HB 199-AK COMMERCIAL FISHING & AG BANK; LOANS  [Includes discussion of SB 156.] 11:24:37 AM CHAIR STUTES announced that the final order of business would be HOUSE BILL NO. 199, "An Act relating to the Department of Commerce, Community, and Economic Development; relating to the Alaska Commercial Fishing and Agriculture Bank; relating to certain loans made by the Alaska Commercial Fishing and Agriculture Bank; and providing for an effective date." 11:25:55 AM Kyle Neumann, staff, Representative Louise Stutes, presented HB 199, sponsored by the House Special Committee on Fisheries at the request of the Joint Legislative Taskforce Evaluating Alaska's Seafood Industry. He explained that the proposed bill would provide a one-time temporary investment of approximately $3.7 million of state money to bolster Alaska's Commercial Fishing and Agriculture Bank (CFAB). This would allow CFAB to refinance existing loans and potentially new loans at a reduced interest rate of 5.25 percent, the same rate currently offered by the commercial fishing revolving loan fund. He noted that HB 199 is a companion bill to SB 156. MR. NEUMANN remarked that CFAB was established by the legislature in 1978 through AS 44.81 and with this statute the state granted CFAB unique authority to lien limited entry permits in addition to providing loans specifically for commercial fishing operations. He noted that CFAB has over 700 members that represent 80 fishing communities and provides critical financing for fishermen across the state, especially in difficult financial times. He noted that it was known that the commercial industry was currently facing some challenges. He rd noted that the legislature addressed these challenges in the 33 Alaska State Legislature in 2024 with the passage of HB 273. HB 273 made changes to the states commercial fishing revolving loan fund that included temporarily fixing interest rates at 5.25 percent. He said that thus far HB 273 has been successful but had one unintended consequence, unable to match the fixed interest rates, CFAB is losing significant new loan volume to the commercial fishing revolving loan fund. He said that the problem has been exacerbated by costs associated with current fishing operations which have made it harder for borrowers to make payments on their existing loans. He said that CFAB has already expended many tools to avoid defaults, including revised payment plans and low loan restructuring for borrowers. MR. NEUMANN noted that in the interests of the seafood industry and in order to keep CFAB operational, the Joint Legislative Taskforce Evaluating Alaska's Seafood Industry recommended that the state enact policy to temporarily lower CFAB interest rates. He noted that HB 199 would provide a one-time $3.7 million investment to CFAB from a separate and now defunct capstone avionics revolving loan fund. He said that the investment would be through the purchase of Class C non-voting shares, the same vehicle that gave $32 million in start-up capital to CFAB in 1979 which was repaid by 1990. The investment provided with HB 199 would only be used to refinance or issue new low-interest rate loans until the revolving loan fund rates return to normal in two years, at this time CFAB would return any unused funds. He emphasized that CFAB would repay the state in full within 20 years by purchasing back stock from the state. 11:30:45 AM REPRESENTATIVE KOPP asked Mr. Neumann whether the total appropriation was coming from the capstone avionics revolving loan fund was $3.7 million. MR. NEUMANN responded that it was roughly $3.7 million and sitting in a defunct capstone avionics revolving loan fund which had a sunset date in 2021 and seemed to have been "forgotten about". He noted that it was not written in statute that the remaining funds would go back in the state general fund. He said that prior reappropriation attempts have been unsuccessful. REPRESENTATIVE KOPP commented that this is a small amount of money for a significant industry that needs it. He said that it would help the few fishermen that need it. 11:32:19 AM REPRESENTATIVE VANCE asked whether there was a reason that there was no fiscal note showing the fund transfer and whether he could provide some clarification to the commercial fishing revolving loan fund. MR. NEUMANN said that there is a fiscal note, but it is a zero fiscal note since HB 199 was pending appropriations and it does not specifically say that if HB 199 it would not move the money but "subject to appropriation the department shall issues shares by CFAB using an amount of money equal to amount sitting in fund at moment." REPRESENTATIVE VANCE asked whether this would mean that the $3.7 million would be required to be included in the operating or capital budget. MR. NEUMAN responded that he was not sure. CHAIR STUTES noted that it would be subject to appropriation in that amount, but the bill would not transfer the funds. REPRESENTATIVE VANCE said that the only other way the money would be transferred is through an appropriation bill and asked for clarification. 11:34:30 AM REPRESENTATIVE KOPP said that he was not sure whether it needed a bill, but this bill gives the state permission to do this administratively. He said that they could not move those unused funds unless permission was given by the legislature. He said that he believed it was about permission. CHAIR STUTES reiterated that this bill would not transfer the funds. REPRESENTATIVE VANCE said that she would prefer legislative legal to clarify the way that the bill was worded. She said that the way it was worded suggests appropriation and as far as her understanding was, the state would need an appropriation mechanism in order to transfer. She said she was in support of the bill but wanted to understand the mechanics of how to make this happen and prevent any unnecessary oversight. She said that making a change for a fund, there should be a "paper trail". CHAIR STUTES said that if HB 199 was approved then it needs to be in the operating budget. 11:36:17 AM REPRESENTATIVE MCCABE said that he did not disagree with Representative Vance and a fiscal note would be and there should be one. He said that the fact that it says "avionics" on the fund gives him pause. He understood that the Department of Natural Resources (DNR) needed a new airplane for firefighting operations. He reiterated that a fiscal note should be included. CHAIR STUTES said that legislative legal can be consulted about these technicalities and there was no intent to move the bill today. She reiterated what Mr. Neumann said and that HB 199 would not technically transfer money. 11:37:24 AM REPRESENTATIVE VANCE asked whether there was any history information available pertaining to the capstone avionics revolving loan fund. MR. NEUMANN said that it is a fund that was created several years ago, and the program has already passed the sunset date. Therefore, the program does not exist any longer and the funds were not accessible for any loan that the program had provided. He said the unused funds were not returned to the general fund and future reallocation attempts have been unsuccessful. He reiterated that the program passed the sunset date already. 11:39:04 AM REPRESENTATIVE VANCE said that on Page 1 and 2 the bill discusses repaying the loan after 20 years but further down the bill on Line 10 the bill suggests a fixed term of 15 years. She asked whether there was a reason for this discrepancy. MR. NEUMANN clarified that 20 years is the period that CFAB would repurchase the shares from the state. The reference to 15 years is with reference to the loan duration of the loans that CFAB can provide to borrowers using these state funds. 11:40:31 AM CHAIR STUTES announced that the committee would hear invited testimony. 11:40:57 AM SHARON LECHNER, President, Alaska Commercial Fishing and Agriculture Bank, Gave invited testimony in support of HB 199. She noted that CFAB was formed by the state in the late 1970s by the governing statute AS 44.81 and it limits lending activities in support of traditionally underserved industries such as commercial fishing and timber. She said that AS 44.81 also deems CFAB to be formed for a public purpose. She noted that CFAB pays federal taxes and cannot issue tax exempt bonds. She said that borrowers need to be Alaska residents. Currently, about 90 percent of CFAB loans are for commercial fishing and there was heavy investment into this industry. She said that unlike traditional lenders, they work for their borrowers. In the last 20 plus years, CFAB has not foreclosed on a single borrower. She said that the public purpose mission is evident by their response to the recent market downturn, now many fishermen cannot get access to working capital loans from processors and in response, CFAB introduced a seasonal loan program that would allow access to working capital to help borrowers avoid high interest credit card borrowing. She said that CFAB supports the commercial fishing revolving loan fund, but it has consequences for CFAB. She noted that existing loans are moving over, the collateral is being eroded, and no new applications were directed to CFAB. She said that HB 199 would allow matched interest rates with the commercial fishing revolving loan fund. She said that CFAB has 650 Alaska resident members and over 300 borrowers living in almost every Alaska community. Support for the bill would expand the financial lifeline for several hundred additional Alaska fishermen, their families, and their communities. She urged support for the bill. 11:44:13 AM CHAIR STUTES opened public testimony on HB 199, after ascertaining that nobody wished to testify, closed public testimony on HB 199. 11:44:37 AM REPRESENTATIVE KOPP reiterated that he appreciates the intent of the bill and in the interest of small businesses and helping them, this was a good direction. 11:45:20 AM CHAIR STUTES announced that HB 199 was held over.