Legislature(1993 - 1994)

03/23/1994 08:30 AM House FSH

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  HB 424 - FISHERY LOAN PROGRAM                                                
  The only order of business to come before the committee was                  
  HB 424 "An Act amending the Commercial Fishing Loan Act to                   
  increase the maximum amount of certain authorized loans and                  
  to remove certain barriers to eligibility for subsequent                     
  loans by borrowers who have previously obtained loans under                  
  that loan program."                                                          
  sponsor of the measure, indicated that Representative Green                  
  was in another meeting.  He explained that HB 424 is a                       
  result of discussions Representative Green had over the                      
  interim with a constituent.  The constituent is a commercial                 
  fisherman and found himself restricted by a subsection in                    
  the law that may not need to be there to serve the interests                 
  of the state in a loan program.  The Fisheries Loan Program                  
  is not an aspect of the law that Representative Green has                    
  spent a lot of time on.  Mr. Logan said if there needs to be                 
  improving changes in the legislation, Representative Green                   
  would be open to it.                                                         
  MR. LOGAN explained that under the loan program there are                    
  two different sections.  There is an "A" loan which is a                     
  loan for permits.  They go up to $300 thousand.  There is                    
  also the "B" loan which is a loan for gear, permits and                      
  vessels.  A person may borrow up to $100 thousand.  Mr.                      
  Logan said the problem is AS 16.10.320 (i) states that if                    
  you first get a "B" loan, you are not eligible for the "A"                   
  loan.  So if you already have a vessel or gear under the "B"                 
  program, you cannot apply to get a permit under the "A"                      
  program.  Mr. Logan explained that a few years ago when the                  
  value of permits increased a great deal, those participants                  
  who were working under the "B" loan needed to increase the                   
  amount of their loan because the cost of the permits went                    
  up.  Once they were in the "A" program, they couldn't                        
  participate in receiving a "B" loan.  Mr. Logan said what is                 
  proposed in HB 424, Section 3, is to repeal that                             
  restriction.  If you are eligible for one, you would be                      
  eligible for both.                                                           
  MR. LOGAN said while making the change, the drafters of the                  
  bill noted there were a few other subsections that needed to                 
  be conformed to.  In doing that, it created something in                     
  Section 2 that we don't want.  Section 2 says, "Two or more                  
  individual commercial fishermen who each satisfy the                         
  requirements specified in AS 16.10.310(a)(1)(B) may jointly,                 
  whether operating as a corporation, partnership, joint                       
  venture, or otherwise, obtain a commercial fishing loan for                  
  the repair, restoration, or upgrading of an existing vessel                  
  and gear, for the purchase of gear, and for the construction                 
  or the purchase of a fishing vessel.  A loan granted under                   
  this subsection may not exceed $100,000..."  Mr. Logan                       
  explained with the dynamic bottom fishery and the Individual                 
  Fishery Quotas (IFQs) coming up, this may put into statute a                 
  restriction that is not Representative Green's intent at                     
  all.  The problem would be that an individual fishermen                      
  applying would be eligible for $100 thousand, but if it                      
  would be for a permit they would be eligible for $300                        
  thousand.  Yet two fishermen together could get $200                         
  thousand.  He noted that Greg Winegar from the Division of                   
  Investments is in attendance.                                                
  REPRESENTATIVE CLIFF DAVIDSON pointed out that                               
  Representative Green represents an area of Anchorage and                     
  asked what prompted his interest in such a loan program.                     
  MR. LOGAN explained there are some constituents who are                      
  commercial fishermen in District 10.                                         
  MR. LOGAN said in trying to figure out why the restriction                   
  was in statute, he spoke to the Division of Investments.                     
  They weren't exactly sure but they had some ideas.  Mr.                      
  Logan said in the committee member's packets there is a                      
  memorandum from Legislative Legal as to why it was in                        
  statute, but it isn't exactly clear.                                         
  DEVELOPMENT, discussed the history of the restriction that                   
  is in the statute.  He said a number of years ago there was                  
  a program called Fishermen's Mortgage and Note which was set                 
  up for rural fishermen.  In the early 1980s, the state made                  
  a decision to get the state out of the lending business in                   
  regards to commercial fishing vessels.  The Commercial                       
  Fishing and Agricultural Bank (CFAB) and the Alaska                          
  Industrial Development and Export Authority (AIDEA) were                     
  created.  At that time, the idea was to let those entities                   
  do vessel financing.  For a couple of years, this program                    
  only allowed the state to make loans for limited entry                       
  permits.  In the mid-1980s it was decided that there was a                   
  lot of rural fishermen that were having trouble getting                      
  loans through the traditional sources so they created what                   
  was called the Fishermen's Mortgage and Note Program, which                  
  was targeted at rural fishermen that couldn't get loans any                  
  place else.  Mr. Winegar said that program was combined with                 
  the Commercial Fishing Program and that is what Section "B"                  
  is.  The language goes back to the old Fishermen's Mortgage                  
  and Note Program which said that the Section "B" loans were                  
  targeted at rural fishermen who couldn't get loans                           
  REPRESENTATIVE DAVIDSON said the effect would be a                           
  diminished amount as far as the overall fund is concerned to                 
  those people who reside in rural Alaska.                                     
  MR. WINEGAR said it would increase loan demand by increasing                 
  the dollar amount from $100 thousand to $300 thousand.  It                   
  would also mean there would be more borrowers eligible by                    
  removing the restriction.  The demand would increase                         
  overall.  That should be taken into consideration along with                 
  SB 132 which deals with individual fishing quotas and HB
  381/SB 251 which makes changes to the program.                               
  REPRESENTATIVE DAVIDSON informed the committee that he has a                 
  problem with the legislation.  The people that we are trying                 
  to benefit by some of the loan programs are people who are                   
  left out of the normal traditional loan stream.  By                          
  expanding the reasons for getting loans from any fund will                   
  impact what is available for those who are trying to get                     
  involved through youthful entry.  Representative Davidson                    
  said as a representative from a coastal fishing area, the                    
  more difficult we make it for youthful entry into the                        
  fisheries, the dimmer our future is.                                         
  Number 225                                                                   
  CHAIRMAN MOSES asked if the overall limit of $300 thousand                   
  would change.                                                                
  MR. WINEGAR explained the overall limit for the program                      
  would stay at $300 thousand.  It increases the limit under                   
  Section "B" from $100 thousand to $300 thousand.  The                        
  overall limit for the whole program is $300 thousand.                        
  Number 236                                                                   
  REPRESENTATIVE IRENE NICHOLIA said if somebody received a                    
  loan for $100 thousand under the "B" Program and wanted to                   
  use the "A" Program to get $300 thousand for a total of $400                 
  thousand, is a person able to do that.                                       
  MR. WINEGAR explained that a person could receive $100                       
  thousand under the "B" Program and then they would be                        
  eligible for $200 thousand under the "A" Program for a total                 
  of $300 thousand.                                                            
  CHAIRMAN MOSES asked if the criteria for borrowing is the                    
  same for both programs.                                                      
  MR. WINEGAR explained the eligibility is different.  Under                   
  Section "A," you must have been a two year resident and have                 
  actively participated in a fishery three of the past five                    
  years, including the preceding season.  Under Section "B,"                   
  the residency is the same but you have to be economically                    
  dependent on fishing for a livelihood or be in an area where                 
  you have no other sources of financing available.  The other                 
  difference is under Section "B," you are not eligible if you                 
  can get the financing elsewhere.  He noted that restriction                  
  doesn't apply to Section "A."                                                
  Number 261                                                                   
  CHAIRMAN MOSES asked if the requirements can be changed                      
  under regulation.                                                            
  MR. WINEGAR said as far as eligibility goes, he would say                    
  no.  No changes have been made as to what the statute                        
  requires in regards to eligibility.  He said they have                       
  further defined, by regulation, what things mean.  Mr.                       
  Winegar explained the term "active participation" was                        
  debated at great length.  The division implemented                           
  regulations to define what was meant by "active                              
  participation."  He referred to the financial aspects of the                 
  loans and said each loan is reviewed on an individual basis                  
  and there are a number of factors that are weighed.                          
  REPRESENTATIVE DAVIDSON said he would like to know what some                 
  of the different fishing organizations feel about the impact                 
  on their loan funds.  He indicated he isn't ready to vote on                 
  the legislation yet.                                                         
  Number 325                                                                   
  PHILLIPS, referred to Section "B" of the bill and said the                   
  loan program is a way to help people in Western Alaska                       
  become more competitive whether it was through the purchase                  
  permits or boats.  We have reached a point in time when the                  
  industry has evolved a lot.  The idea behind the bill is to                  
  help residents.  Mr. Heimbuch said that people who went and                  
  got Section"A" loans probably didn't consider the                            
  ramifications of not being able to upgrade their vessels.                    
  As the industry progressed, the need for vessel loans to                     
  keep pace with the industry has increased.  Mr. Heimbuch                     
  referred to money being taken away from the total amount of                  
  money available for loans within the total "A" and "B"                       
  Sections of the Division of Investments, there always seems                  
  to be plenty of money there for these loans.  If they are                    
  distributed between Section "A" and Section "B" in a                         
  different way, he wouldn't think it would affect the overall                 
  amount of money available.  Mr. Heimbuch said he views the                   
  bill and the evolution of the program as being one to help                   
  residents get competitive vessels into the industry.                         
  Number 370                                                                   
  REPRESENTATIVE DAVIDSON referred to a memorandum from the                    
  Department of Commerce and Economic Development and said                     
  they indicate that loan demand for Section "B" loans would                   
  increase.  That would increase demand on the commercial                      
  fishing loan fund.                                                           
  MR. HEIMBUCH said when a person applies for a Section "A"                    
  loan, they are eligible to use different kinds of                            
  collateral.  The collateral value of your boat could be used                 
  to get a Section "A" loan.  A loan could be structured in a                  
  way that you could get money to finance a vessel through                     
  either part of the loan program.                                             
  REPRESENTATIVE DAVIDSON said if you have the "A" or "B"                      
  loan, why can't you leverage from commercial loan                            
  opportunities what you're seeking overall.  If you have one                  
  loan, you are halfway there.  He indicated he thought the                    
  loans were to help people who aren't even halfway there.                     
  MR. HEIMBUCH said the biggest differential is the ability to                 
  use that permit as collateral which is only available                        
  through the State of Alaska.  CFAB, for most people who                      
  review it, is not a great organization to get a loan                         
  through.  The State of Alaska is the only place for people                   
  who are halfway there, part way there, or are all the way                    
  there, can really reasonably finance their loan.  He                         
  continued to discuss loan programs.                                          
  CHAIRMAN MOSES said there are a lot of fishermen in the                      
  Chignik/Perryville/Ivanof Bay area where they went to                        
  "fly-by-night" financial deals and were financed at 17 or 18                 
  percent with five to seven year terms.  He asked if the                      
  legislation would help those people.                                         
  MR. HEIMBUCH said he thinks that SB 251 and HB 381 would                     
  help in those cases.  Those bills contain a provision where                  
  existing debt can be refinanced.  Under current statute, it                  
  can't be done.                                                               
  CHAIRMAN MOSES announced that the bill would be held for                     
  further review.                                                              
  Number 419                                                                   
  There being no further business to come before the House                     
  Special Committee on Fisheries, CHAIRMAN MOSES adjourned the                 
  meeting at 9:07 a.m.                                                         

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