Legislature(2013 - 2014)SENATE FINANCE 532
04/16/2014 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB297 | |
| HB293 | |
| HB263 | |
| HCR15 | |
| HB268 | |
| HB121 | |
| HB204 | |
| HB379 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 297 | TELECONFERENCED | |
| += | HB 293 | TELECONFERENCED | |
| += | HB 263 | TELECONFERENCED | |
| += | HCR 15 | TELECONFERENCED | |
| += | HB 268 | TELECONFERENCED | |
| + | HB 121 | TELECONFERENCED | |
| + | HB 204 | TELECONFERENCED | |
| + | HB 379 | TELECONFERENCED | |
| + | HB 308 | TELECONFERENCED | |
| + | HB 361 | TELECONFERENCED | |
| + | HB 160 | TELECONFERENCED | |
| + | HB 116 | TELECONFERENCED | |
| += | SB 48 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR HOUSE BILL NO. 121(FIN)
"An Act relating to the examinations, board, loans,
and records of the Alaska Commercial Fishing and
Agriculture Bank; and providing for an effective
date."
9:45:02 AM
REPRESENTATIVE ERIC FEIGE, stated that the Commercial
Fishing and Agriculture Bank (CFAB) was a great example of
the government starting a project and then stepping back
and allowing it to succeed in the private sector. The bank
was created 34 years prior by an initial investment of $32
million from the state; as required by the creating
statutes, the bank had repaid the state's investment and
was currently a private entity owned by its members. He
explained that because CFAB was created under specific
statutes, it was regulated differently than other banks and
credit unions operating in Alaska. The specific statutes
that created CFAB assured that it continued to fulfill its
original purpose of assisting the commercial fishing and
agriculture industry. The bank's board of directors desired
to improve the operating ability of the bank by requesting
several changes in the operating statues. HB 121 expanded
the types of loans the banks could give to commercial
tourism and natural resources industries and removed the
maximum loan amounts provided to borrowers. HB 121 also
expanded the category of borrowers to include non-resident
owned businesses that were physically located within
Alaska, expanded the eligibility of the banks small loan
program, and gave the board the ability to set its own
compensation level. Finally, to provide CFAB with
additional resources to capitalize its ability to provide
loans to its members, the CFAB Board requested that the
Alaska Banking Commission begin auditing the bank's
operations, as was done with other banks in the state. The
cost of the audits were born by the bank, not the state.
9:47:16 AM
MICHAEL PASCHALL, STAFF, REPRESENTATIVE ERIC FEIGE,
reviewed the sectional analysis of the bill. Section 1
restricted board member requirements to state residency and
to those under Alaska Statue 39.05.11 which placed
restrictions on appointments to board and commissions (a
provision added in the House Finance Committee). He
continued with Section 2 which adjusted the lending power
of the bank by eliminating the borrowing limits on certain
types of loans. It also removed the residency requirement
for certain types of capital loans. If the facility was
located in the state it expanded the loans. It also made
loans available for certain tourist operations and
operations dedicated to the development of or exploration
of natural resources. He reported that Section 3 required
the bank to consider whether the principles of conservation
and sustained yield would limit the ability to repay a loan
when collateral would primarily be used in a salmon
fishery, a provision added by the House Finance Committee.
Section 4 added commercial agriculture to the current
provisions allowing loans to non-members.
Mr. Paschall continued that Sections 5 and 6 pertained to
loans to non-members changing the dollar limitation on the
loans to non-members from $25 thousand to $50 thousand, and
increasing the debt capital ratio of loans to non-members
to 25 percent of the total bank assets. Section 7 inserted
conforming language pertaining to the bank examinations
added in Section 9 and also corrected a change in the
language by Legislative Legal Services. He reported that
Section 8 allowed the bank to make a list of eligible
members that could serve on the board available to the
membership for election purposes. Section 9 required the
Department of Commerce Community and Economic Development
to examine the bank at least once every 36 months as it did
with other banks in the state. Section 10 repealed a
limitation on the compensation of directors currently in
statute, and allowed the board to set compensation for
board members. Previously there was a prohibition on
lobbying by the bank. The bank requested the provision be
removed in statute but the change that would have done so
was removed from the bill. He furthered that Section 11
simply delayed examinations to one year after the effective
date of the act so that the bank could be sure to be
compliant with the requirements of the banking commission.
Section 10 made the act effective immediately.
9:50:22 AM
Senator Olson inquired what CFAB's current default rate was
compared to what it was 5, 10, or 15 years prior.
Representative Feige was unsure of the exact number, but
understood that it was relatively low. He concluded that
the president of CFAB would be able to answer the question.
Senator Olson noted that commercial fishing was a big part
of his district and stated that most of the villages that
he represented were along the coast. He inquired if
different organizations and fishermen were in favor of the
bill and if anyone had voiced a position on it. Mr.
Paschall replied that there had not been any outside groups
that had expressed any direct position on the bill. He
explained that the bill only affected the operation of CFAB
and did not change any of the policies that pertained to
loaning to the fishing industry, rather, it pertained to
other industries.
9:51:49 AM
Senator Olson asked about the inability to lobby on behalf
of the bank. Mr. Paschall replied that when the bank was
created state funds were involved in its operation. Through
the statute that created the bank, one of the requirements
outlined was that the bank reimburse the state. Currently,
the state did not have an ownership interest in the bank.
The governor currently appointed two members to CFAB's
board of directors. The other members were elected to their
seats. All members had to be members of the bank. The bank
operated as a private for-profit corporation and had an
interest in having someone in Juneau to track legislation.
However, she stressed that with only 10 employees, the bank
preferred to hire a representative, a lobbyist by
definition.
Senator Olson assumed that other banks had a lobbyist
acting on their behalf. Mr. Paschall responded
affirmatively.
9:53:18 AM
Vice-Chair Fairclough directed the committee's attention to
page 4 of the bill and expressed a concern about the
familiarity of those receiving loans and those making
loans. In Section 2, number 15C at least one of the primary
obligors of the loan needed to be a member of the bank. She
asked for clarification about membership requirements and
account status in order to borrow.
Mr. Paschall responded that the provisions being expanded
in one section of the bill pertaining to non-members
allowed a non-member to receive a limited loan up to $50
thousand. All other loans provided by the bank required
that the person obtaining the loan be a member of the bank.
A person was required to purchase one share of class "A"
stock and pay a fee equal to 2 percent of a pre-approved
loan amount ($2500 maximum) to establish membership. Once
an obligee paid off their loan their membership expired.
9:55:05 AM
Vice-Chair Fairclough inquired what the catalyst was for
the bill's changes. Representative Feige responded that the
provisions the bill attempted to change simply expanded the
ability to loan larger amounts of money to the tourism and
natural resources industries. It also allowed the bank to
expand its ability to loan to non-residents. It was
required that they have operations and facilities within
the state, and were members of the bank. The bill broadened
the market in which CFAB could lend. He reported that the
"married couple" reference was part of the original statute
language.
9:56:45 AM
Vice-Chair Fairclough noted the new amended language and
commented that it could also be referring to additional
statute. She pointed to page 6 of the bill and recalled
that there had been an increased funding ratio for the
debt. She wanted clarification on the ability to extend to
25 percent of an asset base. She asked if it was standard
business practice because she thought debt ratio was
supposed to be significantly lower.
Representative Feige pointed to page 5 of the bill in
Section 4 and stated that the section of law dealt with
loans made to non-members of the bank. The loans to non-
members were originally restricted to commercial fishing.
The bill would expand to commercial agriculture in remote
areas. Section 5 expanded the maximum loan amount made to a
non-member. In Section 6 the bank's overall percentage of
capital that could be loaned out increased from 8 percent
to 25 percent.
9:58:46 AM
Vice-Chair Fairclough noted that raising the asset base
from 8 to 25 percent was financially risky and was not
standard business practice. The State of Alaska looked at 8
to 10 percent with its "AAA" rating. She inquired about why
the large jump was being proposed. Representative Feige
replied that they were referring to the capital of the bank
and that the purpose of the bank was to loan out its
capital. The legislation limited the amount of the total
capital that could be loaned to non-members. Vice-Chair
Fairclough iterated her awareness.
9:59:44 AM
Senator Bishop wanted to know the definition of a state
resident. Mr. Paschall responded that the definition in
statute applied. Senator Bishop requested that Mr. Paschall
provide the statute definition to his office.
Representative Feige responded to Senator Fairclough's
question regarding married couples. He referred to page 1,
line 14, Section 2 of the bill stating that the language
was part of the original statute and the amendments were
aligned with existing statute.
Co-Chair Meyer inquired if the bill had gone through
significant changes as it progressed through the house.
Representative Feige confirmed that there had been a number
of amendments adopted during the committee process. Co-
Chair Meyer asked if the amendments were amenable to the
sponsor. Representative Feige signified that he had
accepted them as part of the committee process.
10:01:57 AM
LELA KLINGERT, PRESIDENT, COMMERCIAL FISHING AND
AGRICULTURE BANK, JUNEAU, spoke in support of HB 121. She
relayed that CFAB was a privately owned and operated
financing cooperative that provided loans to residents
involved in the commercial fishing, agricultural tourism,
and resource-based industries of Alaska. The bank was a
product of legislation introduced in the late 1970s. At
present, it operated as the sole subject of AS.44.81, which
was the focus of HB 21 before the committee. The bank was
committed and structured to serve resident individuals and
smaller companies in a highly focused and specialized
manner. Many of its members and borrowers would not
otherwise have access to loan funds in reasonable and
constructive terms.
Ms. Klingert continued to address the changes requested in
HB 21. She pointed out that the changes sought to provide a
level playing field in CFAB's lending authority for all of
the industries and markets that it served as well as to
allow CFAB the same discretion as other small businesses.
She reported that CFAB did not oppose any of the amendments
made to HB 121 with the exception of the lobbyist issue.
She elaborated that CFAB was 100 percent owned by its
membership allowing CFAB to engage a lobbyist to assist in,
monitor, and deal with issues that would potentially impact
CFAB without using any state funds or resources. She
reported that it was the most cost-effective way in which
to handle such matters. She reiterated that CFAB and its
board of directors supported HB 121.
10:04:11 AM
Vice-Chair Fairclough referred to page 6, Section 6. She
asked about the board's reasoning to increase the total
ratio of assets to debt from 8 percent to 25 percent. She
further commented that the increase could prove to be a
higher risk. Ms. Klingert responded that her concerns would
be raised in a traditional banking model in which most
banks dealt with depositors' money. In the case of CFAB,
all of its capital was lent out. Beyond capital, CFAB
borrowed money and in turn lent it out. She agreed with
Senator Fairclough that the percentage increase was risky.
She also reported that CFAB was created to provide
financing for industries that were unable to access funding
due to their volatile business nature, adding another layer
of lending risk. Section 6 allowed CFAB to make loans to
non-members. A requirement of membership was to make a
financial investment in the cooperative. Some individuals
in rural areas could not afford the mandatory outlay. The
original part of the statute was included to allow CFAB to
loan up to $25 thousand for fishing to assist individuals
who could not afford a membership investment. She pointed
out that part of CFAB's mission was to serve rural parts of
Alaska. She affirmed that CFAB's efforts to mitigate risks
showed in its lending record.
10:06:39 AM
Vice-Chair Fairclough noted that CFAB was almost tripling
its risk. She stated that the change reflected a 17 percent
increase. She furthered that the increase was not being
implemented with incremental steps. Klingert responded
affirmatively. She indicated that it would be a maximum of
$5 million based on CFAB's capital, currently which
represented less than 10 percent of its total loan
portfolio. She was uncertain of the loan demand and
informed the committee that although the legislation would
allow for the increased debt ratio, it was undetermined if
management would lend to the full extent.
Vice-Chair Fairclough inquired if there had been unanimous
support of the board of directors in making the proposal to
come forward. Ms. Klingert replied in the affirmative.
Senator Olson inquired about Ms. Klingert's background and
expertise in banking. Ms. Klingert relayed that she had
been in banking her entire career. She started out in the
operational side of banking and spent a few years working
in lending for the government. She also worked for a couple
of private institutions. She informed the committee that
she had been with CFAB for 26 years.
10:08:28 AM
Senator Olson expressed his concern about the increase in
risk. He recounted the Bank of the North going under and
how he was affected personally. He viewed CFAB's money as
depositors' money belonging to fishing and agricultural
people who had a vested interest in the actions of the
bank. He asked whether CFAB was concerned about tripling
the current number. Ms. Klingert responded that there were
always concerns and CFAB was managing a balance of staying
true to its mission of serving rural folks and staying
financially sound. She reported that CFAB's early years
were sketchy, particularly in the 1980s when the bank came
close to failing. She expressed confidence in CFAB's
mission and its staff in order to remain financially sound.
The bank's history demonstrated its responsibility which it
took very seriously. She agreed that the proposal was risky
and also presumed that because of the types of industries
it served it was also at a higher risk. She assured the
committee that the bank followed a very sound credit
practice.
10:10:22 AM
Senator Olson noted that CFAB had voiced reservations about
the lobbying aspect of the bill. He asked Ms. Klingert to
elaborate and indicated it was a sensitive issue. She
agreed that lobbying was a delicate issue but emphasized
that CFAB was presently a private entity. She continued
that the bank paid taxes. She furthered that even though
the bank operated under state statute the bank was private
and small in numbers. She indicated that she had a staff of
less than 10 people. The commitment of time and financial
resources made it very difficult to sponsor legislation in
order to change the bank's business plan. She continued
that Senator Coghill and Representative Feige had been very
generous to take up the legislation. The other item of
concern was having to travel with her director to Juneau,
which took him away from his post for two or three days at
a time. She wanted to better understand why there would be
objection for a private company to have the same rights
that every other private company had. She reiterated the
time and resources that were dedicated to the process of
changing the banks' business plan and its inconvenience.
Senator Olson liked the concept of a lending facility that
dealt with less than conventional people doing business in
volatile markets. He inquired how many rural residents the
bank dealt with that were not connected to the road system.
Ms. Klingert provided an approximation of about 50 percent
of CFAB's membership. Rural members included people from
Kenai.
Vice-Chair Fairclough inquired about the number of loans
typically issued in a year and CFAB's default rate. Ms.
Klingert responded that CFAB received an average of 120
applications annually and made approximately 60 loans per
year. The default rate fluctuated from month-to-month
between 2 to 4 percent.
10:14:25 AM
Co-Chair Meyer noted that CFAB was still under the state's
statutes and inquired about the kind of state support it
received. Ms. Klingert replied that through the legislative
process it received support. She mentioned that a
department of the state was one of CFAB's largest
competitors making things difficult at times. She
appreciated the help of banking and the examiner to put
forward legislation to reinstate the examination of CFAB, a
provision removed from statute in 2003. She reported that
CFAB worked very closely in cooperation with various
agencies such as the Commercial Fisheries Entry Commission.
She acknowledge the state's overall support.
Vice-Chair Fairclough inquired what kind of assets CFAB was
invested in. Ms. Klingert replied that of its assets CFAB's
loans represented approximately 98 percent of its assets.
She added that CFAB owned its office building in Anchorage.
Co-Chair Meyer CLOSED public testimony.
HB 121 was HEARD and HELD in committee for further
consideration.