Legislature(1993 - 1994)
05/03/1993 02:50 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 252 An Act amending the Commercial Fishing Loan Act to authorize refinancing of existing loans made under that Act. Co-chair Pearce directed that HB 252 be brought on for discussion. REPRESENTATIVE MOSES again came before committee. He explained that the proposed bill would provide the Dept. of Commerce and Economic Development authority to refinance existing commercial fishery loans. Most of the 1,200 commercial fishermen with state loans are paying 10.5% interest. Regulations provide for new, fixed rate loans at 2% above prime. The current prime rate is 6%, and new fishing loans are at 8%. There is, however, no mechanism for refinancing existing loans to take advantage of current low interest rates. Over the past few years, commercial fishermen have faced low prices and unpredictable fish returns. The Dept. of Commerce and Economic Development approved loan extensions for nearly half of the existing loans following the disastrous 1991 salmon season. This year more than 3,000 fishermen are reportedly in arrears to the Internal Revenue Services for back taxes. Allowing fishermen to refinance existing loans and reduce monthly payments will provide assistance. There is sufficient cash flow in the revolving loan fund to accommodate the cost of refinancing. JERRY McLUNE, United Fishermen of Alaska, came before committee voicing support for the bill. He attested to the benefits of refinancing an existing 10.5% loan at 8%, and noted that in not allowing existing loan holders to do so, the state is in effect financing competitors at a lower rate. As background information, Mr. McLune spoke to the success of the loan program, advising that it has generated $40 million to the general fund. The requested relief is badly needed during present difficult economic times in the fishing industry. Discussion followed between Mr. McLune and Co-chair Frank regarding fixed and floating interest rates and the proposed term of refinanced loans. End, SFC-93, #73, Side 1 Begin, SFC-93, #73, Side 2 Mr. McLune attested to different terms for different loans: permit loans, vessel loans, etc. In response to additional questions from Co-chair Frank, Mr. McLune voiced his understanding that in order to refinance, the borrower would have to be current in his or her loan payments. KELLY SHARP, Loan Manager, Division of Investments, Dept. of Commerce and Economic Development, came before committee. In response to a question from Co-chair Frank regarding the impact of the proposed bill upon the integrity of the commercial fishing revolving loan fund, Mr. Sharp explained that the impact would lower future interest revenues by an estimated $1.6 million. The department anticipates that all existing loan holders--approximately 1,250--would want to take advantage of the interest break. Co-chair Pearce pointed to the fiscal note from the Dept. of Commerce and Economic Development and referenced the request for four new positions (in addition to the existing four loan officers). Mr. Sharp explained that the new positions would be needed to keep the loan processing time at "about the same level." A large influx of requests for refinancing would slow the entire process. In extending refinancing, the department must verify a number of qualifications such as residency. Mr. Sharp noted that the House cut the request in half to two positions for a cost of $85.0. Both Senator Kelly and Co-chair Frank stressed need for minimizing the amount of paper work associated with refinancing. Senator Kelly cited the streamlined process used by AHFC in refinancing existing loans. Discussion followed between Co-chair Pearce and Mr. Sharp regarding current operation of the loan program and payment schedules. Mr. Sharp advised that most of the loans call for an annual payment in either October or November, after the fishing season. Senator Sharp inquired regarding a refinancing charge to cover the cost of the paper work. Mr. Sharp said that a 1/2% fee would be charged. It is expected to generate $228.0. The average loan is approximately $52.0. Senator Kelly asked if the refinancing fee could be deducted from the differential between the old and new interest rate when making the first refinanced payment rather than anted up front. Senator Sharp noted that AHFC adds refinancing charges to the principal of the loan and finances the charges over the term of the loan. Both Co-chairs Pearce and Frank as well as Senator Kelly voiced concern that the department appears to be approaching refinancing with the same detail as first time loans. They seriously questioned need for requested staff. DEAN PADDOCK, Bristol Bay Driftnetters Association, next came before committee in support of the bill. He predicted that the fishing industry will need whatever assistance it can garner. Interest rates have dropped in all other aspects of society, and fishermen should also enjoy that benefit. He urged passage of the legislation. Senator Kelly asked if the prime sponsor would object to addition of the following language to the bill: Refinancing loan origination charges of 1/2% are to be collected when the first refinance payment is due. Representative Moses voiced no objection. He further commented that he did not believe all current loan holders would refinance due to an aversion to paper work. He further noted that the program has lost customers to commercial banks which have had lower interest rates for some time. Senator Kelly directed attention to page 3, line 6, of the bill and MOVED to add the above-cited language. He then voiced need for a letter of intent urging the department to accomplish refinancing utilizing as little time and paper work as possible. No objection to either the amendment or letter of intent having been raised, the amendment was ADOPTED. Senator Kelly advised that he would draft the letter of intent. Discussion followed regarding the fiscal note. Co-chair Pearce reiterated that House Finance allowed two positions for a cost of $85.0. She stressed that the positions are to be temporary rather than permanent. Co-chair Frank MOVED that the position count and funding be reduced to cover one position. No objection having been raised, it was so ordered. Further discussion of fixed and floating interest rates followed among members. PAUL FUHS, Commissioner, Dept. of Commerce and Economic Development, briefly came before committee. He attested to difficult times within the salmon industry. For many fishermen, refinancing will determine whether they survive or do not make it. He stressed that the instant bill alone will not cure existing problems and spoke to need for legislation relating to the ASMI assessment as well. The Commissioner said the state will lose 10 to 15% of the value of its salmon industry this year. Unless Alaska is able to break into the domestic market, no amount of loan refinancing will save the industry. Co-chair Pearce called for additional comments and/or questions. None were forthcoming. She then queried members concerning disposal of the bill. Senator Kelly MOVED that SCSHB 252 (Finance) pass from committee with a Senate Finance letter of intent and Senate Finance fiscal note. No objection having been raised, SCSHB 252 (Finance) was REPORTED OUT of committee with a Senate Finance letter of intent and a $41.1 Senate Finance fiscal note for the Dept. of Commerce and Economic Development. All members signed the committee report with a "do pass" recommendation. [This latter portion of the meeting was teleconferenced to Seattle, Washington.]
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