Legislature(2017 - 2018)GRUENBERG 120

02/02/2017 10:00 AM House FISHERIES

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10:02:53 AM Start
10:03:57 AM HB56
11:02:51 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
                 HB 56-COMMERCIAL FISHING LOANS                                                                             
10:03:57 AM                                                                                                                   
CHAIR STUTES  announced that the  only order of business  would be                                                              
HOUSE  BILL NO. 56,  "An Act  relating to  limitations on  certain                                                              
commercial  fishing  loans made  by  the Department  of  Commerce,                                                              
Community, and Economic Development."                                                                                           
10:04:17 AM                                                                                                                   
REPRESENTATIVE  DAN ORTIZ,  Alaska State  Legislature, said  HB 56                                                              
seeks to  raise the aggregate  amount a  borrower may hold,  as an                                                              
unpaid  loan total,  to $400,000,  which  will help  to bring  the                                                              
existing  program in  step with  inflation incurred  since it  was                                                              
first  introduced in  1982,  at  $300,000.   He  said the  fishing                                                              
industry  is  the  main  economic  driver  in  his  district,  and                                                              
predicted that, in  the on-going effort to assist  in facilitating                                                              
the health and growth  of the fishing industry, this  bill will go                                                              
a long way.                                                                                                                     
10:07:26 AM                                                                                                                   
REPRESENTATIVE  TARR asked for  elaboration regarding  the purpose                                                              
of the loans.                                                                                                                   
REPRESENTATIVE ORTIZ  explained that the original  purpose remains                                                              
unchanged:  assisting fishermen to purchase boats and equipment.                                                                
10:08:31 AM                                                                                                                   
REPRESENTATIVE  NEUMAN asked  what  the interest  rate  is on  the                                                              
REPRESENTATIVE ORTIZ deferred.                                                                                                  
REPRESENTATIVE  NEUMAN said  it is  important to  ensure that  the                                                              
program  is  competitive  so  as   not  to  compete  with  private                                                              
REPRESENTATIVE  ORTIZ said  part of the  qualification process  is                                                              
that a loan  applicant have a  letter of denial from  a commercial                                                              
bank loan office.                                                                                                               
REPRESENTATIVE NEUMAN asked for the loan default rate.                                                                          
REPRESENTATIVE ORTIZ  answered that at  the close of 2016,  it was                                                              
at  2.2  percent, and  noted  that  the  standard average  is  5.0                                                              
10:10:30 AM                                                                                                                   
REPRESENTATIVE FANSLER  asked about the fund that is  the base for                                                              
the loan program.                                                                                                               
REPRESENTATIVE ORTIZ  said the original $60 million  in seed money                                                              
for the program,  funded between the 1970's and  early 1980's, has                                                              
not been  added to, but  has gained in value  and is now  at $95.2                                                              
million.   The program  is entirely  self-sustaining and  utilizes                                                              
no general funds for operations or administration.                                                                              
REPRESENTATIVE FANSLER  inquired about the number  and duration of                                                              
loans extended per annum.                                                                                                       
REPRESENTATIVE ORTIZ deferred.                                                                                                  
REPRESENTATIVE FANSLER  queried what the average  start-up cost is                                                              
for fishermen.                                                                                                                  
REPRESENTATIVE  ORTIZ answered  that  it varies  depending on  the                                                              
gear  type and  boat size.   Costs  are  significant but  $700,000                                                              
could be considered average, he conjectured.                                                                                    
REPRESENTATIVE FANSLER  referred to page 1, line  13, through page                                                              
2,  line  2,  and asked  for  the  definition  of  "community"  in                                                              
context of the bill.                                                                                                            
REPRESENTATIVE ORTIZ deferred.                                                                                                  
REPRESENTATIVE  FANSLER  questioned whether  a  $400,000 limit  is                                                              
high enough.  Perhaps  it should be more, he suggested,  and asked                                                              
what the fund might sustain.                                                                                                    
REPRESENTATIVE ORTIZ  agreed that  constituents would like  to see                                                              
the amount  be higher,  especially considering  the cost  involved                                                              
to enter the  industry.  As sponsor,  he said he would  not oppose                                                              
an amendment to increase the limit.                                                                                             
10:16:01 AM                                                                                                                   
REPRESENTATIVE  TARR  noted  that  the  original  program  doesn't                                                              
include  purchase   of  tenders,  and  asked  whether   there  was                                                              
consideration for inclusion of such vessels.                                                                                    
REPRESENTATIVE  ORTIZ said  the  bill doesn't  change language  of                                                              
the original statute, it only increases the loan limit.                                                                         
10:17:02 AM                                                                                                                   
ELIZABETH BOLING,  Staff, Representative  Dan Ortiz,  Alaska State                                                              
Legislature,  addressed  Representative  Tarr's  question  stating                                                              
that  a separate  loan program  exists  specifically for  tenders.                                                              
She  referred  to AS16.10.310(B),  and  paraphrased  the  language                                                              
which reads in part:                                                                                                            
          (B) to an individual for the repair, restoration,                                                                     
     or  upgrading  of existing  vessels  and gear,  for  the                                                                   
     purchase  of  entry  permits   and  gear,  and  for  the                                                                   
     construction   and   purchase   of   vessels,   if   the                                                                   
     individual  has been a state  resident for a  continuous                                                                   
     period of  two years immediately  preceding the  date of                                                                   
     application for  a loan under AS 16.10.300  - 16.10.370,                                                                   
     is not  eligible for  financing from  a state  financial                                                                   
     institution  as defined  in  AS 06.01.050,  a  federally                                                                   
     chartered  financial  institution,   or  the  Commercial                                                                   
     Fishing and Agricultural Bank, ...                                                                                         
10:18:01 AM                                                                                                                   
REPRESENTATIVE  CHENAULT directed  two questions for  departmental                                                              
comment:    the cost  stability  factor  of purchasing  a  fishing                                                              
permit;  and   administrative  costs  associated   with  the  loan                                                              
10:18:50 AM                                                                                                                   
REPRESENTATIVE EASTMAN asked about the length of the loans.                                                                     
REPRESENTATIVE ORTIZ deferred.                                                                                                  
REPRESENTATIVE EASTMAN  questioned why  someone would be  denied a                                                              
commercial bank  loan but still be  eligible for a loan  from this                                                              
REPRESENTATIVE  ORTIZ  explained that  the  unique  aspect of  the                                                              
Alaska  loan program  focuses on  the fishing  industry and  takes                                                              
into  account the  variables  and  fluctuations of  the  industry,                                                              
serving the  fishermen in a manner  that a commercial  bank cannot                                                              
due to other priorities, and constraints.                                                                                       
REPRESENTATIVE  EASTMAN  asked about  costs/fees  associated  with                                                              
the loans  and what  percentage  are imposed  by state or  federal                                                              
REPRESENTATIVE  ORTIZ   said  that  fishing  permits   are  issued                                                              
through  the   Commercial  Fisheries   Entry  Commission   (CFEC),                                                              
landing taxes are  paid by the fisherman, and  ADF&G regulates all                                                              
fisheries for  a maximum sustainable  yield.  He pointed  out that                                                              
the regulations  may impose costs,  but also serve to  support the                                                              
fishermen and  provide opportunities.   He pointed out that  it is                                                              
self-funded, not  reliant on general  funds, and  historically has                                                              
proven to be a solid program.                                                                                                   
10:25:07 AM                                                                                                                   
BRITTANY   CIONI-HAYWOOD,    Director,   Division    of   Economic                                                              
Development,   Department  of  Commerce,   Community   &  Economic                                                              
Development   (DCCED),   responded  to   Representative   Neuman's                                                              
previous question  stating that the  current interest rate  is 4.5                                                              
percent   for  engine   fuel   efficiency   and  product   quality                                                              
improvement loans, and all other loans are at 5.5 percent.                                                                      
CHAIR  STUTES  asked what  a  comparative  rate  would be  from  a                                                              
commercial bank.                                                                                                                
MS. CIONI-HAYWOOD  offered  to provide further  information.   She                                                              
confirmed  the delinquency  rate as  2.2 percent,  well below  the                                                              
5.0  percent  standard,  and  that   often  the  loan  application                                                              
package  carries a  requirement for  a loan denial  letter  from a                                                              
commercial  lending   facility  -  with  some  exceptions.     She                                                              
reported that there  are currently about 2,000  outstanding loans.                                                              
Addressing  Representative Chenault's  comment requests,  she said                                                              
some  volatility exists  due  to  the market  and  she offered  to                                                              
provide  further  information.     She  also  offered  to  provide                                                              
information  regarding   administrative  costs  specific   to  the                                                              
program.   Loans are  extended for  15 years.   The definition  of                                                              
"community"  refers   to  a  community  quota  entity   (CQE),  as                                                              
established  by the  National Marine  Fisheries.   A separate  CQE                                                              
loan fund also exists, she pointed out.                                                                                         
10:29:38 AM                                                                                                                   
REPRESENTATIVE  EASTMAN  asked  about  the start-up  of  the  loan                                                              
program,  the need  that  saw its  inception,  and  if costs  were                                                              
involved at that time.                                                                                                          
MS. CIONI-HAYWOOD responded  that the program was born  out of the                                                              
Limited   Entry   Act,   [Amendment   5,   1972],   which   is   a                                                              
constitutional  mandate.   The state  program  was established  to                                                              
allow liens on fishing  permits, which are a resource  held by the                                                              
state; private  institutions are  not allowed  to lien on  a state                                                              
resource.     The  other  agency   with  lien  authority   is  the                                                              
Commercial Fishing and Agriculture Bank (CFAB).                                                                                 
REPRESENTATIVE EASTMAN  inquired why  an applicant would  be found                                                              
ineligible for the program.                                                                                                     
MS.  CIONI-HAYWOOD offered  that reasons  for ineligibility  might                                                              
include:   lack of  credit history, poor  credit history,  lack of                                                              
collateral,  high unsecured  debts, personal  judgements, lack  of                                                              
experience, and an inadequate business plan.                                                                                    
10:32:16 AM                                                                                                                   
REPRESENTATIVE TARR  noted that  the area of agriculture  requires                                                              
a high  level of initial investment  for start-up prior  to making                                                              
application for a  loan and she conjectured on  comparisons to the                                                              
fishing industry  and whether loan  denials occur due to  the need                                                              
for a  person to first  own a  boat, have a  permit, and  secure a                                                              
crew.  She  then confirmed that  the default rate at  2.2 percent,                                                              
representing about 36 of the outstanding loans.                                                                                 
MS. CIONI-HAYWOOD  agreed  the delinquency  rate is low,  although                                                              
over a five year  average and including the restructuring  of some                                                              
loans,  the rate  can go  up.   She further  confirmed that  there                                                              
are,  necessarily,   substantial  start-up  costs   to  enter  the                                                              
industry  prior to  being able  to catch  and market  fish.   If a                                                              
young  person is  from an  established fishing  family, they  will                                                              
have a leg-up for entering the industry.                                                                                        
10:35:14 AM                                                                                                                   
REPRESENTATIVE  FANSLER   asked  if  the  fund  can   sustain  the                                                              
$400,000 level and the possibility of supporting a higher cap.                                                                  
MS. CIONI-HAYWOOD  opined  that the existing  cash balance  allows                                                              
the flexibility  to  sustain the  change that  is proposed,  but a                                                              
formal  analysis has  not been conducted  to  back up her  belief,                                                              
nor has  analysis been  projected  on higher  amounts.  She  added                                                              
that, at  one time, a  higher overall loan  limit amount  was made                                                              
available; perhaps a decade ago.                                                                                                
10:36:46 AM                                                                                                                   
REPRESENTATIVE  EASTMAN asked  for program  details, to  wit:   of                                                              
the outstanding loans  how many are at the $300,000  limit; and is                                                              
the $2 million statutory limit reached on a regular basis.                                                                      
MS. CIONI-HAYWOOD offered to provide further information.                                                                       
10:37:50 AM                                                                                                                   
REPRESENTATIVE  NEUMAN queried  whether the  program is  available                                                              
to Alaska residents only.                                                                                                       
MS.  CIONI-HAYWOOD responded  yes,  based on  a  two year  minimum                                                              
REPRESENTATIVE  NEUMAN asked, considering  the changes  this might                                                              
invoke for regulations, will there be a cost to ADF&G.                                                                          
MS. CIONI-HAYWOOD offered to provide a coordinated response.                                                                    
10:39:03 AM                                                                                                                   
REPRESENTATIVE   TARR  questioned   whether  the   CFAB  and   the                                                              
Commercial  Fishing Vessel  Loan programs  should be  administered                                                              
from the same division.                                                                                                         
MS. CIONI-HAYWOOD  explained that the Division of  Investments was                                                              
consolidated  in 2011.   The agency works  closely with  the CFEC,                                                              
which   contributes  essential,   specialized   knowledge.     The                                                              
possibility  for consolidation  with  CFAB has  been visited,  she                                                              
10:40:45 AM                                                                                                                   
REPRESENTATIVE  EASTMAN pondered the  consequences if  a fisherman                                                              
is having bad luck and not being able to repay a loan.                                                                          
MS. CIONI-HAYWOOD  said the delinquency would be  counted as such,                                                              
and the  option for modifications  to the loan would  be explored.                                                              
Each loan is worked on a case by case basis, she stressed.                                                                      
10:42:38 AM                                                                                                                   
REPRESENTATIVE  CHENAULT  asked   about  the  percentage  of  loan                                                              
extensions that  are made  and whether they  are figured  into the                                                              
default rate.                                                                                                                   
MS. CIONI-HAYWOOD  replied  that extensions  are not figured  into                                                              
the default  rate, once  they are  complete and  finalized.   If a                                                              
modification  cannot be completed  and an  extension granted,  the                                                              
loan is  counted in  the default  rate.  She  added that  the loan                                                              
extension rate is low.                                                                                                          
10:45:30 AM                                                                                                                   
REPRESENTATIVE NEUMAN  asked whether the [Division  of Banking and                                                              
Securities,  DCCED], makes  investments  for the  loan program  to                                                              
maximize returns,  and if  returns are  earned where the  earnings                                                              
are directed.                                                                                                                   
MS. CIONI-HAYWOOD  answered that  the cash  balance is  managed by                                                              
the Division  of Treasury,  [Department of  Revenue (DOR)]  and is                                                              
invested  as part  of  the portfolio,  with  the interest  returns                                                              
providing earnings for the general fund.                                                                                        
REPRESENTATIVE  NEUMAN  expressed  interest in  receiving  further                                                              
information regarding  the loan and investment performance  of the                                                              
10:47:35 AM                                                                                                                   
CHAIR STUTES opened public testimony.                                                                                           
10:48:04 AM                                                                                                                   
MICHAEL BLUME,  Fisherman, stated  support for  HB 56 and  said he                                                              
doesn't  come from  a fishing family  and without  the support  of                                                              
the  loan program  he would  not  be in  the industry  today.   He                                                              
stated  his belief  that it  is a good  idea to  raise the  limit.                                                              
The investments he  makes today will provide a  retirement for him                                                              
in the future, he said.                                                                                                         
REPRESENTATIVE  CHENAULT commented  how good  it is  to see  young                                                              
people  entering  the industry.    The  greying  of the  fleet  is                                                              
concern  and  it's  important  to help  them  find  an  affordable                                                              
CHAIR STUTES asked Mr. Blume how long he's been in the industry.                                                                
MR. BLUME answered seven years.                                                                                                 
10:51:00 AM                                                                                                                   
CLAY BEZENEK, Fisherman,  stated support for HB 56  and said it is                                                              
an important  asset for fisherman  and a raise  on the limit  is a                                                              
long  overdue.   It also  represents a  benefit to  the state,  he                                                              
opined,  and suggested  that it  be  made $500,000  to ensure  the                                                              
ability to purchase safe, economical vessels.                                                                                   
10:54:21 AM                                                                                                                   
ZACH HILL,  Fisherman, stated  support for HB  56 and said  it's a                                                              
crucial as  a means  to keep young  people entering  the industry.                                                              
Obtaining  a standard  bank  loan to  buy  a boat  is not  usually                                                              
possible,  and expressed  support for having  the limit  increased                                                              
beyond $400,000.                                                                                                                
10:56:07 AM                                                                                                                   
MARKOS SCHEER,  Attorney, stated support  for HB 56 and  said much                                                              
of his practice  involves sea processors.   The cost of  injury is                                                              
high  in the  industry  and the  cost  of a  safe  boat starts  at                                                              
$200,000 for  a seiner, coupled with  the cost of a  permit, which                                                              
may  be  $250,000.   The  bar  for  a young  person  entering  the                                                              
industry is  high, thus, the  bill will  be welcomed and  a higher                                                              
limit  would be  suitable.    It is  easy  to exceed  $500,000  to                                                              
outfit a  gillnet operation,  he informed  the committee  and said                                                              
the bill introduces a change that needs to occur.                                                                               
10:58:53 AM                                                                                                                   
MALCOLM  MILNE,  President, North  Pacific  Fisheries  Association                                                              
(NPFA), stated  support for  HB 56 and  said, as indicated  in the                                                              
sponsor  statement, the  original 1982  figure of  $300,000 is  no                                                              
longer  germane in  today's economy.   The bill  will allow  young                                                              
fishermen to enter the industry, he predicted.                                                                                  
11:01:05 AM                                                                                                                   
CHAIR STUTES closed public testimony.                                                                                           
11:01:15 AM                                                                                                                   
REPRESENTATIVE    EASTMAN   asked    whether   loan    delinquency                                                              
projections have been calculated based on an increased limit.                                                                   
REPRESENTATIVE  ORTIZ  responded  that specific  projections  have                                                              
not been  made, but  the endorsement  for the  bill by  the agency                                                              
has taken into account the solid standing of the program.                                                                       
CHAIR STUTES announced HB 56 as held.                                                                                           

Document Name Date/Time Subjects
HB056 Sponsor Statement 01.23.17.pdf HFSH 2/2/2017 10:00:00 AM
HB 56
HB056 Sectional Analysis 01.23.17.pdf HFSH 2/2/2017 10:00:00 AM
HB 56
HB056 ver D.pdf HFSH 2/2/2017 10:00:00 AM
HB 56
HB056 Fiscal Note DCCED-DED-01-20-17.pdf HFSH 2/2/2017 10:00:00 AM
HB 56
HB056 Supporting Document-Constituent 01.24.17.pdf HFSH 2/2/2017 10:00:00 AM
HB 56
HB056 Support Decker 02.2.17.pdf HFSH 2/2/2017 10:00:00 AM
HB 56
HB056 Supporting Document CED 2016 Annual State Loan Report.pdf HFSH 2/2/2017 10:00:00 AM
HB 56
HB056 Supporting Document CED 2016 FE Term Ext Report.pdf HFSH 2/2/2017 10:00:00 AM
HB 56
HB056 Support SEAFA.pdf HFSH 2/2/2017 10:00:00 AM
HB 56