Legislature(1999 - 2000)

02/01/2000 01:45 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 203                                                                                                              
"An Act relating to loans from the agriculture                                                                                  
revolving loan fund and to contracts for the sale of                                                                            
state agriculture land; and providing for an effective                                                                          
PETER FELLMAN, STAFF, REPRESENTATIVE JOHN HARRIS, noted that                                                                    
the legislation would put the Agricultural Revolving Loan                                                                       
Fund (ARLF) on the same footing relative to interest charged                                                                    
as the Farm Service Agency (FSA) and the Alaska Rural                                                                           
Rehabilitation Corp (ARRC).  He noted that specific changes                                                                     
would give the ARLF greater flexibility to restructure loans                                                                    
based on the situations individual farmers find themselves                                                                      
in, thus, increasing the likelihood that the loan would be                                                                      
Mr. Fellman added that additional changes would redefine the                                                                    
composition of the loan committee to replace a loan officer                                                                     
with a board member since the loan officer would have                                                                           
previously processed the loan application.  He stated that                                                                      
it would be more prudent to have the loan committee                                                                             
comprised of officers at a policy making level.                                                                                 
Mr. Fellman pointed out that through the legislation, the                                                                       
ARLF Board would be given the authority to begin                                                                                
restructuring distressed farm loans rather than waiting for                                                                     
a specific date or for the 90 days after the Governor signed                                                                    
the bill.                                                                                                                       
Mr. Fellman reiterated that passage of the proposed bill                                                                        
would be in the best interest for the State.                                                                                    
Co-Chair Therriault advised that the bill packet contained a                                                                    
proposed committee substitute, work draft #1-LS0871\M, Cook,                                                                    
1/21/00.  The work draft does address concerns voiced last                                                                      
year regarding the operational costs.                                                                                           
Representative Foster MOVED to adopt the work draft as the                                                                      
working document before the Committee.  There being NO                                                                          
OBJECTION, work draft #1-LS0871\M was adopted.                                                                                  
Representative J. Davies requested information on the                                                                           
changes which had been made to the work draft.  Co-Chair                                                                        
Therriault understood that it was basically a change to the                                                                     
interest rate.                                                                                                                  
Mr. Fellman agreed that changes were made to the interest                                                                       
rates.  Additionally, the original bill included a loan                                                                         
officer who is an employee of the State. The Director of                                                                        
Agriculture suggested that might impose a conflict.  That                                                                       
language was changed to two members of the Board and the                                                                        
Director of Agriculture.                                                                                                        
Representative J. Davies questioned if "emergency loans"                                                                        
were defined elsewhere in statute.  Mr. Fellman replied that                                                                    
there does exist a directory loan which could be considered                                                                     
an emergency loan. The language would allow the director to                                                                     
make a loan from the ARLF using his own judgement.  He added                                                                    
that he did not know of a governing statute for existing                                                                        
Representative J. Davies asked if there was any place which                                                                     
defined what the purpose of the emergency loan should be.                                                                       
Mr. Fellman replied that it was expected that the Committee                                                                     
would determine that criteria.  He acknowledged that in                                                                         
statute, there is not a clear definition of what an                                                                             
"emergency" is, however, there are statutes that cover                                                                          
Vice Chair Bunde referenced Page 1, Subsection #4, which                                                                        
speaks to the "interest rate" being comparable to other                                                                         
agricultural lending institutions.  He asked what other                                                                         
lending institutions existed.  Mr. Fellman replied that                                                                         
there is a federal lending agency, the Farm Service Agency                                                                      
(FSA). That agency can lend as low as 3.75% and up to as                                                                        
high as 8%.  Also, within the State is the Alaska Rural                                                                         
Rehabilitation Corp (AARC) which is a private lending                                                                           
corporation that lends agricultural money.  AARC adjusts                                                                        
their interest rates between 5% and 8% percent.                                                                                 
In response to Representative Bunde, Mr. Fellman noted that                                                                     
the current rates vary depending on the type of the loan.                                                                       
Operating loans through AARC are at 6%; a "cattle loan"                                                                         
which would be for cattle and equipment, rate could be at 7%                                                                    
to 7.5%.  Real estate loans could be assessed at 8%.  The                                                                       
Board, which is a private corporation, establishes the                                                                          
interest rate and that rate cannot go lower than 5%. He                                                                         
suggested that it would not be in the State's best interest                                                                     
for the interest rate to go below that amount.                                                                                  
Co-Chair Therriault noted that other lending institutions                                                                       
for borrowers turned down the FSA-3% interest rate and that                                                                     
it was difficult to obtain that rate.  Co-Chair Therriault                                                                      
pointed out that some of the interest money is used to help                                                                     
support the Division of Agriculture.  They have an interest                                                                     
in not setting the rate lower than they need too.                                                                               
Vice Chair Bunde inquired how many people were currently                                                                        
enrolled in the program.  Mr. Fellman noted that there are                                                                      
currently 96 loans with the revolving loan fund.  With                                                                          
passage of this legislation, it is anticipated that there                                                                       
would be an increase of 5%-6% per year by making the loans                                                                      
more desirable.                                                                                                                 
Representative J. Davies recommended that there should be                                                                       
changes made throughout the bill in order to create                                                                             
comparable language applying to farm development chattel.                                                                       
He recommended restructuring the loan amounts.  Vice Chair                                                                      
Bunde reiterated that this money should guarantee as much                                                                       
return as could be made through the money market.                                                                               
BRYCE WRIGLEY, DELTA JUNCTION, (TESTIFIED VIA                                                                                   
TELECONFERENCED), encouraged Committee members to adopt the                                                                     
proposed legislation.  He noted that as a farmer and                                                                            
borrower from ARLF, it is apparent that in Alaska, there is                                                                     
no vehicle which allows the type of service or loans that a                                                                     
lot of farmer's require.  Mr. Wigley stated that the ability                                                                    
to be "proactive" is important in establishing rates and                                                                        
determining loans.  He emphasized that the bill would                                                                           
improve the viability of agriculture in the State of Alaska.                                                                    
SCOTT MILLER, DELTA JUNCTION, (TESTIFIED VIA                                                                                    
TELECONFERENCED), testified that he is a Delta Farmer and                                                                       
the local farm bureau president.  He encouraged support of                                                                      
the proposed bill. Mr. Miller pointed out that the present                                                                      
statutes dealing with the ARLF are outdated.  Policies in                                                                       
Alaska are not keeping pace with agricultural lending                                                                           
options available in the other states.  He strongly urged                                                                       
that the State adopt the proposed legislation which would                                                                       
help to keep farmers in business.  He encouraged that                                                                           
interest rates be made more flexible.                                                                                           
BILL WARD, DELTA JUNCTION, (TRESTIFIED VIA TELECONFERENCED),                                                                    
noted that he has been involved in agriculture in the Delta                                                                     
Junction area for many years.  He pointed out that it is                                                                        
difficult for operations within the agricultural loan fund                                                                      
to operate under a defined set of statutes that have such                                                                       
strict policies. Changes are needed to reduce the interest                                                                      
rates. He pointed out that the bill would provide greater                                                                       
flexibility to the loan managers.  It would allow the loan                                                                      
managers to make decisions, which would help the sector that                                                                    
they are serving, and also fund itself.  Mr. Ward emphasized                                                                    
that he believed this to be the next logical step to be for                                                                     
the Board of Agriculture.  He urged passage of the proposed                                                                     
Co-Chair Therriault asked if having a 5% floor would                                                                            
severely restrict the flexibility desired by the farmers.                                                                       
Mr. Ward responded that realistically he could not foresee a                                                                    
manager going below that figure unless there were serious                                                                       
changes to the national economy.  He recommended not to                                                                         
mandatorily place safe guards in the legislation.  He                                                                           
believed that would require the managers to operate a                                                                           
function not in the State's best interest.                                                                                      
BOB FRANKLIN, STATED PRESIDENT, ALASKA FARM BUREAU, MEMBER                                                                      
OF THE AGRICULTURAL REVOLVING LOAN FUND BOARD, FAIRBANKS,                                                                       
(TESTIFIED VIA TELECONFERENCED), commented that at times it                                                                     
is difficult for the ARLF to accommodate all the loan                                                                           
applications they receive because the interest rates put the                                                                    
loan repay amount in an unsatisfactory position.  He noted                                                                      
that many times the borrower is driven away from the ARLF to                                                                    
other lending institutions with lower interest.  Mr.                                                                            
Franklin voiced support of the proposed legislation.                                                                            
Mr. Franklin encouraged that the legislation must be made                                                                       
flexible enough so that the ARLF can be in the lending                                                                          
business with the fund. The current 8% is set in "concrete"                                                                     
and forces some borrowers to make other choices.  He                                                                            
reiterated that there needs to be greater flexibility in the                                                                    
interest rate. Taking such action will make the ARLF more                                                                       
JIM ELLISON, FARIBANKS, (TESTIFIED VIA TELECONFERENCED),                                                                        
testified in support of the legislation.  He noted that                                                                         
presently he has not borrowed from the ALRF, however,                                                                           
encouraged that the rating system be updated.  Mr. Ellison                                                                      
did not support the 5% low rate, stating that a destitute                                                                       
farmer would not be able to survive with that rate of                                                                           
ROBERT WELLS, DIRECTOR, DIVISION OF AGRICULTURE, DEPARTMENT                                                                     
OF NATURAL RESOURCES, PAMLER, (TESTIFIED VIA                                                                                    
TELECONFERENCED), stated that he had worked with                                                                                
Representative Harris and his staff regarding the proposed                                                                      
legislation.  He commented that he would be more comfortable                                                                    
with the interest rate number being included in statute.                                                                        
Mr. Wells advised that with adoption of the work draft, the                                                                     
Division would be able to begin work on the fiscal note.  He                                                                    
clarified that with a 5-year average, it is estimated that                                                                      
would amount to a one-percentage point which would impact                                                                       
the fund at about $20 thousand dollars.  He commented that                                                                      
if the interest rate were lower, it would be a more                                                                             
attractive deal and could increase loan activity.  This past                                                                    
year, the loan activity amounted to over 107 processed                                                                          
Representative G. Davis noted that a cash flow projection                                                                       
estimate had not been provided for 1999.  He asked if there                                                                     
was one available.  Mr. Wells offered to provide that                                                                           
information to Committee members with the new fiscal note.                                                                      
He pointed out that in 1998, LBA performed an audit on the                                                                      
ALRF.  Because of the Division's reliance on other                                                                              
operations within the ARLF, there had been concern that the                                                                     
cash balance would be declining at an unacceptable rate.  He                                                                    
noted that at the end of the FY2000 projection, the revenues                                                                    
are up from the sale of assets and conservative spending                                                                        
policies at the Division of Agriculture.  He concluded that                                                                     
the cash balance had not declined to the $6.5 million dollar                                                                    
Vice Chair Bunde MOVED a conceptual amendment to Page 1,                                                                        
Subsection #4, Section #2, Line 16, and Page 3, Line #24,                                                                       
placing a "five percent" floor and deleting the "eight                                                                          
percent".  Vice Chair Bunde believed that the change would                                                                      
address concerns of the State farmers who need to borrow to                                                                     
keep afloat.                                                                                                                    
Co-Chair Therriault OBJECTED.  He believed that the rate                                                                        
would not be dropped below what was reasonable.  He                                                                             
reiterated that the funding was necessary for the Division's                                                                    
Representative J. Davies agreed with Co-Chair Therriault's                                                                      
objection.  He stated that these numbers should not be                                                                          
included in statute.                                                                                                            
Vice Chair Bunde pointed out that 8% had been used in the                                                                       
original legislation.  He made an analogy to the student                                                                        
loan program.                                                                                                                   
A roll call vote was taken on the motion.                                                                                       
IN FAVOR:  Bunde, Grussendorf, Williams                                                                                         
OPPOSED: J. Davies, G. Davis, Foster, Moses,                                                                                    
Austerman, Foster, Therriault                                                                                                   
Representatives Mulder and Phillips were not present for the                                                                    
The MOTION FAILED (3-6).                                                                                                        
Representative J. Davies MOVED to adopt Amendment #2.  [Copy                                                                    
on File].  Co-Chair Therriault OBJECTED for the purpose of                                                                      
Representative J. Davies explained that the Board should be                                                                     
the ones who establish the situation and purposes for which                                                                     
the loans are made.  Following discussion, Co-Chair                                                                             
Therriault WITHDREW his OBJECTION to the amendment. There                                                                       
being NO further OBJECTION, Amendment #2 was adopted.                                                                           
Co-Chair Therriault requested that the bill move from                                                                           
Committee with individual recommendations and then to hold                                                                      
it until final action could be taken on the note.                                                                               
Representative Foster MOVED to report CS HB 203 (FIN) out of                                                                    
Committee with individual recommendations.  Vice Chair Bunde                                                                    
OBJECTED.  He commented that a minimum floor percentage                                                                         
should be established.                                                                                                          
Representative J. Davies OBJECTED on procedural grounds.  He                                                                    
suggested that the bill should be moved on Friday, February                                                                     
4, 2000, when the fiscal note had been returned to the                                                                          
Representative Foster WITHDRWN his MOTION to move the bill                                                                      
from Committee.  There being NO further OBJECTIONS, the bill                                                                    
was held in Committee for further action.                                                                                       
CS HB 203 (FIN) was HELD in Committee for updated work by                                                                       
the Division of Agriculture on the fiscal note.                                                                                 
(TAPE CHANGE, HFC 00 - 22, Side 2).                                                                                             

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