Legislature(2017 - 2018)GRUENBERG 120
02/02/2017 10:00 AM House FISHERIES
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| Audio | Topic |
|---|---|
| Start | |
| HB56 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 56 | TELECONFERENCED | |
HB 56-COMMERCIAL FISHING LOANS
10:03:57 AM
CHAIR STUTES announced that the only order of business would be
HOUSE BILL NO. 56, "An Act relating to limitations on certain
commercial fishing loans made by the Department of Commerce,
Community, and Economic Development."
10:04:17 AM
REPRESENTATIVE DAN ORTIZ, Alaska State Legislature, said HB 56
seeks to raise the aggregate amount a borrower may hold, as an
unpaid loan total, to $400,000, which will help to bring the
existing program in step with inflation incurred since it was
first introduced in 1982, at $300,000. He said the fishing
industry is the main economic driver in his district, and
predicted that, in the on-going effort to assist in facilitating
the health and growth of the fishing industry, this bill will go
a long way.
10:07:26 AM
REPRESENTATIVE TARR asked for elaboration regarding the purpose
of the loans.
REPRESENTATIVE ORTIZ explained that the original purpose remains
unchanged: assisting fishermen to purchase boats and equipment.
10:08:31 AM
REPRESENTATIVE NEUMAN asked what the interest rate is on the
loans.
REPRESENTATIVE ORTIZ deferred.
REPRESENTATIVE NEUMAN said it is important to ensure that the
program is competitive so as not to compete with private
industry.
REPRESENTATIVE ORTIZ said part of the qualification process is
that a loan applicant have a letter of denial from a commercial
bank loan office.
REPRESENTATIVE NEUMAN asked for the loan default rate.
REPRESENTATIVE ORTIZ answered that at the close of 2016, it was
at 2.2 percent, and noted that the standard average is 5.0
percent.
10:10:30 AM
REPRESENTATIVE FANSLER asked about the fund that is the base for
the loan program.
REPRESENTATIVE ORTIZ said the original $60 million in seed money
for the program, funded between the 1970's and early 1980's, has
not been added to, but has gained in value and is now at $95.2
million. The program is entirely self-sustaining and utilizes
no general funds for operations or administration.
REPRESENTATIVE FANSLER inquired about the number and duration of
loans extended per annum.
REPRESENTATIVE ORTIZ deferred.
REPRESENTATIVE FANSLER queried what the average start-up cost is
for fishermen.
REPRESENTATIVE ORTIZ answered that it varies depending on the
gear type and boat size. Costs are significant but $700,000
could be considered average, he conjectured.
REPRESENTATIVE FANSLER referred to page 1, line 13, through page
2, line 2, and asked for the definition of "community" in
context of the bill.
REPRESENTATIVE ORTIZ deferred.
REPRESENTATIVE FANSLER questioned whether a $400,000 limit is
high enough. Perhaps it should be more, he suggested, and asked
what the fund might sustain.
REPRESENTATIVE ORTIZ agreed that constituents would like to see
the amount be higher, especially considering the cost involved
to enter the industry. As sponsor, he said he would not oppose
an amendment to increase the limit.
10:16:01 AM
REPRESENTATIVE TARR noted that the original program doesn't
include purchase of tenders, and asked whether there was
consideration for inclusion of such vessels.
REPRESENTATIVE ORTIZ said the bill doesn't change language of
the original statute, it only increases the loan limit.
10:17:02 AM
ELIZABETH BOLING, Staff, Representative Dan Ortiz, Alaska State
Legislature, addressed Representative Tarr's question stating
that a separate loan program exists specifically for tenders.
She referred to AS16.10.310(B), and paraphrased the language
which reads in part:
(B) to an individual for the repair, restoration,
or upgrading of existing vessels and gear, for the
purchase of entry permits and gear, and for the
construction and purchase of vessels, if the
individual has been a state resident for a continuous
period of two years immediately preceding the date of
application for a loan under AS 16.10.300 - 16.10.370,
is not eligible for financing from a state financial
institution as defined in AS 06.01.050, a federally
chartered financial institution, or the Commercial
Fishing and Agricultural Bank, ...
10:18:01 AM
REPRESENTATIVE CHENAULT directed two questions for departmental
comment: the cost stability factor of purchasing a fishing
permit; and administrative costs associated with the loan
program.
10:18:50 AM
REPRESENTATIVE EASTMAN asked about the length of the loans.
REPRESENTATIVE ORTIZ deferred.
REPRESENTATIVE EASTMAN questioned why someone would be denied a
commercial bank loan but still be eligible for a loan from this
program.
REPRESENTATIVE ORTIZ explained that the unique aspect of the
Alaska loan program focuses on the fishing industry and takes
into account the variables and fluctuations of the industry,
serving the fishermen in a manner that a commercial bank cannot
due to other priorities, and constraints.
REPRESENTATIVE EASTMAN asked about costs/fees associated with
the loans and what percentage are imposed by state or federal
regulations.
REPRESENTATIVE ORTIZ said that fishing permits are issued
through the Commercial Fisheries Entry Commission (CFEC),
landing taxes are paid by the fisherman, and ADF&G regulates all
fisheries for a maximum sustainable yield. He pointed out that
the regulations may impose costs, but also serve to support the
fishermen and provide opportunities. He pointed out that it is
self-funded, not reliant on general funds, and historically has
proven to be a solid program.
10:25:07 AM
BRITTANY CIONI-HAYWOOD, Director, Division of Economic
Development, Department of Commerce, Community & Economic
Development (DCCED), responded to Representative Neuman's
previous question stating that the current interest rate is 4.5
percent for engine fuel efficiency and product quality
improvement loans, and all other loans are at 5.5 percent.
CHAIR STUTES asked what a comparative rate would be from a
commercial bank.
MS. CIONI-HAYWOOD offered to provide further information. She
confirmed the delinquency rate as 2.2 percent, well below the
5.0 percent standard, and that often the loan application
package carries a requirement for a loan denial letter from a
commercial lending facility - with some exceptions. She
reported that there are currently about 2,000 outstanding loans.
Addressing Representative Chenault's comment requests, she said
some volatility exists due to the market and she offered to
provide further information. She also offered to provide
information regarding administrative costs specific to the
program. Loans are extended for 15 years. The definition of
"community" refers to a community quota entity (CQE), as
established by the National Marine Fisheries. A separate CQE
loan fund also exists, she pointed out.
10:29:38 AM
REPRESENTATIVE EASTMAN asked about the start-up of the loan
program, the need that saw its inception, and if costs were
involved at that time.
MS. CIONI-HAYWOOD responded that the program was born out of the
Limited Entry Act, [Amendment 5, 1972], which is a
constitutional mandate. The state program was established to
allow liens on fishing permits, which are a resource held by the
state; private institutions are not allowed to lien on a state
resource. The other agency with lien authority is the
Commercial Fishing and Agriculture Bank (CFAB).
REPRESENTATIVE EASTMAN inquired why an applicant would be found
ineligible for the program.
MS. CIONI-HAYWOOD offered that reasons for ineligibility might
include: lack of credit history, poor credit history, lack of
collateral, high unsecured debts, personal judgements, lack of
experience, and an inadequate business plan.
10:32:16 AM
REPRESENTATIVE TARR noted that the area of agriculture requires
a high level of initial investment for start-up prior to making
application for a loan and she conjectured on comparisons to the
fishing industry and whether loan denials occur due to the need
for a person to first own a boat, have a permit, and secure a
crew. She then confirmed that the default rate at 2.2 percent,
representing about 36 of the outstanding loans.
MS. CIONI-HAYWOOD agreed the delinquency rate is low, although
over a five year average and including the restructuring of some
loans, the rate can go up. She further confirmed that there
are, necessarily, substantial start-up costs to enter the
industry prior to being able to catch and market fish. If a
young person is from an established fishing family, they will
have a leg-up for entering the industry.
10:35:14 AM
REPRESENTATIVE FANSLER asked if the fund can sustain the
$400,000 level and the possibility of supporting a higher cap.
MS. CIONI-HAYWOOD opined that the existing cash balance allows
the flexibility to sustain the change that is proposed, but a
formal analysis has not been conducted to back up her belief,
nor has analysis been projected on higher amounts. She added
that, at one time, a higher overall loan limit amount was made
available; perhaps a decade ago.
10:36:46 AM
REPRESENTATIVE EASTMAN asked for program details, to wit: of
the outstanding loans how many are at the $300,000 limit; and is
the $2 million statutory limit reached on a regular basis.
MS. CIONI-HAYWOOD offered to provide further information.
10:37:50 AM
REPRESENTATIVE NEUMAN queried whether the program is available
to Alaska residents only.
MS. CIONI-HAYWOOD responded yes, based on a two year minimum
residency.
REPRESENTATIVE NEUMAN asked, considering the changes this might
invoke for regulations, will there be a cost to ADF&G.
MS. CIONI-HAYWOOD offered to provide a coordinated response.
10:39:03 AM
REPRESENTATIVE TARR questioned whether the CFAB and the
Commercial Fishing Vessel Loan programs should be administered
from the same division.
MS. CIONI-HAYWOOD explained that the Division of Investments was
consolidated in 2011. The agency works closely with the CFEC,
which contributes essential, specialized knowledge. The
possibility for consolidation with CFAB has been visited, she
said.
10:40:45 AM
REPRESENTATIVE EASTMAN pondered the consequences if a fisherman
is having bad luck and not being able to repay a loan.
MS. CIONI-HAYWOOD said the delinquency would be counted as such,
and the option for modifications to the loan would be explored.
Each loan is worked on a case by case basis, she stressed.
10:42:38 AM
REPRESENTATIVE CHENAULT asked about the percentage of loan
extensions that are made and whether they are figured into the
default rate.
MS. CIONI-HAYWOOD replied that extensions are not figured into
the default rate, once they are complete and finalized. If a
modification cannot be completed and an extension granted, the
loan is counted in the default rate. She added that the loan
extension rate is low.
10:45:30 AM
REPRESENTATIVE NEUMAN asked whether the [Division of Banking and
Securities, DCCED], makes investments for the loan program to
maximize returns, and if returns are earned where the earnings
are directed.
MS. CIONI-HAYWOOD answered that the cash balance is managed by
the Division of Treasury, [Department of Revenue (DOR)] and is
invested as part of the portfolio, with the interest returns
providing earnings for the general fund.
REPRESENTATIVE NEUMAN expressed interest in receiving further
information regarding the loan and investment performance of the
program.
10:47:35 AM
CHAIR STUTES opened public testimony.
10:48:04 AM
MICHAEL BLUME, Fisherman, stated support for HB 56 and said he
doesn't come from a fishing family and without the support of
the loan program he would not be in the industry today. He
stated his belief that it is a good idea to raise the limit.
The investments he makes today will provide a retirement for him
in the future, he said.
REPRESENTATIVE CHENAULT commented how good it is to see young
people entering the industry. The greying of the fleet is
concern and it's important to help them find an affordable
means.
CHAIR STUTES asked Mr. Blume how long he's been in the industry.
MR. BLUME answered seven years.
10:51:00 AM
CLAY BEZENEK, Fisherman, stated support for HB 56 and said it is
an important asset for fisherman and a raise on the limit is a
long overdue. It also represents a benefit to the state, he
opined, and suggested that it be made $500,000 to ensure the
ability to purchase safe, economical vessels.
10:54:21 AM
ZACH HILL, Fisherman, stated support for HB 56 and said it's a
crucial as a means to keep young people entering the industry.
Obtaining a standard bank loan to buy a boat is not usually
possible, and expressed support for having the limit increased
beyond $400,000.
10:56:07 AM
MARKOS SCHEER, Attorney, stated support for HB 56 and said much
of his practice involves sea processors. The cost of injury is
high in the industry and the cost of a safe boat starts at
$200,000 for a seiner, coupled with the cost of a permit, which
may be $250,000. The bar for a young person entering the
industry is high, thus, the bill will be welcomed and a higher
limit would be suitable. It is easy to exceed $500,000 to
outfit a gillnet operation, he informed the committee and said
the bill introduces a change that needs to occur.
10:58:53 AM
MALCOLM MILNE, President, North Pacific Fisheries Association
(NPFA), stated support for HB 56 and said, as indicated in the
sponsor statement, the original 1982 figure of $300,000 is no
longer germane in today's economy. The bill will allow young
fishermen to enter the industry, he predicted.
11:01:05 AM
CHAIR STUTES closed public testimony.
11:01:15 AM
REPRESENTATIVE EASTMAN asked whether loan delinquency
projections have been calculated based on an increased limit.
REPRESENTATIVE ORTIZ responded that specific projections have
not been made, but the endorsement for the bill by the agency
has taken into account the solid standing of the program.
CHAIR STUTES announced HB 56 as held.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB056 Sponsor Statement 01.23.17.pdf |
HFSH 2/2/2017 10:00:00 AM |
HB 56 |
| HB056 Sectional Analysis 01.23.17.pdf |
HFSH 2/2/2017 10:00:00 AM |
HB 56 |
| HB056 ver D.pdf |
HFSH 2/2/2017 10:00:00 AM |
HB 56 |
| HB056 Fiscal Note DCCED-DED-01-20-17.pdf |
HFSH 2/2/2017 10:00:00 AM |
HB 56 |
| HB056 Supporting Document-Constituent 01.24.17.pdf |
HFSH 2/2/2017 10:00:00 AM |
HB 56 |
| HB056 Support Decker 02.2.17.pdf |
HFSH 2/2/2017 10:00:00 AM |
HB 56 |
| HB056 Supporting Document CED 2016 Annual State Loan Report.pdf |
HFSH 2/2/2017 10:00:00 AM |
HB 56 |
| HB056 Supporting Document CED 2016 FE Term Ext Report.pdf |
HFSH 2/2/2017 10:00:00 AM |
HB 56 |
| HB056 Support SEAFA.pdf |
HFSH 2/2/2017 10:00:00 AM |
HB 56 |