MINUTES SENATE FINANCE COMMITTEE March 23, 1993 9:33 a.m. TAPES SFC-93, #42, Side 1 (000-end) SFC-93, #42, Side 2 (end-250) CALL TO ORDER Senator Steve Frank, Co-chair, convened the meeting at approximately 9:33 a.m. PRESENT In addition to Co-chairs Pearce and Frank, Senators Kelly, Kerttula, and Sharp were present. Senators Jacko and Rieger arrived while the meeting was in progress. ALSO ATTENDING: Willis Kirkpatrick, Director, Division of Banking, Securities and Corporations, Department of Commerce and Economic Development; Jeff Bush, Attorney at Law, on contract with the Department of Commerce and Economic Development; Art Peterson, Attorney at Law; Clark Gruening, Attorney at Law, Alaska Credit Union League; Mike Greany, Director, Jeff Hoover, Fiscal Analyst, Legislative Finance Division; and aides to committee members. SUMMARY INFORMATION SB 100 - An Act making supplemental and special appropriations for the expenses of state government; making, amending, and repealing capital and operating appropriations; and providing for an effective date. Scheduled but not heard. CSSB 154- An Act relating to the economic development grant (L&C) program; and providing for an effective date. Co-chair Pearce announced that a new zero fiscal note for the Dept. of Community & Economic Development had been received. CSSB 154(L&C) was REPORTED OUT of committee with a new zero fiscal note for the Dept. of Community & Economic Development, and a fiscal note for the Dept. of Administration in the amount of $67.7. All members signed "do pass." CSSB 112- An Act relating to the Uniform Commercial Code; (JUD) amending Alaska Rules of Civil Procedure 8 and 82, and Alaska Rule of Evidence 402; and providing for an effective date. Testimony was heard by Senator Kerttula and Art Peterson, Attorney at Law, in support of CSSB 112(JUD). Discussion was had regarding the unconscionable clause by Senator Rieger and Mr. Peterson. Senator Rieger MOVED an amendment and then WITHDREW it adding words to page 93, line 20. CSSB 112(JUD) was REPORTED OUT of committee with zero fiscal notes for the Dept. Commerce & Economic Development, the Dept. of Law, and the Dept. of Natural Resources. SB 149 - An Act revising the laws governing financial institutions and relating to trust companies, the Alaska Small Loans Act, and the Premium Financing Act; amending Alaska Rule of Criminal Procedure 17 and Alaska Rule of Civil Procedure 45(b); and providing for an effective date. Senator Kelly spoke in support of SB 149. Willis Kirkpatrick, Director, Division of Banking, Securities and Corporations, Department of Commerce and Economic Development; and Jeff Bush, Attorney at Law, on contract with the Department of Commerce and Economic Development; explained and spoke in support of SB 149. Discussion and questions followed between Senators Rieger, Frank, Pearce and Kerttula. Clark Gruening, Attorney at Law, Alaska Credit Union League, spoke in support of amendment 1 dated March 22, 1993. Senator Kelly MOVED for the adoption of amendment 1. It PASSED with unanimous consent. CSSB 149(FIN) as amended was REPORTED OUT of committee with a "do pass" and with a zero fiscal note for Dept. of Commerce & Economic Development. Co-chairs Frank and Pearce, Senators Jacko, Kelly, and Kerttula signed "do pass." Senators Rieger and Sharp signed "no recommendation." CS FOR SENATE BILL NO. 154(L&C): An Act relating to the economic development grant program; and providing for an effective date. CO-CHAIR DRUE PEARCE announced that CSSB 154(L&C) was before the committee with a new zero fiscal note from the Department of Commerce & Economic Development. She stated that the fiscal note for the Department of Administration in the amount of $67.7 would accompany the bill. SENATOR GEORGE JACKO MOVED that CSSB 154(L&C) pass from committee with accompanying fiscal notes. No objection having been raised, CSSB 154(L&C) was REPORTED OUT of committee with a new zero fiscal note for the Department of Commerce & Economic Development, and a fiscal note for the Department of Administration in the amount of $67.7. All members signed "do pass." CS FOR SENATE BILL NO. 112(JUD): An Act relating to the Uniform Commercial Code; amending Alaska Rules of Civil Procedure 8 and 82, and Alaska Rule of Evidence 402; and providing for an effective date. Co-chair Pearce announced that CSSB 112(JUD) was before the committee. SENATOR JAY KERTTULA, prime sponsor of SB 112, spoke in support of CSSB 112(JUD). He said that this legislation had been requested by the Supreme Court. He explained that it would bring the Uniform Commercial Code in Alaska up to date. He listed some of the changes contained in the bill. Co-chair Pearce asked Art Peterson, Attorney at Law, to give an overview of CSSB 112(JUD) and, by request of Senator Kelly, provide a brief explanation of the Uniform Commercial Code. ART PETERSON said he was appearing in his capacity as Uniform Law Commissioner for the state, and voiced his support of CSSB 112(JUD). He said the UCC was a compilation of all the commercial law in the country enacted by the states. It also serves as an international model. He said there have been some amendments to the articles in the last few decades. SENATOR STEVE RIEGER asked for an explanation of unconscionability on page 93. Mr. Peterson said that because of an existing law in Alaska, this section made it clear that the national version would be in effect, assuring predictability and less litigation. Discussion followed between Senator Rieger and Mr. Peterson regarding the determination of attorney's fees and unconscionability. In response to Senator Rieger, Mr. Peterson recommended that this section not be amended, but agreed to raise the question with the editorial board and develop an amendment for next year if appropriate. Senator Kerttula agreed that any change be proposed through the editorial board and incorporate it into a national amendment. Discussion followed between Senators Rieger and Frank regarding attorney's fees and how consistent those were across the nation. Mr. Peterson said that style changes were given a low priority but that the issue regarding attorney's fees was important. Mr. Peterson said that there was a great value to Alaska to have the uniformity of such laws, especially for Alaskans doing business outside of the state, or for individuals from other states doing business in Alaska. Senator Rieger MOVED for adoption of an amendment on page 93, line 20, after the word "known", to add the words "should have known." Mr. Peterson recommended that the amendment be withdrawn and the committee take Senator Kerttula's suggestion and contact Professor Miller, University of Oklahoma, Executive Director, The National Conference of Commissioners in Uniform State Laws, regarding this issue. Senator Rieger WITHDREW his amendment and asked Mr. Peterson to contact Prof. Miller for review of this issue by the editorial board. Senator Kerttula MOVED for passage of CSSB 112(JUD) from committee with individual recommendations. No objections being raised, it was REPORTED OUT of committee with a "do pass" and with zero fiscal notes for the Department Commerce & Economic Development, the Department of Law, and the Department of Natural Resources. Senators Kelly, Jacko and Kerttula signed "do pass." Senators Rieger, Sharp, and Co- chairs Pearce and Frank signed "no recommendation." SENATE BILL NO. 149: An Act revising the laws governing financial institutions and relating to trust companies, the Alaska Small Loans Act, and the Premium Financing Act; amending Alaska Rule of Criminal Procedure 17 and Alaska Rule of Civil Procedure 45(b); and providing for an effective date. Co-chair Pearce announced that SB 149 was before the committee. SENATOR TIM KELLY spoke in support of SB 149. He said that he knew of no opposition to the proposed legislation by the banking industry in Alaska. He stated that he would offer an amendment suggested by the Credit Union League. WILLIS KIRKPATRICK, Director, Division of Banking, Securities and Corporations, Department of Commerce and Economic Development, asked Jeff Bush, Attorney at Law, on contract with the Department of Commerce and Economic Development, to join him in testifying in support of SB 149. Senator Kelly stated that these new statutes apply only to the five state-chartered banks in Alaska, one section effects pawn shops, and a few provisions apply to state- chartered credit unions. It does not concern the national chartered banks. Mr. Kirkpatrick said that Key Bank, North Rim, Denali State Bank in Fairbanks, First Bank in Ketchikan, and Mt. McKinley Mutual in Fairbanks, are the five banks that apply. Mr. Kirkpatrick said that the marketplace changes and the advent of the banking problems of the mid-80's pointed out some incompatibilities and obsolete laws that are in Alaska's statutes created in the 1930s. The state of Oregon has recodified its laws at least twice since then, and its revised regulations were used as a model for this bill. He said this bill would correct the obsolescence in the marketplace and regulatory enforcement action, and allow banks to be more attune to the community needs of Alaska. End SFC-93 #42, Side 1 Begin SFC-93 #42, Side 2 Co-chair Pearce asked if Mr. Kirkpatrick had spoken to Mr. Walsh regarding future international insurance issues that were tied to the banking community, that SB 149 would coincide with international market opportunities as set forth by Mr. Walsh in a bill passed last session. Mr. Kirkpatrick answered that he had worked closely with Mr. Walsh through the staff of the Commissioner's office in the Department of Commerce & Economic Development. In answer to Senator Jacko, Mr. Kirkpatrick said that a state-chartered financial institution is one that applies to the state and agrees to conform to state laws through its corporation and licensing and to the laws of the state of Alaska. A charter through the federal government is also available through the Department of the Treasury. There are more state chartered banks than national chartered banks in Alaska, but more assets are held by national banks than by state banks. Discussion was had by Senator Sharp and Mr. Kirkpatrick regarding federal reserve requirements for banks and the banks need for liquidity. Mr. Kirkpatrick agreed that this bill would allow the state division of banking to make different liquidity rules than the national chartered bank, and give the state banks an advantage. JEFF BUSH, Attorney at Law, on contract with the Department of Commerce and Economic Development, said that the proposed regulations set a figure of 15 percent of total deposits as a required reserve. The current statute is 20 percent of demand deposits and 8 percent of timed savings deposits, which is no longer enforced. The current statute is no longer in force. Also, current regulations require vault cash for reserve and do not recognize current needs in the marketplace. The proposed regulation expands what can be used for calculating reserves to include liquid assets such as government bonds and deposits on deposit with federal reserve in other banks. He said that the proposed regulations will not negatively impact or increase reserve requirements for in state banks. In answer to Senator Kerttula's comments regarding real estate, Mr. Bush said that the proposed legislation would liberalize lending and remove specific statutory restrictions that exist on real estate lending and would allow bank management more freedom in the decision making process. In answer to Senator Rieger question about the reserve requirement for national chartered banks, Mr. Bush said the requirement was calculated based on a list of different types of deposits and those numbers would shift as a method to control the money supply. Mr. Kirkpatrick said at one time a bank did not have to be a member of the federal reserve, and now, whether you are a member or not, a bank is required to follow federal reserve requirements. Mr. Bush said that this bill is designed to be independent of the federal requirements, because the numbers change so rapidly. He explained that if requirements are inconsistent, the bank would have to meet both. For example, if the federal reserve requirement is higher than the state's, the bank would have to meet the higher federal requirement. In answer to Co-chair Pearce, Mr. Kirkpatrick answered that CSSB 149(FIN) would not change audit functions in any way. Co-chair Pearce voiced her frustrations in the 1980s when some banks closed, some merged, and some sold their real estate packages to institutions outside Alaska. In answer to Co-chair Pearce, Mr. Kirkpatrick said there was no provision in the bill that would provide for a local agent in case a real estate loan package was sold out of state. Mr. Bush explained that this was a consumer issue and addressing it in this bill would have been difficult. CO-CHAIR STEVE FRANK asked if HFC had a regulation that required an in-state service office. Mr. Kirkpatrick said that type of regulation had been considered but did not know if it was in effect. Senator Kerttula voiced his support for this type of legislation. Co-chair Pearce invited Clark Gruening, Attorney at Law, Alaska Credit Union League, to join the committee at the table and speak to the amendments regarding credit unions. CLARK GRUENING stated that the Credit Union League was an association of all eighteen credit unions in Alaska (sixteen federal and two state charters). The amendments would bring the state credit union act on par with the federal credit union act. Most are small technical changes but one significant change allows the board of directors of the state chartered credit unions to appoint a credit committee. In practice, the loan committee is already chosen by the board but the statutory requirements maintain another credit committee. He said there was no opposition to these amendments by the department or the credit unions. Mr. Kirkpatrick said he also supported the amendments. Senator Kelly MOVED for adoption of amendment 1. No objections being raised, amendment 1 was ADOPTED. Senator Kelly MOVED for passage of CSSB 149(FIN) as amended from committee with individual recommendations. No objections being raised, it was REPORTED OUT of committee with a "do pass" and with a zero fiscal note for the Department of Commerce & Economic Development. Co-chairs Frank and Pearce, Senators Jacko, Kerttula and Kelly signed "do pass." Senators Rieger and Sharp signed "no recommendation." ADJOURNMENT The meeting was adjourned at approximately 10:45 a.m.