Senate Finance reviews bill to double bulk fuel loan cap to $1.5M

The Senate Finance Committee heard testimony Thursday on legislation to double the maximum loan available through the state's bulk fuel program. Rising fuel costs have pushed up the price of bulk purchases for rural communities.

House Bill 388 would raise the per-borrower cap from $750,000 to $1.5 million. It would also eliminate the aggregate limit on pooled loans, allowing communities to combine orders for better prices. The Legislature created the Bulk Fuel Revolving Loan Fund in 2004. Lawmakers last raised the individual loan cap to $750,000 in 2010.

The fund helps rural Alaska communities and utilities finance large seasonal fuel purchases. Fuel typically arrives by barge once or twice a year. Communities borrow in May, receive fuel deliveries, sell the fuel throughout the year, and repay the loan with proceeds from those sales. The program currently lends $18 million to $20 million annually to about 78 borrowers. The fund balance sits near $20 million, according to state officials.

Under current law, when two or more entities pool together for a loan, the cap is the number of entities times the individual cap, or $1.8 million, whichever is less. The bill would eliminate that pooled-loan ceiling.

Loans carry interest rates ranging from zero to 4 percent depending on borrower credit history. The fund balance has dropped as low as $5 million during the annual lending cycle over the past three years, officials told the committee.

"The main reason that we're looking at increasing the cap is because the cost of fuel has gone up so much," said Paul LaBeau, staff to Rep. Neal Foster. "Not only because of inflation, but because of the current fuel markets, it was warranted."

The bill was amended in House Finance to allow the bulk fuel program to borrow against other state funds and repay them with loan proceeds. It does not identify which funds. That would be up to a conference committee to decide, LaBeau said.

Sen. James Kaufman asked state officials to add transparency around interest rates to the fiscal notes. The committee took no action on the bill Thursday. Chair Lyman Hoffman said this was the first hearing on the bill in Senate Finance. The committee does not intend to pass the measure at this time.