SENATE LABOR AND COMMERCE COMMITTEE February 15, 1994 2:35 p.m. MEMBERS PRESENT Senator Tim Kelly, Chairman Senator Steve Rieger, Vice-Chairman Senator Bert Sharp Senator Judy Salo MEMBERS ABSENT Senator Georgianna Lincoln OTHERS PRESENT Senator George Jacko COMMITTEE CALENDAR SENATE BILL NO. 286 "An Act extending the termination date of the Board of Parole; and providing for an effective date." SENATE BILL NO. 251 "An Act relating to the commercial fishing revolving loan fund and the fisheries enhancement revolving loan fund." PREVIOUS SENATE COMMITTEE ACTION SB 286 - NO PREVIOUS ACTION. SB 251 - See Labor & Commerce minutes dated 2/10/94. WITNESS REGISTER Greg Winegar, Manager Division of Investments Dept. of Commerce & Economic Development P.O. Box 34159 Juneau, Alaska 99803-4159 POSITION STATEMENT: Testified on SB 251. Ray Gillespie Assn. of Regional Aquaculture Associations 9478 Riverbend Court Juneau, Alaska 99801 POSITION STATEMENT: Testified on SB 251 ACTION NARRATIVE TAPE 94-9, SIDE A Number 001 CHAIRMAN TIM KELLY called the Labor and Commerce Committee meeting g to order at 2:35 p.m. SENATOR KELLY introduced SB 286 (EXTEND BOARD OF PAROLE) sponsored by the Senate Labor & Commerce Committee and explained he wanted to expedite the bill. He also explained an audit was presently being conducted, but has not yet been received; however, he said the next committee of referral was the Judiciary Committee. SENATOR SHARP moved to pass SENATE BILL NO. 286 (EXTEND BOARD OF PAROLE) from committee with individual recommendations. Without objections, so ordered. SENATOR KELLY returned SB 251 (COMMERCIAL FISH LOANS FOR CERTAIN OBLIGATIONS) to committee and announced a committee substitute had been drafted by the Labor & Commerce Committee staff. SENATOR KELLY reviewed some of his concerns on the original bill, and he checked with SENATOR JACKO, who wanted an immediate effective date put on the bill. SENATOR KELLY said an immediate effective date would be in a new section on the final page of the committee substitute. SENATOR KELLY directed his committee aide, JOSH FINK to summarize the committee substitute. Number 043 MR. FINK began with page 2, where he explained the deletion of child support payments in both the previous committee substitute as well as the new one. On page 3, he said Section 2 is new and adds three new details to the IRS loans, the first being the individual must have filed past due tax obligations, must file past and current tax returns with the IRS, and execute an agreement with the federal government for repayment of past due federal tax obligations. Secondly, it would cap the loan at $30 thousand, and thirdly, it would allow the loan to be made to an individual only once during that person's lifetime. Going to a new Section 4, on page 4, MR. FINK explained it would allow the commissioner to transfer 50% of the excess in the commercial fishing loan fund to the fisheries enhancement fund. He also explained Section 7 on page 4 is new and would provide that the hatchery or other enhancement or rehabilitation activity for which the loan is requested will provide a significant contribution to common property fisheries, be operated in a manner beneficial to the public interest, and be managed in a financially viable manner. MR. FINK said the last section on page 5 would contain the effective date. SENATOR RIEGER referenced page 4, line 29, to question funds being available under AS 16.10.340(c), and whether it should be a policy generally, instead of only from the funds transferred from the revolving loan fund. Number 092 MR. FINK offered to look at the statutes to check the parameters in current law. SENATOR KELLY inquired if any one wanted to testify on SB 251, and GREG WINEGAR, with the Division of Investments, thought he could answer the question posed by SENATOR RIEGER in reference to page 4, line 29 on the criteria for investments. MR. WINEGAR explained that much of Section 7 contains provisions which are accomplished already, and he explained how his division had input into the process. He referred to the financial viability of the hatchery facilities and explained the procedure the division uses on each individual loan, if funds were transferred from the commercial fishing fund into the fisheries enhancement fund. SENATOR RIEGER didn't think that previous loans to the hatcheries have paid back any money, notwithstanding the six year grace period. MR. WINEGAR explained there were a number of loans that have been restructured, especially in recent seasons, where there has been problems with returns and price, but he said a number of loans have been repaid in full. SENATOR RIEGER asked if there was a pattern of species which allowed a greater return on the loans, or if it was, in previous testimony, the geographic placement of the hatchery that determined the repayment of the loans. MR. WINEGAR reviewed assorted problems with different species, most recently with the pink salmon, but he said it wasn't specific to one species or area. Number 145 SENATOR JACKO expressed concern about Section 2, page 3, line 31, and page 3, line 1 "under (a)(1) of this section to satisfy past due federal obligations may not exceed $30,000." He thought the limit hampered the intent of the bill, since he knew there were permit holders who owe more than that amount. He thought the present borrowing limit was $300 thousand. SENATOR KELLY said the committee substitute was written to make certain that with a limited amount of funds available, it would allow more people to take care of their problem, without the money being used for fewer big loans. He didn't think anyone owing $100 thousand to the IRS deserved to keep their permit and fish in Alaska, in his judgement. SENATOR KELLY said he was willing to let the committee change the number, but he thought the $30,000 would take care of 80% of the problems. He said he was more concerned about the little person and not the big operators who owe such large amounts. Number 192 Next to testify was RAY GILLESPIE, representing the four Regional Aquaculture Associations, who spoke to the hatchery program in reference to Section 4 which allows the commissioner flexibility to move excess funds from the commercial fishing loan program. In talking to the department, he was told they have a sophisticated method of forecasting loan demands, and there was no intention to short change the commercial fishing loan program, or sacrifice it for the benefit of the hatchery enhancement loans. MR. GILLESPIE described the four regional aquaculture associations he represents, formed by fishing organizations that vote on the formation of the association, and self impose an enhancement tax on themselves. He explained those types of hatchery loans are secured by the enhancement taxes levied by the fishermen on their members. He quoted state law which prevents any repeal of taxes until all of the loans are repaid by the regional associations. MR. GILLESPIE also described the category of loans to non-regional aquaculture associations, which he said were not supported by the same type of payment structure. SENATOR RIEGER asked MR. GILLESPIE if he represented the "cost recovery fishery." MR. GILLESPIE explained the "cost recovery fishery" refers to an activity that allows all hatcheries, regional and non-regional, to sell a portion of the returning fish to cover part of the expenses of the hatchery operation - including debt repayment. He said this was done under the close scrutiny of the Department of Fish and Game. SENATOR KELLY directed attention to a table entitled LOAN PROGRAMS CASH FLOW ANALYSIS - FY95 BUDGET PREPARATION, drafted on 1/11/94, to the entry dealing with Fisheries Enhancement to show they loaned out $8,372,400.00 in FY93, in FY94 $5,206,400.00, and in FY95 there is the projected demand for $11,163,000.00. SENATOR KELLY noted the Fishery Enhancement association expects to receive about $10 million from the Commercial Fishing Revolving Loan Fund in their FY95 loan request, and he asked MR. GILLESPIE how the hatchery association expects to fund $11 million loans with the $10 million. He asked whether MR. GILLESPIE'S group was also asking for additional money. MR. GILLESPIE explained they were asking that the Commissioner of Commerce be given flexibility in the event there is excess funds in the Commercial Fishing Revolving Loan Fund, and he also explained they didn't have a specific request for a certain amount of money. Number 251 SENATOR KELLY asked for anyone to speak who knows the projected need for the income tax loans, because it would be a new concept for the revolving loan fund. He said there was $14 million in outstanding tax delinquencies amongst Alaskan residents with fishing permits, and he wanted to know the source of the money. MR. WINEGAR explained there was no new money forecast for the fund, but there was a $5 million excess depending on the repayments and the loan demand for limited entry permits and vessels. SENATOR KELLY asked if there were plans to transfer $10 million from the revolving loan fund account to the fisheries enhancement fund. MR. WINEGAR explained that within the budget bill there was a provision to add $9.9 million. SENATOR KELLY claimed they were also looking for another $5 million in addition. MR. WINEGAR said SENATOR KELLY was correct, and he explained the transfer process. SENATOR KELLY questioned the anticipated loan amounts if the legislature allows these types of tax loans. MR. WINEGAR said there were no specific numbers, but he thought there would be a fairly limited number of those meeting the criteria for debt service and collateral. SENATOR KELLY and MR. WINEGAR discussed the new type of loans, not being able to anticipate the future, projected earnings, and two different entities vying for the same pot of cash. SENATOR KELLY thought there should be more work done on a way to fund the tax payments, before any fund transactions are made with fisheries, but he thought those decisions would be made in the finance committee. SENATOR RIEGER asked MR. WINEGAR if his department was planning to revise the projected loan demand and restructure taxes in the event the bill was passed. Number 301 MR. WINEGAR described the revisions that would be needed if SB 251 passed including those in another bill dealing with Individual Fishing Quotas that would have an impact on the loan fund. SENATOR KELLY said there would be a need for further revision with the advent of refrigeration units in fishing vessels, which he thought would present a significant loan requirement to be added into the funding formula. MR. WINEGAR agreed and said it could have an effect on the number of loans made. SENATOR KELLY suggested MR. WINEGAR should take another look at the assumptions on the loan requirements given the new obligations in this bill, SB 251. MR. WINEGAR agreed there may not be any funds available after funding the IRS payments to do any transfers, depending on the new statutes. SENATOR SALO asked for the number of permit holders who would take advantage of the loan program. Any projections? SENATOR KELLY said he only knew there were 1,173 permit holders who didn't file income tax returns and another 1,111 that filed, but owe a balance on their returns. He figured there were 2,283 permit holders who owe money to the IRS out of the 8,800 limited entry permit holders, of those 24% collectively owe about $14 million to the IRS. SENATOR SALO clarified that child support payments had been deleted from SB 251, and SENATOR KELLY said it was. He asked for a motion on the bill. SENATOR RIEGER moved to adopt the new committee substitute for Senate Bill No. 251. Without objections, so ordered. SENATOR RIEGER moved to pass CS FOR SENATE BILL NO. 251(L&C) (COMMERCIAL FISH LOANS FOR CERTAIN OBLIGATIONS) from committee with individual recommendations and an immediate effective date in both title and section. SENATOR SALO objected. SENATOR SALO expressed concern the bill needed more scrutiny and suggested it be kept in committee to examine both of the new provisions in the committee substitute. She said her over all concern was that these fishermen, who wanted to borrow money to pay the IRS, did not seem to be good risks and had poor credit histories. SENATOR KELLY said those points have been discussed in a prior meeting, and he agreed with some of her criticism. He asked MR. WINEGAR to review the questions covered in the previous meeting on the legislation. Number 353 MR. WINEGAR explained many of these people would not qualify, and he explained his department would apply the same sort of criteria that is used in other parts of the loan program to the applicants. He said they would look for adequate collateral and sufficient income to repay the loan. He thought there would only be a small percentage of the permit holders who would apply for an IRS loan. SENATOR SHARP said that three of the legislators on the Labor and Commerce Committee would be examining ramifications of the bill in the Finance Committee, the next committee of referral. He thought the scrutiny should be focused in the Finance Committee, and he talked in terms of data he would like to have collected before the committee meets. SENATOR KELLY agreed to pass the bill from committee on SENATOR SHARP'S conditions, and SENATOR SALO removed her objections. SENATOR KELLY then declared CS FOR SENATE BILL NO. 251(L&C) (COMMERCIAL FISH LOANS FOR CERTAIN OBLIGATIONS) passed from committee with individual recommendations and an immediate effective date in both title and section. There being no further business to come before the committee, the meeting was adjourned at 3:02 p.m. by SENATOR KELLY.