Legislature(2017 - 2018)HOUSE FINANCE 519
03/06/2017 01:30 PM FINANCE
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HOUSE BILL NO. 56 "An Act relating to limitations on certain commercial fishing loans made by the Department of Commerce, Community, and Economic Development." 1:57:21 PM REPRESENTATIVE DAN ORTIZ, SPONSOR, introduced himself and the bill. He spoke of comments made by Alaska U.S. Senator Dan Sullivan during a joint floor session about the importance and value of the fishing industry to the state. He said that the $6 billion per year industry was critical to the Alaska economy, and the fishing industry was the largest private employer of the state's labor force. He noted that the "greying of the fleet" was becoming an issue for the industry; the age of the fleet was gradually getting older. He believed that the legislation was a step in helping with the issue by raising the loan limit amount for fishermen to purchase gear, permits, and boats, form $300,000 to $400,000. He stated that the funds would come from the Department of Commerce, Community, and Economic Development (DCCED) through a revolving loan program. He offered additional sponsor statement language: This bill increases the aggregate amount a borrower may, in aggregate, hold unpaid from $300,000 to $400,000. The amount of 300,000 was assigned in 1982. Due to inflation and technological advances, this $300,000 amount has become outdated. According to the calculation method of the Consumer Price Index, $300,000 in 1982 is equivalent to approximately $746,136 today. This is why a $100,000 increase to the aggregate limit of $300,000 to $400,000, is reasonable and pertinent today. An aggregate limit of $400,000 is a reasonable aggregate unpaid limit for Alaska's commercial fishing businesses. Representative Ortiz noted that member's packets contained several letter of support for the legislation. 2:01:47 PM Representative Kawasaki queried the solvency of the current fund. Co-Chair Foster noted individuals from the department were also available for questions. Representative Ortiz encouraged the department to address the specific question. He added that there was initial seed money established to start the fund; the fund had never needed additional appropriation from the legislature. He noted that the fund had an outstanding record of repayment. Representative Kawasaki pointed to a sheet provided by the department (copy on file) that addressed a statutory interest rate provided by the fund. He asked whether the statutory interest rate being higher than the industry interest rate was a problem for the fund. 2:03:55 PM BRITTENY CIONI-HAYWOOD, DIRECTOR, DIVISION OF ECONOMIC DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, explained that the department currently had approximately $19 million in available lending funds. She asserted that the fund was robust, and reiterated that the fund had not used general fund dollars since 1985, but lived off of interest and fees charges through the program. Representative Kawasaki referred to industry and statutory interest rates. He noted that in some cases it looked like the industry rate was higher. He wondered why people would lend at such high rates. Ms. Cioni-Haywood answered that often the program lent to people who could not secure financing elsewhere. She relayed that the current interest rate was 5.5 percent. She added that most recent borrowers were younger borrowers and borrowers that did not have a credit history, who were willing to take the higher interest rate. Representative Wilson asked for the current default rate. Ms. Cioni-Haywood responded that the current rate was 2.2 percent, which was below the industry standard of 5 percent. Representative Wilson queried how much the fund currently had on-loan. Ms. Cioni-Haywood replied that there was approximately $90 million in outstanding loans. Representative Wilson wondered whether the interest rate could be lowered without a statute change. She thought that the program could be taking advantage of those that could not afford to take out a lower interest loan. 2:07:18 PM Ms. Cioni-Haywood shared that the interest rate was deemed in statute and that the program had a pay-on-time program, in which people who paid on-time received a discounted interest rate. Representative Tilton referred to legislation from 2012, regarding the loan fund. She noted the state's financial crisis and wondered whether the timing of the legislation was appropriate. Representative Ortiz replied that he could not comment on what was occurring in the legislature in 2012 when the legislature had been considering the issue. He shared the reason he had brought the legislation forward was that he wanted to help young people have a better chance to get involved in the industry. He said that the legislation would be a no-cost item to the state that would allow the state to assist young fishermen to enter into the industry. Representative Tilton asserted that there was already a disparity in loan amounts for the commercial and charter loan funds. Representative Ortiz replied that he was not looking to increase the difference between the commercial and charter industry loans. He suggested that someone could bring forth a piece of legislation that would address that particular problem. 2:10:57 PM Representative Tilton understood that there was $19 million currently available in the fund. Ms. Cioni-Haywood answered in the affirmative. Representative Tilton referred to a 2015 figure that showed a $2 million balance. Ms. Cioni-Haywood was surprised at the figure, she did not think that the fund had been that low for approximately two years. Representative Tilton hoped to talk more in depth with Ms. Cioni-Haywood about the issue. 2:12:10 PM Representative Grenn spoke to the last paragraph of a letter of support from the United Fishermen of Alaska: The revolving loan program is one of very few tools that the state has to give an advantage to Alaska residents with a desire to become fishing skippers. And, because a traditional bank lender must first reject a borrower in order to qualify for the Loan Program, we do not anticipate major negative effects on private sector lenders. Representative Grenn wondered what a person had to shoe regarding being previously rejected by a bank. He asked whether there had been opposition or support for the issue. Representative Ortiz answered he had received some critical feedback from the commercial lending community. He elaborated that one of the reasons for the higher interest rates could be a sensitivity to not wanting to see the state directly compete with the commercial/private industry. He furthered that there were people in the private sector who viewed the program as competition, he believed that the qualification of first being rejected by a traditional bank showed good faith by the department. 2:14:37 PM Co-Chair Seaton referred to a letter in the packet about commercial hardship [handout titled "Division of Economic Development Department of Commerce, Community and Economic Development 2016 Annual Report of Fisheries Enhancement Term Extensions per AS 16.10.510(11)" (copy on file)], which discussed term extensions that could be granted in times of financial hardship. He wondered whether the document was informational as he had not seen it in the bill. Representative Ortiz replied that it was not a part of the bill. He deferred further discussion to the department. Ms. Cioni-Haywood answered that the program currently provided extensions for economic hardships; it required a separate application process. 2:16:03 PM Representative Pruitt felt that the information provided on the bill was lacking for him to determine the stability of the fund. He thought that the program was a good program. He agreed with the higher rate. He expressed concern that doubling the loan amount would take away funding for other applicants in other loan programs. Representative Ortiz clarified that the maximum loan amount would increase from $300,000 to $400,000, which was not a doubling of the loan amount. He asserted that there had been prior testimony concerning the solvency of the fund and the excellent repayment rate. 2:18:50 PM Representative Pruitt said that he was referring to the $100,000 to $200,000 by vessel. He stressed that he wanted to see the information in writing. He did not want to jeopardize the fund. Ms. Cioni-Haywood replied that she would submit the information in writing. She shared that projections had been done using the assumption of 21 new loans, with an increased average loan amount over the next ten years, and using a conservative repayment schedule, and had estimated that the fund would still maintain over $12 million in the fund balance. Representative Thompson expressed appreciation for the loan program. He queried whether any of the loans were awarded out of state. Ms. Cioni-Haywood confirmed that it was a resident-only program; a person had to be a resident for two years to be eligible for the loan. 2:21:18 PM Co-Chair Foster OPENED public testimony. JERRY MCCUNF, UNITED FISHERMEN OF ALASKA, JUNEAU, testified in support of the legislation. He spoke of the complexity of loan programs. He spoke of the doubling of vessel loans from $100,000 to $200,000, and he noted that the number had not increased since 1982. He felt that a $200,000 boat would be safer than a $100,000, and that a proper fishing vessel could cost several of hundreds of thousands of dollars. He felt that the program was beneficial to younger fishermen just starting out in the industry. Co-Chair Foster CLOSED public testimony. HB 56 was HEARD and HELD in committee for further consideration.