05/10/2002 05:38 PM Senate FIN

                                                                                                                                
     HOUSE BILL NO. 447                                                                                                         
     "An Act relating to the interest rates that may be charged on                                                              
      loans by the Commercial Fishing and Agriculture Bank."                                                                    
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
DALE  ANDERSON,  staff  to  Representative  Mulder,  testified  this                                                            
legislation  "addresses the dilemma"  in statute that "inhibits  the                                                            
ability"  of the  Alaska  Commercial  Fishing and  Agriculture  Bank                                                            
(CFAB) to serve  its mandated purpose  of granting loans  to Alaskan                                                            
small business enterprises.                                                                                                     
                                                                                                                                
Mr. Anderson  detailed three  events that factor  into the  need for                                                            
this  legislation:  the lowest  federal  reserve discount  rates  in                                                            
recent  history; limited  entry  permits have  begun to  trade  at a                                                            
significantly  lower range of $20,000 to $40,000;  and a recent bank                                                            
examiner's  report  highlights   the  issue,  warning  that  if  the                                                            
statutorily  imposed  limitation  remains,  it  could  lead  to  the                                                            
erosion of the earnings of CFAB.                                                                                                
                                                                                                                                
Mr. Anderson shared that  the purpose of this bill is to ensure that                                                            
the CFAB is  able to continue serving  its Alaskan member  borrowers                                                            
in an  efficient manner  and equitably  compete  with other  lending                                                            
institutions serving this unique market.                                                                                        
                                                                                                                                
Senator Green  asked what current activities would  change under the                                                            
provisions of this bill.                                                                                                        
                                                                                                                                
Mr. Anderson  referenced the  existing "usury  law" that limits  the                                                            
institution  to five-percent  over  "San Francisco  rates" on  loans                                                            
less than  $25,000. He  noted the  CFAB is unable  to service  these                                                            
loans,  as it  is not  profitable  to do  so.  Therefore,  borrowers                                                            
requesting less than $25,000 are not served by the CFAB.                                                                        
                                                                                                                                
Mr.  Anderson  spoke   to  the  uniqueness  of  the  organizational                                                             
structure of the  CFAB. He explained the institution  is required to                                                            
serve  member  borrowers  "at  cost" and  that  profits  earned  are                                                            
returned  to the  member borrowers.  He  explained  that because  of                                                            
current  restrictions, the  larger loans subsidize  the expenses  of                                                            
the loans of less than $25,000.                                                                                                 
                                                                                                                                
Senator Green  asked why the interest rate for the  smaller loans is                                                            
not increased to cover the operating expenses.                                                                                  
                                                                                                                                
Mr. Anderson  responded  this legislation  would  allow the CFAB  to                                                            
charge rates higher than the current five-percent amount.                                                                       
                                                                                                                                
Senator Olson asked if  any borrowers were present to testify before                                                            
the Committee.                                                                                                                  
                                                                                                                                
It was established no such witnesses were present.                                                                              
                                                                                                                                
Senator Olson  asked the witness how  this legislation would  impact                                                            
borrowers.                                                                                                                      
                                                                                                                                
Mr. Anderson  responded this  bill would  not affect "anybody",  but                                                            
rather is an opportunity  for the CFAB to become more profitable and                                                            
to serve its members. He  anticipated the members would be "happier"                                                            
because  the income  of  the larger  loans would  not  be needed  to                                                            
subsidize the smaller loans.                                                                                                    
                                                                                                                                
Senator  Austerman  commented   he normally   receives  feedback  on                                                            
fisheries  issues,  but had  not  in regards  to  this legislation.                                                             
Therefore he  surmised there were  no problems. He pointed  out that                                                            
the  board of  directors  of the  CFAB  is comprised  of  commercial                                                            
fishers who  are members of the institution  and would subsequently                                                             
benefit from this legislation.                                                                                                  
                                                                                                                                
Senator Wilken  "moved to report House Bill 447 from  Committee with                                                            
individual recommendations and attached fiscal note."                                                                           
                                                                                                                                
Without  objection HB  447 with  accompanying zero  fiscal note  #1,                                                            
dated  3/27/02,  from  the  Department  of  Community  and  Economic                                                            
Development MOVED from Committee.