Legislature(1995 - 1996)
05/03/1996 10:15 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 284(FIN) "An Act relating to the Alaska Commercial Fishing and Agriculture Bank." Amy Daugherty, staff aide to Alan Austerman introduced this bill. She referred to the last page of the bill, page 17 and deleted the words of the last line, "on or". Co- chairman Halford asked that the amendment that was adopted and then inadvertently deleted from the draft and the bill went all the way through the process without the amendment be explained either by staff or CFAB. Ed Crane, President of CFAB was invited to join the committee. He said the particular amendment in question was adopted unanimously by the House Finance Committee and it some how disappeared when the bill was subsequently transmitted onto House Rules and the House Floor. It was an amendment that is anticipated Senate Finance Committee will restore as was the intent of the House Finance Committee. This bill was occasioned in anticipation of full private ownership of CFAB which is one of the primary objectives of the founding fathers back in 1978. There was a requirement for CFAB to become fully privately owned no later than the year 2000; that all of the State's investment must be retired by then. CFAB has retired $25 million of the State investment and the remaining $7 million will be retired over the next thirty months. Rather than waiting until the year 2000 that day will soon be upon us. He explained three general categories of the bill. One, the clarification of inconsistencies and filling in gaps and the resolution of uncertainties as referred to in sections 9, 12, 15, 23, 24 and 26. Two, the accommodation of changes in commercial fishing economics and commercial fishing laws that have occurred since the original statute was written as referred to in sections 15, 17 (paragraph 6), 18 (paragraph 5), 19, 20, 21 an 22. Three, to recognize that Alaska Statute 44.81 which applies only to CFAB is a restrictive statute which is always going to be subject to strict interpretations by the Court and in which certain inconsistencies present real dangers to a company like CFAB, which operates in a world quite sensitive to litigation as referred to in sections 17 (paragraph 14) and 18 (paragraphs 1, 8 and 9). Questions were raised in House Finance Committee which resulted in legislative auditors spending considerable time at CFAB during the interim. They took a long look at the legislative history of CFAB. In this bill the accountability was retained to the Legislature and the State. The Governor will continue to appoint two directors to CFAB's Board of Directors and the annual report including an independent auditors report is required be submitted to the Legislature and the Governor. CFAB remains subject to annual bank examination. On any given day any legislator can propose changes to CFAB statute. Co-chairman Halford asked how the bank treated the residency of borrowers. Mr. Crane said statute provided loans can be made only to residents for which the duration required is one year. He referred to their credit policy and read it into the record.He said they encounter very little questionable practices and maybe 2 - 3 applications have been denied because of residency. Co-chairman Halford referred to section 10(b) on page 4. Mr. Crane said the specific section does conform. The language was crafted about nine years ago under the late Senator Bennett. He related the difficulty in being able to find directors to serve as there are no special privileges attached to being on the board of directors. The majority of board members are fishermen and in general they must be borrowers before they become members of CFAB. He advised that there can be a bad season due to any number of reasons, which do not necessarily reflect poor character, poor credit practices or any type of misconduct or ethical problem. With borrowers generally, including directors who are borrowers, when those situations occur, expectations are modified and there can be a delinquent loan for twelve months. There needs to be room for a director who is a fishermen borrower to be able to deal with the things that happen to fishermen borrowers. Co-chairman Halford said he believed this was strange language regarding the board of directors and was too permissive. Senator Sharp said he was also surprised with the permissive language. Federal regulations and real banks are severely limited in loaning to directors and officers. This kind of allowance was permissive. Mr. Crane said the bank examiners were aware of this situation. There has been occasion to act on this matter by the board and consideration was given to the examiner's view at the time. Within the past two years there was a director reflecting an economic rather than ethical weaknesses and was advised formally that unless certain things were done with respect to his loan by a certain date, his membership on the board would be revoked. The qualities that make a person a good and valued director are not necessarily the same qualities which make him or her a good fisherman or borrower. Senator Sharp concurred but felt a delinquent director allowed to borrow from their own bank may lead to further complications. That lowering of tolerance is why there is such prohibition in the banking institutions. Senator Frank also concurred and said there had been a substantial change in the last fifteen years in regulations and practices of banking in general. He suggested deleting the words "chronically and irredeemably" on page 4, line 30. Mr. Crane said that CFAB is regulated and this $35 million institution is subject to strict scrutiny through State bank examiners, it's own auditors, an exhaustive examination by it's lenders, legislative audit and IRS audit. The policies and practices of CFAB which could change, do not permit special treatment for director loans. Senator Frank still felt the language was permissive in requiring the board to remove someone. Senator Sharp concurred. Senator Zharoff felt there was no problem in leaving the wording as it was since it had been there since inception. Mr. Crane advised that there are seven members of the board, two appointed by the Governor. He further explained the phrase of "natural persons" as being distinct from legal persons. CFAB has made a few farming loans and the main reason for that was because there is little bankable commercial agriculture in Alaska. Timber is classified as agriculture. Senator Sharp asked how members were compensated for attending board meetings and Mr. Crane said the current practice of CFAB had been for modest compensation, $50/hour up to $350/day maximum. Total compensation last year for seven members of the board of directors was $13,000. Senator Sharp proposed an amendment on page 4, line 30 to read "maintains a chronic substandard borrowing relationship with the bank shall be removed from the board." Mr. Crane noted with regards to changing "may" to "shall" that CFAB was a private institution and said it was not needed to have a statute directing something like that. How would this be enforced? Otherwise there was no objection to the rest of the amendment. Senator Sharp felt the latitude for the board and management to define "chronic substandard borrowing" was left in. However he felt what was fair for other borrowers should also be fair for directors. After brief miscellaneous discussion by the committee members Senator Sharp moved amendment #1(a) and without objection it was adopted. Amendment #1(b) was also moved and failed; later it was rescinded without objection and Senator Sharp re-moved this amendment #1(b) and with the objections of Senators Zharoff and Phillips being duly noted it was adopted. Senator Zharoff moved amendment #2, page 17 line 31 to delete "on or" and without objection it was adopted. Senator Zharoff further moved amendment #3 on behalf of the sponsor and without objection it was adopted. Amendment #4 was also moved by Senator Zharoff and it was held pending. ADJOURNMENT Co-chairman Halford recessed the meeting at 12:00 noon to call of the chair.