Legislature(1997 - 1998)

03/06/1997 01:10 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 HB 123 - TAX OBLIGATION LOAN PROGRAM                                        
 C0-CHAIRMAN HUDSON announced the committee would hear HB 123, "An             
 Act relating to the repeal of the termination date of the federal             
 tax obligation loan program under the Commercial Fishing Loan Act;            
 and providing for an effective date."                                         
 Number 1443                                                                   
 REPRESENTATIVE IVAN IVAN, Alaska State Legislature, explained the             
 bill repealed the termination date of the federal tax obligation              
 loan program that was under the Commercial Fishing Loan Act.  This            
 program was due to sunset on May 26, 1997.  Thus far, 207 loans had           
 been made to fishermen who otherwise would have lost or possibly              
 could have lost their limited entry permits through actions taken             
 by the Internal Revenue Service-the seizure of permits for the                
 payment of delinquent taxes.                                                  
 REPRESENTATIVE IVAN further stated that Mr. Twomley provided a good           
 overview earlier on touching parts of HB 123 and its intent.  It              
 certainly impacted the Dillingham area, the rest of rural Alaska              
 and the entire state of Alaska.  The incident on December 11, 1996            
 when the state was blind sided by the IRS by giving only two days             
 notice and by conducting a pre-Christmas sale of an Alaskan limited           
 entry permit affected a 54 year old Alaskan Native fisherman from             
 a small coastal community.  The value of the permit was $30,000 but           
 it was sold for about $5,000.  It was a sad time for the family,              
 and it affected the people throughout rural Alaska with high                  
 unemployment because commercial fishing is the means for most to              
 gain an annual income.                                                        
 REPRESENTATIVE IVAN further stated that there were people from the            
 Division of Investment here today to answer any technical                     
 Number 1584                                                                   
 GREG WINEGAR, Juneau Lending Branch Manager, Division of                      
 Investments, Department of Commercial and Economic Development,               
 explained the agency administered the tax obligation program that             
 would sunset if the bill did not pass.  The program was established           
 three years ago because there were a number of Alaskan commercial             
 fishers that were having a tough time with the IRS and were in                
 danger of having their permits repossessed.  The program had been             
 very successful.  The division had assisted over 200 individuals by           
 protecting their permits and their way of making a living.  He                
 believed that there was still a need for the program, to a lesser             
 extent, because of progress.  There was a fairly high delinquency             
 rate with the program-33 percent.  Of that 33 percent, all but 11             
 percent either had a work out in progress or an extension that                
 would cure the delinquency.  He also noted that the loans were                
 fully secure in the event a delinquency could not be resolved.  The           
 program, he explained, was a revolving fund.  The division had not            
 received any general fund money since 1985.  Essentially, the                 
 division loaned money that it received back from re-payments.  It             
 worked out to about $15 million per year.  Mr. Winegar explained              
 the division submitted a zero fiscal note, and he would be willing            
 to answer any questions from the committee members.                           
 Number 1675                                                                   
 REPRESENTATIVE GREEN asked Mr. Winegar if the loans were secured              
 against the vessels, something tangible, or were they secured                 
 against the permit valuation?                                                 
 Number 1687                                                                   
 MR. WINEGAR replied it was a variety of things.  Many times it was            
 the permit.  The division was also able to take vessels, gear and             
 real estate as well.  It varied from case to case.                            
 Number 1698                                                                   
 REPRESENTATIVE GREEN asked Mr. Winegar if the loans were low                  
 interest loans or no-interest loans?                                          
 Number 1704                                                                   
 MR. WINEGAR replied the rate of interest, at this time, was 10.5              
 percent.  It was tied to the prime rate; it was the prime rate plus           
 two, not to exceed 10.5 percent.                                              
 Number 1716                                                                   
 REPRESENTATIVE GREEN replied that was pretty hefty.  He wondered if           
 the fiscal note should be positive rather than zero.  "Because, in            
 effect, what your saying is your extending the time but that also             
 means the additional interest that the state would get."  That was            
 a horrible way to get revenue, assuming it would be repaid.  He               
 asked Mr. Winegar, if there was a statement that would make this              
 even better; or did he figure, if it was a zero fiscal note then              
 the division did not need anything better than that?                          
 Number 1745                                                                   
 MR. WINEGAR replied the division was comfortable with the bill the            
 way it was.  The division had a limited amount of money to deal               
 with and sometimes it was a matter of priorities as far as what the           
 money was used for.                                                           
 Number 1762                                                                   
 REPRESENTATIVE GREEN asked Mr. Winegar if the 11 percent of the 33            
 percent mentioned earlier was one-third of the one-third, or was it           
 one-third of the total?                                                       
 MR. WINEGAR replied it was 11 percent of the total.                           
 Number 1774                                                                   
 REPRESENTATIVE GREEN responded it was one-third of those that were            
 outstanding.  That was a pretty low failure rate.  He asked Mr.               
 Winegar how that compared to the Alaska State Student Loan?                   
 Number 1779                                                                   
 MR. WINEGAR replied he was not familiar with the student loan                 
 rates.  The loans of the division were more risky and running                 
 higher than the normal loans.  The division was able to work with             
 the people throughout the extension process and/or work out, in               
 most cases, to resolve the problems.                                          
 Number 1793                                                                   
 REPRESENTATIVE GREEN explained that the state made great efforts to           
 educate its children through the student loan.  The forfeiture rate           
 was abominable, until foreclosure was implemented.  He was not                
 indicating that for the fishers loan, however, because a 10 percent           
 plus interest rate and an 11 percent failure rate was a good deal.            
 Number 1847                                                                   
 C0-CHAIRMAN HUDSON replied that he agreed.  There were many reasons           
 that the fishermen and women of Alaska were finding themselves in             
 economic disrepair and following behind in their obligations,                 
 including taxes.  The largest reason was the extreme competition              
 from the farmed salmon in Chile, Norway, Canada and other parts of            
 the world; and the break down of the old Soviet Union where the               
 Japanese were investing heavily in the same fisheries that were               
 available in Alaska.  Therefore, the program that was being                   
 described here today was valuable; it was an economic incentive to            
 some sorts, it was not falling into great economic problems, and it           
 was self-perpetuating.                                                        
 Number 1893                                                                   
 C0-CHAIRMAN SCOTT OGAN asked Mr. Winegar at what point did he                 
 expect write-offs?  The issue was discussed in the last committee.            
 Number 1937                                                                   
 MR. WINEGAR replied eventually the division did expect losses which           
 was inevitable with any loan program.  "We bend over backwards to             
 try and work with the harvester, and really the foreclosure I would           
 say, is a very last resort for us."  There were going to be cases             
 at some point where the division would need to cover the funds, but           
 it had not happened, yet.  The division hoped it would be a small             
 number of times that it would need to do that.                                
 Number 1958                                                                   
 C0-CHAIRMAN OGAN announced he had an amendment to the bill.  He was           
 concerned because the state, too often, stepped in to help people             
 who did not perform to pay their taxes.  He would support moving              
 the bill out of the committee, however.                                       
 Number 1997                                                                   
 REPRESENTATIVE RAMONA BARNES asked Mr. Winegar what was the                   
 collateral for the loans?                                                     
 Number 2005                                                                   
 MR. WINEGAR replied many times it was the permit itself, but it               
 could also be a vessel, real estate or other assets of the                    
 harvester.  It varied from case to case.                                      
 Number 2011                                                                   
 REPRESENTATIVE BARNES said, "Then you wouldn't write off a loan               
 just to forgive it, you would take something in collateral,                   
 Number 2019                                                                   
 MR. WINEGAR replied, "Yes, that's correct."  In fact, it was                  
 required by statute that the division did that.                               
 Number 2024                                                                   
 REPRESENTATIVE BARNES stated that she was having serious problems             
 with the bill because other Alaskans that had financial                       
 difficulties either got an extension on their taxes, or something,            
 to carry them over.  "It seems like every time the commercial                 
 fishermen get in trouble that we find a way to bail them out.  We             
 don't find a way to bail out other Alaskans."  She agreed with the            
 bill, when it was originally put on the books, but to see a bill to           
 extend the program gave her serious problems.  She asked Mr.                  
 Winegar how many more of these types of loans did he foresee in the           
 Number 2061                                                                   
 MR. WINEGAR replied one of the stipulations of the original piece             
 of legislation was the once-in-a-lifetime opportunity to take                 
 advantage of the program.  There was concern of the people asking             
 for a loan every time that he or she had a tax problem.  Part of              
 the problem, however, was trying to reach as many of the folks as             
 possible because many were scattered around the state.  The idea of           
 the extension would be to try to reach more individuals.                      
 Number 2083                                                                   
 REPRESENTATIVE BARNES asked Mr. Winegar why was it the obligation             
 of the state to reach these individuals?  They knew they owed                 
 Number 2093                                                                   
 MR. WINEGAR replied he did not know that it was an obligation as so           
 much as there was a program that gave an opportunity for harvesters           
 to protect their livelihood.                                                  
 Number 2102                                                                   
 REPRESENTATIVE BARNES stated that she appreciated the original                
 intent of the program.  However, if one of her constituents failed            
 to pay his taxes, the IRS could take his automobile, for example,             
 which was the means that got him back and forth to work.  The IRS             
 could take anything else that he owned.  "We're not doing anything            
 to help those Alaskans."  That was their livelihood.                          
 Number 2131                                                                   
 C0-CHAIRMAN OGAN stated that the IRS often took things without due            
 process.  "It's the only governmental organization that takes                 
 first, and then you come in and prove why you don't need them to              
 take what they've already taken from you."                                    
 Number 2158                                                                   
 JERRY MCCUNE, Representative , United Fishermen of Alaska, was the            
 first person to testify in Juneau on HB 123.  The United Fishermen            
 of Alaska supported the bill.  "We don't think it should be, you              
 know, going on for the next 25 years.  People have to realize their           
 obligations, and realize that they're going to have to make                   
 arrangements to file and pay their taxes.  We see that improvement            
 through the program as previously testified."  Not too long ago it            
 was passed in statute that the IRS could not take their livelihood            
 away; therefore, the answer to Representative Barnes' question was,           
 "No."  The United Fishermen of Alaska were trying to protect the              
 limited entry system, to keep the limited entry permits in Alaska,            
 and to inform folks about the program.  The fishing organizations             
 were encouraging people to talk to the IRS, to file, and to try to            
 budget, which was tough with the prices the past five years.  He              
 reiterated that the United Fishermen of Alaska supported the                  
 program, for whatever time the legislature saw fit that the state             
 no longer needed it, and its extension for now.                               
 Number 2242                                                                   
 C0-CHAIRMAN HUDSON asked Representative Ogan to introduce his                 
 Number 2249                                                                   
 C0-CHAIRMAN OGAN moved Amendment 1, 0-LS0538/A.1, Cramer/Utermohle,           
 3/6/97.  It deleted all of the material of the original bill and              
 extended the program from "three" years to "eight" years, extending           
 its life another five years.                                                  
 Number 2273                                                                   
 REPRESENTATIVE BARNES objected.  Another five year extension was              
 too much.  A person that owed $30,000 had to have made a lot of               
 money and had to have had a lot of write offs.  "So, to extend this           
 for another five years is just about more than I can swallow so I'd           
 have to vote against this amendment."                                         
 Number 2307                                                                   
 REPRESENTATIVE BILL WILLIAMS said he supported Amendment 1.  The              
 fishing industry was one of the largest industries that employed              
 the people of Alaska and the fishermen were part of that industry.            
 Therefore, we should try to help the fishermen as much as we can;             
 and if it meant another five years, especially when it was down on            
 its knees because of the salmon glut in the world, I think we had             
 to do something to that effect.                                               
 Number 2352                                                                   
 REPRESENTATIVE GREEN said he supported Amendment 1.  The state had            
 recently made incentive moves in the petroleum field to keep people           
 employed in the state even if it meant sacrificing some of its                
 earnings.  The alternative of not doing something like this,                  
 whether it was a meritorious loan or not, was bankruptcy and                  
 unemployment which did not help anybody or the state.  If there               
 were people willing to try to make amends for a very bad situation,           
 such as, when the oil prices were low, the state could ultimately             
 end up on a business venture that was not of the best interest.  It           
 was a risk that the state needed to take.  If every time the state            
 got involved to encourage "entrepreneurialship" and the legislature           
 hammered those that were willing to take that risk it sent a bad              
 message.  The legislature had to look at this a little different              
 than if it was the board of directors of bank A, for example.  It             
 was a good idea to put a limit and a tendency to revisit it.  If              
 eight years was too long, he could see five years.                            
 C0-CHAIRMAN HUDSON asked Co-Chairman Ogan to speak to the issue of            
 how many years Amendment 1 extended the program.                              
 Number 2453                                                                   
 C0-CHAIRMAN OGAN replied Amendment 1 changed the bill to eight                
 years with a net effect of five years from the original expiration            
 date.  Amendment 1 extended the bill for another five years total.            
 TAPE 97-22, SIDE B                                                            
 Number 0001                                                                   
 REPRESENTATIVE GREEN stated there should be an end-point at some              
 Number 0011                                                                   
 REPRESENTATIVE BARNES stated that she did not have a problem with             
 extending it.  She had a problem with extending it for five years,            
 however.  "I think that there's lots and lots of other businesses             
 out there, certainly the oil industry serves a great many Alaskans,           
 and our fishing community also serves some Alaskans, but they also            
 serve a great number of out-of-state people as well, so is the oil            
 industry.  And, we're working to try to turn that around."  In the            
 case of the fishing industry, there was not much that the state               
 could do to turn that around because many of the permits were owned           
 by people that did not live in Alaska.  She personally had worked             
 and would continue to work to open up new markets to sell Alaskan             
 fish in.  "I want to see our fishing industry succeed, but I                  
 believe that just making something this long a period of time                 
 after it has already been in existence for three years, is a little           
 bit too much."                                                                
 Number 0062                                                                   
 REPRESENTATIVE IVAN announced he concurred with Amendment 1, to               
 extend the program up to five years; and he was speaking for rural            
 Number 0074                                                                   
 C0-CHAIRMAN HUDSON asked Mr. Winegar, from his perspective, where             
 were most of the delinquent accounts held?  Were they principally             
 held in rural Alaska or were they all over the state?                         
 Number 0089                                                                   
 MR. WINEGAR replied they were spread around the state.  The                   
 division's portfolio had a lot of loans in rural Alaska, therefore,           
 the percentages would be higher in rural areas.                               
 C0-CHAIRMAN HUDSON asked Mr. Winegar if he would say any particular           
 part of rural Alaska?                                                         
 MR. WINEGAR replied he had not analyzed it to that extent.                    
 Number 0106                                                                   
 C0-CHAIRMAN HUDSON stated several years ago a lot of it was in                
 Bristol Bay and on the West coast of Alaska.  That was when the               
 legislature first started looking at whether or not it was                    
 worthwhile to create a loan to help these people maintain their               
 livelihoods, while at the same time, being responsible for their              
 Number 0122                                                                   
 REPRESENTATIVE GREEN asked Mr. Winegar if the loan was being made             
 to non-Alaskan residents or just Alaskan residents?                           
 MR. WINEGAR replied it was strictly residents.  In fact, residents            
 that had been here for the last two years.                                    
 Number 0132                                                                   
 REPRESENTATIVE BARNES moved that the word "eight" be changed to               
 "six."  This would, in effect, give the program another three years           
 of life.                                                                      
 Number 0173                                                                   
 REPRESENTATIVE IVAN replied his bottom-line interest was to                   
 continue the program.  He had hoped it would be extended another              
 five years, but he also understood the concerns expressed today.              
 C0-CHAIRMAN HUDSON asked Representative Ivan if he was willing to             
 accept the amendment?                                                         
 REPRESENTATIVE IVAN replied, "Yes."                                           
 C0-CHAIRMAN HUDSON asked if there was any objection to the motion             
 to amend Amendment 1.  There was no objection.                                
 C0-CHAIRMAN HUDSON called for a motion to move Amendment 1, as                
 Number 0200                                                                   
 REPRESENTATIVE BARNES moved that Amendment 1, as amended, be                  
 adopted.  There was no objection.                                             
 Number 0244                                                                   
 REPRESENTATIVE BARNES moved that HB 123, as amended, move from the            
 committee with individual recommendations and attached fiscal                 
 note(s).  There was no objection, CSHB 123(RES) was so moved from             
 the House Resources Standing Committee.                                       

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