HB 76-MARICULTURE REVOLVING LOAN FUND  11:34:06 AM CHAIR STUTES announced that the next order of business would be HOUSE BILL NO. 76, "An Act relating to the mariculture revolving loan fund and loans from the fund; and providing for an effective date." 11:34:37 AM REPRESENTATIVE FANSLER moved to adopt the proposed committee substitute (CS) for HB 76, Version 30-ls0343\T, Bullard, 3/14/17, as the working document. 11:34:51 AM CHAIR STUTES objected for discussion. 11:35:06 AM ELIZABETH BOLLING, Staff, Representative Dan Ortiz, Alaska State Legislature, said there are five changes proposed in Version T. Referring to the committee packet document labeled, "Explanation of Changes from HB0076 to HB0076 CS," she paraphrased the changes, which read as follows [original punctuation provided with slight modification]: Section 3  AS 16.10.900(d) divides the fund into two critical purposes, and ensures the revolving nature of one side does not depend or detract from the other over time. Section 4  AS 16.10.905 limits grants as one-time grants to non- profit organizations. Section 5  AS 16.10.905(b) caps the total amount available for grants at [$500,000]. Section 8  AS 16.10915(4) allows the department to secure loans by a first priority lien on collateral. Section 13  AS 16.10.920 will ensure individual farmers accrue interest. 11:36:27 AM CHAIR STUTES removed her objection. Without further objection, Version T was before the committee. 11:36:45 AM REPRESENTATIVE NEUMAN noted that the proposed change in Section 3, allows the entire fund balance to be available for loans versus a percentage of the balance. MS. BOLLING responded that the change adds a new subsection, (d), and said, "The fund was not previously split 60/40, this bill splits it 60/40." REPRESENTATIVE NEUMAN stated his understanding that the fund has been described as allowing 40 percent, of the $500,000 balance, to be loaned. 11:38:39 AM BRITTENY CIONI-HAYWOOD, Director, Division of Economic Development, Department of Commerce, Community & Economic Development (DCCED), explained that the fund, up to this point, has been fully available for use by individual mariculture farmers. The bill seeks to make 40 percent of the fund available for hatchery and salmon enhancement projects. The remaining 60 percent will remain available to individual farmers. REPRESENTATIVE NEUMAN referred to the previously adopted Version R, Section 10, and paraphrased the language, which read: (e) The total balances outstanding on loans made to borrowers under AS 16.10.910(a)(2) may not exceed 40 percent of the principal of the mariculture revolving loan fund. REPRESENTATIVE NEUMAN noted that in the previous bill hearing the loan totals and balances available were discussed. He said, "If I remember right, there was $5 million out, there was a loan out for $500,000, left $450; 60 percent of it would be $2 million available, [leaving] one half million dollars available." MS. CIONI-HAYWOOD offered that the percentage split in the previous version was for making loans to hatcheries; however, concerns were expressed and the percentages were changed to accommodate individual farmers. She clarified that the grants, "which is the 'up to $500,000' piece" will be coming out of the $400,000 and the remaining of the 40 percent can then be used for loans to hatcheries. The remaining 60 percent is then set aside for use by individual farmers. REPRESENTATIVE NEUMAN asked whether loan defaults would affect the fund. MS. CIONI-HAYWOOD answered that a small amount is held in a foreclosure reserve, currently $50,000. As additional loans are made, she said the amount could be increased appropriately. However, 60 percent of the fund would remain available for loans. REPRESENTATIVE NEUMAN questioned whether there is a standard practice to loan out the entire corpus of the revolving fund. MS. CIONI-HAYWOOD said that such a situation has not been encountered, in her experience. 11:43:00 AM REPRESENTATIVE FANSLER referred to Version D, Sec. 7, pages 3, line 31, continuing to page 4, lines 1 and 2, which read: (e) The total of balances outstanding on loans made to borrowers under AS 16.10.910(a)(2) may not exceed 40 percent of the principal of the mariculture revolving loan fund. REPRESENTATIVE FANSLER asked whether this subparagraph can be tracked in Version T. MS. CIONI-HAYWOOD said that as the loan fund is currently only available to mariculture farmers, the bill seeks to support hatcheries, as well. The language of the 40/60 split has vacillated between bill versions. However, Version T stipulates that 60 percent of the fund will be available to farmers, and 40 percent to hatcheries. REPRESENTATIVE FANSLER suggested the loan figures might be better established in "bright line" numbers versus a percentage split, and asked if there is a prevailing reason for the approach being proposed. MS. BOLLING responded that legal consultation suggested it would be more reliable, and offer protection to individual farmers, to "simply split the fund, in time, from one date." She said that's what is proposed in the CS. 11:46:36 AM REPRESENTATIVE EASTMAN asked what is the longest deferral time allowed prior to repayment beginning. MS. CIONI-HAYWOOD answered that individual farmers are currently allowed a six year deferment, which remains the same in the proposed CS. 11:47:20 AM REPRESENTATIVE CHENAULT pointed out that loan recipients are intended to be Alaskans. He asked whether all of the fishermen that receive a loan from the program will be required to be Alaskan [residents]. MS. CIONI-HAYWOOD answered yes. 11:48:02 AM REPRESENTATIVE NEUMAN asked the director to clarify her statement. He said, "I believe I heard you say that it's not standard procedure to take 100 percent of these revolving loans and have them available for loans." MS. CIONI-HAYWOOD explained that the fiduciary duty of the division is to maintain the revolving fund; however, if the entire available amount were loaned, the fund would be shut down until payments were received for recapitalization and provide a loanable cash balance. REPRESENTATIVE NEUMAN expressed concern for the fund becoming bankrupt. He asked, "Standard policy for revolving loans; is it standard policy to take 100 percent of the amount of the loan and allow that all out for the other revolving loans that the state handles." 11:50:18 AM REPRESENTATIVE DAN ORTIZ, Alaska State Legislature, offered that the intent of the bill is to jump-start a mariculture resource that is projected to evolve into a $1 billion industry. REPRESENTATIVE NEUMAN asked if 100 percent of the corpus of the fund could be loaned out. MS. CIONI-HAYWOOD restated how the corpus could be loaned against. The committee took an at-ease from 11:53 a.m. to 11:54 a.m. 11:54:26 AM REPRESENTATIVE EASTMAN referred to Version T, page 5, lines 26- 28, and read: The department may defer principal of and interest on a loan made under AS 16.10.910(a)(2) for a period of up to 11 years after the loan is made. REPRESENTATIVE EASTMAN noted that the addition of this proposed language will allow non-payment of a loan for 11 years. MS. CIONI-HAYWOOD replied that the hatcheries are extended this deferral period; however, the farmers are not. 11:55:19 AM REPRESENTATIVE NEUMAN stated his understanding that the loan fund has $5 million available and hatcheries are allowed to borrow up to $1 million. MS. CIONI-HAYWOOD affirmed the member's understanding. REPRESENTATIVE NEUMAN asked how many applicants might be anticipated. REPRESENTATIVE ORTIZ said the industry is in the fledgling state, making it difficult to determine how many applicants will come forward should the bill become law. He offered that, from anecdotal conversations, two groups are currently in a position to make application. REPRESENTATIVE NEUMAN expressed concern for the ability of the fund to be maintained if 60 percent is on loan. 11:57:52 AM REPRESENTATIVE EASTMAN referred to Version T, page 4, lines 12- 13, and paraphrased the language, which reads: (B) $1,000,000 a year for an applicant under AS 16.10.910(a)(2); REPRESENTATIVE EASTMAN asked for an explanation of the significance regarding the $1 million per year stipulation. MS. CIONI-HAYWOOD said the "per year" language was brought forward from the previous bill version, and offered to provide further information on the significance. 11:59:22 AM REPRESENTATIVE NEUMAN stated concern for the number of loans that could be made available, and asked what the long-range plan is for continuing the funding corpus. REPRESENTATIVE ORTIZ replied that the intent is to optimize an underutilized, available fund, and jumpstart the budding mariculture industry. He expressed appreciation for the member's concerns regarding the solvency of the fund; however, it has an excellent record of good, solid management practices, and has grown over the years. The concerns are unmerited when considering this solidly managed fund, he opined. REPRESENTATIVE NEUMAN maintained his concern regarding solvency, stating, "I've seen a lot of these revolving loan funds fail because ... they've been overextended." REPRESENTATIVE ORTIZ responded, "Not in this department you haven't." REPRESENTATIVE NEUMAN referred to Version T, page 3, lines 8-10, which read: (9) make one-time grants for organizational and planning purposes to nonprofit organizations eligible for loans under AS 16.10.190(a)(2) in amounts not exceeding $100,000. REPRESENTATIVE NEUMAN noted that the authority falls under the purview of the DEC commissioner, and asked what the purpose and parameters are for approving this type of loan. MS. CIONI-HAYWOOD explained that the language reflects similar allowances, similar to what reside in the fisheries enhancement revolving loan fund, where grants were extended to regional hatcheries for planning purposes. 12:04:03 PM REPRESENTATIVE EASTMAN stated his understanding that the term grant signifies money that will not be paid back and asked how grants might impact the 60-40 percentage split. MS. CIONI-HAYWOOD responded that the grant amount was capped at $250,000 and is a draw from the 40 percent hatchery share. 12:04:55 PM REPRESENTATIVE FANSLER commented that, should the fund become overextended, the legislature could choose to appropriate additional funding, if mariculture proves to be successful. MS. CIONI-HAYWOOD agreed, and said the fisheries enhancement, revolving loan fund, was capitalized on numerous occasions. 12:05:38 PM REPRESENTATIVE NEUMAN said he had further questions for the director, and sought permission to proceed. CHAIR STUTES approved the member's request, based on the questions being "new." 12:06:34 PM REPRESENTATIVE NEUMAN inquired about the balance of the fisheries enhancement revolving loan fund, noting that funds with grant authority generally have a larger corpus. MS. CIONI-HAYWOOD responded that the fisheries enhancement revolving fund has about $100 million, as a balance. REPRESENTATIVE NEUMAN said that is a substantial amount compared to the $5 million proposed for the mariculture revolving loan fund balance. 12:08:19 PM REPRESENTATIVE EASTMAN commented that using a general fund appropriation to address a shortfall in the fund balance could present a budgetary problem. 12:08:45 PM REPRESENTATIVE FANSLER moved to report the proposed CS for HB 76, Version 30-LS0343\T, Bullard, 3/14/17, from committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE EASTMAN objected. 12:10:05 PM A roll call vote was taken. Representatives Fansler, Neuman, Kreiss-Tomkins, Tarr, and Stutes voted in favor of the motion to move HB 76 from committee. Representatives Eastman and Chenault voted against it. Therefore, CSHB 76(FSH) was reported out of the House Special Committee on Fisheries by a vote of 5-2.