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
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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.