Legislature(2013 - 2014)CAPITOL 120
01/28/2014 10:00 AM House FISHERIES
| Audio | Topic |
|---|---|
| Start | |
| HB177 | |
| Overview: Alaska Department of Fish & Game - Division of Commercial Fisheries | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 177 | TELECONFERENCED | |
HB 177-COMMERCIAL FISHING LOANS
10:04:40 AM
CHAIR SEATON announced that the first order of business would be
HOUSE BILL NO. 177, "An Act relating to interest rates on loans
from the commercial fishing revolving loan fund and the
community quota entity revolving loan fund; and providing for an
effective date."
10:05:57 AM
REPRESENTATIVE BRYCE EDGMON, Alaska State Legislature, used a
slide presentation to refresh the committee's understanding of
the bill, which had been held in committee over the interim.
10:06:44 AM
REPRESENTATIVE FEIGE moved to adopt the proposed committee
substitute (CS) for HB 177, labeled 28-LS0607\O, Bullard,
3/26/13, as the working draft. Without objection, Version O was
before the committee.
10:07:10 AM
REPRESENTATIVE EDGMON projected slide 1 and explained that HB
177 restores the ability for the Department of Commerce,
Community, and Economic Development (DCCED), Division of
Economic Development, to offer incentivizing interest rates for
loan programs within the Commercial Fishing Revolving Loan Fund
(CFRLF), a measure altered in 2010 with the passage of HB 20.
The bill will allow fisherman, working in a volatile industry,
the ability to procure loans for the purpose of upgrading
vessels and gear to enhance product quality and repower vessels
with fuel efficient propulsion and generator class engines. He
explained that these types of loans can be difficult to secure
and are often denied by commercial lending agencies. The
purpose of HB 177 is to provide low-cost loans as encouragement
for Alaskan fishermen to improve the efficiency and
profitability of their businesses. He emphasized that many of
these businesses are small "mom and pop" operations, existing
throughout all of Alaska. Access to a state-run loan program
providing favorable interest rates and terms is important
support for Alaskans whose livelihoods are dependent on a
fluctuating fishing industry. He said the bill stipulates that
such loans be offered at 2 percent below the prime rate, with a
floor of 3 percent. Additionally, a technical fix ensures that
income earned on investments of the Community Quota Entity (CQE)
Revolving Loan Fund, revolves back into the fund, as opposed to
the CFRLF, as a whole.
10:10:09 AM
REPRESENTATIVE EDGMON pointed out that the revolving loan
program is comprised of six sections, labeled A through F, as
detailed on the second slide. He explained that Sections A and
B are primarily pertinent to HB 177, addressing the crux of the
CFRLF. Aspects of the sections are tailored to specifically
assist fishermen starting up in the industry, with limited
access to funding sources, as well as to provide support for the
established producers who may have other loan options. He
stated that Section B allows loans up to $200,000 for entry
permits, or a maximum of $100,000 for vessel purchase and gear
upgrades including product quality improvement and engine fuel
efficiency. An established fisherman whose business has
progressed and acquired an appropriate credit history, could be
eligible for the Section A options of loans up to $300,000 for
entry permits or vessel and gear upgrades specific to product
quality improvement and engine fuel efficiency. He briefly
noted that the remaining sections address a variety of loans,
and underscored that they are not in play with regards to HB
177. The sponsor emphasized the residency requirements
indicated on slide 4, paraphrasing the language, which read
[original punctuation provided]:
Section A
Must have been a state resident for a continuous
period of two years immediately preceding date of
application.
Must have possessed a commercial fishing license or
permit for the year preceding the loan application and
for any two years of the past five years.
Also, must have participated in those fisheries during
those periods.
Must not be past due on any child support obligations.
Section B
Must have been a state resident for a continuous
period of two years immediately preceding date of
application.
Must be ineligible for financing through a commercial
bank or through the Commercial Fishing and Agriculture
Bank (CFAB).
Must lack employment opportunities other than
commercial fishing in area of residence, or must be
economically dependent on commercial fishing as a
livelihood and as a traditional way of life.
Must not be past due on any child support obligations.
10:12:34 AM
REPRESENTATIVE EDGMON referred to slide five to compare the
current prime interest rates with what would be allowed under HB
177. He explained that the revolving loan program has been in
operation since the 1970s and is considered integral to
supporting Alaskan fishermen. Characterized as an extremely
successfully program, it has also incentivized generational
continuance/ownership in the fishing fleet.
10:15:14 AM
TIM CLARK, Staff, Representative Bryce Edgmon, Alaska State
Legislature, continued with the slide presentation, paraphrasing
from slide 6, titled "Technical Fix: The Community Quota Entity
Revolving Loan Fund," which read [original punctuation
provided]:
Section 6 of HB 177 establishes that income earned on
investments of the Community Quota Entity Revolving
Loan Fund rolls back into the fund - a feature that is
absent in current statute.
This section also allows monies in the fund to be used
for administering the CQE loan program (in the same
way that CFRLF earnings are used to pay for its
programs' administrative costs).
MR. CLARK emphasized that the administrative costs associated
with the CFRLF have been, and continue to be, entirely satisfied
through the recovery and income activity of this very
successful, self-sustaining program.
10:16:45 AM
REPRESENTATIVE GATTIS asked where earned income generated by the
fund has been deposited, if it is not being returned and
incorporated back into the program.
REPRESENTATIVE EDGMON responded that, in past years, not only
have all administrative costs been covered but the success of
the program has allowed contributions of overflow income to be
deposited to the state's general fund. He deferred to the
department for an update on current practices.
REPRESENTATIVE EDGMON pointed out that the department requested
introduction of this bill and the legislation is fully supported
by the agency.
10:18:26 AM
REPRESENTATIVE FEIGE asked if the program is restricted to
Alaskans residents.
REPRESENTATIVE EDGMON said yes, and he stressed that it carries
a two-year residency requirement prior to making application.
10:19:08 AM
SENATOR OLSON asked about the fiscal note.
MR. CLARK answered that there is a fiscal note, which reflects
reduced income to the fund due to the lower interest rates that
would go into effect. However, he emphasized, the fund is more
than solvent and producing profits since 1985, requiring no
state appropriation.
10:20:51 AM
REPRESENTATIVE EDGMON offered that it would be important to
understand the impact of the bill on commercial lending agencies
and whether there is an unfair undermining of the private sector
by allowing the state to offer low interest loans. However, as
pointed out, commercial agencies are not eager to make high risk
loans, which is the nature of the volatile fishing industry. He
cited the difficulty of obtaining private sector fishing
industry loans in contrast to the productive history of the
state-funded program.
REPRESENTATIVE FEIGE noted the state loan prerequisite for the
applicant to be turned down by a commercial lender. Expressing
concern for the process, he said it could be possible for
someone to solicit a denial letter from a bank in order to
qualify for the state program. He noted his support for the
intent of HB 177 and the need to also support the banking
industry. He asked about applicants gaming the system and if
there needs to be amendments or regulations to ensure the state
does not issue loans obtained through devious actions.
REPRESENTATIVE EDGMON said that there are no specific examples
of anyone entering the state system via underhanded means, and
he offered an anecdotal story to typify how fishermen in his
district have utilized the program. Further, he said that loans
from the fund average $46,000, providing a term savings of
$6,000, which may represent a significant make-or-break amount
to a small business fisherman.
REPRESENTATIVE FEIGE agreed that not all applicants are looking
for an easy means to enter the program, and he suggested that
the banking industry may bring forward specific testimony to
reflect that side of the issue, and validate such concerns.
10:27:18 AM
CHAIR SEATON said DCCED would explain how the specifics of the
application process are handled and noted that a number of young
fishermen, without a loan history or sufficient assets to
satisfy commercial lenders, are particularly served by the state
loan program.
REPRESENTATIVE EDGMON added that any business activity in Alaska
has a higher cost than in the contiguous United States, and he
underscored the need for the state to offer incentives to small
business owners.
REPRESENTATIVE GATTIS offered her personal experience with a
similar state program, the Agricultural Revolving Loan Fund
(ARLF) and said it can be difficult to qualify. She testified
that small businesses, including fisherman and farmers,
typically have difficulty obtaining commercial loans.
10:31:32 AM
JOSEPH JACOBSON, Director, Division of Economic Development,
Department of Commerce, Community, and Economic Development,
said Alaska's global quality improvement marketing effort has
required fisherman to upgrade equipment and practices to keep
pace. Maximizing product value is essential, he underscored.
He then addressed Representative Feige's concern for a turndown
statement and said that private sector lending institutions are
contacted to verify the validity of a CFRLF applicant's claim of
loan denial.
10:34:32 AM
JIM ANDERSEN, Lending/Collection Manager, Financing Section,
Division of Economic Development, DCCED, assured the committee
that due diligence is given to every applicant that presents a
turndown letter; legitimacy is verified and loan denials are
substantiated. In follow-up, he indicated that the verification
process is required by statute, included in department
regulation, and followed as standard policy.
10:36:25 AM
REPRESENTATIVE KREISS-TOMKINS asked how frequently fraud is
attempted among applicants and whether it is a common practice
to solicit denial letters from banks in order to qualify for a
state-funded loan.
MR. ANDERSEN responded that lenders have reportedly been
solicited for denial letters. He pointed out, however, that if
the applicant meets the commercial terms, the private
institution has the first opportunity to provide the loan.
10:37:57 AM
REPRESENTATIVE JOHNSON opined that the CFRLF is treated
differently than the CQE, and he asked for an explanation,
specifically that there is no floor for the community quota fund
but there is for the revolving loans.
MR. ANDERSEN explained that the CQE fund is subject to the same
statutes as govern the CFRLF and does have the same structural
parameters: a ceiling no higher than 10.5 percent and a floor
which is currently prime interest rate plus 1 percent and cost
of funds.
REPRESENTATIVE JOHNSON noted that the cost of funds to the state
seems to disappear in HB 177.
MR. ANDERSEN responded that the cost of funds aspect is handled
differently between the CFRLF and the CQE. An alternate loan
structure is in place in the CFRLF to allow for the incentive
program. For further clarification, he explained how two years
ago, changes to the program removed the 3 percent floor
requirement [HB 20, 26th Alaska State Legislature], replacing it
with cost of funds language, and HB 177 reinstates the 3 percent
floor.
CHAIR SEATON recalled that 3 percent was determined as the base
requirement to cover the department's administrative costs.
10:41:44 AM
REPRESENTATIVE JOHNSON asked for assurance that HB 177 will not
jeopardize the funds future through lack of appropriate cost
recovery. He reminded members that solvency came up in previous
bill versions and cautioned that it is an important point.
CHAIR SEATON indicated that the requirement to recoup the prime
lending rate plus two percent, with a floor of three percent,
provides the appropriate safe guard for the program.
REPRESENTATIVE JOHNSON asked what has changed in the program
that compels the department to request this bill be brought for
consideration.
MR. JACOBSON answered that the bill provides additional
incentives.
MR. ANDERSEN added that the bill reinstalls the interest rate
structure responsible for the historic monetary success and
solvency of the program while restoring the incentive aspects as
well.
10:50:32 AM
REPRESENTATIVE FEIGE expressed concern that the principle of the
fund be maintained and grown, and he stated support for the
legislation, noting that the default rate is minimal and
administrative costs appear to be in line for continued success.
10:52:45 AM
REPRESENTATIVE JOHNSON stated support for the repowering of the
program and said he had no questions regarding the financial
quality of the fund. He noted the importance for state loan
programs to be considered equally and said the solvency of one
entity should not jeopardize another. Some programs may
represent a means for communities to recoup waning economies,
and caution should be taken regarding the possibility for
regional disparities, he finished.
10:55:17 AM
CHAIR SEATON said that the quota program refers to the federal
quotas on halibut and black cod, versus the state fishing vessel
permits for individual purchase. These are two separate issues,
and he acknowledged the distinction for the committee.
MR. JACOBSON interjected that HB 177 requires accrued interest
be returned to the fund, thus strengthening the program;
functionally there is no change from a borrowers standpoint. To
a follow-up question, he said that gains remain in the fund.
10:57:40 AM
REPRESENTATIVE GATTIS requested a graph be generated to
illustrate fund activity over the last ten years and a similar
one projecting expected outcomes with and without the proposed
change.
MR. ANDERSEN said there is no concern for loss of revenue or
fund solvency, rather the bill is intended to reinstall the
program incentives that were altered two years ago.
REPRESENTATIVE GATTIS maintained her interest in a visual
illustration of the fund.
10:59:32 AM
REPRESENTATIVE OLSON requested that a representative from CFAB
be available at a subsequent meeting.
CHAIR SEATON closed public testimony and announced HB 177 held
over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 177 Blank CS.PDF |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177 CFRLF Historical Information.pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177 CFRLF Overview with Example Programs.pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177 Current and HB177 Interest Rates.pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177 Product Quality and Engine Efficiency Loans Through 3.6.13.pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177 Sectional Summary.pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177 Sponsor Statement.pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177.pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177 CSHB177(FSH) Sectional Summary.pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177 Changes in CSHB177(FSH).pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB177-DCCED-DED-03-29-13.pdf |
HFSH 1/28/2014 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| UFA SUPPORT HB 177 Revolving Loan Fund 4 1 2013.pdf |
HFSH 1/28/2014 10:00:00 AM |
HB 177 |
| HB 177 Product Quality and Engine Efficiency Loans as of 1 15 2014.pdf |
HFSH 1/28/2014 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| 2014 H-FSH Commerical Fisheries Divsion Overview.pdf |
HFSH 1/28/2014 10:00:00 AM |
ADFG Commfish overview |
| uci_kintama_2013.pdf |
HFSH 1/28/2014 10:00:00 AM |
ADFG Commfish overview |
| HB 177 CDFU support.pdf |
HFSH 1/28/2014 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |
| HB 177 Power Point Presentation.pdf |
HFSH 1/28/2014 10:00:00 AM HFSH 2/4/2014 10:00:00 AM |
HB 177 |