Legislature(2001 - 2002)
04/12/2001 01:37 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE LABOR & COMMERCE COMMITTEE
April 12, 2001
1:37 pm
MEMBERS PRESENT
Senator Randy Phillips, Chair
Senator Loren Leman
Senator Bettye Davis
MEMBERS ABSENT
Senator Alan Austerman
Senator John Torgerson
COMMITTEE CALENDAR
SENATE BILL NO. 138
"An Act relating to the business of insurance, including changes to
the insurance code to implement federal financial services reforms
for the business of insurance and to authorize the director of
insurance to review criminal backgrounds for individuals applying
to engage in the business of insurance; amending Rule 402, Alaska
Rules of Evidence; and providing for an effective date."
MOVED CSSB 138 (L&C) OUT OF COMMITTEE
CS FOR HOUSE BILL NO. 81(FIN)
"An Act extending the termination date of the Board of Dental
Examiners; relating to the Board of Dental Examiners and regulation
of the practice of dentistry; and relating to dental hygienists and
dental assistants."
MOVED CSHB 81 (FIN) OUT OF COMMITTEE
SENATE BILL NO. 165
"An Act imposing a tax on employment; and providing for an
effective date."
MOVED SB 165 OUT OF COMMITTEE
SENATE BILL NO. 170
"An Act relating to wage and hour protections for employees of the
Alaska Railroad Corporation."
MOVED CSSB 170 (L&C) OUT OF COMMITTEE
SENATE BILL NO. 168
"An Act relating to loans made by the commercial fishing loan
program."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
SB 138 - See Labor and Commerce minutes dated 3/20/01 and 4/10/01.
HB 81 - No previous action to consider.
SB 165 - No previous action to consider.
SB 170 - No previous action to consider.
SB 168 - No previous action to consider.
WITNESS REGISTER
Mr. Bob Lohr, Director
Division of Insurance
Department of Community and Economic Development
3601 C Street, Ste. 1324
Anchorage AK 99503
POSITION STATEMENT: Commented on SB 138.
Mr. John George
American Council of Life Insurance
National Association of Independent Insurers
3328 Fritz Cove Rd.
Juneau AK 99801
POSITION STATEMENT: Commented on SB 138.
Mr. Steve Conn, Executive Director
Alaska Public Interest Research Group (AKPIRG)
P.O. Box 101093
Anchorage AK 99503
POSITION STATEMENT: Commented on SB 138 and opposed Opt out policy.
Ms. Suzanne Hancock
Staff to Senator Alan Austerman
State Capitol Bldg.
Juneau AK 99811
POSITION STATEMENT: Commented on SB 138.
Representative Hugh Fate
State Capitol Bldg.
Juneau AK 99811
POSITION STATEMENT: Sponsor of HB 81.
Mr. Sean Riley
Staff to Senator Alan Austerman
State Capitol Bldg.
Juneau AK 99811
POSITION STATEMENT: Commented on SB 165.
Mr. Mike Milligan
12056 Gara Dr.
Kodiak AK 99615
POSITION STATEMENT: Supported SB 165.
Mr. Richard Walberts
310 Maple Ave.
Kodiak AK 99615
POSITION STATEMENT: Opposed SB 165.
Mr. Ben Ardinger
1323 Mill Bay Rd.
Kodiak AK 99615
POSITION STATEMENT: Supported SB 165.
Mayor Gabrielle Ledoux
Kodiak Island Borough
219 Mill Bay Rd.
Kodiak AK 99615
POSITION STATEMENT: Supported SB 165.
Mr. Gregory P. Razo
Kodiak Island Borough Assembly
P.O. Box 4186
Kodiak AK 99615
POSITION STATEMENT: Supported SB 165.
Ms. Marilyn Davidson
Kodiak Island Borough
P.O. Box 8903
Kodiak AK 99615
POSITION STATEMENT: Supported SB 165.
Mr. David Jones, Director
Division of Finance for the Kodiak School District
Kodiak Island Borough
P.O. Box 8635
Kodiak AK 99615
POSITION STATEMENT: Supported SB 165.
Ms. Pat Branson
Kodiak Island Borough Assembly
P.O. Box 3888
Kodiak AK 99615
POSITION STATEMENT: Supported SB 165.
Mr. Mike Williams
Department of Revenue
PO Box 110400
Juneau, AK 99811-0400
POSITION STATEMENT: Commented on SB 165.
Mr. Kevin Ritchie
Alaska Municipal League
217 2nd Street
Juneau AK 99801
POSITION STATEMENT: Commented on SB 165.
Mr. Carl Rose, Executive Director
Alaska Association of School Boards
Juneau AK 99801
POSITION STATEMENT: Supported SB 165.
Ms. Wendy Windskoog
Director of External Affairs
Alaska Railroad Corporation (ARRC)
P.O. Box 107500
Anchorage AK 99510
POSITION STATEMENT: Supported SB 170.
Mr. Kevin Bergsgood, Locomotive Engineer
Alaska Railroad Corporation
State Legislative Director, United Transportation Union
P.O. Box 107500
Anchorage AK 99510
POSITION STATEMENT: Supported SB 170.
Mr. Ed Crane, CEO
Alaska Commercial Fishing and Agriculture Bank
2550 Denali St. #1201
Anchorage AK 99503
POSITION STATEMENT: Supported SB 168.
Mr. Greg Winegar, Director
Division of Investments
Department of Commerce and Economic Development
P.O. Box 34159
Juneau AK 99803
POSITION STATEMENT: Opposed SB 168.
ACTION NARRATIVE
TAPE 01-17, SIDE A
Number 001
SB 138-INSURANCE CODE AMENDMENTS
CHAIRMAN RANDY PHILLIPS called the Senate Labor & Commerce
Committee meeting to order at 1:37 pm and announced SB 138 to be up
for consideration.
SENATOR LEMAN moved to adopt the committee substitute to SB 138,
Ford 4/6/01/F. There were no objections and it was so ordered.
MR. BOB LOHR, Director, Division of Insurance, said he was
available to answer questions.
CHAIRMAN PHILLIPS asked if he saw any deficiency other than the
public policy question of opt in/out in the F version.
MR. LOHR answered no, other than that one issue, the rest of the
issues were addressed quite nicely.
MR. JOHN GEORGE, American Council of Life Insurers and National
Association of Independent Insurers, said the redraft of the bill
was fine and all his clients would support it.
MR. STEVE CONN, Executive Director, Alaska Public Interest Research
Group, said the concern of consumer organizations over the opt
in/out policy is that it flows from the fact that the Gramm-Leach-
Bliley Act did away with the walls established during the
depression days between the financial institutions, like the
brokerage houses, insurance companies, small loan companies and
banks. "It allows them to merge."
With that merger comes the opportunity for these
financial institutions to share important and privileged
information and, to be quite blunt, many of them desire
to do so. That is to take good customers to the bank and
share them with their own or a third party who is an
insurance company and vice versa. So, the consumer who
gives information for one discrete purpose may find that
information being shared all over. Of course, here in
Alaska with our constitutional right to privacy, we have
a particular and long standing interest in privacy of
information.
Many of the institutions suggest that opt out is
satisfactory, but the reality of that is very much
something different. Many of us have received the
documents stuffed within statements from banks and other
companies lately, because most of this is beginning at
the federal level. It is hard as the devil to find the
information necessary to figure out when and how and on
what basis to opt out. Most people just see this as
another envelope stuffer and pitch it out. This lay
opinion has now been underscored by an academic study.
Mark Hocheiser, PhD. has conducted a study and subjected
many of these notices to the various readability
standards that have been widely established and has found
out that most of these documents according to the reading
scores are virtually unreadable. To most, especially
people with English as a second language and the elderly,
have a difficult time reading them. The easiest way to
deal with this, and the way that certainly comports well
with our own concern for privacy in this state and to
make use of the opportunity granted at the federal level
for each state to make this choice, is to have
individuals opt in and not opt out. That is to say, if
the banks think it's in your best interest or the
insurance company to share this information with someone
in its corporate family or with someone beyond its
corporate family, let it reach out to the consumer and
offer the opportunity and let that consumer deliberate
and agree to opt in on the sharing of information.
Unless, as one lobbyist for an insurance company said
another day, we believe privacy is dead, in which case we
have nothing to discuss about this. We're sort of tilting
at windmills. I encourage the committee to pass forward a
bill that makes opt in and not opt out the choice,
because at the end of the day, opt out is no choice,
whatsoever.
MR. GEORGE responded:
There's two important points. One is that the federal
government has already regulated financial institutions
that are regulated under the federal government under
Gramm-Leach-Bliley. So certain institutions already have
the opt out provision. By changing that standard for
insurance companies, you are now creating a different set
of rules for insurance companies to play than the
national banks, the stock brokerages, and others. So
automatically, the insurance companies are placed at a
disadvantage. We can't change the federal standard for
those federally regulated institutions. We can only deal
with the state.
We believe that there are certain advantages to the
sharing of information, not only from the financial
institution side, but from the consumer side. For
instance, rather than an institution mailing a mass
mailing to everyone in America, they can target markets
of people who are more likely interested in their
product. As the prior witness stated, we all get a lot of
junk mail and we toss it, because it's totally unrelated
to us, but once in a while you find something that's
really hits your target. Something you are interested in.
If we could focus more of these mailings on things you
are interested in, I think that's an advantage to the
consumer. It does improve competition among the players
if they can get access to the information and, therefore,
target the consumers. It creates some efficiencies and
those can be passed on as cost savings. It's certainly
cheaper to mail to a target group than to everybody in
America. Lastly, the standard that is going to be set
across the country for insurance companies is going to be
opt out. I'm confident that will be the case. Alaska will
be different. That, therefore, makes it more expensive
for insurance companies to operate for that limited
purpose in the state of Alaska and, therefore, may not
provide the opportunities to people in Alaska to avail
themselves of these new and creative products.
MR. GOERGE said that the efficiencies technology has brought to
this industry will be lost and the cost will be passed on to the
consumer. "We have done studies and consumers are more protective
of their time than their privacy on these types of issues."
SENATOR DAVIS moved to delete all materials on page 25, line 31 -
page 26, line 10 (the opt out provision).
MS. SUZANNE HANCOCK, Staff to Alan Austerman, explained that the
amendment gives people the opportunity to opt in, if they choose,
but does not put the onus on the individual to seek out a way of
removing themselves from these lists.
CHAIRMANT PHILLIPS called for the vote. SENATORS LEMAN and PHILLIPS
voted nay; SENATOR DAVIS voted yeah; and the motion failed by a
vote of 2 to 1.
SENATOR LEMAN moved to pass CSSB 138 (L&C) from committee with
individual recommendations. There were no objections and it was so
ordered.
HB 81-DENTISTS/DENTAL HYGIENISTS & ASSISTANTS
CHAIRMAN PHILLIPS announced HB 81 to be up for consideration.
REPRESENTATIVE FATE, sponsor of HB 81, said the letter of intent
was patterned after the letter that accompanied the extension of
the Medical Board and their effort to raise their assessment to
$25,000. He said there was an attachment that explained the
expenses.
SENATOR DAVIS moved to adopt the letter of intent. There were no
objections and it was so ordered.
SENATOR LEMAN moved to pass CSHB 81 (FIN) with accompanying fiscal
note and the accompanying letter of intent with individual
recommendations. There were no objections and it was so ordered.
SB 165-EDUCATION TAX ON EMPLOYMENT
CHAIRMAN PHILLIPS announced SB 165 to be up for consideration.
MR. SEAN RILED, Staff to Senator Austerman, said:
The purpose of this bill would be to generate revenue
that would be geared towards education. There would be
$100 per person taken out in two consecutive pay checks
per year for anyone that is working in the state of
Alaska. This would also incorporate all the people that
are from out-of-state, generating quite a bit of
additional income that would go into the general fund.
The reason this bill is here is to generate more income
for education. The legislature has given our schools a
clear message - that they want our schools to continue to
get and set high standards for our students. This will be
facilitated through a competency exam. To be able to
implement this program, we need to give our educators the
tools with which they can implement that program.
I do fully agree that you don't take money and throw it
at a problem and hope that it will go away, but I do
believe that the money that the school tax bill will
generate would offer the tools with which to implement
that program and also to help some of the education
programs we presently have.
MR. RILEY continued:
Children are our future. I think it's important to
remember that we need to fund these areas. As President
Hamilton [UAA] said many times before the legislature,
"We don't want to see a brain drain going to the Lower
48. We want to keep our people here and by providing good
educational programs and good infrastructure, we can do
that. Some day, those same children that we will be
educating here and giving the best education to will be
passing bills for taking care of us when we become older
people and passing good legislation. By showing good
support in that regard at this early stage would be
helping the state and helping ourselves at the same time.
Whenever anyone comes before the legislature to pass
legislation, the second question everyone asks is, "How
are we going to fund this?"
Historically, we've already had this tax in place. It's
nothing new to us. It's something we've worked with
before and can continue to work with. One of the good
aspects about this tax is that it goes after some of the
people who come up here and reap the harvest of the
resources and the infrastructure of Alaska and take their
money down south where they end up paying state income
tax. Since we have no state income tax and we have no
state tax, the only way we're generating money to offset
our deficit budget is from the CBR and unless we want to
drain that completely, we need to take steps in that
regard to start instituting a way to start paying for
some of these programs. This would be a small step in
that regard to make plans for Alaska's future.
Number 1900
SENATOR LEMAN corrected Mr. Riley's assertion that we have no state
income tax. He said we have a state income tax, but not a state
personal income tax or a state sales tax. "For instance, on fuel,
that is a tax that's applied generally throughout the state with a
few exceptions.
MR. RILEY thanked him for the correction and added that the point
he was trying to make is that Alaska is very unique in that they
are generating money for their budget from places other than the
people themselves.
SENATOR LEMAN said that since the tax of $100 per head is due on
those employed and those self employed by February 1, he assumed
that a self employed person on a form supplied by the Department of
Revenue would submit $100 before February 1 and fulfill that
requirement, but what if the self employed person does not earn
income before February 1?
MR. RILEY replied that the mechanism for that would be that the
tax, itself, is not due until the following year after you had
already worked through that one year.
MR. MIKE MILLIGAN, Kodiak, supported SB 165. He thought the
greatest problem facing Alaska now is that we have developed into a
culture of give-me. "We expect a check from the government. We have
to begin now reducing the rate of deficit spending."
Mr. Milligan said that we need to put more money into education and
the question is how to pay for it and this bill begins to deal with
the problem.
MR. RICHARD WALBERTS, Kodiak, said he is for public education, but
opposed SB 165. He can't support it, because it's an unfair tax,
especially to low-income people. He thought that schools receive
more than enough money to teach basic academics.
MR. BEN ARDINGER, Kodiak businessman, said he serves on the
Committee for Better Education and supports SB 165. They are
striving to get the music program reinstated at the elementary
level and they need the money. He said the people he talks to are
all for it, but they want to make sure it goes for education.
MAYOR GABRIELLE LEDOUX, Kodiak Island Borough, said the Kodiak
Assembly supports this bill and has passed a resolution stating so.
She supports this bill personally. "Our schools are having
difficulty. They are having difficulty with maintenance. They are
having difficulty with large classrooms. We're close to the cap;
other school districts are already there."
She realizes this is a regressive tax, but said, "At some point, we
have to figure there is no such thing as a free lunch. This is our
first step to a long-range fiscal plan and that's why I support
it."
MR. GREG RAZO, Kodiak Island Borough Assembly, said he ran with a
commitment to education as part of his platform. He said the local
community is interested in quality schools, but they are having a
hard time achieving that when they have over 10 years of lack of
inflation proofing for education funding from the state. He said:
We have heard recently with the tax cap initiative how
concerned people around the state are at the increasing
burden of local property tax. That burden is going to do
nothing but continue unless we receive assistance from
both the state and federal government.
MR. RAZO said the citizens of Alaska are ready to see a new
approach to state funding.
MS. MARILY DAVIDSON, Kodiak, supported SB 165. The local school
district support high quality education and those efforts are being
impaired by the fiscal restraints that are the result of a
shrinking budget. "We need to fund, not the minimum necessary for
education, but a high quality education for all Alaskan students so
they can be competitive in whatever avenue the choose as they
finish their standard school career…"
MR. DAVID JONES, Director of Finance, Kodiak School District, said
he is also a parent and a non-tax payer in Kodiak. He has addressed
the legislature a number of times expressing the need for money to
provide an adequate education. As a parent in Kodiak, he pays a
property tax and a 6 percent sales tax. In October, the state sends
his family a permanent fund dividend. He is willing to pay for the
services he receives from the government.
MS. PAT BRANSON, Kodiak Island Assembly, said that she has no
children, but believes the schools are temples of learning and, "It
is most important that we provide the proper amount of funding in a
diverse manner for quality education throughout the state."
Property owners are the ones who bear the burden of school funding
and if the legislature doesn't look for other sources of long-range
funding, their local government will have to continue raising
property taxes, Ms. Branson said.
Number 2300
MR. MIKE WILLIAMS, Department of Revenue, said he would answer
questions.
SENATOR LEMAN asked if wouldn't make sense for people to pay the
amount out of the Permanent Fund portion so that it wouldn't be
taxable, because the language now has them paying taxes on their
full dividend, plus paying another $100.
MR. WILLIAMS replied that there is some concern on the method of
reducing a PFD because there would be tax implications on a
personal level. "You would have a proposed statute that would
propose a tax and, if you have used the PFD to offset that act, it
could be considered to be debt relief. That debt relief in itself
would be taxable to the individual."
SENATOR LEMAN asked if it could be designed in a way that it would
avoid that? He thought it might be possible to "grab that money
before it enters the dividend distribution stream and that would be
the offset."
TAPE 01-17, SIDE B
CHAIRMAN PHILLIPS said the fiscal note looked like it was about
$700,000, "which raises some flags."
MR. WILLIAMS responded that he would have to research Senator
Leman's question.
MR. KEVIN RITCHIE, Alaska Municipal League, said they do not have a
position on this bill, but their top priority is a long-range
financial plan for the state of Alaska and their second priority is
funding education. "This is obviously one option that could be
considered in terms of developing a long-range financial plan. And
of course, the plan may come together incrementally. So we
encourage you to keep moving such bills forward and at some point
consider them. Just to let you know that Alaskans United Against
the Cap, a group of 90 partner organizations that worked to defeat
the tax cap, will be working in various communities to talk about
the various options for creating a long-range financial plan for
the state."
SENATOR LEMAN encouraged him and his organization to come up with
some suggestions on how to do it and work within the organizations,
because he was convinced this would be "grass routes led" rather
than more top down.
SENATOR DAVIS said she appreciated his testimony and a lot of
things would have to happen when they begin to talk about a long-
range plan and if they don't happen at the legislature, they are
going to have to come through grass routes efforts. She plans to,
"Take it to the public."
She asked him to keep the legislature informed about what they are
doing.
MR. CARL ROSE, Executive Director, Association of Alaska School
Boards, supported SB 165. He said they know revenues have been
reduced and that essential services have costs attached. "We have a
window of four to five years to fashion some kind of plan that will
project us into the future successfully. Our other option is to
slam head-long into the wall in four years."
He said that it will entail talk about revenue streams like this
bill and perhaps and sales tax, personal income tax or some kind of
investment for the purpose of generating revenue.
MR. RILEY said he had been in committee meetings before where this
committee's chairman recognized the need for long-term fiscal
planning and this was an opportunity to take the first step in that
direction.
SENATOR LEMAN said he was concerned about the fiscal note, but
would look at it in the Finance Committee.
SENATOR DAVIS moved to pass SB 165 from committee with individual
recommendations. There were no objections and it was so ordered.
SB 170-RAILROAD EMPLOYEE SALARIES AND WAGES
CHAIRMAN PHILLIPS announced SB 170 to be up for consideration.
MS. WENDY WINDSKOOG, Director of External Affairs, Alaska Railroad
Corporation, said:
SB 170 accomplishes two very important objectives for the
Alaska Railroad and its employees. It would be amending
our statute, AS 42 to do two things - clarify that the
Alaska Railroad falls under the Alaska Wage and Hour Act
and also it would allow the members of the United
Transportation Union and management the flexibility to
negotiate an agreement that would allow the UTU employees
to be paid on a salary basis rather than on an hourly
basis.
I'll give you a little bit of background. When we began
negotiations several months ago with the UTU Union, we
discovered that there was a real question whether the
Alaska Railroad falls under the Alaska Wage and Hour Act.
This was a little disconcerting to us, because we are
exempt from the Fair Labor Standards Act, which is the
federal law governing minimum wage and overtime
protection for employees.
The Railroad has always operated as though we are under
the Alaska Wage and Hour Act and we would definitely like
to see this clarified through our statute that we have
that protection for our employees.
That's the first part of the bill. The second part of the
bill deals with some flexibility in our negotiations with
the UTU Union. The exemption for UTU members provided by
the bill would not leave the UTU members unprotected with
regard to overtime and wage issues, because they are
protected by the Hours of Service Act. That Act prevents
excessive or unreasonable work hours by limiting the
number of hours these employees can work to twelve hours
a day and after that have to take some time off. They do
have that protection.
The other thing I would like to mention is why this bill
benefits both labor and management at the Alaska
Railroad. The UTU members would benefit from the
exemption by having their pension plan enhanced. In
exchange, the Railroad management would be allowed
eventually to operate trains with a two-person crew
rather than a three-person crew. This is where the
industry is going in the Lower 48 with railroads. With
some of the technical upgrades we are doing to the
Railroad, we would be eventually able to operate with
two-person crews. We get there through attrition, not by
laying off jobs now, but as people retire, we would move
in that direction…
MS. WINDSKOOG said they have letters of support from several
unions, both public and private. They have a verbal commitment from
the AFL-CIO in support of the bill. However, she said they would
like to change the effective date to immediate.
MR. KEVIN BERGSGOOD, Locomotive Engineer, Alaska Railroad Corp. and
State Legislative Director, United Transportation Union, said they
support SB 170.
SENATOR DAVIS made a conceptual amendment to add section 3 that
would make an immediate effective date. There were no objections
and it was so ordered.
SENATOR DAVIS moved to pass CSSB 170 (L&C) from committee with
individual recommendations. There were no objections and it was so
ordered.
SB 168-COMMERCIAL FISHING LOAN PROGRAM
CHAIRMAN PHILLIPS announced SB 168 to be up for consideration.
MR. ED CRANE, CEO, Alaska Commercial Fishing and Agriculture Bank,
said they requested this legislation and appreciate having it under
consideration. He said there were a number of factors over time
that led up to them introducing this bill. Five years ago when the
Division of Legislative Audit took a limited look at CFAB and the
Division of Investments' Revolving Commercial Fishing Loan Fund,
they recommended that a process be explored by which CFAB would end
up with essentially taking over the functions of the Division's
Fund. He cited various practices and policies and made the
observation that over the previous five years, borrowers (on the
surface) appeared much better with CFAB than they had with the
Division of Investments.
MR. CRANE explained that CFAB is a private institution structured
as a cooperative, responsible to the Board of Directors, who are
responsible to the borrowing owners. "We have the burden of
operating as efficiently and as effectively as possible. That
provides benefits to our borrowing members. Over the past 10 years
for every $100 of interest we have collected from those borrowing
members, we have returned $13.50 in cash to them. There is another
$4.80 set aside in funds, which will soon be paid to them, also."
He said that this bill provides that for most of the various kinds
of fishing loans made by the Division there will be a step inserted
saying the applicant must first be declined by CFAB before the
Division can entertain their application. The exception is a
section b loan (page 2, line 7), which covers loans the Division
makes to areas where there is either economic depression or a
limitation on employment opportunities and a historic dependence on
commercial fishing. CFAB thinks those loans are very important for
the state to do, but which as a private lender, they wouldn't. It
would not be appropriate for them to attempt it. He said:
SB 168 holds substantial benefits for many resident
fishermen and will not result in denial of financing to
anyone. It does not affect those elements of the
Commercial Fishing Loan Act, which are directed toward a
resident who cannot qualify for conventional financing.
However, there is potential over time, for a significant
reduction in utilization of the Commercial Fishing
Revolving Loan Fund and for incremental transfers tot the
General Fund.
Finally, SB 168 removes direct and subsidized competition
by the state and promotes the services of a successfully
privatized institution.
MR. CRANE explained that CFAB was created in 1979 - 1980 when the
state put $32 million of state money at risk to create it. "That
money has since been returned to the state."
Over it's 21-year history, CFAB has made several hundreds of
millions of loans to residents. That's a pretty good return of the
state's investment. CFAB is a private institution, paying taxes;
they are totally self-sufficient. He found it hard to believe there
is any justification for the state to be continuing on a subsidized
basis to compete with CFAB in the same markets.
SENATOR LEMAN asked why there was the specific reference of
protection for CFAB instead of just saying "and whose applications
for identical financing has been declined by private lenders."
He asked if there are others in the business CFAB competes with and
they don't mind competing with, and if there was a particular
reason.
MR. CRANE replied that they asked for the bill and wanted to see
their name there. He added:
When I was first with CFAB, the Revolving Loan Fund
Statute provided almost exactly what they are saying,
that most loans could not be made unless the applicant
had been declined by two other institutions. At that
time, the Division of Investments and CFAB had a very
workable arrangement for exchanging applications to be
sure that when we did decline someone, they wanted us to
pass on his application to the Division. We could do
that. That was changed. I don't recall why, but if you
look on page 3, lines 1 - 3, which has to do with loans
for quota shares, when that part of the statute was
created, it said the Division could make loans for quota
shares to borrowers who, among other things, are not
eligible for financing from other recognized commercial
lending institutions. That's been in place for four or
five years.
Our perception, to the best of our knowledge, that's been
ignored by the Division of Investments, even though there
has been numerous discussions with them. As a matter of
fact, we were specifically told in writing that what we
do, we look at the applications and if it looks to us
like we wouldn't do it, we would go ahead and make the
loan. I'm offended by that. That's my answer to your
question. If it said other financial institutions, I
wouldn't have any problem with that. I would say this,
that CFAB is the only private institution that has the
statutory authority to take a lien on a limited entry
permit. For 80 percent or more of the applications, it
would be CFAB.
SENATOR LEMAN said he traditionally tried to defend competition.
"As long as we have it, I would just as soon enable it to take
place. I have no problem with sort of putting an extra hurdle on
the department, because I really don't think the state ought to be
competing in areas that are handled capably by those in private
industry. And this is an example…."
MR. CRANE commented that section 2 (page 4, line 12) caused some
confusion. He explained:
A year ago, when the legislature passed a tax loan bill
for the Revolving Commercial Fishing Loan Fund, the
decision was made in some Senate Committee in HB 238, to
limit the life of that tax loan program to two years and
rather than use what seems to be the more conventional
sunset language, there was enacted a delayed amendment.
Under that delayed amendment, which becomes effective
August 1, 2002, the tax program goes away. This section 2
refers to that delayed amendment. That delayed amendment
is reflected in section 3, Chapter 127 of the acts of
2000. All section 2 is doing, assuming this bill passes,
it says that when that delayed amendment comes back into
effect, it will have the new language included in SB 168
in that delayed amendment. I hope that's clear.
CHAIRMAN PHILLIPS asked if he supported it.
MR. CRANE said he does.
Number 800
MR. GREG WINEGAR, Director, Division of Investments, said his
agency administers the Commercial Fund that would be affected by
this bill. He said:
The Fund was created in 1972 and has been a major
financing mechanism for harvesters in the state since
that time. The purpose of the program is to create or
maintain our predominantly resident fishery. The fund is
totally self-sufficient; there has been no general fund
money going there since FY 1985. As of June 30, we have
made a total of $341 million dollars in loans to about
5,400 different borrowers. The majority of the loans we
make under this program are ones that typically would not
be made by the private sector. We've referred numerous
applicants to private sector lenders on a daily basis and
if the applicant is unable to get financing from the
private sector, then we consider them under this program.
One of the concerns we do have, which was mentioned by
Senator Leman, is that this program would completely
eliminate all of our applicants' private sector choices
other than just one lender, CFAB. As far as the number of
permit loans we're involved with, it's roughly 50 - 55
percent of the portfolio are permit related. The other
types of loans we do are loans for vessels, gear, quota
shares, and other fisheries related activity.
As far as other sections of the program are concerned,
there is some overlap with the private sector, especially
under section (a), which is primarily for limited entry
permits. By statute, CFAB and the state are the only two
lenders that can secure loans with the limited entry
permit.
Currently, applicants can choose which program they wish
to participate in. This legislation would require that
they all go through CFAB first. This concerns us for two
reasons. A substantial number of our section (a)
borrowers would not qualify for a CFAB loan and so the
extra time and effort necessary for them to obtain a loan
would increase substantially because of that. Also, the
overall strength of the fund would be affected, because
CFAB basically would pick and choose and take the
stronger loans. We currently use those loans to help
balance the portfolio which is mostly made up of loans
that wouldn't be made by the private sector.
We also have problems with the changes it makes to
section 10. This section allows existing loan fund
borrowers to lower their interest rates through an
internal refinancing program. We have a very streamlined
process for them to do this. If the interest rates go
down, our existing borrowers with a basic one-page
application can lower the rate. This bill would prevent
borrowers from taking advantage of the streamlined
program, because they would have to turn around and go
through an entirely new application process through CFAB.
The final concern we have is more technical in nature. It
relates to the word "identical" on page 1, line 12; page
3, line 2; and page 4, lines 1 and 8. The concern we have
here is that our interest rates in terms are set by
statute and regulation and they are not connected with
CFAB's rates and terms in any way. Because they aren't
related, it may be very difficult for our applicants to
meet the identical financing requirement. That concludes
my testimony, Mr. Chairman. We do oppose this bill. We
feel it will limit Alaskan harvesters' ability to use
this loan fund.
SENATOR DAVIS asked if he had any further problems in the section
if "identical" were deleted.
MR. WINEGAR replied that they have problems with the concept, but
also one of the concerns they have is with the term "identical",
because it may make it almost impossible for someone to qualify.
"We are concerned that limiting section (a) borrowers to only CFAB
as an alternative is not something we would support. We don't
believe that's in the best interests of our borrowers. We are also
concerned about the effect that would have on the loan fund. Those
stronger loans help balance the risk of the portfolio."
Number 400
CHAIRMAN PHILLIPS asked what other industry does the Department
make loans to that have private loans available.
MR. WINEGAR replied that they have a couple of small business
programs.
CHAIRMAN PHILLIPS said his point is that the Department is supposed
to promote commerce within the state and other than the fishing
industry, there's no other industries that have the private and
state sectors competing for a pool of potential borrowers.
MR. WINEGAR replied that to some extent that's true, but the
largest portion of their borrowers would not qualify for private
sector financing. He said they used to have a mining program.
CHAIRMAN PHILLIPS asked what his default rate was, the number of
loans taken, etc.
MR. WINEGAR replied:
As of March 31, we put out a statistics report. We had
1,801 accounts on the books that are owned by the Fund.
The total outstanding balance is $80,464,000; the average
loan amount was $44,700. The delinquency rate is based on
number of loans and is 18.3% and they have 2.9% loans in
default.
CHAIRMAN PHILLIPS asked him to define "default" and "delinquent."
MR. WINEGAR responded that "default" is in litigation. Delinquent
is 60 days or more past due.
CHAIRMAN PHILLIPS asked if 60 days is delinquent, how far do they
go before going to court.
MR. WINEGAR replied that it varies depending on the situation. "Our
philosophy is to work with borrowers as best we can. Foreclosure is
a real last resort for us."
CHAIRMAN PHILLIPS asked how much time the average default is.
MR. WINEGAR replied that they have a number of folks who are going
through an extension process and they show up as delinquent.
TAPE 01-18, SIDE A
MR. WINEGAR said he didn't have an average number of days before
they issue a final demand, but he would look into it.
CHAIRMAN PHILLIPS said he intended to move this bill next Tuesday
or Thursday and asked everyone to come forward with their comments
before then.
SENATOR LEMAN said he wanted to see an amendment drafted that would
incorporate "other financial institutions" for the committee to
look at.
CHAIRMAN PHILLIPS thanked the committee for its patience and
adjourned the meeting at 2:15 pm.
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