HB 116 - BOARD OF AGRICULTURE AND CONSERVATION Number 0136 CO-CHAIR MASEK announced the first order of business would be HOUSE BILL NO. 116, "An Act relating to the Board of Agriculture and Conservation, to the agricultural revolving loan fund, to the disposal of state agricultural land, and to the Alaska Natural Resource Conservation and Development Board; and providing for an effective date." [HB 116 had been heard previously, in 1999.] REPRESENTATIVE BARNES made a motion to adopt the proposed committee substitute (CS) for HB 116, version 1-LS0407\X, Cook, 1/14/00, as a work draft. There being no objection, it was so ordered and Version X was before the committee. Number 0186 REPRESENTATIVE JEANNETTE JAMES, Alaska State Legislature, sponsor of HB 116, explained that the bill creates a Board of Agriculture and Conservation, which becomes the policymaker for the Division of Agriculture. The board can then hire an executive director and/or staff to manage the agriculture issues. She stressed that the principal aspect of the bill is to make sure that the policy of agriculture has continuity from one administration to another. REPRESENTATIVE JAMES indicated she has been working extensively with the agricultural community, which is beginning to come into its own in spite of what has been done for it in the past; therefore, she is encouraged that if some continuity of policy can be established, then the agricultural community will continue to grow. REPRESENTATIVE JAMES explained that the board would consist of seven members appointed by the governor and confirmed by the legislature. The members would serve a staggered three-year term, and they may appoint a director who can employ staff that are responsible for the daily operations of the Agriculture Revolving Loan Fund (ARLF). Essentially, all existing statutory duties of the Division of Agriculture [Department of Natural Resources (DNR)] are transferred to the new board. The seven members would be individuals with business or financial experience: one from a statewide agriculture promotion organization, one from the Alaska Soil and Water Conservation Districts, and four from different enterprises in the commercial production of agriculture. REPRESENTATIVE JAMES directed attention to the sectional analysis of Version X contained in members' packets. She noted that most of the sections confirm the transfer from the director of the Division of Agriculture, DNR, to the Board of Agriculture and Conservation. Furthermore, the Board of Agriculture and Conservation will replace the ARLF Board and the Creamery Board; two boards are being joined into one and being given a larger responsibility, which means there should be a savings in dollars and cents. One of the problems with this was regarding who could get an ARLF loan if [that person] was a member of the board. Therefore, it specifies on page 2, subsection (d) [of Version X]: Notwithstanding AS 39.52.150(a) or other law, a person serving on the board, or an immediate family member of a person serving on the board, may obtain a lease, permit, or loan under AS 03.10 or under AS 38.05. A person may be appointed to the board even though that person, or an immediate family member, has a lease, permit, or loan under AS 03.10 or AS 38.05. However, a board member may not use or attempt to use the office for personal gain and may not intentionally secure or grant unwarranted benefits or treatment for any person. REPRESENTATIVE JAMES pointed out that this is an "ethical thing" and is probably something [members] would have to recuse themselves on, if they were getting loans. She added that there is a zero fiscal note. Number 0531 REPRESENTATIVE BARNES asked where the money will come from to operate the board. REPRESENTATIVE JAMES reiterated that the Board of Agriculture and Conservation will replace two existing boards: the ARLF Board and the Creamery Board. REPRESENTATIVE BARNES acknowledged that but asked how it will be funded. REPRESENTATIVE JAMES clarified that it is all being funded by the ARLF at this time. CO-CHAIR HUDSON asked what the expenditure of the Division of Agriculture has been on an annual basis. REPRESENTATIVE JAMES replied that the Division of Agriculture has been funded by the ARLF since she joined the legislature. CO-CHAIR HUDSON asked whether those are collections from loans that are being paid back. REPRESENTATIVE JAMES interjected that the ARLF was originally a pot of money that was set aside for loaning money to farmers. She pointed out that in the history of the ARLF there were many failures and a lot of debts, but now all of the loans are current. Some assets in the ARLF have been repossessed and are currently in that fund, and the interest of the Board of Agriculture and Conservation is to liquidate those assets. That is part of the focus: being able to have a continuity of agricultural interest without having so much political interference. She indicated that [the ARLF] would like to see some general funds, but she does not see that happening anytime soon; therefore, the ARLF has to fund the operations of the Board of Agriculture and Conservation as well as keep funds available for loan money. REPRESENTATIVE JAMES pointed out that there is also a provision regarding interest on page 4, paragraph (4), that is being deleted; it states, in part: that may not be less than eight percent or more than the commercial rate, unless the commercial rate is eight percent or less; REPRESENTATIVE JAMES explained that [the statute] is being amended to make the interest rate on farm development, chattel or irrigation loans comparable to that charged by other agricultural lending institutions in the state. Number 0786 CO-CHAIR HUDSON indicated it is the right way to go, getting the bureaucracy out of some of these industries. REPRESENTATIVE HARRIS referred to a letter sent by the Alaska Association of Soil and Water Conservation Districts (AASWCD) last year, opposing parts of HB 116. He wondered if those concerns have been addressed. REPRESENTATIVE JAMES indicated the concerns have been addressed and AASWCD is neutral [on the bill]. REPRESENTATIVE HARRIS said, "You stated in your presentation that the department [DNR] and the Governor were behind this bill. ... Are they willing to testify on behalf of this for you?" REPRESENTATIVE JAMES responded: I doubt it. And I'll be quite frank with you: from the very beginning we've been working with Commissioner Shively, and he silently supported what we were doing, but I don't believe he'll come forward and testify in that respect. We have had a lot of cooperation from Director Rob Wells, who works for Commissioner Shively, but I don't believe they'll come forward and object, and that's probably the biggest thing we can expect. REPRESENTATIVE JOULE read from DNR's fiscal note analysis: "Interest rate reduction from 8% to 5% would reduce revenue to ARLF, amount is unknown at this time." REPRESENTATIVE JAMES explained that the fiscal note is from last year; the proposed CS for HB 116 cannot be given to DNR until it is approved by the committee. She indicated that the language has been changed, and the rate is to be the same or not less than other farm agency loans that are available. The fiscal note is also indeterminate, but that is based on the bill that was before the committee last year, which was quite a bit more expensive. Because there is one board that will replace two existing boards, which are already funded, it will cost less. Number 1157 REPRESENTATIVE JOULE wondered if the committee could get the fiscal note from the DNR for the proposed CS before it leaves the committee. CO-CHAIR MASEK MASEK indicated that would happen. REPRESENTATIVE JAMES clarified that she is expecting a zero fiscal note. REPRESENTATIVE BARNES expressed that the agriculture industry has been an abysmal failure compared to the amount of money that has been put into it. She indicated hope that someday the state can recoup some of the money lost over the years, the most recent example being the farms in the Point MacKenzie area. Number 1301 REPRESENTATIVE JAMES agreed that a lot of money has been thrown down a rat hole. However, the agriculture industry cannot be legislated; it is a growing industry that starts from the grassroots up. She said the efforts made by the legislature were honorable back when there was money available, and the intent was great. It was doomed to fail from the beginning, and she would also like to recoup some of that money. She explained that virus-free potatoes and carrots have been shipped to Taiwan because of Alaska's clean industry, and there will be a return. The state needs to get more land out to the farmers, and to allow them to do it without being subsidized. REPRESENTATIVE BARNES said it was doomed to fail from the beginning because the land was allowed only agricultural rights, which were transferred from generation to generation; they could not go to the bank and borrow money, but could only get money from the State of Alaska. She said she has seen bison eating all the barley, and there are some mighty fat bison that were paid for by the state. REPRESENTATIVE JOULE wondered if any of the work that has been done is patterned on other states with a similar agriculture industry. REPRESENTATIVE JAMES responded that her agriculture experience is primarily from growing up in Oregon. There, Oregon State University (OSU) was the main contact on policy and building the agricultural community; it was purely science and marketing in nature. She noted that agriculture is not Alaska's forte, but could be. She indicated that Alaska is the only state that does not fund its agricultural division; it has been 12 years since any general funds came into the Division of Agriculture, which has been existing off of the ARLF. Number 1741 EARL CLABO testified via teleconference from Wasilla on behalf of the Northland Pioneer Grange. He indicated that they do not object to HB 116, and he thanked Representative James for all her work. His personal opinion, having been in Alaska since 1952 and having watched the agriculture cycle, is that he also does not object to the bill, Mr. Clabo concluded. BILL WARD testified via teleconference from Delta Junction on behalf of Ward Farms, indicating that he has also worked with Representative James on the bill and is grateful for her efforts and commitment to agriculture. He is pleased to see that she is showing a strong interest in one of the resource economies of the state that is part of the overall economy, instead of just relying on oil as a source of income. He stated that he supports the bill for the reasons already discussed with respect to the continuity that it would provide between the community and the administration. It also would provide interaction between the needs of the industry and the ideas that the industry can offer to help make the operations of state government more efficient, cost-effective and productive. MR. WARD emphasized that the legislature no longer provides general funds for agriculture; all of the funding now comes out of the ARLF, which is in effect the money that has been paid back by those in the industry, out of their interest payments, to help it grow. He pointed out that since they are now left to sink or swim on their own, they have a legitimate right to have an active involvement and an active say into how the money is spent. MR. WARD told members that he is tired of hearing that agriculture is the big drain on the state's general economy, and that the $300 million that was lost and will never be returned, when nothing is being mentioned about the millions of dollars that were dumped into fisheries and never came back either. At least in the agricultural industry, they are willing to take control of their own destiny and make their own businesses pay; they are contributing to the rural economy and are not the failures but the survivors. Number 2030 REPRESENTATIVE BARNES congratulated him on being one of the survivors. She asked him if he could tell her where the money for the ARLF came from originally. MR. WARD answered that it came from the same pot of money from the oil wealth that was dumped into the state, which provided money for the fisheries, tourism and everything else. REPRESENTATIVE BARNES responded that he is absolutely correct, which means that when it is said that Alaska is not putting any money now into agriculture, that is not correct because every dime was originally put there by the state. She indicated that she feels the same way about fisheries: fisheries have never supported themselves in Alaska, but the state should not have to support all of these things. It has only been recently that the agricultural industry has started to produce, and the money that was put out has started to come back to the state. MR. WARD invited Representative Barnes to the farm tour in Delta Junction. Number 2168 JIM ELLISON testified via teleconference from Fairbanks. He indicated that he has farmed for 50 years, 30 of those in Alaska. The publisher for the Alaska Farmer Magazine, he said that he had researched the bill and found nothing to object to; he fully supports the bill. Number 2213 ROBERT WELLS, Director, Division of Agriculture, Department of Natural Resources, testified via teleconference. He indicated that the sectional analysis for Version X does not seem to match up. He also indicated that [DNR] is currently of neutral standing on the bill. He pointed out that members of the ARLF Board are appointed by the governor but not subject to legislative confirmation, which is something that the committee might want to look at. MR. WELLS indicated he was referring to the sectional analysis for version 1-LS0407\X, dated 1/11/00. He referred to Section 41 of the sectional analysis where it states, "amends existing statute, adding the new board's director and staff to the list of exempt service employees." REPRESENTATIVE JAMES indicated that Mr. Wells is correct. It is the director that is exempt, not the staff. The sectional analysis says the director and staff, so that is a conflict. Number 2411 MR. WELLS pointed out that new board - the Board of Agriculture and Conservation, with seven members on it - will receive travel expenses and per diem, according to the proposed CS, and he believes that is calculated using the same rate as for other state board and commission members. He indicated [the committee] would need to look into that cost. The second board, the Creamery Board, is a nine-member board with five of the members already on the ARLF Board; their expenses are not expenses to the state and are quite minimal. His concern with per diem is that the new board will be involved in a lot more policy decisions and will be meeting more than the current ARLF Board meets; it is a cost to look at. MR. WELLS informed the committee that another concern with the new board is its being exempt from the Executive Ethics Act and being able to enter into financial agreements, whether those are for loans, land sale contracts or leases with members who are currently serving on the board. He cautioned about being careful in terms of interest rates, because that is the source of income for the ARLF, upon which the Division of Agriculture depends for its financial operations for the other aspects of the division that include marketing, inspection and the plant materials section. If the interest rate is set too low, it could potentially shorten the lives of the ARLF and the Division of Agriculture. MR. WELLS also expressed concern with Title 38, disposals under current law. For instance, who is responsible for the surveys, the appraisals, the public notices and the costs? He also wondered who would be responsible for the disposal of agricultural classified lands and the administration of those land sale contracts. He wondered if it would be the responsibility of the new board, because currently it is administered by the Division of Mining, Land and Water. He indicated it certainly implies some work and expenses that have not been addressed. Number 2635 CO-CHAIR HUDSON asked Mr. Wells to provide in writing a critique of the proposed CS. He feels that it is a positive measure, he said, and one that really wants to put agriculture on a front burner. MR. WELLS agreed to do so. He indicated that many positive things are going on in agriculture. CO-CHAIR HUDSON asked Mr. Wells to also include what [imported products] could be substituted with Alaska products. MR. WELLS agreed to do so. Number 2776 DAVE BECKER testified via teleconference from Delta Junction, saying that he has been in Alaska for about three years working at Ward Farms and looking for the opportunity to move out on his own. He indicated he has about 15 years' experience in the agriculture industry. He sees a lot of opportunity in agriculture, especially in Delta Junction, but there is not a lot of support from the state. He specified that he supports the bill. GARRETT PERNEY testified via teleconference from Fairbanks on behalf of the Alaska Farm Bureau, stating that he has 30 years of agricultural experience, has his Bachelor of Science degree in animal science, and has worked in Alaska for nine years in agriculture. He indicated that the Alaska Farm Bureau strongly supports the bill and has worked extensively with Representative James. The most important aspect of the bill is the development of a stable board with stable policies, which will enable Alaskan farmers to count on what will happen in the future. TAPE 00-2, SIDE B Number 2955 MR. PERNEY noted that Alaskans are trying to build an infrastructure that is up-to-date and functional, but it takes a lot of time, effort and money. The soils in Alaska are relatively immature, which makes it difficult for farmers to get started. The price of the average farm in the United States is $1.7 million, which is a tremendous economic input for any single family. Mr. Perney said HB 116 and the new Board of Agriculture and Conservation will be beneficial to the growth of agriculture in Alaska. Number 2881 BOB FRANKLIN, President, Fairbanks Alaska Farm Bureau, testified via teleconference from Delta Junction in support of HB 116. He told members that he would like to see some stability in the industry; every time a new governor is elected and a new commissioner is appointed, the track changes from one direction to another, which can be devastating to farmers and the agricultural industry. He would like to see the bill passed expeditiously. DOUG WITT, Executive Director, Alaska Association of Conservation Districts (AACD), testified via teleconference. He stated that after being in opposition to the previous draft, the AACD believes that the current version addresses those concerns. Although he could not offer a formal endorsement, there is a basic consensus that anything that government can do to stabilize, standardize and streamline the decision-making process will benefit the industry. He noted that the AACD will meet in March, and one of its actions will be to formally endorse HB 116. REX WRIGLEY testified via teleconference from Delta Junction, saying that he is in support of HB 116. Number 2634 SCOTT MILLER, President, Delta Junction Alaska Farm Bureau, testified via teleconference from Delta Junction, speaking in support of HB 116, the Board of Agriculture and Conservation, the local grassroots representation, and the stability it will bring to the agricultural industry. Presently in the state, there is a shortage of barley, and there is great opportunity to be raising barley; barley is currently being barged up or brought up the highway. Mr. Miller pointed out that the state's investment in agriculture is an insurance policy for food production, for generations to come. When an insurance policy is purchased, there is not a payout expected right away. The state needs to have a long-term vision for agriculture, he concluded. REPRESENTATIVE HARRIS wondered what the percentage is of local farmers who have been there for a considerable amount of time. MR. MILLER stressed that the people in Delta Junction are serious farmers who are there to make it work, and who are investing their lives in this endeavor. Number 2399 CRAIG TRYTTEN testified via teleconference. He expressed concern about having a dairy person on the new board, because dairy has a lot to do with the stability in agriculture in the state; it is the trickle-down effect. He referred to an incident where a cooperative was doing fine but then there was poor management or directors that were self-serving; he feels that could happen with HB 116. He noted that a floating interest rate is not a problem. The biggest problem with the state is getting the land sold; there are several people that come every year who want to farm, but there is no land available. He concluded that if the land were in the hands of the people, they could decide their own destiny. REPRESENTATIVE COWDERY noted that milk - about 6,000 gallons a day - is imported into Alaska to supply local needs. He agreed that the present situation is mismanaged. He wondered if there will ever be a time when Alaskan farmers can supply the demands of the local communities. MR. TRYTTEN indicated there is a possibility of that happening. He restated the desire to see more land in the hands of the dairy farmers and more development. REPRESENTATIVE COWDERY wondered what percentage of milk from Alaskan farms is supplying communities like Anchorage. MR. TRYTTEN explained that [Matanuska Maid] provides 62 percent of the milk to the market. He indicated that since the Carrs/Safeway merger, the demand has picked up; they took Dairygold out of the cooler at CARRS and people started buying [Matanuska Maid]. He suggested the need for more infrastructure and a few more people so that they can build a cooperative. They are currently working on a $300,000 grant from U.S. Senator Stevens to put together a cooperative development center for agriculture in Alaska. Number 2020 REPRESENTATIVE JAMES informed the committee that one of the problems is that the people involved in agriculture would like to have more say with regard to land. Currently, the only lands division is in DNR; it manages the sale of the land. Many people out there want to buy land, and the Division of Mining, Land and Water is not getting the land out fast enough. She indicated that the land sales and the collection of the contracts are to be negotiated between the Board of Agriculture and Conservation and the Division of Mining, Land and Water. A lot of questions need to be answered regarding how it is going to happen. REPRESENTATIVE JAMES said she is willing to listen to everything Mr. Wells has to say, but she is not willing to put a lot of things in the bill that will give it a huge fiscal note. The intent of the bill is for the farmers to be able to do it better for less. The interest of the farmer is in protecting the ARLF, and they don't want to spend any more money out of that fund than is absolutely necessary. The whole crux of the bill is to replace and appoint a director. It is up to the seven members on the Board of Agriculture and Conservation, who have been appointed by the governor, to appoint a director. The secret to that is having the seven-member board maintain a continuity of policy over the different administrations. REPRESENTATIVE JAMES addressed Mr. Trytten's concern about not having a dairy person on the board. She said a dairy person may not want to serve on the board, but it is very possible that any one of the members could have a farming background. She pointed out that farmers agree that there needs to be a continuity of policy over the long term in order for agriculture to be successful; HB 116 does that. She restated that she would like to have a zero fiscal note. REPRESENTATIVE WHITAKER asked if there was another committee of referral. REPRESENTATIVE JAMES indicated that the House Finance Committee is the next committee of referral, where the bill will get intense scrutiny before going to the floor of the House. Number 1695 REPRESENTATIVE BARNES stated that she is never willing to move a bill out of committee that still needs to be fixed. Her preference is that the bill does not get passed out until it is in as good a shape as possible. She doesn't want the House Finance Committee to come back and say that they had to do the House Resources Committee's work. REPRESENTATIVE JAMES replied that she has no problem with that, but she doesn't want the bill to languish in committee or to end up requiring a fiscal note. She stressed that the market will drive the system. When the government tries to drive the system and create the market, that is when there starts to be a problem. CO-CHAIR MASEK announced that the proposed CS for HB 116 would be held over.