Legislature(2009 - 2010)BELTZ 105 (TSBldg)

03/09/2010 01:30 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Moved SB 302 Out of Committee
Moved SB 153 Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
                SB 302-MICROLOAN REVOLVING FUND                                                                             
2:16:04 PM                                                                                                                    
CHAIR PASKVAN announced SB 302 to be up for consideration.                                                                      
2:16:11 PM                                                                                                                    
GREG WINEGAR,  Director, Division  of Investments,  Department of                                                               
Commerce,  Community  &  Economic Development  (DCCED),  said  he                                                               
supported  SB  302.  He  said   it  would  really  benefit  small                                                               
businesses in  the state,  which in turn  would help  the Alaskan                                                               
economy. As  background, he said,  his agency had  administered a                                                               
number of  different state loan  programs for many years  and has                                                               
the infrastructure in place to successfully run this one.                                                                       
MR. WINEGAR explained  that this bill would create  a new program                                                               
aimed  at  helping  small  businesses  access  critically  needed                                                               
capital. This will help them  not only start businesses, but grow                                                               
existing ones.  It is modeled  after a very similar  program that                                                               
is available  through the Small Business  Administration (SBA) in                                                               
46 other  states, but  not Alaska.  The reason  is that  that SBA                                                               
requires having an intermediary lender,  and no one in Alaska has                                                               
stepped  forward  to run  that  program.  This  is an  effort  to                                                               
provide similar  types of  loans for  Alaska businesses  that are                                                               
available through SBA in other states.                                                                                          
He said that essentially the program  could loan up to $35,000 to                                                               
an  individual and  up to  $70,000  to two  or more  individuals;                                                               
applicants need  to be Alaskan  residents. The loan  proceeds can                                                               
be used  for a  variety of things  - working  capital, equipment,                                                               
construction or  other commercial  purposes. The maximum  term is                                                               
six years and they need  to be fully collateralized. The interest                                                               
rate would be based  on prime plus one with a  floor of 6 percent                                                               
and a cap of 8. With  existing interest rates that would work out                                                               
to a 6-percent fixed interest rate.                                                                                             
In terms  of capitalization, Mr.  Winegar said, his  division had                                                               
submitted a  fiscal note  for $3.5 million  that would  come from                                                               
AIDEA.  This  funding mechanism  is  actually  contingent on  the                                                               
passage of either SB 301 or its companion, HB 411.                                                                              
He said the fiscal note also  had some operating expenses for one                                                               
loan officer to process the  requests, some start up expenses and                                                               
a small  amount of travel. He  said they tried very  hard to keep                                                               
the fiscal note as low as  possible, because they wanted the loan                                                               
fund to "cash-flow"  and be successful. They  anticipate about 75                                                               
loans in  the first  year and  about 100 in  the second;  then 25                                                               
loans thereafter.                                                                                                               
2:20:36 PM                                                                                                                    
SENATOR BUNDE asked how this  loan program would be any different                                                               
than the current  AIDEA program that helps  businesses that can't                                                               
get loans through conventional means.                                                                                           
MR. WINEGAR  replied that  this is  a smaller,  much shorter-term                                                               
program. The  maximum term  is six years  and it  doesn't require                                                               
going  through  a  bank,  which  an  AIDEA  loan  requires.  It's                                                               
targeted to smaller businesses that  need a little bit of working                                                               
SENATOR BUNDE asked if rampant  inflation occurs and the interest                                                               
rate goes  above 8 percent the  state would be in  a situation of                                                               
either subsidizing  these loans or  not being able to  make them,                                                               
so why the cap?                                                                                                                 
MR. WINEGAR replied that the  thinking was to provide an interest                                                               
rate that  wouldn't get out of  hand. The cap could  be taken off                                                               
and the rate  could be just prime-plus 1. The  division felt that                                                               
it could successfully  administer the program for  much less than                                                               
SENATOR BUNDE said while he  was confident they wouldn't go above                                                               
8 percent,  but if it did,  that would either prevent  loans from                                                               
being  granted or  the dollars  that would  subsidize them  would                                                               
come from  some other essential  state service. He  was concerned                                                               
about the  state having  limited dollars  in the  relatively near                                                               
MR.  WINEGAR responded  that he  should have  clarified that  the                                                               
original  $3.5 million  is actually  set up  as a  revolving loan                                                               
fund,  so it  won't need  additional funding.  The program  would                                                               
continue  based on  the  interest it  collects  from the  initial                                                               
SENATOR BUNDE  asked if  for some reason  the interest  rate went                                                               
above  8, would  running the  program  cost them  more than  they                                                               
would be taking in.                                                                                                             
MR. WINEGAR replied  that the funding is already  there. The loan                                                               
officer  position over  time might  go  up slightly,  but he  was                                                               
comfortable  that the  program  could be  administered  at the  6                                                               
percent level including risk.                                                                                                   
SENATOR  BUNDE said  the  $3.5 million  to  capitalize this  loan                                                               
program comes as  an AIDEA dividend and is money  that could have                                                               
been used somewhere  else, and asked where that  money would have                                                               
potentially been used.                                                                                                          
2:24:34 PM                                                                                                                    
MR. WINEGAR  replied that basically it  reduces AIDEA's dividend,                                                               
and he  is correct that it  could be used by  AIDEA for something                                                               
else. But  this program  ties into AIDEA's  purpose, which  is to                                                               
promote economic development and help small businesses, as well.                                                                
CHAIR PASKVAN  said the interest rate  is tied to the  concept of                                                               
being fully collateralized. What does that mean?                                                                                
MR.  WINEGAR replied  that they  wanted to  make sure  if someone                                                               
ends up  in a default situation,  that the division has  a way to                                                               
recover  those  funds for  the  state.  So  they  left a  lot  of                                                               
flexibility  in terms  of collateral  to  secure each  individual                                                               
project as  best they  can. It  could be  a variety  of different                                                               
things and loan  terms plays into that. It could  be secured with                                                               
inventory,  but that  is fairly  high risk.  Others might  have a                                                               
building or a second deed of trust on a home.                                                                                   
2:26:15 PM                                                                                                                    
CHAIR PASKVAN closed public testimony.                                                                                          
SENATOR BUNDE  said the micro-loan  idea has done well  in third-                                                               
world countries, but  his hesitancy comes from what  he has heard                                                               
that inventories have  been left sitting and  public funds hadn't                                                               
been adequately protected.                                                                                                      
CHAIR PASKVAN  said he  believed it  was a  good bill  and should                                                               
move forward.                                                                                                                   
SENATOR THOMAS asked what the definition of a small business is.                                                                
MR. WINEGAR answered  that the bill has  a residency requirement;                                                               
other than that it is pretty general.                                                                                           
SENATOR THOMAS  asked if it  mentioned businesses over  a certain                                                               
gross amount of sales.                                                                                                          
MR. WINEGAR answered no.                                                                                                        
2:29:51 PM                                                                                                                    
SENATOR  BUNDE asked  for an  estimate  of the  demand for  these                                                               
MR.  WINEGAR  answered  that  the  division  estimated  about  75                                                               
applications in the first year and  about 100 in the second year.                                                               
This capitalization would  allow them to continue at  the rate of                                                               
about 25 loans per year.                                                                                                        
2:30:58 PM                                                                                                                    
SENATOR BUNDE  asked for  an example  of some  typical businesses                                                               
that might be interested.                                                                                                       
MR. WINEGAR replied  all types of little retail  outlets, mom and                                                               
pop  businesses that  need  working capital  or  help putting  in                                                               
leasehold improvements, and things like that.                                                                                   
SENATOR  BUNDE   remembered  subsidizing  the  "made   in  Alaska                                                               
CHAIR PASKVAN said  he thought it would be important  to hear how                                                               
the program is doing in one and two years.                                                                                      
MR. WINEGAR  answered that  was an excellent  point. He  said the                                                               
division has  some experience with other  small business programs                                                               
like  the  small  business   economic  development  program  that                                                               
involves EDA money,  and a rural development  initiative fund; he                                                               
could provide delinquency rates on  those programs, but they have                                                               
been very successful.                                                                                                           
CHAIR PASKVAN  noted letters of  support in members'  packets and                                                               
read one from the Fairbanks Economic Development Corporation.                                                                   
2:33:55 PM                                                                                                                    
SENATOR  MEYER  moved  to  report  SB  302  from  committee  with                                                               
individual  recommendations and  attached  fiscal note(s).  There                                                               
were no objections and it was so ordered.                                                                                       
2:34:18 PM                                                                                                                    
CHAIR PASKVAN announced an at ease from 2:34 p.m. to 2:38 p.m.                                                                  

Document Name Date/Time Subjects
CS SB 129 Bill Packet.pdf SL&C 3/2/2010 1:30:00 PM
SL&C 3/9/2010 1:30:00 PM
SB 129
SB 153 Bill Packet.pdf SL&C 3/9/2010 1:30:00 PM
SB 153
SB 302 Bill Packet.pdf SFIN 3/23/2010 9:00:00 AM
SL&C 3/9/2010 1:30:00 PM
SB 302
CS for SB 129 Side-by-Side.pdf SL&C 3/9/2010 1:30:00 PM
SB 129