Legislature(1999 - 2000)
02/01/2000 01:45 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 203
"An Act relating to loans from the agriculture
revolving loan fund and to contracts for the sale of
state agriculture land; and providing for an effective
date."
PETER FELLMAN, STAFF, REPRESENTATIVE JOHN HARRIS, noted that
the legislation would put the Agricultural Revolving Loan
Fund (ARLF) on the same footing relative to interest charged
as the Farm Service Agency (FSA) and the Alaska Rural
Rehabilitation Corp (ARRC). He noted that specific changes
would give the ARLF greater flexibility to restructure loans
based on the situations individual farmers find themselves
in, thus, increasing the likelihood that the loan would be
repaid.
Mr. Fellman added that additional changes would redefine the
composition of the loan committee to replace a loan officer
with a board member since the loan officer would have
previously processed the loan application. He stated that
it would be more prudent to have the loan committee
comprised of officers at a policy making level.
Mr. Fellman pointed out that through the legislation, the
ARLF Board would be given the authority to begin
restructuring distressed farm loans rather than waiting for
a specific date or for the 90 days after the Governor signed
the bill.
Mr. Fellman reiterated that passage of the proposed bill
would be in the best interest for the State.
Co-Chair Therriault advised that the bill packet contained a
proposed committee substitute, work draft #1-LS0871\M, Cook,
1/21/00. The work draft does address concerns voiced last
year regarding the operational costs.
Representative Foster MOVED to adopt the work draft as the
working document before the Committee. There being NO
OBJECTION, work draft #1-LS0871\M was adopted.
Representative J. Davies requested information on the
changes which had been made to the work draft. Co-Chair
Therriault understood that it was basically a change to the
interest rate.
Mr. Fellman agreed that changes were made to the interest
rates. Additionally, the original bill included a loan
officer who is an employee of the State. The Director of
Agriculture suggested that might impose a conflict. That
language was changed to two members of the Board and the
Director of Agriculture.
Representative J. Davies questioned if "emergency loans"
were defined elsewhere in statute. Mr. Fellman replied that
there does exist a directory loan which could be considered
an emergency loan. The language would allow the director to
make a loan from the ARLF using his own judgement. He added
that he did not know of a governing statute for existing
emergencies.
Representative J. Davies asked if there was any place which
defined what the purpose of the emergency loan should be.
Mr. Fellman replied that it was expected that the Committee
would determine that criteria. He acknowledged that in
statute, there is not a clear definition of what an
"emergency" is, however, there are statutes that cover
disasters.
Vice Chair Bunde referenced Page 1, Subsection #4, which
speaks to the "interest rate" being comparable to other
agricultural lending institutions. He asked what other
lending institutions existed. Mr. Fellman replied that
there is a federal lending agency, the Farm Service Agency
(FSA). That agency can lend as low as 3.75% and up to as
high as 8%. Also, within the State is the Alaska Rural
Rehabilitation Corp (AARC) which is a private lending
corporation that lends agricultural money. AARC adjusts
their interest rates between 5% and 8% percent.
In response to Representative Bunde, Mr. Fellman noted that
the current rates vary depending on the type of the loan.
Operating loans through AARC are at 6%; a "cattle loan"
which would be for cattle and equipment, rate could be at 7%
to 7.5%. Real estate loans could be assessed at 8%. The
Board, which is a private corporation, establishes the
interest rate and that rate cannot go lower than 5%. He
suggested that it would not be in the State's best interest
for the interest rate to go below that amount.
Co-Chair Therriault noted that other lending institutions
for borrowers turned down the FSA-3% interest rate and that
it was difficult to obtain that rate. Co-Chair Therriault
pointed out that some of the interest money is used to help
support the Division of Agriculture. They have an interest
in not setting the rate lower than they need too.
Vice Chair Bunde inquired how many people were currently
enrolled in the program. Mr. Fellman noted that there are
currently 96 loans with the revolving loan fund. With
passage of this legislation, it is anticipated that there
would be an increase of 5%-6% per year by making the loans
more desirable.
Representative J. Davies recommended that there should be
changes made throughout the bill in order to create
comparable language applying to farm development chattel.
He recommended restructuring the loan amounts. Vice Chair
Bunde reiterated that this money should guarantee as much
return as could be made through the money market.
BRYCE WRIGLEY, DELTA JUNCTION, (TESTIFIED VIA
TELECONFERENCED), encouraged Committee members to adopt the
proposed legislation. He noted that as a farmer and
borrower from ARLF, it is apparent that in Alaska, there is
no vehicle which allows the type of service or loans that a
lot of farmer's require. Mr. Wigley stated that the ability
to be "proactive" is important in establishing rates and
determining loans. He emphasized that the bill would
improve the viability of agriculture in the State of Alaska.
SCOTT MILLER, DELTA JUNCTION, (TESTIFIED VIA
TELECONFERENCED), testified that he is a Delta Farmer and
the local farm bureau president. He encouraged support of
the proposed bill. Mr. Miller pointed out that the present
statutes dealing with the ARLF are outdated. Policies in
Alaska are not keeping pace with agricultural lending
options available in the other states. He strongly urged
that the State adopt the proposed legislation which would
help to keep farmers in business. He encouraged that
interest rates be made more flexible.
BILL WARD, DELTA JUNCTION, (TRESTIFIED VIA TELECONFERENCED),
noted that he has been involved in agriculture in the Delta
Junction area for many years. He pointed out that it is
difficult for operations within the agricultural loan fund
to operate under a defined set of statutes that have such
strict policies. Changes are needed to reduce the interest
rates. He pointed out that the bill would provide greater
flexibility to the loan managers. It would allow the loan
managers to make decisions, which would help the sector that
they are serving, and also fund itself. Mr. Ward emphasized
that he believed this to be the next logical step to be for
the Board of Agriculture. He urged passage of the proposed
legislation.
Co-Chair Therriault asked if having a 5% floor would
severely restrict the flexibility desired by the farmers.
Mr. Ward responded that realistically he could not foresee a
manager going below that figure unless there were serious
changes to the national economy. He recommended not to
mandatorily place safe guards in the legislation. He
believed that would require the managers to operate a
function not in the State's best interest.
BOB FRANKLIN, STATED PRESIDENT, ALASKA FARM BUREAU, MEMBER
OF THE AGRICULTURAL REVOLVING LOAN FUND BOARD, FAIRBANKS,
(TESTIFIED VIA TELECONFERENCED), commented that at times it
is difficult for the ARLF to accommodate all the loan
applications they receive because the interest rates put the
loan repay amount in an unsatisfactory position. He noted
that many times the borrower is driven away from the ARLF to
other lending institutions with lower interest. Mr.
Franklin voiced support of the proposed legislation.
Mr. Franklin encouraged that the legislation must be made
flexible enough so that the ARLF can be in the lending
business with the fund. The current 8% is set in "concrete"
and forces some borrowers to make other choices. He
reiterated that there needs to be greater flexibility in the
interest rate. Taking such action will make the ARLF more
stable.
JIM ELLISON, FARIBANKS, (TESTIFIED VIA TELECONFERENCED),
testified in support of the legislation. He noted that
presently he has not borrowed from the ALRF, however,
encouraged that the rating system be updated. Mr. Ellison
did not support the 5% low rate, stating that a destitute
farmer would not be able to survive with that rate of
interest.
ROBERT WELLS, DIRECTOR, DIVISION OF AGRICULTURE, DEPARTMENT
OF NATURAL RESOURCES, PAMLER, (TESTIFIED VIA
TELECONFERENCED), stated that he had worked with
Representative Harris and his staff regarding the proposed
legislation. He commented that he would be more comfortable
with the interest rate number being included in statute.
Mr. Wells advised that with adoption of the work draft, the
Division would be able to begin work on the fiscal note. He
clarified that with a 5-year average, it is estimated that
would amount to a one-percentage point which would impact
the fund at about $20 thousand dollars. He commented that
if the interest rate were lower, it would be a more
attractive deal and could increase loan activity. This past
year, the loan activity amounted to over 107 processed
loans.
Representative G. Davis noted that a cash flow projection
estimate had not been provided for 1999. He asked if there
was one available. Mr. Wells offered to provide that
information to Committee members with the new fiscal note.
He pointed out that in 1998, LBA performed an audit on the
ALRF. Because of the Division's reliance on other
operations within the ARLF, there had been concern that the
cash balance would be declining at an unacceptable rate. He
noted that at the end of the FY2000 projection, the revenues
are up from the sale of assets and conservative spending
policies at the Division of Agriculture. He concluded that
the cash balance had not declined to the $6.5 million dollar
range.
Vice Chair Bunde MOVED a conceptual amendment to Page 1,
Subsection #4, Section #2, Line 16, and Page 3, Line #24,
placing a "five percent" floor and deleting the "eight
percent". Vice Chair Bunde believed that the change would
address concerns of the State farmers who need to borrow to
keep afloat.
Co-Chair Therriault OBJECTED. He believed that the rate
would not be dropped below what was reasonable. He
reiterated that the funding was necessary for the Division's
budget.
Representative J. Davies agreed with Co-Chair Therriault's
objection. He stated that these numbers should not be
included in statute.
Vice Chair Bunde pointed out that 8% had been used in the
original legislation. He made an analogy to the student
loan program.
A roll call vote was taken on the motion.
IN FAVOR: Bunde, Grussendorf, Williams
OPPOSED: J. Davies, G. Davis, Foster, Moses,
Austerman, Foster, Therriault
Representatives Mulder and Phillips were not present for the
vote.
The MOTION FAILED (3-6).
Representative J. Davies MOVED to adopt Amendment #2. [Copy
on File]. Co-Chair Therriault OBJECTED for the purpose of
discussion.
Representative J. Davies explained that the Board should be
the ones who establish the situation and purposes for which
the loans are made. Following discussion, Co-Chair
Therriault WITHDREW his OBJECTION to the amendment. There
being NO further OBJECTION, Amendment #2 was adopted.
Co-Chair Therriault requested that the bill move from
Committee with individual recommendations and then to hold
it until final action could be taken on the note.
Representative Foster MOVED to report CS HB 203 (FIN) out of
Committee with individual recommendations. Vice Chair Bunde
OBJECTED. He commented that a minimum floor percentage
should be established.
Representative J. Davies OBJECTED on procedural grounds. He
suggested that the bill should be moved on Friday, February
4, 2000, when the fiscal note had been returned to the
Committee.
Representative Foster WITHDRWN his MOTION to move the bill
from Committee. There being NO further OBJECTIONS, the bill
was held in Committee for further action.
CS HB 203 (FIN) was HELD in Committee for updated work by
the Division of Agriculture on the fiscal note.
(TAPE CHANGE, HFC 00 - 22, Side 2).
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