02/04/2014 10:00 AM House FISHERIES

                HB 177-COMMERCIAL FISHING LOANS                                                                             
                                                                                                                                
10:02:38 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."                                                                                                                
                                                                                                                                
CHAIR  SEATON   identified  the   adopted  working   document  as                                                               
committee  substitute  (CS)  for  HB  177,  labeled  Version  28-                                                               
LS0607\O, Bullard, 3/26/13.                                                                                                     
                                                                                                                                
10:03:56 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHNSON moved to adopt Amendment 1, labeled 28-                                                                  
LS0607\O.2, Bullard, 1/30/14, which read as follows:                                                                            
                                                                                                                                
     Page 1, line 13, through page 2, line 1:                                                                                   
                                                                                                                                
          Delete all material and insert:                                                                                       
                                                                                                                                
               "(B)  [AT A RATE] of more than 10 1/2                                                                            
     percent a year; [OR]                                                                                                       
                                                                                                                                
               (C)  that is less than the prime rate, as                                                                    
        defined in AS 44.88.599, minus three percentage                                                                     
     points; or                                                                                                             
                                                                                                                              
               (D)  [AT A RATE] that is less than three                                                                 
     percent a year [THE COST OF FUNDS TO THE STATE];"                                                                      
                                                                                                                                
                                                                                                                                
10:04:10 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE FEIGE objected for purposes of discussion.                                                                       
                                                                                                                                
10:04:15 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOHNSON  explained that the  amendment establishes                                                               
limits to the floor of the  loan program, and provide security to                                                               
the fund;  a policy procedure.   He  said that, with  adoption of                                                               
the amendment, he could support HB 177.                                                                                         
                                                                                                                                
REPRESENTATIVE  BRYCE EDGMON,  Alaska  State Legislature,  stated                                                               
support for the amendment, and said  it is a positive addition to                                                               
the bill.                                                                                                                       
                                                                                                                                
10:05:52 AM                                                                                                                   
                                                                                                                                
TIM  CLARK,  Staff,  Representative Bryce  Edgmon,  Alaska  State                                                               
Legislature,  explained  that Amendment  1  will  be inserted  in                                                               
Section 1  of the bill, and  he paraphrased the new  language for                                                               
the amended subsection (2), which read as follows:                                                                              
                                                                                                                                
     "(2) may not bear interest at a rate                                                                                       
          (A) exceeding the prime rate, as defined by AS                                                                        
     44.88.599, plus two percentage points;                                                                                     
          (B) [AT A RATE] of more than 10 ½ percent a year;                                                                     
     [or]                                                                                                                       
          (C) that is less than the prime rate, as defined                                                                      
     by AS 44.88.599, minus three percentage points; or                                                                         
          (D) [AT A RATE] that is less than three percent a                                                                     
     year [THE COST OF FUNDS TO THE STATE];                                                                                     
                                                                                                                                
MR. CLARK  stressed that under  the proposed CS, as  amended, for                                                               
any loan made  from the Commercial Fisheries  Revolving Loan Fund                                                               
(CFRLF), all of the above statements  must be true.  Further, the                                                               
subsection  now provides  a "floating"  ceiling  to the  interest                                                               
rate tied  to the prime  rate, and a  "fixed" ceiling of  ten and                                                               
one-half  percent, as  well as  a  "floating" floor  tied to  the                                                               
prime rate,  and a "fixed" floor  of three percent.   Without the                                                               
proposed  amendment, he  pointed out  that HB  177 would  allow a                                                               
loan to  be offered for  as much as  six percent below  the prime                                                               
rate.    Directing attention  to  the  committee handout,  titled                                                               
"Amendment  to  CSHB  177(FSH)",   page  3,  he  paraphrased  the                                                               
language, which read as follows [original punctuation provided]:                                                                
                                                                                                                                
     Without  the amendment,  if the  prime  rate were,  for                                                                    
     example, 8 percent,  it would be lawful to  make a loan                                                                    
     at an interest rate as little as three percent.                                                                            
                                                                                                                                
     In other  words, the loan  could be offered by  as much                                                                    
     as 6 percent  below prime, since the only  "floor" is a                                                                    
     minimum 3 percent a year.                                                                                                  
     With the amendment,  if the Prime Rate  were 8 percent,                                                                    
     it would only  be lawful to make a loan  at an interest                                                                    
     rate as low as 5 percent.                                                                                                  
                                                                                                                                
     In other words,  the loan could only be  offered for as                                                                    
     much as 3 percent below prime, as defined by (2)(C).                                                                       
                                                                                                                                
     Subsection (2):                                                                                                            
     "(2) may not bear interest at a rate                                                                                     
                                                                                                                                
     (A)  exceeding  the  prime  rate,   as  defined  by  AS                                                                    
     44.88.599, plus two percentage points;                                                                                     
                                                                                                                                
     (B) [AT A RATE] of more than 10 ½ percent a year; [or]                                                                     
                                                                                                                                
     (C) that is less than the  prime rate, as defined by AS                                                                    
     44.88.599, minus three percentage points; or                                                                               
                                                                                                                                
     (D) [AT A RATE] that is  less than three percent a year                                                                    
     [THE COST OF FUNDS TO THE STATE];                                                                                          
                                                                                                                                
                                                                                                                                
MR.  CLARK  finished  with  an   example  of  a  product  quality                                                               
improvement loan  offered at  two percent  below the  prime rate,                                                               
under HB  177, paraphrasing from  the committee handout,  page 4,                                                               
which read as follows [original punctuation provided]:                                                                          
                                                                                                                                
     If the Prime Rate were  at 8 percent, the interest rate                                                                    
     on the loan would be 6  percent a year, well within the                                                                    
     Subsection (2) parameters.                                                                                                 
                                                                                                                                
     Under Subsection (2), all these statements are true:                                                                       
                                                                                                                                
     (A) 6 percent  does not exceed the Prime  Rate plus two                                                                    
     percent.                                                                                                                   
                                                                                                                                
     (B) 6  percent a year is  not more than 10  ½ percent a                                                                    
     year.                                                                                                                      
                                                                                                                                
     (C) 6  percent a year is  not less than the  Prime Rate                                                                    
     minus 3 percent.                                                                                                           
                                                                                                                                
     (D)  6 percent  a year  is not  less than  3 percent  a                                                                    
     year.                                                                                                                      
                                                                                                                                
     However, if the Prime Rate  were at 3.25 percent, as it                                                                    
     is today, the  interest rate on the loan  would hit the                                                                    
     fixed 3 percent floor in (D),  and so the rate would be                                                                    
     3 percent.                                                                                                                 
                                                                                                                                
10:09:23 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE FEIGE removed his objection.  There being no                                                                     
further objection, Amendment 1 was adopted.                                                                                     
                                                                                                                                
10:09:47 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON closed public testimony on HB 177.                                                                                 
                                                                                                                                
10:11:09 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  OLSON recalled  that  the  original structure  of                                                               
Commercial  Fishing and  Agriculture Bank  (CFAB) was  to provide                                                               
loan  and  operational  funds  to vessel  owners  who  might  not                                                               
otherwise obtain standard market loans.                                                                                         
                                                                                                                                
LEA  KLINGERT,   President  and   CEO,  Commercial   Fishing  and                                                               
Agriculture Bank (CFAB), agreed.                                                                                                
                                                                                                                                
REPRESENTATIVE OLSON said  that his review of  the current vision                                                               
statement  appears  to  be different  than  what  was  originally                                                               
intended,  and  he  paraphrased the  statement,  which  reads  as                                                               
follows [original punctuation provided]:                                                                                        
                                                                                                                                
     To  be the  PREMIER LENDER  to the  commercial fishing,                                                                    
     agriculture,   timber,  tourism   and  resource   based                                                                    
     industries of Alaska.                                                                                                      
                                                                                                                                
     To  provide  prompt,  courteous service  and  financing                                                                    
     customized   to  meet   the  specific   needs  of   our                                                                    
     borrowers.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  OLSON  expressed   his  understanding  that  CFAB                                                               
served clients  who, due to  a lack  of or a  questionable credit                                                               
history, would not qualify for  a standard market loan.  Further,                                                               
he  stated his  belief that  CFAB did  not generally  serve as  a                                                               
primary underwriter.                                                                                                            
                                                                                                                                
MS. KLINGERT stated  her understanding that CFAB  was created due                                                               
to requests  from the fishing  and agriculture  industries, whose                                                               
needs  were not  being met  through  the commercial  banks.   She                                                               
said:                                                                                                                           
                                                                                                                                
     It is also  my understanding that we  were created with                                                                    
     the idea  that we  would replace  the state  program at                                                                    
     some time.   We were  never the lender of  last resort;                                                                    
     ... the division was supposed  to be the lender of last                                                                    
     resort.  The  way I've always looked at it  is that the                                                                    
     state department kind of gets  it in the crawling, CFAB                                                                    
     does  the  walking,  and then  you  hope  that  they're                                                                    
     running and they  go off to the  commercial, the larger                                                                    
     institutions, at that point.                                                                                               
                                                                                                                                
REPRESENTATIVE  OLSON emphasized  that to  be the  premier lender                                                               
would  place  CFAB  in direct  competition  with  private  sector                                                               
banking institutions.                                                                                                           
                                                                                                                                
MS.   KLINGERT  explained   that  CFAB   is  a   private  lending                                                               
institution and  does compete with  other entities but  loan size                                                               
is  a limiting  factor.    The agency  provides  a  service as  a                                                               
private, tax paying, agency.                                                                                                    
                                                                                                                                
REPRESENTATIVE OLSON stated support for the bill.                                                                               
                                                                                                                                
10:15:12 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  HERRON  moved to  report  CSHB  177, Version  28-                                                               
LS0607\O,  Bullard, 3/26/13,  as amended,  out of  committee with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
Without objection,  CSHB 177  (FSH) was  reported from  the House                                                               
Special Committee on Fisheries.