Legislature(2011 - 2012)HOUSE FINANCE 519
03/20/2012 09:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB261 | |
| HB196 | |
| HB9 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 196 | TELECONFERENCED | |
| + | HB 261 | TELECONFERENCED | |
| += | HB 9 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 261
"An Act relating to loans for the purchase of
commercial fishing entry permits; and providing for an
effective date."
9:21:04 AM
Co-Chair Thomas MOVED to ADOPT proposed committee
substitute for HB 261, Work Draft 27-LS0968\B, (Bullard,
3/19/12) as a working document.
Co-Chair Stoltze OBJECTED for purpose of discussion.
JOE MICHEL, STAFF, CO-CHAIR STOLTZE, reported the changes
to the work draft. He noted that three sections (Section 1,
Section 4, and Section 5, Paragraph B), were removed from
the previous version [CSHB 261(FSH)], of the legislation
and nothing was added. The omitted sections removed the
provision that reduced the interest on the loan two percent
below the prime rate to avoid competition with commercial
banks and maintain the focus of the bill. The primary
purpose remained increasing the loan limit. The sponsor
concurred with the changes.
Co-Chair Stoltze WITHDREW the objection. HB 261, Work Draft
27-LS0968\B (Bullard, 3/19/12) was adopted as a working
document.
9:25:45 AM
Representative Edgmon explained that HB 261 dealt with the
Commercial Fishing Revolving Loan Fund Act. The program was
implemented in the 1980's and was designed to assist
commercial fishers. Over the years, the legislature enacted
modifications to the program. The statute contained six
sections and HB 261 pertained to Section B, of the act.
Section B increased the loan limit from $100,000 to
$200,000. The provision allowed economically disadvantaged
fishermen to purchase limited entry permits that were
rising in value. He expounded that the original bill
attempted to do more. The earlier version offered the loan
at two percent below the prime rate, which was currently
5.25 percent. After discussions with the Department of
Commerce, Community and Economic Development (DCCED),
Division of Economic Development, it was decided that
interest rates were likely to rise in the future. The
interest rate provision was considered too "ambitious." The
bill was scaled back to contain only one provision; raising
the loan limit. He outlined the eligibility requirements. A
commercial fisher must be turned down by conventional
lending institutions or CFAB (Commercial Fisheries and
Agriculture Bank), proven economically disadvantaged, and
participated in commercial fishing for two years.
Co-Chair Stoltze wondered how CFAB was performing. He
repeatedly heard of fishers and farmers being turned down
by CFAB for loans. Representative Edgmon answered that he
was uncertain.
Representative Edgmon voiced that the projected demand for
the loan program was relatively modest; 25 to 50 loans. He
expected that the applicants would be younger fishers
without other means to purchase a limited entry permit. The
opportunity for young fishers to obtain a permit provided
multiple benefits. The economic multiplier effect for the
small coastal communities where many of the young fishers
resided was potent.
Co-Chair Stoltze remarked that his district contained a
number of commercial fishers.
Representative Edgmon spoke to the new zero fiscal note by
DCCED. He pointed to an error in the narrative on the
second page. The second sentence referenced the interest
reduction provision that was not included in the work
draft.
9:34:05 AM
Representative Guttenberg questioned whether raising the
loan limit for young people new to a fishery was burdening
them with excessive debt. Representative Edgmon replied
that entering the fishing business was more expensive than
ever. Limited entry permits and associated fishing costs
had skyrocketed. The higher loan availability afforded the
opportunity for new young fishers to make a living.
Representative Wilson asked how many loans ended in
default. Representative Edgmon answered that historically
the default rate was very low. The loan portfolio performed
"admirably." The principle in the loan fund was
approximately $80 million. The program actually returned
funds to the Department of Fish and Game (DFG).
Co-Chair Stoltze asked whether the loan program was a true
revolving fund. Representative Edgmon responded that the
program was a true revolving fund.
Representative Costello asked what the costs of permits
were over the time period of the loan program.
Representative Edgmon elaborated that permit prices varied
widely over time. Speaking exclusively of salmon permits,
prices correlated to the ex-vessel price of salmon. He
related that in Bristol Bay in the early 2000's the price
of limited entry permits plummeted to $18,000 when salmon
prices tumbled. Bristol Bay gillnet permits were now worth
$150,000. Permit prices raise and lower dramatically.
Representative Costello asked what the average age of a
commercial fisher in Alaska was. Representative Edgmon
relayed that the age of the average limited entry permit
holder was creeping upwards. The average was 50 years of
age.
9:39:51 AM
Representative Gara asked whether a residency requirement
applied to loan applicants. Representative Edgmon replied
that the applicant must clearly establish residency for a
period of two years preceding the date of the application
and participated in commercial fishing for two of the last
five years.
Representative Gara asked if a lower interest rate could be
offered to young applicants that would not cost the state
to lose money. Representative Edgmon explained that the
current statute authorized an interest rate of two points
above prime. There was another provision in statute that
allowed a one percent deduction if the loan payments were
paid on time for the first year.
Co-Chair Stoltze added that the loan was a securitized loan
and not a signature loan.
Representative Neuman asked if different interest rates
were specified in statute. Representative Edgmon responded
that the loan rate was specifically tied to the prime rate.
Representative Neuman asked whether a board had any
authority to determine the interest rate in the revolving
loan fund or if the rate was set statutorily.
Representative Edgmon restated that the intent of the
original bill was to allow the division to deduct 2 percent
off of the prime interest rate, which was removed in the
current version. The rules were defined in statute and set
at two percent above prime.
Representative Neuman inquired if different loan rates
applied for different fisheries under the program.
Representative Edgmon exemplified the passage of HB 20 two
years ago. The legislation authorized energy efficiency
loans to commercial fishers at 2 percent below the prime
interest rate for energy efficient engines, generator sets,
etc.
9:45:39 AM
WANETTA AYERS, DIVISION DIRECTOR, DIVISION OF ECONOMIC
DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, indicated that different interest rates for
different purposes existed in statute for the Commercial
Fishing Revolving Loan Fund. The senior loan committee
within the division cannot consider different interest
rates other than the interest rates outlined in statute.
Representative Neuman believed that a board was better
suited to set the most applicable interest rate that
reflected the current conditions of the fishery.
Co-Chair Stoltze asked if the loans could be refinanced.
Ms. Ayers replied that the interest was fixed for the term
of the loan. A re-financing option was available.
Co-Chair Thomas referenced the student loan forgiveness
program. He wondered why one profession was chosen over
another for state loan forgiveness, especially since the
commercial fishing fleet was "graying." He asked why
$200,000 was chosen as the loan limit when some permits
cost $400,000. Representative Edgmon felt that the number
addressed the majority of salmon fisheries permit costs in
the state. The amount was set to accommodate the most
number of fishers.
Co-Chair Stoltze reiterated that the loan limit was
doubling from $100,000 to $200,000.
9:49:25 AM
BRUCE TWOMLEY, CHAIRMEN, COMMERCIAL FISHERMAN LIMITED ENTRY
COMMISSION, addressed Representative Guttenberg's concern
that the increased loan limit might burden new young
fishers with too much debt. He explained that the
commission monitored the price of permits from 1980 through
2011. The price of permits reflected the amount that
fishers were willing to invest in the fishery and their
expected returns. He felt that the best measure was the
individual fishermen's willingness to put their own money
at risk based on expectations. He reported that Bristol Bay
was the largest salmon fishery. Out of the 32 years that
the commission tracked permit prices, the average and
median price for a Bristol Bay gillnet permit was $100,000
for 16 years. Currently, the price exceeded $100,000. He
felt that the $200,000 loan limit was a good estimate. The
loan program provided rural fisher's access to credit that
otherwise was unobtainable. He was pleased that the
legislation was introduced to increase the loan limit for
Section B loans since the price of Bristol Bay permits
exceeded the limit. He believed that the legislation was a
"concrete response" to facilitating the entry of young
Alaskans into commercial fishing that was addressed in HCR
18 (Commercial Fisheries Programs.)
Co-Chair Stoltze questioned what happened when a limited
entry permit dropped in value and the borrower defaulted.
Mr. Twomley responded that the loan program had a
"tremendous" success rate. In case of a foreclosure the
division was required to sell the permit. Procedural
protections existed for the fishermen under statute. Very
few loans went into foreclosure. The program was very
successful.
Co-Chair Stoltze questioned whether the fisher had enhanced
protection under statute than other debtors had. Mr.
Twomley stated that was correct.
Co-Chair Thomas recalled bidding online for a repossessed
Bristol Bay gillnet permit that was foreclosed on.
Vice-chair Fairclough referred to a letter of opposition
from CFAB dated January 25, 2012 (copy on file). She asked
whether CFAB was still in opposition or if its concerns
were addressed. Representative Edgmon replied that the
letter addressed an earlier version of the bill opposing
the interest rate reduction. He had not heard from CFAB
regarding the new version.
9:56:22 AM
Representative Gara related that when the state granted a
limited entry license the recipient was able to sell it
when they stopped fishing. He felt that created an unfair
opportunity to make money on a public resource. He asked
whether the state changed the rules. Mr. Twomley responded
that free transferability still existed. He felt that the
transferability was useful to help Alaskans get limited
entry permits. If the limited entry permits were reissued
to the state the process would be accessible outside of the
state. Transferability gave Alaskans a fair chance. Over
the years transfers to Alaskan residents grew over non-
Alaskans.
Representative Gara inquired how the current system keeps
more permits in Alaskan communities. Mr. Twomley replied
that transferability created the opportunity for Alaskan
ownership. The provisions in Article 8 of the Alaska
Constitution prohibited the state from directing the
distribution of permits. He explained that transferability
"created the opportunity" to direct permits to Alaskan
communities. He highlighted that the Bristol Bay Economic
Development Corporation operated a regional permit
brokerage and loan guarantee program. The loan guarantee
program influenced where the permits went.
Co-Chair Stoltze spoke to the constitutional aspect. The
Constitution contained non-exclusive rights to fisheries.
A constitutional amendment adopted in 1972 allowed
exclusive rights for conservation and economic distress. He
thought that although not a mandate, the constitutional
amendment allowed amending the limited entry permit statute
to include exclusive fishery rights. He asked for
clarification. Mr. Twomley reported that when the state
tried to direct benefits the efforts were always reversed
in the Alaska Supreme Court under the equal protection
clause. He exemplified reversals of rural preference for
subsistence in times of scarcity or local hire provisions.
He concluded that it was highly unlikely that the state
Supreme Court would concur with a program that granted
resource entitlements to particular communities or
individuals.
Co-Chair Stoltze countered that the exclusive rights
amendment was not a constitutional right but an allowance
within the statutory framework. He interpreted the
constitutional amendment as, allowing for a deviation from
the non-exclusive right but was not a guaranteed exclusive
right. Mr. Twomley agreed that an amendment to modify the
limited entry statute could be recommended and added that
the permit was not a right but a privilege.
Co-Chair Thomas concurred that a limited entry permit was a
privilege from the state to harvest the resource. He felt
that it did not give commercial fishers an inherent right
to block other industries from developing resources. The
state granted the fishers the privilege to work by making
limited entry permits available to purchase. He did not
want commercial fishers to limit other Alaskans opportunity
to jobs in other industries through protest claiming they
have exclusive rights. He added that Alaskan fishers pay 7
percent of gross income in raw fish tax, enhancement tax
and a marketing fee. Alaskan fishers generated the revenue
to operate the Commercial Fisheries Entry Commission via
limited entry permit purchases and vessel licenses fees and
even generated surplus funding.
Co-Chair Stoltze OPENED public testimony.
10:04:25 AM
JERRY MCCUNE, UNITED FISHERMEN OF ALASKA spoke in support
of the legislation. He felt the bill provided a good
opportunity to support new younger entrants into the
fisheries. He identified the three ways to obtain a limited
entry permit; CFAB, Division of Economic Development, or a
private lending institution. A private lender required
collateral. He related that groups like Sea Grant and
Bristol Bay Economic Development Corporation educated young
fishers on how to repay the loans and helped them with
financial planning. New entrants into the fisheries needed
to implement a business plan. Commercial fishing was a
business and a professional approach was required for
success. He furthered that permit prices were dictated by
permit availability, previous season's conditions, and fish
prices. Permit prices dropped after a bad season as quickly
as they rose with good seasons.
Representative Joule asked what ages encompassed the
"young" demographic. Representative Edgmon thought that the
demographic was fisher's in their 20's.
Mr. McCune related from his experience in the Copper River
fishery that approximately 50 "young" fisher's, 20 to 30
years of age participated in the fishery. Many permits get
passed on to family members. The legislation aided new
entrants into the fishery who had to purchase the permit.
10:09:39 AM
Co-Chair Stoltze CLOSED public testimony.
HB 261 was HEARD and HELD in committee for further
consideration.