04/02/2013 10:00 AM House FISHERIES

                HB 177-COMMERCIAL FISHING LOANS                                                                             
                                                                                                                                
10:03:28 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON announced  that the first order of  business would be                                                              
HOUSE BILL  NO. 177, "An Act  relating to interest rates  on loans                                                              
from  the   commercial  fishing   revolving  loan  fund   and  the                                                              
community quota entity  revolving loan fund; and  providing for an                                                              
effective date."                                                                                                                
                                                                                                                                
10:04:09 AM                                                                                                                   
                                                                                                                                
TIM  CLARK,  Staff,  Representative  Bryce  Edgmon,  Alaska  State                                                              
Legislature,  presented  HB  177,  paraphrasing  from  a  prepared                                                              
statement,   which   read   as   follows   [original   punctuation                                                              
provided]:                                                                                                                      
                                                                                                                                
     HB 177 restores  the division of Economic  Development's                                                                   
     ability  to  offer  incentivizing   interest  rates  for                                                                   
     important  loan programs within  the Commercial  Fishing                                                                   
     Loan Fund.                                                                                                                 
                                                                                                                                
     The  Department of  Commerce  proposed this  legislation                                                                   
     to  Representative  Edgmon   because  its  authority  to                                                                   
     offer  incentivizing loan  terms has  been so  important                                                                   
     to  its  mission  to  foster   economic  development  in                                                                   
     Alaska.                                                                                                                    
                                                                                                                                
     Since 1973,  the Commercial  Fishing Loan Fund  has been                                                                   
     a  cornerstone   in  the  state's  effort   to  increase                                                                   
     Alaskan ownership of Alaskan fisheries.                                                                                    
                                                                                                                                
     It  encourages  development  of  predominately  resident                                                                   
     fisheries  by  enabling  more Alaskan  fishers  to  make                                                                   
     substantial   investments    in   the   efficiency   and                                                                   
     profitability of their businesses.                                                                                         
                                                                                                                                
     Product Quality  Improvement and Engine  Fuel Efficiency                                                                   
     loans  are among  the most  effective  offerings in  the                                                                   
     loan fund  for boosting  the competitiveness of  Alaskan                                                                   
     fishing operations.                                                                                                        
                                                                                                                                
     Upgrading  vessels and gear  to enhance product  quality                                                                   
     can dramatically increase the value of one's catch.                                                                        
                                                                                                                                
     Repowering a  vessel with fuel efficient  propulsion and                                                                   
     generator   engines  can   save  a   business  tens   of                                                                   
     thousands of dollars each year.                                                                                            
                                                                                                                                
     HB 177  will once  again allow  the department to  offer                                                                   
     such loans  at two percent  below the prime  rate-with a                                                                   
     floor  of three  percent -  in order  to encourage  more                                                                   
     Alaskan fishers  to make substantial investments  in the                                                                   
     efficiency and profitability of their businesses.                                                                          
                                                                                                                                
     In doing  so, the department  will help to  increase the                                                                   
     vitality  of Alaskan  businesses and  strengthen one  of                                                                   
     the state's most important industries.                                                                                     
                                                                                                                                
10:06:34 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON asked whether the loan interest percentages relate                                                                 
to other loan options established under the Commercial Fishing                                                                  
Loan Fund.                                                                                                                      
                                                                                                                                
MR. CLARK said the three percent floor was set by the Division                                                                  
of Economic Development at a time of low market interest rates,                                                                 
to ensure a profitable and healthy revolving loan fund.                                                                         
                                                                                                                                
10:07:55 AM                                                                                                                   
                                                                                                                                
MR. CLARK presented the sectional analysis, paraphrasing from a                                                                 
prepared statement, which read [original punctuation provided]:                                                                 
                                                                                                                                
     Section   1  amends   AS  16.20.320(a)   to  allow   the                                                                   
     department  to make  loans from  the Commercial  Fishing                                                                   
     Revolving  Loan Fund  at  interest rates  not  exceeding                                                                   
     the prime rate  plus two percentage points  and also not                                                                   
     exceeding  10 ½ percent.  New language  in this  section                                                                   
     also stipulates  that the  department cannot make  loans                                                                   
     that bear interest at less than 3 percent.                                                                                 
                                                                                                                                
     Section  2 deletes  language from  AS 16.10.320(j)  that                                                                   
     pertains  to  the  revolving  status  of  the  Community                                                                   
     Quota Entity  Revolving Loan  Fund. This language  is no                                                                   
     longer  necessary  because   the  bill  introduces  more                                                                   
     complete  language addressing  the CQE Fund's  revolving                                                                   
     status in Section 6.                                                                                                       
                                                                                                                                
     Section  3 amends  AS  16.10.320(l)  to specify  certain                                                                   
     terms for  Community Quota  Entity program loans.  Loans                                                                   
     may  not bear  interest exceeding  the  prime rate  plus                                                                   
     two  percentage  points  and  also not  exceeding  10  ½                                                                   
     percent. Also,  this section  states that loans  may not                                                                   
     bear interest at  a rate that is less than  the costs of                                                                   
     funds  to the  state  or at  a rate  that  is less  than                                                                   
     three percent.                                                                                                             
                                                                                                                                
     Section   4  amends   AS  16.10.320(m)   to  make   this                                                                   
     subsection apply  only to AS 16.10.320(l),  which refers                                                                   
     to the Community  Quota Entity loan  program. Subsection                                                                   
     (m)  defines "cost  of  funds," which  plays  a part  in                                                                   
     loan terms in the CQE loan program.                                                                                        
                                                                                                                                
     Section 5  amends AS 16.10.320  to add a new  subsection                                                                   
     that  sets allowable  interest rates  for Section A  and                                                                   
     Section  B loans  for  Product Quality  Improvement  and                                                                   
     Engine Fuel  Efficiency. Interest rates for  these loans                                                                   
     cannot  exceed   the  prime  rate  minus   two  percent.                                                                   
     However, they  cannot be lower  than three percent.  Nor                                                                   
     can the rates exceed 10 ½ percent.                                                                                         
                                                                                                                                
     Section  6 adds a  new subsection  to AS 16.10.345  that                                                                   
     describes  what  the Community  Quota  Entity  Revolving                                                                   
     Loan  Fund consists  of and  also ensures  that it is  a                                                                   
     fully  revolving  fund.  In  particular,  this  language                                                                   
     establishes  that income  earned on  investments of  the                                                                   
     fund  roll  back into  the  fund  -  a feature  that  is                                                                   
     absent  in current  statute.  This section  also  allows                                                                   
     monies  in the  fund to  be used  for administering  the                                                                   
     CQE loan  program (in the  same way that CFRLF  earnings                                                                   
      can be used to pay for its programs' administrative                                                                       
     costs).                                                                                                                    
                                                                                                                                
     Section 7 gives the legislation an immediate effective                                                                     
     date.                                                                                                                      
                                                                                                                                
10:12:20 AM                                                                                                                   
                                                                                                                                
LORENE  PALMER,   Director,  Division  of   Economic  Development,                                                              
Department   of  Commerce,   Community   &  Economic   Development                                                              
(DCCED),  stated  official  support  for  HB 177  and  offered  to                                                              
respond to questions.                                                                                                           
                                                                                                                                
10:12:59 AM                                                                                                                   
                                                                                                                                
CHAIR  SEATON  asked  how  many  loan  applications  the  division                                                              
receives on an annual basis.                                                                                                    
                                                                                                                                
MS.  PALMER  directed  attention  to  the  committee  packet,  and                                                              
pointed  out  the   division  report,  which  indicate   the  fund                                                              
history, [titled  "Product Quality  Improvement Loans as  of March                                                              
6, 2013"].                                                                                                                      
                                                                                                                                
10:14:38 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE FEIGE asked about the loan default rate.                                                                         
                                                                                                                                
MS. PALMER  answered that  the overall default  rate is  about 1.4                                                              
percent; very low.                                                                                                              
                                                                                                                                
10:14:56 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  HERRON referred  to the committee  packet  and the                                                              
document titled  "Monies Transferred  From the  CFRLF to  Fund the                                                              
Alaska Department  of Fish  & Game  Operating Budget (ADF&G),"  to                                                              
ask what type of operations the $10 million has funded at ADF&G.                                                                
                                                                                                                                
CATHY  JEANS,  Division  Operations  Manager,  Financing  Section,                                                              
Division  of   Economic  Development,   Department  of   Commerce,                                                              
Community & Economic  Development (DCCED), offered  to provide the                                                              
information to the committee.                                                                                                   
                                                                                                                                
REPRESENTATIVE   FEIGE   referred   to   the   committee   handout                                                              
illustrating  the web  page and  suggested  that the  fund may  be                                                              
competing with the private lending sector.                                                                                      
                                                                                                                                
MS.  PALMER  said the  program  serves  a  high risk  market,  and                                                              
provides  loan accessibility  to  those who  might otherwise  have                                                              
difficulty obtaining commercial loans.                                                                                          
                                                                                                                                
10:18:38 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   FEIGE  noted  that   the  program   requirements,                                                              
depicted  on  the  web page  handout,  do  not  include  turn-down                                                              
information.                                                                                                                    
                                                                                                                                
MS. PALMER  explained that the web  site provides an  overview for                                                              
application eligibility,  but the actual loan process  requires an                                                              
in-depth disclosure.                                                                                                            
                                                                                                                                
CHAIR  SEATON  suggested  that   the  department  provide  further                                                              
details of the application process.                                                                                             
                                                                                                                                
REPRESENTATIVE  FEIGE asked  if there  is a  requirement that  the                                                              
applicant  have   been  turned   down  by  a  commercial   banking                                                              
establishment, in order to be eligible for a state loan.                                                                        
                                                                                                                                
10:19:45 AM                                                                                                                   
                                                                                                                                
JIM  ANDERSEN,  Lending  Collection  Manager,  Financing  Section,                                                              
Division  of   Economic  Development,   Department  of   Commerce,                                                              
Community &  Economic Development  (DCCED), said statute  requires                                                              
that  the  successful  applicant  will  have  been  denied  for  a                                                              
similar loan by a recognized lender.                                                                                            
                                                                                                                                
10:20:32 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON opened  public testimony, and seeing  none, announced                                                              
HB 177 would be held in committee for further consideration.