Legislature(2017 - 2018)BARNES 124

02/12/2018 03:15 PM House LABOR & COMMERCE

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            HB 304-MICROLOAN REVOLVING FUND & LOANS                                                                         
3:18:48 PM                                                                                                                    
CHAIR KITO  announced that the  first order of business  would be                                                               
HOUSE  BILL NO.  304, "An  Act relating  to the  Alaska microloan                                                               
revolving loan fund and loans from the fund."                                                                                   
3:19:05 PM                                                                                                                    
BRITANY   CIONI-HAYWOOD,    Director,   Division    of   Economic                                                               
Development (DED),  Department of Commerce, Community  & Economic                                                               
Development  (DCCED), presented  HB 304  on behalf  of the  House                                                               
Rules Committee  by request of  the governor.  She  discussed the                                                               
microloan revolving  fund and some  proposed changes.    She said                                                               
new businesses were responsible for  about 80 percent of new jobs                                                               
across the  United States.   She  underlined that  new businesses                                                               
often  have  trouble  securing  standard loans.    The  fund  was                                                               
created  by   the  legislature  in   2012  to   promote  economic                                                               
development in Alaska by helping  small businesses access capital                                                               
for Alaska residents.                                                                                                           
MS. CIONI-HAYWOOD  continued to  describe the  loan.   She stated                                                               
the maximum amount  was $35,000 and $70,000 for two  people.  She                                                               
said loan requests of $35,000 or  more require a letter of denial                                                               
from the  bank stating reasons for  denial.  She added  loans are                                                               
for  6  years  and  interest  rates are  fixed  at  the  time  of                                                               
approval.    She said  that  other  non-state resources  must  be                                                               
committed for the  use of any project for which  the loan will be                                                               
used.   She added the  changes in  the proposed bill  correct for                                                               
the  lower tier  for the  bank  denial from  $34,999 to  $35,000,                                                               
increase  maximum  loan  term  from  6 years  to  15  years,  and                                                               
increase  interest rate  calculation by  one percentage  point to                                                               
put the  loans in line with  other state loans programs  at prime                                                               
plus 2 percent.                                                                                                                 
3:22:28 PM                                                                                                                    
MS.  CIONI-HAYWOOD   stated  the   current  loan  terms   do  not                                                               
incentivize  businesses  to take  risks.    The proposed  changes                                                               
would facilitate start-ups by adjusting  monthly payments and due                                                               
to the relatively low loan amount  it was expected that the loans                                                               
would  not impact  the private  banking sector.   She  shared the                                                               
hope  that growing  a  small business  sector  would create  more                                                               
viable business that  can be serviced by  private institutions in                                                               
the future.                                                                                                                     
3:23:39 PM                                                                                                                    
REPRESENTATIVE BIRCH asked why the  state would want to invest in                                                               
something that a bank would not supply with a loan.                                                                             
MS. CIONI-HAYWOOD  answered that  the loan  helps people  with no                                                               
established  credit.    She explained  that  the  state  examines                                                               
different  criteria.    She  specified that  all  the  loans  are                                                               
REPRESENTATIVE BIRCH  asked about the  pool from which  the loans                                                               
are drawn.                                                                                                                      
MS.  CIONI-HAYWOOD described  which people  would be  appropriate                                                               
recipients for the  loan and what kind of  businesses were likely                                                               
to be involved.                                                                                                                 
3:27:44 PM                                                                                                                    
REPRESENTATIVE  KNOPP asked  for  confirmation  that the  minimum                                                               
amount without a bank letter of denial was $35,000.                                                                             
MS. CIONI-HAYWOOD  answered that was  the current minimum  and no                                                               
change was present in the proposed bill.                                                                                        
REPRESENTATIVE  KNOPP  remarked  that  4 percent  over  15  years                                                               
stands out as  low interest rate.  He asked  about changes in the                                                               
interest rate over time.                                                                                                        
MS.  CIONI-HAYWOOD  answered  that  interest  rates  are  set  in                                                               
statute at 2 percent plus prime.                                                                                                
3:29:48 PM                                                                                                                    
REPRESENTATIVE SULLIVAN-LEONARD  asked about the  current balance                                                               
of the fund.                                                                                                                    
MS. CIONI-HAYWOOD answered the current  cash amount available for                                                               
lending was $2.27 million.                                                                                                      
REPRESENTATIVE SULLIVAN-LEONARD said she thought  it was a lot of                                                               
risk  for the  state.   She  asked about  working  with banks  to                                                               
assist people  to transition to  a conventional loan.   She asked                                                               
whether the state loan affected borrowers' credit rating.                                                                       
MS. CIONI-HAYWOOD  answered that the  loan did not  affect credit                                                               
ratings.   She  said  the goal  is  to grow  lenders  out of  the                                                               
program and towards private lending.                                                                                            
3:32:01 PM                                                                                                                    
REPRESENTATIVE STUTES  asked how many  loans had been  issued and                                                               
what the success rate was on the loans.                                                                                         
MS.  CIONI-HAYWOOD answered  that currently  33 applications  had                                                               
been  received,  of  which  14  were  approved.    The  principal                                                               
outstanding was  $93 thousand.   She added the  department wanted                                                               
to see the loan fund better  utilized.  She commented that due to                                                               
the  repayment  schedule,  some borrowers  were  not  willing  to                                                               
accept the risk.                                                                                                                
REPRESENTATIVE  STUTES  asked  about   the  rate  of  success  in                                                               
MS. CIONI-HAYWOOD  answered the current delinquency  rate was 6.1                                                               
REPRESENTATIVE  WOOL asked  how much  collateral was  required to                                                               
receive the loan.                                                                                                               
MS.  CIONI-HAYWOOD answered  that  collateral can  vary from  the                                                               
equipment for which the loan is  being sought or an asset such as                                                               
a car or home.                                                                                                                  
3:35:05 PM                                                                                                                    
REPRESENTATIVE WOOL asked what the current maximum loan was.                                                                    
MS. CIONI-HAYWOOD  answered the current maximum  loan was $34,999                                                               
for one person and $70,000 for two people.                                                                                      
REPRESENTATIVE  WOOL  asked what  would  change  in the  proposed                                                               
MS. CIONI-HAYWOOD  answered the amount would  change from $34,999                                                               
to $35,000  and the interest  rate would  change to prime  plus 2                                                               
percent rather than prime plus 1 percent.                                                                                       
3:36:26 PM                                                                                                                    
REPRESENTATIVE  KNOPP  asked  whether  the  interest  rate  would                                                               
fluctuate with prime.                                                                                                           
MS. CIONI-HAYWOOD answered the interest  rate was fixed but could                                                               
fluctuate  when the  Federal Reserve  increases  the prime  rate.                                                               
She added the rates were set quarterly.                                                                                         
REPRESENTATIVE  KNOPP  asked  whether   an  individual  could  be                                                               
eligible for more than one loan.                                                                                                
MS. CIONI-HAYWOOD  answered they could  be eligible for  one loan                                                               
per project.                                                                                                                    
3:37:41 PM                                                                                                                    
REPRESENTATIVE WOOL asked how the program is advertised.                                                                        
MS. CIONI-HAYWOOD  answered there is some  community outreach but                                                               
that it  is constrained by  travel limitations.  She  added there                                                               
are different  community entities that the  department works with                                                               
to reach out to potential loan participants.                                                                                    
3:40:04 PM                                                                                                                    
CHAIR KITO opened public testimony on HB 304.                                                                                   
3:40:23 PM                                                                                                                    
TIM   DILLON,  Executive   Director,  Kenai   Peninsula  Economic                                                               
Development District, testified in support  of HB 304.  He stated                                                               
his  organization was  frequently approached  for information  on                                                               
small business loans.   He spoke to the  proposed improvements to                                                               
the  current  microloan revolving  loan  program.   He  said  his                                                               
organization only  had enough in  their program for six  or seven                                                               
loans, and  the state loan  program would help them  direct small                                                               
businesses to loan opportunities.                                                                                               
3:43:42 PM                                                                                                                    
REPRESENTATIVE  BIRCH asked  about Mr.  Dillon's experience  with                                                               
loans, collateral, risk, and repayment.                                                                                         
MR. DILLON  answered his organization  has had a lot  of success.                                                               
He  mentioned  the  Kenai  River Brewing  Company  and  said  his                                                               
program had made the loan for  the brewery's canning machine.  He                                                               
stated his board contains a  committee which only looks at loans.                                                               
He specified his  organization issued a maximum  loan of $25,000.                                                               
He reiterated that any additional help would be welcome.                                                                        
3:46:04 PM                                                                                                                    
REPRESENTATIVE KNOPP asked whether  Mr. Dillion had ever referred                                                               
clients to the state microloan revolving loan program.                                                                          
MR. DILLON  answered in the affirmative.   He added that  when he                                                               
was city  manager of Seldovia  he had directed two  businesses to                                                               
the loan program.                                                                                                               
3:47:33 PM                                                                                                                    
NOLAN KLOUDA, Director, University  of Alaska Center for Economic                                                               
Development, testified  in support of  HB 304.   He spoke  to the                                                               
importance  of  creating  new  jobs  in  Alaska.    He  said  new                                                               
businesses  are  responsible  for   nearly  100  percent  of  net                                                               
employment growth in  Alaska each year.  He  said businesses with                                                               
fewer than  5 employees create  around 3,600  jobs per year.   He                                                               
added  around  60  percent  of  new  business  owners  use  their                                                               
personal savings  to start out.   He  spoke to the  risk element.                                                               
He said  that small loans do  not tend to be  very profitable for                                                               
banks, which causes banks to "shy away" from smaller loans.                                                                     
3:51:05 PM                                                                                                                    
REPRESENTATIVE KNOPP  asked about concerns regarding  the success                                                               
rate of new start-up businesses.                                                                                                
MR. KLOUDA  answered that it  is something  that has to  be taken                                                               
into account.   He stated  loans have terms and  conditions which                                                               
can mitigate major risk factors.   He said cash flow, collateral,                                                               
and other  risk factors are examined  by finance staff.   He said                                                               
the risk factor was not particularly worrisome.                                                                                 
3:52:57 PM                                                                                                                    
TRAVIS LEWIS,  Vice President, Alaskans for  Alaska, testified in                                                               
support of  HB 304.   He stated  his organization and  his family                                                               
and friends were  direct beneficiaries of the state  program.  He                                                               
brought up the  issue of residency and said he  thought it should                                                               
be stricter.  He spoke to  family businesses and gave the example                                                               
of inherited fishing boats or  businesses that need to be updated                                                               
in order  to comply with  new regulations.   He pointed  out that                                                               
many businesses  were the continuation  of old  businesses rather                                                               
than new  businesses.   He said small  businesses in  rural areas                                                               
were trying  to keep  winter jobs available.   He  reiterated his                                                               
concern that people were applying for  the loans who only spent a                                                               
few months a  year in the state, taking  opportunities from local                                                               
CHAIR KITO held over HB 304.                                                                                                    

Document Name Date/Time Subjects
HB304 Fiscal Note-INV 1.30.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 304
HB304 Transmittal Letter 1.30.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 304
HB306 Fiscal Note DOA RNB 1.16.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 306
HB304 ver A 1.30.18.PDF HL&C 2/12/2018 3:15:00 PM
HB 304
HB304 Sectional Analysis ver A 1.30.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 304
HB304 Fiscal Note DCCED DED 1.22.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 304
HB306 Version A.pdf HL&C 2/12/2018 3:15:00 PM
HB 306
HB306 Governor Transmittal Letter PERS & TRS 1.29.18.PDF HL&C 2/12/2018 3:15:00 PM
HB 306
HB306 Sectional Analysis 1.29.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 306
HB306 Presentation (H)L&C 2.14.18.pdf HL&C 2/12/2018 3:15:00 PM
HB 306