Legislature(2017 - 2018)SENATE FINANCE 532

04/27/2018 09:00 AM FINANCE

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Audio Topic
09:07:34 AM Start
09:08:15 AM HB56 || HB76 || HB304
09:14:01 AM Presentation: Revolving Loan Funds
10:55:08 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Revolving Loan Funds TELECONFERENCED
Department of Commerce, Community and Economic
Development
+= HB 56 COMMERCIAL FISHING LOANS TELECONFERENCED
Heard & Held
+= HB 76 MARICULTURE REVOLVING LOAN FUND TELECONFERENCED
Heard & Held
+= HB 304 MICROLOAN REVOLVING FUND & LOANS; REPORT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  SENATE FINANCE COMMITTEE                                                                                      
                       April 27, 2018                                                                                           
                          9:07 a.m.                                                                                             
                                                                                                                                
9:07:34 AM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  MacKinnon  called  the  Senate  Finance  Committee                                                                    
meeting to order at 9:07 a.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Anna MacKinnon, Co-Chair                                                                                                
Senator Click Bishop, Vice-Chair                                                                                                
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Gary Stevens                                                                                                            
Senator Natasha von Imhof                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Britteny  Cioni-Haywood,  Director,   Division  of  Economic                                                                    
Development, Department of  Commerce, Community and Economic                                                                    
Development;  Jim  Andersen,  Deputy Director,  Division  of                                                                    
Economic Development, Department  of Commerce, Community and                                                                    
Economic    Development;    Mike   Navarre,    Commissioner,                                                                    
Department    of   Commerce,    Community,   and    Economic                                                                    
Development.                                                                                                                    
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 56     COMMERCIAL FISHING LOANS                                                                                              
                                                                                                                                
          HB 56 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
CSHB 76(FSH)                                                                                                                    
          MARICULTURE REVOLVING LOAN FUND                                                                                       
                                                                                                                                
          CSHB 76(FSH) was HEARD and HELD in committee for                                                                      
          further consideration.                                                                                                
                                                                                                                                
CSHB 304(FIN)                                                                                                                   
          MICROLOAN REVOLVING FUND & LOANS; REPORT                                                                              
                                                                                                                                
          CSHB 304(FIN) was HEARD and HELD in committee for                                                                     
          further consideration.                                                                                                
                                                                                                                                
PRESENTATION: REVOLVING LOAN FUNDS                                                                                              
                                                                                                                                
[Secretary Note: Britteny  Cioni-Haywood from DCCED provided                                                                    
the secretary her PPT *with*  her notes at the bottom, which                                                                    
is what she read from  rather than the presentation itself -                                                                    
the  notes  have been  cut  and  pasted into  her  testimony                                                                    
throughout the meeting.]                                                                                                        
                                                                                                                                
HOUSE BILL NO. 56                                                                                                             
                                                                                                                                
     "An Act relating to limitations on certain commercial                                                                      
     fishing loans made by the Department of Commerce,                                                                          
     Community, and Economic Development."                                                                                      
                                                                                                                                
CS FOR HOUSE BILL NO. 76(FSH)                                                                                                 
                                                                                                                                
     "An Act relating to the mariculture revolving loan                                                                         
     fund and loans and grants from the fund; and providing                                                                     
     for an effective date."                                                                                                    
                                                                                                                                
CS FOR HOUSE BILL NO. 304(FIN)                                                                                                
                                                                                                                                
     "An Act relating to the Alaska microloan revolving                                                                         
     loan fund and loans from the fund."                                                                                        
                                                                                                                                
9:08:15 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon relayed that the committee had multiple                                                                      
bills in committee that pertained to changes in revolving                                                                       
loan fund programs.                                                                                                             
                                                                                                                                
9:09:11 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:12:19 AM                                                                                                                    
RECONVENED                                                                                                                      
9:12:49 AM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon  reiterated  that  there  were  multiple                                                                    
bills  in committee  pertaining  to the  subject matter  and                                                                    
that  the sponsors  of those  bills  had not  been asked  to                                                                    
speak at  the meeting. She said  that the meeting was  not a                                                                    
hearing on any of the bills  in particular but was to create                                                                    
a  baseline of  understanding on  the programs  involved and                                                                    
their  fiscal  impact. She  noted  that  there were  private                                                                    
sector loan  programs available that were  equivalent to the                                                                    
revolving loans, which begged  questions about why the state                                                                    
was doing  work that  could be done  by the  private sector,                                                                    
whether  the state  programs were  profitable, and  how much                                                                    
benefit they provided to Alaskans.                                                                                              
                                                                                                                                
^PRESENTATION: REVOLVING LOAN FUNDS                                                                                           
                                                                                                                                
9:14:01 AM                                                                                                                    
                                                                                                                                
BRITTENY  CIONI-HAYWOOD,  DIRECTOR,   DIVISION  OF  ECONOMIC                                                                    
DEVELOPMENT, DEPARTMENT OF  COMMERCE, COMMUNITY AND ECONOMIC                                                                    
DEVELOPMENT,  discussed   the  presentation,   "Division  of                                                                    
Economic  Development INVESTMENTS  Loan Programs,"  (copy on                                                                    
file).                                                                                                                          
                                                                                                                                
Ms.  Cioni-Haywood  presented  Slide 2,  "Administration  of                                                                    
Loan Programs":                                                                                                                 
                                                                                                                                
     The  Division of  Economic Development  (DED) has  been                                                                    
     tasked with  administering revolving loan  funds (RLFs)                                                                    
     for more than 45  years. Currently, DED administers and                                                                    
     services  ten   loan  funds   for  the   Department  of                                                                    
     Commerce,  Community, &  Economic Development  (DCCED).                                                                    
     These  programs  were  primarily  designed  to  support                                                                    
     industries  and  areas  of   the  state  that  are  not                                                                    
     adequately serviced by the private  sector or to fulfil                                                                    
     a  public policy  goal. Financing  may  not be  readily                                                                    
     available or  feasible due to constraints  on the types                                                                    
     of collateral, or because of a high level of risk.                                                                         
                                                                                                                                
Ms.  Ciono-Haywood  shared  that revolving  loan  funds,  or                                                                    
RLFs,  are an  important  tool in  the economic  development                                                                    
toolbox. These  funds have real  world impacts  on Alaskan's                                                                    
lives.  They  strengthen  our important  industries,  create                                                                    
long term  employment, and  increase private  sector lending                                                                    
and investment.  Without a diverse portfolio  of loan funds,                                                                    
economic   development  stagnates.   Especially  in   rural,                                                                    
underserved, or distressed areas of  the state. The State of                                                                    
Alaska  understood this  and  created  revolving loan  funds                                                                    
that have successfully operated for more than 45 years.                                                                         
                                                                                                                                
9:14:46 AM                                                                                                                    
                                                                                                                                
Ms.  Cioni-Haywood   turned  to   Slide  3,   "Overall  Loan                                                                    
Programs":                                                                                                                      
                                                                                                                                
      Total number of active loans: 2,020                                                                                    
      Total principal outstanding: $199.05 million                                                                           
      Total number of loan officers: 8                                                                                       
                                                                                                                                
9:15:07 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:15:30 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair MacKinnon  relayed that  she had asked  Senator von                                                                    
Imhof about the  ratio of loan officers  to outstanding loan                                                                    
program in the private sector.                                                                                                  
                                                                                                                                
Senator  von  Imhof  asserted  that   it  was  difficult  to                                                                    
ascertain  the ratio  with the  information depicted  on the                                                                    
slide.  She  explained  that some  funds  were  administered                                                                    
differently than  other funds and  had different  methods of                                                                    
application, tracking, and monitoring.                                                                                          
                                                                                                                                
Co-Chair   MacKinnon  clarified   that  the   committee  was                                                                    
interested  in  the  positions   inside  each  program,  the                                                                    
workload for  each position,  and whether  there could  be a                                                                    
reduction  or  elimination  of   positions  based  on  their                                                                    
workload.                                                                                                                       
                                                                                                                                
9:17:18 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:18:16 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Ms. Cioni-Haywood stated that if  the information was not in                                                                    
the presentation  to the satisfaction of  the committee, she                                                                    
would provide more information at a later date.                                                                                 
                                                                                                                                
Senator Micciche  extrapolated from  Slide 3 that  there was                                                                    
an average  of 252 loans  per position, with and  average of                                                                    
$24 million in value.                                                                                                           
                                                                                                                                
Co-Chair MacKinnon  thought there was a  more in-depth issue                                                                    
whether it  was a matter  of simple math  or if there  was a                                                                    
disparity of who  was handling large sums of  money and what                                                                    
was the delinquency rate.                                                                                                       
                                                                                                                                
Ms. Cioni-Haywood stated that  all loan officers handled all                                                                    
types of  loans, and there  were not specific  loan officers                                                                    
for specific loan programs.                                                                                                     
                                                                                                                                
Vice-Chair Bishop  asked whether the loan  officers executed                                                                    
other  loans within  the division  outside of  the revolving                                                                    
loans.                                                                                                                          
                                                                                                                                
Ms. Cioni-Haywood stated that  the division provided minimal                                                                    
support to  the Division  of Community and  Regional Affairs                                                                    
for their bulk fuel program.                                                                                                    
                                                                                                                                
Ms. Cioni-Haywood showed Slide 4, "Active Loan Programs":                                                                       
                                                                                                                                
      Small Business Economic Development Fund                                                                               
      Rural Development Initiative Fund                                                                                      
      Alaska Microloan Revolving Loan Fund                                                                                   
      Commercial Fishing Revolving Loan Fund                                                                                 
      Commercial Charter Fisheries Revolving Loan Fund                                                                       
      Fisheries Enhancement                                                                                                  
      Mariculture Revolving Loan Fund                                                                                        
      Alaska Capstone Avionics Loan Program                                                                                  
      Alternative Energy Conservation Loan Fund                                                                              
                                                                                                                                
Ms.  Cioni-Haywood  explained  these  funds  are  completely                                                                    
self-sustaining  and   require  no  on-going   general  fund                                                                    
support. The  cost to  administer the  funds is  paid solely                                                                    
from  the   earnings.  The   mature  funds   have  performed                                                                    
robustly, paid for their  operations, and weathered numerous                                                                    
instances of  economic volatility to grow  well beyond their                                                                    
initial capitalization. Over the  years, these programs have                                                                    
assisted  thousands  of  Alaskans. DED  also  provides  loan                                                                    
servicing for other State agencies.  Over the years, DED has                                                                    
developed    the   in-house    level   of    expertise   and                                                                    
infrastructure  required to  readily accomplish  the complex                                                                    
loan servicing functions needed.                                                                                                
                                                                                                                                
9:21:29 AM                                                                                                                    
                                                                                                                                
Co-Chair   MacKinnon  asked   how  agriculture   loans  were                                                                    
managed.  She wondered  whether  those loans  were under  an                                                                    
additional program                                                                                                              
                                                                                                                                
Ms.  Cioni-Haywood  explained  that agriculture  loans  were                                                                    
housed within the Division of  Agriculture in the Department                                                                    
of Resources.                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon  asked whether Ms. Cioni-Haywood  knew of                                                                    
how many loan programs existed within state government.                                                                         
                                                                                                                                
Ms.   Cioni-Haywood   recalled    that   Alaska   Industrial                                                                    
Development  and Export  Authority (AIDEA)  had loan  funds,                                                                    
student  loan funds  existed, as  well  as the  agricultural                                                                    
loan funds.                                                                                                                     
                                                                                                                                
Senator von  Imhof stated that she  had relevant information                                                                    
in her office (a poster listing various state loan funds).                                                                      
                                                                                                                                
9:22:27 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:24:01 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair MacKinnon and Senator von  Imhof held the poster so                                                                    
as to enable viewing by the video stream.                                                                                       
                                                                                                                                
Senator  von Imhof  listed loans  on the  poster. She  noted                                                                    
that the  information on the  poster was several  years old.                                                                    
She summarized that the State of  Alaska did a lot of things                                                                    
to stimulate  the economy. She  said that the  main question                                                                    
was whether the  state was getting enough return  on all the                                                                    
loan programs.                                                                                                                  
                                                                                                                                
Co-Chair  MacKinnon thought  the information  on the  poster                                                                    
was  important  to all  Alaskans.  The  committee wanted  to                                                                    
ensure that  funds were  being used as  they should  be, and                                                                    
not in competition with the private sector.                                                                                     
                                                                                                                                
9:25:58 AM                                                                                                                    
                                                                                                                                
Ms.   Cioni-Haywood  reviewed   Slide  5,   "Small  Business                                                                    
Economic Development Revolving Loan Fund":                                                                                      
                                                                                                                                
     Initial Capitalization: $6.7 million                                                                                     
     Current fund value: $10 million                                                                                          
                                                                                                                              
     As of March 31, 2018:                                                                                                      
         47 Outstanding Loans                                                                                                
         $5.8 million Outstanding                                                                                            
         Delinquency Rate of 4.6%                                                                                            
         Average Loan is $106,300                                                                                            
                                                                                                                                
Ms.   Cioni-Haywood  explained   that  the   Small  Business                                                                    
Economic  Development Revolving  Loan  Fund  was created  in                                                                    
1987 through  a federal grant from  the Economic Development                                                                    
Administration  (EDA) and  matching  funds  from the  state.                                                                    
The  program   is  intended  to  finance   the  startup  and                                                                    
expansion of small businesses  that create significant long-                                                                    
term   employment  in   areas   of  the   state  that   were                                                                    
experiencing  economic difficulties.    DED administers  the                                                                    
SBED  on   behalf  of  the  Alaska   Industrial  and  Export                                                                    
Authority through  a servicing contract.   DED is reimbursed                                                                    
from the fund's earnings  and no general fund appropriations                                                                    
are necessary.                                                                                                                  
                                                                                                                                
Co-Chair  MacKinnon pointed  out that  there was  a document                                                                    
with  more detail,  a white  paper detailing  each loan,  in                                                                    
member files (copy on file).                                                                                                    
                                                                                                                                
Senator von  Imhof referenced the  first two numbers  on the                                                                    
slide  and asked  whether  there was  $10  million to  grant                                                                    
available currently, $5.8 million  outstanding and $4.2 left                                                                    
to grant out.                                                                                                                   
                                                                                                                                
Ms.  Cioni-Haywood answered  in the  affirmative. She  added                                                                    
that the  initial capitalization was $6.7  million, the fund                                                                    
had grown to $10 million,  and there was $5.8 in outstanding                                                                    
principal in loans.                                                                                                             
Senator von Imhof  asked about the fund  growth and wondered                                                                    
whether the value of the loans  was higher or had more money                                                                    
been put into the Revolving Loan Fund.                                                                                          
                                                                                                                                
Ms. Cioni-Haywood explained that  there had been earnings on                                                                    
the fund, as  well of repayments to  constitute the majority                                                                    
of the fund growth.                                                                                                             
                                                                                                                                
Senator von  Imhof had additional  questions that  she would                                                                    
send via email.                                                                                                                 
                                                                                                                                
9:28:44 AM                                                                                                                    
                                                                                                                                
Vice-Chair Bishop  asked whether  the entire fund  was owned                                                                    
by AIDEA.                                                                                                                       
                                                                                                                                
Ms. Cioni-Haywood  answered in  the affirmative,  and stated                                                                    
that the  division actively  managed the  fund, but  did not                                                                    
own it.                                                                                                                         
                                                                                                                                
Co-Chair MacKinnon asked when the fund was last audited.                                                                        
                                                                                                                                
Ms.  Cioni-Haywood  answered  that   the  fund  was  audited                                                                    
annually by an independent auditor.                                                                                             
                                                                                                                                
Co-Chair   MacKinnon  understood   that   the  Division   of                                                                    
Legislative Budget and Audit had  not reviewed the practices                                                                    
in the loan programs.                                                                                                           
                                                                                                                                
Ms. Cioni-Haywood responded that all  of the loan funds were                                                                    
audited,  as  part of  the  statewide  audit, on  an  annual                                                                    
basis.                                                                                                                          
                                                                                                                                
Ms. Cioni-Haywood  continued to address Slide  5. She shared                                                                    
that over  the 31-year life  of the  SBED it has  created or                                                                    
saved  over  1,000  jobs,  leveraged  over  $41  million  in                                                                    
private funds, and  produced over $20 million  in loans. She                                                                    
continued to explain that loans cannot  be made if a bank is                                                                    
willing  to  finance  the entire  project.  Applicants  must                                                                    
first  apply to  a bank  and receive  either a  denial or  a                                                                    
letter stating  that they are  only willing to  finance part                                                                    
of the  project. Loans must  result in the creation  of jobs                                                                    
in the  target community. Matching  funds are required  at a                                                                    
ratio of 1.5 to  1, or 60% of the funds  must come from non-                                                                    
governmental sources. The fund  started at $6.69 million and                                                                    
has grown to over $10 million today.                                                                                            
                                                                                                                                
9:30:39 AM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon   asked  about  delinquency   rates  and                                                                    
underlying provisions  for issuing a loan,  such as matching                                                                    
funds.                                                                                                                          
                                                                                                                                
Ms. Cioni-Haywood  stated that  the program worked  with the                                                                    
borrowers.  There   were  instances  in  which   there  were                                                                    
modifications  made to  the loan.  There  were instances  in                                                                    
which the  division would  work with  borrowers to  get them                                                                    
back on track should they fall delinquent.                                                                                      
                                                                                                                                
Co-Chair  MacKinnon asked  whether  there were  standardized                                                                    
procedures for  delinquency and modifications for  the loans                                                                    
under discussion.                                                                                                               
                                                                                                                                
Ms. Cioni-Haywood  stated that she  could only speak  to how                                                                    
the department handled the loans  and was not sure how AIDEA                                                                    
handled the matter. She AIDEA  had a 90-day delinquency. She                                                                    
relayed that DCCED looked at  loans on a case-by-case basis.                                                                    
She said that once loans  had been delinquent 30 days, DCCED                                                                    
actively began to work the loan.                                                                                                
                                                                                                                                
Co-Chair  MacKinnon asked  whether  there were  standardized                                                                    
policy and  procedures for the  application process  and for                                                                    
instances of delinquency.                                                                                                       
                                                                                                                                
JIM   ANDERSEN,  DEPUTY   DIRECTOR,  DIVISION   OF  ECONOMIC                                                                    
DEVELOPMENT, DEPARTMENT OF  COMMERCE, COMMUNITY AND ECONOMIC                                                                    
DEVELOPMENT, explained  that most  of the loan  programs had                                                                    
the criteria  built into either regulations  or statutes. He                                                                    
said that the revolving loan  program was done through Title                                                                    
10  of  the Economic  Development  Act  through the  federal                                                                    
government. He  said that  at 16  days delinquent  the loans                                                                    
under  the program  were worked  and  that a  person with  a                                                                    
delinquent  loan could  not qualify  for further  credit. He                                                                    
said that  the collections  staff worked  "soft collections"                                                                    
up to "enforced collections." He  stressed that the work was                                                                    
done to  recover the  funds and  get them  back in  the loan                                                                    
fund so that they could continue to revolve.                                                                                    
                                                                                                                                
Co-Chair MacKinnon asked if refinancing  was an option for a                                                                    
delinquent loan that could extend the terms of the loan.                                                                        
                                                                                                                                
Mr.  Anderson replied  that  the ability  to  extend was  an                                                                    
option. He  said that  it would need  to be  determined that                                                                    
rehabilitation could be achieved  through refinancing or and                                                                    
extension.                                                                                                                      
                                                                                                                                
9:35:18 AM                                                                                                                    
                                                                                                                                
Senator Micciche had  seen the value of the  loans. He asked                                                                    
whether data  was kept  on the program  since 1987  to track                                                                    
the success of businesses created under the loans.                                                                              
                                                                                                                                
Mr. Anderson  relayed that  the federal  government required                                                                    
extensive  data  collection  on the  program  and  the  jobs                                                                    
created in  communities as  a result of  the loans.  He said                                                                    
that jobs created were tracked  for most of the programs. He                                                                    
noted  a program  that had  spurred $41  million in  private                                                                    
investment as a result of the loan program.                                                                                     
                                                                                                                                
Senator  Micciche observed  two  of loan  funds  that had  a                                                                    
higher  delinquency  rate. He  asked  whether  the two  loan                                                                    
funds were considered higher risk  because of the businesses                                                                    
associated with the loans.                                                                                                      
                                                                                                                                
Mr.  Anderson replied  that the  Alaska Microloan  Revolving                                                                    
Loan and the Small  Business Economic Development loans were                                                                    
from  relatively small  funds, so  one loan  showed up  as a                                                                    
higher percentage; the law of large numbers.                                                                                    
                                                                                                                                
9:38:00 AM                                                                                                                    
                                                                                                                                
Senator  von Imhof  asked how  the state  secured collateral                                                                    
for the  loans. She  asked whether personal  guarantees were                                                                    
required from borrowers.                                                                                                        
                                                                                                                                
Mr. Anderson  shared that personal guarantees  were required                                                                    
every 100  percent of  the time. He  said that  the division                                                                    
took a  Unified Commercial Code-1 (UCC)  financing statement                                                                    
on  all  loans.  He  furthered  that a  lien  was  taken  on                                                                    
anything that the  state spent its money on,  deeds of trust                                                                    
and security agreements were also implemented.                                                                                  
                                                                                                                                
Vice-Chair Bishop  asked whether  the division  managed fund                                                                    
for AIDEA.                                                                                                                      
                                                                                                                                
Ms. Cioni-Haywood answered in the affirmative.                                                                                  
                                                                                                                                
Vice-Chair Bishop  asked whether there was  an RSA agreement                                                                    
with AIDEA for the loan officers to execute the loans.                                                                          
                                                                                                                                
Ms.  Cioni-Haywood stated  that  there was  a memorandum  of                                                                    
agreement between the department and AIDEA.                                                                                     
                                                                                                                                
Co-Chair  MacKinnon  recalled  that  some of  the  bills  in                                                                    
committee were  proposing increased  loan values  for larger                                                                    
loans.  She thought  4.6 was  a higher  rate of  delinquency                                                                    
than she was comfortable with.  She asked how increasing the                                                                    
size would help  Alaskan businesses but put at  risk more of                                                                    
the  fund  capitalization  amount   to  other  lenders.  She                                                                    
wondered  about a  proposal to  turn  one loan  fund into  a                                                                    
grant.                                                                                                                          
                                                                                                                                
9:40:43 AM                                                                                                                    
                                                                                                                                
Ms. Cioni-Haywood stated  that HB 56 (looking  to change the                                                                    
loan limits)  was in the  Commercial Fishing  Revolving Loan                                                                    
Fund  and was  one  of the  departments  oldest and  largest                                                                    
funds.  The  overall limit  that  would  be lent  would  not                                                                    
change, only certain sections of  the program. She noted the                                                                    
fund had not kept up with the  market as far as the price of                                                                    
fishing  vessels,   which  required  more   flexibility  for                                                                    
borrowers  and to  allow the  fund to  do what  it had  been                                                                    
established to accomplish.                                                                                                      
                                                                                                                                
Ms.  Cioni-Haywood stated  that HB  76 had  a grant  program                                                                    
established  within the  bill,  which was  modelled off  the                                                                    
Fisheries Enhancement  Program. She related that  within the                                                                    
program there  had been money  established for  the planning                                                                    
and construction of hatcheries, most  of the grants had been                                                                    
utilized early on and were limited to one type of hatchery.                                                                     
                                                                                                                                
9:43:21 AM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon reiterated  her  question about  whether                                                                    
more  grants  from the  fund  if  it would  erode  borrowing                                                                    
power.                                                                                                                          
                                                                                                                                
Ms. Cioni-Haywood  answered that  allowing for  grants would                                                                    
make it  more difficult  to revolve the  loan fund,  but not                                                                    
impossible.                                                                                                                     
                                                                                                                                
Co-Chair  MacKinnon   asked  whether  it  would   limit  the                                                                    
borrowing capability for others.                                                                                                
                                                                                                                                
Ms.  Cioni-Haywood   answered  that  the  grants   would  be                                                                    
distributed,  which   would  limit   the  amount   of  money                                                                    
available for loans.                                                                                                            
                                                                                                                                
Senator   von  Imhof   wondered  why   borrowers  were   not                                                                    
qualifying for traditional bank loans.                                                                                          
                                                                                                                                
Mr.  Anderson stated  that  under  the Commercial  Fisheries                                                                    
Loan Fund  Program (CFRLF) the  division dealt  with Limited                                                                    
Entry Permits. He  explained often the person  trying to buy                                                                    
a  boat was  young and  without much  capital to  invest. He                                                                    
asserted  that the  program allowed  people begin  earning a                                                                    
living and  building a  net worth,  which also  building the                                                                    
credit necessary to procure traditional financing.                                                                              
                                                                                                                                
9:46:32 AM                                                                                                                    
Senator von Imhof  asked whether there was a  way that banks                                                                    
could participate.                                                                                                              
                                                                                                                                
Mr. Anderson responded that he did not know.                                                                                    
                                                                                                                                
Senator von Imhof  wondered why the state  should assume the                                                                    
risk when private banks would not assume the risk.                                                                              
                                                                                                                                
Mr.  Anderson stated  that  the CFRLF  was  created to  keep                                                                    
fisheries largely  resident. He  shared that the  intent had                                                                    
been to  invest in residents  to build the  legacy industry.                                                                    
The loan  program had  been in existence  for over  45 years                                                                    
and had been successful in meeting its goals.                                                                                   
                                                                                                                                
Vice-Chair Bishop asked whether  an 18-year-old fisher could                                                                    
have a commercial limited entry  permit, which could provide                                                                    
some surety on the loan.                                                                                                        
                                                                                                                                
Mr. Anderson stated that 80  percent of the purchased permit                                                                    
was considered collateral on the loan.                                                                                          
                                                                                                                                
Vice-Chair Bishop  asked whether  the permit  was ultimately                                                                    
owned by the state.                                                                                                             
                                                                                                                                
Mr.  Anderson  replied  that  the  state  had  an  equitable                                                                    
interest in the  permit, but not an  ownership interest. The                                                                    
permit belonged  to the state  and could be  revoked anytime                                                                    
without compensation.                                                                                                           
                                                                                                                                
9:49:24 AM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman thought  the program  had worked  well for                                                                    
the  state, and  that the  control  to keep  the permits  in                                                                    
Alaska  was  better  kept  under   the  current  system.  He                                                                    
believed  that the  risk to  the state  of the  programs was                                                                    
minimal, especially when considering  the amount of jobs and                                                                    
income they provided to the state.                                                                                              
                                                                                                                                
Senator Micciche thought that a  permit was not security. He                                                                    
pointed  out  that an  individual  never  had ownership.  He                                                                    
pointed  out  that   the  value  in  a  vessel   was  not  a                                                                    
traditional  asset. He  agreed that  the program  had worked                                                                    
well and had been well run.                                                                                                     
                                                                                                                                
9:52:52 AM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman commented  that even  wit the  program the                                                                    
state had  a major problem  with permit holders  exiting the                                                                    
state at an alarming rate  over the past decade. He believed                                                                    
that  this program  helped to  slow  the exodus  out of  the                                                                    
state and provided jobs for Alaskans.                                                                                           
                                                                                                                                
Senator von Imhof  reminded the committee that  there were 9                                                                    
programs  in the  presentation that  varied in  a number  of                                                                    
ways. She  thought that  the "revolving"  loan fund  did not                                                                    
really  revolve. She  thought  that the  risk  to the  state                                                                    
should be appropriately mitigated.                                                                                              
                                                                                                                                
9:55:23 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon wondered why  the state did not terminate                                                                    
fishing  permits  after 10  or  20  years after  the  permit                                                                    
holder left the state.                                                                                                          
                                                                                                                                
Co-Chair Hoffman  thought it was a  constitutional issue. He                                                                    
said that the  bigger question was how to  bring the permits                                                                    
back  to  Alaska.  He  said  that  the  Bristol  Bay  Native                                                                    
Corporation  had been  allowed to  acquire permits  and then                                                                    
sell them to fishermen. He  thought that the state needed to                                                                    
research the  issue and  noted that  the permits  were being                                                                    
purchased  by  people  with  more  financial  resources  and                                                                    
technical resources than Alaskans could afford.                                                                                 
                                                                                                                                
Co-Chair MacKinnon knew there  had been buy-back programs in                                                                    
the past. She wondered why  more permits were not issued for                                                                    
smaller lengths  of time, in  order to limit the  volume and                                                                    
price. She though that if  the permits could not be returned                                                                    
due  to  the  interstate   commerce  clause,  perhaps  other                                                                    
permits that  created competition in state  waters could aid                                                                    
Alaskans.                                                                                                                       
                                                                                                                                
Co-Chair  Hoffman  thought the  industry  had  to be  highly                                                                    
capitalized, and shorter permits  brought the economics into                                                                    
question. The  salmon only ran  during a  certain timeframe,                                                                    
which complicated the issue.                                                                                                    
                                                                                                                                
9:59:21 AM                                                                                                                    
                                                                                                                                
Senator  Micciche thought  there  was a  lot  of things  the                                                                    
state  would  do   differently  if  it  were   not  for  the                                                                    
constitution. He stated that  the Interstate Commerce Clause                                                                    
was problematic for Alaska more than other states.                                                                              
                                                                                                                                
10:01:10 AM                                                                                                                   
                                                                                                                                
Senator  Stevens  had  heard that  the  department  did  not                                                                    
consider  that the  loan programs  were in  competition with                                                                    
banks. He  surmised that  more permits  would have  left the                                                                    
state were it not for the  loan program. He noted that young                                                                    
people should be supported in  braking into the industry. He                                                                    
revisited  the point  that the  loans were  only given  when                                                                    
bank loans were denied.                                                                                                         
                                                                                                                                
Ms. Cioni-Haywood stated  that not all but many  of the loan                                                                    
programs  did require  a bank  denial  for financing.  There                                                                    
were overlaps between the  division's constituencies and the                                                                    
private sector, but  they were not identical.  She said that                                                                    
the primary  purpose was  to provide  loans to  Alaskans and                                                                    
industries that  could not get traditional  financing, which                                                                    
was  why  a  bank  denial  was  required  for  many  of  the                                                                    
programs.  She  reiterated  that program  participants  were                                                                    
staring  out and  ran small  operations, typically  in rural                                                                    
areas.  She added  that the  loan limits  were low,  and the                                                                    
microloans were even smaller,  which limited the competition                                                                    
factor with banks.                                                                                                              
                                                                                                                                
10:04:02 AM                                                                                                                   
                                                                                                                                
Senator  Stevens asked  whether the  division was  receiving                                                                    
complaints from the banking industry related to the loans.                                                                      
                                                                                                                                
Ms. Cioni-Haywood had  not discussed the matter  and had not                                                                    
been approached  on the subject.  She recognized  that there                                                                    
was  talk  of competition  and  a  shared constituency.  She                                                                    
stressed  that there  were  significant differences  between                                                                    
the state loan programs and bank loans.                                                                                         
                                                                                                                                
Vice-Chair Bishop  stated that  his family had  five permits                                                                    
in 1977.  He said  that his  family would  procure financing                                                                    
from a  bank for equipment  but had to  get a DCCED  loan to                                                                    
open a fish processing plant.  He said that after his family                                                                    
had  built  some equity,  they  were  able to  benefit  from                                                                    
private banks.                                                                                                                  
                                                                                                                                
10:06:12 AM                                                                                                                   
                                                                                                                                
Ms.  Cioni-Haywood  spoke  to Slide  6,  "Rural  Development                                                                    
Initiative Fund":                                                                                                               
                                                                                                                                
     Initial Capitalization: $3.42 million                                                                                    
     Current fund value: $7.5 million                                                                                         
                                                                                                                                
     As of March 31, 2018:                                                                                                      
         42 Outstanding Loans                                                                                                
         $4.3 million Outstanding                                                                                            
         Delinquency Rate of 0.0%                                                                                            
         Average Loan is $95,100                                                                                             
                                                                                                                                
Ms.   Cioni-Haywood  stated   that  the   Rural  Development                                                                    
Initiative Fund was created in  2000 to provide financing to                                                                    
small   businesses   and    create   long-term,   meaningful                                                                    
employment  in rural  communities.    This program  provides                                                                    
capital that is  difficult to obtain in rural  Alaska.  RDIF                                                                    
replaced a  similar program administered  for many  years by                                                                    
the  Department  of Community  and  Regional  Affairs.   DED                                                                    
administers  the RDIF  on behalf  of  the Alaska  Industrial                                                                    
Development  and   Export  Authority  through   a  servicing                                                                    
contract.   DED is reimbursed  from the fund's  earnings and                                                                    
no  general fund  support is  necessary.   Over the  18-year                                                                    
life of the  RDIF, over 600 jobs have been  created or saved                                                                    
as a  result of these  loans. She furthered that  RDIF loans                                                                    
are  usually used  for the  start-up or  expansion of  small                                                                    
businesses. Loans  must result  in the  creation of  jobs in                                                                    
the target  community, and a reasonable  amount of non-state                                                                    
money  (at  least 10%)  must  be  invested in  the  project.                                                                    
Often,  the  projects are  a  combination  of a  bank  loan,                                                                    
borrower capital,  or seller financing in  addition to RDIF.                                                                    
Since the  inception of  the RDIF, loans  have been  made to                                                                    
diverse business  sectors across  the State. RDIF  funds can                                                                    
be used in a variety of  ways to create or retain jobs. Loan                                                                    
examples     Taxi  Company, Newspaper,  Freight  Vessel,  RV                                                                    
Park, Dress Shop, Pet Grooming,  Computer Repair, Auto Parts                                                                    
Store, Sanitation  Company, Dare  Care Center, Etc.      The                                                                    
fund started (2000)  at $3.42 million and has  grown to over                                                                    
$7.5 million today.                                                                                                             
                                                                                                                                
                                                                                                                                
10:08:07 AM                                                                                                                   
                                                                                                                                
Ms.  Cioni-Haywood  discussed  Slide  7,  "Alaska  Microloan                                                                    
Revolving Loan Fund":                                                                                                           
                                                                                                                                
     Initial Capitalization: $2.5 million                                                                                     
     Current fund value: $2.58 million                                                                                        
                                                                                                                                
     As of March 31, 2018:                                                                                                      
         9 Outstanding Loans                                                                                                 
         $185,000 Outstanding                                                                                                
         Delinquency Rate of 6.0%                                                                                            
         Average Loan is $20,600                                                                                             
                                                                                                                                
Ms.   Cioni-Haywood  relayed   that  the   Alaska  Microloan                                                                    
Revolving Loan Fund  was created in 2012.   This legislation                                                                    
established  the public  policy goal  of promoting  economic                                                                    
development  in Alaska  by  assisting  small businesses  and                                                                    
entrepreneurs who  are not currently  in a position  to seek                                                                    
traditional financing. This  access will facilitate startup,                                                                    
expansion,  and  job  creation  throughout  Alaska,  with  a                                                                    
specific policy  emphasis on rural communities.  The goal is                                                                    
for  the business  to become  stable enough  for traditional                                                                    
bank  financing and  refinance the  microloan as  additional                                                                    
capital  needs become  necessary. Applicants  can use  these                                                                    
funds  for  working  capital,  equipment,  construction,  or                                                                    
other commercial purposes. A  reasonable amount of non-state                                                                    
funds is usually at least 10%  but is determined at the time                                                                    
the  project is  evaluated. A  bank denial  is required  for                                                                    
loan requests  of $35,000  and above.  This threshold  for a                                                                    
bank denial  was developed in consultation  with the private                                                                    
finance community  at the time the  original legislation was                                                                    
developed. She said  that loan growth is  developing; out of                                                                    
33 applications received, 14 loans  have been made. The fund                                                                    
started  at $2.5  million and  has grown  slightly to  $2.58                                                                    
million  today.   ($2,587,237  =  Growth  of   $87,237)  She                                                                    
concluded that the delinquency rate is from one loan.                                                                           
                                                                                                                                
                                                                                                                                
10:09:49 AM                                                                                                                   
                                                                                                                                
Ms.  Cioni-Haywood displayed  Slide  8, "Commercial  Fishing                                                                    
Revolving Loan Fund":                                                                                                           
                                                                                                                                
     Initial Capitalization: $60.2 million                                                                                    
     Current fund value: $128.7 million                                                                                       
                                                                                                                                
     As of March 31, 2018:                                                                                                      
         1,671 Outstanding Loans                                                                                             
         $95.5 million Outstanding                                                                                           
         Delinquency Rate of 1.9%                                                                                            
         Average Loan is $55,300                                                                                             
                                                                                                                                
Ms.  Cioni-Haywood related  that  the CFRLF  was created  in                                                                    
1972 to ensure  Alaskans had access to  their fisheries. The                                                                    
program promotes  Alaskan ownership  and the  development of                                                                    
predominantly  resident fisheries.  The  fund  has played  a                                                                    
major role  in keeping Alaska's fisheries  resident, and has                                                                    
been an effective tool for  assisting the next generation of                                                                    
Alaskans  to  enter the  fisheries.  The  average age  of  a                                                                    
borrower is more  than 7 years younger than  the average age                                                                    
of a permit holder. The  fund is totally self-sufficient and                                                                    
has received no general fund  support since FY1985. In spite                                                                    
of the  extreme challenges  the commercial  fishing industry                                                                    
has  faced  over  the  years,  the  fund  has  continued  to                                                                    
generate solid cash flow to  cover loan demand and operating                                                                    
costs.  Over  the 46-year  life  of  the fund  thousands  of                                                                    
Alaskans have been assisted by this program.                                                                                    
                                                                                                                                
Loans can be used by resident fishermen for:                                                                                    
                                                                                                                                
    • The purchase of Limited Entry permits for salmon,                                                                         
     herring,  crab,  and  other fisheries  limited  by  the                                                                    
     State and federal government.                                                                                              
     • To purchase, refinance, or upgrade vessels, for                                                                          
     product  quality, engine  efficiency, improvements,  or                                                                    
     repairs.                                                                                                                   
      • To purchase gear such as; nets, brailer bags,                                                                           
   outboards, or gear to diversify into other fisheries.                                                                        
    • To purchase of Individual Fishing Quota Shares to                                                                         
     catch halibut and black cod.                                                                                               
   • We also have a program to pay past due taxes to IRS                                                                        
     where the  limited entry permit  might be in  danger of                                                                    
     being seized by IRS, and  the resident might lose their                                                                    
     ability to make a living.  This also serves the State's                                                                    
     interest  in preserving  the  nature  of limited  entry                                                                    
     permits  and   maintaining  domain  over   its  natural                                                                    
     resources.                                                                                                                 
                                                                                                                                
Competition:  It   is  important  to  point   out  that  the                                                                  
constituencies  served  by  the  CFRLF,  CFAB,  and  private                                                                    
sector  lenders are  not  identical.   While  there is  some                                                                    
overlap,  one of  the primary  purposes of  the CFRLF  is to                                                                    
provide loans  to Alaska commercial  harvesters that  do not                                                                    
have access to traditional  financing.  These borrowers tend                                                                    
to be  just starting out, run  a small operation, live  in a                                                                    
rural cash economy,  or may not be  familiar with financing.                                                                    
The  low loan  limits built  into the  program also  ensures                                                                    
that  the  CFRLF does  not  become  a  primary lender.    In                                                                    
creating the  CFRLF, the Legislature  felt it  was important                                                                    
to  help Alaskans  maintain control  of  their fisheries  by                                                                    
supporting a  predominately resident fleet, in  spite of the                                                                    
fact  that many  did  not fit  the  standard lending  model.                                                                    
While  this does  increase  the overall  risk  of the  CFRLF                                                                    
portfolio,   the  Division   of  Economic   Development  has                                                                    
developed  policies that  are intended  to strike  a balance                                                                    
between maintaining  a healthy loan fund  and being flexible                                                                    
enough to  work with borrowers through  difficult time (Bank                                                                    
turndown  required for  Sections (B),  (C), (E),  however we                                                                    
would like  to note that  under Sections (A), (D),  (F), and                                                                    
(11),  a turndown  letter is  not  required. In  particular,                                                                    
Section (A) refers to limited  entry permits and the product                                                                    
quality  and fuel  efficiency loans.)  The  fund started  at                                                                    
$60.2 million and has grown to over $128.7 million today.                                                                       
                                                                                                                                
10:11:23 AM                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon asked for the date the fund was created.                                                                     
                                                                                                                                
Ms. Cioni-Haywood stated it was created in 1972.                                                                                
                                                                                                                                
Senator von Imhof  understood the purpose of  the CFRLF. She                                                                    
thought that it  would be helpful to see a  look back of how                                                                    
the loan had worked overtime;  such as, borrower numbers and                                                                    
delinquency rates. She  felt that an honest  critique of the                                                                    
CFRLF would be helpful.                                                                                                         
                                                                                                                                
Co-Chair MacKinnon  interjected that she wanted  to see some                                                                    
standardization of  loan requirements.  She did not  see the                                                                    
point of  applying unique  requirements to  different loans.                                                                    
She  stressed  that  there should  be  efficiency  for  loan                                                                    
officers  in  providing  some basic  criteria  for  economic                                                                    
opportunities.  She  thought  that  the  uniqueness  of  the                                                                    
programs made work difficult for loan officers.                                                                                 
                                                                                                                                
Co-Chair MacKinnon  commented on  the diverse nature  of the                                                                    
committee members' background.                                                                                                  
                                                                                                                                
10:15:28 AM                                                                                                                   
                                                                                                                                
Vice-Chair Bishop  looked at  the initial  capitalization of                                                                    
$60.2 million  and mused about  the 1977  capitalization and                                                                    
subsequent capitalizations up to 1985.                                                                                          
                                                                                                                                
Co-Chair MacKinnon  thought that  the loans  were a  part of                                                                    
the  conversation about  how Alaska  would solve  its budget                                                                    
problems.                                                                                                                       
                                                                                                                                
10:17:22 AM                                                                                                                   
Ms.  Cioni-Haywood looked  a  Slide  9, "Commercial  Charter                                                                    
Fisheries Revolving Loan Fund                                                                                                   
                                                                                                                                
     Initial Capitalization: $5 million                                                                                       
     Current fund value: $5.08 million                                                                                        
                                                                                                                                
     As of March 31, 2018:                                                                                                      
         1 Outstanding Loans                                                                                                 
         $26,600 Outstanding                                                                                                 
         Delinquency Rate of 0.0%                                                                                            
                                                                                                                                
Ms.  Cioni-Haywood noted  the  Commercial Charter  Fisheries                                                                    
Revolving Loan Fund  was created in 2012 in  response to the                                                                    
National Marine  Fisheries Services instituting  the Charter                                                                    
Halibut   Limited    Access   program.    This   legislation                                                                    
established  the public  policy goal  of promoting  resident                                                                    
ownership of  Charter Halibut Permits  by Alaskans  that may                                                                    
not be able to obtain  financing elsewhere. Refinance: To be                                                                    
able to refinance  a charter vessel for up  to $100,000, the                                                                    
applicant must have a regular long  term note in place for a                                                                    
minimum  of  12  months  before it  can  be  considered  for                                                                    
refinancing by this  program. This program can  only be used                                                                    
to purchase a  charter halibut permit for up  to $200,000 or                                                                    
refinance  an  existing  vessel loan  for  up  to  $100,000.                                                                    
Package deals cannot be financed.                                                                                               
                                                                                                                                
The fund  started at  $5 million and  has grown  slightly to                                                                    
$5.08 million today. ($5,085,553 = $85,553 growth)                                                                              
                                                                                                                                
(Due to  the delayed rule  making by the  Federal Government                                                                    
and the complex package sales  of these permits, loan growth                                                                    
has been  slow under the  fund since inception. The  fund is                                                                    
narrow in scope,  and is not effective  in assisting charter                                                                    
operators outside of purchasing a halibut charter permit)                                                                       
                                                                                                                                
(Most or all  of the funds were  re-appropriated during this                                                                    
session. The final outcome will  be determined in conference                                                                    
committee.)                                                                                                                     
                                                                                                                                
10:18:21 AM                                                                                                                   
                                                                                                                                
Co-Chair  MacKinnon  asked where  the  corpus  of the  funds                                                                    
resided and whether they were being invested.                                                                                   
                                                                                                                                
Ms.  Cioni-Haywood stated  that the  assets were  managed by                                                                    
the Department of Revenue, Division of Treasury.                                                                                
                                                                                                                                
10:18:57 AM                                                                                                                   
                                                                                                                                
Ms.   Cioni-Haywood   referenced    Slide   10,   "Fisheries                                                                    
Enhancement Revolving Loan Fund":                                                                                               
                                                                                                                                
     Initial Capitalization: $84.7 million                                                                                    
     Current fund value: $123.3 million                                                                                       
                                                                                                                                
     As of March 31, 2018:                                                                                                      
         122 Outstanding Loans                                                                                               
         $88.3 million Outstanding                                                                                           
         Delinquency Rate of 0.0%                                                                                            
         Average Loan is $516,400                                                                                            
                                                                                                                                
Ms. Cioni-Haywood stated that  the FERLF program was created                                                                    
in  1976 and  has been  instrumental in  the development  of                                                                    
Alaska's salmon hatcheries. The  program is intended to make                                                                    
loans  available to  Regional  Aquaculture Corporations  and                                                                    
Private   non-profit   Aquaculture  Corporations   for   the                                                                    
planning  and  implementation   of  salmon  enhancement  and                                                                    
rehabilitation  activities.  The   development  of  Alaska's                                                                    
hatchery program  has been an evolutionary  process. Several                                                                    
attempts  at the  hatchery production  of  salmon have  been                                                                    
undertaken by  the federal  government and  private industry                                                                    
but  were largely  unsuccessful because  hatchery technology                                                                    
was  crude  and  underdeveloped.   This  program  sought  to                                                                    
overcome  the  problems  of  the  past  and  facilitate  the                                                                    
development of a viable salmon  enhancement system. Over the                                                                    
42 years  of this  program there has  been great  strides in                                                                    
technology   and  production,   and   despite  the   extreme                                                                    
volatility  experienced  in   the  development  of  Alaska's                                                                    
hatcheries,  the  fund  is  meeting   its  mission  and  has                                                                    
continued to generate  solid cash flow to  cover loan demand                                                                    
and  operating   costs.  There  are  29   salmon  hatcheries                                                                    
currently  operating   in  the  state.  25   facilities  are                                                                    
operated by  private nonprofit corporation.   In 2017 alone,                                                                    
the  commercial  fleet  caught about  47  million  hatchery-                                                                    
produced salmon.  This harvest  was worth an  estimated $331                                                                    
million in  first wholesale  value and  $162 million  in ex-                                                                    
vessel  value. The  fund started  at $84.7  million and  has                                                                    
grown to over $123 million today. ($123,360,787)                                                                                
                                                                                                                                
Co-Chair MacKinnon  asked about  the timeline  reflected for                                                                    
the delinquency rates shown on the presentation slides.                                                                         
                                                                                                                                
Ms.   Cioni-Haywood  stated   that  the   delinquency  rates                                                                    
reflected the delinquency rate as of March 31, 2018.                                                                            
Co-Chair MacKinnon felt that the  delinquency rates were not                                                                    
properly represented. She  spoke of an issue  with a project                                                                    
in Kake, Alaska.                                                                                                                
                                                                                                                                
Ms. Cioni-Haywood informed that  the delinquency rate looked                                                                    
at the percentage  of loans in the portfolio  that were past                                                                    
due on  payments. She shared  that in the situation  in Kake                                                                    
the decision  had been made  to discontinue the  loan, which                                                                    
shifted to an  attempted facilitated sale that  failed and a                                                                    
foreclosure process had been implemented.  She said that the                                                                    
state  would  recoup  as  much as  possible  from  the  held                                                                    
assets. She  did not believe  that the entire  situation had                                                                    
been  resolved.  She believed  that  $2.5  million had  been                                                                    
recovered.                                                                                                                      
                                                                                                                                
10:23:10 AM                                                                                                                   
                                                                                                                                
Co-Chair MacKinnon  thought there needed  to be an  audit of                                                                    
the  chain  of events  in  Kake.  She  wondered how  an  $18                                                                    
million loan  could be granted  when the recipient  had only                                                                    
$2 million  in assets  to start.  She understood  that there                                                                    
was  volatility in  the hatchery  business but  wondered how                                                                    
the state could have failed to assess more obvious risks.                                                                       
                                                                                                                                
10:24:28 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:26:43 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Ms.  Cioni-Haywood   replied  that  there   was  significant                                                                    
volatility within  the hatchery industry. She  cited hurdles                                                                    
such as the farmed fish  crisis, the Exxon-Valdez oil spill,                                                                    
and lost  fish runs.  She explained  that the  Kake hatchery                                                                    
had  suffered water  supply and  quality issues  as well  as                                                                    
runs that did  not return. She said that the  loans had been                                                                    
made over a substantial period  of time and that reconciling                                                                    
the issue had also taken time.                                                                                                  
                                                                                                                                
Co-Chair  MacKinnon  appreciated  the comments.  She  stated                                                                    
that  the issue  was  how the  department  responded to  the                                                                    
challenges and  protecting the states assets.  She cited the                                                                    
delinquency rate  on Slide  10, and wondered  how it  was so                                                                    
low, and whether loans were being written off.                                                                                  
                                                                                                                                
Ms.  Cioni-Haywood affirmed  that the  delinquency rate  was                                                                    
correct. She said that as of  March 31, the division had not                                                                    
had a  late loan payment.  She stated  that once a  loan was                                                                    
non-performing,  and the  possibility of  rehabilitation did                                                                    
not  exist, the  loan was  no  longer classified  as a  loan                                                                    
receivable and was no longer  included in the calculation of                                                                    
the  delinquency  ratio. She  said  such  accounts would  be                                                                    
reclassified as  a judgement, or  doubtful, account  and was                                                                    
reflected  in  the  comprehensive  annual  financial  report                                                                    
(CAFR).                                                                                                                         
                                                                                                                                
10:30:19 AM                                                                                                                   
                                                                                                                                
Co-Chair  MacKinnon  requested  a written  definition  (from                                                                    
regulation)  as how  delinquency was  determined. She  asked                                                                    
whether  the slide  reflected a  lookback from  a year  or 3                                                                    
months ago.                                                                                                                     
                                                                                                                                
Mr.  Anderson reiterated  that the  delinquency  rate was  a                                                                    
snapshot  in real  time. When  a loan  became unrecoverable,                                                                    
the  division followed  a standard  charge-out process.  The                                                                    
payments  on  the  loans  were done  once  per  year,  which                                                                    
allowed hatcheries  to process  cost recovery,  get payments                                                                    
form  processers,  and  make  payments.  He  said  that  the                                                                    
hatcheries  utilizing the  loans  right now  were making  on                                                                    
time payments and were not delinquent.                                                                                          
                                                                                                                                
Co-Chair  MacKinnon clarified  that the  committee wanted  a                                                                    
delinquency  rate  that  considered   the  lifetime  of  the                                                                    
program. She  said this would  determine how many  loans the                                                                    
division was writing  off. She appreciated the  value of the                                                                    
philosophy  behind  the  loans but  needed  assurances  that                                                                    
loans should be increases and extended.                                                                                         
                                                                                                                                
10:33:15 AM                                                                                                                   
                                                                                                                                
Senator  von  Imhof  thought that  the  bad  debt  write-off                                                                    
should  be  included  in the  presentation.  She  felt  that                                                                    
listing a  zero percent  delinquency rate and  not including                                                                    
any information from CAFR made the presentation incomplete.                                                                     
                                                                                                                                
Vice-Chair Bishop looked  at the fund on Slide  10 and asked                                                                    
about the initial capitalization of the fund.                                                                                   
                                                                                                                                
Co-Chair  MacKinnon   reiterated  that  the  fund   had  not                                                                    
received any operating funds since 1976.                                                                                        
                                                                                                                                
Mr. Anderson  understood that  the fund  capitalizations had                                                                    
ended in the late 1970s.                                                                                                        
10:35:17 AM                                                                                                                   
                                                                                                                                
Senator  Micciche hoped  that the  department could  provide                                                                    
the  requested information  on delinquency.  He asked  about                                                                    
cost recover  for the  Fisheries Enhancement  Revolving Loan                                                                    
Fund. He wondered whether the  department could cost recover                                                                    
after a loan had been called, to try to recoup some cost.                                                                       
                                                                                                                                
Ms. Cioni-Haywood  stated that hatcheries  did cost-recovery                                                                    
in order  to recoup their  costs and b=payback  their loans.                                                                    
She  said that  the cost  recovery she  had referred  to was                                                                    
after  the  foreclosure of  the  Kake  Hatchery, there  were                                                                    
still fish out at sea, so  the state entered into a contract                                                                    
in order to harvest those fish once they returned.                                                                              
                                                                                                                                
Senator Micciche asked whether it  was a terminal fishery or                                                                    
would fish return to the area.                                                                                                  
                                                                                                                                
Mr. Anderson  that it was  a terminal harvest and  that when                                                                    
the hatchery failed  there had been fish in  the barn, which                                                                    
the  state   now  held  a  lien   against;  including  eggs.                                                                    
Unfortunately, some  of the runs  had failed but  the coming                                                                    
summer had better indications.                                                                                                  
                                                                                                                                
10:37:47 AM                                                                                                                   
                                                                                                                                
Senator Micciche believed that  all Alaskans benefitted from                                                                    
hatchery production. He  was interested to see  if there had                                                                    
been other delinquent loans in past years.                                                                                      
                                                                                                                                
Co-Chair   MacKinnon   reiterated  that   the   conversation                                                                    
recognized that  the programs were  helpful to  Alaskans but                                                                    
that  the  cost  associated  with   the  programs  could  be                                                                    
problematic. She said that legislation  related to the loans                                                                    
could not  move unless  the committee  had a  full financial                                                                    
understanding of cost to the state.                                                                                             
                                                                                                                                
10:39:36 AM                                                                                                                   
                                                                                                                                
Ms.   Cioni-Haywood   presented   Slide   11,   "Mariculture                                                                    
Revolving Loan Fund":                                                                                                           
                                                                                                                                
     Initial Capitalization: $5 million                                                                                       
     Current fund value: $5.1 million                                                                                         
                                                                                                                                
     As of March 31, 2018:                                                                                                      
         6 Outstanding Loans                                                                                                 
         $597,000 Outstanding                                                                                                
         Delinquency Rate of 0.0%                                                                                            
         Average Loan is $99,500                                                                                             
                                                                                                                                
Ms.  Cioni-Haywood  stated  that the  Mariculture  Revolving                                                                    
Loan  Fund was  created by  the Legislature  in 2012.   This                                                                    
program   is  intended   to  help   develop  Alaskan   owned                                                                    
mariculture operations and  diversify economic opportunities                                                                    
in   coastal   communities   by   providing   financing   to                                                                    
mariculture  businesses that  may not  have other  financing                                                                    
available.  She  said  recipients   must  have  a  permitted                                                                    
mariculture   farm  location   in  Alaska   and  must   have                                                                    
experience/training   in  the   mariculture  industry.   She                                                                    
furthered that  applicants must be  an Alaskan  resident for                                                                    
24   consecutive   months   prior  to   us   receiving   the                                                                    
application.  Loans cannot  be  made to  pay costs  incurred                                                                    
more than 12  months before receipt of  application. May not                                                                    
have any  child support  arrearage. The  fund started  at $5                                                                    
million  and  has  grown slightly  to  $5.1  million  today.                                                                    
($5,136,186 = $136,186 growth)                                                                                                  
                                                                                                                                
10:40:30 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:40:45 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  MacKinnon  referenced  HB   76.  She  asked  about                                                                    
removing  the one-time  limitation for  grants, which  would                                                                    
devalue  the   amount  available  for  others   through  the                                                                    
revolving  loan   program.  She   asked  whether   the  bill                                                                    
contained an enhancement program.                                                                                               
                                                                                                                                
Ms.   Cionid-Haywood   believed   there   was   a   separate                                                                    
enhancement bill (HB 128).                                                                                                      
                                                                                                                                
Ms.  Cioni-Haywood  turned  to Slide  12,  "Alaska  Capstone                                                                    
Avionics Revolving Loan Fund":                                                                                                  
                                                                                                                                
     Initial Capitalization: $4.8 million                                                                                     
     Current fund value: $5.2 million                                                                                         
                                                                                                                                
     As of March 31, 2018:                                                                                                      
         5 Outstanding Loans                                                                                                 
         $156,000 Outstanding                                                                                                
         Delinquency Rate of 0.0%                                                                                            
         Average Loan is $31,200                                                                                             
                                                                                                                                
Ms. Cioni-Haywood  stated that the Alaska  Capstone Avionics                                                                    
Revolving Loan Fund  was created by the  Legislature in 2008                                                                    
as  part of  a  joint industry  effort  to improve  aviation                                                                    
safety and  economic efficiency in  Alaska by  financing the                                                                    
installation of a  new generation of avionics.   The Federal                                                                    
Aviation  Administration (FAA)  required  a commitment  from                                                                    
the State of  Alaska to make the  avionics accessible before                                                                    
it  was   willing  to   complete  the   $900  million-dollar                                                                    
infrastructure  build out  of the  Capstone/NextGen Avionics                                                                    
system.   The Alaska  Capstone Avionics Revolving  Loan Fund                                                                    
met this need and the  build out has proceeded. However, due                                                                    
to  slow  governmental   rulemaking,  the  general  aviation                                                                    
community  has  not yet  embraced  the  technology and  most                                                                    
likely there will  not be widespread adoption  of the system                                                                    
until the FAA mandate requires it  in 2020.  DED believes as                                                                    
this date  approaches the fund  will see heavy  use (Program                                                                    
is  set to  sunset in  2020) (FAA  rules will  require after                                                                    
January  1,  2020 that  aircraft  that  fly into  controlled                                                                    
airspace are outfitted  with ADS-B.) All aircraft  must at a                                                                    
minimum,   be   equipped   with   an   Automatic   Dependent                                                                
Surveillance -  Broadcast (ABS-B)  data link system  or sign                                                                
an intent to  equip loan agreement allowing  up to 36-months                                                                    
from date of Promissory Note to equip aircraft with ADS-B.                                                                      
ADS-B: This  equipment broadcasts the position  of the plane                                                                    
to other  aircraft and ground  stations. Aircraft  in Alaska                                                                    
equipped with the Capstone avionics  had 47% fewer accidents                                                                    
and 33% fewer  fatalities. The fund started  at $4.8 million                                                                    
and has grown slightly to  $5.2 million today. ($5,208,259 =                                                                    
$408,259 growth)                                                                                                                
                                                                                                                                
Co-Chair  MacKinnon  asked  if  the  state  set  a  date  to                                                                    
extinguish the  program by 2020 whether  that would motivate                                                                    
people to access the funds sooner rather than later.                                                                            
                                                                                                                                
Ms. Cioni-Haywood considered  Co-Chair MacKinnon's question.                                                                    
She said that she could not  speak to how the industry would                                                                    
react to that hypothetical.                                                                                                     
                                                                                                                                
Co-Chair  MacKinnon  acknowledged  that  she  had  asked  an                                                                    
unfair  question.  She  wondered  how the  state  could  get                                                                    
implementation of timelier product utilization.                                                                                 
                                                                                                                                
10:44:31 AM                                                                                                                   
                                                                                                                                
Senator  Olson  stated  that   Capstone  was  a  significant                                                                    
investment  that many  private  pilots would  not invest  in                                                                    
without excessive  resources. He said that  air taxis sought                                                                    
waivers to  operate without  Capstone. He  said that  it was                                                                    
true  that   there  had  been  a   significant  decrease  in                                                                    
accidents, but he  did not think it  was solely attributable                                                                    
to Capstone.                                                                                                                    
                                                                                                                                
Senator von  Imhof was familiar  with Capstone, and  knew it                                                                    
was very costly. She noted  that technological advances were                                                                    
helping to  lower cost. She  agreed with  Co-Chair MacKinnon                                                                    
that the  loan was  not widely  publicly known.  She praised                                                                    
the Capstone avionics but lamented the price.                                                                                   
                                                                                                                                
10:46:53 AM                                                                                                                   
                                                                                                                                
Senator  Micciche questioned  the  Sport  Fish Charter  Loan                                                                    
Fund, which he believed  was underutilized. He asked whether                                                                    
advertising  was  done in  industries  so  that people  knew                                                                    
about the loans available to them.                                                                                              
                                                                                                                                
Ms.  Cioni-Haywood responded  that several  outreach methods                                                                    
were used to inform people  about the loans. She deferred to                                                                    
Mr. Anderson.                                                                                                                   
                                                                                                                                
Mr.  Anderson  said  that  outreach  was  conducted  and  in                                                                    
various  ways, through  newsletter and  direct contact  with                                                                    
stakeholder organizations.                                                                                                      
                                                                                                                                
10:48:59 AM                                                                                                                   
                                                                                                                                
Ms.  Cioni-Haywood  showed  Slide  13,  "Alternative  Energy                                                                    
Conservation Revolving Loan Fund":                                                                                              
                                                                                                                                
     Initial Capitalization: $2.5 million                                                                                     
     Current fund value: $2.75 million                                                                                        
                                                                                                                              
     As of March 31, 2018:                                                                                                      
         0 Loans Outstanding                                                                                                 
                                                                                                                                
                                                                                                                                
Ms.  Cioni-Haywood stated  that  the purpose  is to  provide                                                                    
commercial  business owners  access to  affordable loans  to                                                                    
purchase, construct  and install alternative  energy systems                                                                    
or   energy   conservation    improvements   in   commercial                                                                    
buildings.                                                                                                                      
Must be  for the  purchase, construction or  installation of                                                                    
alternative   energy   systems    or   energy   conservation                                                                    
improvements in  commercial buildings. Applicant must  be an                                                                    
Alaskan  resident  for 12  consecutive  months  prior to  us                                                                    
receiving  the application.  Loans may  not be  made to  pay                                                                    
costs  incurred   4  months  prior   to  us   receiving  the                                                                    
application.  Must result  in alternative  energy production                                                                    
or  energy  conservation. Must  not  have  no child  support                                                                    
arrearage. The  fund started at  $2.5 million and  has grown                                                                    
slightly  to $2.75  million  today.  ($2,756,331 =  $256,331                                                                    
growth)                                                                                                                         
                                                                                                                                
Co-Chair  MacKinnon reiterated  her  desire for  information                                                                    
pertaining to  the Kake project  and the  financial timeline                                                                    
of that  loan. She added  that she wanted  information about                                                                    
the delinquency rate over the life of each loan.                                                                                
                                                                                                                                
10:51:19 AM                                                                                                                   
                                                                                                                                
MIKE   NAVARRE,   COMMISSIONER,  DEPARTMENT   OF   COMMERCE,                                                                    
COMMUNITY,  AND ECONOMIC  DEVELOPMENT, relayed  that he  had                                                                    
spoken  to committee  members  and  understood the  concerns                                                                    
held by the committee. He  listed the various talking points                                                                    
that would be followed up on  by the department. He did note                                                                    
that the Kake  loan situation spanned 40  years and included                                                                    
a number of loans  and several different administrations. He                                                                    
said  that the  pieces of  legislation before  the committee                                                                    
did identify areas where the loans could be improved.                                                                           
                                                                                                                                
Co-Chair MacKinnon discussed housekeeping.                                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                   
10:55:08 AM                                                                                                                   
                                                                                                                                
The meeting was adjourned at 10:55 a.m.                                                                                         
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
042718 DCCED 2018 Investments SFIN 4.27.18.pdf SFIN 4/27/2018 9:00:00 AM
Revolving Loan Funds
042718 DCCED Revolving Loan Funds - White Papers.pdf SFIN 4/27/2018 9:00:00 AM
Revolving Loan Funds