HOUSE BILL NO. 141 "An Act relating to loans for the purchase of fishing quota shares by certain community quota entities; and providing for an effective date." 4:01:54 PM REPRESENTATIVE ALAN AUSTERMAN, SPONSOR, introduced his staff that would discuss the bill. STEVE RICCI, STAFF, REPRESENTATIVE ALAN AUSTERMAN, discussed that HB 141 established a revolving loan fund for the Community Quota Entity (CQE) Program. The program was created in 2004 by the North Pacific Management Council in response to the significant outmigration of commercial longline quota from rural villages in the Gulf of Alaska. The program allowed 21 communities in Southeast and 21 communities in Southcentral to purchase and lease quota to residents, which would enable communities and fishermen to be active participants in the fisheries that occurred off of their shores. Since the inception of the CQE program and purchase quota, only one of the eligible communities had been able to utilize the legal authority that the program provided. The most significant barrier to participation was the ability to access financing. The bill established an independent revolving loan fund to assist the communities in the procurement of quota, which would help to support the economy of rural, coastal communities; an active fishing fleet would employ residents, provide tax revenues, spend income locally, and allow the communities to be sustainable and self-reliant. He pointed to the success of a similar program (Community Development Quota (CDQ) Program) that had been implemented to aid local residents that did not have significant access to fisheries occurring off their shores in the Bering Sea as a result of the Individual Fishing Quota (IFQ) system; residents had been provided 10 percent of the pollock quota. 4:05:42 PM Representative Edgmon supported the legislation. He had worked as the CDQ program manager when the CQE program was in development. He highlighted the significance of the economic development and number of jobs that could result from the program. Co-Chair Thomas wondered what the loan cap was per community. He thought that poorer communities may not be able to leverage as much as others such as Kodiak. Mr. Ricci responded in two parts: First, Kodiak would not be an eligible community under the program. Second, there was a $1 million cap per community, which was approximately 33,000 pounds at current day prices. Co-Chair Thomas wondered whether similar to the harbor grant program, the loan fund would not allow revenue sharing or direct capital grants from the legislature to be used as matching grants. Mr. Ricci did not know. Co-Chair Thomas remarked that he had helped to write the program. 4:08:14 PM Representative Costello requested that Mr. Ricci's written comments be provided to the committee. Mr. Ricci responded that he would provide them. Representative Doogan asked whether the problem was that people did not have the money to fish their quota. Mr. Ricci replied that residents of the communities had seen quota migrate from their communities to larger communities. Individuals that had participated in the fishery had either left or sold the quota and residents had been left with no access to the fishery. The loan program would help the communities to purchase quota and would allow individuals to lease it from the community. The program required the lessee to be a resident of the community that held the quota. Representative Hawker understood that the bill created a revolving loan fund for the purpose of making loans under the existing CQE program. He asked the sponsor to determine whether there were underutilized funds in other revolving loan programs that could be accessed to pay for the program, which would eliminate the need for the general fund appropriation request included in HB 140. Mr. Ricci responded that he would work with the department on the request. Representative Wilson wondered why the state would hire more employees to administer the program instead of offering the loan through a financial institution. Mr. Ricci responded that there would be one additional person hired in the Division of Investments. He explained that private banking institutions would not be able to provide the necessary loan program terms to meet the needs of the CQE communities. Since the inception of the CQE program in 2004, private financial institutions had been in place; however, they had not been able to provide the financing that was necessary to make the program work properly. Representative Edgmon added that recipients could get a much better interest rate through the loan program that had been constructed much like the commercial fishing revolving loan program that had been established in the early 1980s to help fishermen access lower capital. He noted that the commercial fishing loan program had been successful and had contributed money back to the general fund. Representative Hawker asked the sponsor to contemplate whether it was possible to achieve the desired outcome without creating a new revolving loan fund. He wondered whether it could be structured as a loan guarantee program or an interest subsidy to facilitate participation in the commercial fisheries revolving loan funds. He did not want to grow government or to create new agencies and programs. He thought it would be more beneficial to capitalize and take advantage of programs that already existed. Representative Doogan wondered where the $45 million figure in the bill came from. Mr. Ricci responded that each of the 42 communities would be eligible for $1 million under the loan fund. 4:14:38 PM Co-Chair Thomas noted that only a few entities were able to use permits and IFQs as collateral for a loan, including the State of Alaska and a halibut commission. WANETTA AYERS, DIRECTOR, DIVISION OF ECONOMIC DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY, AND ECONOMIC DEVELOPMENT, agreed that it was problematic for financial institutions to put a lien against a quota share and was the reason the division had historically served the purpose. Co-Chair Thomas discussed that he had been involved in fisheries for 35 years. He had watched the number of employees on larger boats decrease from up to eight people down to four. Individuals who had fished in the past were left out of the fishery and were struggling in their communities. He stressed that permits and IFQ's were leaving Alaska; the loan program provided a key solution to problem, given that it required the fishermen and employees to be residents of the community that owned the CQE. Communities would rotate who they leased the CQE to, which provided an opportunity to spread jobs to multiple residents. 4:18:07 PM Representative Costello asked whether the program competed with the Alaska Commercial Fishing and Agriculture Bank (CFAB). Ms. Ayers responded that the question would be best addressed by CFAB, but she did not believe that a CQE would meet the CFAB lending standards. Representative Hawker clarified that the intent of a loan guarantee program that would access existing programs would be to make borrowers credit worthy. Co-Chair Stoltze CLOSED public testimony, but noted that he would reopen it in a future meeting if necessary. HB 141 was HEARD and HELD in committee for further consideration.