
funds, there was an acceptable standard default rate to indicate
sound management.
MS. CURTIS replied that her division did not review default
rates unless it was part of a special audit. In this case, ARLF
had been compared to similar loan programs for a basis of what
was reasonable. She noted that, as the economy had been
volatile over the past five years, other comparable programs had
similar default rates.
2:59:48 PM
REPRESENTATIVE OLSON asked if any of the current board members
had loans in default or had "any loans written off."
MS. CURTIS replied that she did not know as the default review
was in summary form and not in detail. She expressed reluctance
for further research as this information would not be included
in the report to Legislative Budget and Audit Committee.
REPRESENTATIVE OLSON relayed that he was not concerned with
specific names, only for whether there were any board members,
and for the amounts in default.
MS. CURTIS agreed to research this, and then add it in memo form
to the Legislative Budget and Audit Committee report.
3:00:42 PM
MR. FOGELS said DNR had about 40 percent of one position
currently funded in the NRCDB budget. The total budget for
NRCDB was now being transferred to the Division of Agriculture
and although, in response to Co-Chair Saddler, there was not a
guarantee for any specific individual, it was hoped that the
current person, who was highly regarded, would remain.
CO-CHAIR SADDLER held over HB 207.
3:01:51 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:02 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 207 BAC Information.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB 207 NRCDB Information.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB 207 Sectional 28-LS0675C.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB 207 Sponsor Statement.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB 207 Blank CS 28-LS0675C.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207-DNR-CDB-2-3-14.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207-DNR-ARLF-2-01-14.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207-DEC-CO-01-31-14.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207-DCCED-INV-01-31-14.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207 WSWCD Email.xps |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207 USSWCD Email.xps |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207 KSWCD Letter.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207 PSWCD Letter.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207 FSWCD Letter.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB 207 ARLF Audit 30071rpt-2013.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |
| HB207 Presentation HRes.pdf |
HRES 2/5/2014 1:00:00 PM |
HB 207 |