Legislature(2017 - 2018)BELTZ 105 (TSBldg)
03/21/2017 09:30 AM Senate LABOR & COMMERCE
Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
Download Mp3. <- Right click and save file as
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 71-COMMERCIAL FISHING LOANS 9:59:57 AM CHAIR COSTELLO reconvened the meeting and announced the second hearing for SB 71. She asked Mr. Lamkin to provide an explanation of the handout he had distributed to committee members. 10:00:16 AM TIM LAMKIN, Staff, Senator Gary Stevens, Alaska State Legislature, said the handout is a visual that helps explain how SB 71 will encourage Alaskans to enter the fishing industry. Loans [from the Commercial Fishing Revolving Loan Fund] are still capped at $400,000 but it adjusts the amounts for certain expenditures in four different categories. Responding to a question, he confirmed that the numbers to the left of the arrow represent current category limits and the ones to the right represent limits the bill proposes. CHAIR COSTELLO stated that the visual would be posted to BASIS as soon as possible. 10:02:26 AM SENATOR GARDNER commented that the visual is helpful but Mr. Lamkin provided a good explanation when he introduced the bill. CHAIR COSTELLO noted that Britteny Cioni-Haywood was available to answer questions. SENATOR MEYER asked what the interest rate is for these loans. MR. LAMKIN replied the rate is set in regulation. He deferred further explanation to Ms. Cioni-Haywood. 10:03:25 AM BRITTENY CIONI-HAYWOOD, Director, Division of Economic Development, Department of Commerce, Community and Economic Development (DCCED), explained that the interest rate currently is 5.5 percent. The rate is fixed to the prime rate plus 2 percent. There is a 10.5 percent cap and the floor is no lower than cost of funds, which tends to be between 3 percent and 4 percent. SENATOR MEYER asked if that is less than a bank loan. MS. HAYWOOD replied the structures are different. The CFRLF has a set interest rate, whereas banks often base the interest rate on risk. The riskier the loan the higher the rate. SENATOR MEYER commented on risk and asked if the state is making money on these loans. MS. CIONI-HAYWOOD said the program is very successful. It has been in existence since 1972 and the portfolio is very balanced in terms of risk. The delinquency rate is low, which also speaks to the success of the program. SENATOR MEYER commented on the fund balance and again asked if the state is making money on the loans. MS. CIONI-HAYWOOD clarified that about $90 million has been loaned and the cash balance is about $20 million. The program is self-sustaining and has not taken any general fund support since 1985. The fund has paid for the cost of operations and has returned more to the general fund than the initial capitalization. SENATOR MEYER asked if this program gives a dividend back to the state like AIDEA. MS. CIONI-HAYWOOD said no; the money that comes back and isn't used remains in the fund and is available to grow economic development through additional loans. 10:06:46 AM CHAIR COSTELLO asked how this loan program differs from the Alaska Commercial Fishing and Agriculture Bank (CFAB). MS. CIONI-HAYWOOD described them as "two sides of the same coin." Both programs were established at about the same time and were for the purpose of financing limited entry permits. CFRLF tends to do smaller loans to less affluent borrowers. CHAIR COSTELLO asked if this program competes with CFAB. MS. CIONI-HAYWOOD replied there is probably a little competition because both entities lien on limited entry permits, but the clientele is different. Borrowers tend to work themselves out of this program and into CFAB or private lending as they become more affluent. SENATOR GARDNER summarized that CFAB borrowers tend to qualify conventionally, whereas the people who receive a CFRLF loan might not qualify for a conventional loan and tend to have fewer assets. MS. CIONI-HAYWOOD agreed with the summary and added that the average age of borrowers for the CFRLF loans is younger than the average age of permit holders. "We do see this as a program that helps combat, to a certain extent, the graying of the fleet." 10:09:15 AM CHAIR COSTELLO opened public testimony on SB 71. 10:09:45 AM JERRY MCCUNE, President, United Fishermen of Alaska, Juneau, Alaska, stated that this program, which was created to help residents, has put a lot of young people in the fishery. It is particularly helpful for someone who is buying a vessel. The bill proposes to raise the limit that can be loaned on the purchase or construction of a vessel from $100,000 to $200,000. A new gillnetter costs up to $400,000 so that modest raise would certainly help get some safe boats into the fleet. He highlighted that the loan gives preference to residents; it helps people out in the four categories described in the handout. [Mr. Lamkin described the categories during the introduction on 3/16/17.] SENATOR GARDNER asked if these loans are available to non- residents. MR. MCCUNE said no, the program was created for residents. SENATOR MEYER asked what happens when a resident gets a loan and then moves to Seattle. MR. MCCUNE replied the person would still have the loan, but the state would not be as accommodating if the person had a bad season [and had difficulty meeting their loan obligation.] SENATOR MEYER expressed frustration that the same thing happens on the North Slope. Companies hire locally and then the employees move out of state and continue to work here. 10:13:27 AM MS. CIONI-HAYWOOD stated that a very small percentage of CFRLF loans are held by people who have moved out of state. There is a residency requirement to qualify for a loan initially, but there isn't much that can be done if the person subsequently leaves Alaska. That person would not qualify for another loan or a loan modification. "We're much more cooperative with our resident fleet." 10:14:25 AM CHAIR COSTELLO closed public testimony on SB 71 and held the bill in committee for further review.