Legislature(2009 - 2010)BELTZ 105 (TSBldg)

03/18/2010 01:30 PM Senate LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SB 300 Out of Committee
Moved CSSB 292(L&C) Out of Committee
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                         March 18, 2010                                                                                         
                           2:19 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Joe Paskvan, Chair                                                                                                      
Senator Bettye Davis                                                                                                            
Senator Con Bunde                                                                                                               
MEMBERS ABSENT                                                                                                                
Senator Joe Thomas, Vice Chair                                                                                                  
Senator Kevin Meyer                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 300                                                                                                             
"An Act  relating to loan participations  and development finance                                                               
projects  of   the  Alaska  Industrial  Development   and  Export                                                               
Authority;  and  relating to  loans  from  the rural  development                                                               
initiative fund."                                                                                                               
     - MOVED SB 300 OUT OF COMMITTEE                                                                                            
SENATE BILL NO. 292                                                                                                             
"An   Act  relating   to  the   registration  and   operation  of                                                               
pawnbrokers  and  to  the exemption  for  pawnbrokers  under  the                                                               
Alaska Small Loans Act; and providing for an effective date."                                                                   
     - MOVED CSSB 292(L&C) OUT OF COMMITTEE                                                                                     
SENATE BILL NO. 304                                                                                                             
"An Act adopting the Alaska  Entity Transactions Act; relating to                                                               
changing   the   form   of  entities,   including   corporations,                                                               
partnerships, limited  liability companies, business  trusts, and                                                               
other  organizations; amending  Rule  79, Alaska  Rules of  Civil                                                               
Procedure, and  Rules 602(b)(2), 602(c), and  605.5, Alaska Rules                                                               
of Appellate Procedure; and providing for an effective date."                                                                   
     - HEARD AND HELD                                                                                                           
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 300                                                                                                                  
SHORT TITLE: AIDEA LOANS                                                                                                        
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
02/26/10       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/26/10       (S)       L&C, FIN                                                                                               
03/18/10       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
BILL: SB 292                                                                                                                  
SHORT TITLE: PAWNBROKERS                                                                                                        
SPONSOR(s): HUGGINS                                                                                                             
02/24/10       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/24/10       (S)       L&C, JUD                                                                                               
03/18/10       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
BILL: SB 304                                                                                                                  
SHORT TITLE: ENTITY TRANSACTIONS ACT                                                                                            
SPONSOR(s): LABOR & COMMERCE                                                                                                    
03/08/10       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/08/10       (S)       L&C, JUD                                                                                               
03/18/10       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
WITNESS REGISTER                                                                                                              
TED LEONARD, Executive Director                                                                                                 
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Department of Commerce, Community and Economic Development                                                                      
POSITION STATEMENT: Supported SB 300.                                                                                         
MARK DAVIS, Economic Development Officer                                                                                        
Alaska Industrial Development and Energy Authority (AIDEA)                                                                      
Department of Commerce, Community and Economic Development                                                                      
POSITION STATEMENT: Presented detailed explanation of SB 300.                                                                 
CATHY JEANS, Systems Branch Manager                                                                                             
Division of Investments                                                                                                         
Department of Commerce, Community and Economic Development                                                                      
POSITION STATEMENT: Supported SB 300.                                                                                         
JOSH TEMPLE                                                                                                                     
Staff to Senator Huggins                                                                                                        
Alaska State Legislature                                                                                                        
Juneau, AK                                                                                                                      
POSITION STATEMENT: Commented on SB 292 for the sponsor.                                                                      
NOEL LOWE                                                                                                                       
Alaska Fast Cash                                                                                                                
Wasilla, AK                                                                                                                     
POSITION STATEMENT: Supported SB 292.                                                                                         
JOHN MINNICK                                                                                                                    
A-1 Pawn Shop                                                                                                                   
Wasilla, AK                                                                                                                     
POSITION STATEMENT: Supported SB 292.                                                                                         
FERNANDO PENA, Director                                                                                                         
Government Affairs                                                                                                              
Cash America                                                                                                                    
POSITION STATEMENT: Supported SB 292.                                                                                         
ALEX VAUGHN                                                                                                                     
Cash America                                                                                                                    
POSITION STATEMENT: Supported SB 292.                                                                                         
MIKE GERAGHTY, Private Practice Attorney                                                                                        
Commissioner, Uniform Law Commission                                                                                            
State of Alaska                                                                                                                 
POSITION STATEMENT: Supported SB 292.                                                                                         
ACTION NARRATIVE                                                                                                              
2:19:37 PM                                                                                                                    
CHAIR JOE PASKVAN  called the Senate Labor  and Commerce Standing                                                             
Committee meeting  to order at 2:19  p.m. Present at the  call to                                                               
order were Senators Davis, Bunde, and Paskvan.                                                                                  
                       SB 300-AIDEA LOANS                                                                                   
2:21:03 PM                                                                                                                    
CHAIR PASKVAN announced SB 300 to be up for consideration.                                                                      
2:21:13 PM                                                                                                                    
TED  LEONARD, Executive  Director, Alaska  Industrial Development                                                               
and Export  Authority (AIDEA), Department of  Commerce, Community                                                               
and Economic Development  (DCCED), said they had  been working on                                                               
a  strategic plan  to improve  the Authority's  effectiveness and                                                               
this bill  takes the first steps  in allowing them better  use of                                                               
capital for businesses  and helps them better  invest in projects                                                               
as  they  move forward.  The  first  section modernizes  the  way                                                               
interest  rates  are  set  for loans  that  are  actually  funded                                                               
through their  own internal funds  - in essence,  pretending they                                                               
are going out  to market and asking  at what rate it  would buy a                                                               
bond  from them.  He  said for  a  period of  time  there was  no                                                               
municipal  bond  market  because of  the  financially  tumultuous                                                               
market,  so  their rates  went  up  to  9.5-10 percent  in  seven                                                               
He said  the second  part of  the bill  helps the  Authority help                                                               
businesses expand. This one is  an incentive rebate program which                                                               
allows the  agency certain loans  or investments into  areas that                                                               
are  economically  distressed or  for  businesses  that would  be                                                               
startups that would add true new  jobs to the economy to the tune                                                               
of 100 basis  points (1 percent) of  the loan for a  term of five                                                               
years.  This would  help give  businesses that  are investing  in                                                               
needs the state identifies a better cash flow for five years.                                                                   
2:24:44 PM                                                                                                                    
The third  section of the  bill is  to clarify whether  AIDEA can                                                               
invest  in a  project partially  rather  than having  to own  and                                                               
operate  the whole  project. This  is important  when looking  at                                                               
infrastructure  development in  the  future  that these  projects                                                               
could be  in the billions of  dollars, which would be  far beyond                                                               
AIDEA's  capacity  to  own,  and that  layering  of  funding  and                                                               
working with partners like a  Native corporation or an investment                                                               
bank would be the best way  to move forward. It would also spread                                                               
the risk to the private sector.                                                                                                 
2:25:55 PM                                                                                                                    
The fourth and  fifth sections deal with  their Rural Development                                                               
Initiative Fund (RDIF) and how to better promote it.                                                                            
SENATOR BUNDE asked  what impact 1 percent would  have on AIDEA's                                                               
bottom line.                                                                                                                    
MR.  LEONARD   replied  that  1  percent   shouldn't  affect  it.                                                               
Additionally,  they are  partitioning off  that risk  by allowing                                                               
only  5 percent  of  their  loan portfolio  to  be  used in  this                                                               
program. He added that for the  most part, AIDEA makes money when                                                               
it  is  loaning money  rather  than  investing its  own  internal                                                               
SENATOR BUNDE  said it would  be 1  percent less money  coming in                                                               
and he wondered what that impact would be.                                                                                      
MR. LEONARD  calculated that 5  percent of their  portfolio would                                                               
be about  $15-16 million and  100 basis  points of that  would be                                                               
about $150,000.                                                                                                                 
2:28:11 PM                                                                                                                    
MARK  DAVIS,  Economic  Development  Officer,  Alaska  Industrial                                                               
Development   and  Energy   Authority   (AIDEA),  Department   of                                                               
Commerce, Community  and Economic Development  (DCCED), explained                                                               
that the  first change in SB  300 is to AS  44.88.159(e) and that                                                               
is  about  how they  set  the  minimum  rate for  the  commercial                                                               
finance program,  known as the  loan participation  program. This                                                               
program  works by  having banks  bring clients  in to  AIDEA, and                                                               
AIDEA  participates with  the bank.  That provides  a filter  for                                                               
credit  evaluation and  underwriting.  It has  been a  successful                                                               
program   creating  4,720   jobs  since   2002  and   about  2900                                                               
construction jobs. The  portfolio stands at $376  million now and                                                               
they have $24 million pending  in applications. Unfortunately, he                                                               
said,  the  minimum  rate had  become  uncompetitive  over  time,                                                               
because by statute it is tied to  a bond rate. In fact, AIDEA has                                                               
not floated a bond since 1987 to raise money for this program.                                                                  
So he explained  that under current statute  they contact Goldman                                                               
Sacks  every month  and have  them calculate  what it  would cost                                                               
AIDEA  to float  a bond  to fund  the program  and that  sets the                                                               
rate.  In  2008 the  markets  collapsed  and the  municipal  bond                                                               
market is still collapsed. So,  in the mid-2009, AIDEA's rate was                                                               
calculated to be 9.64 percent at  a time when the commercial rate                                                               
for money was 5.48 percent. As  of the end of February their rate                                                               
was 1.33  percent over what it  would be if they  used the market                                                               
rate.  This  costs   companies  that  want  to   use  their  loan                                                               
participation program  - more than  an extra point for  really no                                                               
MR. DAVIS  said that AIDEA is  charged with making money,  but it                                                               
is actually charging a little  bit too much. The economic benefit                                                               
of  these large  construction  projects is  pretty obvious;  they                                                               
also provide long-term jobs.                                                                                                    
So, he said, instead of using  the bond market AIDEA is proposing                                                               
to  use the  nationally recognized  market index.  That does  two                                                               
things. First, it  ties their minimum rate to the  cost of money.                                                               
He  reminded them  that they  could have  a higher  rate for  the                                                               
purposes of  underwriting; they could also  calculate credit risk                                                               
into the  portfolio, which they do.  So, not every loan  gets the                                                               
minimum rate.  They might look at  the Federal Home Loan  Bank of                                                               
Seattle,  a  well  recognized rate  in  the  Northwest,  treasury                                                               
bills, the Federal Farm Credit  Banks Funding Corporation Funding                                                               
Index (the other major federal  index used in the United States),                                                               
or  Fannie  Mae.  If  they  use those,  it  would  also  be  more                                                               
transparent.  Right now  everyone  has to  wait  every month  for                                                               
Goldman Sacks  to recalculate. Tying  the rate to an  index would                                                               
help business  planning because a  customer or a bank  could just                                                               
look at an index and figure out what their rate would be.                                                                       
MR. DAVIS  said this  would protect their  dividend by  setting a                                                               
floor for the five-year rate of  return on the interest rates; so                                                               
it would actually protect the agency's economic performance.                                                                    
He said the  second change the creation of a  potential rebate on                                                               
that same loan  participation program that would be  no more than                                                               
1  percent  of  the  interest  rate charged  going  back  to  the                                                               
customer through the bank. They  would provide that rebate if the                                                               
project creates  jobs, furthers rural development  or meets other                                                               
economic  criteria, which  would be  set by  regulation. He  said                                                               
their proposals and regulations  would probably be development in                                                               
stressed   areas  following   the  Recovery   Zone  Act   federal                                                               
standards, for  startup companies, new technology  or alternative                                                               
energy. He  said protecting the  Authority is important,  so they                                                               
would  cap  it at  5  percent  of  the total  loan  participation                                                               
portfolio and the  rebate would be only for the  first five years                                                               
of the  loan. It is designed  to help a business  start up; after                                                               
that  they would  float  up to  the  full rate.    It's a  pretty                                                               
limited  rebate,  but   he  said  having  worked   as  a  private                                                               
transaction attorney  in the  state, he  found that  it's usually                                                               
the first five  years that are the tough ones  before things cash                                                               
flow efficiently.                                                                                                               
2:32:57 PM                                                                                                                    
MR. LEONARD emphasized  that this is a rebate,  so the businesses                                                               
in  this program  would have  to show  proof of  hiring those  50                                                               
people every year in order to get the rebate.                                                                                   
MR.  DAVIS said  he  found that  the United  State  has 44  other                                                               
entities similar to  AIDEA and several of them have  this kind of                                                               
program. They  also put reporting  requirements in place  for all                                                               
their  loan participations  through  regulation  asking how  many                                                               
construction jobs were  used with this loan program  and how many                                                               
permanent  jobs to  get  a  better feel  for  the  impact on  the                                                               
economy. The  rebate program would  work in conjunction  with the                                                               
strategic plan  to target the loan  participation program towards                                                               
economic development and job creation.                                                                                          
He said as  they face the recession, the two-fold  approach is to                                                               
preserve the  jobs you have  and to  find out legitimate  ways to                                                               
create new  jobs. Large term  retail and  commercial construction                                                               
can be  useful here and that  is what this program  is being used                                                               
MR. DAVIS said the final thing  would be to change the other side                                                               
of AIDEA  which is the  development finance program. That  is the                                                               
program in AIDEA that owns big  projects like the Red Dog Mine or                                                               
the   Skagway   Ore  Terminal.   Right   now   the  statute,   AS                                                               
44.88.080(5), is a  little unclear. It says they  can "acquire an                                                               
interest in a  project as necessary or  appropriate." However, he                                                               
said,  AS 44.88.010(a)  says  they  can incur  debt  "to own  and                                                               
operate  facilities"  and the  definition  of  facility under  AS                                                               
44.88.909 says a plant or facility.                                                                                             
Throughout  the years,  Mr. Davis  said, the  interchange between                                                               
those three statutes  has been interpreted that AIDEA  has to own                                                               
a discreet  portion of  a project. As  they approach  more modern                                                               
financing, it's  their view that AIDEA  should be able to  own an                                                               
indivisible interest  in a  project. That  would mean  they could                                                               
invest  20 percent  into  a project  like  hydro, renewable  wind                                                               
farms or  other projects that  meet their criteria.  For example,                                                               
they were  in negotiations  yesterday with  the US  Department of                                                               
Energy to  qualify under  Section 17.05  financing and  this bill                                                               
would  allow them  to have  more access  to federally  guaranteed                                                               
loans - another  benefit. It would also let  AIDEA have partners,                                                               
so someone else could  also look at the same project  - to do the                                                               
math  to  make sure  that  it  works.  A consortium  of  partners                                                               
usually  makes it  a  safer investment.  If  other people  aren't                                                               
interested,  you   have  to  ask   yourself  why  you   would  be                                                               
interested. He explained  that this would be a change,  but it is                                                               
already consistent  with the  statute that says  they can  own an                                                               
interest. It's more of a clarification.                                                                                         
2:36:18 PM                                                                                                                    
CHAIR PASKVAN  asked if he  believed these changes  would advance                                                               
the underlying purpose of AIDEA's initial authority.                                                                            
MR. DAVIS answered yes. The  statutes, with regard to the partial                                                               
interest, already says AIDEA can own  an interest in a project as                                                               
necessary,  but the  definition  of project  is inconsistent.  He                                                               
didn't think a definition should  override statutory purpose, but                                                               
that is kind of what had happened here.                                                                                         
As for the loan participation  program, when the Legislature used                                                               
the  bond rating  to  float bonds,  they  envisioned two  things:                                                               
first that they  would actually go the market to  raise money for                                                               
the loan  participation program,  which they  have not  done. And                                                               
secondly, the municipal  bond market for the last 30  years was a                                                               
fairly low rate, so  it made sense to tie it to  a low rate, but,                                                               
unfortunately  in our  country the  municipal bond  market is  no                                                               
longer  a  competitive   rate.  In  this  sense   they  are  just                                                               
modernizing  but with  the same  purpose. The  rebate program  is                                                               
consistent  with   the  goal  of  alleviating   unemployment  and                                                               
creating economic development, which is  in the preamble of their                                                               
CHAIR PASKVAN  asked if any  portion of the first  three sections                                                               
of  SB  300  materially  increases  the  risk  to  AIDEA's  funds                                                               
MR. DAVIS replied no; the rebate  program is limited to 5 percent                                                               
of their portfolio as a  firewall and it's at AIDEA's discretion.                                                               
And it only goes for 5 years  of a probably 25-year loan. This is                                                               
a useful tool  to get a project going -  to make something pencil                                                               
out when  otherwise it wouldn't pencil  out. There is no  risk to                                                               
changing  a rate;  having a  lower rate  that makes  sense allows                                                               
them  to do  more  business.  They are  not  forced  to use  that                                                               
MR. LEONARD added  that putting in the floor  for their five-year                                                               
annualized rate  of return sets  a clearer definition of  how low                                                               
their rates can go and protects their bottom line even more.                                                                    
2:39:20 PM                                                                                                                    
SENATOR BUNDE  asked if  their list  of organizations  they might                                                               
use to  establish a  minimum interest rate  is a  flexible group.                                                               
Would they require it to be changed from year to year?                                                                          
MR. DAVIS answered that the way  the bill reads they could set up                                                               
by regulation  and they would  look at each  rate and put  out in                                                               
regulation  their proposal.  They  would get  back comments  from                                                               
banks  and financial  institutions that  use it.  Right now  they                                                               
would probably want  to use the Federal Home Loan  Bank, which is                                                               
the bank that Alaska's banks want  to borrow from when they don't                                                               
want to go  to the Federal Reserve Board window.  So, it's a rate                                                               
that  they use  already  and it's  a rate  that  is favorable  to                                                               
borrowers but isn't so low they can't make money.                                                                               
2:40:27 PM                                                                                                                    
SENATOR BUNDE asked why they  removed the section that prohibited                                                               
someone  from receiving  an additional  loan  until the  original                                                               
loan had been repaid on page 3, line 25.                                                                                        
CHAIR PASKVAN  responded that Cathy  Jeans would answer  that and                                                               
they were just about at that point.                                                                                             
2:41:12 PM                                                                                                                    
MR.  LEONARD  remarked the  way  the  way the  Rural  Development                                                               
Initiative  Fund  (RDIF)  fund  works is  that  originally  AIDEA                                                               
funded that  fund and it  is run  by the Division  of Investments                                                               
and is in their financial statements.                                                                                           
2:41:33 PM                                                                                                                    
MR.  DAVIS  said it  evolved  into  a  revolving fund,  which  is                                                               
2:41:53 PM                                                                                                                    
CATHY  JEANS, Systems  Branch Manager,  Division of  Investments,                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
(DCCED),  said her  agency  administers a  number  of state  loan                                                               
programs  including the  Rural Development  Initiative Fund  that                                                               
would be  amended by sections 4  and 5. She explained  that their                                                               
RDIF program  was established in  2000 to provide loans  to small                                                               
businesses, creating jobs in rural  communities around the state.                                                               
It  is based  on a  similar program  that was  operated for  many                                                               
years  by  the  former  Department   of  Community  and  Regional                                                               
Affairs. She said  they administer the program for  AIDEA and the                                                               
portfolio  currently consists  of about  40 loans  totaling about                                                               
$4.1 million in  debt. The program is set up  as a revolving loan                                                               
fund which means all repayments  and earnings that come back into                                                               
the fund are  retained in it and all operating  expenses are paid                                                               
out of  it. They currently  have about $1.5 million  available to                                                               
She said  the changes proposed in  SB 300 come about  as a result                                                               
of input  from the  public as well  as internal  discussions that                                                               
focused on  improvements that could  be made to this  program. So                                                               
section 4 removes  the restriction that a borrower  can have only                                                               
one  loan at  a  time and  increases the  dollar  amount that  is                                                               
allowed under  the program from  $100,000 per person  to $150,000                                                               
and from $200,000 to $300,000 for  two or more persons. Section 5                                                               
allows  them to  reduce the  minimum  interest rate  that can  be                                                               
charged from 6 percent to 4  percent. They do support the changes                                                               
because they  believe these changes will  increase utilization of                                                               
the  program, thereby  increasing jobs  and economic  benefits to                                                               
rural communities.                                                                                                              
MS.  JEANS  said  they  submitted  a  zero  fiscal  note  because                                                               
overseeing the changes had no administrative cost.                                                                              
2:44:26 PM                                                                                                                    
SENATOR BUNDE asked  why allow people to have more  than one loan                                                               
after  what has  happened recently  with toxic  mortgages in  the                                                               
U.S. Maybe people "would get in over their head."                                                                               
MS. JEANS  replied back when  the program first started  in 2000,                                                               
people could  get a loan, but  maybe they paid if  off after five                                                               
or six years,  but they want to get another  one and couldn't. So                                                               
they thought  by removing the number  of loans one could  have at                                                               
one time and  increasing the dollar amount because  things cost a                                                               
lot more  these days would  give them more opportunity  to expand                                                               
and start up their business.                                                                                                    
SENATOR BUNDE asked  what their process is for  judging whether a                                                               
person could get more money.  The section clearly said they can't                                                               
have another loan until the first one was paid off.                                                                             
MS. JEANS answered they can get  do that now, but when they can't                                                               
get  another loan  if they  already  have one  under the  current                                                               
SENATOR BUNDE  said his concern  is that  if they already  have a                                                               
loan,  they  could start  pyramiding  and  get under  water  with                                                               
another loan.                                                                                                                   
MS. JEANS replied  that their agency would evaluate  the loss and                                                               
credit  risk again  if  the  borrower were  to  fill out  another                                                               
application.  They  would look  at  how  much capital  they  were                                                               
putting into the process and other types of financing records.                                                                  
2:47:18 PM                                                                                                                    
MR. LEONARD  added when this  provision was  originally discussed                                                               
with the  Division of Investments,  it was a challenge  to decide                                                               
if startup  businesses should they come  in when they start  or a                                                               
couple of  years down the  line. If they  had the first  loan for                                                               
$50,000, for  example, they would be  stuck for the five  years -                                                               
even  if they  were  being very  successful  and expanding,  they                                                               
couldn't  come back  to  this program.  So they  set  a limit  of                                                               
$150,000 for  the increase, but  if the business had  good credit                                                               
and was expanding,  the idea was to give them  the flexibility to                                                               
increase their investment and keep moving forward.                                                                              
2:48:50 PM                                                                                                                    
CHAIR  PASKVAN,  finding  no   further  comments,  closed  public                                                               
2:48:56 PM                                                                                                                    
SENATOR BUNDE  said he  wished they could  hear from  the banking                                                               
CHAIR PASKVAN noted letters of  support in their packets from Key                                                               
Bank,  Wells  Fargo,  First  National  Bank  Alaska,  Alaska  USA                                                               
Federal  Credit   Union,  Alaska  Bankers'   Association,  Alaska                                                               
Pacific Bank, Mt. McKinley Bank, and more.                                                                                      
SENATOR BUNDE said he liked to have those things on the record.                                                                 
SENATOR  DAVIS  moved  to  report  SB  300  from  committee  with                                                               
individual  recommendations and  attached  fiscal note(s).  There                                                               
were no objections and it was so ordered.                                                                                       
2:50:28 PM                                                                                                                    
CHAIR PASKVAN announced an at ease from 2:50 p.m. to 2:51 p.m.                                                                  
                       SB 292-PAWNBROKERS                                                                                   
2:51:57 PM                                                                                                                    
CHAIR PASKVAN called  the meeting back to order  and announced SB
292 to be up for consideration.                                                                                                 
SENATOR BUNDE moved to bring  CSSB 292(), 26-LS1487\S, before the                                                               
committee. There were no objections and it was so ordered.                                                                      
2:52:17 PM                                                                                                                    
JOSH TEMPLE,  Staff to Senator  Huggins, sponsor of SB  292, said                                                               
it  is an  act  relating  to the  registration  and operation  of                                                               
pawnbrokers, to  the exemption for  pawnbrokers under  the Alaska                                                               
Small  Loans  Act, and  to  the  exclusion of  pawnbrokers  under                                                               
certain definitions in the Uniform  Commercial Code and providing                                                               
for  an effective  date. He  explained that  currently in  Alaska                                                               
statute  only a  few paragraphs  deal with  pawnbrokers and  from                                                               
city to city  and borough to borough  pawnbroker regulation would                                                               
create  an   even  standard  across  Alaska.   It  would  protect                                                               
consumers and businesses in Alaska.                                                                                             
MR. TEMPLE said this effort started  four years ago and has had a                                                               
lot  of input.  It  basically codifies  what  good pawnshops  are                                                               
currently doing and good pawnshops support it.                                                                                  
He explained that basically pawnshops  loan people money on items                                                               
they bring  in for collateral.  When people get some  money, they                                                               
pay  off  their  loan  with  a  little  interest  and  get  their                                                               
collateral  item  back. That  licensing  would  now fall  to  the                                                               
Division  of  Community  and   Economic  Development.  This  bill                                                               
restricts who  pawnbrokers can work  with. They must be  18 years                                                               
or older, they  have to be sober  and have a valid  form of I.D.,                                                               
and they can't be pawning  stolen items. The pawnbroker must keep                                                               
a written  or electronic log  of these transactions for  a period                                                               
of  one year  and  they must  give  receipts, called  transaction                                                               
agreements, for their transactions.  SB 292 includes restrictions                                                               
on interest  and fees  and requires  pawnbrokers to  safely store                                                               
any  items  they use  as  collateral.  It offers  guidelines  for                                                               
people who come in  and aren't able to pay for  their item in the                                                               
appropriate amount of time including  a 30-day grace period. If a                                                               
service member  pawns an  item and gets  deployed, that  item and                                                               
any interest  in it  gets frozen  in the  pawnshop until  he gets                                                               
back  from  deployment   when  it  goes  back   to  the  original                                                               
MR. TEMPLE said  this bill limits employees that can  be hired in                                                               
a pawnshop. A person with a  felony or a misdemeanor dealing with                                                               
dishonesty can't  be hired. It  offers guidelines to  both police                                                               
and  to  the  property  owners  that find  their  property  in  a                                                               
pawnshop.  It   requires  pawnshops  to  give   weekly  inventory                                                               
reporting to local  law enforcement agencies. It  also allows for                                                               
the  department  to  discipline  pawnbrokers  who  end  up  going                                                               
against these regulations. He said  the thing to remember is that                                                               
good  pawn  shops  already  do  these  things.  This  bill  would                                                               
eliminate  a  lot of  confusion  and  offer protection  from  the                                                               
unethical  few  that  will  always   be  out  there  and  protect                                                               
consumers of those businesses in Alaska.                                                                                        
SENATOR  BUNDE asked  if records  have to  be kept  for one  year                                                               
after redemption or from the time something is pawned.                                                                          
MR. TEMPLE  answered that  the record has  to be  maintained well                                                               
for one year from the date it  was pawned in case the police need                                                               
to come back and check for stolen property.                                                                                     
SENATOR BUNDE  asked if there  was any discussion of  raising the                                                               
$500 maximum loan amount for articles that are worth more.                                                                      
MR.  TEMPLE answered  yes. Independent  pawn brokers  have agreed                                                               
that the best thing for them is  to keep it at $500, but they are                                                               
in discussion with the bigger pawn  brokers that might be able to                                                               
afford more.                                                                                                                    
SENATOR BUNDE  reflected that AIDEA  is increasing the  amount of                                                               
their loans  in the previous  bill because the world  has changed                                                               
and things cost  more. He encouraged the sponsor to  look at that                                                               
3:01:01 PM                                                                                                                    
NOEL  LOWE, Alaska  Fast Cash,  Wasilla, supported  SB 292.  They                                                               
also  supported raising  the  loan maximum  amount  from $500  to                                                               
JOHN MINNICK, A-1 Pawn Shop, Wasilla, supported SB 292.                                                                         
3:02:50 PM                                                                                                                    
FERNANDO  PENA,  Director,   Government  Affairs,  Cash  America,                                                               
supported  SB  292.  He  said  they  operate  five  pawnshops  in                                                               
Anchorage. He  reminded them that  this bill had  been introduced                                                               
in 2008  and the original  spirit and intent had  been preserved.                                                               
He said  that Alaska is the  only state in the  U.S. that doesn't                                                               
have comprehensive pawn  shop regulations. They are  trying to be                                                               
proactive  for both  consumers and  operators.  People will  know                                                               
what to expect.  This mirrors the best practices of  the Lower 48                                                               
states. It also provides for  due process for stolen property and                                                               
honors the military by not  having them lose their property while                                                               
they are deployed overseas.                                                                                                     
3:06:38 PM                                                                                                                    
ALEX VAUGHN,  Cash America,  supported SB 292  and said  he would                                                               
answer questions.                                                                                                               
3:07:35 PM                                                                                                                    
CHAIR PASKVAN closed public testimony.                                                                                          
SENATOR  BUNDE moved  to report  CSSB 292(L&C),  version S,  from                                                               
committee  with individual  recommendations  and attached  fiscal                                                               
note(s). There were no objections and it was so ordered.                                                                        
3:08:07 PM                                                                                                                    
CHAIR PASKVAN announced an at ease from 3:08 p.m. to 3:09 p.m.                                                                  
                 SB 304-ENTITY TRANSACTIONS ACT                                                                             
3:09:36 PM                                                                                                                    
CHAIR PASKVAN called  the meeting back to order at  3:09 p.m. and                                                               
announced SB 304  to be up for consideration. He  wanted to begin                                                               
the discussion  on what a  model entities transaction act  is and                                                               
what is intended.                                                                                                               
3:10:21 PM                                                                                                                    
MIKE GERAGHTY,  Private Practice Attorney,  said he is  a Uniform                                                               
Law Commissioner  for the  State of Alaska.  He said  the Uniform                                                               
Law Commission is a body that  was formed over 100 years ago with                                                               
the  general  goal   of  trying  to  develop   uniform  laws  for                                                               
consideration and enactment  by the various states. He  said as a                                                               
Republic of 50  states it is not difficult to  imagine the mayhem                                                               
that could  be wreaked if  businesses or individuals had  to cope                                                               
with erratically  different laws as  they cross state  lines. So,                                                               
the goal  of the  Commission has  been to  draft and  enact these                                                               
types  of laws  in particular  to enhance  commerce and  economic                                                               
development by making them more uniform.                                                                                        
In 1914,  the Uniform  Law Commission  first enacted  the Uniform                                                               
Partnership Act.  Today familiar  entities such  as partnerships,                                                               
limited  partnerships,  limited liability  partnerships,  limited                                                               
liability  companies and  corporations  form  the basic  entities                                                               
under American law  that provide the means  to aggregate capital,                                                               
limit  liability  where applicable  and  provide  a structure  to                                                               
organize and  govern an  enterprise whether it  be for  profit or                                                               
non profit.                                                                                                                     
Most of this work has been  done by the Uniform Law Commission in                                                               
collaboration  with   the  American  Bar  Association,   but  the                                                               
development  of  these  model  acts and  uniform  acts  has  made                                                               
American  law particularly  efficient  for entrepreneurs.  Anyone                                                               
who  establishes and  develops a  business has  choices available                                                               
for the  entity and they  can choose  the entity form  that would                                                               
best benefit their  business. As a business  grows, these options                                                               
also  allow  for  some  changes  in form  to  the  business.  For                                                               
example,  a  small enterprise  may  choose  to be  a  partnership                                                               
initially,  but  once   it  grows  it  has   the  opportunity  to                                                               
reorganize as  a corporation when  the business is big  enough to                                                               
warrant the advantages of the  corporate form. He emphasized that                                                               
this  is also  true  for non-profit  businesses.  Today, a  great                                                               
array of  these same  organizational forms can  be used  for non-                                                               
profit  businesses  such  as   limited  liability  companies  and                                                               
limited  partnerships.   Flexibility  in  development   of  these                                                               
business entities  along with  a well developed  body of  law has                                                               
really made America law the envy of the rest of the world.                                                                      
3:14:23 PM                                                                                                                    
MR. GERAGHTY said  the Model Entity Transactions Act  (META) is a                                                               
significant development in the growth  of these various entities.                                                               
Today changing  entity form has  no real  comprehensive statutory                                                               
framework whether it's for merger  of entities, conversion of one                                                               
entity  to  another,  exchange  of  interests,  or  changing  the                                                               
location of an entity (domestication).                                                                                          
Some of  the more recent  model acts like the  Model Corporations                                                               
Code  have provisions  dealing with  mergers of  corporations and                                                               
like   kind   entities   (partnerships  with   partnerships   and                                                               
corporations  with  corporations),  but  SB 304  allows  for  the                                                               
conversion  of one  entity to  another and  all in  one statutory                                                               
He explained  that the  problem with  conversions and  mergers is                                                               
that many times  it involves dissolving one  entity to accomplish                                                               
a  desired end.  Technically, one  would  have to  wind down  one                                                               
business   satisfying   creditors   and  interest   holders   and                                                               
potentially incurring adverse tax  consequences in the process of                                                               
forming a new  business. This is a burden when  the object is not                                                               
to dissolve  the business, but  to simply continue it  in another                                                               
form or  another location. "The  hazards of the process  are many                                                               
and they are costly."                                                                                                           
He  said a  statute that  allows  these events  to occur  without                                                               
dissolving at least one of  the entities involved would certainly                                                               
increase  efficiency and  lower costs  for entrepreneurs  and for                                                               
business in  general. A general  statute which is not  limited to                                                               
corporations or  partnerships is  highly desirable  to accomplish                                                               
this goal  and to allow  cross-entity transactions. That  is what                                                               
SB 304 is intended to accomplish and what it does accomplish.                                                                   
3:16:39 PM                                                                                                                    
MR.  GERAGHTY  explained that  SB  304  addresses four  types  of                                                               
transactions:  a merger  of  one entity  with  another entity,  a                                                               
conversion  which  is changing  one  entity  to another  type  of                                                               
entity  (for  example,  a  partnership   to  a  corporation),  an                                                               
interest exchange (where,  for example, all the  holders of units                                                               
in a limited  partnership exchange all the units  in that limited                                                               
partnership  for shares  in a  corporation), and  a domestication                                                               
(where for example,  a businessman owns a  business in California                                                               
and moves  with his family to  Alaska and he doesn't  want to end                                                               
his business  in California, but he  finds that it would  be more                                                               
advantageous to have it registered  as an Alaskan corporation, so                                                               
he wants to change the location).                                                                                               
He said  each one of these  transactions has to have  a plan that                                                               
is  approved  by  the  interest  holders  (shareholders  or  debt                                                               
holders, for instance). One of the  goals is to make sure that no                                                               
interest is  extinguished in the process  of any of these  SB 304                                                               
transactions. For instance, if a  partnership decides it's better                                                               
to  do  business as  a  corporation  and  were  to convert  to  a                                                               
corporation, this bill is very  careful to preserve that debt and                                                               
that  interest.  So  the  bill   cannot  be  used  to  circumvent                                                               
obligations or to evade them; the same is true for shareholders.                                                                
3:19:19 PM                                                                                                                    
The  bill doesn't  run afoul  of whatever  agreement partners  or                                                               
shareholders may  have. If  it requires two-thirds  of a  vote of                                                               
partners to affect  something, that is honored.  If the provision                                                               
is that all partners would have  to agree to the conversion, that                                                               
is what  is protected. It  protects the rights of  dissenters and                                                               
interest holders  so that  the cross  entity transactions  do not                                                               
prejudice or harm those legitimate interests.                                                                                   
3:20:22 PM                                                                                                                    
He summarized that  overall the purpose of the bill  is to set up                                                               
some procedures  that ends up  with an entity that  continues the                                                               
business  of  the  previous entities  that  it  succeeds  without                                                               
extinguishing obligations and  it does it in a  seamless and non-                                                               
disruptive transfer  and it  does it  without having  to dissolve                                                               
one of  the businesses  to accomplish  the conversion.  It's good                                                               
for business and non-profit ventures alike.                                                                                     
3:21:35 PM                                                                                                                    
MR. GERAGHTY said  these transactions involve a plan  that has to                                                               
be  approved   by  everyone  and   it  involves   filing  various                                                               
disclosures  with   the  Department  of  Commerce   and  Economic                                                               
Development.  Once  the  plan  is  approved there  has  to  be  a                                                               
permanent record for transparency.                                                                                              
In  closing,   he  said  three   issues  merit   the  committee's                                                               
consideration.  One is  that Alaska  has the  Uniform Partnership                                                               
Act, Limited Liability  Company Act, et cetera on  its books that                                                               
already  provide for  mergers and  such, but  only for  like-kind                                                               
transactions.  This addresses  those types  of transactions,  but                                                               
cross-entity transactions, as well. The  bill is complex and must                                                               
be  coordinated carefully  with existing  statutes so  that there                                                               
are no inconsistencies.                                                                                                         
3:24:08 PM                                                                                                                    
CHAIR PASKVAN thanked him for  getting this issue off and running                                                               
and finding no further business  to come before the committee, he                                                               
adjourned the meeting at 3:24 p.m.                                                                                              

Document Name Date/Time Subjects
SB 304 Back-Up.pdf SL&C 3/18/2010 1:30:00 PM
SB 304
SB 304 Bill.pdf SL&C 3/18/2010 1:30:00 PM
SB 304