SENATE BILL NO. 251 "An Act relating to the commercial fishing revolving loan fund and the fisheries enhancement revolving loan fund." SENATOR GEORGE JACKO maintained that the fishing industry is undergoing an economic crisis due to weak markets. He observed that fishermen have experienced difficulty in meeting their loan and tax obligations. He asserted that the legislation would make the Commercial Fishing Revolving Loan Fund more flexible in order to meet the needs of the fishing industry. Senator Jacko explained that the legislation would allow IRS debts that threaten ownership to be paid from the Commercial Fishing Revolving Loan Fund. Loans would be one time only and capped at $30,000. The legislation contains a three year sunset. He emphasized that there are 12,000 permits in arrears to the IRS. Senator Jacko noted that the legislation would also allow the department to refinance loans up to $300,000 thousand dollars incurred by borrowers for the purchase of a commercial fishing vessel or for gear. He discussed factors which have lead fishermen into fiscal difficulties. (Tape Change, HFC 94-128, Side 1) Senator Jacko observed that the legislation also amends the Fisheries Enhancement program to provide authority to the Department of Commerce and Economic Development to use excess funds in the fisheries Enhancement Revolving Loan 9 Fund for the purposes of the Commercial Fishing Revolving Loan Fund. He maintained that loan priority will be established through regulation. Expenditures would be prioritized in the following manner: 1. Limited Entry Permits 2. Vessels 3. Gear 4. Refinance loans 5. Hatcheries Senator Jacko observed that loans would be categorized as (a) or (b) loans. The (a) loans would be made to finance the purchase of limited entry permits. The (b) loans would be made for repair, restoration, or upgrading of existing vessels and gear or purchase or limited entry permits, gear or vessels. Loans are distinguished on page 1, line 7 through page 3, line 23. He discussed requirements of the loan. He observed that fishermen would need to be current in their IRS filings in order to apply for the loans. He noted that there is a two year Alaska residency requirement. A lack of employment opportunity in the area of residence or economic dependency on the fisheries must be demonstrated. The applicant must have been active in the fisheries for three of the last five years. The applicant must have a commercial fishing license for the year immediately proceeding the loan application. In response to a question by Representative Navarre, Senator Jacko clarified that payments would be made directly to the IRS. He reiterated the loans would be one time eligibility. He observed that the $30,000 thousand dollars loan cap would address 80 percent of the IRS obligations. Senator Jacko explained that limited entry permits cannot be used as collateral for loans. Representative Hanley argued that the federal government would not take permits if holders attempt to contact and negotiate for repayment of obligations. He did not see the need for the state to assume the risk of repayment. Senator Jacko maintained that the program would act as assurance to the IRS for a means of repayment in order to achieve an executed agreement. Representative Navarre noted that payment can be suspended for one year upon a showing of good cause. He observed that the tax liability could have been incurred through activities other than commercial fishing. He questioned the constitutionality of the program. Senator Jacko emphasized the goal of the program is to 10 prevent loss of limited entry permits to the IRS. Representative Parnell echoed concerns that tax obligations could be the result of other activities. Representative Therriault hypothesized that the tax liability would not have to be associated with commercial fishing. Representative Navarre suggested that the state negotiate with the federal government to allow state purchase of seized permits. FRANK HOMAN, COMMISSIONER, LIMITED ENTRY COMMISSION provided members with a chart summarizing tax delinquencies among permit holders (Attachment 1). He gave a brief history of the Commissioner's interactions with the IRS. The Commissioner was unable to reach an agreement with the IRS in regard to seized permits. He emphasized that the state will not lose money as a result of the program. Permits would be held as collateral. He reviewed areas of the state having difficulty with tax delinquencies as detailed in attachment 1. In response to a question by Representative Therriault, Mr. Homan explained that the IRS did not want restrictions placed as to how they could discharge the permits. He noted that all transfers must come through the Limited Entry Commission. He observed that if the state is given first right at permit purchase the bidding may not be as active. Representative Navarre queried the status of permits under dispute by both the federal and state governments for the default of payments. Representative Hanley observed that the federal government generally wins in state/federal disputes. Representative Hanley expressed concern that the difficulties experienced by the fishing industry are not temporary. In response to a question by Representative Therriault, Mr. Homan further discussed the permit as collateral for the loan. Representative Therriault noted that the permit is generally used as collateral for its purchase. He asked if provisions are included to allow loans not to exceed the equity of the permit. Mr. Homan stressed that it would be a criteria of the Division of Investment. RAY GILLESPIE, testified on behalf of four aquaculture associations. He noted that aquaculture associations support the legislation. He referred to provisions on page 6, which allow the Commissioner of Department of Commerce and Economic Development to move excess money from the 11 Commercial Fisheries Revolving Loan Fund to the Fisheries Enhancement Revolving Loan Fund in order to refinance loans. He noted that loans were made at higher than current interest rates. The ability to reduce loans for aquaculture associations would indirectly benefit fishermen. He noted that aquaculture association loans are secured by a volunteer enhancement tax. The enhancement taxes cannot be repealed until loans are paid. Representative Hanley summarized that reduction of interest rates would reduce payments to the Funds. He discussed the operation of the Funds. He expressed concern that the legislature retain its ability to control the amount loaned through the fund programs. Co-Chair MacLean noted that the department has projected that $14 million dollars will be available for loan activity, $9 million dollars will be used to satisfy normal loan demand, and $5 million will be used for the applicants of the bill. Fifty percent of any remaining funds could be transferred to the Fisheries Enhancement Revolving Loan Fund. (Tape Change, HFC 94-128, Side 2) Representative Hanley stressed that priorities for loan payments should be set in statute. Mr. Gillespie replied that the Commercial Fisheries Revolving Loan Fund demands will be the top priority, before any funds are transferred. He maintained that any funds transferred must be determined to be an excess of the demands of the Commercial Fisheries Revolving Loan Fund as determined by the Commissioner. Co-Chair MacLean observed that the Department has determined that there will be no excess funds available in the current fiscal year. Mr. Gillespie explained that the impact of reductions would be experienced in future years. At that time the Commissioner could exercise discretion to transfer excess funds. Representative Hanley questioned the amount needed to refinance the loans. Senator Jacko pointed out that the demand for hatchery loan refinancing will be more than is available. KENT DAWSON, NORTHWEST SEAFOODS, SILVER LINING SEAFOODS spoke in support of the provision to allow hatcheries to lower their debt burden. He maintained that the health of 12 the hatcheries is directly related to the health of the fishing industry. He noted that hatcheries operated by the aquaculture associations cannot secure bank refinancing since the state holds their collateral. GREG WINEGAR, LOAN MANAGER, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT stated that refinancing hatcheries loans would be separate from the legislation. He clarified that loans can be refinanced under the Commercial Fisheries Revolving Loan Fund. If money was available the department could refinance under the Fisheries Enhancement Revolving Loan Fund. Discussion pursued regarding refinancing interest rates. He anticipated that there will not be funds available for transfer in FY 95. Representative Navarre discussed loan financing requirements and mechanisms. Mr. Winegar explained that the legislation would allow the department to refinance other than state held loans. Representative Navarre questioned if loans could be provided based on the value of collateral. He suggested that sections referring to loans for tax obligations be deleted in order to assure that constitutional problems do not occur. Representative Brown discussed delinquent revolving loan fund loans. Mr. Winegar clarified that permanent fund dividends can be garnished. Co-Chair MacLean provided members with AMENDMENT 1 (copy on file). Amendment 1 would delete "one-half of". She explained that the amendment would allow the entire surplus balance from the Commercial Fisheries Revolving Loan Fund to be transferred to the Fisheries Enhancement Revolving Loan Fund. She maintained that future surplus funding should be available for hatchery loans. Senator Jacko explained that the provision to allow only half of the surplus funds to be transferred was adopted to assure that Commercial Fisheries Revolving Loan Fund retain sufficient funds. In response to a question by Representative Navarre, Mr. Winegar noted that $44 million dollars have been reappropriated from the Commercial Fisheries Revolving Loan Fund to the General Fund after loan demand. There has not been excess funds in the Fisheries Enhancement Revolving Loan Fund. Representative Navarre noted that the amendment could reduce 13 money appropriated back to the General Fund for general appropriations. Discussion pursued in regards to the effect of section five on legislative appropriations. Co-Chair MacLean MOVED to ADOPT AMENDMENT 1. Representative Navarre OBJECTED. A roll call vote was taken on the MOTION. IN FAVOR: Therriault, Foster, Larson, MacLean OPPOSED: Brown, Hanley, Martin, Navarre, Parnell Representatives Hoffman and Grussendorf were not present for the vote. The MOTION FAILED (4-5). Representative Foster MOVED to report HCS CSSB 251 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. The motion was held pending in order to allow members to allay constitutional concerns.