Legislature(2013 - 2014)SENATE FINANCE 532
04/16/2014 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB297 | |
| HB293 | |
| HB263 | |
| HCR15 | |
| HB268 | |
| HB121 | |
| HB204 | |
| HB379 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 297 | TELECONFERENCED | |
| += | HB 293 | TELECONFERENCED | |
| += | HB 263 | TELECONFERENCED | |
| += | HCR 15 | TELECONFERENCED | |
| += | HB 268 | TELECONFERENCED | |
| + | HB 121 | TELECONFERENCED | |
| + | HB 204 | TELECONFERENCED | |
| + | HB 379 | TELECONFERENCED | |
| + | HB 308 | TELECONFERENCED | |
| + | HB 361 | TELECONFERENCED | |
| + | HB 160 | TELECONFERENCED | |
| + | HB 116 | TELECONFERENCED | |
| += | SB 48 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
April 16, 2014
9:09 a.m.
9:09:16 AM
CALL TO ORDER
Vice-Chair Fairclough called the Senate Finance Committee
meeting to order at 9:09 a.m.
MEMBERS PRESENT
Senator Pete Kelly, Co-Chair
Senator Kevin Meyer, Co-Chair
Senator Anna Fairclough, Vice-Chair
Senator Click Bishop
Senator Mike Dunleavy
Senator Lyman Hoffman
Senator Donny Olson
MEMBERS ABSENT
None
ALSO PRESENT
Dirk Craft, Staff, Representative Lance Pruitt; Senator
Bert Stedman; Representative Peggy Wilson; Christine
Marasigan, Staff, Senator Kevin Meyer; Cecile Elliot,
Staff, Senator Mike Hawker; Ron Kreher, Director, Division
of Public Assistance, Department of Health and Social
Services; Ginger Blaisdell, Staff Representative Shelley
Hughes; Representative Eric Feige; Michael Paschall, Staff,
Representative Eric Feige; Lela Klingert, President,
Commercial Fishing Agriculture Bank, Juneau; Astrid Rose,
Staff Representative Alan Austerman; Representative Alan
Austerman; Vince O'Shea, Vice-President, Pacific Seafood
Processors Association, Juneau; Joe Jacobson, Director,
Division of Economic Development, Department of Commerce,
Community and Economic Development; Representative Benjamin
Nageak.
PRESENT VIA TELECONFERENCE
Mark Palmer, President and Chief Executive Officer, Ocean
Beauty Seafoods, Seattle; Joe Plesha, Trident Seafoods,
Seattle.
SUMMARY
SB 48 PERS CONTRIBUTIONS BY MUNICIPALITIES
SB 48 was SCHEDULED but not HEARD.
CSHCR 15(FIN)
TASK FORCE ON UNMANNED AIRCRAFT SYSTEMS
CSHCR 15(FIN) was REPORTED out of committee with
a "do pass" recommendation and with a previously
published fiscal impact note: FN2(LEG).
CSHB 116(L&C)
PERS CREDIT FOR MILITARY SERVICE
CSHB 116(L&C) was SCHEDULED but not HEARD.
CSHB 121(FIN)
COMMERCIAL FISHING & AGRICULTURE BANK
CSHB 121(FIN) was HEARD and HELD in committee for
further consideration.
CSHB 160(FIN)
LICENSING OF ATHLETIC TRAINERS
CSHB 160(FIN) was SCHEDULED but not HEARD.
CSHB 204(FIN)
SALMON & HERRING PRODUCT DEV'T TAX CREDIT
CSHB 204(FIN) was HEARD and HELD in committee for
further consideration.
CSHB 263(HSS)
EXTEND SENIOR BENEFITS PAYMENT PROGRAM
SCSCSHB 263(FIN) was REPORTED out of committee
with a "do pass" recommendation and with a
previously published fiscal impact note:
FN1(DHS).
CSHB 268(FIN)
BIG BULL MOOSE DERBIES; SNOW TOWN ICE CL.
CSHB 268(FIN) was REPORTED out of committee with
a "no recommendation" and with a previously
published zero fiscal note: FN2(REV).
CSHB 293(STA)
LICENSE PLATES
CSHB 293(STA) was REPORTED out of committee with
a "do pass" recommendation and with a previously
published fiscal impact note: FN1(ADM).
CSHB 297(FIN)
HOME ENERGY RATING SYSTEMS
SCS CSHB 297(FIN) was REPORTED out of committee
with "no recommendation" and with a previously
published zero fiscal note: FN1(REV) and
forthcoming zero fiscal note from the Alaska
Energy Authority.
HB 308 ALASKA SECURITIES ACT EXEMPTIONS
HB 308 was SCHEDULED but not HEARD.
HB 361 LICENSING OF BEHAVIOR ANALYSTS
HB 361 was SCHEDULED but not HEARD.
CSHB 379(FIN)
OIL & GAS PROPERTY TAX
CSHB 379(FIN) was HEARD and HELD in committee for
further consideration.
CS FOR HOUSE BILL NO. 297(FIN)
"An Act recognizing the Alaska Housing Finance
Corporation as the authorizing agency to approve home
energy rating systems for the state; and providing for
an effective date."
9:10:15 AM
Senator Bishop MOVED to ADOPT the proposed committee
substitute for HB 279, Work Draft 28-LS1307\C (Nauman,
4/14/14) as working document. There being NO OBJECTION, it
was so ordered.
9:10:49 AM
DIRK CRAFT, STAFF, REPRESENTATIVE LANCE PRUITT, presented
the changes in the new CS found in Section 2 and brought to
the sponsor by Senator Stedman. He reported that the
changes added approval language from the Power Project Loan
Fund for the Alaska Energy Authority (AEA) to approve loans
for the Blue Lake Hydroelectric Project; he added that the
sponsor was in support of the changes.
Senator Dunleavy inquired about the intent of the bill. Mr.
Craft replied that the original purpose of HB 297 was to
recognize the Alaska Housing Finance Corporation (AHFC) as
the state's Home Energy Rating System (HERS) authorizing
agency for the purpose of approving HERS use in Alaska. The
bill would help to protect the investment the state has
made by AHFC in developing its own rating system, AkWarm,
as well as the over $560 million Alaskans invested in the
highly successful home energy rebate and weatherization
programs. He reported that AkWarm's system and software had
been in use and continuously updated since 1996,
specifically designed for Alaska and recognized by the
Alaska building, real estate, and home loan industries. It
was directly tied to AHFC programs such as the home energy
rebate and weatherization programs, interest rate
reductions for home loans, and Alaska building energy
efficiency standards.
Senator Dunleavy noted the CS having made an addition to a
loan program and requested an explanation of that section.
Mr. Craft deferred the question to Senator Stedman.
Vice-Chair Fairclough asked if it was a fair assessment
that the title of the bill allowed for a "hitchhiker" to be
easily attached to it as it came before a committee. Mr.
Craft responded in the affirmative.
Vice-Chair Fairclough noted that two bills had been rolled
into one.
9:13:11 AM
Senator Dunleavy inquired how the addition to the bill
affected the overall fund and the ability to dedicate or
expend funds to the weatherization program. Mr. Craft did
not think the new addition would have an impact.
SENATOR BERT STEDMAN, explained that there was a
hydroelectric expansion project in progress in Sitka in
which a dam face was being raised 83 feet. The dam was
originally constructed in the late 1950s to facilitate the
construction and the development of a pulp mill, which was
no longer in existence. He explained that the electrical
demands of the community of Sitka were such that the dam
needed to be raised to the design height to bank additional
water. The penstock was being redone, a new powerhouse was
being built, and the turbines were being updated. Things
were more expensive than anticipated and the community
needed an additional $40 million to complete the project.
The state historically had discussed contributing a 50
percent match for hydro projects. The state had about $49.5
million invested in the project at present. The community
was required to supply the remainder of the funding,
approximately $40 million. The legislature was unable to
make an appropriation of $18.6 million to match the funding
of 50 percent on the hydro project due to the fiscal shape
of the state. Sitka was looking at other alternatives, one
of which was to go to AEA to borrow the funds, if
available. Sitka tried to put a package together; however,
there was not the ability to do a cash infusion for the
appropriation. By attaching language to the bill before the
committee, it gave AEA authorization to lend the funds,
however, there were no funds to lend. He reported the
existence of another project on the southern end of
Southeast that might not go forward due to ongoing
discussions with AEA. The community was in a peculiar
position, as legislators are aware that Fairbanks was at
$0.23 a kilowatt hour and most community members heated
with oil. Sitka was not far behind Fairbanks in terms of
rates. The landing authorization, if executed, would help
with the kilowatt charges to the customer and residents of
the community. Senator Stedman had hoped the project would
be a part of the capital budget, with an appropriation.
However, that did not appear to be happening.
9:17:37 AM
Vice-Chair Fairclough noted that Senator Hoffman and Co-
Chair Kelly had joined the committee in progress.
Senator Olson noted that the goal was to reduce the cost of
electricity in Sitka to the upper teens per kilowatt hour
and inquired what the rates were currently. Senator Stedman
replied that currently the rate per kilowatt hour (kWh) was
$0.12. He anticipated a rate increase to $0.16 or $0.17 per
kWh. The community was working on keeping the lower
kilowatt consumption users' rates down and balancing
efforts with the commercial sector.
Senator Olson noted that the project had a local
contribution to it and inquired if the community of Sitka
was in favor of the project. Senator Stedman responded that
the community was in full support and that the project was
currently under construction. He opined that the community
was in a position that it had to expand its hydro power. It
did not have any other reasonable alternatives. He
indicated that the project was approximately two-thirds
completed.
Vice-Chair Fairclough CLOSED public testimony.
9:20:39 AM
Vice-Chair Fairclough discussed a forthcoming zero fiscal
note from AEA.
Senator Bishop MOVED to REPORT SCS CSHB 297(FIN), version
C, out of committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
SCS CSHB 297(FIN) was REPORTED out of committee with "no
recommendation" and with a previously published zero fiscal
note: FN1(REV) and forthcoming zero fiscal note from the
Alaska Energy Authority.
9:21:51 AM
AT EASE
9:22:42 AM
RECONVENED
CS FOR HOUSE BILL NO. 293(STA)
"An Act relating to motor vehicle registration plates;
relating to special registration plates for
firefighters and emergency medical service providers;
and providing for an effective date."
9:23:16 AM
REPRESENTATIVE PEGGY WILSON, related that the bill had been
held in committee, due to a potential amendment.
Senator Bishop MOVED to REPORT CSHB 293(STA) out of
committee with individual recommendations and the
accompanying fiscal note.
Senator Olson inquired if there was a question regarding
the bill that still needed to be discussed.
9:23:53 AM
AT EASE
9:24:06 AM
RECONVENED
Vice-Chair Fairclough recalled that Senator Bishop had been
considering an amendment to the bill.
Senator Bishop explained that he had discussed the issue
with the sponsor and had decided not to offer the
amendment.
Senator Bishop MOVED to REPORT CSHB 293(STA) out of
committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSHB 293(STA) was REPORTED out of committee with a "do
pass" recommendation and with a previously published fiscal
impact note: FN1(ADM).
9:24:55 AM
AT EASE
9:25:48 AM
RECONVENED
CS FOR HOUSE BILL NO. 263(HSS)
"An Act extending the Alaska senior benefits payment
program."
9:26:06 AM
Senator Bishop MOVED to ADOPT the proposed committee
substitute for HB 263, Work Draft 28-LS1256\N (Mischel,
4/15/14) as a working document.
Vice-Chair Fairclough OBJECTED for the purpose of
discussion.
CHRISTINE MARASIGAN, STAFF, SENATOR KEVIN MEYER, explained
that the CS simply changed the date in Section 1, line 6 to
2018, which gave the program a three-year sunset.
CECILE ELLIOT, STAFF, SENATOR MIKE HAWKER, commented that
the sponsor had introduced the bill in the hopes of
protecting the program for six years. However, she relayed
that he appreciated the committee process and would defer.
9:27:46 AM
Senator Dunleavy asked about an increase to the program in
each of the following years.
RON KREHER, DIRECTOR, DIVISION OF PUBLIC ASSISTANCE,
DEPARTMENT OF HEALTH AND SOCIAL SERVICES, explained that
the fiscal note was driven by projected increases in the
service population.
Vice-Chair Fairclough WITHDREW her OBJECTION. There being
NO further OBJECTION, Work Draft 28-LS1256\N was ADOPTED as
a working document.
Vice-Chair Fairclough asked Mr. Kreher to explain the
fiscal note.
Mr. Kreher responded that the division was looking at
growth in the program over time. He commented that the
aging population of Alaska was increasing. There were six
full-time positions dedicated to the program and no
additional costs outside of the operating budget for the
extension. The actual amount in the grant line did not go
up at the same rate as the projection in population. The
population projection was propelled by the three different
funding levels. The number of people receiving benefits at
the highest level, the mid-level, and the lowest level
could fluctuate over time. The program could not accurately
project at what level the seniors would come into the
program. The projections were a best estimate based on the
current circumstances within the senior population.
Senator Bishop MOVED to REPORT SCS CSHB 263(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
SCS CSHB 263(FIN) was REPORTED out of committee with a "do
pass" recommendation and with a previously published fiscal
impact note: FN1(DHS).
9:30:21 AM
AT EASE
9:32:29 AM
RECONVENED
CS FOR HOUSE CONCURRENT RESOLUTION NO. 15(FIN)
Relating to the Task Force on Unmanned Aircraft
Systems.
9:33:14 AM
Vice-Chair Fairclough directed the committee's attention to
the fiscal note in the amount of $8,900.
GINGER BLAISDELL, STAFF REPRESENTATIVE SHELLEY HUGHES,
relayed that most of the questions from the committee were
answered in a previous hearing. She presented a couple of
updates in order for the committee to understand how
quickly the industry was changing. She continued stating
the difference between unmanned aircraft and drones and
reported that the term, remotely piloted aircraft (RPA),
was being used internationally. She stated that the
previous day Google purchased Titan Aerospace, entering
into the drone business. Titan Aerospace owned a drone
aircraft about the size of a Boeing 767 carrying solar
panels to keep it operating. She reported that it was able
to remain in flight for two consecutive years without
landing. The intent of its use was to help project data
interaction in places where telephone cables or other types
of data transfer equipment was not available. It was able
to deliver data up to one gigabyte per second which would
one day potentially allow consumers to use cell phones
anywhere in the world.
Ms. Blaisdell also mentioned the use of hobbyist aircraft
as compared to commercial quality aircraft. The phantom
quad copter was a small four-rotar helicopter manufactured
in China and being sold through Amazon at a rate of 15
thousand per month - an infiltration of just one model of
unmanned aircraft into the marketplace. The previous day
she learned that someone she knew had two unmanned
aircrafts in their office. She pointed out that the
industry discovered safety concerns and responded with a
new software application for the phantom quad copters that
incorporated no fly zones in their programming to keep them
away from 350 airports. She opined that the industry was
taking a proactive approach to the new technology. Again,
she emphasized the quickly changing industry and encouraged
the continuation of the task force.
9:35:52 AM
Senator Bishop asked for a copy of Ms. Blaisdell's update
notes for his office.
Senator Bishop MOVED to REPORT CSHCR 15(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSHCR 15(FIN) was REPORTED out of committee with a "do
pass" recommendation and with a previously published fiscal
impact note: FN2 (LEG).
9:36:28 AM
AT EASE
9:43:39 AM
RECONVENED
Vice-Chair Fairclough handed the gavel over to Co-Chair
Meyer.
CS FOR HOUSE BILL NO. 268(FIN)
"An Act relating to big bull moose derbies and the
Snow Town Ice Classic; and relating to permits for
games of chance and contests of skill."
9:44:21 AM
Vice-Chair Fairclough MOVED to REPORT CSHB 268(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSHB 268(FIN) was REPORTED out of committee with "no
recommendation" and with a previously published zero fiscal
note: FN2(REV).
CS FOR HOUSE BILL NO. 121(FIN)
"An Act relating to the examinations, board, loans,
and records of the Alaska Commercial Fishing and
Agriculture Bank; and providing for an effective
date."
9:45:02 AM
REPRESENTATIVE ERIC FEIGE, stated that the Commercial
Fishing and Agriculture Bank (CFAB) was a great example of
the government starting a project and then stepping back
and allowing it to succeed in the private sector. The bank
was created 34 years prior by an initial investment of $32
million from the state; as required by the creating
statutes, the bank had repaid the state's investment and
was currently a private entity owned by its members. He
explained that because CFAB was created under specific
statutes, it was regulated differently than other banks and
credit unions operating in Alaska. The specific statutes
that created CFAB assured that it continued to fulfill its
original purpose of assisting the commercial fishing and
agriculture industry. The bank's board of directors desired
to improve the operating ability of the bank by requesting
several changes in the operating statues. HB 121 expanded
the types of loans the banks could give to commercial
tourism and natural resources industries and removed the
maximum loan amounts provided to borrowers. HB 121 also
expanded the category of borrowers to include non-resident
owned businesses that were physically located within
Alaska, expanded the eligibility of the banks small loan
program, and gave the board the ability to set its own
compensation level. Finally, to provide CFAB with
additional resources to capitalize its ability to provide
loans to its members, the CFAB Board requested that the
Alaska Banking Commission begin auditing the bank's
operations, as was done with other banks in the state. The
cost of the audits were born by the bank, not the state.
9:47:16 AM
MICHAEL PASCHALL, STAFF, REPRESENTATIVE ERIC FEIGE,
reviewed the sectional analysis of the bill. Section 1
restricted board member requirements to state residency and
to those under Alaska Statue 39.05.11 which placed
restrictions on appointments to board and commissions (a
provision added in the House Finance Committee). He
continued with Section 2 which adjusted the lending power
of the bank by eliminating the borrowing limits on certain
types of loans. It also removed the residency requirement
for certain types of capital loans. If the facility was
located in the state it expanded the loans. It also made
loans available for certain tourist operations and
operations dedicated to the development of or exploration
of natural resources. He reported that Section 3 required
the bank to consider whether the principles of conservation
and sustained yield would limit the ability to repay a loan
when collateral would primarily be used in a salmon
fishery, a provision added by the House Finance Committee.
Section 4 added commercial agriculture to the current
provisions allowing loans to non-members.
Mr. Paschall continued that Sections 5 and 6 pertained to
loans to non-members changing the dollar limitation on the
loans to non-members from $25 thousand to $50 thousand, and
increasing the debt capital ratio of loans to non-members
to 25 percent of the total bank assets. Section 7 inserted
conforming language pertaining to the bank examinations
added in Section 9 and also corrected a change in the
language by Legislative Legal Services. He reported that
Section 8 allowed the bank to make a list of eligible
members that could serve on the board available to the
membership for election purposes. Section 9 required the
Department of Commerce Community and Economic Development
to examine the bank at least once every 36 months as it did
with other banks in the state. Section 10 repealed a
limitation on the compensation of directors currently in
statute, and allowed the board to set compensation for
board members. Previously there was a prohibition on
lobbying by the bank. The bank requested the provision be
removed in statute but the change that would have done so
was removed from the bill. He furthered that Section 11
simply delayed examinations to one year after the effective
date of the act so that the bank could be sure to be
compliant with the requirements of the banking commission.
Section 10 made the act effective immediately.
9:50:22 AM
Senator Olson inquired what CFAB's current default rate was
compared to what it was 5, 10, or 15 years prior.
Representative Feige was unsure of the exact number, but
understood that it was relatively low. He concluded that
the president of CFAB would be able to answer the question.
Senator Olson noted that commercial fishing was a big part
of his district and stated that most of the villages that
he represented were along the coast. He inquired if
different organizations and fishermen were in favor of the
bill and if anyone had voiced a position on it. Mr.
Paschall replied that there had not been any outside groups
that had expressed any direct position on the bill. He
explained that the bill only affected the operation of CFAB
and did not change any of the policies that pertained to
loaning to the fishing industry, rather, it pertained to
other industries.
9:51:49 AM
Senator Olson asked about the inability to lobby on behalf
of the bank. Mr. Paschall replied that when the bank was
created state funds were involved in its operation. Through
the statute that created the bank, one of the requirements
outlined was that the bank reimburse the state. Currently,
the state did not have an ownership interest in the bank.
The governor currently appointed two members to CFAB's
board of directors. The other members were elected to their
seats. All members had to be members of the bank. The bank
operated as a private for-profit corporation and had an
interest in having someone in Juneau to track legislation.
However, she stressed that with only 10 employees, the bank
preferred to hire a representative, a lobbyist by
definition.
Senator Olson assumed that other banks had a lobbyist
acting on their behalf. Mr. Paschall responded
affirmatively.
9:53:18 AM
Vice-Chair Fairclough directed the committee's attention to
page 4 of the bill and expressed a concern about the
familiarity of those receiving loans and those making
loans. In Section 2, number 15C at least one of the primary
obligors of the loan needed to be a member of the bank. She
asked for clarification about membership requirements and
account status in order to borrow.
Mr. Paschall responded that the provisions being expanded
in one section of the bill pertaining to non-members
allowed a non-member to receive a limited loan up to $50
thousand. All other loans provided by the bank required
that the person obtaining the loan be a member of the bank.
A person was required to purchase one share of class "A"
stock and pay a fee equal to 2 percent of a pre-approved
loan amount ($2500 maximum) to establish membership. Once
an obligee paid off their loan their membership expired.
9:55:05 AM
Vice-Chair Fairclough inquired what the catalyst was for
the bill's changes. Representative Feige responded that the
provisions the bill attempted to change simply expanded the
ability to loan larger amounts of money to the tourism and
natural resources industries. It also allowed the bank to
expand its ability to loan to non-residents. It was
required that they have operations and facilities within
the state, and were members of the bank. The bill broadened
the market in which CFAB could lend. He reported that the
"married couple" reference was part of the original statute
language.
9:56:45 AM
Vice-Chair Fairclough noted the new amended language and
commented that it could also be referring to additional
statute. She pointed to page 6 of the bill and recalled
that there had been an increased funding ratio for the
debt. She wanted clarification on the ability to extend to
25 percent of an asset base. She asked if it was standard
business practice because she thought debt ratio was
supposed to be significantly lower.
Representative Feige pointed to page 5 of the bill in
Section 4 and stated that the section of law dealt with
loans made to non-members of the bank. The loans to non-
members were originally restricted to commercial fishing.
The bill would expand to commercial agriculture in remote
areas. Section 5 expanded the maximum loan amount made to a
non-member. In Section 6 the bank's overall percentage of
capital that could be loaned out increased from 8 percent
to 25 percent.
9:58:46 AM
Vice-Chair Fairclough noted that raising the asset base
from 8 to 25 percent was financially risky and was not
standard business practice. The State of Alaska looked at 8
to 10 percent with its "AAA" rating. She inquired about why
the large jump was being proposed. Representative Feige
replied that they were referring to the capital of the bank
and that the purpose of the bank was to loan out its
capital. The legislation limited the amount of the total
capital that could be loaned to non-members. Vice-Chair
Fairclough iterated her awareness.
9:59:44 AM
Senator Bishop wanted to know the definition of a state
resident. Mr. Paschall responded that the definition in
statute applied. Senator Bishop requested that Mr. Paschall
provide the statute definition to his office.
Representative Feige responded to Senator Fairclough's
question regarding married couples. He referred to page 1,
line 14, Section 2 of the bill stating that the language
was part of the original statute and the amendments were
aligned with existing statute.
Co-Chair Meyer inquired if the bill had gone through
significant changes as it progressed through the house.
Representative Feige confirmed that there had been a number
of amendments adopted during the committee process. Co-
Chair Meyer asked if the amendments were amenable to the
sponsor. Representative Feige signified that he had
accepted them as part of the committee process.
10:01:57 AM
LELA KLINGERT, PRESIDENT, COMMERCIAL FISHING AND
AGRICULTURE BANK, JUNEAU, spoke in support of HB 121. She
relayed that CFAB was a privately owned and operated
financing cooperative that provided loans to residents
involved in the commercial fishing, agricultural tourism,
and resource-based industries of Alaska. The bank was a
product of legislation introduced in the late 1970s. At
present, it operated as the sole subject of AS.44.81, which
was the focus of HB 21 before the committee. The bank was
committed and structured to serve resident individuals and
smaller companies in a highly focused and specialized
manner. Many of its members and borrowers would not
otherwise have access to loan funds in reasonable and
constructive terms.
Ms. Klingert continued to address the changes requested in
HB 21. She pointed out that the changes sought to provide a
level playing field in CFAB's lending authority for all of
the industries and markets that it served as well as to
allow CFAB the same discretion as other small businesses.
She reported that CFAB did not oppose any of the amendments
made to HB 121 with the exception of the lobbyist issue.
She elaborated that CFAB was 100 percent owned by its
membership allowing CFAB to engage a lobbyist to assist in,
monitor, and deal with issues that would potentially impact
CFAB without using any state funds or resources. She
reported that it was the most cost-effective way in which
to handle such matters. She reiterated that CFAB and its
board of directors supported HB 121.
10:04:11 AM
Vice-Chair Fairclough referred to page 6, Section 6. She
asked about the board's reasoning to increase the total
ratio of assets to debt from 8 percent to 25 percent. She
further commented that the increase could prove to be a
higher risk. Ms. Klingert responded that her concerns would
be raised in a traditional banking model in which most
banks dealt with depositors' money. In the case of CFAB,
all of its capital was lent out. Beyond capital, CFAB
borrowed money and in turn lent it out. She agreed with
Senator Fairclough that the percentage increase was risky.
She also reported that CFAB was created to provide
financing for industries that were unable to access funding
due to their volatile business nature, adding another layer
of lending risk. Section 6 allowed CFAB to make loans to
non-members. A requirement of membership was to make a
financial investment in the cooperative. Some individuals
in rural areas could not afford the mandatory outlay. The
original part of the statute was included to allow CFAB to
loan up to $25 thousand for fishing to assist individuals
who could not afford a membership investment. She pointed
out that part of CFAB's mission was to serve rural parts of
Alaska. She affirmed that CFAB's efforts to mitigate risks
showed in its lending record.
10:06:39 AM
Vice-Chair Fairclough noted that CFAB was almost tripling
its risk. She stated that the change reflected a 17 percent
increase. She furthered that the increase was not being
implemented with incremental steps. Klingert responded
affirmatively. She indicated that it would be a maximum of
$5 million based on CFAB's capital, currently which
represented less than 10 percent of its total loan
portfolio. She was uncertain of the loan demand and
informed the committee that although the legislation would
allow for the increased debt ratio, it was undetermined if
management would lend to the full extent.
Vice-Chair Fairclough inquired if there had been unanimous
support of the board of directors in making the proposal to
come forward. Ms. Klingert replied in the affirmative.
Senator Olson inquired about Ms. Klingert's background and
expertise in banking. Ms. Klingert relayed that she had
been in banking her entire career. She started out in the
operational side of banking and spent a few years working
in lending for the government. She also worked for a couple
of private institutions. She informed the committee that
she had been with CFAB for 26 years.
10:08:28 AM
Senator Olson expressed his concern about the increase in
risk. He recounted the Bank of the North going under and
how he was affected personally. He viewed CFAB's money as
depositors' money belonging to fishing and agricultural
people who had a vested interest in the actions of the
bank. He asked whether CFAB was concerned about tripling
the current number. Ms. Klingert responded that there were
always concerns and CFAB was managing a balance of staying
true to its mission of serving rural folks and staying
financially sound. She reported that CFAB's early years
were sketchy, particularly in the 1980s when the bank came
close to failing. She expressed confidence in CFAB's
mission and its staff in order to remain financially sound.
The bank's history demonstrated its responsibility which it
took very seriously. She agreed that the proposal was risky
and also presumed that because of the types of industries
it served it was also at a higher risk. She assured the
committee that the bank followed a very sound credit
practice.
10:10:22 AM
Senator Olson noted that CFAB had voiced reservations about
the lobbying aspect of the bill. He asked Ms. Klingert to
elaborate and indicated it was a sensitive issue. She
agreed that lobbying was a delicate issue but emphasized
that CFAB was presently a private entity. She continued
that the bank paid taxes. She furthered that even though
the bank operated under state statute the bank was private
and small in numbers. She indicated that she had a staff of
less than 10 people. The commitment of time and financial
resources made it very difficult to sponsor legislation in
order to change the bank's business plan. She continued
that Senator Coghill and Representative Feige had been very
generous to take up the legislation. The other item of
concern was having to travel with her director to Juneau,
which took him away from his post for two or three days at
a time. She wanted to better understand why there would be
objection for a private company to have the same rights
that every other private company had. She reiterated the
time and resources that were dedicated to the process of
changing the banks' business plan and its inconvenience.
Senator Olson liked the concept of a lending facility that
dealt with less than conventional people doing business in
volatile markets. He inquired how many rural residents the
bank dealt with that were not connected to the road system.
Ms. Klingert provided an approximation of about 50 percent
of CFAB's membership. Rural members included people from
Kenai.
Vice-Chair Fairclough inquired about the number of loans
typically issued in a year and CFAB's default rate. Ms.
Klingert responded that CFAB received an average of 120
applications annually and made approximately 60 loans per
year. The default rate fluctuated from month-to-month
between 2 to 4 percent.
10:14:25 AM
Co-Chair Meyer noted that CFAB was still under the state's
statutes and inquired about the kind of state support it
received. Ms. Klingert replied that through the legislative
process it received support. She mentioned that a
department of the state was one of CFAB's largest
competitors making things difficult at times. She
appreciated the help of banking and the examiner to put
forward legislation to reinstate the examination of CFAB, a
provision removed from statute in 2003. She reported that
CFAB worked very closely in cooperation with various
agencies such as the Commercial Fisheries Entry Commission.
She acknowledge the state's overall support.
Vice-Chair Fairclough inquired what kind of assets CFAB was
invested in. Ms. Klingert replied that of its assets CFAB's
loans represented approximately 98 percent of its assets.
She added that CFAB owned its office building in Anchorage.
Co-Chair Meyer CLOSED public testimony.
HB 121 was HEARD and HELD in committee for further
consideration.
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 204(FIN)
"An Act relating to a product development tax credit
for certain salmon and herring products; and providing
for an effective date."
10:18:36 AM
Vice-Chair Fairclough MOVED to ADOPT the proposed committee
substitute for HB 204, Work Draft 28-LS0463\Y (Bullard,
4/15/14) as a working document. There being NO OBJECTION,
it was so ordered.
10:19:15 AM
ASTRID ROSE, STAFF REPRESENTATIVE ALAN AUSTERMAN, reported
that the changes in the committee substitute were
recommended by the legislative legal department. The
department pointed out additions in the title as well the
addition of section 9 which fixed uncodified law.
10:19:55 AM
Vice-Chair Fairclough asked to hear more about the
underlying bill.
10:20:08 AM
REPRESENTATIVE ALAN AUSTERMAN, provided some history as to
the reason the bill was before the committee. He relayed
that salmon tax credits had been in existence for an
extended time and that there had been significant changes
and many investments made in the State of Alaska in the
seafood industry as a result of the credits. A request was
made regarding foregone harvests a few years back by a
group of fishermen from the Togiak area in Southwest
Alaska. There were large numbers of salmon going up the
rivers unharvested because processing capability was not
available. The fishermen came forward and inquired that if
the herring fishery had a market they believed processors
would have the additional incentive needed to encourage
them to provide processing capacity for both herring and
salmon concurrently. He continued that four years
previously the state set aside about $300 thousand for the
Alaska Seafood Marketing Institute (ASMI) to review how to
market herring in a way it had not been marketed before.
Herring had previously been processed for either bait or
row with the remaining carcasses being either ground up or
dumped. The state thought the carcasses could be valuable
and had spent the past few years looking at the market
which showed a very strong desire for another protein to
enter the marketplace. The U.S. international food aid
program was one entity that expressed interest. The bill
would extend the tax credit and add herring to the seafood
roster.
Co-Chair Austerman reported an additional item contained in
the bill pertaining to byproduct. He indicated that there
was a strong desire to see the waste stream turned into a
usable product. Currently, efforts were focused on
producing a concentrated protein in the form of a dry
powder. He pointed out that over time all of the fisheries
in the State of Alaska would require 100 percent retention.
At present, millions of pounds of product were being dumped
in the ocean. The product was not economically viable
because of either being too small or the wrong species. He
informed the committee that Europe was moving in the
direction of 100 percent retention within the following 10
years. He anticipated pressure being placed on Alaska to
follow suit. He expressed his desire for Alaska to move
forward with implementing 100 percent retention. He posed
the question about what to do with byproduct resulting from
commercial fishing. He suggested either product be brought
to shore, ground, and thrown back into the ocean, or made
into another product.
10:24:30 AM
Representative Austerman continued to speak to the bill. He
relayed that in the prior two years the Environmental
Protection Agency (EPA) restricted processors from dumping
anything into the ocean. Alternatively, processors had to
take their byproduct to a bio-dry plant to make into
chicken feed. He wanted the state to further pursue the
maximum usage of its seafood.
Vice-Chair Fairclough wondered about fishing tax credits.
Specifically, she asked if the state was holding down the
price of fish and the price consumers paid by continuing to
offer tax credits. She understood the state's efforts were
made to incentivize, but expressed concern that it was
depressing the price of fish.
Representative Austerman thought that the committee would
hear more from the department, but observed that fish
prices were being held at the current level due to farmed
fish entering the global marketplace. The economics
associated with farmed fish were much lower than with wild
fish. He suggested that although it might be financially
prudent for the State of Alaska to invest in the business
of farmed fish, he believed it was important to protect
Alaska's wild stocks. He was not opposed to Alaska farming
fish and was in favor of expanding the base for fishing. He
believed a closer examination that would take some time was
necessary.
10:27:20 AM
Vice-Chair Fairclough mentioned that over the last eight
years in office she observed that credits had not been
viewed as cash. The state offered specific industries
incentives to promote Alaska's ability to compete. She
wanted to know if the state was achieving its goals with
its investments. She referred to the Carolina's and how the
federal government subsidized tobacco farms and the
associated health costs. She opined that the state was
changing the market conditions and depressing costs
resulting in a change in behavior. She was not sure if the
change was for the better or for the worse. She understood
that for those that made money on the issue the tax credit
provided their families economic benefits. She wondered
whether all of the state's tax credits achieved what the
state wanted them to accomplish. She suggested that the
Senate Finance Committee take a hard look at all of the tax
credits on the books, how they were being utilized, and to
what extent they benefit Alaskans.
Co-Chair Meyer appreciated Senator Fairclough's comments.
He was under the impression the state was going to attempt
to limit some of the tax credits. He argued that just the
opposite had happened. He pointed out that at some point
the state had to be concerned about the revenue being less
than the tax credits.
10:29:26 AM
Representative Austerman agreed with Senator Meyer and
added that there was a bill in the House (HB306) that would
place all of the tax credits on a review schedule and a
cost benefit ratio formula would be set up and used as an
assessment tool. He relayed that the bill had been passed
out of the House Finance Committee and was currently in
House Rules. He asserted that if the bill did not make it
through the House it should be revised and reintroduced. He
restated that the state had tax credits in all of its
industries.
Senator Meyer remarked that he had hoped to see HB 306 come
over to the Senate but that time was running short.
10:30:52 AM
VINCE O'SHEA, VICE-PRESIDENT, PACIFIC SEAFOOD PROCESSORS
ASSOCIATION, JUNEAU, indicated that five of the
association's member companies operated 18 salmon
processing plants in Alaska. He spoke in strong support of
HB 204. He relayed that Pacific Seafood Processors
Association (PSPA) had a letter on record and offered to
answer any questions from committee members.
Vice-Chair Fairclough asked Mr. O'Shea to speak to the
fishery tax. She remarked that it went up in FY 14 to $27.4
million but was projected to go down in FY 15 to $26
million in the spring forecast. She further inquired
whether it was the actual pounds of fish being brought in
that was affecting the forecast or if it was something
else.
Mr. O'Shea reported that what processors were paying in a
state landing tax was a combination of the volume of fish
being purchased as well as the price of the fish. Both
numbers were variable. He had a graph that showed the
increased value processors were paying for Alaska salmon.
Processors were the price takers rather than the price
makers in the global market. He pointed out that the change
in total revenue fluctuated depending on how much fish was
in the quota.
10:33:43 AM
MARK PALMER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, OCEAN
BEAUTY SEAFOODS, SEATTLE (via teleconference), testified in
support of HB 204. He affirmed the effectiveness of the
bill and relayed that upon examining the price history of
salmon over the previous ten years, prices had not been
depressed. He reported seeing grounds price increases year-
after-year to the point that the value of the salmon
harvest had doubled from the time the original legislation
had been introduced. He stressed that the tax credit was
not a subsidy of existing markets. The bill had stimulated
market diversification through product expansion.
Processors had been over-dependent on too few products,
canned and frozen, headed and gutted fish. By diversifying
its product mix new product markets opened up around the
world. The tax credits helped to incentivize processors to
create new products and reduced investment risk. Some of
Alaska's seasonal fisheries presented challenges due to the
kind of investment required and the time constraints in
which investments had to be made. The tax credits helped to
reduce some of the risk in making big capital investments,
helped to create jobs, and provided much more tax revenue
for communities and the fishing fleet. The current
legislation was a continuation of further investment in the
shore-side communities in which Ocean Beauty Seafoods had a
presence.
10:36:06 AM
JOE PLESHA, TRIDENT SEAFOODS, SEATTLE (via teleconference),
spoke in strong support of HB 204. He pointed out that EPA
was considering amending the existing effluent limitation
guidelines and requiring screening of all seafood waste in
many communities in Alaska, the result of which would
require the production of a fish meal or some other
byproduct with fish waste. The bill was important for the
Alaska salmon industry to remain competitive on a world
market basis.
10:37:19 AM
JOE JACOBSON, DIRECTOR, DIVISION OF ECONOMIC DEVELOPMENT,
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT,
conveyed that the department was in support of the bill. He
added that without having the ability to turn on a spigot
to increase production, the only real way to increase the
value of the state's wild fisheries resource was to
increase the value of the underlying product through state
programs. He reported improvement in quality, marketing via
ASMI, and product diversification. Twenty years ago the
industry was dependent upon canned salmon and headed and
gutted product, largely exported in most cases. He pointed
out that one of the reasons fish prices had gone up
dramatically was because there was a larger variety of
products appealing to different markets around the world.
Mr. Jacobsen relayed that prior to taking over his current
position he had been the international director for ASMI.
In his position he received feedback from people across the
world expressing their approval of the diversification and
the quality of Alaska's fish product on the market. He
continued that over the past 10 years the price to Alaska's
fishermen had increased dramatically. Permit values had
increased resulting in more community investment. He added
that there was also larger resident participation in the
state's fisheries.
Mr. Jacobson remarked that the issuance of tax credits was
one of three major components that supported fish prices
across the state. The bill was targeted in terms of looking
at new can-sized production. A tall can of Sockeye Salmon
in the grocery store was currently priced over $11. Not
only was the consumer getting over a pound of fish, too
much for the average family, it was a significant amount of
money. By incentivizing the reduction of the can size it
allowed the state to maintain a canned market where the
state might otherwise loose it. He furthered that with the
upcoming EPA effluent limitation guidelines he anticipated
significant expenses required into the future. One of the
specific provisions in the bill before the committee was a
transformation of a waste byproduct into a salable good. He
referred to Iceland as an example of a country that had
been able to take many things that would have been
discarded in the past and transform them into salable
goods, which in some cases exceeded the value of the flesh
themselves. He restated the department's support of HB 204
indicating the help it provided to the fishing industry,
the resident fleet putting more money in the hands of the
state. He reported than the net revenues from the seafood
industries will return monies back to the state. Revenues
remained fairly stable.
10:40:59 AM
Senator Dunleavy inquired if the department viewed the tax
credit as permanent or transitional. Mr. Jacobson responded
that it incentivized the further transformation of the
industry but he believed the state had a significant way to
go. He suggested that the quality had additional room for
improvement in terms of capturing as much value as was
possible. He acknowledged the strides the state had made in
quality improvement but also believed there was room for
growth. He opined that until the fishing industry reached a
plateau the tax credit would continue to play a
transformational roll. He relayed that a sunset date was
included in the bill and that the credit should be treated
as a transitional piece.
10:42:16 AM
Senator Bishop noted that he was not an expert in the
seafood industry but had a good working knowledge having
been around it the majority of his life. He returned to Mr.
Jacobson's comment on reducing can sizes from the 14.75
ounces down to 7.5 ounces. He pointed out that not every
processor had the ability to freeze all of its fish. The
canned component needed to remain competitive. He specified
that everybody benefited from being able to utilize the
whole pack. He supported getting 7.5 ounce cans to stay
competitive. He praised Ocean Beauty Seafood's efforts in
revitalizing the fishery in Kaltag with new technology;
both jobs and economic development resulted from its
efforts which benefited rural Alaska.
Mr. Jacobson followed up by indicating that the intent of
the tax credit was to ensure that the canned market
remained competitive. He estimated that 95 percent of
canned fish was packed in 7.5 ounce and 14.75 ounce cans.
He stated that in some markets the 7.5 ounce cans were
considered too large and furthered that because of the
current value of Sockeye salmon even a 7.5 ounce can was
expensive for the average person. He stated that Alaska
could maintain its market share by reducing the can size.
There was a variety of products with different can sizes
including 3.5 ounce and 5 ounce cans. The bill did not
incentivize producing the same can sizes that have already
been produced including the 7.5 ounce and 14.75 ounce cans.
He reported that the canned industry was an essential
product alternative due to costs.
10:45:19 AM
Co-Chair Meyer stated that he was having difficulty
understanding why the private sector would not just make a
can size adjustment on its own without the need for a tax
credit. He added that it was business and the free market.
Mr. Jacobson responded in agreement to Senator Meyer's
comment. He referred to a variety of factors at play. He
noted EPA requirements, the continued investments in fillet
lines and other value-added processing. He also mentioned
time and budget limitations. He alleged that the bill would
speed the transformation and emphasized the areas in which
the industry had identified as promising areas of
expansion.
Co-Chair Meyer surmised that EPA was involved in every
industry including the mining, oil, and construction
industries.
Co-Chair Meyer CLOSED public testimony.
HB 204 was HEARD and HELD in committee for further
consideration.
CS FOR HOUSE BILL NO. 379(FIN)
"An Act relating to the limitation on the value of
property taxable by a municipality; and providing for
an effective date."
10:47:17 AM
REPRESENTATIVE BENJAMIN NAGEAK, presented HB 379 and stated
that HB 379 sought to make a legislative change to the
formula on how a municipality might use oil and gas
property tax revenue. The bill, which he and Senator Olson
championed, gave municipalities with oil and gas properties
the flexibility to use the revenue for their operating
budget. The bill was clear-cut but there was a long history
in the law's origin. He provided a recap of history. He
reported that the oil and gas property tax laws were passed
in 1973; a cap was written into state law about how much
property tax revenue could be used for a municipal
operating budget. It was a struggle in the early days to
form the North Slope Borough. Forty years ago the borough
was sued by the State of Alaska and by the oil companies
and was told it was not capable of governing. At present,
the borough was operating well. The borough had built
schools, roads, airports, and utilities with its wealth.
Additionally, it paid for services that in other regions
were provided by the state. He listed examples such as
search and rescue, police, and wildlife management. The
departments of the North Slope Borough cooperated with the
state, saving the state time and resources. The borough had
kept property taxes lower than the state cap. Over the past
34 years the lower rate amounted to about $1 billion return
to the state. He affirmed that the borough did this to be a
good partner. The borough's intent was to retain the
current mill rate. However, the bill gave the borough the
flexibility to move revenue from debt service to the
operating budget. The borough no longer needed as much
revenue for debt services. It needed funds to maintain
existing infrastructure. He requested the support of the
committee to advance HB 379.
Senator Meyer indicated that there would be further
questions on the bill.
HB 379 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:50:29 AM
The meeting was adjourned at 10:50 a.m.