SB 68-COMMERCIAL FISHING & AGRICULTURE BANK  CHAIR EGAN announced SB 68 to be up for consideration. 2:13:16 PM SENATOR COGHILL, sponsor of SB 68, said his history with the Commercial Fishing and Agriculture Bank (CFAB) goes back a few years in that he has been impressed by the record they have of a private industry approach on a statutorily driven problem. The problem has been how to take care of some of the agriculture issues and how to do some capitalization for the fishing industry. Only a couple of places in Alaska can lend based on a fishing permit and one of them is this bank. The other is the Division of Investments, a state run organization. He prefers the private model, which has done well. He said CFAB is a creature of statutes put together and funded by the legislature with the idea of increasing loan capacity and encouraging fishing and agriculture in Alaska. This bank is co- op style and has paid the state back its original funding. This bill now seeks to expand CFAB's authority by giving them the freedom to work as a prudent investor and lender. 2:17:26 PM JOSH BANKS, intern for Senator Coghill, presented a sectional analysis of SB 68 as follows: Section 1: removes the requirement that one member of the CFAB board of directors be a resident farmer. This does not restrict the governor from appointing a farmer for one of the positions or a farmer from seeking an appointment on the board. Section 2: subsection 4 amends the powers of the bank in two ways. It removes the dollar limitations for loans being used for tourism in the state. This will allow CFAB to stay competitive with other lending organizations. In addition to this, subsections 8, 15, and 16 will allow CFAB to give loans to those that do not meet the resident or resident ownership requirements providing that their operating facility is located in the state of Alaska and that a majority of the interest of that organization is owned by United States residents. Subsections 10, 12 and 13 are also amended to expand the current powers of CFAB to include the provisions provided in subsections 15 and 16. Section 3: adds an audit by the DCCED to be an exception to the records confidentiality provisions in the CFAB statutes. Section 4: amends records confidentiality in that it will allow the bank to release a list of candidates running for director to the voting members of the bank. Section 5: allows an examination of CFAB to be conducted by the DCCED. This revision is to increase the credibility of CFAB. This examination was originally put in the statutes, but has recently been removed due to the misconception that the state pays the full fees for the examination. Initially the state does pay the fees, but CFAB reimburses the state for them. Section 6: repeals two parts of Alaska statute. The first part repeals the definition of "resident farmer" because a resident farmer is not required on the board. Second, since CFAB is a fully private lending organization, the prohibition of its having a lobbyist is repealed. Section 7: limits the DCCED from conducting an examination within the first year after the effective date. Section 8: provides an immediate effective date. SENATOR COGHILL added that in order for the bank examination provisions to properly take effect he wanted the rest of the law to go into effect first and not force a bank examination right away, but rather have it fall into the established cycle. SENATOR DAVIS asked if the language would allow that to happen. SENATOR COGHILL said language asks to have it take effect after one year, so a bank could go through an examination cycle which would give them a chance to do an annual report. SENATOR DAVIS asked if it reverts back to the original language. SENATOR COGHILL responded if the effective date is immediately, then within one year the bank examination could happen. That would allow one year's lapse so it would fall into a cycle. 2:24:58 PM LEA KINGERT, President and CEO, Alaska Commercial Fishing and Agriculture Bank (CFAB), said this bill does many things with CFAB. The first item is the statutory requirement for a farmer's seat, but currently there are only two people who would be eligible to fill that seat. It's not that they don't want to do agriculture loans, but they haven't been approached to grant many of them. The agriculture industry has other options for getting loans that they prefer to use. Second, she said SB 68 also provides for a periodic examination of CFAB by the state's bank examiners with the resulting report being provided to the legislative auditor. Ms. Klingert explained that from 1989-2003 CFAB used to do audits, but in 2003 for reasons she doesn't really understand the administration persuaded the legislature to eliminate the requirement. But this kind of independent and professional examination greatly enhances CFAB's credibility with its lender and affects the borrowing terms offered by that lender, which in turn affects what they can offer to their membership. Other potential benefits to CFAB include a reliable means of monitoring and evaluating the quality and effectiveness of their lending practices. Even though management and staff take pride in their professional competence they welcome the opportunity to have a qualified second set of eyes evaluating the overall results of their judgments. Experience has taught them that distance and impartiality bolstered by insight into other financial institutions' practices and experience can provide valuable guidance. MS. KLINGERT said that SB 68 also seeks to remove the dollar limitations that were placed on loans for tourism and other resource-based activities when CFAB acquired the authority to make such loans in 2000. CFAB has not made a great deal of tourism and other resource-based loans, but they remain convinced that even the existing modest level of diversification has added to CFAB's overall effectiveness, to its creditworthiness and to the ability to serve its basic markets. She said that CFAB doesn't currently have any pending applications that exceed the current limits, but they are aware of a few past potential opportunities that were not encouraged because of these limitations. They simply believe that inflationary effects over time and the tendency toward mergers, acquisitions and consolidations among subject operators will sooner or later cause the existing limitation to become problematic. MS. KLINGERT said SB 68 also seeks to permit CFAB to make the same kind of loans for non-resident owners if the operation has a bricks and mortar presence in Alaska. CFAB already has authority to make such loans to a seafood processor, a timber processor, an agricultural processor or a harvester. Their reasoning is the realization that even though a lodge in Western Alaska, for example, may be owned by an outside corporation it is an enhancement to the local economy and will provide some level of opportunities to Alaskan employees, suppliers, and ancillary operations. It is another element of potential diversification that will strengthen CFAB's overall effectiveness. 2:30:52 PM CHAIR EGAN thanked her for her testimony and finding no questions, said he would bring SB 68 back before the committee at the next meeting. 2:31:42 PM