Legislature(2001 - 2002)
04/12/2001 01:37 PM Senate L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 168-COMMERCIAL FISHING LOAN PROGRAM
CHAIRMAN PHILLIPS announced SB 168 to be up for consideration.
MR. ED CRANE, CEO, Alaska Commercial Fishing and Agriculture Bank,
said they requested this legislation and appreciate having it under
consideration. He said there were a number of factors over time
that led up to them introducing this bill. Five years ago when the
Division of Legislative Audit took a limited look at CFAB and the
Division of Investments' Revolving Commercial Fishing Loan Fund,
they recommended that a process be explored by which CFAB would end
up with essentially taking over the functions of the Division's
Fund. He cited various practices and policies and made the
observation that over the previous five years, borrowers (on the
surface) appeared much better with CFAB than they had with the
Division of Investments.
MR. CRANE explained that CFAB is a private institution structured
as a cooperative, responsible to the Board of Directors, who are
responsible to the borrowing owners. "We have the burden of
operating as efficiently and as effectively as possible. That
provides benefits to our borrowing members. Over the past 10 years
for every $100 of interest we have collected from those borrowing
members, we have returned $13.50 in cash to them. There is another
$4.80 set aside in funds, which will soon be paid to them, also."
He said that this bill provides that for most of the various kinds
of fishing loans made by the Division there will be a step inserted
saying the applicant must first be declined by CFAB before the
Division can entertain their application. The exception is a
section b loan (page 2, line 7), which covers loans the Division
makes to areas where there is either economic depression or a
limitation on employment opportunities and a historic dependence on
commercial fishing. CFAB thinks those loans are very important for
the state to do, but which as a private lender, they wouldn't. It
would not be appropriate for them to attempt it. He said:
SB 168 holds substantial benefits for many resident
fishermen and will not result in denial of financing to
anyone. It does not affect those elements of the
Commercial Fishing Loan Act, which are directed toward a
resident who cannot qualify for conventional financing.
However, there is potential over time, for a significant
reduction in utilization of the Commercial Fishing
Revolving Loan Fund and for incremental transfers tot the
General Fund.
Finally, SB 168 removes direct and subsidized competition
by the state and promotes the services of a successfully
privatized institution.
MR. CRANE explained that CFAB was created in 1979 - 1980 when the
state put $32 million of state money at risk to create it. "That
money has since been returned to the state."
Over it's 21-year history, CFAB has made several hundreds of
millions of loans to residents. That's a pretty good return of the
state's investment. CFAB is a private institution, paying taxes;
they are totally self-sufficient. He found it hard to believe there
is any justification for the state to be continuing on a subsidized
basis to compete with CFAB in the same markets.
SENATOR LEMAN asked why there was the specific reference of
protection for CFAB instead of just saying "and whose applications
for identical financing has been declined by private lenders."
He asked if there are others in the business CFAB competes with and
they don't mind competing with, and if there was a particular
reason.
MR. CRANE replied that they asked for the bill and wanted to see
their name there. He added:
When I was first with CFAB, the Revolving Loan Fund
Statute provided almost exactly what they are saying,
that most loans could not be made unless the applicant
had been declined by two other institutions. At that
time, the Division of Investments and CFAB had a very
workable arrangement for exchanging applications to be
sure that when we did decline someone, they wanted us to
pass on his application to the Division. We could do
that. That was changed. I don't recall why, but if you
look on page 3, lines 1 - 3, which has to do with loans
for quota shares, when that part of the statute was
created, it said the Division could make loans for quota
shares to borrowers who, among other things, are not
eligible for financing from other recognized commercial
lending institutions. That's been in place for four or
five years.
Our perception, to the best of our knowledge, that's been
ignored by the Division of Investments, even though there
has been numerous discussions with them. As a matter of
fact, we were specifically told in writing that what we
do, we look at the applications and if it looks to us
like we wouldn't do it, we would go ahead and make the
loan. I'm offended by that. That's my answer to your
question. If it said other financial institutions, I
wouldn't have any problem with that. I would say this,
that CFAB is the only private institution that has the
statutory authority to take a lien on a limited entry
permit. For 80 percent or more of the applications, it
would be CFAB.
SENATOR LEMAN said he traditionally tried to defend competition.
"As long as we have it, I would just as soon enable it to take
place. I have no problem with sort of putting an extra hurdle on
the department, because I really don't think the state ought to be
competing in areas that are handled capably by those in private
industry. And this is an example…."
MR. CRANE commented that section 2 (page 4, line 12) caused some
confusion. He explained:
A year ago, when the legislature passed a tax loan bill
for the Revolving Commercial Fishing Loan Fund, the
decision was made in some Senate Committee in HB 238, to
limit the life of that tax loan program to two years and
rather than use what seems to be the more conventional
sunset language, there was enacted a delayed amendment.
Under that delayed amendment, which becomes effective
August 1, 2002, the tax program goes away. This section 2
refers to that delayed amendment. That delayed amendment
is reflected in section 3, Chapter 127 of the acts of
2000. All section 2 is doing, assuming this bill passes,
it says that when that delayed amendment comes back into
effect, it will have the new language included in SB 168
in that delayed amendment. I hope that's clear.
CHAIRMAN PHILLIPS asked if he supported it.
MR. CRANE said he does.
Number 800
MR. GREG WINEGAR, Director, Division of Investments, said his
agency administers the Commercial Fund that would be affected by
this bill. He said:
The Fund was created in 1972 and has been a major
financing mechanism for harvesters in the state since
that time. The purpose of the program is to create or
maintain our predominantly resident fishery. The fund is
totally self-sufficient; there has been no general fund
money going there since FY 1985. As of June 30, we have
made a total of $341 million dollars in loans to about
5,400 different borrowers. The majority of the loans we
make under this program are ones that typically would not
be made by the private sector. We've referred numerous
applicants to private sector lenders on a daily basis and
if the applicant is unable to get financing from the
private sector, then we consider them under this program.
One of the concerns we do have, which was mentioned by
Senator Leman, is that this program would completely
eliminate all of our applicants' private sector choices
other than just one lender, CFAB. As far as the number of
permit loans we're involved with, it's roughly 50 - 55
percent of the portfolio are permit related. The other
types of loans we do are loans for vessels, gear, quota
shares, and other fisheries related activity.
As far as other sections of the program are concerned,
there is some overlap with the private sector, especially
under section (a), which is primarily for limited entry
permits. By statute, CFAB and the state are the only two
lenders that can secure loans with the limited entry
permit.
Currently, applicants can choose which program they wish
to participate in. This legislation would require that
they all go through CFAB first. This concerns us for two
reasons. A substantial number of our section (a)
borrowers would not qualify for a CFAB loan and so the
extra time and effort necessary for them to obtain a loan
would increase substantially because of that. Also, the
overall strength of the fund would be affected, because
CFAB basically would pick and choose and take the
stronger loans. We currently use those loans to help
balance the portfolio which is mostly made up of loans
that wouldn't be made by the private sector.
We also have problems with the changes it makes to
section 10. This section allows existing loan fund
borrowers to lower their interest rates through an
internal refinancing program. We have a very streamlined
process for them to do this. If the interest rates go
down, our existing borrowers with a basic one-page
application can lower the rate. This bill would prevent
borrowers from taking advantage of the streamlined
program, because they would have to turn around and go
through an entirely new application process through CFAB.
The final concern we have is more technical in nature. It
relates to the word "identical" on page 1, line 12; page
3, line 2; and page 4, lines 1 and 8. The concern we have
here is that our interest rates in terms are set by
statute and regulation and they are not connected with
CFAB's rates and terms in any way. Because they aren't
related, it may be very difficult for our applicants to
meet the identical financing requirement. That concludes
my testimony, Mr. Chairman. We do oppose this bill. We
feel it will limit Alaskan harvesters' ability to use
this loan fund.
SENATOR DAVIS asked if he had any further problems in the section
if "identical" were deleted.
MR. WINEGAR replied that they have problems with the concept, but
also one of the concerns they have is with the term "identical",
because it may make it almost impossible for someone to qualify.
"We are concerned that limiting section (a) borrowers to only CFAB
as an alternative is not something we would support. We don't
believe that's in the best interests of our borrowers. We are also
concerned about the effect that would have on the loan fund. Those
stronger loans help balance the risk of the portfolio."
Number 400
CHAIRMAN PHILLIPS asked what other industry does the Department
make loans to that have private loans available.
MR. WINEGAR replied that they have a couple of small business
programs.
CHAIRMAN PHILLIPS said his point is that the Department is supposed
to promote commerce within the state and other than the fishing
industry, there's no other industries that have the private and
state sectors competing for a pool of potential borrowers.
MR. WINEGAR replied that to some extent that's true, but the
largest portion of their borrowers would not qualify for private
sector financing. He said they used to have a mining program.
CHAIRMAN PHILLIPS asked what his default rate was, the number of
loans taken, etc.
MR. WINEGAR replied:
As of March 31, we put out a statistics report. We had
1,801 accounts on the books that are owned by the Fund.
The total outstanding balance is $80,464,000; the average
loan amount was $44,700. The delinquency rate is based on
number of loans and is 18.3% and they have 2.9% loans in
default.
CHAIRMAN PHILLIPS asked him to define "default" and "delinquent."
MR. WINEGAR responded that "default" is in litigation. Delinquent
is 60 days or more past due.
CHAIRMAN PHILLIPS asked if 60 days is delinquent, how far do they
go before going to court.
MR. WINEGAR replied that it varies depending on the situation. "Our
philosophy is to work with borrowers as best we can. Foreclosure is
a real last resort for us."
CHAIRMAN PHILLIPS asked how much time the average default is.
MR. WINEGAR replied that they have a number of folks who are going
through an extension process and they show up as delinquent.
TAPE 01-18, SIDE A
MR. WINEGAR said he didn't have an average number of days before
they issue a final demand, but he would look into it.
CHAIRMAN PHILLIPS said he intended to move this bill next Tuesday
or Thursday and asked everyone to come forward with their comments
before then.
SENATOR LEMAN said he wanted to see an amendment drafted that would
incorporate "other financial institutions" for the committee to
look at.
CHAIRMAN PHILLIPS thanked the committee for its patience and
adjourned the meeting at 2:15 pm.
| Document Name | Date/Time | Subjects |
|---|