Legislature(2017 - 2018)SENATE FINANCE 532

04/17/2017 09:00 AM FINANCE

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Heard & Held
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Heard & Held
HOUSE BILL NO. 56                                                                                                             
     "An Act  relating to limitations on  certain commercial                                                                    
     fishing  loans  made  by the  Department  of  Commerce,                                                                    
     Community, and Economic Development."                                                                                      
10:15:22 AM                                                                                                                   
REPRESENTATIVE  DAN  ORTIZ,  SPONSOR, discussed  HB  56.  He                                                                    
detailed that  the bill addressed the  Fisherman's Revolving                                                                    
Loan Fund;  and would  allow borrowers of  Section D  of the                                                                    
fund to apply  for the same loan amount as  the borrowers of                                                                    
all other  sections of the  fund. He informed that  the fund                                                                    
was  created  in  1972  to  promote  predominantly  resident                                                                    
fisheries,  and support  continued maintenance  of gear  and                                                                    
Representative  Ortiz  continued  discussing  the  bill.  He                                                                    
elaborated that  borrowers must be Alaska  residents for two                                                                    
years prior  to the loan  application date. To  be eligible,                                                                    
Alaskans  must  document that  they  had  attempted to  find                                                                    
private sector financing, and produce  a letter of rejection                                                                    
from a private  lender. He pointed out  that many harvesters                                                                    
did not  meet typical private sector  financing because they                                                                    
are  from rural  cash economies,  or were  young and  had no                                                                    
credit  history. Over  the life  of the  program, there  had                                                                    
been 8,400  loans. The fund was  completely self-sufficient.                                                                    
There had  been over  $125 million  appropriated out  of the                                                                    
fund to  other state programs  or to the  GF. At the  end of                                                                    
FY16, the  program had  1,728 loans.  The interest  rate was                                                                    
5.5 percent. The delinquency rate  of 2.2 percent, which was                                                                    
well below the  industry standard of 5  percent. He informed                                                                    
that  the bill  had  a  zero fiscal  note,  as the  proposed                                                                    
legislation did not affect the solvency of the fund.                                                                            
10:17:52 AM                                                                                                                   
Senator  von   Imhof  asked  the   sponsor  to   repeat  the                                                                    
statistics related to the loan fund.                                                                                            
Representative Ortiz  reiterated that at  the end of  FY 16,                                                                    
the program had 1,728 loans.  The interest rate on the loans                                                                    
was 5.5 percent.  The delinquency rate on the  loans was 2.2                                                                    
percent, which  was well  below the  industry standard  of 5                                                                    
Senator  von  Imhof asked  about  the  total amount  of  the                                                                    
outstanding 1,728 loans.                                                                                                        
Representative Ortiz  thought that the Division  of Economic                                                                    
Development staff would have the figures available.                                                                             
Senator  Micciche asked  why the  increase from  $300,000 to                                                                    
$400,000 was important, and what  was meant by his statement                                                                    
that the bill did not  raise the aggregate amount a borrower                                                                    
may hold unpaid.                                                                                                                
Representative specified  that the bill would  not raise the                                                                    
total loan  limit of  the program.  The borrowers  limit was                                                                    
set at $400,000,  and the limit would not be  changed by the                                                                    
bill.  Rather, within  Section D  the bill  would raise  the                                                                    
amount  a person  could borrow  (from $200,000  to $300,000)                                                                    
from a specific category.                                                                                                       
10:20:40 AM                                                                                                                   
AT EASE                                                                                                                         
10:20:54 AM                                                                                                                   
Representative  Ortiz clarified  that the  bill would  raise                                                                    
the amount  from $100,000 to  $200,000 within the  Section D                                                                    
loan category.  The bill expanded the  categories from which                                                                    
a  fisherman  could borrow  money  to  improve gear,  or  to                                                                    
finance the boat.  He referred to increased  costs for boats                                                                    
and gear.  He noted that  the borrowing category  limits had                                                                    
not changed since  the fund was established in  1972. If the                                                                    
bill were  to change  the total amount  that a  person could                                                                    
borrow, it would  have to be close to $700,000  to adjust to                                                                    
inflation.  He restated  that the  bill did  not propose  to                                                                    
raise the total loan limit per borrower.                                                                                        
Senator Olson  asked about the default  rate and delinquency                                                                    
rate on the loans.                                                                                                              
Representative  Ortiz  was  not   sure  of  the  distinction                                                                    
between default and delinquency rates.                                                                                          
Senator Olson asked about residency requirements.                                                                               
Representative Ortiz specified that  the program was for in-                                                                    
state fisherman with at least two years of residency.                                                                           
10:23:03 AM                                                                                                                   
BRITTENY  CIONI-HAYWOOD,  DIRECTOR,   DIVISION  OF  ECONOMIC                                                                    
DEVELOPMENT, DEPARTMENT OF  COMMERCE, COMMUNITY AND ECONOMIC                                                                    
DEVELOPMENT, stated  that the  outstanding principle  on the                                                                    
loans was  just over $95  million at the  end of FY  16. She                                                                    
relayed  that  as  of  the  beginning  of  April  2017,  the                                                                    
interest rate changed from 5.5 percent to 5.75 percent.                                                                         
Ms.  Cioni-Haywood informed  that the  delinquency rate  was                                                                    
2.2  percent, and  the default  rate  was approximately  1.1                                                                    
Senator  von Imhof  referred to  the loan  requirement of  a                                                                    
letter of rejection from a bank.                                                                                                
Ms.  Cioni-Haywood  stated  that  the  requirement  was  not                                                                    
necessary for permits, because there  were only two entities                                                                    
in the state that could lien on permits.                                                                                        
Senator  von Imhof  considered that  an individual  that did                                                                    
not qualify  for traditional bank financing  would generally                                                                    
be  a higher  risk.  She considered  various  loan rates  as                                                                    
compared  to the  rate offered  by the  fund. She  thought a                                                                    
higher-risk borrower  would receive a  rate of prime  plus 3                                                                    
or 4 percent;  whereas the current fund rate  was prime plus                                                                    
2 percent.                                                                                                                      
Ms. Cioni-Haywood stated  that the fund loan  rates were not                                                                    
risk-based  like a  private sector  lender, but  rather were                                                                    
set in statute to be prime plus one or two percent.                                                                             
10:26:17 AM                                                                                                                   
AT EASE                                                                                                                         
10:27:01 AM                                                                                                                   
Ms. Cioni-Haywood  stated that  the interest rate  was prime                                                                    
plus two percent.                                                                                                               
Co-Chair  MacKinnon  asked   if  loan  default  disqualified                                                                    
borrowers for further loans.                                                                                                    
Ms. Cioni-Haywood answered in the affirmative.                                                                                  
Co-Chair MacKinnon OPENED public testimony.                                                                                     
10:28:18 AM                                                                                                                   
BENJAMIN  BROWN,  COMMERCIAL   FISHERIES  ENTRY  COMMISSION,                                                                    
JUNEAU, testified  in support of  the bill. He  relayed that                                                                    
the  Commercial  Fisheries  Entry Commission  (CFEC)  issued                                                                    
permits and  oversaw transfer of limited  entry permits that                                                                    
were often the  objects that were purchased  with the loans.                                                                    
Additionally, permit  holders were often the  borrowers that                                                                    
used the  loans for other  purposes such as new  vessels, or                                                                    
vessel  and gear  maintenance. He  had observed  over his  6                                                                    
years  on  the  commission  that the  program  had  been  an                                                                    
excellent  partner  that  strove to  ensure  resources  were                                                                    
available,  so Alaskans  could  have  successful careers  as                                                                    
commercial   fisherman.  He   recalled  communicating   with                                                                    
fishers that  called with concerns about  loan applications,                                                                    
and testified to the praiseworthy  response of the loan fund                                                                    
Mr.  Brown   continued  his  testimony,  stating   that  the                                                                    
"graying of the fleet" had been  a source of concern to many                                                                    
Alaskans  and members  of the  legislature. He  thought that                                                                    
the  loan fund  was making  things as  good as  possible for                                                                    
commercial  fishers in  Alaska. He  thought the  legislation                                                                    
would achieve its stated objectives.                                                                                            
10:30:06 AM                                                                                                                   
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
Vice-Chair Bishop  discussed the  zero fiscal note  from the                                                                    
Department of  Commerce, Community and  Economic Development                                                                    
Co-Chair  MacKinnon informed  that  any proposed  amendments                                                                    
were due by noon the following day. She set the bill aside.                                                                     
HB  56  was   HEARD  and  HELD  in   committee  for  further                                                                    
10:31:02 AM                                                                                                                   
AT EASE                                                                                                                         
10:33:43 AM                                                                                                                   

Document Name Date/Time Subjects
CSSB 37 (FIN) Sectional Analysis version R 4-14-17.pdf SFIN 4/17/2017 9:00:00 AM
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SB 37 Work Draft Version R.pdf SFIN 4/17/2017 9:00:00 AM
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CS SB 37 (FIN) vsn R Sponsor Statement.pdf SFIN 4/17/2017 9:00:00 AM
SB 37
SB 37 CSSB 37(SFIN) Responses to Questions 4-17-17 cg.pdf SFIN 4/17/2017 9:00:00 AM
SB 37