Legislature(2017 - 2018)HOUSE FINANCE 519
04/14/2017 01:30 PM House FINANCE
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HOUSE BILL NO. 76 "An Act relating to the mariculture revolving loan fund and loans from the fund; and providing for an effective date." 3:55:40 PM REPRESENTATIVE DAN ORTIZ, SPONSOR, mentioned that about 6 weeks prior US Senator Dan Sullivan addressed the Alaska State Legislature. In his address, he spoke of the robust fishing industry ($6 billion/year) existing in Alaska. He spoke about how the State of Alaska provided about 60 percent of the seafood sold within the U.S. He had also spoken about the need to do everything possible to protect and enhance the fishing industry. He relayed that HB 76 looked to provide a small jump-start to a potential part of the fishing industry growing it by another $1 billion/year. In the previous year, the governor appointed a mariculture task force with the intent of exploring ways in which to develop mariculture along the coastal communities of Alaska. Representative Ortiz read the sponsor statement: This bill amends the existing Alaska Mariculture Revolving Loan Fund to allow up to forty percent of the fund to be used for loans to permitted shellfish hatcheries for planning, construction and operation. Alaska shellfish farms currently do not have a stable supply of seed for the propagation of oysters, and no regular, in-state source of seed for resident aquatic plants and other shellfish. A stable supply of seed is one of many hurdles the industry must overcome to grow and become a viable Alaskan industry. This bill will amend the program to shift its focus and eligibility from individual mariculture farmers to include shellfish hatcheries that would market stock to local Alaskan mariculture farmers. The mariculture industry in Alaska is not yet fully developed, and is extremely high risk, from a financial standpoint. These obstacles make private financing difficult to obtain, but this bill will enable Alaskans to maintain their businesses and grow Alaska's mariculture industry. Co-Chair Foster relayed a list of available testifiers. 3:59:37 PM Vice-Chair Gara was hesitant about expanding the use of hatcheries in the state because of the possible contamination of wild fish. However, in the legislation being discussed he only saw changes to the eligibility and the use of the loan fund, not changes to the ability to engage in mariculture. He wondered if his assessment accurate. Representative Ortiz responded that he was correct. Representative Wilson asked if the bill offered up to $1 million per year for an applicant. ELIZABETH BOLLING, STAFF REPRESENTATIVE DAN ORTIZ, explained that the $1 million per year limit only applied to the 40 percent (non-profit associations and enhancement projects). She expounded that the cap for one loan would be $1 million. However, she did not believe it was likely for people to ask for $1 million loans due to the collateral requirements. Representative Wilson wanted to know the number of loans that were $1 million. She pointed to page 5, lines 27-31 of the bill. It stated that the department could defer the principle of and interest on a loan made under the terms of the bill for a period of up to 11 years after the loan was made. She argued that it was a long time. It also appeared that the state could deter the interest between 6 years and 11 years. She wondered if the terms were based on an outside model. She thought many people would like the terms of such a loan. Ms. Bolling replied that the deferred interest was accrued on individual farmers in the 40 percent category. The 6 years to 11 years was consistent with the finfish fund, a fund that had been very successful. She noted that additional deferments applied to the non-profit associations. Representative Wilson did not understand the difference between an individual receiving the loan and a non-profit. She wondered what type of non-profit would apply for the loan. Ms. Bolling responded that it was very expensive to operate a seed supply organization. The payoff was small and only came over a long period. She suggested it would be unreasonable to expect a short-term payback. The reason the bill was needed and why there was a bottleneck in the growing industry was because there was no substantial gain from participating in just the seed supply. She opined that it was necessary for the state to get involved due to the riskiness of the developing industry. She noted that it was unlikely to be able to find financing in the private sector. Representative Wilson asked Ms. Bolling if she was concerned that an entity could get into the process and not be able to pay the money back to the state. Representative Ortiz deferred to the Department of Commerce, Community and Economic Development. BRITTENY CIONI-HAYWOOD, DIRECTOR, DIVISION OF ECONOMIC DEVELOPMENT AND COMMERCE, DEPARTMENT OF COMMERCE, introduced herself and asked Representative Wilson to repeat her question. Representative Wilson suggested that the bill would allow her to borrow $1 million with a plan. She could obtain $100 thousand in grant funding to develop her plan. The committee had just heard that the industry was difficult to get started and to see returns. She asked if the department had concerns that the payments would not begin for 11 years. Ms. Cioni-Haywood indicated that the department was diligent about properly collateralizing the loans to protect the state's assets. She was more concerned about the loan fund and its ability to be revolving in the first decade. Once the payments started returning a revolving loan fund would be available for the industry. Representative Wilson asked Ms. Cioni-Haywood about the number of loans. Ms. Cioni-Haywood responded there were currently 5 loans all of which were loans made to individual farmers rather than hatcheries. Representative Wilson asked about the balances. She had a figure of approximately $4.5 million in the fund. Ms. Cioni-Haywood answered that Representative Wilson was correct. 4:05:53 PM Representative Pruitt reported that it had been 3 years or 4 years since he had visited one of the farms in Ketchikan. He recalled that most of the seed was coming from the Puget Sound area. He wondered if he was correct. Representative Ortiz responded that there was an organization called Oceans Alaska in the Ketchikan area that provided seed that was not in business 4 years previously. Ms. Bolling added that per a regulation from the Department of Fish and Game (DFG) all native plants and marine aquatic shellfish that were produced in the State of Alaska were required to come from seed created in Alaska. Representative Pruitt noted that 3 years or 4 years ago South or Southeast was a great place for this emerging industry. He asked if some of the seed could be utilized outside of Alaska. He wondered if the intent was to grow the industry in Alaska or to possibly to provide seed to places outside of Alaska to make a profit. Representative Ortiz responded that the intent of the bill was to promote local mariculture farms. He understood that the demand for seed was strong enough that it would like be used up in Alaska. In the case of Oceans Alaska, he understood they could not produce seed fast enough for the demand within the state. Representative Pruitt asked if there was a market. He wondered if there would be a challenge to pay the funds in the future. Representative Ortiz thought it was appropriate, as it was a developing industry. However, there was an element of risk. He did not see a way to develop the industry to get to the point where there was a viable industry without getting through a period of relatively high risk. 4:10:05 PM Representative Pruitt asked if the expansion of the loan fund - by adding another group - would create a problem with pressure on the fund at a future time. Ms. Cioni- Haywood responded that it explained the reason for the construction of a 40/60 split. She noted that 60 percent of the fund would remain available for individual farmers. The remaining 40 percent (set at a particular time so it would not be in flux) would be available for hatchery and enhancement projects. Representative Kawasaki asked about the 40/60 split. He wondered if the 60 percent portion would be enough for the remaining mariculture businesses that were originally listed. Representative Ortiz replied that to-date the fund had been underutilized. There were currently 5 loans with a balance of just under $5 million in the fund. The initial funding amount was $5 million. The industry recognized that the supply of seed was a problem. If the state were to see an increase in the manufacturing of seed resulting from the 40/60 split, then it was possible there would also be an increase in the number of farmers interested in getting into the business. There would likely be an increase on the demand of the remaining 60 percent. He noted Ms. Cioni- Haywood talking about the fund initially not having a revolving nature because of the funds being expended. He thought it was better to have a fund that was being used rather than underutilized. Co-Chair Seaton noted that there was a shellfish hatchery in Seward focused on a King Crab project. He reported that the oyster farms in the area were having difficulty getting seed. He clarified that seeds other than oyster seeds could not be brought into Alaska. Oyster seeds were grandfathered in. Currently, because of warm waters, the State of Washington's seed production was down significantly. Farmers in Alaska had to have new seed each year if they were harvesting annually. He concluded that without a good seed supply, the business model would not work. He wanted to make sure to report that the bill was not only related to Southeast Alaska. He mentioned another bill that had passed regarding Geoducks. It was 9 years to 11 years before Geoducks were harvestable. He suggested that putting off the payment of principle and interest was necessary. He pointed out that a farmer might have a valuable product with a lengthy cycle. He mentioned that previously Geoducks could not be planted or farmed anywhere outside of Southeast Alaska. It did not make sense because they did not reproduce naturally further North. However, North could provide a great growing area. He cited a village corporation project in the Port Graham area. 4:15:42 PM Co-Chair Foster OPENED Public Testimony. 4:16:05 PM TAMSEN PEEPLES, LEAD ALASKA OPERATIONS, BLUE EVOLUTION, JUNEAU, spoke in favor of HB 76. Blue Evolution was a company developing commercial seaweed maricultures in Alaska. The previous August she constructed and operated the first commercial kelp hatchery in the state located in Juneau, Alaska, at the University of Alaska Southeast in the Anderson Building. She produced over thirty thousand feet of seeded line and distributed it to three independent Alaskan growers: two out of Kodiak and one out of Ketchikan. The first harvest of material would occur the following week. The company aimed to collect over thirteen thousand pounds of kelp that grew from its independent farmer from seed material produced in Juneau. Her company would be purchasing the product from the farmer, drying it, and making added value products such as a seaweed pasta. Her company was already producing the pasta and selling it online. As Representative Ortiz mentioned, seed was a huge choke point in production even within her own company. All three independent farmers applied to increase their farm space substantially. The company would be going over 500 percent production from the past year. She relayed that having access through the mariculture revolving loan fund to the hatcheries would greatly increase Blue Evolution's production but all other shellfish and seaweed hatcheries throughout the state. As an Alaskan and marine biologist, she whole-heartedly supported the industry in its entirety. 4:18:00 PM JULIE DECKER, ALASKA FISHERIES DEVELOPMENT FOUNDATION, JUNEAU, spoke in support of HB 76. She explained that her organization broadly represented the seafood industry from harvesters, processors, and support sector businesses. The foundation had a vision to grow a $1 billion industry in 30 years. The foundation believed that there was a major opportunity in developing mariculture in the State of Alaska including wild fishery enhancement, aquatic farming, and restoration of shellfish and aquatic plants. She mentioned that finfish farming was off the table and not allowed in the state. The organization believed there was serious opportunity available. She mentioned examples in the State of Washington and provided some statistics. She also noted an announcement in a publication that China was making a $200 million investment in Eastern Russia to grow sea cucumbers, mussels, and scallops - three species present in Alaska. The foundation firmly believed there was an opportunity. In addition to supporting HB 76, she offered that the following bill, HB 128, was also a part of the building blocks needed to develop the industry efficiently. The governor's mariculture task force agreed that the two bills were necessary and supported both bills. There was also a list of 16 other organizations from across the state that supported the bills. She also mentioned the support of the farmers because they needed a consistent source of seed. She thanked the committee. 4:20:20 PM TOMI MARSH, BOARD MEMBER, OCEANS ALASKA, KETCHIKAN (via teleconference), spoke in support of HB 76 and HB 128. Oceans Alaska was a non-profit shellfish hatchery. The company started producing oyster seed prior to 2015 and wanted to expand into seaweed and geoduck seed. It went from producing 5.0 thousand oyster seeds to about 10.0 million oyster seeds. The non-profit's ability to produce seeds would allow more expansion by existing and new Alaskan businesses and farmers and would help with rehabilitation and enhancement. She reported that the Ketchikan Gateway Borough had invested over $600 thousand of economic development funds to Oceans Alaska. Many individual board members had also contributed. There was a significant amount of local support for the hatchery. She indicated that if the bill passed Oceans Alaska would pursue a loan from the Mariculture revolving loan fund, which would help stabilize its existing operations and allow for expansion. 4:22:06 PM ERIK O'BRIEN, SOUTHWEST ALASKA MUNICIPAL CONFERENCE (SWAMC), ANCHORAGE (via teleconference), spoke in favor of HB 76. He was an independent farmer and intended to apply for a mariculture loan. He thought kelp mariculture was a stepping-stone into other mariculture activities. He also planned on participating in hatchery operations. 4:23:33 PM DOUG GRIFFIN, SOUTHWEST ALASKA MUNICIPAL CONFERENCE, ANCHORAGE (via teleconference), spoke in support of HB 76. He explained that about 4 years prior SWAMC had become interested in mariculture as a development initiative to increase economic activity. It was seen as a perfect fit in communities that were experiencing a loss of fisheries access. Coastal communities were well placed to succeed in the mariculture industry. The bottleneck for development was access to capital to get into what was considered by regular banks as a speculative industry. The initiative SWAMC started 4 years ago had not gained momentum for the reasons he mentioned. He opined that Mariculture was complimentary to other fisheries and would be a great initiative of job creation. He relayed that high value products in demand worldwide would come from the industry. He asserted that along with the initiative the state would need to move to marketing and other items. He noted that Kodiak was actively looking at permitting and access to capital within the mariculture industry. Co-Chair Foster CLOSED Public Testimony. Co-Chair Foster relayed that amendments were due in his office by Tuesday, April 17th. HB 76 was HEARD and HELD in committee for further consideration.