03/16/2010 10:15 AM House FISHERIES

               HB 389-COMMERCIAL FISHING LOAN ACT                                                                           
                                                                                                                                
                                                                                                                                
10:25:11 AM                                                                                                                   
                                                                                                                                
CHAIR EDGMON announced  that the next order of  business would be                                                               
HOUSE BILL NO. 389, "An Act  relating to loans made to commercial                                                               
fishermen  under  the  Commercial  Fishing Loan  Act  for  energy                                                               
efficiency upgrades; and providing for an effective date."                                                                      
                                                                                                                                
10:25:38 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  PAUL SEATON,  Alaska State  Legislature, sponsor,                                                               
introduced  HB 389  as  a bill  that  addresses investments  that                                                               
encourage  Alaska's  workforce  and the  utilization  of  Alaskan                                                               
products.  It  allows for a lower loan rate  on loans through the                                                               
Division  of Investment,  Department  of  Commerce, Community,  &                                                               
Economic Development  (DCCED) if the borrower  uses products that                                                               
are  manufactured in  Alaska.   A  manufacturer of  refrigeration                                                               
units for fishing  vessels proposed the bill in  order to provide                                                               
an incentive for the purchase of Alaskan products.                                                                              
                                                                                                                                
10:27:01 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  KELLER moved  to adopt  CSHB 389  as the  working                                                               
document.    Hearing  no  objection,  CSHB  389  was  before  the                                                               
committee.                                                                                                                      
                                                                                                                                
10:27:24 AM                                                                                                                   
                                                                                                                                
KATIE KOESTER, Staff to Representative  Paul Seaton, Alaska State                                                               
Legislature,  further explained  the  bill,  paraphrasing from  a                                                               
prepared statement [original punctuation provided]:                                                                             
                                                                                                                                
     HB 389 allows the  Department of Commerce, Community, &                                                                    
     Economic  Development to  give Commercial  Fishing Loan                                                                    
     Fund  borrowers a  reduction in  the  interest rate  on                                                                    
     their loan  of up to 2  percent if 50 percent  of their                                                                    
     loan is spent on a  product produced or manufactured in                                                                    
     the State of Alaska.                                                                                                       
                                                                                                                                
MS. KOESTER continued to explain  that the loan programs eligible                                                               
for this rate  reduction are the Product  Quality Enhancement and                                                               
Engine  Efficiency  Replacement  programs, and  include  products                                                               
such as refrigeration  units, ice machines, slush  bags, and more                                                               
fuel efficient engines.  She  pointed out the legislation defines                                                               
"manufactured or  produced" as processing, developing,  or making                                                               
an item into a  new item with a distinct character  and use.  Ms.                                                               
Koester noted  that labor is  often 30 percent  of the cost  of a                                                               
project and  said that the  sponsor wanted to emphasize  that the                                                               
loan  is focused  on the  product, not  the labor.   Furthermore,                                                               
this is  voluntary to the  department, and DCCED may  choose when                                                               
to make  the program available,  depending on the  prime interest                                                               
rate.                                                                                                                           
                                                                                                                                
MS.  KOESTER pointed  out  minor changes  made  by the  committee                                                               
substitute  (CS) including  the addition  of the  Product Quality                                                               
Enhancement program,  and language  that requires  the department                                                               
to offer the rate reduction to all applicants.                                                                                  
                                                                                                                                
10:30:41 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE BUCH  noted the committee packet  does not contain                                                               
any comments on the bill.                                                                                                       
                                                                                                                                
10:31:00 AM                                                                                                                   
                                                                                                                                
MS. KOESTER  advised that Representative Seaton's  office has not                                                               
received  any  objections to  the  program;  if so,  any  written                                                               
objections would have been included in the committee packet.                                                                    
                                                                                                                                
10:31:02 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KELLER  requested a list of  products manufactured                                                               
in Alaska  that would qualify  for a loan.   He pointed  out that                                                               
energy efficient engines are not manufactured locally.                                                                          
                                                                                                                                
10:31:38 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   SEATON    stated   that   there    are   several                                                               
manufacturers  of  refrigeration  units  in Alaska,  as  well  as                                                               
accessory  refrigeration  equipment  and possibly  ice  machines.                                                               
Although there may  not be engine manufacturers  now, the purpose                                                               
of the bill  is to encourage the production  of engines, possibly                                                               
the  newer,  lighter-weight  diesel   engines,  in  Alaska.    In                                                               
addition, as the energy efficiency  money now available will spur                                                               
additional interest  in local manufacturing  of products  such as                                                               
thermal pane  windows, this type  of legislation will  provide an                                                               
incentive   for   investment    in   manufacturing   in   Alaska.                                                               
Representative Seaton further explained  that this provision does                                                               
not  affect  the fishermen's  loan  fund,  but only  changes  the                                                               
interest  rate, and  "will only  be  there when  the Division  of                                                               
Investments has interest loans that  they can absorb this without                                                               
losing money on that loan for the services."                                                                                    
                                                                                                                                
10:34:55 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KELLER gave  an example of a  loan application for                                                               
an upgrade  to a boat,  and asked  whether the loan  amount would                                                               
only be for equipment, or if labor would be included.                                                                           
                                                                                                                                
REPRESENTATIVE SEATON responded  that at least 50  percent of the                                                               
loan proceeds  used by the  borrower must be for  product quality                                                               
improvements.   In  fact,  the  manufactured equipment  installed                                                               
must be  50 percent  of the  loan, not  including labor,  but the                                                               
total amount of the loan can  include labor.  He advised that the                                                               
Department  of   Commerce,  Community,  &   Economic  Development                                                               
(DCCED),  Division  of  Investments, provided  guidance  on  this                                                               
aspect of the legislation.                                                                                                      
                                                                                                                                
10:36:51 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  KELLER  asked  for  clarification  regarding  the                                                               
possibility of obtaining a loan for a labor-intensive project.                                                                  
                                                                                                                                
10:37:44 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON  deferred the question to  a representative                                                               
from DCCED.                                                                                                                     
                                                                                                                                
10:38:11 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE MILLETT, reflecting on  her experience as a fisher                                                               
from Bristol  Bay, offered her  support for the  bill, especially                                                               
as it will  provide for quality-of-fish upgrades for  boats.  She                                                               
reminded the  committee that  each fishery  is trying  to improve                                                               
the quality  of its fish  by adding refrigeration or  slush bags,                                                               
and this is a valuable program for exported products.                                                                           
                                                                                                                                
10:39:20 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KAWASAKI asked for a description of a slush bag.                                                                 
                                                                                                                                
REPRESENTATIVE SEATON described  how a slush bag  is installed in                                                               
each section of  the hold of a  boat, and how it  works to reduce                                                               
the need for ice while improving the quality of fish products.                                                                  
                                                                                                                                
10:40:33 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   KAWASAKI   referred   to   the   definition   of                                                               
"manufactured or  produced," and  asked whether  the construction                                                               
of a kit  purchased elsewhere would qualify as a  product made in                                                               
Alaska.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  SEATON   advised  that  the  construction   of  a                                                               
refrigeration system  from materials would quality;  however, the                                                               
installation of a product would not.                                                                                            
                                                                                                                                
10:42:04 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KAWASAKI restated his question.                                                                                  
                                                                                                                                
REPRESENTATIVE   SEATON   recommended  clarification   from   the                                                               
Division of Investments on this issue.                                                                                          
                                                                                                                                
10:42:34 AM                                                                                                                   
                                                                                                                                
CHAIR  EDGMON referred  to  page 1,  line 14,  of  the bill,  and                                                               
suggested the addition of "in Alaska" after "new item."                                                                         
                                                                                                                                
10:42:58 AM                                                                                                                   
                                                                                                                                
CHAIR SEATON  pointed out that on  page 1, line 10,  the language                                                               
of the bill  specifies "products manufactured or  produced in the                                                               
state," and he expressed his belief that is sufficient.                                                                         
                                                                                                                                
10:44:00 AM                                                                                                                   
                                                                                                                                
CATHY  JEANS, Systems  Branch Manager,  Division of  Investments,                                                               
Department  of  Commerce,   Community,  &  Economic  Development,                                                               
informed the  committee that the  Division of Investments  is the                                                               
agency that  administers several  state loan  programs, including                                                               
the  commercial  fishing  revolving  loan fund  amended  by  this                                                               
legislation.   She  advised that  the bill  allows the  agency to                                                               
reduce  the  interest  rate  if  a  borrower  purchases  an  item                                                               
manufactured or produced  in Alaska.  Ms.  Jeans called attention                                                               
to the zero fiscal note submitted with the bill.                                                                                
                                                                                                                                
10:44:56 AM                                                                                                                   
                                                                                                                                
GEOFF   WHISTLER,   Lending    Section   Manager,   Division   of                                                               
Investments,  Department  of   Commerce,  Community,  &  Economic                                                               
Development,  provided  the example  of  an  Alaska company  that                                                               
ships in  an engine  and then  adds a power  generator.   In that                                                               
case,  he advised  that the  borrower  should look  at the  value                                                               
added, and  the cost of  the addition, to measure  the percentage                                                               
of the manufacture of the product in the state.                                                                                 
                                                                                                                                
CHAIR EDGMON observed  that is the interesting part  of the bill.                                                               
In fact, the agency would  need to determine regulations to carry                                                               
out the  statute.  He asked  whether the language in  the bill is                                                               
sufficient for the successful development of regulations.                                                                       
                                                                                                                                
10:46:27 AM                                                                                                                   
                                                                                                                                
MS.  JEANS  advised  her  agency  may need  to  confer  with  the                                                               
Department of Law (DOL).                                                                                                        
                                                                                                                                
10:46:57 AM                                                                                                                   
                                                                                                                                
CHAIR  EDGMON   mentioned  proposed  legislation  on   an  energy                                                               
efficiency  loan   program  and  asked  whether   the  two  bills                                                               
"overlap."                                                                                                                      
                                                                                                                                
MS. JEANS said no, the bills will not jeopardize one another.                                                                   
                                                                                                                                
10:47:38 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE BUCH  observed that  installation labor  costs can                                                               
amount to  a large portion  of the total cost  of a project.   He                                                               
asked how labor costs are handled through the loans.                                                                            
                                                                                                                                
10:48:36 AM                                                                                                                   
                                                                                                                                
MR.   WHISTLER  agreed   that  installation,   modification,  and                                                               
fabrication can  amount to  30-40 percent of  costs.   He advised                                                               
that  HB  389 "would  deal  with  just  the equipment  going  in,                                                               
manufactured  in the  state for  product quality  improvement, it                                                               
would  still qualify  for the  whole ...  two points  under prime                                                               
loan program.  Those labor costs are inclusive."                                                                                
                                                                                                                                
10:49:19 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  BUCH asked  whether  the cost  of  labor will  be                                                               
separated in the application process.                                                                                           
                                                                                                                                
10:49:50 AM                                                                                                                   
                                                                                                                                
MR. WHISTLER  stated the loan  request asks for the  total dollar                                                               
amount  but, with  the application,  "quotes" are  submitted that                                                               
break down each item.                                                                                                           
                                                                                                                                
REPRESENTATIVE  KELLER expressed  his belief  that the  intent of                                                               
the bill is to provide an  incentive to purchase products made in                                                               
Alaska, and  he questioned whether  the language in the  bill was                                                               
sufficiently specific to fulfill the intent of the sponsor.                                                                     
                                                                                                                                
10:51:05 AM                                                                                                                   
                                                                                                                                
CHAIR  EDGMON  stated  that  the   bill  would  be  held  pending                                                               
responses to the questions posed, and for public testimony.                                                                     
                                                                                                                                
10:52:04 AM