Legislature(1995 - 1996)
04/19/1995 05:02 PM FSH
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 284 - AK COMMERCIAL FISHING & AGRICULTURE BANK Number 452 CHERYL SUTTON, Administrative Assistant to Representative Carl Moses, testified saying, "HB 284 seeks to modify and refit the Commercial Fishing & Agriculture Bank's (CFAB's) enabling statute to reflect evolving commercial law and present day fishing economies needs. CFAB was created in 1978 and much has changed in both commercial law and fishing economies since that time. There are two significant changes which would be enacted with the passage of HB 284. The first is permanent ownership by the state through retirement of all but $1 million of the state's initial investment of $32 million. Second, broadening of the purposes and circumstances for which a fisherman may use his limited entry permit as collateral. Some of these include loans for lease or purchase of quota shares, IFQs, other licenses, and the purchase, construction, maintenance, repair or improvement of commercial fishing boats, sites, gear and improvement." ED CRANE, President, CFAB, said, "We're really not creating something new here. We're simply redoing and revising, and mechanically this is the easiest way to handle what was intended." He testified, "When CFAB was established by a 1978 act which was implemented in 1980, the state of Alaska invested $32 million as seed capital in the form of stock in CFAB. And the statute provided for CFAB to retire, that it return all the money, to retire that stock within 20 years, by the year 2000. The theory was as that money was returned by the state, it would be replaced by money invested by members, users, borrowers of CFAB. That process has taken place. Actually seven years ago, the state wrote off the entire $32 million that has been carried for the last few years as zero on the books of the state. Nevertheless, we have been retiring that stock. We have now retired $21,750,000 to be specific. And also we have accumulated roughly sixteen and a half million dollars of replacement equity that represents investments of fishermen or borrowers or fisherman and farmers. Unfortunately, there was a catch, as near as I know, an inadvertent catch-22 in the existing statute. On the one hand it says that if CFAB does not retire, fails to retire all of the $32 million in stock by the year 2000, the Commissioner of Commerce can take steps to dissolve the bank, to liquidate the bank. Then, in another part of the statute, it says that when CFAB has retired all of the $32 million, the statute lapses. Well, if the statute lapses, there is no CFAB, it's gone. So we had that particular concern that this bill addresses. But in addition to that is the fact that CFAB, as we discussed some time ago, CFAB is the only private entity, nongovernmental entity which has the statutory authority to accept a lien on a limited entry permit and allow fishermen to use permits as devices through which they can finance their operations." He then indicated that in order to justify CFAB's unique status with the state, it is necessary for CFAB to retain $1 million in CFAB as a "perpetual investment." He pointed out there is considerable responsibility and accountability to the state. Number 578 REPRESENTATIVE ELTON asked if Mr. Crane was comfortable with the three year terms of board members appointed by the Governor. MR. CRANE said yes. REPRESENTATIVE ELTON pointed out that one of the board members is required to be a "resident farmer." MR. CRANE indicated that the original statute was even more restricting. He said, "The original statute required that it be a farmer with ten years of experience farming in Alaska. Also in the original statute, directors were required to be active members, that is current borrowers, of CFAB." He said CFAB has made very few loans to farmers historically, due to the state's agricultural loan program. REPRESENTATIVE ELTON asked if that seat would be better designated to a timber harvester or processor. MR. CRANE indicated that the definition of commercial agriculture can be found on page 17 of the bill and it includes forest products. REPRESENTATIVE ELTON contended that a timber harvester would not be a resident farmer. Number 639 MR. CRANE said probably not unless it was on their own land on a sustained yield basis. REPRESENTATIVE ELTON asked about changes in indemnity for officers and employees of CFAB. MR. CRANE said, "Our intention here is simply to say that CFAB's directors and employees may have the same indemnification in insurance provisions as any private corporation in the state, no more and no less." REPRESENTATIVE ELTON said he viewed page 8, paragraphs 14 and 15 as granting questionably "broad authorization" to CFAB. MR. CRANE replied, "I cannot imagine our board doing anything spectacular, if you will, which would appear to be supportive of one small segment of the total fishing community and not have a significant reaction from other CFAB members. (Indisc.) CFAB members over time, and it has taken us some time to get there, are beginning to be more and more attuned to the fact that what CFAB does directly affects their pocketbook." TAPE 95-24, SIDE B Number 000 MR. CRANE continued, "It was written broadly, mostly because we did not have anything specific in mind." REPRESENTATIVE ELTON indicated that he is somewhat more comfortable with those sections and asked about page 11, section 20, paragraph 5. He said, "With that paragraph, if somebody runs up a huge bill at Nordstroms, they can pledge their permit at your financial institution to pay off a Nordstrom's debt that has absolutely nothing at all to do with fisheries or timber or agriculture." MR. CRANE replied, "We make loans for the purpose of commercial fishing related purposes and for many fishermen, particularly those that simply operate as sole proprietors as opposed to having their fishing business incorporated. There's essentially no distinction between their personal obligations and their fishing obligations. We have, to my knowledge, we have never been asked to finance the kind of debt which you mentioned." He added, "The other side of it is we, it is not unusual for fishermen or a fisherperson to come to us with kind of a panacea of obligations that often do include credit card debt, miscellaneous, not necessarily Nordstrom's but for the things that all of us use credit cards for and we will include that in the financing, again, for working capital purposes." Number 160 MR. CRANE continued, "It is difficult for anybody who has perhaps only one payday a year to live from one payday to the next and it is not unusual for persons in those circumstances to wind up in the tenth month of their year with fuel bills, that is home heating fuel bills, payable and credit card debt payable and a bill at the grocery store that they've got to have taken care of before they can actually obtain financing for their upcoming fishing season." REPRESENTATIVE MOSES said that he suggests to fishermen friends to pay with credit cards so they don't lose receipts, as they might with paying cash. REPRESENTATIVE OGAN asked if the chairman's intent was to move the bill out of committee today. CHAIRMAN AUSTERMAN said yes. Number 215 DICK ELIASON, CFAB Director, testified in support of CFAB, "I was impressed with the operation of the bank. I remember not too many years ago, we looked upon CFAB as maybe even a mistake because things were going wrong and a lot of bad publicity in the legislative bodies, and we were wondering if, in fact, it was going to disappear. However, within the last ten years they've made an astounding comeback." He stressed the importance of the bank to the rural areas of the state where there are often few financing alternatives. He added, "Certainly, I'd have no qualms in saying it was a bad deal if it was a bad deal because I don't have a vested interest, but, I'd just like to reassure you that it's working and I would like to see it continue to work (indisc.) good service for the state and for the industry at large in Alaska." REPRESENTATIVE ELTON asked, "Are you comfortable with the expansion of duties into the venture capital kind of realm?" MR. ELIASON said yes, and added, "There was some speculation, that maybe we shouldn't put this large a bill forward at this time because we know how busy the legislature is, especially this time of the year. But we thought that it has a lot of merit and there is a lot of support out there." Number 303 REPRESENTATIVE MOSES moved to pass the bill out of committee. There were no objections.