Legislature(2017 - 2018)BELTZ 105 (TSBldg)
04/05/2017 09:00 AM Senate LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| SB95 | |
| SB94 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 95 | TELECONFERENCED | |
| += | SB 94 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 95-MARICULTURE REVOLVING LOAN FUND
9:34:07 AM
CHAIR COSTELLO announced the consideration of SB 95.
9:34:59 AM
TIM LAMKIN, Staff, Senator Gary Stevens, Alaska State
Legislature introduced SB 95 on behalf of the sponsor speaking
to the following sponsor statement:
This bill amends the existing Alaska Mariculture
Revolving Loan Fund to allow up to forty percent of
the fund to be used for loans to permitted shellfish
hatcheries for planning, construction and operation.
Alaska shellfish farms currently do not have a stable
supply of seed for the propagation of oysters, and no
regular, in-state source of seed for resident aquatic
plants and other shellfish. A stable supply of seed is
one of many hurdles the industry must overcome to grow
and become a viable Alaskan industry.
This bill will amend the program to shift its focus
and eligibility from individual mariculture farmers to
include shellfish hatcheries that would market stock
to local Alaskan mariculture farmers.
The mariculture industry in Alaska is not yet fully
developed, and is extremely high risk, from a
financial standpoint. These obstacles make private
financing difficult to obtain, but this bill will
enable Alaskans to maintain their businesses and grow
Alaska's mariculture industry.
9:36:03 AM
SENATOR STEVENS joined the committee.
MR. LAMKIN provided the following sectional analysis for SB 95.
Section 1: Adds a declaration of policy for the
state's Mariculture Revolving Loan Fund (AS 16.10.890-
16.10.945).
Section 2: Amends a spanned statutory citation in AS
16.10.900 to conform to the provision added by section
1 of the bill.
Section 3: Require 40 percent of the money
appropriated to the fund be used for (1) making loans
to state residents and Alaskan organizations and
businesses that operate hatcheries or aquatic farms
for the purpose of producing aquatic plants or
shellfish or conduct shellfish enhancement projects or
(2) making grants to certain nonprofits. Requires the
remaining 60% of the funds appropriated to the fund to
be used for other loans from the fund.
Section 4: Authorizes the Department of Commerce,
Community, and Economic Development (department) to
make loans to an eligible applicant for the planning,
construction, and operation of a (1) hatchery that
artificially propagates marine aquatic plants or
shellfish or (2) shellfish enhancement project.
Permits the department to make grants for
organizational and planning purposes to certain
nonprofit organizations. Amends spanned statutory
citations to conform to the provision added by section
1 of the bill.
Section 5: Limits the amount the department may make
in grants to nonprofits for organizational and
planning purposes, to $500,000.
Section 6: Expands the classes of person eligible for
a loan from the fund to include state residents or
entities organized under state law that (1) hold a
permit to operate a hatchery or aquatic farm for the
purposes of producing aquatic plants or shellfish or
(2) conduct shellfish enhancement projects.
Section 7: Conforms the residency requirements for
fund loan applicants to reflect that entities
organized under state law are also eligible for loans
from the fund.
Section 8: Establishes new loan terms for loans from
the fund, including a loan cap of $100,000/ 20-year
term for residents, and $1,000,000/30-year term for
existing mariculture farms.
9:39:40 AM
SENATOR HUGHES joined the committee.
Section 9: Provides that a subsequent loan may not be
made to a resident of the state or entity organized
under the laws of the state that holds a permit to
operate a hatchery or aquatic farm for the purpose of
producing aquatic plants or shellfish or that conducts
shellfish enhancement projects if the person's
outstanding balance exceeds $1,000,000.
Section 10: Allows a loan to be made from the fund
for the purchase of boats or vessels determined to be
integral to the operation of a hatchery.
Section 11: Amends a spanned statutory citation in AS
16.10.915(d) to conform to the provision added by
section 1 of the bill.
Section 12: Adds a new subsection to AS 16.10 .915.
Prohibits the department from making certain loans
from the fund unless the department determines that
(1) a loan applicant's hatchery or enhancement project
will be managed in a manner reasonably expected to
result in repayment of the loan and (2) the
applicant's hatchery or enhancement project is in the
public interest.
Section 13: Provides when the department may require
repayment of principal and interest on loans made from
the fund to residents of the state, or entities
organized under the laws of the state, that (1) hold a
permit to operate a hatchery or aquatic farm for the
purpose of producing aquatic plants or shellfish or
(2) conduct shellfish enhancement projects.
Section 14: Provides authority for certain
associations of limited entry permit holders to levy
and collect an assessment from its members to secure
or repay a loan from the fund. Allows the department
to rely on certain assessments in deciding whether to
make a loan from the fund.
Section 15: Amends a spanned statutory citation in AS
16.10.935 to conform to the provision added by section
1 of the bill.
Section 16: Adds new definitions for AS 16.10.890-
16.10.945.
Section 17: Clarifies that changes made by the bill to
loan terms from the fund do not apply to loans made
before the bill's effective date.
Section 18: Provides the bill with an immediate
effective date.
9:41:43 AM
CHAIR COSTELLO asked if anyone had reviewed Section 14 to
determine whether an association can collect tax because that
authority resides with the state.
MR. LAMKIN clarified that it is a voluntary assessment, not a
tax. The fees that are collected are used to help promote the
operation of the organization.
SENATOR MEYER asked if this industry pays a tax to the state.
MR. LAMKIN offered his understanding that it will eventually.
These hatcheries have received startup funding through capital
budget grants. They produce seed and sell it to farmers. The
individuals that harvest the seafood pay the tax.
SENATOR MEYER asked how much tax is collected.
MR. LAMKIN deferred the question to the Department of Revenue
(DOR).
9:43:39 AM
SENATOR GARDNER referred to the qualifying language in Section 6
and asked if a nonresident could qualify for a loan from this
fund.
MR. LAMKIN said his understanding is that the program is
specifically limited to Alaska residents.
SENATOR GARDNER said she hopes to hear from someone who could
specify whether a nonresident could hold a permit to operate.
MR. LAMKIN suggested DCCED respond to the question.
SENATOR MEYER asked if it is advisable to make these loans to
such a high-risk industry.
MR. LAMKIN said it's a policy call, but this is one of the few
ways for the state to promote the development of its natural
resources. He added that it could be argued that it would be
impossible for these hatcheries to secure financing in the
private sector.
SENATOR MEYER asked where the money for the loans comes from.
MR. LAMKIN explained that the fund was capitalized with about $5
million; about $500,000 has been loaned; and the payments on
those loans help support the fund. He deferred further
explanation to DCCED.
SENATOR MEYER said he'd like the department to comment on the
success of the loan fund.
9:46:52 AM
CHAIR COSTELLO asked Ms. Cioni-Haywood to give some background
on the fund, its activity since inception, and why the
department supports it.
BRITTENY CIONI-HAYWOOD, Director, Division of Economic
Development, Department of Commerce, Community and Economic
Development (DCCED), explained that the fund was capitalized in
2012 with a $5 million appropriation. Five loans have been
issued for a total of about $500,000 and the cash balance
available for lending is about $4.5 million. She said it's
difficult to describe the success of the fund since it is
relatively new and will take some time to get established. The
division has done outreach and suggested ways to further loans
within the industry. Because the industry is growing, the
division anticipates making additional loans. She highlighted
that two applications were submitted recently.
SENATOR HUGHES asked if the industry is new to Alaska or new
overall and opined that loans to a new industry would present
more risk.
MS. CIONI-HAYWOOD said the industry is only new to Alaska.
British Columbia, California, Washington, Oregon, New Zealand
and others have had shellfish operations for some time.
9:49:48 AM
SENATOR HUGHES responded, "I'm hoping someone else can address
that just so we know what we're getting into."
CHAIR COSTELLO advised that Julie Decker Larry Cotter could
provide additional information.
SENATOR GARDNER directed attention to the new language in
Section 6 that says loan applicants shall be a resident of the
state or an entity organized under Alaska laws that hold a
permit to operate a hatchery or conduct shellfish enhancement
projects. She asked if current law allows a nonresident to hold
one of those permits.
MS. CIONI-HAYWOOD said she believes a nonresident could form a
nonprofit under the state, but she would need to confirm that
with another agency.
SENATOR GARDNER said it's something the committee should
consider.
SENATOR MEYER asked if the fund charges the going interest rate
or if it is higher to reflect high risk.
MS. CIONI-HAYWOOD advised that the current rate is 5 percent.
SENATOR MEYER asked how that compares to a similar bank loan.
MS. CIONI-HAYWOOD said the banking industry would likely be
hesitant to issue a loan in this industry. However, the interest
rate for the loan programs administered by the Division of
Economic Development are often set in statute so they aren't
really risk-based.
SENATOR MEYER said it sounds like the rate fluctuates with the
prime rate and is set in statute.
MS. CIONI-HAYWOOD offered to provide details on how the rate is
set.
SENATOR MEYER asked what revenue the state receives from these
loans, including tax.
MS. CIONI-HAYWOOD said she isn't aware of any tax that is
collected on the industry.
9:53:52 AM
CHAIR COSTELLO asked how the division assesses the success of a
fund.
MS. CIONI-HAYWOOD said one marker is that the fund revolves.
That means the division is making loans and receiving payments,
that the fund is growing, and that jobs are being created in the
particular sector.
9:54:45 AM
CHAIR COSTELLO opened public testimony on SB 95.
9:54:56 AM
JULIE DECKER, Alaska Fisheries Development Foundation (AFDF),
said AFDF broadly represents the seafood industry in Alaska,
including harvesters, processors, and support sector businesses.
They work in areas of research and development that will help
the industry and communities in which the industry works. AFDF
recently became involved in helping to expedite the development
of mariculture. There is tremendous opportunity for the industry
in Alaska and expansion is occurring in other parts of the
world. Reports indicate that China is making a $200 million
investment in eastern Russia to grow sea cucumbers, mussels, and
scallops. Those three species already grow in Alaska. She said
that AFDF has been focusing on the developmental challenges in
Alaska, which includes putting together the Alaska Mariculture
Initiative.
She said the governor supported the initiative and put together
a taskforce that is charged with delivering a comprehensive plan
about how to strategically develop the industry. AFDF's vision
is to grow a billion-dollar industry in 30 years. To get there
it's important to fix the developmental issues now, she said.
The taskforce has identified the issue of access to consistent
and quality shellfish and seaweed seed as an issue that has been
constraining the industry. With the exception for oysters, all
the seed must be produced in the state of Alaska. That means
these hatcheries need to be supported so the industry can grow.
MS. DECKER addressed the question about risk by drawing a
parallel to the robust salmon enhancement program and salmon
hatcheries the state put in place in the 1980s. The state
balanced the risk initially by establishing a revolving loan
fund. Thirty years later salmon hatcheries are contributing
hundreds of millions of dollars to the economy and the loans
have been paid back with interest. She said, "We think this is
following a similar model, and can be very successful too." She
noted that the bill also allows for the possibility of voluntary
assessments by industry to help pay back those funds.
9:59:30 AM
CHAIR COSTELLO asked her to talk about the change the bill makes
to make the loans accessible to other groups. She also asked her
to speak to the philosophy behind the grant portion of the fund,
which is new.
MS. DECKER explained that the bill essentially breaks the fund
into two pieces; 60 percent is allocated for access by shellfish
or seaweed farmers and 40 percent is eligible for access by
shellfish or seaweed hatcheries or organizations doing shellfish
enhancement work. For example, if an organization formed around
the king crab enhancement work that has been ongoing at the
research level, they could apply for loan funds to do an
enhancement program. Similarly, sea cucumber divers in Southeast
who have been doing research could formally form around the
enhancement project and apply for loan funds.
Addressing the question about the grant portion of the fund, she
explained that the bill allows up to $500,000 of the $2 million
that is eligible to these new applicants for grants. An
applicant could receive a $100,000 grant for organization and
planning purposes. She said this loan fund is modeled after the
Fisheries Enhancement Revolving Loan Fund for salmon hatcheries.
That fund initially was intended to help them organize and get
them started. That is the intention of the grant - to move the
industry forward and get applicants ready for a loan.
CHAIR COSTELLO said she appreciates the explanation of the grant
funding.
SENATOR HUGHES asked her to speak to the track record of this
industry in other jurisdictions and to the nonresident question
mentioned earlier.
MS. DECKER said this is not a new industry in other places.
Taylor Shellfish in Washington is a third-generation business
and is the third largest shellfish grower in the nation. That
company recently announced a projected $30 million production
increase in 2017 for an annual total of $100 million. New
Zealand has a $400 million mariculture industry that produces
mussels, oysters, and king salmon that is projected to reach $1
billion annually by 2025. Alaska has a large existing seafood
industry that marries well with the mariculture industry, she
said.
Addressing the second part of the question, she said eligible
applicants refers to either nonprofits or corporations. A
nonprofit would most likely be doing enhancement work because
the shellfish they put out become common property. There would
be no incentive for a corporation to do that kind of work. A
hatchery could potentially be a privately-owned business or
nonprofit. Alaska's two hatcheries are in Ketchikan and Seward,
and both are nonprofit. Hatcheries generally are not very
profitable, but larger companies in the Lower 48 are sometimes
willing to subsidize their own hatchery because they need the
seed. Taylor Shellfish has done this. She said the entities must
be organized in the state so there must be a state presence, but
it is outside her expertise to know if there would be an
incentive for nonresidents to form a corporation or nonprofit in
Alaska.
10:06:09 AM
SENATOR GARDNER said she read Section 6 more thoroughly and
believes it says the applicant must be a resident.
CHAIR COSTELLO observed that the language could be tightened.
10:07:16 AM
LARRY COTTER, CEO, Aleutian Pribilof Island Community
Development Association (APICDA), said APICDA is one of the six
community development quota groups that exist in western Alaska.
He said the purpose of APICDA is to develop stable local
economies in local communities, focusing on fisheries
development and tourism. They have processing plants in False
Pass and Atka. In the past few years they have spent about $23
million expanding the plant in False Pass and anticipate
spending about $20 million to expand the plant in Atka in 2018.
He said that APICDA supports passage of SB 95 and one of its
members sits on the taskforce. He said there is talk of this
being a new industry but he looks at it in two parts: seaweed
and shellfish. Seaweed is a new industry in Alaska, whereas
shellfish has been around for a while.
MR. COTTER reported that he met with a representative from the
Department of Energy several months ago and they talked about
federal funds that would be available to help develop
mariculture in Alaska and other places. He specifically
mentioned algae that can be grown and used as a fuel source. He
said the cost of operations and the cost of energy in rural
Alaska is extraordinary and APICDA is constantly searching for
ways to make the plant in each community viable. He opined that
mariculture offers an opportunity if there is adequate seed
available in the state. He said that APICDA is prepared to spend
the money to buy the seed, plant it, grow it, process it, and
sell it. He concluded saying, "This just seems like a perfect
opportunity for the state to help."
SENATOR MEYER asked if efforts to create jobs in rural areas
have been successful because fishing and the seafood industry in
general has a poor track record of hiring Alaskans.
MR. COTTER said yes and no; the seafood processing sector has a
terrible record of hiring Alaskans, but APICDA exclusively hires
Alaskans. It is not always 100 percent hire from the community
but that is the goal.
SENATOR MEYER asked if these jobs are seasonal or year-round.
MS. COTTER said the seafood jobs would be year-round. "You
harvest a crop and plant a new one. Ideally you would have
several crops going at a time so that you are able to operate
consistently." He pointed out that every community in the region
that has a year-round seafood processing plant is stable. Every
community that does not have one is in a state of decline. He
opined that creating year-round opportunity is a fundamental key
to success in rural Alaska.
10:14:16 AM
SENATOR STEVENS pointed out that in Kodiak the Filipinos that
came over and started working in the cannery were not citizens.
Now they are contributing citizens who own businesses and work
in the industry. He thanked Mr. Cotter for his perspective.
10:14:51 AM
CHAIR COSTELLO closed public testimony on SB 95 and held the
bill in committee for further review.