Legislature(2001 - 2002)
02/14/2002 01:37 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 266-FISHERY ENHANCEMENT LOANS
CHAIRMAN STEVENS announced SB 266 to be up for consideration.
MS. DEBORAH GRUNDMANN, Aide to Senator Stevens, sponsor or SB
266, said it authorizes the commissioner of Community and
Economic Development to refinance and extend the term of a
fishery enhancement loan made through the revolving Fisheries
Enhancement Revolving Loan Fund. The funding provided by this
program has helped to create an extremely successful statewide
salmon rehabilitation program. The hatchery system was
established in 1974 to enhance and stabilize Alaska's regional
salmon stocks. Now approximately 40 percent of the entire salmon
harvest in Alaska is enhanced fish. A majority of the loans made
under this program carry the maximum allowable interest rate of
9.5 percent. Alaska statutes allow for interest rates of 1
percent over prime, not to exceed 9.5 percent. New loans if
received today would be at 6 percent. Hatcheries would like to
take advantage of the lower interest rates to bring down their
debt service just as other business and homeowners are currently
doing in Alaska and the nation.
The last legislative audit of private non-profit hatcheries
published in 1997 recommended that the Division of Investments in
the Department of Community and Economic Development seek the
authority to restructure hatchery loans and that's what this
legislation does. The department is sufficiently staffed to
accommodate the few applications necessary to refinance these
loans. There is no forgiveness of principal or interest allowed
under this legislation and all payments are made directly to the
loan fund.
She said that SB 266 recognizes the public trust nature of these
non-profit entities. It protects the state's financial interest
by guaranteeing the sustained production of salmon for the
commercial, sport and personal use fisheries and assuring
continued payments of outstanding debts to the state. She said
there was a committee substitute before them.
SENATOR TORGERSON moved to adopt the committee substitute to SB
266. There were no objections and it was so ordered.
CHAIRMAN STEVENS asked that the provision be limited to the
refinancing of existing loans.
MR. GREG WINEGAR, Director, Division of Investments, said SB 266
would allow existing borrowers to refinance their fisheries
enhancement loans. Interest rates for this program are tied to
the prime rate and are fixed at the time the loan is made. In the
last year or so interest rates have come down a tremendous amount
and are less than what most of the loans were made at. They want
to let the non-profit aquaculture associations take advantage of
the lower interest rates. He pointed out that the same
legislation was passed for the Commercial Fishing Revolving Loan
Fund in 1993. This would affect the income of the fund and
therefore there is a fiscal note to reflect those differences.
It's important to note, he said, that this bill is going to allow
these associations to lower their interest expense, which will
help their financial picture and increase their ability to
service existing debt. This would not adversely impact the
integrity of this loan fund. They have a very streamlined process
in place to take care of refinancing requests so they don't see
this as being a burden administratively.
SENATOR TORGERSON asked if he supported the bill.
MR. WINEGAR replied that their official position is neutral and
explained that basically it's because it will result in a
reduction of funds to the loan fund, but on the other hand it
will help the existing associations.
SENATOR TORGERSON agreed that they should refinance the existing
loans as long as it doesn't adversely affect the portfolio and
Mr. Winegar said that was not an issue. "But I always shudder at
giving a commissioner this kind of authority without the
legislature knowing what is happening within that portfolio."
He was also concerned that the language on page 2 was such that
they would never turn down an extension.
MR. WINEGAR replied that they have the same authority under the
Revolving Commercial Fishing Loan Program and that was passed in
1993.
SENATOR TORGERSON asked what the difference in dollars was.
MR. WINEGAR replied that the loan funds are fairly similar in
size.
SENATOR TORGERSON said if the chairman liked, they could move the
bill out today, but he wanted to see the numbers when it was in
the next committee.
MR. JOHN CARTER, Executive Director, Douglas Island Pink and Chum
(DIPAC), said he wanted to support SB 266 on behalf of the Board
of Directors and the many supporters of DIPAC. He is also
spokesman for many of the hatcheries around the state rather than
flying someone.
The private non-profit hatchery program was created by
the legislature to replace the hatchery program
operated by the state's fish and game FRED division.
The FRED hatcheries are operated through an annual
appropriation to the state Department of Fish and Game.
The PNP hatchery program was created as a user pay
entity. To get the program started, the state gifted
some existing hatcheries to regional corporations, but
primarily created the Fishery Enhancement Revolving
Loan Fund. This fund, along with a tax on commercial
fishermen, was to provide for construction and
operational funds as the enhancement program developed.
Twenty-five plus years later, the PNP hatchery programs
are described even by some of their detractors as some
of the best in North America. They have made dramatic
financial contribution to many areas of the state. When
asked by those who don't understand the concept of
private non-profit, I usually fall back on the phrase
"public trust" as Debbie read today. I think this best
describes the way most of us view the job we do. That
being said, we are still a business and we are
responsible for budgets and payroll and, of course,
debt service. What we are asking for here is the
ability to refinance debt at the lower interest rate.
This is obviously going on in many businesses across
the country. Taking advantage of the current low
interest environment just makes good business sense.
Simply put, refinancing will strengthen our financial
position, make us better able to pay our debt and more
able to continue doing the job of providing fish for
commercial and sport fishers across the state. This
would mean the principle and interest as you just heard
are paid into the fund at a slower rate, but loan
demand of the fund has slowed dramatically, so the fund
will still be financially sound. Again, I appreciate
your support and am available for questions.
SENATOR AUSTERMAN asked if lowering the cost of doing business
meant a higher number of fish for the fishermen.
MR. CARTER replied in many cases he thought that's who the
benefit would transfer to.
"Your question if we are paying less interest into the
fund - it means that our annual budget - less of it
would go to interest and therefore we could reduce our
annual budget accordingly and therefore require less
cost recovery."
SENATOR AUSTERMAN asked about DIPAC specifically.
MR. CARTER replied that they are currently encouraging the
department at each opportunity to give the fishermen more time on
their fish. The amount of fish caught by the fishermen is
directly related to how much time they have.
SENATOR AUSTERMAN said he was raising these questions because he
was concerned about cost recovery and the percentage that takes
place in the hatcheries. It says in the law that they are
supposed to provide a "significant contribution." He asked what
percentage of cost recovery it takes for them to operate their
hatchery.
MR. CARTER answered that last year it was about 51 percent for
the hatchery and 49 percent for cost recovery, all species
combined. Their stated goal is 60 percent to the common property
and 40 percent to the hatchery. For the regional corporations,
it's 70/30. He explained that when they started their hatchery
they did not get any of the 3 percent money and all of their 3
percent money now goes to the regionals. One percent was given to
the "mom and pops" as far as a goal was concerned.
SENATOR AUSTERMAN asked if he could project a percentage of
savings using this bill.
MR. CARTER replied that he had to give him the same answer he
gave before.
This past year, if the fishermen had additional time
and would have caught a higher percentage of the fish -
it was unrelated to what we were going to pay to
Commerce. It would have affected our reserve, but we
had no control over that. Again, I'm not trying to be
evasive. That's just absolutely the way it is. If the
department had allowed them more days of fishing time
this year or the year before, they would have caught a
higher percentage of the fish. We get whatever is left
over. It's absolutely that simple.
2:10 p.m.
MR. JERRY MCCUNE, United Fishermen of Alaska, supported SB 266.
In the areas where we have regional hatcheries
fishermen pay an assessment. We have a huge investment
in the hatcheries and hopefully by lowering the
interest rate at this time, we'll be able to sustain
these runs. A lot of these hatcheries are based on pink
salmon, so Senator Austerman's question - it depends
on the price of the salmon - on the cost recovery.
Because we're all suffering from the price problem as
you all know….
He said in theory most hatcheries would be able to put out more
fish for the common property and that is the goal along with
paying the hatcheries off eventually.
SENATOR AUSTERMAN asked if it was correct that some of the
hatcheries had 80 percent cost recovery.
MR. MCCUNE said he couldn't speak for every hatchery. He knew of
one that had 60 percent.
MR. LARRY HANCOCK, City Manager of Cordova, said he represents
the City of Cordova and the Economic Development Council. He read
a letter of support for SB 266 from Mayor Margie Johnson, which
would help strengthen Prince William Sound Aquaculture
Corporation by allowing them to refinance their term loan, lower
their debt burden and decrease payment time. SB 266 would have a
positive impact on a large segment of their community and other
areas of the state that depend on hatchery produced salmon for
their livelihood.
MS. LISA VONBARGEN, City of Valdez, said that commercial fishing
is one of the top four industries in Valdez and contributes a
quarter of million annually in raw fish tax. The Valdez Fisheries
Development Association (VFDA) also supports and runs the silver
salmon sports fish program in Valdez, which creates one the of
the largest and most successful silver salmon runs in the state
and encourages thousands of people to visit Valdez every summer
providing amazing economic benefits to the community during the
late season. In addition to the commercial benefit of the pink
salmon run, it also creates an additional sports fish draw. VFDA
has 100 percent local hire rate for the 11 full-time and
approximately 35 - 40 summer employees equating to a $600,000
payroll annually. They are also creating a roe processing plant
which could mean potentially an additional 10 - 15 new jobs and
will create a new locally produced Alaskan caviar product, a
value added option for the fish taken out of the Sound.
"Obviously, making this refinancing possible for VFDA is only
going to allow them to be able to put more of their finances back
into the community and back into the local economy through
further enhanced fishery programs."
SENATOR STEVENS said the reason he introduced the bill was to
allow the existing loan borrowers to take advantage of low
interest rates just like all the other businesses and individuals
in Alaska are doing. "If there are positive effects that come
back to the fishing industry as a result of that, then it makes
it more of a reason why we should adopt this language."
SENATOR TORGERSON moved to pass SB 266 from committee with
individual recommendations and the accompanying fiscal note.
There were no objections and it was so ordered.
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