Legislature(2011 - 2012)BELTZ 105 (TSBldg)

03/01/2012 03:30 PM Senate COMMUNITY & REGIONAL AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 204 LOANS TO COMMUNITY QUOTA ENTITIES/PERMITS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+ Overview: Toxins Release Inventory TELECONFERENCED
<Above Item Removed from Agenda>
= SB 148 GAS PIPELINE PROPERTY TAX EXEMPTION
Moved CSSB 148(CRA) Out of Committee
= SB 152 LEG. APPROVAL OF BRISTOL BAY SULFIDE MINE
Heard & Held
        SB 204-LOANS TO COMMUNITY QUOTA ENTITIES/PERMITS                                                                    
                                                                                                                                
3:43:12 PM                                                                                                                    
CHAIR OLSON announced the consideration  of SB 204, which relates                                                               
to loans to community quota entities (CQE).                                                                                     
                                                                                                                                
3:43:25 PM                                                                                                                    
DAVID   SCOTT,  Staff,   Senator  Donald   Olson,  Alaska   State                                                               
Legislature and  Aide, CRA Committee,  said that SB  204 modifies                                                               
the  Community  Quota Entity  (CQE)  program  by establishing  an                                                               
independent  revolving  loan  fund modeled  within  the  existing                                                               
Alaska  Commercial  Fishing  Revolving  Loan  Fund.  It  provides                                                               
better terms for the CQEs  to purchase independent fishing quotas                                                               
(IFQ). He provided the following sectional analysis:                                                                            
                                                                                                                                
     Section 1  amends AS 16.10.320(a)  to conform  to other                                                                    
     changes in the bill, specifically Section 3.                                                                               
                                                                                                                                
     Section   2  provides   that  principal   and  interest                                                                    
     payments  or  any  money  chargeable  to  principal  or                                                                    
     interest  that  is  collected  through  liquidation  by                                                                    
     foreclosure would go back into  the revolving loan fund                                                                    
     created in the bill.                                                                                                       
                                                                                                                                
     Section 3  adds a new  subsection (l) to  AS 16.10.320.                                                                    
     It  establishes  that  CQEs  may  use  the  loan  terms                                                                    
     spelled out  in the bill  to purchase 50,000  pounds of                                                                    
     quota share. The loan may  not exceed 95 percent of the                                                                    
     appraised value of the collateral  and the maximum term                                                                    
     is   25  years,   except   for   extensions  under   AS                                                                    
     16.10.310(a)(1)(E). The loan may  not exceed $1 million                                                                    
     and  interest payments  may be  deferred for  up to  10                                                                    
     years.                                                                                                                     
                                                                                                                                
     Section 4 amends the Commercial Fishing Revolving Loan                                                                     
         Fund statute, AS 16.10.340, to include the CQE                                                                         
     revolving loan fund.                                                                                                       
                                                                                                                                
     Section 5 is a conforming language change.                                                                                 
                                                                                                                                
     Section 6 adds a new section to AS 16.10 that creates                                                                      
     the revolving loan fund.                                                                                                   
                                                                                                                                
       Section 7 amends AS 16.10.350(a) to state that the                                                                       
     commissioner of commerce will be the administrator of                                                                      
     the fund.                                                                                                                  
                                                                                                                                
       Section 8 is the effective date, which is July 1,                                                                        
     2012.                                                                                                                      
                                                                                                                                
3:46:54 PM                                                                                                                    
SENATOR ELLIS joined the committee.                                                                                             
                                                                                                                                
CHAIR  OLSON  asked  if  the commissioner  of  commerce  had  the                                                               
authority to oversee this type of loan.                                                                                         
                                                                                                                                
MR.  SCOTT responded  that the  commissioner of  commerce already                                                               
oversees the Commercial Fishing Revolving Loan Fund.                                                                            
                                                                                                                                
CHAIR OLSON asked how CQEs are related to IFQs.                                                                                 
                                                                                                                                
MR.  SCOTT said  CQE stands  for community  quota entity  and IFQ                                                               
stands for individual fishing quota.  The North Pacific Fisheries                                                               
Management  Council qualified  42 Gulf  of Alaska  communities to                                                               
form  nonprofit CQE  organizations  in order  to purchase  50,000                                                               
pounds  of IFQ  shares. He  deferred further  explanation to  Mr.                                                               
Fields.                                                                                                                         
                                                                                                                                
CHAIR OLSON asked if a CQE could exist without IFQs.                                                                            
                                                                                                                                
MR. SCOTT  responded that there  would be  no point in  forming a                                                               
CQE if the organization didn't move forward to buy quota shares.                                                                
                                                                                                                                
3:49:38 PM                                                                                                                    
DUNCAN FIELDS, Fisheries Consultant,  stated that he was speaking                                                               
on  behalf  of   the  rural  communities  for   which  he  works,                                                               
particularly Old  Harbor and  Ouzinkie on  Kodiak Island  and the                                                               
Gulf of Alaska Coastal Community  Coalition, which represents the                                                               
42  communities that  have qualified  as  Community Quota  Entity                                                               
(CQE)  communities. He  was  not representing  the  views of  the                                                               
North Pacific  Fisheries Management Council (NPFMC),  although he                                                               
was a member.  He noted that the NPFMC had  recognized three more                                                               
communities  as   CQE  qualified  so   there  would  be   45  CQE                                                               
communities once the federal regulations were finalized.                                                                        
                                                                                                                                
MR.  FIELDS  said SB  204  is  a  loan  bill to  create  economic                                                               
opportunities and jobs  in rural CQE communities.  About 15 years                                                               
ago,  the  NPFMC realized  that  fishing  permits and  IFQs  were                                                               
leaving  rural communities  and fishing  opportunities were  lost                                                               
when these  were sold.  When community leaders  looked at  how to                                                               
reverse that  downward spiral,  they struck on  the concept  of a                                                               
community  quota   entity.  Unlike   the  Bering   Sea  Community                                                               
Development Quota  (CDQ) program,  these entities  would purchase                                                               
the quota in the marketplace.  The community would hold the quota                                                               
in trust and lease it to individuals in the community.                                                                          
                                                                                                                                
The  North Pacific  Fisheries Management  Council developed  this                                                               
construct and  imposed limitations as  to the type of  quota that                                                               
could be purchased, the amount  of quota that could be purchased,                                                               
the way the quota could be  fished. In 2004, the NPFMC authorized                                                               
forty-two  Gulf   Coast  communities  to  purchase   halibut  and                                                               
sablefish  IFQ shares.  Only two  communities have  bought quota,                                                               
primarily because they lacked access to capital.                                                                                
                                                                                                                                
The  state  initially  qualified  the  CQEs  for  the  Commercial                                                               
Fisheries  Revolving  Loan  Fund,  but the  terms  of  the  loan,                                                               
particularly  the  20  percent  down  payment,  were  a  barrier.                                                               
Representative Austerman  suggested modifications  and introduced                                                               
HB 141, the companion bill to SB 204.                                                                                           
                                                                                                                                
3:55:58 PM                                                                                                                    
MR.  FIELDS explained  that SB  204 establishes  a separate  loan                                                               
fund  for CQE  communities.  The  down payment  is  5 percent  as                                                               
opposed to  the previous  20 percent. The  loan term  is extended                                                               
from 20 years to 25 years  and interest payments may be suspended                                                               
[for  up  to   10  years].  The  bill  also   provides  that  the                                                               
communities would pay  interest at rates similar to  those in the                                                               
revolving  loan fund.  He  opined that  this  would provide  some                                                               
communities  an opportunity  to  access IFQs  that they  couldn't                                                               
otherwise access. As communities  have success, other communities                                                               
will likely follow and access these loan funds.                                                                                 
                                                                                                                                
The  $45  million fiscal  note  would  provide  a maximum  of  $1                                                               
million to each of the approximately 45 qualified communities.                                                                  
                                                                                                                                
3:57:50 PM                                                                                                                    
CHAIR  OLSON commented  on the  number of  limited entry  fishing                                                               
permits  that are  held by  non-residents, and  asked why  anyone                                                               
would be interested in selling such a valuable asset to a CQE.                                                                  
                                                                                                                                
MR.  FIELDS differentiated  the halibut  and sablefish  IFQs from                                                               
the  State  of Alaska  limited  entry  permits. The  halibut  and                                                               
sablefish IFQs  are more fluid  in terms of market  exchange than                                                               
limited entry permits. The people who  sell the IFQs tend to make                                                               
different  economic  decisions  than  folks that  are  selling  a                                                               
limited entry permit. A limited  entry permit gives an individual                                                               
a right  to participate in the  fishery, whereas an IFQ  gives an                                                               
amount of product,  pounds of fish. Sometimes people  will sell a                                                               
portion of  their IFQs to  expand their business and  others will                                                               
sell all their IFQs because they're getting out of the fishery.                                                                 
                                                                                                                                
He said that one reason  for forming the community quota entities                                                               
was  to address  the  problem of  limited  entry permits  leaving                                                               
rural  communities.  Should  there   be  a  mechanism  for  rural                                                               
communities to  hold limited  entry permits,  he opined  that the                                                               
CQE would  be the ideal  entity to facilitate that  mechanism. He                                                               
relayed that  these CQEs  have also received  two other  types of                                                               
fishery access  opportunities from the National  Marine Fisheries                                                               
Service through  the NPFMC. One  is halibut charter  permits. The                                                               
21 CQE communities  in Southeast Alaska have each  received up to                                                               
five  halibut  charter permits.  The  community  can lease  those                                                               
permits  to  an individual  who  must  either  start or  end  the                                                               
fishing trip  in the  community. Gulf  of Alaska  CQE communities                                                               
have seven permits.                                                                                                             
                                                                                                                                
Gulf  of  Alaska  communities  have   a  third  fisheries  access                                                               
opportunity  called a  groundfish limited  license permit  (LLP).                                                               
These are  essentially federal limited  entry permits for  use by                                                               
the CQE in that community.                                                                                                      
                                                                                                                                
CHAIR OLSON asked  how it happened that two  CQE communities were                                                               
financially successful.                                                                                                         
                                                                                                                                
MR.  FIELDS  said  they  were   both  unique  circumstances.  The                                                               
community  of  Ouzinkie  was  able to  access  IFQs  through  the                                                               
fortuitous sale  of trees that  were donated by the  local Native                                                               
corporation. Old Harbor accessed  quota share primarily through a                                                               
five-year  loan.  He  said  that CQE  needed  to  locate  another                                                               
funding source within 18 months or sell its IFQ shares.                                                                         
                                                                                                                                
4:03:09 PM                                                                                                                    
CHAIR OLSON asked if there were loan default plans.                                                                             
                                                                                                                                
MR. FIELDS  cautioned that he was  not a banking expert,  but his                                                               
understanding was  that the payments  would be made  annually and                                                               
the loans would be secured by  the halibut quota. In the event of                                                               
a  default, the  community  would  sell the  IFQ  shares and  the                                                               
proceeds would go to the State of Alaska.                                                                                       
                                                                                                                                
CHAIR OLSON asked what the interest rate would be.                                                                              
                                                                                                                                
MR.  FIELDS  said the  interest  would  be  prime rate  plus  two                                                               
percentage points, but not more than 10.5 percent.                                                                              
                                                                                                                                
CHAIR  OLSON asked  what other  lending  institutions thought  of                                                               
this program.                                                                                                                   
                                                                                                                                
MR. FIELDS said the banks they  work with recognize that loans of                                                               
this type would not be allowed  in their portfolios; in this role                                                               
the state  can promote rural  economic development.  Some bankers                                                               
have suggested  that if this  program is successful, it  may help                                                               
individuals  build their  personal  portfolios  and increase  the                                                               
likelihood of qualifying for personal loans.                                                                                    
                                                                                                                                
CHAIR OLSON asked if more IFQs might be available in the future.                                                                
                                                                                                                                
MR. FIELDS  responded that  there was a  national effort  to move                                                               
the  federal  fisheries  towards  rationalized  fisheries  or  an                                                               
individual  transferable  quota  (ITQ) program.  He  offered  his                                                               
belief  that in  the near  future  all the  federal fisheries  in                                                               
Alaska would be encompassed by either ITQ or IFQ programs.                                                                      
                                                                                                                                
4:07:33 PM                                                                                                                    
CHAIR OLSON asked how many of  the 42 IQE communities depended on                                                               
subsistence fishing to feed their families.                                                                                     
                                                                                                                                
MR.  FIELDS answered  that a  number  of the  smaller Gulf  Coast                                                               
communities  rely  on subsistence  for  a  substantial amount  of                                                               
their diet. The  same applies for Kodiak Island  and he suspected                                                               
it  was  true  for  the  Chignik  area  as  well.  Dependence  on                                                               
subsistence is probably less in  the larger communities, but it's                                                               
still a component of their diet.                                                                                                
                                                                                                                                
CHAIR   OLSON  asked   how  commercial   fishing  entities   view                                                               
subsistence users.                                                                                                              
                                                                                                                                
MR. FIELDS  said there  seems to  be general  cooperation between                                                               
the local  residents who  are fishing CQE  halibut and  those who                                                               
are  subsistence users.  He opined  that sport  charter operators                                                               
and non-resident fishermen  would be more likely  to compete with                                                               
subsistence users.                                                                                                              
                                                                                                                                
CHAIR OLSON asked Ms. Ayers to comment.                                                                                         
                                                                                                                                
4:10:38 PM                                                                                                                    
WANETTA  AYERS,  Director,   Division  of  Economic  Development,                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
(DCCED),  said  that  DCCED  followed HB  141  last  session  and                                                               
provided a fiscal  note on SB 204 regarding  operating costs. The                                                               
division would be able to manage this  loan fund if it were to be                                                               
implemented;  it  appears  to  be very  similar  to  the  current                                                               
Fisheries Enhancement  Revolving Loan  Fund. She agreed  with Mr.                                                               
Field's answer regarding loan payments and defaults.                                                                            
                                                                                                                                
CHAIR  OLSON asked  if  selling the  quota  generally covers  any                                                               
delinquency and default.                                                                                                        
                                                                                                                                
MS. AYERS answered yes; quota  is considered very good collateral                                                               
and DCCED has liquidated it in the past when necessary.                                                                         
                                                                                                                                
CHAIR OLSON  said he  asked because it  appeared that  the number                                                               
and size of halibut was on a downward trend.                                                                                    
                                                                                                                                
MS. AYERS said that DCCED  would take all regulatory, management,                                                               
and market factors into consideration when making a loan.                                                                       
                                                                                                                                
CHAIR OLSON asked if the administration was in favor of SB 204.                                                                 
                                                                                                                                
MS.  AYERS  answered  that  the   administration  does  not  have                                                               
specific  position  on  the  bill,  but  DCCED  was  prepared  to                                                               
implement it should it be adopted.                                                                                              
                                                                                                                                
4:14:42 PM                                                                                                                    
MICHAEL  O'CONNOR, President,  Ouzinkie Native  Corporation, said                                                               
Ouzinkie  was a  nonprofit corporation  that focused  on economic                                                               
development. He relayed that Ouzinkie  currently had 8,000 pounds                                                               
of halibut IFQs and Old Harbor  had 16,000 pounds. These were the                                                               
only CQEs that  own and actively fish halibut  IFQs. In Ouzinkie,                                                               
the individual  who leased the  halibut IFQs received  55 percent                                                               
of  the  catch and  the  CQE  nonprofit corporation  received  45                                                               
percent. This brings substantial money to a small community.                                                                    
                                                                                                                                
Responding  to a  comment from  the Chair,  he elaborated  on the                                                               
timber sale  that made it  possible for  the Ouzinkie CQE  to buy                                                               
8,000   pounds  of   halibut  IFQ   shares.  He   confirmed  that                                                               
conventional  lenders are  not interested  in  loaning money  for                                                               
community owned IFQs.                                                                                                           
                                                                                                                                
4:20:55 PM                                                                                                                    
CHAIR OLSON asked if it was because of the risk.                                                                                
                                                                                                                                
MR. O'CONNOR answered yes.                                                                                                      
                                                                                                                                
CHAIR OLSON questioned why the state should undertake that risk.                                                                
                                                                                                                                
MR. O'CONNOR opined that it  wasn't large risk because the market                                                               
for IFQs was fluid.                                                                                                             
                                                                                                                                
CHAIR  OLSON asked  if he  agreed  that the  growing farmed  fish                                                               
market might threaten Alaska wild fish.                                                                                         
                                                                                                                                
MR.  O'CONNOR   answered  that  he   believed  that   the  public                                                               
perception of farmed fish was turning negative.                                                                                 
                                                                                                                                
4:22:43 PM                                                                                                                    
CHAIR OLSON  found no further  public testimony and  announced he                                                               
would hold SB 204 in committee.                                                                                                 
                                                                                                                                

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