HOUSE BILL NO. 56 "An Act relating to limitations on certain commercial fishing loans made by the Department of Commerce, Community, and Economic Development." 10:15:22 AM REPRESENTATIVE DAN ORTIZ, SPONSOR, discussed HB 56. He detailed that the bill addressed the Fisherman's Revolving Loan Fund; and would allow borrowers of Section D of the fund to apply for the same loan amount as the borrowers of all other sections of the fund. He informed that the fund was created in 1972 to promote predominantly resident fisheries, and support continued maintenance of gear and vessels. Representative Ortiz continued discussing the bill. He elaborated that borrowers must be Alaska residents for two years prior to the loan application date. To be eligible, Alaskans must document that they had attempted to find private sector financing, and produce a letter of rejection from a private lender. He pointed out that many harvesters did not meet typical private sector financing because they are from rural cash economies, or were young and had no credit history. Over the life of the program, there had been 8,400 loans. The fund was completely self-sufficient. There had been over $125 million appropriated out of the fund to other state programs or to the GF. At the end of FY16, the program had 1,728 loans. The interest rate was 5.5 percent. The delinquency rate of 2.2 percent, which was well below the industry standard of 5 percent. He informed that the bill had a zero fiscal note, as the proposed legislation did not affect the solvency of the fund. 10:17:52 AM Senator von Imhof asked the sponsor to repeat the statistics related to the loan fund. Representative Ortiz reiterated that at the end of FY 16, the program had 1,728 loans. The interest rate on the loans was 5.5 percent. The delinquency rate on the loans was 2.2 percent, which was well below the industry standard of 5 percent. Senator von Imhof asked about the total amount of the outstanding 1,728 loans. Representative Ortiz thought that the Division of Economic Development staff would have the figures available. Senator Micciche asked why the increase from $300,000 to $400,000 was important, and what was meant by his statement that the bill did not raise the aggregate amount a borrower may hold unpaid. Representative specified that the bill would not raise the total loan limit of the program. The borrowers limit was set at $400,000, and the limit would not be changed by the bill. Rather, within Section D the bill would raise the amount a person could borrow (from $200,000 to $300,000) from a specific category. 10:20:40 AM AT EASE 10:20:54 AM RECONVENED Representative Ortiz clarified that the bill would raise the amount from $100,000 to $200,000 within the Section D loan category. The bill expanded the categories from which a fisherman could borrow money to improve gear, or to finance the boat. He referred to increased costs for boats and gear. He noted that the borrowing category limits had not changed since the fund was established in 1972. If the bill were to change the total amount that a person could borrow, it would have to be close to $700,000 to adjust to inflation. He restated that the bill did not propose to raise the total loan limit per borrower. Senator Olson asked about the default rate and delinquency rate on the loans. Representative Ortiz was not sure of the distinction between default and delinquency rates. Senator Olson asked about residency requirements. Representative Ortiz specified that the program was for in- state fisherman with at least two years of residency. 10:23:03 AM BRITTENY CIONI-HAYWOOD, DIRECTOR, DIVISION OF ECONOMIC DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, stated that the outstanding principle on the loans was just over $95 million at the end of FY 16. She relayed that as of the beginning of April 2017, the interest rate changed from 5.5 percent to 5.75 percent. Ms. Cioni-Haywood informed that the delinquency rate was 2.2 percent, and the default rate was approximately 1.1 percent. Senator von Imhof referred to the loan requirement of a letter of rejection from a bank. Ms. Cioni-Haywood stated that the requirement was not necessary for permits, because there were only two entities in the state that could lien on permits. Senator von Imhof considered that an individual that did not qualify for traditional bank financing would generally be a higher risk. She considered various loan rates as compared to the rate offered by the fund. She thought a higher-risk borrower would receive a rate of prime plus 3 or 4 percent; whereas the current fund rate was prime plus 2 percent. Ms. Cioni-Haywood stated that the fund loan rates were not risk-based like a private sector lender, but rather were set in statute to be prime plus one or two percent. 10:26:17 AM AT EASE 10:27:01 AM RECONVENED Ms. Cioni-Haywood stated that the interest rate was prime plus two percent. Co-Chair MacKinnon asked if loan default disqualified borrowers for further loans. Ms. Cioni-Haywood answered in the affirmative. Co-Chair MacKinnon OPENED public testimony. 10:28:18 AM BENJAMIN BROWN, COMMERCIAL FISHERIES ENTRY COMMISSION, JUNEAU, testified in support of the bill. He relayed that the Commercial Fisheries Entry Commission (CFEC) issued permits and oversaw transfer of limited entry permits that were often the objects that were purchased with the loans. Additionally, permit holders were often the borrowers that used the loans for other purposes such as new vessels, or vessel and gear maintenance. He had observed over his 6 years on the commission that the program had been an excellent partner that strove to ensure resources were available, so Alaskans could have successful careers as commercial fisherman. He recalled communicating with fishers that called with concerns about loan applications, and testified to the praiseworthy response of the loan fund staff. Mr. Brown continued his testimony, stating that the "graying of the fleet" had been a source of concern to many Alaskans and members of the legislature. He thought that the loan fund was making things as good as possible for commercial fishers in Alaska. He thought the legislation would achieve its stated objectives. 10:30:06 AM Co-Chair MacKinnon CLOSED public testimony. Vice-Chair Bishop discussed the zero fiscal note from the Department of Commerce, Community and Economic Development (FN1). Co-Chair MacKinnon informed that any proposed amendments were due by noon the following day. She set the bill aside. HB 56 was HEARD and HELD in committee for further consideration. 10:31:02 AM AT EASE 10:33:43 AM RECONVENED