Legislature(1997 - 1998)
03/06/1997 01:10 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 Number 1443 REPRESENTATIVE IVAN IVAN, Alaska State Legislature, explained the bill repealed the termination date of the federal tax obligation loan program that was under the Commercial Fishing Loan Act.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 questions. 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, always?" 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 future? 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 taxes. 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 amendment. 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 time. 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 Alaska. 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 taxes. 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 amended. 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.