HB 177-COMMERCIAL FISHING LOANS  10:03:28 AM CHAIR SEATON announced that the first order of business would be HOUSE BILL NO. 177, "An Act relating to interest rates on loans from the commercial fishing revolving loan fund and the community quota entity revolving loan fund; and providing for an effective date." 10:04:09 AM TIM CLARK, Staff, Representative Bryce Edgmon, Alaska State Legislature, presented HB 177, paraphrasing from a prepared statement, which read as follows [original punctuation provided]: HB 177 restores the division of Economic Development's ability to offer incentivizing interest rates for important loan programs within the Commercial Fishing Loan Fund. The Department of Commerce proposed this legislation to Representative Edgmon because its authority to offer incentivizing loan terms has been so important to its mission to foster economic development in Alaska. Since 1973, the Commercial Fishing Loan Fund has been a cornerstone in the state's effort to increase Alaskan ownership of Alaskan fisheries. It encourages development of predominately resident fisheries by enabling more Alaskan fishers to make substantial investments in the efficiency and profitability of their businesses. Product Quality Improvement and Engine Fuel Efficiency loans are among the most effective offerings in the loan fund for boosting the competitiveness of Alaskan fishing operations. Upgrading vessels and gear to enhance product quality can dramatically increase the value of one's catch. Repowering a vessel with fuel efficient propulsion and generator engines can save a business tens of thousands of dollars each year. HB 177 will once again allow the department to offer such loans at two percent below the prime rate-with a floor of three percent - in order to encourage more Alaskan fishers to make substantial investments in the efficiency and profitability of their businesses. In doing so, the department will help to increase the vitality of Alaskan businesses and strengthen one of the state's most important industries. 10:06:34 AM CHAIR SEATON asked whether the loan interest percentages relate to other loan options established under the Commercial Fishing Loan Fund. MR. CLARK said the three percent floor was set by the Division of Economic Development at a time of low market interest rates, to ensure a profitable and healthy revolving loan fund. 10:07:55 AM MR. CLARK presented the sectional analysis, paraphrasing from a prepared statement, which read [original punctuation provided]: Section 1 amends AS 16.20.320(a) to allow the department to make loans from the Commercial Fishing Revolving Loan Fund at interest rates not exceeding the prime rate plus two percentage points and also not exceeding 10 ½ percent. New language in this section also stipulates that the department cannot make loans that bear interest at less than 3 percent. Section 2 deletes language from AS 16.10.320(j) that pertains to the revolving status of the Community Quota Entity Revolving Loan Fund. This language is no longer necessary because the bill introduces more complete language addressing the CQE Fund's revolving status in Section 6. Section 3 amends AS 16.10.320(l) to specify certain terms for Community Quota Entity program loans. Loans may not bear interest exceeding the prime rate plus two percentage points and also not exceeding 10 ½ percent. Also, this section states that loans may not bear interest at a rate that is less than the costs of funds to the state or at a rate that is less than three percent. Section 4 amends AS 16.10.320(m) to make this subsection apply only to AS 16.10.320(l), which refers to the Community Quota Entity loan program. Subsection (m) defines "cost of funds," which plays a part in loan terms in the CQE loan program. Section 5 amends AS 16.10.320 to add a new subsection that sets allowable interest rates for Section A and Section B loans for Product Quality Improvement and Engine Fuel Efficiency. Interest rates for these loans cannot exceed the prime rate minus two percent. However, they cannot be lower than three percent. Nor can the rates exceed 10 ½ percent. Section 6 adds a new subsection to AS 16.10.345 that describes what the Community Quota Entity Revolving Loan Fund consists of and also ensures that it is a fully revolving fund. In particular, this language establishes that income earned on investments of the fund roll back into the fund - a feature that is absent in current statute. This section also allows monies in the fund to be used for administering the CQE loan program (in the same way that CFRLF earnings can be used to pay for its programs' administrative costs). Section 7 gives the legislation an immediate effective date. 10:12:20 AM LORENE PALMER, Director, Division of Economic Development, Department of Commerce, Community & Economic Development (DCCED), stated official support for HB 177 and offered to respond to questions. 10:12:59 AM CHAIR SEATON asked how many loan applications the division receives on an annual basis. MS. PALMER directed attention to the committee packet, and pointed out the division report, which indicate the fund history, [titled "Product Quality Improvement Loans as of March 6, 2013"]. 10:14:38 AM REPRESENTATIVE FEIGE asked about the loan default rate. MS. PALMER answered that the overall default rate is about 1.4 percent; very low. 10:14:56 AM REPRESENTATIVE HERRON referred to the committee packet and the document titled "Monies Transferred From the CFRLF to Fund the Alaska Department of Fish & Game Operating Budget (ADF&G)," to ask what type of operations the $10 million has funded at ADF&G. CATHY JEANS, Division Operations Manager, Financing Section, Division of Economic Development, Department of Commerce, Community & Economic Development (DCCED), offered to provide the information to the committee. REPRESENTATIVE FEIGE referred to the committee handout illustrating the web page and suggested that the fund may be competing with the private lending sector. MS. PALMER said the program serves a high risk market, and provides loan accessibility to those who might otherwise have difficulty obtaining commercial loans. 10:18:38 AM REPRESENTATIVE FEIGE noted that the program requirements, depicted on the web page handout, do not include turn-down information. MS. PALMER explained that the web site provides an overview for application eligibility, but the actual loan process requires an in-depth disclosure. CHAIR SEATON suggested that the department provide further details of the application process. REPRESENTATIVE FEIGE asked if there is a requirement that the applicant have been turned down by a commercial banking establishment, in order to be eligible for a state loan. 10:19:45 AM JIM ANDERSEN, Lending Collection Manager, Financing Section, Division of Economic Development, Department of Commerce, Community & Economic Development (DCCED), said statute requires that the successful applicant will have been denied for a similar loan by a recognized lender. 10:20:32 AM CHAIR SEATON opened public testimony, and seeing none, announced HB 177 would be held in committee for further consideration.