CS FOR HOUSE BILL NO. 20(FSH) "An Act relating to commercial fishing loans for energy efficiency upgrades and increasing the maximum amount for certain loans under the Commercial Fishing Loan Act; and providing for an effective date." REPRESENTATIVE BRYCE EDGMON presented HB 20 which amends a commercial fishing loan act to allow for a greater number of fishermen to participate in an energy efficiency loan program. This bill would allow for a fixed rate loan for up to 15 years at prime minus 2 percent. Representative Edgmon specified that the bill allows for Section A loan participants to participate in a loan program currently confined to Section B participants. He elaborated that to be a Section B participant, the fisherman must have been turned down by a bank, demonstrated that one-third of their gross income derives from commercial fishing, and they are in the low income or poverty level. He differentiated that Section A is a loan program, up to $300,000, for commercial fishermen who can demonstrate they have been in Alaska for several years and fished the last 2 out of 5 years. Representative Edgon noted that HB 20 also raises the overall cap from Section A and Section B participants from $300,000 to $400,000 and makes the new energy efficiency program retroactive to September 1, 2008 with an immediate effective date. 3:21:13 PM Representative Kelly questioned the delinquency rate of the loan fund and who the bill misses. Representative Edgmon responded that the loan portfolio is performing very well which is why they are able to bring this forward. Representative Kelly requested some numbers for further information. Co-Chair Stoltze asked for clarification if this was income based or by credit record. 3:22:32 PM Representative Edgmon replied that there is no income levels in terms of earning potential, but limits as to how much can be borrowed under Section A and Section B. Section A has a limit of $300,000 and Section B with a lower $100,000 cap contains the additional requirements that the fisherman must have been turned down by a bank and that one third of the gross income comes from commercial fishing. Co-Chair Stoltze asked if there is any delineation for size of the operation. Representative Edgmon responded that the ceiling would be $400,000 in combination with the two loan subsections. He clarified that a fisherman would have to prove the ability to repay the loan over a 15 year period. 3:25:13 PM Co-Chair Stoltze asked how the department evaluates a good business risk. Vice-Chair Thomas interjected that as a 40 year commercial fisherman, he never qualified for this loan because he has never been turned down by a bank. He believed this loan could help his son obtain a down payment for his own operation. Representative Edgmon repeated there were two different loan sections. He noted that the change would allow Section A participants to cross over to Section B in order to obtain more energy efficiency loans. He reminded that in Section B the fisherman has to be turned down by a bank, but Section A does not have that requirement. The energy efficiency loan only resides in Section B; this bill is trying to broaden the loan to include those only eligible for Section A. 3:27:25 PM Co-Chair Stoltze illustrated that Vice-Chair Thomas could not get this energy efficiency loan because of his good past behavior practices. Vice-Chair Thomas favored this bill for providing the means to acquire more fuel efficient vessels especially since fishermen were traveling further offshore to obtain more wild stocks. He added this would help in marketing wild stock salmon and in emission controls. 3:28:44 PM Representative Edgmon agreed the bill would enable someone like Vice-Chair Thomas, a Section A participant, to participate in the energy efficiency program residing in Section B. Representative Austerman contended that the bill's original purpose is for fishermen to acquire more energy efficient engines to help offset the high cost of fuels and reduce the carbon footprint in the ocean. He added this would also allow boats to be geared with other energy efficiency means, such a adding a small wind generator or solar panel while in the harbor. 3:29:58 PM Vice-Chair Thomas remarked that 5 to 10 percent of fuel can be saved by changing the bow design on some larger boats. 3:30:53 PM Co-Chair Stoltze asked if this bill also applies to the health of the fisheries in rivers. Representative Edgmon replied that many fishermen travel a long way to the harvest grounds; therefore more efficient engines would improve the health of fisheries everywhere. He added that in this low interest environment fishermen could change to more fuel efficient vessels. 3:32:21 PM Co-Chair Stoltze asked if the bill could help modernize boats in the big river systems. Representative Edgmon replied that HB 20 addresses the commercial fishing loan program, but within the portfolio there are smaller loan programs available to help smaller vessels. Co-Chair Stoltze wondered if off shore charter boats could be helped to burn oil in a more efficient manner and if this was consistent with the bill's idea to promote fuel efficiency. 3:34:13 PM Representative Austerman interjected that there was discussion on the charter boat issue, especially on larger river systems, but it was outside the commercial loan program. He added that an attempt to classify sports charter fishing as commercial fishing had been rejected by the charter fishing boat operators. Vice-Chair Thomas reported that many sport charter operators are not residents of the state. Representative Austerman mentioned that charter boats from his region asked if they would be covered under this bill, but indicated they were not willing to be classified as commercial fishermen. 3:36:08 PM Representative Edgmon replied the bill's intent was confined to commercial fishermen. 3:37:09 PM Representative Fairclough supported the concept of the bill, but not the fiscal note attached. She noticed that departments request new full time employees (FTE) every time a new program is started. She asked Representative Edgmon how much money was currently in the fund. Representative Edgmon responded that the position in the fiscal note is for an anticipated need that will be based on how many participants come into the program. He added the funds derive from the portfolio itself with no general funds. Representative Fairclough asked how many loans, managed by the Department of Commerce, Community and Economic development, were applied for in FY08 and FY09, the value of the loans, and how many FTE's presently manage it. 3:39:19 PM GREG WINEGAR, DIRECTOR, ALASKA DIVISION OF INVESTMENTS, DEPARTMENT OF COMMERCE presented an overview on the history of the program. Sixty million dollars were originally put into the program and over $400 million has been distributed in loans; it pays its own way with no expenses to the general fund. The fiscal note was added for the position because of an anticipated rise in demand once this bill is implemented. The department anticipates $4.8 million in loans for the first year, but the position will not be filled unless needed. Co-Chair Stoltze asked if commercial charters would be eligible for this loan. Mr. Winegar replied that this program, dating from the early 70s, is for commercial fishermen not the charter boats as these are totally different industries. A major change in the program would be needed to incorporate the charter boat industry. 3:42:55 PM Representative Fairclough reiterated that she supports the bill, but believed there is a consequence to the general fund by withdrawing out additional operating dollars. She understood the interest that is earned off the fund is dropped into the general fund, so there will be less interest if reducing the capital asset. Mr. Winegar replied that the interest goes into the fund, not the general fund. It is a revolving fund so all the payments, interest, and earnings on investments, roll into the fund itself and all the expenses are paid out of the fund. Representative Fairclough referred to page 2, second paragraph of the fiscal note: Currently, cash in the CFRLF is managed by the Department of Revenue and is invested in short term instruments that are yielding minimal returns in this interest rate environment. These earning are retained by the General Fund. Representative Fairclough asked if this referred to the general fund in CFRLF or the state of Alaska general fund. Mr. Winegar replied that basically the cash going into the general fund right now is minimal. He noted that the fiscal note refers to an indeterminate change in the interest rate charged by the loans, the 2 or 3 percent range, with expenses and losses coming out that may have an impact depending on earnings. 3:45:00 PM Representative Fairclough asked how much is in the current fund. Mr. Winegar projected that at the end of FY09, the fund is around $30 million. The portfolio with interest and principle is around $72 million; the total around $100 million. Representative Fairclough asked how many loans are managed in this division and how many loans this new FTE position would manage. Mr. Winegar estimated that the new position would be working on $4.8 million in loans over and beyond the current amount. Representative Fairclough asked again from the department's perspective the utilization of grant dollars generated from the state versus federal money. 3:47:48 PM Winegar answered that the fund manages $204 million in assets and loans with over 2600 accounts, in addition, there is cash managed by Department of Revenue. Representative Fairclough asked how many FTE's are now managing the 2600 accounts. Mr. Winegar had percentages but not numbers. Representative Fairclough replied she needs the numbers. Mr. Winegar referred to a January 12, 2009 report that the total delinquency accounts were 2.8 percent, .1 percent in foreclosure, 7.5 percent delinquent in commercial fishing, and .3 percent in foreclosure. 3:50:11 PM Representative Austerman addressed the willingness to discuss the charter sport operators. Co-Chair Stoltze expressed his sympathy for helping the charter boat industry as a statewide responsibility. Vice-Chair Thomas added that his district has about 2300 commercial fishermen. He remarked that commercial fishermen are punished by the excessive overfishing by charter boats. He declared he has no problem helping the small charter vessel with fuel efficiency programs, but not the large out-of-state operators. 3:56:34 PM Co-Chair Stoltze indicated this bill would require another hearing to refine some of the questions asked. Representative Fairclough wondered with the $72 million in the fund, with the expected $4.2 million increase in requested loans, would the money come out of the $72 million or the $30 million cash flow. She requested clarification that in the $204 million in outstanding loans, if the monthly payments return to the fund to create the cash flow. Mr. Winegar agreed that was correct; it is a revolving process. Representative Fairclough asked if the $4.2 million will reduce the earning ability of the assets just sitting, or increase because it is getting paid a fixed interest rate from the funds being loaned against. Mr. Winegar agreed that was correct. He pointed out that of the $60 million originally put into the fund over $100 million had come out and a large amount has reverted into the general fund or to support other organizations, such as the Department of Fish and Game. Representative Fairclough asked if she could be provided information on what was contributed to the general fund in FY08 and FY09. 4:00:03 PM HB 20 was HEARD and HELD in Committee for further consideration.