SB 266-FISHERY ENHANCEMENT LOANS    MS. DEBORAH GRUNDMAN, staff to Senator Stevens, sponsor, said: SB 266 authorizes the Commissioner of the Department of Community and Economic Development to refinance loans made by the Fisheries Enhancement Revolving Loan Fund. It also gives the commissioner the ability to extend the term of the loan when justified. A majority of the loans made under this program carry the maximum allowable interest rate of 9.5%. Alaska statutes allow for interest rates of 1% over prime not to exceed 9.5%. New loans, if received today, would be at 6%. Hatcheries would like to take advantage of a lower interest rate to bring down their debt service, just as other businesses and homeowners are currently doing throughout Alaska and the nation. SENATOR HALFORD noted that one provision was for interest rates and the other allows for refinancing in excess of 30 years. He asked when that would be necessary. CHAIRMAN TORGERSON noted he had drafted a committee substitute that has new language on page 3, line 1, that reads: "the commissioner shall submit annually a report to the legislature summarizing the commissioner's decisions during the prior calendar year to approve or deny requests to extend loans under this paragraph and the reasons for the decisions;". SENATOR WILKEN moved to adopt the proposed committee substitute (CS), labeled Utermohle 2/19, Version T. There were no objections and it was so ordered. MR. GREG WINEGAR, Director, Division of Investments, answered Senator Halford's question by saying it was similar to refinancing a home. He explained: The way the department has interpreted the statute is under this program is you get 30 years total. So, this would give us the ability if someone had paid in to the loan for five or six years that we would be able to, like refinancing your home, go ahead and give them a 30-year loan. SENATOR HALFORD asked if there is another section of statute that clearly says that the collateral has to be considered also. He stated: "All this says is the term of the loan would be extended if it meets financial hardship." He assumed that somewhere in statute, the division must follow some kind of a standard that says it has to follow good financial practices relating to the life of the collateral. MR. WINEGAR said that is correct, but he didn't have it with him. He responded, "It is something we look at when we look at a refinancing request." SENATOR HALFORD asked what the status of the loans are right now with regard to collateral to face value. MR. WINEGAR replied that is difficult to answer. In regional associations they have an assignment of the tax, for example. They also make an assignment of the fish that are out in the ocean, as well as the physical plant, etc. SENATOR HALFORD asked if they do an annual report that weighs that out. MR. WINEGAR replied they don't. SENATOR HALFORD asked if there was a database as to hard assets on the loans. MR. WINEGAR replied that they do that analysis when making the loan, but they don't review it on an annual basis. SENATOR HALFORD said he would like to know what happens when the product comes down to $.05 per lb., and if that's part of the collateral. CHAIRMAN TORGERSON said they must have some idea between fixed assets and loans. MR. WINEGAR said they look at that at the time they make the loans. He stated: Normally we have a whole series of types of collateral to secure the loan including, sometimes, EVOS assignments on loans that were affected by the oil spill. We do evaluate that at the time we make the loan. It's just we don't do that on an annual basis for the whole portfolio. SENATOR ELTON pointed out the collateral would be reviewed at the time of refinancing and this would provide a system for one update that wouldn't be there if they didn't refinance. MR. WINEGAR said that is correct. SENATOR HALFORD requested a status report of the loans in terms of their current assessment based on current collateral values. MR. WINEGAR said the division would work on that. SENATOR STEVENS said he thought they could address Senator Halford's concern with a synopsis of the total number of loans to each hatchery and their amortization schedule. MR. WINEGAR replied the division could. SENATOR HALFORD said the collateral value was something else. SENATOR STEVENS pointed out that each hatchery that receives loans has a series of loans. So, each time they do a loan, the division has to do that analysis. MR. WINEGAR replied: What we have in this portfolio is about a dozen borrowers that have multiple loans and so we're looking at them periodically as they request new loans or if they need assistance…. For example, if they need to ask for an extension of some sort, we evaluate them at that time as well. MR. DAVE COBB, business manager, Valdez Fisheries Development Association, Inc., supported SB 266 and said: This bill sponsored by Senator Stevens and others is one of the tools needed by the commercial fishing industry and the hatchery system to remain competitive in today's global fisheries environment. The refinancing of hatchery loans at the prevailing interest rate will allow most hatcheries to reduce their annual loan payment significantly and reduce their operating costs. Any reduction in the overall operation budget of Valdez Fisheries Development Association will mean more fish to the commercial fishermen of the area because their cost [indisc.]. While this bill is a very important step to the state hatchery system, it is only one of the many changes that must occur to the commercial fishing industry in Alaska to survive. [This program] started by the legislature in 1974 has met or exceeded the expectations placed on the program. However, the competitive playing field has changed from a position of strong market presence to one of massive world competition and dumping of fisheries products on the market at less than the cost of production. We, the State of Alaska, and all of the interested players, must change in order for us to survive in a competitive market place. This bill begins the process of change. Thank you. MS. SUE ASPELUND, Executive Director, Cordova District Fishermen United, gave them some specifics of what their aquaculture association provides to their region. She stated: In 2,000, estimated economic impacts resulting from the production and harvest of Prince William Sound Aquaculture Corporation [PWSAC] were $109 million in total output, including $34 million in labor income and more than 1,280 jobs. Within the commercial harvesting sector, Alaska resident permit holders see most of the economic benefits of PWSAC production. In 2000, Alaska permit holders harvested about 75% or $15 million of the PWSAC ex-vessel value with the remaining 25% going to non-residents. Commercial fishing residents from 30 Alaskan communities earn an income from PWSAC families, not only from coastal communities, but including those from urban areas such as Anchorage, Palmer, Wasilla, Juneau and Fairbanks. Between 1990 and 2000, the total wholesale value of commercial and cost recovery harvest of PWSAC salmon was worth over half a billion to over 20 Alaskan seafood processors with an average annual value of more than $45 million. Processing of PWSAC fish generated an estimated $70 million in total output in 2000, including $19 million in payroll and 700 jobs. The PWSAC salmon also counted the following percentages of sport fish harvest in the Prince William Sound region from 1996 to 2000 - 80 percent of the chum salmon, 70% of Chinook, 35% of sockeye, 20% of coho and 10% of the pinks. The economic impacts from the 2000 sport fish harvest were an estimated $2 million in total output, including $800,000 in payroll and 64 jobs. Since 1995, Alaskans from 140 towns across the state harvested nearly 150,000 PWSAC sockeye salmon during the Copper River personal use and subsistence fisheries. PWSAC contributes about 70 annual average jobs to their economy with an annual payroll of more than $2.6 million. The economic impact from PWSAC employment and expenditures to the regional [indisc.] of 2000 for $10.1 million in total output including $4.6 million in payroll and 154 jobs. These facts provide a graphic demonstration…of PWSAC's importance as a regional and statewide economic engine.… She said that the changing global marketplace and the faltering Japanese economy have resulted in a lower ex-vessel value that require our hatcheries to take greater percentages of production as cost recovery in an effort to make their loan payments. They need the ability to refinance hatchery debt to take advantage of decreased interest rates provided for in SB 266. This would result in hatcheries being able to immediately supply more fish to the common property harvest. MR. CARL ROSIER, Alaska Outdoor Council, said the hatchery program has been a real boon all over Alaska as far as the recreation fishery is concerned. He supported CSSB 266(RES). Their early concerns were taken care of. MR. JOHN CARTER, Director, Douglas Island Pink and Chum (DIPAC), supported CSSB 266(RES) and said: The private non-profit (PNP) 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 were operated through annual appropriations 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 and over $1 billion in fish, the PNP hatchery programs are described even by some of its detractors as "some of the best in North America." They have made dramatic financial contributions to many areas of the state. When asked by others who don't understand the concept of private non- profit, I usually fall back on the phrase "public trust." I really believe that that's the best description of the way most of us view the job. That being said, we are still a business and are responsible for budgets and payroll and of course debt service. What we are asking for here is the ability to refinance our debt at a lower interest rate. This is obviously going on in many businesses across the state and 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 to the commercial and sport fishers across the state. This will mean principal and interest are paid into the fund at a slower rate, but loan demand on the fund is slowed dramatically so the fund will still be financially sound. I thank you for any support you can give and I'm available for questions. SENATOR TAYLOR moved to pass CSSB 266(RES) with individual recommendations and the accompanying zero fiscal note. There were no objections and it was so ordered.