Legislature(2013 - 2014)HOUSE FINANCE 519
03/21/2014 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB306 | |
| HB121 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 121 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 306 | TELECONFERENCED | |
HOUSE BILL NO. 121
"An Act relating to the examinations, board, loans,
records, and lobbying contracts of the Alaska
Commercial Fishing and Agriculture Bank; and providing
for an effective date."
9:09:41 AM
REPRESENTATIVE ERIC FEIGE, SPONSOR, read a prepared
statement pertaining to the bill's purpose:
The Commercial Fishing and Agriculture Bank is a great
example of the government starting a project and then
stepping back and allowing the project to succeed in
the private sector.
Created 33 years ago, the bank was created by an
initial investment of $32 million from the state. As
required by the creating statutes, the bank has repaid
the state's investment and is now a private entity
owned by its members.
Because the bank was created under specific statutes,
it is not regulated the same as other banks and credit
unions operating in the state. The specific statutes
that created CFAB assure it continues to fulfill its
original purpose of assisting the commercial fishing
and agricultural industry.
The bank's board of directors desires to improve the
operating ability of the bank by requesting several
changes in its operating statutes.
HB 121 expands the types of loans the bank can give to
commercial tourism and natural resources industries
and removes the maximum loan amounts provided to these
borrowers. HB 121 also expands the category of
borrowers to include non-resident owned businesses
that are physically located within Alaska, expands the
eligibility of the bank's small loan program, and
gives the board the ability to set its own
compensation level.
Finally, to provide CFAB with additional resources to
capitalize its ability to provide loans to its
members, the CFAB board is requesting the Alaska
Banking Commission to begin auditing the bank's
operations, as is done with other banks in the state.
The cost of the audits are borne by the bank and not a
cost to the state.
Michael Paschall of my staff will now provide a
sectional analysis of the bill followed by a short
presentation by bank president Lea Klingert and board
member Doug Glenn.
MICHAEL PASCHALL, STAFF, REPRESENTATIVE ERIC FEIGE, read
the sectional analysis:
Section 1: This section adjusts the lending power of
the bank by eliminating the borrowing limits on
certain types of loans. It also removes the residency
requirement for certain types of capital loans if the
facility is located within the state as well as
expands the types of loans that may be given to
nonmembers. It also makes loans available for certain
tourism operations and for operations dedicated to the
development or exploitation of natural resources.
Section 2: It adds commercial agriculture to the
current provision allowing loans to nonmembers for
commercial fisheries in certain areas.
Section 3: Changes the dollar limitation on loans to
nonmembers from $25,000 to $50,000.
Section 4: Increases the debt to capital ratio from
eight percent to 25 percent.
Section 5: Confirming language containing to bank
examinations added in section seven. Also corrects a
typographical error in statue.
Co-Chair Stoltze wondered if Section 5 related to credit-
worthiness. Mr. Paschall replied in the affirmative. . He
continued reading the sectional.
Section 6: Allows the bank to make available a list of
those eligible to serve as director to those members
eligible to vote.
Section 7: Provides that the Department of Commerce,
Community, and Economic Development shall audit the
bank at least once every thirty-six months.
Section 8: Repeals AS 44.81.020(f) setting director
compensation and AS 44.99.030(a)(2) prohibiting
lobbying by the bank.
Co-Chair Stoltze asked about the repealer in Section 8. Mr.
Paschall replied that the first repealer repealed the
director's compensation, which was set in statute, and
allowed the board to set the compensation. The second
statute currently prohibited lobbying by the bank.
Co-Chair Stoltze assumed that it was a repealed a limit in
compensation. Mr. Paschall replied that it repealed the
statute that set the compensation. He continued reading the
sections:
Section 9: Delays the audit established in section
seven until one year after the effective date of the
Act.
Section 10: Makes the Act effective immediate.
9:15:15 AM
DOUG GLENN, BOARD MEMBER, COMMERCIAL FISHING AND
AGRICULTURE BANK, spoke to his background. He discussed his
business. He explained that CFAB had enabled him to go
forward on his business. He had been a member since 2012.
He read a statement about CFAB:
CFAB was a result of legislation introduced in the
late 1970s for the purpose of providing financing to
the commercial fishing and agriculture industry of
Alaska. It operates and is the sole subject of AS
44.81. Many basic policies, strategic, or operational
changes that most business would enact by simply
revising their business plan. It required the support
of the Alaska State Legislature and new legislation.
CFAB was committed and structured to serve resident
individuals and smaller companies in a highly focused
and specialized manner. Many of the individuals and
business whom CFAB serves would not otherwise have
access to loan funds for reasonable, constructive
terms.
9:19:06 AM
Representative Thompson asked about the CFAB bylaws. He
asked if Mr. Glenn was eligible for a loan while on the
board. Mr. Glenn replied in the affirmative.
LELA KLINGERT, PRESIDENT, COMMERCIAL FISHING AND
AGRICULTURE BANK, stated that the CFAB board had no active
purpose in the lending portion. The board did not
participate in credit decisions.
Representative Thompson believed it seemed strange that a
board member would be borrowing from the bank.
Co-Chair Stoltze commented on Mr. Glenn's upstanding
character.
Representative Guttenberg wondered who made the decision to
allow borrowing. Ms. Klingert replied that it was a loan
committee, which was comprised of management and loan
officers.
Representative Guttenberg queried the decision making
authority of the board that was different than the loan
committee. Ms. Klingert replied that there were many
structures in the credit industry. She stated she provided
the financial condition to the board, but was sanitized and
not specific to the individuals. The board drafts the
credit policy, and the loan committee operates under that
policy.
Co-Chair Austerman asked for detail on the CFAB membership.
Ms. Klingert responded that in order to become a member or
a borrower, one must be a member of CFAB. She stated that a
member was required to purchase stock in the co-op to
become a member, a borrower, and a stock holder.
Representative Wilson asked for a description of the CFAB
mission. Ms. Klingert shared that in 2000 the bank's
statute had been revised to allow CFAB to enter into
tourism and resource based industry. Primarily, 95 percent
of CFAB's loan portfolio was comprised of commercial
fishing loans. The remaining 5 percent was split between
agriculture and tourism.
Representative Wilson asked again about a mission
statement. Ms. Klingert replied that its mission statement
was to be the premier lender to the fishing industry.
Representative Wilson noted that the legislation allowed
for non-resident borrowers. She wondered if there was a
requirement to stay within a certain percentage for a
specific industry.
9:25:50 AM
Ms. Klingert replied that there was nothing as formalized
as outlining specific percentages. The economy and basic
structure of the bank limited the percentages. She shared
that the reason to expand into tourism and resources was
for diversification, primarily due to the consolidation of
the commercial fishing industry.
Representative Wilson wondered why the bank could not be
its own entity and no longer connected to the state. She
wondered why the bank could not go out on its own. Mr.
Klingert answered that there were parameters that excluded
CFAB from the coop code, the banking code, and other codes.
She stressed that CFAB would not survive if it was
privatized.
Representative Munoz wondered how the banks rates compared
to commercial rates. Ms. Klingert replied that the bank's
rates were comparable to other banks.
Representative Munoz asked about CFAB's accountability. Ms.
Klingert replied that the bank reported to the legislature.
The statute dictated how the bank was structured and the
parameters under which it operated.
Co-Chair Austerman communicated that CFAB had been created
by the legislature. Over the years the bank had been able
to repay the state. The bank was successful. It was
included in statute because the legislature had created it.
The bank did not ask for money and paid back everything it
had been given.
9:30:59 AM
Representative Guttenberg stated that the bank's success
was also the legislature's success. He wondered about the
financial health of the bank. Ms. Klingert answered that
the bank was healthy and strong; it had $35 million in
loans. She stated that CFAB had not recorded any losses to
date in the last 20 years. She had lived and breathed the
program for 26 years.
Representative Gara wondered if the bank had concern with a
limited pool of funds that it may impact. He wondered if
the bill would divert money away from the other items. Ms.
Klingert replied that the bank leveraged by borrowing
additional money. She believed the bank could get up to $84
million in loans. She did not feel that the current loan
structure would be substantial enough to create the issue.
The bank had loaned to tourism and mining since 2000. She
stated that the non-resident section of the legislation was
to allow CFAB to lend to people within the state that may
not meet the bank's strict residency requirements.
9:35:11 AM
Representative Gara stated that the program mostly applied
to Alaskans. He wondered about the policy of lending non-
capped amounts to non-residents. Ms. Klingert replied that
there were individuals in the tourism industry that were
borrowing from CFAB, but had not received much interest
from the mining industry. Many of the tourism companies in
the state were not majority owned by Alaskans.
Co-Chair Stoltze noted that he had been contacted by a
number of individuals about the legislation who were all
commercial fishermen.
Vice-Chair Neuman pointed to Section 2, which stated that
the bank may make small loans to qualified borrowers who
were not members of the bank. He wondered if it reflected a
policy change. Ms. Klingert replied that the section
related to serving rural areas of the state, where becoming
a member was cost-prohibitive.
Vice-Chair Neuman asked for verification that a person did
not have to be a member. Ms. Klingert replied that it was
not necessary within that particular section.
Vice-Chair Neuman looked at Section 4, and noted that the
total amount of money that may be loaned under the section
may not exceed 25 percent of the total capital. He noted
that there was a greater than 300 percent increase. He
queried the current total capital. Ms. Klingert replied
that the total capital the bank could lend was just under
$20 million. Through the legislation, CFAB increased the
dollar amount that could be lent to an individual under
that section.
Vice-Chair Neuman wondered if the policy was standard for
other banks. He thought it sounded high. Ms. Klingert could
not speak to other banks.
Co-Chair Stoltze asked if she did not have knowledge of the
banking industry or simply preferred not to speak about the
other banks.
9:40:09 AM
Ms. Klingert did not want to speak for other banks.
Co-Chair Stoltze asked about industry standards. Ms.
Klingert understood that commercial banks had limits on
what they would lend to a specific industry in order to
limit risk.
Vice-Chair Neuman did not know why commercial banks would
care about the issue as long as they got their money back.
He did not believe the commercial banks would allow the
proposed amount outlined in legislation. Ms. Klingert
answered that banks were required to have a certain amount
of capital that they leveraged for loans. She stated CFAB
was lending its own money; therefore its requirements were
much different. She believed commercial banks split the
risk between industries. The bank currently had $20 million
in capital and $35 million out in loans.
Vice-Chair Neuman pointed to the bill title related to
engaging lobbyist services. Ms. Klingert replied that
currently the bank was prohibited from hiring a lobbyist.
Co-Chair Stoltze surmised that it had probably occurred
when the Alaska Railroad. Ms. Klingert agreed.
Vice-Chair Neuman stressed that CFAB still established
under statute that the state entity did not compete with
commercial banks. He wondered if the legislation allowed
CFAB to hire lobbyist. Ms. Klingert replied in the
affirmative.
Vice-Chair Neuman asked if the bill contained the lobbyist
information in another location. Co-Chair Stoltze replied
that there was a repealer contained in the legislation.
Representative Edgmon looked at Section 7, and queried the
difference between an audit and examination.
9:46:34 AM
Ms. Klingert replied that there was a timeframe that was
established based on the staffing of Department of
Commerce, Community and Economic Development (DCCED).
Co-Chair Stoltze wondered if the amount of time had been
suggested. Ms. Klingert replied in the affirmative.
Representative Edgmon asked if the audit was a term of art
in the sponsor statement. Ms. Klingert replied that there
was a difference in an audit and an examination. The audit
did go through to look at the financial side. She stated
that CFAB was audited every year by statute.
Representative Edgmon surmised that the banking examiners
would ensure that the expanded CFAB was complying with the
statutes. He understood that it would be a high level
overview, because the fiscal note had $5,700 intended for
examination. Ms. Klingert agreed.
Representative Costello asked about Section 8 related to
the repeal of lobbying prohibition. She wondered about the
change to allow for lobbyist.
9:50:02 AM
Ms. Klingert answered that over the past several years not
having a person in Juneau to represent the bank had been
challenging. The bank currently staffed under 10
individuals, and believed having a person in Juneau to
represent its interests would be beneficial. There were no
immediate plans to retain a lobbyist.
Representative Costello wondered if DCEED had the ability
to comment on legislation. Ms. Klingert asked for
clarification on the question.
Representative Costello stated that the fiscal note was
from the Division of Banking and Securities. She wondered
if the relationship between CFAB and the state did not
provide enough communication through another branch of
government. Ms. Klingert replied DCEED may not be the best
choice to represent CFAB. She stressed that there was an
open communication with DCCED, but did not feel that it was
the mission of DCEED to look out for CFAB.
Co-Chair Stoltze felt that CFAB had a bad product to sell.
He thought the organization had been trying to package a
poor product in the past.
Representative Holmes remarked that the increase from 8 to
25 percent related to how much the bank could lend under a
specific type of loan. Ms. Klingert replied in the
affirmative.
Representative Holmes was struggling with whether or not
CFAB was a private or public entity. She wondered if the
expansion in the types of loans was seen as competing with
other local banks and how the expansion fit into the
existing market.
9:55:10 AM
Ms. Klingert replied that the agency also struggled with
the issue. She the bank may compete with banks, but not
really a big competitor in commercial banks' world. The
bank took much time on its borrowers, which was something
that would not be cost effective for a larger bank. She
felt that the fact that the bank existed provided lending
opportunities to borrowers who would not receive them if it
was not there.
Representative Holmes wondered if there had been any
discussion from private banks or credit unions related to
the bill.
Mr. Paschall relayed that the banking industry did not have
a position on the bill. He stated that CFAB was very small
compared to business on commercial banks. He stressed that
there long list of criteria for its loans. He stated that
there was some criteria established by the court, but did
not see that any of the changes made the changes. He
responded to the lobbying question. He stressed that the
entity was located in Anchorage and from time to time it
needed to respond to issues. It was currently totally
prohibited from hiring any type of lobbyist; therefore, the
entity had to send a board member to Juneau to answer
questions. He pointed to a statute that required an annual
report and audit. The entity was asking to be examined by
the banking commission.
Representative Gara believed the bank was a state entity.
He noted that 7 of the 9 board members were elected by the
members of CFAB. He wondered if the inclusion of non-
resident members would receive favorable treatment over the
residential projects. Ms. Klingert asked for clarification
on the question.
Representative Gara asked if the board members may favor
outside-owned businesses. Ms. Klingert replied that she did
not feel that there would be enough non-resident loans made
to create that issue.
Representative Gara noted that the board was 7 to 9
members, which was up to the bank.
Co-Chair Stoltze spoke to another repealer related to board
compensation. He suspected that there could be unintended
consequences, but felt that the issue of favoring non-
residents was an issue.
10:04:22 AM
Representative Costello wondered why CFAB did not just hire
legislative liaison. She wondered if the option had been
considered or pursued. Ms. Klingert was not familiar with
the issue.
Co-Chair Stoltze asked for further information on the
issue. Mr. Paschall responded that the issue was related to
whether or not CFAB was a state entity.
Vice-Chair Neuman liked the purpose of the bill,
particularly the expansion into agriculture industries. He
wondered loan structures compared to other banking
institutions. He noted large increases in the amount of
money available. He discussed concerns that because 7
members of the board were elected by the board and 2
appointed by the governor, so there was an opportunity to
disallow Alaskans to the limited amount of money there were
an opportunity that the money could all go to outside
organizations instead of Alaskan companies. Mr. Paschall
believed a change would be possible to make to solve the
issue.
Representative Wilson followed up on Vice-Chair Neuman's
question. She wanted to verify that the board had no say
over who got the loans even if they competed with other
businesses in Alaska. She wanted to ensure that the state
would not be competing with itself.
10:10:08 AM
Ms. Klingert replied that the board set the credit policy,
but did not dictate who money would go. She stated that the
concerns could be addressed by the examiners in order to
ensure that it operates within the statute. She felt that
the examination process would provide the legislature with
a better understanding of the organization of CFAB.
Representative Wilson replied that there could be two boats
fishing for the same thing, but one business office could
be in Alaska and the other could be in another state. Both
would fit under the provision, but allowed the non-resident
entity to become eligible for the credit. She felt that the
legislation may put the Alaska business at a disadvantage.
Co-Chair Stoltze spoke in favor of the board.
Representative Wilson stressed that she was attempting to
make a point.
Co-Chair Austerman The entity helped balance to ensure that
everyone was covered. He did not want to have a
conversation about ways to make CFAB a better organization.
He did not want to lose sight of the issue.
Co-Chair Stoltze CLOSED public testimony.
Co-Chair Stoltze pointed to general support for the bill.
The committee would work to resolve the several issues
pointed out by committee members.
Representative Gara spoke about outside tourism. He did not
like that commercial fishing guides were from outside of
Alaska employed by fishing lodges owned by outside
entities. He was concerned about the outside competition.
Co-Chair Stoltze felt that the members concerned had been
clearly outlined, and hoped to address many of the
addressed issues.
Mr. Paschall appreciated the committee's discussion. The
sponsor would work on the issues with finance staff.
HB 121 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 306 - Version H - 3.20.2014.pdf |
HFIN 3/21/2014 8:30:00 AM |
HB 306 |
| HB 121 2013 CFAB Annual Report.pdf |
HFIN 3/21/2014 8:30:00 AM |
HB 121 |