Legislature(2003 - 2004)
02/21/2003 08:33 AM House FSH
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 22-COMMERCIAL FISHING PERMIT BROKERS CHAIR SEATON announced that the first order of business would be HOUSE BILL NO. 22, "An Act relating to commercial fishing permit brokers; and providing for an effective date." Number 0089 REPRESENTATIVE BRUCE WEYHRAUCH, Alaska State Legislature, sponsor of HB 22, began his testimony by asking that no action be taken on the bill at this time but that today's meeting be used to introduce and bring issues to the committee's attention. He stated that the bill was introduced in order to address a problem that occurred in Homer in which a boat broker had stolen money. He explained the broker's role, saying that fishing quotas are obtained from the National Marine Fisheries Service and that the quota is in the form of a certificate that can be sold to another fisherman. A broker is used to facilitate that transaction. REPRESENTATIVE WEYHRAUCH told the committee that the broker in the Homer area took money from fishermen, put it into an account, and used it for personal reasons. The fisherman who wanted to sell the quota didn't get the money for his transaction because the broker was using the money for her own purposes. She was caught, found guilty of theft, and sent to prison; however, in the meantime, fishermen were "out their money." The original intent of the bill was to use some mechanism such as having brokers post a bond, so that if fishermen were wronged by a broker, at least a portion of the money could be recovered through the use of the bond. Number 0428 REPRESENTATIVE WEYHRAUCH cautioned that the committee should be aware that brokers are used in roughly 40 to 55 percent of federal fish certificate transfers, so it is a fairly important industry. He said he was unsure and didn't have the information as to how often brokers were used to facilitate the transfer of state permits such as limited entry permits. He said it was important for the committee to realize that almost all brokers operate ethically and honestly, and that this bill is not an indictment of the broker industry. Many brokers use trust accounts, in which money from the person buying the share goes into a trust account, and the money is thereby treated properly. He reiterated that this bill is designed to address one severe problem that harmed fishermen in the Homer area. Number 0548 REPRESENTATIVE WEYHRAUCH continued that when he talked further with brokers in the Juneau area, the Division of Occupational Licensing, and the Commercial Fisheries Entry Commission (CFEC), issues affecting brokers and agencies became apparent, and he said he is interested in simplifying the bill so that it won't be unnecessarily burdensome to those involved in the brokering business. He reiterated that although HB 22 doesn't address an industry-wide problem, the focus on a specific broker may be helpful in shedding light on a weakness within the system, indicating that perhaps this should be addressed as a public policy matter. Number 0600 JOHN MITCHELL, Owner, Alaska Permit Services, testified that he has been involved with the brokerage business of Alaskan limited entry permits for over 20 years, and said that he fully supports the principal concept of the bill, although he remains concerned that important aspects including bonding and reciprocity issues be addressed properly. He said that this is a very complicated business that takes place in an area with cultural concerns, distribution issues, and language challenges. Events transpire over a calendar year that contains sensitive deadlines and in which the documentation must meet the high standards of various government agencies of authority, he said. Mr. Mitchell stated that fiduciary duties must be maintained at all times, saying that his role is subject to a demanding standard of performance, as required by law. CHAIR SEATON asked for an explanation of what was meant by "language issues." MR. MITCHELL responded that in dealing with permits, one also deals with a varied public, inclusive of Native Alaskans, Italians, and people of different ethnic and cultural origins. CHAIR SEATON asked if Mr. Mitchell dealt with both federal and state permitting. MR. MITCHELL replied that he only dealt with state permitting. Number 0783 REPRESENTATIVE GUTTENBERG asked if brokers were usually involved with both state and federal permitting or if they more often addressed one type of permitting or the other. MR. MITCHELL responded that the majority of brokers combined state and federal permitting services. Number 0829 BRUCE TOLLACK, Co-Owner, Tidewater Brokerage, Inc., began his testimony by commenting that the letter by Bill De Vries of Alaska Boats & Permits, Inc., included in the committee packet, was well written. He said that after the incident had occurred in Homer, he had gone to an insurance agent, assuming that there would be a problem of lack of trust in the industry, but did not find that to be a problem. He told the committee that he would have difficulty providing the equity necessary to post a bond, and pointed out that established real estate agents only have a $10,000 bond. He wondered, if HB 22 became regulation, if it would be applicable to all brokers, resident and non-resident, or if it would only apply to the four brokers who were Alaskan residents. He also mentioned that while this pertained to permit brokers, not to individual fishery quota (IFQ) or vessel brokers, in reality, most brokers "do a little of everything." He reiterated that his two main issues were: fairness in comparison with other industries, and the issue of residency. He said he doesn't really have a solution to the problem of what to do when "somebody goes astray" and added that posting a bond, as has been suggested, may be prohibitive to some brokers who want to remain in business. CHAIR SEATON said the committee is looking into the difference between a bond and utilizing a trust account, and asked for feedback. MR. TOLLACK replied that he had absolutely no problem using a trust account, and considered it to be the only proper method, adding that it would be very unethical to use a personal account. He offered that he has a trust account with Wells Fargo and has had that account since the beginning of his business, which was eight years ago. Number 1130 STUART RICKEY, Owner and Operator, Rickey & Associates, testified that he had been in business since 1977 and said that his business involves brokering quota shares and permits. He said he supports HB 22 and hopes to work with Representative Weyhrauch to further address the scope of the bill. Number 1180 REPRESENTATIVE WILSON asked for his input regarding the amount of money involved with bonding. MR. RICKEY replied that the amount was workable, but was high compared with others in the brokerage industry. He wondered why the bond was 10 times the amount of that for a real estate broker. CHAIR SEATON asked how Mr. Rickey felt about a requirement for the use of a trust account rather than putting that money in a personal account. MR. RICKEY replied that he, in fact, had a trust account. Number 1264 CHRIS GARCIA, Cook Inlet Fishermen's Fund, testified that he had mixed feelings about HB 22. He said that in light of how the cost of bonding can hurt small businesses, the $50,000 bond doesn't come close to covering the costs of most of the transactions that usually take place. He said that the Senate version of this bill was asking for a $100,000 bond, and that in his opinion he believed that either an escrow or a trust account would be the smartest way to handle the situation because of protecting both the buyer and the seller. He explained that the bonds could become very prohibitive and that even if a person went out of business, that bond would need to be maintained for a certain amount of time. Number 1375 MARY McDOWELL, Commissioner, Commercial Fisheries Entry Commission (CFEC), Alaska Department of Fish & Game (ADF&G), testified that in the 30 years that limited entry has been in effect in Alaska, this was the first incident that they know of in which people had lost such money, and said that "certainly, one time is too many." She wondered whether HB 22 should also cover vessel brokering, since most brokers are involved with vessels as well as with permits and quota shares, with the vessel often being the most valuable piece in the package. She suggested that the $50,000 bond was a very high amount for smaller brokers, and that it might be wiser to go with demanding that anyone in the brokering business in the state use escrow agents or trust accounts so that the money wasn't available to one's personal account. Number 1518 MS. McDOWELL told the committee that CFEC has a regulation in place that allows for the conducting of hearings and the suspension of a broker's ability to do business if there is misconduct. She noted that these actions prevent such a person from doing transactions, but does not recoup anyone's money. CHAIR SEATON asked about delays involved in the permitting process in which the money resides in an interest-bearing, personal account for quite a while. Utilization of a trust account might get rid of this propensity for the delaying of transactions, he said. He asked if there had been many complaints regarding delays. Number 1639 KAREN (TAFFY) WELLS, Licensing Project Leader, Commercial Fisheries Entry Commission (CFEC), Alaska Department of Fish & Game (ADF&G), said that a broker could submit a transfer and there could be a delay of 60 days while the notice of intent becomes effective. Or, she said, a delay could result if there was a problem with obtaining the necessary information. MS. McDOWELL suggested that it would be useful to further define the term "broker" to clarify exactly who would be covered by the provisions within the bill. She said it would also be useful for the broker to be required to sign something indicating that he/she understands the statutes and regulations governing the transfer of permits and IFQs. CHAIR SEATON asked if it was within Ms. McDowell's authority to implement her suggestion. MS. McDOWELL responded that if it were made mandatory that a person had this "extra layer of requirements," then it would probably be useful to have statutory direction. Number 1814 REPRESENTATIVE KOTT referred to a testifier's earlier comment regarding fair treatment of in-state versus out-of-state brokers, and asked how this is currently being handled. MS. McDOWELL responded that business is currently being done with approximately one dozen brokers, some handling just a few transactions a year, and some being major firms. She said she thought that roughly half were in state, although the out-of- state firms tend to be the bigger firms. She said her understanding was that whatever requirements were being considered in this bill would be requirements pertaining to conducting business in Alaska, regardless of the broker's home base. She stated, "We can't discriminate against who is acting as a broker, just like we can't discriminate, under the constitution, against who is buying or selling a permit." REPRESENTATIVE KOTT asked if there was a requirement for a broker's physical presence to be in Alaska. MS. McDOWELL responded that this was a paper transaction, requiring a notarized signature. She said that often the transactions were between Alaskans, although they may be handled by a brokerage located in Seattle. REPRESENTATIVE WILSON asked if any people who do business in Alaska, even if they live in Seattle, would have to "go by our rules." MS. McDOWELL confirmed that she understood this to be so. Number 1992 RICK URION, Director, Division of Occupational Licensing (DOL), Department of Community & Economic Development (DCED), suggested that the bill is currently fairly cumbersome and that there is a simpler solution, at least for the buying and selling of limited entry permits, whereas transferring of the federal IFQs might be more difficult. He said he didn't want to "pass off this responsibility to Mary McDowell," but that it would be fairly simple to require that all sales and permits go into either an escrow or trust account. He said the division would work with the sponsor and the Department of Law to come up with a solution that could more readily be adopted. CHAIR SEATON asked if the bill includes a broad range of permits, including IFQs. Number 2050 REPRESENTATIVE WEYHRAUCH responded that the bill was intended to be broadly applied; if someone is doing business in the state and is representing people who are fishing in Alaska, and if a substantial amount of that business involves the use of federal fishing, then that person would be subject to the restrictions and provisions contained in the bill. He pointed out that the broker from the Homer area who stole the money was involved with taking money relating to federal fishing permits. CHAIR SEATON clarified that the bill's intent didn't just pertain to Alaska-issued permits, but covered other permits too. REPRESENTATIVE WEYHRAUCH agreed, saying this was similar to an out-of-state corporation's needing to register in Alaska. He agreed that it might be worthwhile to explore CFEC's and DOL's comments regarding a required statement to indicate that brokers understand Alaska's laws and regulations. REPRESENTATIVE WILSON commented that using a trust account might be a "simple thing to do" and that it would be wise to make sure that this gets done. CHAIR SEATON ascertained that there was no further testimony. He then announced that HB 22 would be held over.
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