SB 266-FISHERY ENHANCEMENT LOANS  CHAIRMAN STEVENS announced SB 266 to be up for consideration. MS. DEBORAH GRUNDMANN, Aide to Senator Stevens, sponsor or SB 266, said it authorizes the commissioner of Community and Economic Development to refinance and extend the term of a fishery enhancement loan made through the revolving Fisheries Enhancement Revolving Loan Fund. The funding provided by this program has helped to create an extremely successful statewide salmon rehabilitation program. The hatchery system was established in 1974 to enhance and stabilize Alaska's regional salmon stocks. Now approximately 40 percent of the entire salmon harvest in Alaska is enhanced fish. A majority of the loans made under this program carry the maximum allowable interest rate of 9.5 percent. Alaska statutes allow for interest rates of 1 percent over prime, not to exceed 9.5 percent. New loans if received today would be at 6 percent. Hatcheries would like to take advantage of the lower interest rates to bring down their debt service just as other business and homeowners are currently doing in Alaska and the nation. The last legislative audit of private non-profit hatcheries published in 1997 recommended that the Division of Investments in the Department of Community and Economic Development seek the authority to restructure hatchery loans and that's what this legislation does. The department is sufficiently staffed to accommodate the few applications necessary to refinance these loans. There is no forgiveness of principal or interest allowed under this legislation and all payments are made directly to the loan fund. She said that SB 266 recognizes the public trust nature of these non-profit entities. It protects the state's financial interest by guaranteeing the sustained production of salmon for the commercial, sport and personal use fisheries and assuring continued payments of outstanding debts to the state. She said there was a committee substitute before them. SENATOR TORGERSON moved to adopt the committee substitute to SB 266. There were no objections and it was so ordered. CHAIRMAN STEVENS asked that the provision be limited to the refinancing of existing loans. MR. GREG WINEGAR, Director, Division of Investments, said SB 266 would allow existing borrowers to refinance their fisheries enhancement loans. Interest rates for this program are tied to the prime rate and are fixed at the time the loan is made. In the last year or so interest rates have come down a tremendous amount and are less than what most of the loans were made at. They want to let the non-profit aquaculture associations take advantage of the lower interest rates. He pointed out that the same legislation was passed for the Commercial Fishing Revolving Loan Fund in 1993. This would affect the income of the fund and therefore there is a fiscal note to reflect those differences. It's important to note, he said, that this bill is going to allow these associations to lower their interest expense, which will help their financial picture and increase their ability to service existing debt. This would not adversely impact the integrity of this loan fund. They have a very streamlined process in place to take care of refinancing requests so they don't see this as being a burden administratively. SENATOR TORGERSON asked if he supported the bill. MR. WINEGAR replied that their official position is neutral and explained that basically it's because it will result in a reduction of funds to the loan fund, but on the other hand it will help the existing associations. SENATOR TORGERSON agreed that they should refinance the existing loans as long as it doesn't adversely affect the portfolio and Mr. Winegar said that was not an issue. "But I always shudder at giving a commissioner this kind of authority without the legislature knowing what is happening within that portfolio." He was also concerned that the language on page 2 was such that they would never turn down an extension. MR. WINEGAR replied that they have the same authority under the Revolving Commercial Fishing Loan Program and that was passed in 1993. SENATOR TORGERSON asked what the difference in dollars was. MR. WINEGAR replied that the loan funds are fairly similar in size. SENATOR TORGERSON said if the chairman liked, they could move the bill out today, but he wanted to see the numbers when it was in the next committee. MR. JOHN CARTER, Executive Director, Douglas Island Pink and Chum (DIPAC), said he wanted to support SB 266 on behalf of the Board of Directors and the many supporters of DIPAC. He is also spokesman for many of the hatcheries around the state rather than flying someone. The private non-profit hatchery program was created by the legislature to replace the hatchery program operated by the state's fish and game FRED division. The FRED hatcheries are operated through an annual appropriation to the state Department of Fish and Game. The PNP hatchery program was created as a user pay entity. To get the program started, the state gifted some existing hatcheries to regional corporations, but primarily created the Fishery Enhancement Revolving Loan Fund. This fund, along with a tax on commercial fishermen, was to provide for construction and operational funds as the enhancement program developed. Twenty-five plus years later, the PNP hatchery programs are described even by some of their detractors as some of the best in North America. They have made dramatic financial contribution to many areas of the state. When asked by those who don't understand the concept of private non-profit, I usually fall back on the phrase "public trust" as Debbie read today. I think this best describes the way most of us view the job we do. That being said, we are still a business and we are responsible for budgets and payroll and, of course, debt service. What we are asking for here is the ability to refinance debt at the lower interest rate. This is obviously going on in many businesses across the country. Taking advantage of the current low interest environment just makes good business sense. Simply put, refinancing will strengthen our financial position, make us better able to pay our debt and more able to continue doing the job of providing fish for commercial and sport fishers across the state. This would mean the principle and interest as you just heard are paid into the fund at a slower rate, but loan demand of the fund has slowed dramatically, so the fund will still be financially sound. Again, I appreciate your support and am available for questions. SENATOR AUSTERMAN asked if lowering the cost of doing business meant a higher number of fish for the fishermen. MR. CARTER replied in many cases he thought that's who the benefit would transfer to. "Your question if we are paying less interest into the fund - it means that our annual budget - less of it would go to interest and therefore we could reduce our annual budget accordingly and therefore require less cost recovery." SENATOR AUSTERMAN asked about DIPAC specifically. MR. CARTER replied that they are currently encouraging the department at each opportunity to give the fishermen more time on their fish. The amount of fish caught by the fishermen is directly related to how much time they have. SENATOR AUSTERMAN said he was raising these questions because he was concerned about cost recovery and the percentage that takes place in the hatcheries. It says in the law that they are supposed to provide a "significant contribution." He asked what percentage of cost recovery it takes for them to operate their hatchery. MR. CARTER answered that last year it was about 51 percent for the hatchery and 49 percent for cost recovery, all species combined. Their stated goal is 60 percent to the common property and 40 percent to the hatchery. For the regional corporations, it's 70/30. He explained that when they started their hatchery they did not get any of the 3 percent money and all of their 3 percent money now goes to the regionals. One percent was given to the "mom and pops" as far as a goal was concerned. SENATOR AUSTERMAN asked if he could project a percentage of savings using this bill. MR. CARTER replied that he had to give him the same answer he gave before. This past year, if the fishermen had additional time and would have caught a higher percentage of the fish - it was unrelated to what we were going to pay to Commerce. It would have affected our reserve, but we had no control over that. Again, I'm not trying to be evasive. That's just absolutely the way it is. If the department had allowed them more days of fishing time this year or the year before, they would have caught a higher percentage of the fish. We get whatever is left over. It's absolutely that simple. 2:10 p.m. MR. JERRY MCCUNE, United Fishermen of Alaska, supported SB 266. In the areas where we have regional hatcheries fishermen pay an assessment. We have a huge investment in the hatcheries and hopefully by lowering the interest rate at this time, we'll be able to sustain these runs. A lot of these hatcheries are based on pink salmon, so Senator Austerman's question - it depends on the price of the salmon - on the cost recovery. Because we're all suffering from the price problem as you all know…. He said in theory most hatcheries would be able to put out more fish for the common property and that is the goal along with paying the hatcheries off eventually. SENATOR AUSTERMAN asked if it was correct that some of the hatcheries had 80 percent cost recovery. MR. MCCUNE said he couldn't speak for every hatchery. He knew of one that had 60 percent. MR. LARRY HANCOCK, City Manager of Cordova, said he represents the City of Cordova and the Economic Development Council. He read a letter of support for SB 266 from Mayor Margie Johnson, which would help strengthen Prince William Sound Aquaculture Corporation by allowing them to refinance their term loan, lower their debt burden and decrease payment time. SB 266 would have a positive impact on a large segment of their community and other areas of the state that depend on hatchery produced salmon for their livelihood. MS. LISA VONBARGEN, City of Valdez, said that commercial fishing is one of the top four industries in Valdez and contributes a quarter of million annually in raw fish tax. The Valdez Fisheries Development Association (VFDA) also supports and runs the silver salmon sports fish program in Valdez, which creates one the of the largest and most successful silver salmon runs in the state and encourages thousands of people to visit Valdez every summer providing amazing economic benefits to the community during the late season. In addition to the commercial benefit of the pink salmon run, it also creates an additional sports fish draw. VFDA has 100 percent local hire rate for the 11 full-time and approximately 35 - 40 summer employees equating to a $600,000 payroll annually. They are also creating a roe processing plant which could mean potentially an additional 10 - 15 new jobs and will create a new locally produced Alaskan caviar product, a value added option for the fish taken out of the Sound. "Obviously, making this refinancing possible for VFDA is only going to allow them to be able to put more of their finances back into the community and back into the local economy through further enhanced fishery programs." SENATOR STEVENS said the reason he introduced the bill was to allow the existing loan borrowers to take advantage of low interest rates just like all the other businesses and individuals in Alaska are doing. "If there are positive effects that come back to the fishing industry as a result of that, then it makes it more of a reason why we should adopt this language." SENATOR TORGERSON moved to pass SB 266 from committee with individual recommendations and the accompanying fiscal note. There were no objections and it was so ordered.