HB 121-LOAN FUNDS:CHARTERS/MARICULTURE/MICROLOAN  5:35:25 PM CHAIR THOMPSON announced that the next order of business would be HOUSE BILL NO. 121, "An Act establishing the commercial charter fisheries revolving loan fund, the mariculture revolving loan fund, and the Alaska microloan revolving loan fund and relating to those funds and loans from those funds; and providing for an effective date." 5:35:46 PM CURTIS THAYER, Deputy Commissioner, Department of Commerce, Community and Economic Development (DCCED), paraphrased from a prepared statement, which read as follows [original punctuation provided]: The Department of commerce, Community and Economic Development (DCCED) is on a mission to foster a business climate in this state that is conducive to job creation and economic growth. We have been actively and introspectively engaged in examining how we operate, in an effort to be more responsive to the needs of the business community and deliver services that are relevant and useful to the private sector. Recent realignment of resources and services within the department has bolstered the state's economic development toolbox and is helping us aggressively reassert the state's role in creating a business- friendly environment in Alaska. We have spent a lot of time listening to the private sector. The governor's recently formed Economic Advisory Council, comprised of industry leaders from around the state, has been instrumental in helping this administration plot a productive course to economic development. Additionally, we solicited input from NGOs and trade associations, regional development organizations (ARDORs), CDQs, ANSCA corporations and legislators. A commonly heard theme has been to increase financing options for small businesses. Access to critically needed capital can be the difference between simply getting by and thriving. House Bill 121 is a step in the right direction. The proposed legislation would create a suite of three new revolving loan funds: to incentivize development of the shellfish mariculture industry; to assist Alaska charter operators in acquiring halibut permits to transition to the new regulatory and management regime instituted by NOAA; and to seed microenterprise development across the state. The Commercial Fisheries Revolving Loan Fund would: provide access to capital for Alaskan-owned charters; repatriate permits to Alaska; increase economic benefits to Alaska from this sector from recirculation of earnings. The Mariculture Revolving Loan Fund would: provide a spark to the growing industry with great year-round potential for coastal Alaska communities and entrepreneurs. (Currently, there are 67 permitted farms in the state, but only 25 producing farms - 10 in Southeast, 15 in Southcentral.) The Microloan Revolving Loan Fund would: Help small businesses grow by providing loans for start-up costs, working capital, inventory expansion, or a variety of other commercial purposes; -Alaska one of few remaining states without a microloan program, -Proven track record in other states and through SBA. These programs would complement two existing small business loan programs administered by DED - the Small Business Economic Development Revolving Loan Fund and the Rural Development Initiative Fund, both of which are geared toward long-term financing. Small businesses are the No. 1 creator of private-sector jobs. So this legislation, which will help us in our efforts to spur sustainable economic growth in Alaska, will be good for our economy and for Alaska families. 5:39:02 PM MR. THAYER pointed out that the microloan bill passed the house in 2010, but failed to win approval in the waning hours of the senate. 5:39:41 PM WANETTA AYERS, Manager, Office of Economic Development, Department of Commerce, Community & Economic Development (DCCED), said that the role of economic development is to address the underserved sectors of the state, where local banking facilities may not exist, as well as support high risk professions, such as commercial fishing. The loan funds in this bill are geared towards these types of opportunities. The capitalization levels, loan limits, repayment terms, interest rates, and special features of the various funds, were developed in consultation with stakeholders including nongovernmental organizations (NGOs), government agencies, and the private sector. She explained that HB 121 proposes a suite of three loan funds for commercial charter fisheries, mariculture development, and microloans. The loan commonalities include: set up as revolving loans; earnings, loan repayments, and fees to be retained by the fund for future loans; and operating expenses are also to be paid from earnings of the fund. 5:42:44 PM MS. AYERS explained that each fund has key functions, and described the current situation faced by the halibut charter industry; paraphrasing from a prepared statement, which read [original punctuation provided]: Effective February 1, 2011, all vessel operators in Areas 2C and 3A with charter anglers onboard catching and retaining Pacific halibut must have an original, valid Charter Halibut Permit (CHP). Based on log books NOAA estimates 532 Eligible Permitees; some 800 applications were received. Permit prices are still being established in the marketplace. Current asking prices range from $40,000 to over $100,000 depending on the number of fishermen the permit allows. Commercial Charter Fisheries Revolving Loan Fund [will]: -Provide access to capital for Alaskanowned Charters -Repatriate permits to Alaska -Increase economic benefits from this sector By offering a loan program to Alaska residents, business owners will have greater access to capital when purchasing permits over nonresidents. This in turn should allow Alaska business owners to repatriate more permits than otherwise using traditional financing. Additionally, with Alaska's yearround residents owning permits, Alaska's economy will realize more of the benefits associated with the sport/charter industry. Resident's contribution to the local economy will be greater than nonresident permit holders as they circulate funds in the economy year round. Loan Fund Features: Capitalization $5 million Loan Limit $100 thousand Term 15 years Interest may not exceed prime + 2 Floor/Ceiling 3-10.5 percent 5:44:36 PM MS. AYERS said the mariculture revolving loan fund will serve 67 permitted farms, and 25 producing farms, that are governed by a number of agencies including: ADF&G Commercial Fisheries Division/Mariculture Program; Department of Natural Resources (DNR) Aquatic Farm Lease Program; Department of Environmental Conservation (DEC) Food Safety and Sanitation Program/Shellfish Section; and the Alaska Coastal Management Program. The 2009 performance report, from the existing mariculture activity, indicates a value of approximately $473,000. 5:45:46 PM MS. AYERS pointed out that the bill contains an industry specific training requirement. Training resources that have been funded in recent years include: Alaska Sea Grant/Marine Advisory program - mariculture research education and extension and the NOAA mariculture initiative; collaborative research; Alaska Shellfish Growers Association - grant to write best management practices for the industry. 5:46:20 PM MS. AYERS reviewed the suggested mariculture loan fund features, which are: Capitalization $3 million Loan Limit $100 thousand Term 20 years Interest may not exceed prime + 1 Floor/Ceiling 5-9 percent Delayed repayment and accrual MS. AYERS explained that the delayed repayment and accrual feature is unique to the program to allow for the six year product growing time. 5:47:20 PM MS. AYERS proceeded to describe the microloan revolving loan fund, stating that the 2010 bill, HB 412, passed the house unanimously; however, it failed to pass the senate. Many states offer microloans as a means to seed new businesses, and she stressed the important to have this available in Alaska. The suggested loan features are: Capitalization $3.5 million Loan Limit $35/$70 thousand Term 6 years Interest prime + 1 Floor/Ceiling 6-8 percent 5:49:23 PM REPRESENTATIVE AUSTERMAN directed attention to the bill page 3, [line 13], noting that it states funds may be used to purchase a charter halibut fishing vessel. MS. AYERS said yes, that would be an eligible use of the funds. REPRESENTATIVE AUSTERMAN expressed disagreement for this aspect of the bill, stating that it should support existing halibut charter operations, not assist someone to purchase a boat and begin a halibut fishing venture. Moving to page 6, line 16, he read "have experience or training in the mariculture industry," and suggested the language include a definition of experience/training; it is a vague statement. MS. AYERS said that the requirement for training was specifically requested by existing operators in the industry, who are willing to provide training and mentorship to entrants; it is not meant to be an onerous requirement. She indicated that the regulation process might provide further details 5:53:45 PM REPRESENTATIVE AUSTERMAN referred to page 9, line 26, to state that a definition for "reasonable amount" would be helpful. MS. AYERS suggested that specifics would be set forth in regulation rather than statute. 5:55:41 PM REPRESENTATIVE HERRON paraphrased questions that will be provided to the sponsor for written comment, which read [original punctuation provided]: Does the production from aquatic shellfish farms contribute to common property fishery harvests? There has been controversy relative to Geoduck farms, having been a "grab of the resource" in some locations. Are there similar concerns with other mariculture activities such as mussel and oyster farming? Salmon farms have been opposed in this state due to the conflicts that they potentially pose to wild stocks and the direct competition they represent for existing historical fisheries. Along the same lines, have we been able to demonstrate that the expansion of shellfish farms does not present similar risks such as potentially lending to the spread of disease among existing wild stocks? 5:56:52 PM REPRESENTATIVE JOHNSON directed attention to page 7, line 17, and read: The department may not require the repayment of principal on a loan made under AS 16.10.910 for the initial period of the loan. REPRESENTATIVE JOHNSON asked, "Does this mean they don't have to pay anything, or any interest, for six years." MS. AYERS answered yes; the intent is to allow the mariculture producer to have three to six years to produce a revenue stream. 5:58:13 PM CHAIR THOMPSON turned to bill page 7, line 1, and asked for clarification of having a loan amount specified per year, versus the other loans that specify a total loan limit. MS. AYERS said that it is a feature of the mariculture loan to allow a yearly amount of not more than $100,000 to be borrowed. 5:59:12 PM REPRESENTATIVE MILLER inquired how the mariculture revolving loan program would have funds replenished, given the fact that the initial borrowers would not be making payments for six years; how will the fund be recapitalized during the interim. MS. AYERS confirmed that the fund may become fully subscribed and until repayment occurs, no more loans would be available. REPRESENTATIVE MILLER turned to page 9, line 3, and read, "make loans to eligible applicants under AS 44.33.950-44.33.990 to be used for working capital, equipment, construction, or other commercial purposes by a business located in the state," and asked whether this applies to any commercial business in the state. MS. AYERS responded yes. REPRESENTATIVE MILLER asked, "Is that what is intended." MS. AYERS answered yes. REPRESENTATIVE MILLER inquired how defaulted loans would be handled. MS. AYERS indicated that seizure of property and resale is handled through the financing office; measures are in place for inevitabilities of this kind. 6:03:26 PM CHAIR THOMPSON opened public testimony 6:03:45 PM RUSSELL DICK, President and CEO, Haa Aani, LLC, Sealaska Corporation, stated support for HB 121, and applauded the efforts for removing the barriers of entrepreneurs to attain affordable capital. Communities are being targeted for mariculture development and this type of support is essential, he stressed, and said that apprentice oyster farmers will also benefit. Pioneering new industry is always a challenge and gaining experience and training is important, and requires an innovative approach, he said. 6:08:18 PM RODGER PAINTER, President, Alaska Shellfish Growers Association, said that the terms of the loans are very important, as it requires a minimum of three years to generate income from a new mariculture farm; up to eight years for certain species. Annual expenses will need to be met, in the interim years, which can range from $125,000 to $150,000. Many costs accrue annually, including the purchase of seed, state fees, and labor. He observed that the mariculture loan program is based on the successful private salmon hatchery non-profit model. The mariculture industry may not match the economic gains of the salmon hatcheries; however, he reported, Canada has seen industry growth with the private farms that have received government support. He stated his belief that the economic demographics, particularly in the southeast region of Alaska, require the stimulus that will be encouraged by passage of HB 121. Regarding the industry training that the bill requires, he said that the association is in favor of the stipulation, and is working with the UA to provide the appropriate course work. Shellfish farms do not contribute to the common property resources with the exception of geoducks; a minimal amount of spawn may tend to drift. In response to a committee question, he said that the existing farms started up through a state loan guarantee program. The newest farms are a result of Sealaska's efforts to promote mariculture, and grants from the United States Department of Agriculture. 6:19:12 PM RICHARD YAMADA, Vice President, Alaska Charter Association, stated support for HB 121, saying that it will allow current charter captains to stay in business or to purchase permits and maintain operation. He predicted that, in the long term, it will allow new entrance into the halibut charter industry. The halibut industry has been an economic resource for many communities, and increases access for the public to fishing resources. He suggested a change to the name of the loan fund, removing the word "commercial" and inserting "sport". REPRESENTATIVE AUSTERMAN asked whether the term "commercial sport charter" would be applicable. MR. YAMADA said the term "sport" defines the business more accurately than "commercial." REPRESENTATIVE AUSTERMAN inquired whether a sport charter operator is not technically considered a commercial business. MR. YAMADA responded, according to the business license, yes. 6:23:23 PM REPRESENTATIVE AUSTERMAN referred to the loan eligibility allowances, and asked if the loan program would not be primarily for operators to purchase a permit, versus as boat. MR. YAMADA stated his belief that the cost for entering the industry may be prohibitive considering the requirement for an expensive permit, along with the purchase of a boat. CHAIR THOMPSON announced that the bill would be held over.