HOUSE BILL NO. 304 "An Act relating to the commercial fishing loan program; and providing for an effective date." REPRESENTATIVE JOHN COGHILL, SPONSOR introduced the bill. He explained the history of the bill, regarding the State loaning to the fisheries. He discussed his initial desire years ago to disassemble the loan program, and how it eventually educated him on how the program helped the fishers of Alaska. He noted that fishers could be competing in the same waters, while their loans were being provided at different levels of service. He also noted that permitting in Alaska was designed to keep fishing in Alaska. He concluded that the fishing loan program has served a good purpose. Representative Coghill went on to propose, however, that the purpose of the program should be as a safety net, used only as a "last resort". Although he commended the current operation, he commented that the purpose of the bill was to set guidelines, for example requiring that applicants also apply at other lending institutions, including the commercial fishing agricultural loan bank. 8:52:24 AM Representative Coghill directed the Committee to the requirements outlined on page 2 of the bill, since SEFAB is not federally chartered, but is the only other lending institution statutorily able to make loans on permits. The bill is intended to encourage fishers, if viable at other lending institutions, to make their loan privately. He also referred to Section 2, which changes the limit of a loan as a percentage of collateral from 90% to 80%. 8:53:51 AM Section 3 limits loans: up to $35,000 of federal tax obligations, an allowance based on the upward cpi; community quota shares may not exceed $2 million for each community eligible under federal statute; the amount of an aggregate loan is limited to $400,000. The Sponsor noted he began with a limit of $300,000, but adjusted to match portfolio limits. 8:54:29 AM Representative Coghill referred to a change in the lending rate, on Page 5, line 1. He explained that prime plus two percent was the calculation used. He expressed support of an amendment that clarifies this calculation. He concluded that the bill made the loan program more streamlined, but still effective in helping Alaskan fishers. He suggested that it also introduced "reality" for fishers in servicing their debt. He finally noted services available that are not given by other institutions: 1) (lower) application fee 2) refinancing fees waived 3) deferred interest rate subsidy. These are benefits and flexibilities unique to this program. The Sponsor stated that fishers in Alaska need the system, but proposed it should serve as a safety net. 8:56:56 AM Representative Holm referred to line 4 of Page 5, and the change to 80 percent of value of collateral. He asked why this change was made. Representative Coghill stated that this brought the percentages in line with other lending institutions. Representative Coghill conceded that while this was an unfamiliar topic for the interior, it came from a desire to keep the government from competing with the open market in providing loan service to Alaskan fishers. Representative Chenault asked for the Department to address the fiscal note. 8:59:35 AM GREG WINEGAR, DIRECTOR, DIVISION OF INVESTMENTS, DEPARTMENT OF COMMERCE, testified regarding the bill. He noted that his division had worked with the Sponsor for quite some time to make program changes that would not harm the fund itself. He noted that thousands of Alaskans benefited from this fund, and expressed appreciation for the Sponsor's willingness to work with Department concerns. He noted that the issue had been worked on since the 1970's, in an effort to ensure that Alaskans could participate in fisheries. They have helped over 6,000 harvesters. He stated that the program has been successful, ultimately bringing monies into the General Fund. He urged caution in making changes to the program. He expressed that they believe that the bill was able to accomplish changes effectively. 9:01:24 AM Mr. Winegar referred to the fiscal note, and pointed out that by reducing the amount of refinancing from $300 to $200 thousand, it would result in one fewer loan per year. Also by reducing the limits on loans from $600 thousand to $400 thousand, it would potentially reduce the number of loans by one loan per year. The fiscal note reflects the reduced interest income over a six-year period. 9:02:11 AM Representative Chenault asked about the delinquency rate of 9.6 percent, and whether this was normal for the market. Mr. Winegar commented that the rate indicated was actually higher than the current rate of 4.9 percent. The rate varies over the years, depending on how fisheries succeed, and 9.6 percent is an average over years. 9:02:54 AM Representative Chenault referred to the current $400 thousand limit on outstanding loan balances. Mr. Winegar noted that this referred to the combination of various loans, as fisheries can apply for different kinds of loans on different sections of statute. Responding to a follow- up, Mr. Winegar confirmed that this number was previously $630 thousand, and currently was at $930 thousand due to recent legislation referring to product quality for tenders. He noted that they had never had anyone borrow up to that limit; while one borrower currently owed $400 thousand, the majority of the portfolio is well under the limits. 9:04:23 AM Co-Chair Meyer noted that in the fiscal note, the amount would be lowered from $630 to $335 thousand, as opposed to $400 thousand in the bill. Mr. Winegar confirmed that this figure needed to be updated. It was discovered that a new fiscal note reflects the correct amount. 9:04:58 AM Representative Holm asked if it was expected that the number of delinquencies or write offs would change commensurate with legislative changes. Mr. Winegar noted that he did not expect changes; the statute would reduce to 80 from 90 percent the loan to value ratio, something that by policy was already occurring, which was more typical for other lending institutions. Responding to a follow up by Representative Holm, Mr. Winegar noted that the default rate was at one percent, with a delinquency rate of 4.9 percent. 9:06:23 AM Representative Kelly MOVED to ADOPT Amendment #1, 24- LS0523\S. He pointed out a typographical error in the amendment, from "point" to "points" on line 3. Co-Chair Meyer OBJECTED. Co-Chair Meyer closed public testimony on the bill. RYNNIEVA MOSS, STAFF, REPRESENTATIVE COGHILL explained the Amendment. She noted that the current loan program used prime rate plus, and that the provision was amended to 10.5 percent in House Resources Committee. These percentage rates reflect a difference in philosophy in terms of percentage rate restrictions. She pointed out the concern that, when the 10.5 percent cap was placed into statute, the loaning agency did not have the ability to refinance. There is also concern over the lack of a cap on the interest rates used to make bonds, which could hypothetically exceed the interest rate on the loan. This provision gives the ability to adjust the interest rates if necessary. 9:09:01 AM Responding to a question by Representative Chenault, Ms. Moss noted that prime rate was currently 7.75, and their rate was 9.5. She explained that rates are determined on a quarterly basis. 9:09:33 AM Representative Kerttula noted the delinquency and default rates and asked what raising the interest rate might do to the amount of defaults. Mr. Winegar noted that this simply added a 10.5 percent cap. Representative Kerttula asked what the result was for fishers that exceeded that cap. Mr. Winegar noted that their expense would be higher, and mentioned a program for repayment. 9:10:51 AM Representative Kerttula observed that the program was currently successful, bringing in money for the state with low delinquency rates. 9:11:20 AM Ms. Moss pointed out that this bill would not affect the current portfolio, and only new loans. Responding to a question by Representative Foster, Mr. Winegar confirmed that the loan program was only for those who have been Alaska residents for at least two years. Co-Chair Meyer REMOVED his OBJECTION. Representative Kerttula OBJECTED to Amendment #1. She expressed her belief that there was no reason for a change in the program. 9:12:49 AM Ms. Moss explained that part of the intent of the bill was responding to a fairness issue, since many fishers were able to go to private lending institutions. She pointed out that when the economy changed and interest rates rose, all fishers would be affected. She proposed that since the program contained subsidies, it would provide a bigger advantage with limited interest rates. Representative Kerttula stressed that the program was to help those who were not able to apply to lending institutions. She stated that since the program was doing well, there was no need to change it. Ms. Moss expressed on behalf of the Sponsor that caution should be exercised for these borrowers in terms of their overall indebtedness. She noted that currently a fisher could apply for up to $930 thousand, and that the bill was an attempt to limit the amount that fishers could go into debt. A ROLL CALL VOTE was taken on the Amendment #1: In Favor: Kelly; Foster; Holm; Chenault; Meyer Opposed: Kertulla; Moses Amendment #1 was ADOPTED on a Vote of 5 to 2. Representative Foster MOVED to REPORT HB 304 out of Committee as Amended with individual recommendations and one new, zero fiscal notes (CCED). There being NO OBJECTIONS, it was so ordered. CSHB304 (FIN) was REPORTED OUT of Committee with a new zero fiscal note (CCED) and individual recommendations.