Legislature(2001 - 2002)

03/01/2002 01:10 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 368-FISHERY ENHANCEMENT LOANS                                                                                              
Number 0010                                                                                                                     
CO-CHAIR  DREW  SCALZI announced  the  first  order of  business,                                                               
HOUSE  BILL NO.  368,  "An Act  authorizing  the commissioner  of                                                               
community and  economic development  to refinance and  extend the                                                               
term of a  fishery enhancement loan."  [Before  the committee was                                                               
CSHB 368(FSH).]                                                                                                                 
Number 0089                                                                                                                     
JOHN  MANLY, Staff  to Representative  John Harris,  Alaska State                                                               
Legislature,  presented  HB  368   on  behalf  of  Representative                                                               
Harris, sponsor.   Mr.  Manly told the  committee the  bill would                                                               
allow  the  commissioner to  reduce  interest  rates and  perhaps                                                               
extend the term on the  fisheries enhancement loan to ensure that                                                               
the hatcheries are more viable.                                                                                                 
Number 0275                                                                                                                     
GREG WINEGAR,  Director, Division  of Investments,  Department of                                                               
Community  and Economic  Development (DCED),  explained that  [HB
368] would  allow aquaculture associations to  refinance existing                                                               
loans  and  thereby  take  advantage   of  lower  interest  rates                                                               
[presently]  in effect;  the process  is  similar to  that for  a                                                               
homeowner  refinancing a  home  loan.   He  said  [DCED] has  the                                                               
ability under  the commercial fishing  revolving loan fund.   Mr.                                                               
Winegar  mentioned  that similar  legislation  was  passed a  few                                                               
years ago.   He said  a number  of commercial fishermen  are also                                                               
refinancing their loans at this time                                                                                            
MR. WINEGAR  indicated although  there will be  an impact  on the                                                               
[revenue],  as shown  in the  fiscal note,  this won't  adversely                                                               
impact the fund,  which is very strong; furthermore,  the fund is                                                               
completely revolving and  doesn't get any money  from the general                                                               
fund, so it won't impact the  integrity of that fund.  He pointed                                                               
out that lowering  the interest rate on these  loans will improve                                                               
the financial  picture of [aquaculture] associations,  so it will                                                               
increase their  ability to service  existing debt.   Finally, [HB
368]  will not  have an  negative impact  from an  administrative                                                               
standpoint.   There  is a  very streamlined  process in  place to                                                               
handle  these  kinds   of  requests  and  it   won't  create  any                                                               
difficulties, he said.   In response to a  question from Co-Chair                                                               
Scalzi,  he said  DCED has  no  difficulties with  [HB 368];  the                                                               
official position is neutral.                                                                                                   
CO-CHAIR  SCALZI  asked  Mr.  Winegar if  he  had  contacted  the                                                               
Department  of Revenue  and [determined]  that the  fiscal impact                                                               
would be minimal to the fund itself.                                                                                            
MR. WINEGAR answered in the affirmative.                                                                                        
Number 0516                                                                                                                     
JOHN CARTER, Director, Douglas Island  Pink & Chum, Inc. (DIPAC),                                                               
testified  before  the committee.    He  reported that  during  a                                                               
presentation  of   the  fish  caucus,  the   McDowell  Group  had                                                               
demonstrated that  the enhancement  program across the  state has                                                               
become a  serious economic engine for  Alaska.  He said,  "In the                                                               
last ten years,  the economic output - the  first wholesale value                                                               
-  was something  on  the  order of  $1.4  billion."   Given  the                                                               
troubled times occurring now, he  said those kinds of numbers are                                                               
very  important.    In  2000,  it  was  over  $200  million,  and                                                               
approximately  $7 million  to $10  million in  sport-fish revenue                                                               
through charters and so forth.                                                                                                  
MR.  CARTER told  members the  McDowell Group's  presentation was                                                               
interesting because [it highlighted] how  many areas of the state                                                               
are impacted.   He said the situation  is "use or pay."   It used                                                               
to be that  the state, through the Alaska Department  of Fish and                                                               
Game (ADF&G),  paid for  the enhancement  program in  Alaska with                                                               
annual  appropriations.    He  explained  that  fishermen  pay  a                                                               
percentage to  their regional  [aquaculture association]  for the                                                               
enhancement and  cost-recovery, so the state  doesn't really have                                                               
to pay out anything.                                                                                                            
MR.  CARTER referred  to questions  about the  general fund.   He                                                               
offered his thinking  that there's a positive  impact because the                                                               
raw  fish tax  adds  up  to between  $1  million  and $2  million                                                               
annually, which  goes into  the general fund.   A  similar amount                                                               
goes to communities where the money  was raised or where the fish                                                               
were  caught.   He said  he thinks  it's good  business to  allow                                                               
refinancing;  in  private  industry,  it's going  on  across  the                                                               
country.  It would help  hatcheries become more financially sound                                                               
and,  in  many  cases,  would  allow more  fish  to  get  to  the                                                               
fishermen.  In the  case of DIPAC, for example, he  said a lot of                                                               
what  "we" do  is for  the sport  fish community;  it's one  more                                                               
chance to  allow "us"  to do  that work.   He told  the committee                                                               
that he would appreciate support of [HB 368].                                                                                   
CO-CHAIR SCALZI remarked that it  was a very good presentation at                                                               
the  fish  caucus;  moreover,  the hatcheries  did  a  great  job                                                               
showing the  financial impact to  the state.   He referred  to an                                                               
information sheet and  said about 11 hatcheries  will be affected                                                               
by  [HB 368].   He  said if  the loans  are received  today, they                                                               
could be as low as 6 percent,  compared to 9 percent.  He pointed                                                               
out that  the savings  on the  interest the  hatcheries [realize]                                                               
goes directly to  the common property; moreover,  it would offset                                                               
the expenses  of running a  hatchery, so there is  more available                                                               
for  the  harvesters.    He  remarked that  any  savings  to  the                                                               
hatchery is, in turn, put back into the economy.                                                                                
Number 0871                                                                                                                     
DAVE  COBB,   Business  Manager,  Valdez   Fisheries  Development                                                               
Association (VFDA), testified via  teleconference.  Mr. Cobb told                                                               
the  committee [HB  368]  is one  of the  "tools"  needed by  the                                                               
commercial  fishing industry  and the  hatchery system  to remain                                                               
competitive  in  today's  global   fisheries  environment.    The                                                               
refinancing  of hatchery  loans at  the prevailing  interest rate                                                               
will allow most  hatcheries to reduce their  annual loan payments                                                               
and cost of operations significantly,  he said.  Any reduction in                                                               
the overall operation  budget of VFDA will mean more  fish to the                                                               
commercial fishermen in the area.                                                                                               
MR. COBB  said VFDA believes  although this bill is  important to                                                               
the state  hatchery system, it is  only one of many  changes that                                                               
must occur  if the Alaskan fishing  industry is to survive.   The                                                               
hatchery system  established by the  legislature in 1974  has met                                                               
or exceeded  expectations, he suggested.   The  commercial common                                                               
property harvest  [of] hatchery salmon exceeds  1 billion pounds;                                                               
there has been an ex-vessel value  of more than $340 million over                                                               
the last  ten years.   Every opportunity the hatchery  system has                                                               
to become more cost-effective and  cost-efficient only makes good                                                               
business sense, he added.                                                                                                       
MR. COBB told members, "We have  been good stewards of the public                                                               
funds  entrusted to  us to  raise fish;  this bill  allows us  to                                                               
manage  those  funds  more  effectively  and  efficiently."    He                                                               
suggested the  competitive playing  field has changed  for Alaska                                                               
from a  strong market presence  to massive global  competition in                                                               
dumping fisheries  products on the  market at less than  the cost                                                               
of  production.   Alaska,  VFDA, and  all  industry players  must                                                               
change   in  order   to  survive   in  this   competitive  global                                                               
marketplace, he  said.   He reiterated that  [HB 368]  makes good                                                               
business  sense and  will  have  no impact  on  the general  fund                                                               
Number 1034                                                                                                                     
REPRESENTATIVE FATE  remarked that [HB 368]  is a good bill.   He                                                               
referred to [page 3, paragraph  (11)] and suggested adding, "or a                                                               
condition which  jeopardizes the fishery or  the hatchery," after                                                               
the  word  "borrower".     He  indicated  this   would  give  the                                                               
commissioner a better tool in  ascertaining the condition of that                                                               
fishery and  possibly allowing  a blanket  reduction of  term, if                                                               
applied  for.   He indicated  that [the  suggested change]  would                                                               
create fairness and extend the bill to do a better job.                                                                         
MR. WINEGAR said  he didn't have any difficulty  with adding that                                                               
language, which  would [result in]  broader abilities.   He added                                                               
that the current wording also works well.                                                                                       
CO-CHAIR   SCALZI   expressed   concern   about   an   unforeseen                                                               
REPRESENTATIVE KERTTULA asked  Mr. Winegar if there is  a risk of                                                               
having a problem with his fiduciary duty in the trust.                                                                          
MR. WINEGAR explained that each  [borrower] would be looked at on                                                               
an individual basis, which is how [the department] handles this.                                                                
REPRESENTATIVE  KERTTULA  asked  Mr.  Winegar how  a  fishery  is                                                               
looked  at,  and  whether  the  [suggested  language  change]  is                                                               
unnecessary and runs the risk of "opening you up somehow."                                                                      
MR.  WINEGAR  reiterated that  each  would  be  looked at  on  an                                                               
individual  basis,  to  ensure that  the  particular  aquaculture                                                               
association is  in good standing.   He  said he didn't  think the                                                               
[suggested language change] would  preclude [the department] from                                                               
doing  so.   He  said there  is a  streamlined  process, but  the                                                               
[borrower] would need to apply for the refinancing.                                                                             
Number 1336                                                                                                                     
REPRESENTATIVE   STEVENS    requested   clarification    of   the                                                               
"conditions" in the [suggested language change].                                                                                
REPRESENTATIVE FATE offered  the example of a borrower  that is a                                                               
fleet  [belonging to  a company].   He  remarked, "If  that fleet                                                               
were to  go under because  you didn't  extend the term,  it would                                                               
affect   the   fishery,  and   that   has   to  be   taken   into                                                               
consideration."    He  said  he  was  thinking  beyond  just  the                                                               
individual borrower and of the effect  it might have on a fishery                                                               
under certain  circumstances.  He  said he wanted to  expand [the                                                               
language] so  the department wasn't "hand-tied."   The perception                                                               
would be  that there would be  an even playing field.   This goes                                                               
beyond the perception,  he said - it goes to  the actual world of                                                               
finance where things  can happen.  He mentioned  the recent Enron                                                               
[financial  collapse] and  how it  affected the  entire financial                                                               
CO-CHAIR  SCALZI expressed  concerns that  the present  fisheries                                                               
and the  state of the loan  programs are very "touchy."   He said                                                               
he can  appreciate the  concern and the  broadening of  the term,                                                               
but without having a lot  of discussion about what [the suggested                                                               
language change] would mean from  a legal standpoint, it might be                                                               
[better] to  leave it  as it is.   In regard  to hardship  on the                                                               
borrower,  the department  has  a  good latitude  of  how far  [a                                                               
borrower] can  go, he said.   He said  he would be  nervous about                                                               
tying the fishery in, because  the fisheries are in jeopardy now.                                                               
Moreover, he said  he wouldn't want to put undue  pressure on the                                                               
department to extend a loan that was bad.                                                                                       
REPRESENTATIVE  FATE   agreed  it   warranted  discussion.     He                                                               
recounted a personal experience that  made him familiar with what                                                               
can happen when these loans occur.                                                                                              
CO-CHAIR   MASEK  referred   to  backup   in  the   bill  packet.                                                               
Currently, she said,  DCED is unable to refinance  loans from the                                                               
Fisheries  Enhancement  Revolving  Loan  Fund  for  the  hatchery                                                               
system; similarly,  prior to  1993, loans from  the other  fund -                                                               
the  Commercial Fisheries  Revolving  Loan Fund  -  could not  be                                                               
refinanced.  This change [provides]  that the hatcheries would be                                                               
asking for  comparable changes for  their industry,  resulting in                                                               
more  fish to  commercial and  sports fishermen,  she read.   She                                                               
indicated  that  if  HB  368  is enacted,  she  would  like  more                                                               
equality in the expenditure for  sport-catch species for king and                                                               
coho salmon because currently pink  and chum salmon are primarily                                                               
targeted.  She remarked that she'd like it [applied equally].                                                                   
CO-CHAIR MASEK  continued to  read, "Currently,  approximately 40                                                               
percent  of Alaska's  entire salmon  harvest  is enhanced  fish."                                                               
She  continued,  "Salmon are  also  produced  that are  taken  by                                                               
resident  and nonresident  sports fishermen  and utilized  in the                                                               
personal  use  fisheries."   From  that  perspective,  she  said,                                                               
favorable financing  rates would  be a normal  business practice.                                                               
She indicated she  is a cosponsor of HB 368.   She mentioned that                                                               
she would like  to move HB 368 out of  committee because the bill                                                               
could help in all parameters of fishing.                                                                                        
CO-CHAIR SCALZI  said the amount of  fish that goes to  sport and                                                               
personal use  is in excess of  a substantial amount that  is paid                                                               
for  through the  "commercial fisheries  enhancement  pact."   He                                                               
said  it's very  beneficial to  both sport  and personal  use, as                                                               
well as  commercial use,  even though  it's paid  for out  of the                                                               
revenue through the enhancement pact.                                                                                           
Number 1745                                                                                                                     
REPRESENTATIVE  McGUIRE  moved to  report  CSHB  368(FSH) out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
zero fiscal  note.  There  being no objection, CSHB  368(FSH) was                                                               
moved out of the House Resources Standing Committee.                                                                            

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