Legislature(1993 - 1994)

01/21/1994 08:00 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  CHAIRMAN WILLIAMS stated the committee will be taking up SB
  132, a bill that is the Senate companion measure to HB 123,                  
  which the committee had heard and passed last session.  He                   
  reminded committee members, since the Senate bill arrived at                 
  the House before the House bill arrived in the Senate, the                   
  Senate bill becomes the vehicle used.                                        
  Number 140                                                                   
  SB 132: LOANS FOR IFQs                                                       
  CHAIRMAN WILLIAMS stated the committee will take up SB 132,                  
  the companion measure to HB 123.  He informed members that                   
  the version of HB 123 which the committee adopted last year                  
  was different from both the original HB 123 and the current                  
  version of SB 132.  He believed the changes adopted by the                   
  committee improved the bill, made it more responsive to the                  
  needs of small boat fishermen, ensured the loans would not                   
  compete with private sector banks, and enhanced the bill's                   
  purpose of keeping IFQ shares in the hands of Alaskans.                      
  CHAIRMAN WILLIAMS explained the committee substitute drafted                 
  for SB 132 and found in committee folders, amends the bill                   
  to match the language approved last year.  He stated the                     
  sponsor of SB 132, Senator George Jacko, has no objection to                 
  the changes.  He told members a draft letter of intent in                    
  their folders contains language adopted last session, which                  
  suggests the Commercial Fishing and Agriculture Bank (CFAB)                  
  also make loans available for IFQ share purchases.  He said                  
  the second paragraph in the letter is suggested to meet                      
  Senator Jacko's concern on making it clear that passage of                   
  the loan bill in no way implies either endorsement or                        
  condemnation of the IFQ program itself, and that the goal is                 
  strictly to keep the fisheries Alaskan-owned.                                
  Number 175                                                                   
  BRYCE EDGMON, STAFF, SENATOR GEORGE JACKO, relayed Senator                   
  Jacko's support of the committee substitute.  He noted the                   
  bill amends the commercial fisheries loan program to allow                   
  loans to fishermen for the purchase of IFQ shares, and added                 
  that currently, the loan program does not have the ability                   
  to give Alaska fishermen the opportunity to get financing                    
  for purchasing IFQ shares.  He stated Senator Jacko believes                 
  it is important for Alaska fishermen to have this                            
  opportunity and get involved in the halibut and sablefish                    
  Number 193                                                                   
  REPRESENTATIVE JOHN DAVIES asked what the bill does in terms                 
  of providing loans not available through banks, and asked                    
  Mr. Edgmon to comment on the bill possibly eliminating                       
  competition between private banks and the state making                       
  MR. EDGMON said he would like to defer the questions to the                  
  Division of Investments.                                                     
  REPRESENTATIVE DAVIES said he would hold the question.                       
  MR. EDGMON stated in order to qualify for a loan to the                      
  program, a person has to be turned down by two private                       
  Number 211                                                                   
  REPRESENTATIVE JOE GREEN said if an applicant has to be                      
  turned down by two private institutions and then applies to                  
  CFAB for a loan, the loans must be high risk and asked what                  
  the likelihood of repayment on loans will be.                                
  MR. EDGMON clarified that to qualify for an IFQ loan, it is                  
  not two institutions the applicant must be turned down at,                   
  but rather the applicant could not get a loan elsewhere.  He                 
  said the intent of the legislation is to make the                            
  opportunity available for potential IFQ purchasers.                          
  Number 240                                                                   
  MR. SMITH explained one of the unique features of IFQs which                 
  separates them from the limited entry permit system is if                    
  someone holds the quota share, they can catch the fish and                   
  there is a virtual guarantee a certain poundage will be                      
  allocated annually.  He felt that if a loan is made on quota                 
  share, and the terms of the loan include repayment based on                  
  fishing activities, there is not a risk of funding a                         
  noncompetitive, ineffective fisherman.                                       
  Number 260                                                                   
  REPRESENTATIVE GREEN wondered why an applicant would have                    
  difficulty getting a private loan.                                           
  MR. SMITH replied he was not sure.                                           
  MR. EDGMON stated another important characteristic of the                    
  IFQ program is there are no time limits.                                     
  Number 270                                                                   
  REPRESENTATIVE DAVIES asked if a default occurs on the loan,                 
  does the state take ownership of the share.                                  
  Number 280                                                                   
  state would take possession of the shares and would then                     
  attempt to sell them immediately.                                            
  CHAIRMAN WILLIAMS asked Mr. Winegar to comment on the types                  
  of loans to be available.                                                    
  MR. WINEGAR stated the IFQ loan program is very similar to                   
  Section B loans, which are targeted to individuals unable to                 
  get financing elsewhere, and there is intent language in                     
  this bill which sets up the program in the same way.  He                     
  continued there has been a lot of success with the Section B                 
  program and noted the loans are higher risk, but there have                  
  not been significant defaults.                                               
  Number 303                                                                   
  CHAIRMAN WILLIAMS inquired as to the reasons why some                        
  fishermen cannot get loans.                                                  
  MR. WINEGAR replied there are a number of reasons.  He said                  
  the program was initially set up to target rural Alaska                      
  because there were many rural fishermen who felt financing                   
  through traditional sources was difficult.  He added that                    
  standard lending institutions are somewhat conservative in                   
  their lending, and many fishermen would be borderline and                    
  may not qualify for bank financing, but would qualify in the                 
  state program.                                                               
  REPRESENTATIVE PAT CARNEY asked how the interest rate for                    
  this program compares to bank interest rates.                                
  MR. WINEGAR said the current interest rate is 8% and the                     
  rate is tied to the prime, plus two, which is an attractive                  
  Number 340                                                                   
  ALASKA, said he is generally in favor of SB 132, with the                    
  provision that the loan program be available only to Alaska                  
  residents.  He stated he would comment solely on the                         
  educational needs associated with IFQs and the IFQ loan                      
  program, and said there are significant educational                          
  responsibilities associated with the bill.  He stated that                   
  fisherman have a significant need for basic instruction                      
  concerning the optimal use of IFQs.                                          
  MR. PAUST felt something must be learned from the                            
  (indiscernible) and halibut IFQ experience.  He stated the                   
  Marine Advisory Program would like to participate with the                   
  state and the National Marine Fisheries Service in                           
  developing a workshop series and a publication reviewing all                 
  aspects of the administration and use of IFQs.  He felt this                 
  effort would target strategies for the optimal use of IFQs                   
  by participating fisherman, and in the use of IFQs in                        
  transferring high quality Alaska seafood products into the                   
  Number 375                                                                   
  RAYMON SPARLIN, SEWARD, testified via teleconference and                     
  gave his support to SB 132.  He said he has experience with                  
  the state loan program and feels it is the best loan program                 
  in the country.  He stated there are a few items which need                  
  to be clarified including whether CFAB is a private sector                   
  bank.  He told committee members he is glad there is an                      
  awareness of the problem that quota shares may be in the                     
  hands of wealthy corporations and asked if at all possible,                  
  that quota shares be kept in the hands of those who actually                 
  do the fishing and deliver the fish on their own permit.                     
  Number 410                                                                   
  NANCY LANDE, SEWARD, testified via teleconference and stated                 
  she is not in support of SB 132 and felt it was premature.                   
  She questioned if IFQs are used for collateral and a default                 
  occurs, will the federal government allow the state to have                  
  the quota shares or will there be a competition between the                  
  two governments for the shares.  She noted there is a                        
  $300,000 cap on the loans, and stated if quota shares go as                  
  they have in a similar Canadian program, selling for $10 a                   
  pound or a 30,000 pound gross, and the market price for                      
  halibut stays at the present level, it will be difficult for                 
  a person to make payments even though they are guaranteed                    
  that amount of poundage.                                                     
  Number 450                                                                   
  (CHAIRMAN WILLIAMS noted for the record that REPRESENTATIVE                  
  HUDSON joined the Committee at 8:50 a.m.)                                    
  CHAIRMAN WILLIAMS said the IFQ program will begin in March                   
  1995 and any time concerns will be taken care of.                            
  Number 465                                                                   
  JERE MURRAY, SELDOVIA, via teleconference, read a statement                  
  which was faxed to the committee (on file.)                                  
  Number 530                                                                   
  CHAIRMAN WILLIAMS asked Mr. Smith if he would like to                        
  MR. SMITH said the quote attributed to him about the "orgy                   
  of transfers" was made before the advisory panel for the                     
  North Pacific Fisheries Management Council.  He stated                       
  because there will be a large number of people receiving an                  
  initial issuance of a quota share who may not be present                     
  participants in the fisheries, and likewise, a number of                     
  people participating at a level higher than the quota share                  
  issued to them, there will be a rapid market for quota share                 
  CHAIRMAN WILLIAMS again reminded everyone that SB 132 does                   
  not imply the support of the IFQ program.                                    
  Number 585                                                                   
  REPRESENTATIVE BILL HUDSON asked what number of permits will                 
  remain in Alaska.                                                            
  MR. SMITH replied he did not want to speculate, but of the                   
  total number of people who are going to receive initial                      
  issuance of quota shares, about 80 percent are Alaskans.  He                 
  thought approximately 60 percent of the poundage initially                   
  allocated will go to Alaskans.  He added he would be happy                   
  to get the correct numbers if the committee desired.                         
  Number 600                                                                   
  REPRESENTATIVE HUDSON asked if the loan program will be                      
  limited to Alaska residents and what the residency                           
  requirement will be.                                                         
  Number 620                                                                   
  MR. WINEGAR stated the current residency requirement is two                  
  REPRESENTATIVE HUDSON asked if the residency requirement is                  
  being challenged.                                                            
  MR. WINEGAR said at this point it has not been challenged.                   
  Number 633                                                                   
  REPRESENTATIVE GREEN asked in regard to IFQs being issued to                 
  fishermen from past records who may not be fishing now,                      
  would those people reenter the fishery or put their shares                   
  up for sale.                                                                 
  MR. SMITH replied he did not know, and added that the                        
  program rules specify if people have been participants in                    
  the fishery as owners of vessels or leased vessels in 1988,                  
  1989, or 1990, they are eligible to receive some initial                     
  issuance of quota share, computed on their fishing history                   
  back to 1984.  He stated if people have departed from the                    
  fishery, some may be induced to return to it or they may be                  
  interested in transferring it as soon as they receive it.                    
  Number 679                                                                   
  REPRESENTATIVE GREEN stated with the current fiscal problem,                 
  he is concerned about IFQs being issued to people who do not                 
  plan to fish.  He wondered if there are any safeguards                       
  against an Alaskan fisherman getting an IFQ, getting a loan                  
  and then selling the share to a non-Alaskan.                                 
  MR. SMITH said the program is neutral with respect to state                  
  residency requirements as it is a federal program.                           
  REPRESENTATIVE CARNEY said Mr. Murray's comments were ended                  
  by a statement that the program could increase the value of                  
  Number 716                                                                   
  MR. SMITH stated he did not understand Mr. Murray's comment,                 
  but if the assertion was that the value of quota would go up                 
  over time, he would not disagree.                                            
  CHAIRMAN WILLIAMS said the quota will go up by bringing more                 
  poundage to an IFQ, and in order to participate in a loan                    
  program, you have to actively be participating in the                        
  TAPE 94-2, SIDE B                                                            
  Number 000                                                                   
  REPRESENTATIVE CARNEY felt the availability of financing                     
  will make it likely people can pay a higher price if the                     
  poundage is available.                                                       
  MR. WINEGAR pointed out the availability of financing could                  
  have an effect on the price but with or without the state                    
  loan program, private financing will be available.                           
  Number 008                                                                   
  REPRESENTATIVE CARNEY noted the state loan program will have                 
  a lower rate of interest than most commercial banks and                      
  money will be more readily available.                                        
  MR. WINEGAR replied that was correct and added there is a                    
  provision that if a person qualifies for bank financing,                     
  they cannot get a loan through the state program.                            
  Number 017                                                                   
  REPRESENTATIVE DAVIES said he does not see anything in the                   
  program which limits speculation.                                            
  MR. SMITH replied there are elements where you do not have                   
  to be a fisherman depending upon the nature of the entity                    
  which received the quota share in the beginning, but after                   
  initial issuance, subsequent transfers must go to                            
  individuals who have 150 days experience in commercial                       
  fishing.  He added that quota share by itself is not of much                 
  value except on paper; the real value of quota share is that                 
  it is the means by which individual fishing quota is                         
  provided to fishermen.                                                       
  REPRESENTATIVE DAVIES said he disagreed.                                     
  MR. SMITH said if the Division of Investments repossesses                    
  quota share under the loan program, they hold paper but                      
  cannot fish it.  Before fishing can occur, the share has to                  
  be transferred to someone who is eligible to receive and                     
  fish the IFQ which accompanies it.                                           
  REPRESENTATIVE CARNEY asked if there are any specifications                  
  on the amount of quota which can be transferred.                             
  Number 051                                                                   
  MR. SMITH replied the restriction is the overall cap on what                 
  percentage of the total quota share pool one person can                      
  REPRESENTATIVE CARNEY inquired what the cap is.                              
  MR. SMITH stated the cap is one-half of one percent in the                   
  halibut fisheries in the Gulf/Bering Sea, and one percent in                 
  Southeast halibut fisheries.                                                 
  REPRESENTATIVE HUDSON inquired how much money is available                   
  in the loan portfolio.                                                       
  MR. WINEGAR replied approximately $14 million.                               
  REPRESENTATIVE HUDSON said he was not talking just about                     
  IFQs but also limited permits and other loans.                               
  MR. WINEGAR replied the department has received                              
  approximately 275 extension applications this year out of                    
  about 1200.                                                                  
  Number 082                                                                   
  REPRESENTATIVE HUDSON wondered what effect expanding access                  
  to limited funds will do to existing loan applicants or                      
  MR. WINEGAR said language in SB 132 provides that financing                  
  for other parts of the program are handled first before                      
  financing for IFQs is available, so it should have no                        
  effect.  He said the department is anticipating having $5                    
  million available over and above the loan demand for other                   
  parts of the program.                                                        
  REPRESENTATIVE HUDSON asked what kind of criteria will be                    
  used to approve loans.                                                       
  MR. WINEGAR said the same type of criteria currently used on                 
  the existing program will be used.                                           
  REPRESENTATIVE HUDSON wondered if that was collateral, years                 
  of experience, etc.                                                          
  MR. WINEGAR stated that is correct and debt service, past                    
  credit, all sources of income, etc. is also reviewed.                        
  Number 108                                                                   
  REPRESENTATIVE HUDSON asked if there is any opportunity to                   
  modify existing rules to provide for some regional economic                  
  interest to be considered when distributing quotas.                          
  MR. SMITH replied the program does have a community                          
  development quota component for communities on the Bering                    
  Sea coast and the Aleutian Islands.  He added that any                       
  additional modifications will have to be developed by the                    
  North Pacific Management Council.                                            
  REPRESENTATIVE HUDSON felt the CDQ program should have been                  
  expanded in other areas because in Kodiak, for example,                      
  there are many fishermen who have small quotas.  He pointed                  
  out the area is heavily involved with large vessels coming                   
  up from Seattle that produce large quotas, and when the                      
  shares are distributed, nonresident boats will be dominant                   
  in the region and small boats will face a tough economic                     
  REPRESENTATIVE HUDSON felt the legislature and the committee                 
  should be doing everything possible to gain an analysis of                   
  how regions along the coast are going to be negatively                       
  impacted by the quota system, and also do everything                         
  possible to expand the community development quota program                   
  or some application of the CDQ program within the IFQ                        
  program.  He requested Mr. Smith to identify, if possible,                   
  where the overbalance of the nonresident through the IFQ                     
  program is going to exist.                                                   
  REPRESENTATIVE HUDSON stated the information requested will                  
  help him better understand the financial implications of the                 
  program.  He also asked if there is statistical information                  
  available as to how many loans will be made, and whether                     
  reducing the loan amount to $100,000 will have an                            
  appreciable effect.                                                          
  Number 160                                                                   
  MR. SMITH replied he would revisit the data which has been                   
  developed as to the probable allocation of quota share and                   
  make it available within a week.                                             
  REPRESENTATIVE DAVIES asked if there is also information                     
  regarding the residency of people.                                           
  MR. SMITH stated there probably is and added the information                 
  was developed by the staff of the North Pacific Fisheries                    
  Management Council.                                                          
  REPRESENTATIVE GREEN stated he is concerned that IFQ loans                   
  might also have a 25 percent or greater default rate and                     
  felt combining CDQs and IFQs, especially in areas that are                   
  impacted adversely, enabling a viable quota, is a great                      
  Number 195                                                                   
  CAROLYN NICHOLS, SITKA, testifying via teleconference, said                  
  she believed that if the state is going to loan for IFQs,                    
  they should either do it or not do it, but the findings and                  
  intent section should be deleted.  She felt that section                     
  adds nothing to the loan program and is insensitive to many                  
  fishermen.  She stated the findings and intent section is                    
  out of place and felt a loan program on IFQs should have the                 
  same setup as the existing boat and permit loan program.                     
  CHAIRMAN WILLIAMS said the committee substitute for SB 132                   
  does change that section and added that the intent language                  
  reads as follows:  "It is also the intent of the House                       
  Resources Committee, that passage of this bill in no way                     
  implies either legislative support for, or opposition to,                    
  the IFQ program, only a commitment to ensuring that Alaskans                 
  have as much opportunity as possible to acquire quota shares                 
  if-or-when the IFQ program is implemented."                                  
  Number 223                                                                   
  REPRESENTATIVE DAVIES stated the committee had heard public                  
  testimony, illustrating the problem of not having the exact                  
  materials the committee has at the teleconference, and                       
  requested whenever there are teleconferences, the most                       
  current documents be faxed to those locations.                               
  Number 339                                                                   
  REPRESENTATIVE HUDSON MOVED to adopt the draft committee                     
  substitute as HCS CSSB 132 (RES).                                            
  CHAIRMAN WILLIAMS asked for objections to the motion and,                    
  hearing none, HCS CSSB 132 (RES) was ADOPTED.                                
  REPRESENTATIVE HUDSON MOVED to adopt the House Resources                     
  Committee Letter of Intent for HCS CSSB 132 (RES).                           
  CHAIRMAN WILLIAMS asked for objections to the motion and,                    
  hearing none, the House Resources Committee Letter of Intent                 
  for HCS CSSB 132 (RES) was ADOPTED.                                          
  CHAIRMAN WILLIAMS asked for a motion to move SB 132 out of                   
  Number 350                                                                   
  REPRESENTATIVE HUDSON stated, prior to entertaining that                     
  motion, he would like to get the information requested on                    
  the impact of SB 132, particularly on the economics of some                  
  of the regional areas in the state.                                          
  MR. SMITH said he would have information for the committee                   
  by January 28, 1994.                                                         
  CHAIRMAN WILLIAMS responded the committee will hold SB 132                   
  for one week until the information is received.                              

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