Legislature(2011 - 2012)BELTZ 105 (TSBldg)
02/10/2011 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB38 | |
| SB67 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 38 | TELECONFERENCED | |
| *+ | SB 67 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 67-LOAN FUNDS:CHARTERS/MARICULTURE/MICROLOAN
1:39:42 PM
CHAIR EGAN announced SB 67 to be up for consideration.
1:40:04 PM
CURTIS THAYER, Deputy Commissioner, Department of Commerce,
Community and Economic Development (DCCED), read a statement in
support of SB 67. He said the DCCED is on a mission to foster a
business climate in this state that is conducive to job creation
and economic growth. The department is actively and
introspectively engaged in examining how it operates.
He said the Commissioner's Office recently formed the Economic
Advisory Council comprised of industry leaders from around the
state; it has been instrumental in helping the administration
plot a productive course towards economic development. They have
sought input from NGOs, trade associations, regional development
organizations, ARDORs, the CDQ groups, ANCSA Corporation and
legislators. A commonly heard theme has been to increase
financing options for small businesses.
MR. THAYER said access to critically needed capital can be the
difference between simply getting by and actually thriving. SB
67 creates a suite of three new revolving loan programs to be
housed in the DCCED. One is to incentivize the development of
the shellfish mariculture industry, another is to assist Alaska
charter operators in acquiring halibut permits in the new
regulatory and management regime instituted by NOAA, and the
other is to seed micro enterprise development across the state.
1:42:23 PM
The Commercial Fisheries Revolving Loan Fund would provide
access to capital for Alaskan-owned charters, repatriate permits
to Alaskans, and increase economic benefits to Alaska from this
sector from a recirculation of earnings. The Governor's Office
had over 100 inquiries on just the issue of the halibut charters
last week.
The Mariculture Revolving Loan Fund would provide a spark for a
growing industry with great year-round potential for coastal
Alaska communities and entrepreneurs. Currently, there are 67
permitted farms in Alaska, but only 25 of them are producing: 10
in Southeast and 15 in South-central communities.
1:43:03 PM
MR. THAYER said the Microloan Revolving Loan Fund would help
small businesses grow by providing loans for start-ups, working
capital, inventory expansion and a variety of other commercial
interests. Alaska is one of the few remaining states without a
microloan program.
He said these programs would compliment two existing small
business loan programs administered by the Division of Economic
Development: the Small Business Economic Development Revolving
Fund and the Rural Development Initiative Fund, both which are
geared toward long-term financing. Small businesses are the
number one creator of private sector jobs, he said, so this
legislation will help the department in its efforts to spur
sustainable economic growth in Alaska.
1:44:03 PM
WANETTA AYERS, Director, Division of Economic Development,
Department of Commerce, Community and Economic Development
(DCCED), added that Alaska is lucky to have a responsible and
responsive banking community that didn't participate in some of
the actions that created a lot of economic uncertainty over the
last several years. They are, in fact, active small business
lenders. The division's role is to seed those business start ups
through the lending them money that private lenders would not be
able to lend them. She pointed out that even though private
lenders didn't participate in some of the activities that led to
economic instability they are now operating under the
regulations and oversight that resulted from those activities.
They have to live within this national framework and try to
create solutions that make sense in Alaska.
She said the three new loan funds are: the Commercial Charter
Fisheries Fund, the Mariculture Revolving Loan Fund, and the
Microloan Revolving Fund. Each one has different features. She
emphasized that they are all revolving loan funds where the
repayments and fees will be retained within each fund to help
build more funds for future loans. The operating expenses will
be paid from the earnings of these funds. She said they received
a lot of input and input from urban and rural leaders, and these
loan programs will help rural as well as urban areas that
haven't been able to access the small business loan funds the
department currently has available.
MS. AYERS said the Halibut Charter Revolving Loan Fund is
precipitated by the change in the regulatory management regime
for Halibut Charter Fishing in areas 2C and 3A in the Gulf of
Alaska. The requirement for a halibut charter permit was
affective on February 1, 2011. The National Oceanic and
Atmospheric Administration (NOAA) estimated, based on log book
activity, that there were going to be 532 permittees and they
received over 800 applications for those permits. Right now
permit prices are still being established in the marketplace,
but a ballpark range is $40,000-100,000. It is important to
provide access to capital for Alaskan charter operators with
this regulatory change and to repatriate as many permits as
possible to Alaska as well as increase the level or resident
participation in those fisheries to help Alaska realize the
economic benefits of bringing those permits back home.
The fund is proposed to be capitalized at $5 million with a loan
limit of $100,000. The term would be 15 years and the interest
rate may not exceed prime-plus two; it has a floor of 3 percent
and a ceiling of 10.5 percent.
1:48:25 PM
MS. AYERS moved on to the Mariculture Revolving Loan Fund and
said there are currently 67 permitted farms in Alaska with 25 of
them producing. There is potential for growth, but obviously
some of the 45 initial farms might prove to be the borrowers for
this particular fund - to help move them into productive status.
She said that mariculture is a relatively new industry in
Alaska, but it's highly regulated through ADF&G's Division of
Commercial Fisheries, DNR's Aquatic Farm Lease Program, and
DEC's Food Safety and Sanitation Program with shellfish, and
issues within the Alaska Coastal Management Program that may
come into play with mariculture development.
Since 1990 they have had records for productive farms, and
complete data for the most recent of 2009. The farm gate value
was $473,000. Anecdotally, some dozen years or so ago, British
Columbia started actively trying to develop their mariculture
industry and they were at roughly the same level. Now they are
at a multi-million dollar industry.
1:50:00 PM
One other requirement of the Mariculture Loan Fund is a training
requirement at the request of the industry. A number of training
resources are available:
-through the University Alaska Sea Grant Marine Advisory Program
-other collaborative research and resources available through
other branches of the University including the Fishery
Industrial Technology Center
-the Alaska Shellfish Growers Association has had an EDA grant
to write a best management practices for the mariculture
industry.
Their loan officers will work potential borrowers to determine
their experience in other areas that would bring transferable
skills - like time on the water.
The loan features are proposed capitalization of $3 million,
loan limits of $100,000, terms for 20 years and interest may not
exceed prime plus one; the floor is 5 percent and the ceiling is
9 percent. This has a special feature which is delayed repayment
and accrual. So, a loan for 20 years at the option of the loan
officer they may approve a delayed repayment and accrual
schedule in the first six years. This is proposed because of the
unique needs of the mariculture industry. When you are starting
a farm it could be a minimum of probably three to four years and
sometimes as long as six years to develop a product and create a
revenue stream. The critical piece is you may be writing a 20-
year loan but the amortization happens from year 17 or 20. So
they will have larger over the end of the life of that loan.
1:52:43 PM
SENATOR PASKVAN asked if interest is deferred and/or accrued if
there is a delay.
MS. AYERS answered there are going to be both options and it
will depend on the borrower. She said SB 67 mirrors what the
governor introduced last year, and they feel there is wide-
spread support.
SENATOR MENARD said she struggles with the initial six-year
period of delay. Many businesses want to be part of a small
business loan program, and delaying six years almost becomes an
attitude of how diligent one has to be. She wanted to see that
shortened. Talk me out of that.
MS. AYERS answered with probably members of the mariculture
industry could best speak to that particular issue, but with
regard to lending practices, they have very savvy lending
officers who have worked predominantly in the commercial fishing
industry and worked with borrowers with a range of
circumstances. One of the reasons that public financing works
with regard to riskier enterprises is because they have the
capacity to be patient. The vast majority of loans portfolio
dollar-wise is in the commercial fishing industry. Many private
lenders, not because of the lack of compassion for the
commercial fishing industry, but because of the lending
practices they are subject to would have written off loans that
the department had "waited out with the industry" and proved
they could be collected. She suspected what they know going into
the mariculture industry that that is their business model and
therefore, their loan fund is structured on it.
SENATOR MENARD said she was correlating it to the school loan
model.
SENATOR PASKVAN asked what it means that they can wait it out in
terms of the default rate.
MS. AYERS replied their lending and collections staff is very
experienced especially in the commercial fishing area. Their
annualized default rate for last year was 0.6 percent. They
would anticipate a certain level of default within each loan
fund. For instance, their existing small business economic
development fund's annual default rate was 4.5 percent;
nationally, SBA microloans are at 4.8 percent. Her department's
performance is as good as or better than what would be expected
particularly given the fact that they have a risky portfolio
that is heavily weighted in an industry that typically isn't
considered by private lenders.
SENATOR GIESSEL asked if the halibut permit language on page 3,
lines 21-27, was what they were relying on to bring permits back
to Alaska.
MS. AYERS replied yes, particularly in area 2C that has a very
high non-resident operator rate in the charter industry; it was
lower in 3A. They are interested in increasing economic benefits
to Alaskans and that is their threshold.
SENATOR GIESSEL asked if an individual gets one of these loans
and then moves out of the state, what happens.
MS. AYERS answered there would be a number of constitutional
issues, but the department has some good borrower incentive
programs to pay on time. They are looking at what can be done
for any loan fund if a borrower becomes a non-resident to
rescind those incentives, especially with the revolving loan
fund.
2:00:59 PM
SENATOR PASKVAN asked if there is any comparable security
interest that is attached to the license itself, so if it goes
into bankruptcy the state has a claim on it.
MS. AYERS answered this permit is issued by NOAA, a federal
agency; so the department is hampered by how they interpret the
UCC and whether or not a lien could be perfected against a
particular permit or asset. While they are continuing to work
with them on this issue, the easiest answer now is no.
SENATOR PASKVAN commented the reason he brought that up is in
the area of liquor licenses a transferor can retain a security
interest to the exclusion of others. And this is a transfer
process.
SENATOR MENARD asked if these loans are available to fish
farmers like "Frankenfish?"
MS. AYERS answered no; the eligible purposes are shellfish,
echinoderms, seaweeds and algae.
SENATOR PASKVAN referred to (b)(1) on page 1 and noted the
absence of the term "grant", and asked if that was a drafting
issue.
MS. AYERS answered yes, and a CS would be forthcoming to correct
that error.
2:04:32 PM
RUSSELL DICK, President and CEO, Haa Aani, LLC, subsidiary of
Sealaska Corporation, said they supported SB 67. He said they
applaud the administration's effort to address impediments they
see to economic development in their rural communities. Haa Aani
was created by Sealaska Corporation to address very fragile
economic social conditions in rural communities, communities
they represent. It's not about owning businesses on a regional
scale, but about fostering individual entrepreneurial activities
in these communities that normally have impediment after
impediment to economic development. Their view is that is the
only way these communities can be sustainable over the long
term. Each item in SB 67 that removes access to affordable
capital is crucial.
For the last couple of years they have seen shellfish
mariculture as an opportunity. They have invested a significant
amount of capital into developing mariculture in these
communities. They have actually purchased infrastructure and
provided seed to local growers. Two areas they have focused on
initially are Kake and Yakutat and they are doing extremely well
today. They have two new small business oyster farms in Yakutat
and a partnership in Kake, which again provides oyster seed to
entrepreneurs and some vital on the job training and experience
to build up their credibility within this industry. As a result
of the success thus far they are looking at expanding this
program into other rural communities in Southeast Alaska.
SB 67 is very important to apprentice growers because Haa Aani
doesn't plan on continuing to invest a significant amount of
capital going forward. If SB 67 passes these apprentice growers
will easily qualify for the types of loans in it.
With regards to the eligibility requirements in the six years,
they see a new grower need capital infrastructure that will cost
a new grower over $120,000 and operating expenses associated
with that, living wages, and permit impediments; it all adds up
over time. It's harder for a rural resident to try to get in
this business because its three years before even one oyster can
be sold. It makes sense to give them six years to get to scale
where they are able to support themselves as well as meet the
covenants of these loans.
SENATOR PASKVAN asked his definition of "apprentice grower" as
opposed to "grower."
MR. DICK answered their view is that an apprentice grower who
someone who has come in the door and said they've taken a look
at this industry and is willing to get into it. He commits to
the training and learning; it's from that point until they are
ready to go out on their own.
2:10:25 PM
ROGER PAINTER, President, Alaskan Shellfish Growers Association,
said he has been an oyster grower for the past 25 years. He
thanked the governor and the administration for SB 67. This is
the most significant effort in advancing small businesses he has
seen the state put forward.
He said he submitted a letter dated February 4 that covers the
legislation and two position papers, one called "The Economic
Development Tool" and the other that addresses the terms and
needs for the loans in depth. He said the first paper has
population figures for coastal Alaska, and if you go down the
list they can see why people are real concerned about trying to
create jobs in this region.
He said, "When you lose half of your population or more in 35
years, that's an economic and social crisis," and this
legislation goes a long way in addressing those. It's important
to recognize how much support there is in the Region 4
mariculture development. The association has identified the
tremendous front-end costs and effort involved in getting these
small businesses off the ground before revenues come in has the
greatest impediment.
MR. PAINTER explained that it takes about a year to get permits
for a "farm" and then it will take 3-4 years to get a first
crop, and another 1-2 years before revenues are solid. During
this time significant expenses are incurred (addressed in the
second position paper on terms and deferrals). He stressed that
not only is the business owner facing these costs, he is not
getting any income. Even once the income starts it will take a
while to make up loss of income for those lost years. So, the
interest and payment deferrals are a very important component is
of this legislation. He informed them that these terms were
patterned after the state's existing private salmon aquaculture
loan program where the state's patience was greatly rewarded
with the economic contributions (about $400 million annually) of
the private salmon enhancement program.
He stressed the goal is to create businesses that will still be
here 200 years from now. Many oyster farms in the state of
Washington have been in business for 200-300 years; that is what
they are trying to foster here.
2:16:34 PM
MARK STEARNS, Chairman, Alaska Manufacturing Extension
Partnership, Inc., said they are a quasi-private partnership
with the federal and state governments, and that they had gotten
strong support from the State of Alaska which they appreciate.
He remarked that it is a bit out of their normal experience with
the state to have people that are so focused on actually
promoting business development and can see the needs that small
business owners actually have. Small business is the backbone of
the US economy and an important component of Alaska's economy,
but they often get lost in the shuffle because they don't have a
collective voice to press their need. This would go a long way
to help businesses that struggle from time to time. He has seen
instances in the last few years where good sound business ideas
maybe outside the normal criteria that are required to establish
a loan were basically dismissed.
2:21:29 PM
JOHN THIEDE, Aquatic Farm Program Manager, Department of Natural
Resources (DNR), said he was available to answer questions.
SENATOR GIESSEL said a banking executive in a previous meeting
wanted a turn-down provision and she didn't see that in the
bill.
MR. THAYER replied they are working with the banking industry on
that subject. Some Anchorage bankers didn't want a turn-down
provision because it would create non-revenue work for them with
customers coming in to get a turn down just so they can apply
for a loan. However, after this testimony they will go back to
the Banker's Association, and they might see that incorporated
in a committee substitute (CS).
2:23:45 PM
SENATOR MENARD said conceivably the argument could be made that
a bank could get inundated because people want to get in quickly
and get refused. However, it's possible that the bank could make
them a better loan than this proposed legislation would.
MR. THAYER replied that is a possibility and that is something
their loan officers will look at when they evaluate a loan. He
is willing to discuss with industry what is best for them. He
said, "The Division of Economic Development by no means wants to
compete with the private sector." They are trying to find the
middle ground where it's not quite commercially viable yet it is
something that will benefit the small businesses in Alaska.
2:26:14 PM
THYES SHAUB, Alaska Bankers Association, said a week ago
interest was expressed by the association in having a turn down
provision. That got reinforced today, but they don't want the
turn down to be perfunctory.
She said the Alaskan banking industry is very interested in
loaning to small business. "They want people to come in and
apply for a loan; not just say give me a letter..." Not all
businesses will qualify, especially start-ups, so it will be
good to have an alternative for them to go to.
MS. SHAUB said Last year members disagreed and the association
was neutral on this issue, but they are getting closer to
supporting the idea. She noted the association will have a
change of presidents and that Joe Beadle had been nominated. She
knows he has a good association with the department and she
hoped that would help the association move toward support of the
bill instead of just a neutral position.
2:28:26 PM
SENATOR PASKVAN asked what kind of schedule they should consider
for the association's approval.
MS. SHAUB answered they are working with the DCCED to see if
they can get something similar to Senator Wielechowski's bill.
She said small business is very important to the banking
industry; it's important for the whole state. The industry is
interested in things that help small business, but they want the
first bite of the apple. They're in business.
SENATOR MENARD commented if the turn down provision is in the
legislation, perhaps a person could get introduced to other
banking services like starting a savings account or buying a
treasury bond. There are opportunities for the banking industry
even though a person walks through the door just wanting this
turn down.
2:30:25 PM
MS. AYERS amplified on that idea saying their goal in seeding
new businesses is that these will become customers for future
loans and financial services with private lenders. They already
have a partnership with private lending as well as the Small
Business Administration (SBA) and they are trying to incorporate
USDA loan funds into this as well by giving them the "cheat
sheet" which is a laminated summary of the loan funds available
through DCCED programs. Private lenders can refer business to
the department as they refer business back to them. "It's a
symbiotic relationship."
CHAIR EGAN thanked everyone for their comments and held SB 67.
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