Legislature(1993 - 1994)
05/03/1993 02:50 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 252
An Act amending the Commercial Fishing Loan Act to
authorize refinancing of existing loans made under that
Act.
Co-chair Pearce directed that HB 252 be brought on for
discussion. REPRESENTATIVE MOSES again came before
committee. He explained that the proposed bill would
provide the Dept. of Commerce and Economic Development
authority to refinance existing commercial fishery loans.
Most of the 1,200 commercial fishermen with state loans are
paying 10.5% interest. Regulations provide for new, fixed
rate loans at 2% above prime. The current prime rate is 6%,
and new fishing loans are at 8%. There is, however, no
mechanism for refinancing existing loans to take advantage
of current low interest rates.
Over the past few years, commercial fishermen have faced low
prices and unpredictable fish returns. The Dept. of
Commerce and Economic Development approved loan extensions
for nearly half of the existing loans following the
disastrous 1991 salmon season. This year more than 3,000
fishermen are reportedly in arrears to the Internal Revenue
Services for back taxes. Allowing fishermen to refinance
existing loans and reduce monthly payments will provide
assistance. There is sufficient cash flow in the revolving
loan fund to accommodate the cost of refinancing.
JERRY McLUNE, United Fishermen of Alaska, came before
committee voicing support for the bill. He attested to the
benefits of refinancing an existing 10.5% loan at 8%, and
noted that in not allowing existing loan holders to do so,
the state is in effect financing competitors at a lower
rate.
As background information, Mr. McLune spoke to the success
of the loan program, advising that it has generated $40
million to the general fund. The requested relief is badly
needed during present difficult economic times in the
fishing industry.
Discussion followed between Mr. McLune and Co-chair Frank
regarding fixed and floating interest rates and the proposed
term of refinanced loans.
End, SFC-93, #73, Side 1
Begin, SFC-93, #73, Side 2
Mr. McLune attested to different terms for different loans:
permit loans, vessel loans, etc.
In response to additional questions from Co-chair Frank, Mr.
McLune voiced his understanding that in order to refinance,
the borrower would have to be current in his or her loan
payments.
KELLY SHARP, Loan Manager, Division of Investments, Dept. of
Commerce and Economic Development, came before committee.
In response to a question from Co-chair Frank regarding the
impact of the proposed bill upon the integrity of the
commercial fishing revolving loan fund, Mr. Sharp explained
that the impact would lower future interest revenues by an
estimated $1.6 million. The department anticipates that all
existing loan holders--approximately 1,250--would want to
take advantage of the interest break.
Co-chair Pearce pointed to the fiscal note from the Dept. of
Commerce and Economic Development and referenced the request
for four new positions (in addition to the existing four
loan officers). Mr. Sharp explained that the new positions
would be needed to keep the loan processing time at "about
the same level." A large influx of requests for refinancing
would slow the entire process. In extending refinancing,
the department must verify a number of qualifications such
as residency. Mr. Sharp noted that the House cut the
request in half to two positions for a cost of $85.0. Both
Senator Kelly and Co-chair Frank stressed need for
minimizing the amount of paper work associated with
refinancing. Senator Kelly cited the streamlined process
used by AHFC in refinancing existing loans.
Discussion followed between Co-chair Pearce and Mr. Sharp
regarding current operation of the loan program and payment
schedules. Mr. Sharp advised that most of the loans call
for an annual payment in either October or November, after
the fishing season.
Senator Sharp inquired regarding a refinancing charge to
cover the cost of the paper work. Mr. Sharp said that a
1/2% fee would be charged. It is expected to generate
$228.0. The average loan is approximately $52.0. Senator
Kelly asked if the refinancing fee could be deducted from
the differential between the old and new interest rate when
making the first refinanced payment rather than anted up
front. Senator Sharp noted that AHFC adds refinancing
charges to the principal of the loan and finances the
charges over the term of the loan. Both Co-chairs Pearce
and Frank as well as Senator Kelly voiced concern that the
department appears to be approaching refinancing with the
same detail as first time loans. They seriously questioned
need for requested staff.
DEAN PADDOCK, Bristol Bay Driftnetters Association, next
came before committee in support of the bill. He predicted
that the fishing industry will need whatever assistance it
can garner. Interest rates have dropped in all other
aspects of society, and fishermen should also enjoy that
benefit. He urged passage of the legislation.
Senator Kelly asked if the prime sponsor would object to
addition of the following language to the bill:
Refinancing loan origination charges of 1/2% are
to be collected when the first refinance payment
is due.
Representative Moses voiced no objection. He further
commented that he did not believe all current loan holders
would refinance due to an aversion to paper work. He
further noted that the program has lost customers to
commercial banks which have had lower interest rates for
some time.
Senator Kelly directed attention to page 3, line 6, of the
bill and MOVED to add the above-cited language. He then
voiced need for a letter of intent urging the department to
accomplish refinancing utilizing as little time and paper
work as possible. No objection to either the amendment or
letter of intent having been raised, the amendment was
ADOPTED. Senator Kelly advised that he would draft the
letter of intent.
Discussion followed regarding the fiscal note. Co-chair
Pearce reiterated that House Finance allowed two positions
for a cost of $85.0. She stressed that the positions are to
be temporary rather than permanent. Co-chair Frank MOVED
that the position count and funding be reduced to cover one
position. No objection having been raised, it was so
ordered.
Further discussion of fixed and floating interest rates
followed among members.
PAUL FUHS, Commissioner, Dept. of Commerce and Economic
Development, briefly came before committee. He attested to
difficult times within the salmon industry. For many
fishermen, refinancing will determine whether they survive
or do not make it. He stressed that the instant bill alone
will not cure existing problems and spoke to need for
legislation relating to the ASMI assessment as well. The
Commissioner said the state will lose 10 to 15% of the value
of its salmon industry this year. Unless Alaska is able to
break into the domestic market, no amount of loan
refinancing will save the industry.
Co-chair Pearce called for additional comments and/or
questions. None were forthcoming. She then queried members
concerning disposal of the bill. Senator Kelly MOVED that
SCSHB 252 (Finance) pass from committee with a Senate
Finance letter of intent and Senate Finance fiscal note. No
objection having been raised, SCSHB 252 (Finance) was
REPORTED OUT of committee with a Senate Finance letter of
intent and a $41.1 Senate Finance fiscal note for the Dept.
of Commerce and Economic Development. All members signed
the committee report with a "do pass" recommendation.
[This latter portion of the meeting was teleconferenced to
Seattle, Washington.]
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