Legislature(2003 - 2004)
04/05/2004 09:05 AM House FSH
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* first hearing in first committee of referral
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+ teleconferenced
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SB 273-ASMI BOARD/ SEAFOOD TAXES & ASSESSMENTS CHAIR SEATON announced that the next order of business would be CS FOR SENATE BILL NO. 273(FIN), "An Act amending the size, membership, and powers of the board of directors of the Alaska Seafood Marketing Institute and making a corresponding change in the quorum requirement; authorizing the establishment of the seafood marketing assessment at a rate of 0.5 percent or 0.6 percent of the value of seafood products produced; providing for an election to retain, terminate, or increase the seafood marketing assessment; providing for the repeal of the salmon marketing tax and provisions related to the salmon marketing tax; and providing for an effective date." Number 2196 REPRESENTATIVE OGG moved to adopt HCS CSSB 273, Version 23- LS1366\J, Utermohle, 4/2/04, as the working document. CHAIR SEATON objected for discussion purposes. Number 2159 SENATOR GARY STEVENS, Alaska State Legislature, sponsor by request of the Joint Legislative Salmon Industry Task Force, highlighted that Version J includes two simple changes located on page 7, lines 15 and 30. After discussing this legislation with the director of the Division of Elections, it was discovered that there are a couple of small errors in the current statutes regarding the seafood marketing assessment election. He explained that an election is made by the processors with regard to what they want to tax themselves. The current statute specifies that the Alaska Seafood Marketing Institute (ASMI) would mail out and receive the ballots. However, the director of the Division of Elections preferred that the division mail out and receive the ballots if the division is ultimately responsible for them. The aforementioned led to the changes on page 7, lines 15 and 30. SENATOR GARY STEVENS turned to the legislation as a whole. He began by relating that the Joint Legislative Salmon Industry Task Force, from the beginning, realized the importance of ASMI, the need to fund it properly, and have a reasonable size board of directors. Therefore, the Joint Legislative Salmon Industry Task Force proposed this legislation, which would change the size of the ASMI board from 25, an unmanageable size, to seven or nine members. This legislation also attempts to establish a sounder financial basis for ASMI. Senator Gary Stevens pointed out that the committee packet should include a copy of a chart that compares the current tax structure, the tax structure if the .5 percent is approved, the tax structure if the .5 percent isn't approved, and the tax structure if the processors vote to eliminate the assessment. SENATOR GARY STEVENS reviewed the current tax structure, and explained that ASMI is funded with $1.5 million from the salmon marketing tax paid by the fishermen and almost a $3 million tax paid by the processors and $2 million from the federal Fisheries Marketing Board. Therefore, the total funding for ASMI today is $6.5 million. This legislation would require a vote of the processors in March to decide whether to eliminate the ASMI assessment, which is illustrated in the last column of the chart. The members/processors of ASMI have the right to decide whether to continue ASMI, and over the past 20 years there has never been a vote to not fund ASMI. However, if processors voted not to fund ASMI, the processors assessment would no longer exist and thus the total funding for ASMI, with a nine- member board, would be $3.5 million. Another choice would be to maintain the current tax with the .3 percent the processors are paying, which is illustrated in the third column of the chart. Under the aforementioned, the funding would remain the same and ASMI would receive about $6.5 million. The final choice the processors would be allowed in this March election is to increase the tax on themselves, which is illustrated in the second column. If the processors choose a .5 percent tax on themselves, the salmon marketing tax would be eliminated, or could become regional, while the processors assessment would increase to about $5 million and the federal funds from the Fisheries Marketing Board would remain at about $2 million. Therefore, the ASMI board, consisting of seven members, would receive approximately $7 million. CHAIR SEATON passed the gavel to Vice Chair Wilson. REPRESENTATIVE SAMUELS turned attention to the second column of the chart, which illustrates the funding if the .5 percent processor tax is approved and the board decreases in size to seven. Therefore, he inquired as to who the seven are. SENATOR GARY STEVENS answered that the seven-member ASMI board would consist of four large processors, one small processor, and two fishermen. The idea is that if the processors are paying for the entire [tax], then they should have control. REPRESENTATIVE SAMUELS surmised then that the options with the nine-member ASMI board would merely add two fishermen while the processor membership would stay the same. SENATOR GARY STEVENS commented that he wanted to be sure that any changes didn't make it less likely that the processors would move to the .5 percent, which he viewed as the best solution. Number 1695 REPRESENTATIVE OGG turned to the last column, which addresses the option of the processors eliminating their assessment. If the aforementioned were to happen, would the processors remain on the board, he asked. SENATOR GARY STEVENS replied yes. He reminded the committee that the salmon marketing tax is repealed December 31, 2005. If that happens, he assumed that ASMI would begin a shut down phase. REPRESENTATIVE OGG surmised then that if the processors eliminate their assessment, the salmon marketing tax would go to zero. SENATOR GARY STEVENS reiterated that the salmon marketing tax sunsets on December 31, 2005. In further response to Representative Ogg, Senator Gary Stevens explained that annually the Fisheries Marketing Board decides whether the federal funds will be provided. He further explained that under the option of the processors eliminating their assessment, he assumed that the Fisheries Marketing Board wouldn't fund ASMI either. REPRESENTATIVE OGG highlighted that the Fisheries Marketing Board could choose or not choose to fund ASMI under any of the options presented today. SENATOR GARY STEVENS replied yes. REPRESENTATIVE OGG surmised then that the funding from the Fisheries Marketing Board can't really be counted on definitely. SENATOR GARY STEVENS agreed, and interjected his assumption that should the funding from the Fisheries Marketing Board not be provided, there should be an entire review of the entire funding of ASMI. However, he noted that the federal funds seem to be secure for now. VICE CHAIR WILSON returned the gavel to Chair Seaton. Number 1543 REPRESENTATIVE HEINZE recalled that the sponsor mentioned, under the scenario of the .5 percent tax being approved, the possibility of the salmon marketing tax becoming regional. Therefore, she requested that the sponsor elaborate on that. SENATOR GARY STEVENS informed the committee that Representative Ogg is the sponsor of legislation on regional marketing. "It's always been our thought that ... if this 1 percent salmon marketing tax would be eliminated that it might be a very good time to move those funds into regional marketing organizations," he explained. This legislation, SB 273, can't really be tied to Representative Ogg's legislation, he noted. Number 1488 REPRESENTATIVE GARA inquired as to who pays the salmon marketing tax. SENATOR GARY STEVENS answered that it's a 1 percent tax on fishermen when the catch is delivered. In further response to Representative Gara, he confirmed that none of the salmon marketing tax is paid by processors. He also clarified that the current ASMI board consists of 12 [fishermen], 12 [processors] and one lay person. REPRESENTATIVE GARA turned to the federal funds from the Fisheries Marketing Board, which he considered to be state funds because it comes to the state which decides how to distribute it. SENATOR GARY STEVENS related his understanding that the Fisheries Marketing Board funds go directly to ASMI. REPRESENTATIVE GARA expressed concern with regard to eliminating the fishermen's voice from how ASMI money is spent in one of the options and making the fishermen's voice a minority voice in the other options. SENATOR GARY STEVENS opined that if the processors fund the majority of ASMI, then they would probably want control of the ASMI board. Although the tax structure can be left as it is, he felt that a 25-member board that meets once or twice a year is inadequate and ineffective. Number 1324 REPRESENTATIVE HEINZE related her understanding that the processors took the lead in marketing and the fishermen have been content with fishing. SENATOR GARY STEVENS disagreed. He noted the importance of having the input of fishermen on the ASMI board, but highlighted that the processing industry really has the marketing staff. REPRESENTATIVE GARA related that from some commercial fishermen he has the understanding that they have more of an interest in direct marketing of fresh fish rather than the processor's marketing [strategies]. SENATOR GARY STEVENS explained that ASMI does generic marketing because its job isn't to market for specific processors or fishermen. With regard to who pays what, Senator Gary Stevens related that virtually every step of the way there has been an objection from everyone who would potentially be taxed. This legislation provides options to the industry regarding whether it wants to be taxed and by how much. Number 1111 REPRESENTATIVE OGG turned to the option in the second column of the chart, if the .5 percent is approved. He pointed out that the salmon marketing tax is merely zeroed out because it ends. SENATOR GARY STEVENS agreed, and reiterated that the salmon marketing tax is repealed on December 31, 2005. REPRESENTATIVE OGG clarified that the salmon marketing tax would merely end and the money is no longer paid. There will be no connection between this legislation and his regional [tax] legislation. Number 1010 RAY RIUTTA, Executive Director, Alaska Seafood Marketing Institute (ASMI), began by thanking Senator Gary Stevens for his efforts in putting together SB 273 and Senator Ben Stevens for his leadership with the Joint Legislative Salmon Industry Task Force, and all the work of the Joint Legislative Salmon Industry Task Force. Mr. Riutta stated that the ASMI board hasn't met to discuss the current version of SB 273. However, he felt comfortable relating support for the technical amendment [explained by Senator Gary Stevens earlier]. MR. RIUTTA related that the original legislation, SB 273, was unanimously supported by the ASMI board with two points. First, there is the need for a stable funding base for ASMI. As was noted earlier, ASMI is highly dependent on federal funding. In fact, federal funding amounts to about 60 percent of ASMI's budget. However, it's unlikely that such federal funding will continue. This original legislation and Version J both address the need for a stable funding base for ASMI. Mr. Riutta also related that the ASMI board's recommendation to reduce the size of the board to 15 occurred quite some time ago. He reiterated that the ASMI board hasn't met to discuss the current version of SB 273. Number 0833 REPRESENTATIVE WILSON remarked that it would be a shame if the processors decided to eliminate their assessment. However, she said she wasn't exactly happy with a nine-member board because a larger board is necessary to gather the feelings of the various fishermen and processors. She mentioned that some fishermen are doing small processing in order to add value and obtain more revenue. Representative Wilson related that she likes a 15- member board best. REPRESENTATIVE SAMUELS recalled that the processors vote every year regarding whether to continue their tax. MR. RIUTTA said that under current statute the processors could vote to eliminate their assessment, although they have never voted to do so. REPRESENTATIVE SAMUELS offered his belief that the smaller the board, the more can be accomplished. Number 0624 REPRESENTATIVE HEINZE noted that there has been lots of talk about the proposed Alaska Travel Industry Association (ATIA) tourism tax that is modeled after ASMI. However, the concerns with the tourism tax have been that although it could be collected, it couldn't be dedicated like the ASMI tax can. "In light of all this process, is this jeopardizing in any way ASMI's funding," she asked. MR. RIUTTA said that he wasn't sure of the arguments on the tourism tax because he hasn't followed it. However, there are some concerns with collecting money through the state and having an organization such as ASMI use that money to promote products. There have been court challenges to similar commissions in the Lower 48, and some have even been successful. He noted that ASMI reviewed this last year and determined that the way ASMI is structured, as a state agency with the voluntary assessment from the processors, somewhat shields ASMI from potential law suits. The State of Washington is moving to adopt some of the same procedures that ASMI currently follows in order to protect their own commodity's commissions. REPRESENTATIVE HEINZE said that [the concern] was more in regard to the collection of taxes that are designated to [a specific entity]. MR. RIUTTA recalled that it was an issue of free speech, in that people are forced to pay taxes to an organization that speaks on behalf of all those in the organization, although all those in the organization may not agree. Number 0370 REPRESENTATIVE OGG inquired as to how the appointment process would take place were this legislation to become law. MR. RIUTTA related his understanding that if the legislation becomes law, the current board would end its tenure and the governor would select a new board. However, he mentioned that some of the same members may be appointed to the new board. CHAIR SEATON, upon determining that there was no one else who wished to testify, closed the public hearing. Number 0233 CHAIR SEATON expressed concern if the processors choose a seven- member board, which is outlined in Section 4 of Version J. Having four of the members being processors with a payroll of more than $2.5 million could potentially be seen as privatizing within one sector the entire board. Therefore, he said he was considering an amendment that would change the makeup to three large processors and one small processor and one lay member. He inquired as to the sponsor's thoughts. SENATOR GARY STEVENS said that such was discussed some time ago and the language was in an earlier version. He said that he personally didn't object, but noted his concern [tape changes midspeech]. TAPE 04-10, SIDE A SENATOR GARY STEVENS reiterated his earlier statements that he didn't want the processors to find reasons not to choose the .5 percent tax. He said he saw the logic in having a lay person. However, he said he didn't see the danger in leaving [the seven- member board] as it is. He said that he wouldn't object if it was changed. Number 0116 SENATOR GARY STEVENS turned to Representative Wilson's earlier concern with regard to the size of the board. If one follows the logic that every element needs to be represented on the board, every region, fishery, and gear type would be represented and result in a board of 125. Senator Gary Stevens recalled his experience in working on other statewide organizations with large boards, and related that large boards generally don't work very well. He expressed the need for the board to consist of statesmen who are present to do what's best for the industry and not what's best for that individual's own piece of the industry. Senator Gary Stevens said that he didn't know what's the best size for the board, although he viewed a seven-member or nine- member board as better than a board consisting of twenty-five members. He related his experience that the larger the board, the more difficult it is to work together. He further related that all the data he has read suggests that an effective board consists of seven to nine members. Furthermore, the board should take on the responsibility of the entire industry. SENATOR GARY STEVENS clarified that when this legislation is signed into law, the old board would cease to exist and the governor would appoint new members. He noted that it won't be an easy job to find seven to nine members to fill the board. In response to Representative Ogg, Senator Gary Stevens specified that the language on page 6, line 5, specifies that the old board will cease to exist. Number 0605 CHAIR SEATON offered Conceptual Amendment 1 to Sections 4 and 5, which read as follows [original punctuation provided]: In the advent that a seven-member board is chosen, [four] three members shall be from large processors, two are fishermen, one is a small processor, and one is a layperson with marketing expertise outside of the seafood business. In the advent that a nine-member board is chosen, [four] three members shall represent large processors, four fishermen, one small processor, and one is a layperson with marketing expertise outside of the seafood business. REPRESENTATIVE SAMUELS objected for discussion purposes. CHAIR SEATON, in response to Representative Samuels, explained that the first paragraph of Conceptual Amendment 1 would occur under the scenario presented in column 2 of the chart in the committee packet. The second paragraph of Conceptual Amendment 1 would occur under the scenario presented in column 3 of the chart. REPRESENTATIVE SAMUELS inquired as to what would happen if the processors eliminate their assessment as specified in the last column of the chart. CHAIR SEATON said that he didn't address that. SENATOR GARY STEVENS clarified that under Conceptual Amendment 1 if the processors eliminate their assessment, the nine-member board would consist of three large processors, one small processor, four fishermen, and one lay person. He noted that in the aforementioned case, it would be a very short-lived board. REPRESENTATIVE OGG asked if Senator Gary Stevens supported Conceptual Amendment 1. SENATOR GARY STEVENS answered that he prefers the current language in Version J, although he said he wouldn't object to Conceptual Amendment 1. He opined that Conceptual Amendment 1 seems to make it less advantageous for the processors to go to a .5 percent tax or to pay the entire tax. Number 0994 REPRESENTATIVE HEINZE said that she could see where more marketing input could be obtained. However, she expressed the need to be careful not to introduce someone without the expertise and thus waste the position. REPRESENTATIVE WILSON said she could see the sponsor's concern because if the desire is for the processors to put in more, then they will need to have a little more than half the seats or they won't put in more. Therefore, if the goal is to get the processors to put in more, then the way in which the membership is allocated within the industry shouldn't be changed. REPRESENTATIVE OGG questioned why an individual without any background in the seafood business would be placed on the ASMI board. CHAIR SEATON pointed out that marketing is a business itself and is more than marketing a particular product. Therefore, the requirement is that the layperson have expertise in marketing rather than an individual who deals with a specific process or product. REPRESENTATIVE HEINZE opined that ASMI performs marketing. CHAIR SEATON agreed, and explained that the executive director of ASMI presents proposals and the board has to make decisions on the proposals. When making the decisions, the marketing expertise would come into play. Number 1334 REPRESENTATIVE WILSON asked if Mr. Riutta believes that Conceptual Amendment 1 would jeopardize what is trying to be accomplished. MR. RIUTTA answered that he couldn't speculate, and reminded the committee that he would need to discuss it with the ASMI board. REPRESENTATIVE HEINZE asked whether it would be valuable to have a layperson with marketing expertise as a member of the ASMI board. MR. RIUTTA, speaking as the executive director, specified that he would rather have individuals from the industry. CHAIR SEATON withdrew Conceptual Amendment 1. Number 1468 REPRESENTATIVE OGG moved to report HCS CSSB 273, Version 23- LS1366\J, Utermohle, 4/2/04, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HCS CSSB 273(FSH) was reported from the House Special Committee on Fisheries.
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