Legislature(2017 - 2018)SENATE FINANCE 532
04/10/2018 09:00 AM FINANCE
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SENATE BILL NO. 157 "An Act relating to the Alaska microloan revolving loan fund and loans from the fund." 9:26:58 AM BRITTENY CIONI-HAYWOOD, DIVISION DIRECTOR, DIVISION OF ECONOMIC DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, shared the purpose of the microloan fund was to promote economic development in Alaska by assisting small and micro business that may not have access to traditional financing. She stated that the access to badly needed capital would facilitate startup, expansion, and job creation in the state with specific policy emphasis on rural communities. She stated that new businesses were responsible for 80 percent of all new jobs created in the U.S. She asserted that finding ways to support and incentivize new business growth would result in the state filling some of the economic gap created in the downturn in the economy. She stated that small scale startups and businesses had difficulty securing funding, especially when they may not fit the profile of a high-growth potential business. 9:30:25 AM Senator Stevens queried the default rate. Ms. Cioni-Haywood replied that there was currently one loan in default, at a 6 percent rate. She noted that there were only 14 loans from the fund. Co-Chair Hoffman queried the reason for listing a fix rate, instead of points above prime. Ms. Cioni-Haywood replied that it was two percentage points above prime. Senator Micciche surmised that there was a drop of the interest rate, because interest rates were lower than when the bill was enacted. Ms. Cioni-Haywood replied that the floor amounts had been changed to 4 percent and 8 percent. The interest rate calculation was 2 percentage points versus 1 percentage point on prime. It allowed for some additional risk with the longer term. She furthered that it would also bring the rates in line with the other programs. Vice-Chair Bishop queried the balance of the fund capitalization, and the typical annual loan application number. Ms. Cioni-Haywood replied that the cash available to lend was just under $2.3 million, with 14 current loans, 33 applications, and 14 approved loans. She shared that it averaged about 2 loans a year over the last six years. She stated that the borrowers were unwilling to take on that debt risk, so extending the term will allow for more flexibility with the payments. Senator von Imhof wanted permission to list her questions via email. Co-Chair MacKinnon felt that putting those questions on the record may be helpful. Senator von Imhof listed her questions. 9:36:20 AM Senator Micciche wondered whether there was consideration of a slotted rate. He noted that there was a socializing of the risk. Ms. Cioni-Haywood replied that she would provide that information. Senator Micciche stated that he was aware of how the program functions, but wanted to understand the change. Ms. Cioni-Haywood replied that there was an examination of the effectiveness of the program. She noted that the demand for the program was lower than expected. She asserted that the change might increase the program. 9:42:27 AM Senator Stevens spoke in favor of the program. He queried the success of the program. Senator Olson understood that it was important for a business to have capital. He noted that the program was created in 2012 at a time of state surplus. He queried the cost benefit ratio of the program. He assumed it was not operating in the black. He wondered whether the state could continue with the program. Ms. Cioni-Haywood replied that it was a smaller revolving fund, and most of the work was from the commercial fishing revolving loan fund. She stated that the division was self-sufficient through the interest and fees. 9:45:37 AM Senator Olson clarified that the state operated somewhat in the black with the oversight of the state. Ms. Cioni- Haywood replied that she needed to do more analysis of the microloan fund, but the other funds had grown over time. Senator von Imhof wondered whether there was further effort after a bank decline letter, and why the bank would not lend the money. Ms. Cioni-Haywood replied the bank denial letters must list a valid reason. She noted that lending to individuals who may not be eligible increased the risk of the portfolio, but the division often lent to nonstandard borrowers. Senator von Imhof queried existing organizations that catered to the higher risk borrower. Ms. Cioni-Haywood agreed to provide that information. Co-Chair MacKinnon queried a sheet that addressed the questions. She wondered how many loan agents were in the program. Ms. Cioni-Haywood replied that there were 9 officers to service all ten revolving loan funds 9:50:34 AM Senator von Imhof surmised that it was basically one loan officer per loan. Co-Chair MacKinnon stated that there were other loans inside of the other programs. She stressed that this loan program had 14 loans over its life, which was valued at 2. She noted that some of the other loans had more activity. She requested a larger fact sheet about all the loans. Senator Micciche stressed that there were a number of revolving loan programs with higher value. Vice-Chair Bishop remarked that the loans could have great benefit to small businesses. Co-Chair MacKinnon queried Ms. Cioni-Haywood's place of residence. Ms. Cioni-Haywood replied that she live in Juneau. Co-Chair MacKinnon asked for work to develop a presentation to examine the investments. She wanted a simple explanation of the programs. Ms. Cioni-Haywood agreed. Co-Chair MacKinnon noted that there were audits about some of the loan programs. Co-Chair MacKinnon OPENED public testimony. Co-Chair MacKinnon CLOSED public testimony. Vice-Chair Bishop discussed the fiscal note. Co-Chair MacKinnon requested that program concerns be submitted by noon the following day. SB 157 was HEARD and HELD in committee for further consideration.