Legislature(2009 - 2010)BELTZ 105 (TSBldg)

03/16/2010 01:30 PM LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 264 COMMERCIAL FISHING & AGRICULTURE BANK TELECONFERENCED
Moved SB 264 Out of Committee
+ SB 11 DEPENDENT HEALTH INSURANCE; AGE LIMIT TELECONFERENCED
Scheduled But Not Heard
+ SB 261 ALCOHOLIC BEVERAGE CONTROL BD MEMBERS TELECONFERENCED
Moved CSSB 261(L&C) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
          SB 264-COMMERCIAL FISHING & AGRICULTURE BANK                                                                      
                                                                                                                                
1:37:41 PM                                                                                                                    
CHAIR  PASKVAN  announced  SB  264  to  be  the  first  order  of                                                               
business.                                                                                                                       
                                                                                                                                
SENATOR COGHILL, sponsor  of SB 264, explained  that this measure                                                               
does  two things;  it  changes the  makeup of  the  Board of  the                                                               
Commercial Fishing  and Agriculture  Bank by taking  the resident                                                               
farming seat out  because of Alaska's dwindling  pool of farmers.                                                               
It also puts back in statute  the requirement for the Division of                                                               
Banking  and Securities,  Department of  Commerce, Community  and                                                               
Economic  Development (DCCED),  to audit  the bank  no less  than                                                               
every 36 months.                                                                                                                
                                                                                                                                
SENATOR  COGHILL  explained that  Section  1,  page 1,  adds  the                                                               
Commercial  Fishing and  Agriculture  Bank to  the definition  of                                                               
financial institutions under Title 6.                                                                                           
                                                                                                                                
He said  that Title 44,  Sections 2-7,  on pages 2-3,  deals with                                                               
the   Board   and   lines  13-14   delete   the   resident-farmer                                                               
requirement. Section 3 gives the  Board of Banking and Securities                                                               
the requisite access to records of  the CFAB so they can disclose                                                               
that  information  for  auditing purposes.  Presently,  they  get                                                               
audited annually.  He explained  that there are  two ways  to get                                                               
audited; one is through the  Legislative Auditor and the other is                                                               
through  an  independent  auditing  firm  and  line  22  adds  AS                                                               
44.81.275, which  is the new  auditing requirement for  the Board                                                               
of Banking and Securities. Section 4  is a new section that gives                                                               
the Division  of Banking and  Securities the authority to  do the                                                               
audit no less  than 36 months apart. Definitions  in that section                                                               
reflect that requirement.  Section 5 on page 3,  line 27, repeals                                                               
the resident farmer  language in the definition  section. He said                                                               
that sections 2  and 5 have an immediate effective  date, and the                                                               
audits would begin by July 1, 2011.                                                                                             
                                                                                                                                
1:41:19 PM                                                                                                                    
SENATOR BUNDE joined the committee.                                                                                             
                                                                                                                                
1:41:55 PM                                                                                                                    
LEA  KLINGERT,  CEO,  Commercial  Fishing  and  Agriculture  Bank                                                               
(CFAB), explained  that CFAB  was created  by the  legislature in                                                               
1980  at a  time  when  there was  considerable  emphasis on  the                                                               
development of  agriculture in Alaska.  There was hope  that CFAB                                                               
would  be  a significant  factor  in  the financing  agricultural                                                               
loans in  Alaska, and while  it has made many  agricultural loans                                                               
over  its life,  she said  few  have been  made in  the past  few                                                               
years.  She explained  that since  CFAB's  elected directors  are                                                               
drawn  from  and   elected  by  its  membership   and  since  its                                                               
membership   is   essentially   a   function   of   a   borrowing                                                               
relationship,  the  number of  persons  eligible  to serve  as  a                                                               
formal director has dwindled.                                                                                                   
                                                                                                                                
She said  in recent  years the matter  had been  resolved through                                                               
persuasive  pressure on  competent  and cooperative  individuals,                                                               
but the  welcome had been worn  out with them. CFAB  is a private                                                               
co-op  owned by  Alaska residents.  She  explained that  it is  a                                                               
relatively small institution governed  by an active and committed                                                               
board of directors and is now  entering its 30th year of service.                                                               
Now  despite the  logical and  well-intended  requirement of  the                                                               
past, it  has become  critical for CFAB's  members to  reach into                                                               
the broad pool  of its total membership - consisting  not only of                                                               
fishers  and theoretically  farmers, but  tourism operators,  and                                                               
other resource  based businesses as  well - in order  to maintain                                                               
the highest level of competence within its governing body.                                                                      
                                                                                                                                
Since  the   idea  of  removing   the  farmers'  seat   has  been                                                               
introduced, Ms. Klingert said she  had heard concerns or comments                                                               
to  the effect  that  if  this should  happen,  CFAB would  cease                                                               
making loans  to farmers, but  that is not  so. CFAB is  open and                                                               
actively looking for  any type of loans that are  viable for them                                                               
to make.                                                                                                                        
                                                                                                                                
With regards  to the  examination part  of this  legislation, Ms.                                                               
Klingert said,  it might  seem odd  that a  financial institution                                                               
would actively seek some new  level of oversight especially where                                                               
it would involve new and  uncontrollable financial cost, but CFAB                                                               
is  different.  Established and  guided  by  AS  44.81, it  is  a                                                               
private institution;  however, despite  the private  status there                                                               
are no proprietary interests in  CFAB and there are no mechanisms                                                               
by which a party can invest in CFAB for profit as an objective.                                                                 
                                                                                                                                
She  said  that  CFAB  represents a  collection  of  diverse  but                                                               
nevertheless  related  fiduciary   responsibilities;  it  borrows                                                               
money  and  lends that  money  to  resident participants  in  the                                                               
commercial   fishing    community   and    other   resource-based                                                               
industries. CFAB's  board of directors, management  and staff has                                                               
always    been    sensitive    to   those    diverse    fiduciary                                                               
responsibilities.                                                                                                               
                                                                                                                                
She said that it  is true the CFAB welcomes an  annual audit by a                                                               
professional firm and  that the results of that  audit are widely                                                               
disseminated,   but  such   audits  are   focused  primarily   on                                                               
quantitative values  and accounting protocols.  Only peripherally                                                               
do they touch upon the  quantitative aspects of lending policies,                                                               
practices and  results. The state's bank  examiners, however, are                                                               
trained  in analytical  and evaluative  procedures  and they  are                                                               
prepared to express a judgment in  each case as to the likelihood                                                               
of a  loan's repayment in  full. In addition, the  examiners have                                                               
access  to  the results  and  experiences  of numerous  financial                                                               
institutions  and  can establish  norms  or  guidelines by  which                                                               
CFAB's effectiveness can be measured.                                                                                           
                                                                                                                                
So in  total, Ms.  Klingert said, CFAB's  board of  directors and                                                               
management are  enthusiastically in support  of SB 264,  and they                                                               
look forward  both to  the internal  confidence and  the external                                                               
credibility which will be engendered by the examiners' reports.                                                                 
                                                                                                                                
SENATOR BUNDE said  he received a report about  CFAB's net return                                                               
to  the  state   and  he  asked  if  she  had   any  numbers  for                                                               
agriculture.                                                                                                                    
                                                                                                                                
MS. KLINGERT replied that she didn't have that information.                                                                     
                                                                                                                                
1:48:15 PM                                                                                                                    
CHAIR PASKVAN closed public testimony.                                                                                          
                                                                                                                                
SENATOR COGHILL  noted a pending  fiscal note of $10,000  for the                                                               
state  to go  through the  auditing  process, but  CFAB would  be                                                               
billed for that  so it would zero out. He  also remembered a date                                                               
of 2010,  but the  effective date doesn't  happen until  2011; so                                                               
that should be corrected.                                                                                                       
                                                                                                                                
CHAIR PASKVAN said  they have a fiscal noted dated  March 15 that                                                               
indicates $10,600.                                                                                                              
                                                                                                                                
1:49:37 PM                                                                                                                    
SENATOR  MEYER  moved  to  report  SB  264  from  committee  with                                                               
individual  recommendations and  attached  fiscal note(s).  There                                                               
were no objections and it was so ordered.                                                                                       
                                                                                                                                
1:50:08 PM                                                                                                                    
CHAIR PASKVAN announced an at ease from 1:50 p.m. to 1:51 p.m.                                                                  
                                                                                                                                
1:51:59 PM                                                                                                                    
CHAIR PASKVAN called the meeting back to order.                                                                                 
                                                                                                                                

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