Legislature(2017 - 2018)GRUENBERG 120
03/07/2017 10:00 AM House FISHERIES
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HB 76-MARICULTURE REVOLVING LOAN FUND 10:03:55 AM CHAIR STUTES announced that the first order of business would be HOUSE BILL NO. 76, "An Act relating to the mariculture revolving loan fund and loans from the fund; and providing for an effective date." 10:04:32 AM REPRESENTATIVE FANSLER moved to adopt the committee substitute (CS), for HB 76, Version 30-LS0343\R, Bullard, 3/6/17, as the working document. 10:04:45 AM REPRESENTATIVE EASTMAN objected for discussion. 10:05:29 AM REPRESENTATIVE DANIEL ORTIZ, Alaska State Legislature, introduced the committee substitute (CS) for HB 76 stressing the need to diversify the economic drivers for Alaska's economy and underscoring the opportunities that exist within the realm of the seafood and mariculture industries. He described the proposed legislation, paraphrasing from the sponsor statement, which read as follows [original punctuation provided]: 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. 10:10:09 AM REPRESENTATIVE NEUMAN noted the substantial increases being proposed to the amount that can be loaned and asked about the fund sustainability. REPRESENTATIVE ORTIZ deferred the question of sustainability to the department, and said projections indicate that the fund will remain solid. The fund is being underutilized and the bill expands the scope of its use. 10:13:43 AM REPRESENTATIVE EASTMAN asked about the underutilization of the fund. REPRESENTATIVE ORTIZ deferred. The committee took an at-ease from 10:14 a.m. to 10:15 a.m. 10:15:14 AM ELIZABETH BOLLING, Staff, Representative Daniel Ortiz, Alaska State Legislature, provided the sectional analysis of the proposed committee substitute (CS) for HB 76, paraphrasing from a prepared document, which read as follows [original punctuation provided]: Section 1 Amends AS 16.10 to create a Declaration of Policy for the program and fund uses. This section was added to ensure the fund promotes mariculture and gives clear direction to the department. The declaration is similar to the Fisheries Enhancement Revolving Loan Fund (AS 16.10.500). This will make clear the intent of the program and protect the department from risks in a developing industry. Section 2 AS 16.10.900(a) (b) (3) and (c) will incorporate the declaration of policy, to ensure the state promotes mariculture through the fund, and links to new definitions in AS 16.10.945. Section 3 AS 16.10.905 (1) (a) will incorporate the declaration of policy, to ensure the state promotes mariculture through the fund, and links to new definitions in AS 16.10.945. AS 16.10.905(1) (b) ensures the fund covers marine aquatic plants rather than all aquatic plants. AS 16.10.905(1) (c) This change expands the eligible applicants to include organizations that are actively pursuing shellfish enhancement projects. Enhancement refers to the enhancement of resources, rather than the enhancement of individual organisms. 16.10.905 (4) (b) will incorporate the declaration of policy, to ensure the state promotes mariculture through the fund, and links to new definitions in AS 16.10.945. 16.10.905 (7) will incorporate the declaration of policy, to ensure the state promotes mariculture through the fund, and links to new definitions in AS 16.10.945. AS 16.10.905(9) allows the Department to make grants only to nonprofit organizations eligible for loans under AS 16.10.910(a)(2) for organizational and planning purposes that will provide for public uses in this developing industry Section 4 AS 16.10.910(a) will incorporate the declaration of policy, to ensure the state promotes mariculture through the fund, and links to new definitions in AS 16.10.945. AS 16.10.910(a) (2) expands eligible applicants to include a resident of the state or entity organized under the laws of this state that holds a permit under AS 16.40.100 to operate a hatchery for the purpose of producing aquatic plants or shellfish for sale or is authorized to operate shellfish enhancement project. Section 6 AS 16.10.915(a) will incorporate the declaration of policy, to ensure the state promotes mariculture through the fund, and links to new definitions AS 16.10.945. As 16.10.915 (2) (a) and (b) clarifies the different categories of loan applicants and their terms. This gives an additional length of time to eligible loan applicants under category 2 for the same purpose of public uses, and these terms are consistent with those terms under the Fisheries Enhancement Revolving Loan Fund. AS 16.10.915 (4) allows the department to consider additional collateral sources including voluntary assessments which may be agreed to in AS 16 10.923. Section 7 AS 16.10.915(b) will incorporate the declaration of policy, to ensure the state promotes mariculture through the fund, and links to new definitions AS 16.10.945. AS 16.10.915(b) will incorporate the declaration of policy, to ensure the state promotes mariculture through the fund, and links to new definitions AS 16.10.945. Section 9 AS 16.10.915(d) will incorporate the declaration of policy, to ensure the state promotes mariculture through the fund, and links to new definitions AS 16.10.945. Section 10 AS 16.10.915 (f) adds a new subsection to clarify that loans to a hatchery or enhancement project should contribute to common property fishery or otherwise the public interest so the program operates in a manner beneficial to the public interest and be managed in a manner that protects the fund. Section 11 AS 16.10.920 (a) and (b) mirrors the initial loan period from the Fisheries Enhancement Revolving Loan Fund. This also allows flexibility for farmers in this developing industry. Section 12 AS 16.10.923 (a) creates a mechanism through which organizations comprising more than one stakeholder can arrange to pay their loan through a voluntary assessment, similar to that of the current Southeast Alaska Regional Dive Fisheries Association and the salmon enhancement program. AS 16.10.923 (b) protects the department by ensuring only organizations with a plan and agreement to collect an assessment to pay the loan may receive a loan. Section 13 AS 16.10.935 to allow the department to dispose of property acquired after default. 10:20:59 AM REPRESENTATIVE EASTMAN asked about the change included in Sec. 14. MS. BOLLING responded that it provides a definition of shellfish enhancement project, and referring to the proposed CS, page 6, lines 21-26, read: (5) "shellfish enhancement project" means a project to (A) augment the yield or harvest of shellfish above naturally occurring levels using a natural, artificial, or semiartificial production system; or (B) rehabilitate a shellfish stock by restoring it to its naturally occurring levels of productivity. 10:21:49 AM REPRESENTATIVE NEUMAN requested a further review of Sec. 12 and Sec. 13, to elaborate on the terms for a loan and the repayment schedule. MS. BOLLING deferred to the department. 10:23:15 AM BRITTENY CIONI-HAYWOOD, Director, Division of Economic Development, Department of Commerce, Community & Economic Development (DCCED), asked to have the question restated. REPRESENTATIVE NEUMAN pointed out that loan repayment may be deferred until sometime following 6 and 11 years of inception. He asked whether associations may collect payments prior to start of state payments. MS. CIONI-HAYWOOD clarified that the question regards the voluntary fee assessments that an organization can impose on stakeholders prior to beginning loan repayments to the state, and deferred to legal counsel. 10:25:38 AM ALPHEUS BULLARD, Attorney, Legislative Legal Services, Legislative Affairs Agency, referred to the bill, Sec. 12, and said there are no time limitations on when an association can begin to collect assessments for the purpose of either securing or repaying a loan. REPRESENTATIVE NEUMAN surmised that an association can collect fees and the proposed legislation doesn't provide a schedule for fee activities. MS. BOLLING concurred, and offered that an association could decide to begin loan repayment earlier than scheduled. Further, if an association imposed fees but didn't use the funds for the loan purposes established, it could be considered an illegal collection. REPRESENTATIVE NEUMAN conjectured that a loophole might be found by an association collecting fees, and suggested the section language be given further scrutiny. 10:27:55 AM REPRESENTATIVE EASTMAN said it appears that an assessment could be collected prior to a loan being secured. MR. BULLARD responded that the assessments are voluntary from association members. 10:29:08 AM REPRESENTATIVE NEUMAN asked whether the association owner of a permit could own permits in other states as well, and if so will there be assurance that Alaskan based companies will be prioritized. CHAIR STUTES said an upcoming presentation would cover this line of questioning. 10:30:02 AM REPRESENTATIVE EASTMAN noted the new subsection being proposed in Sec. 10, and questioned if it was in the original bill or crafted specifically for the CS. MS. BOLLING explained that the subsection in question was in the original bill. REPRESENTATIVE EASTMAN removed his objection and without further objection, Version R was before the committee. 10:31:44 AM MS. BOLLING said the intent of the legislation is to assist Alaska's developing mariculture industry. A bottleneck, and impediment currently exists, due to the unavailability of a source for year-a-round shellfish seed. Alaska Department of Fish & Game (ADF&G) regulations allow for oyster seed to be brought into the state, but all other seed must be produced in Alaskan waters. The bill is intended to ease the situation, include compatible terms that align with the Fisheries Enhancement Loan Fund, and to further define relatively new concepts such as shellfish enhancement projects. 10:32:57 AM REPRESENTATIVE NEUMAN pointed out the proposed raise in the application fee, $100,000 to $1 million [CS page 4, lines 2-5], to note that this represents a significant change and asked how it is expected to work. MS. BOLLING said the terms presented are consistent with the terms of the Fisheries Enhancement Revolving Loan Fund. It also provides a time extension to eligible applicants that come under category two; public use and benefit purposes. She deferred further response. 10:34:59 AM JULIA DECKER, Executive Director, Alaska Fisheries Development Foundation (AFDF), said the bill is intended to provide access to funding for individuals with aquatic farms, as well as to organizations, such as those hosting shellfish hatchery/enhancement programs. The monetary need of an organization would be greater than an individual farmer seeking to enter the mariculture industry. It is expected that the number of organizations making application will be few. REPRESENTATIVE NEUMAN expressed concern that, if the bill is to help small organizations and individuals, coming up with a $1 million application fee seems daunting. MS. DECKER said collateral would be necessary, but the amount represents the total amount for which they could apply. It is necessary to make a high amount available for an entity developing a hatchery, and these are critical facilities to the industry to provide a secure source of seed. She suggested that hatcheries currently producing king crab may want to expand into shellfish and this fund would be beneficial to that effort. 10:37:46 AM REPRESENTATIVE EASTMAN asked for an estimate of the size of the mariculture industry. MS. DECKER responded that the vision is to grow a billion dollar industry in 30 years, and assets are available to meet that goal. The mariculture task force considers this to be a reasonable aim and sound course of action. REPRESENTATIVE EASTMAN noted that the target is a billion dollar industry in 30 years, and asked, "Where were we at last year?" MS. DECKER responded $1 million. 10:39:49 AM REPRESENTATIVE NEUMAN asked how much is in the current fund, and how has it been performing. MS. CIONI-HAYWOOD responded that the current, available balance is about $4.5 million. It's a new fund that will take some time to build, she said. Five loans of about $500,000 each have been made, and no applications received have been denied. Thus far, only individual farmers have benefited. REPRESENTATIVE NEUMAN questioned how the department manages the fund, and whether the available loan assets are invested by the state. MS. CIONI-HAYWOOD responded that the balance on hand is managed by the Treasury Division of the department, providing interest for deposit to the general fund, as well as retention. All interest and fees acquired from active loans remain in the fund, making it self-sustaining. To a follow-up question she said the original fund balance was $5 million. 10:42:58 AM REPRESENTATIVE CHENAULT referred to the changes proposed in Sec. 11, to ask about the current loan rate, and the 6 year interest deferral provision; proposed for extension to 11 years. The committee took a brief at-ease at 10:44 a.m. 10:44:11 AM MS. CIONI-HAYWOOD responded that current statute allows the interest to be deferred, and no interest or payments are due in the first six years. REPRESENTATIVE CHENAULT questioned how hatcheries will be able to repay loans if assessments are collected on a voluntary basis rather than being made mandatory. MS. CIONI-HAYWOOD deferred response. 10:46:15 AM MS. DECKER explained that the components being proposed in the CS are similar to the repayment structure that exists for salmon hatcheries. The hatcheries have been successful, and, although differences exist between mariculture and finfish facilities, financial flexibility is needed by both undertakings. REPRESENTATIVE CHENAULT asked how long the mariculture fund has been in existence, and whether any of the original loans have been satisfied. MS. CIONI-HAYWOOD said it was established in 2012, and all original loans are still in the deferment period. 10:49:55 AM REPRESENTATIVE EASTMAN referred to the CS, Sec. 10, [subsection] (e), to paraphrase the language which read: The total of balances outstanding on loans made to borrowers under AS 16.10.910(a)(2) may not exceed 40 percent of the principal of the mariculture revolving loan fund. REPRESENTATIVE EASTMAN asked if the principal being referred to is the initial $5 million fund balance. MS. CIONI-HAYWOOD confirmed that it refers to the initial $5 million balance, and to a follow-up question responded that, if the borrowers held maximum loan amounts, only two loans could be allowed, under the 40 percent rule. REPRESENTATIVE EASTMAN directed attention to the CS page 3, lines 22-27, regarding residency requirements and asked if there is a time period being assumed for someone to qualify for the program. CHAIR STUTES pointed out the residency qualifiers are contained in the language, which stipulates: "may not have" [page 3, line 25]. REPRESENTATIVE EASTMAN questioned whether someone could be denied based on residency previously established in another state, perhaps ten years ago; would that be a disqualifier. 10:52:29 AM REPRESENTATIVE FANSLER suggested that the "and" [page 3, line 24], satisfies the concern, as it conjoins to the 24 consecutive months that are stipulated [page 3, line 23]. He paraphrased the language, which read: (1) shall physically reside in this state and maintain a domicile in this state during the 24 consecutive months preceding the date of application for the program; and (2) may not have (A) declared or established residency in another state; or (B) received residency or a benefit based on residency from another state. MR. BULLARD confirmed Representative Fansler's understanding. CHAIR STUTES opened public testimony. 10:55:24 AM NANCY HILLSTRAND, Pioneer Alaskan Fisheries, Inc., emphasized the need to delineate mariculture from shellfish, and to include clear definitions for each. She said the salmon revolving loan fund should be reviewed prior to extending it in the direction of shellfish. Further, natural stocks and the reasons causing depletion should be addressed prior to supporting farming, she cautioned. 10:57:45 AM TONI MARSH, OceansAlaska, predicted that the bill will be as good of an assist to mariculture farmers as it has been to fish hatcheries. The allowance for deferred payment is necessary in this type of industry, which has a lengthy incubation period and maturity process, she said and reviewed the seed maturation timeline. REPRESENTATIVE NEUMAN asked about her affiliation. MS. MARSH responded that she is the board president for OceansAlaska, a non-profit shellfish hatchery located in Ketchikan. REPRESENTATIVE NEUMAN asked whether the non-profit shellfish hatchery she represents expects to apply for this funding should it become available, and, if so, for how much. MS. MARSH responded that the organization is anticipating making application in the amount of about $200,000. 11:01:17 AM JOHN KISER, Owner, Rocky Bay Oysters, underscored the need for farmers to have access to seed and encouraged the committee to support a line of funding to the mariculture industry. However, with access to public funds comes the possibility of waste, he cautioned, and said the loans should be performance based. The oyster operation that he owns has been idle for eight years, and he's been working with someone in Cordova to grow seed. REPRESENTATIVE NEUMAN noted that the available loan balance is $1.5 million, and asked whether small operators, like himself, will be able to benefit from what is being proposed or will the larger organizations be the primary beneficiaries of the legislation. MR. KISER replied that the fund began as a good idea but not many small farmers were able to take advantage of it given the collateral requirements. Many of the farmers, including himself, took out small farm loans as an alternative. If larger entities use this fund it shouldn't be a problem, he said, as the small farmers stand to benefit from the production of shellfish seed. 11:04:47 AM ERIC WYATT, Owner, Blue Star Oyster Company, stated support for HB 76 and said the company maintains an oyster farm and a nursery. The nursery supplies other farmers; however, the business has been dwindling due to the difficulty in sourcing the seed. The fund should prove helpful to hatcheries and make it possible for them to expand in a number of ways. If the hatcheries have an opportunity to diversify, it will be beneficial to the mariculture farmers, he finished, and said it will allow for a variety of potential. 11:06:29 AM ANGEL DROBNICA, Representative, Aleutian Pribilof Island Community Development Association (APICDA) Community Development Quota (CDQ), stated support for the CS for HB 76 and said creating stable fisheries and local economies is the goal of the organizations with which she is affiliated. Diversification is helpful and economic support is necessary. As chair of the investment and advisory committee for APICDA, she said the investment portfolios are affected by the seasonal and fluctuating characteristics of the fisheries, and the addition of mariculture could provide a stabilizing force, as well as diversify the investment profile. The support for the CS comes from a rural community development perspective. The bill is important as it will provide funding for the advancement of the mariculture industry. Finding funding for hatcheries is a challenge, and the ability to produce seed is essential to farming operations. The legislation is timely and necessary, she finished. REPRESENTATIVE EASTMAN asked for a cost estimate to get a seed hatchery operational. MS. DROBNICA said that the size and scope of the undertaking makes the cost highly variable, and deferred further response. 11:10:16 AM REPRESENTATIVE KREISS-TOMKINS asked about the amount available in the fund for disbursement. MS. DROBNICA estimated the loan availability to be $4.5 million. REPRESENTATIVE KREISS-TOMKINS acknowledged that the fund has a balance of $4.5 million; however, as mentioned in earlier testimony, only $1.5 is effectively available for loan, and asked Ms. Drobnica to speak to that situation. MS. DROBNICA deferred. MS. CIONI-HAYWOOD explained that the fund has a balance of about $4.5 million, with $500,000 currently on loan. She said that the balance is available for lending, outside of a small foreclosure reserve that must be retained. The loans are expected to be appropriately collateralized to avoid the risk of foreclosure. About $2 million is available for potential hatchery loans, leaving about $2.2 million available for loans to other entities. 11:13:18 AM REPRESENTATIVE NEUMAN directed attention to the CS page 5, lines 5-8, which read: Sec. 10. AS 16.10.915 is amended by adding new subsection to read: (e) The total of balances outstanding on loans made to borrowers under AS 16.10.910(a)(2) may not exceed 40 percent of the principal of the mariculture revolving loan fund. REPRESENTATIVE NEUMAN questioned the mathematics being presented. MS. CIONI-HAYWOOD acknowledged the difference, and said that up to 40 percent, or $2 million for hatchery loans, was to be made available, and deferred to the sponsor's staff for further response. MS. BOLLING said, "That is correct." In response to Chair Stutes request for clarification on which statement should be considered correct, she deferred comment to Ms. Decker. REPRESENTATIVE NEUMAN noted that generally when funds of this nature are created a charter is filed, and suggested a copy might be helpful. MS. DECKER said the reference to 40 percent was intended to relate to the initial $5 million principal, thus there would be up to $2 million available for these types of new applicants. REPRESENTATIVE NEUMAN said the intent is not clear in the bill, and expressed consternation at not receiving a response from the director, but rather someone who will be an applicant to the fund and benefit of the proposed legislation. 11:16:23 AM REPRESENTATIVE EASTMAN referred to the CS page 2, Sec. 3, to note that it indicates eligible applicants may be developing a mariculture business or a hatchery, and asked whether a hatchery could be considered a mariculture business or are these mutually exclusive terms. MS. DECKER responded that the key term is business versus non- profit. The hatchery and shellfish enhancement entities would be non-profit organizations, she opined. 11:17:12 AM REPRESENTATIVE FANSLER referred to Sec. 10(e) [CS page 5, lines 5-8] to state agreement with Representative Neuman's concern regarding the need to clarify the language regarding how the available loan amount is being determined, and offered to submit a friendly amendment. MS. BOLLING said the sponsor would be amenable to receiving an amendment. 11:19:22 AM JERRY MCCUNE, United Fishermen of Alaska (UFA), stated support for HB 76 and recalled that similar doubts were expressed when funding for hatchery development was first introduced. He expressed optimism for a good outcome and said the mariculture industry deserves to have similar state sanctioned support and opportunity to help it develop. 11:20:44 AM CHAIR STUTES closed public testimony and announced the bill as held. The committee took an at-ease from 11:20 a.m. to 11:26 a.m.