Legislature(1995 - 1996)
02/21/1996 05:03 PM FSH
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HB 118 - SEAFOOD MARKETING / AQUATIC PRODUCT TAX Number 0099 REPRESENTATIVE GARY DAVIS moved to adopt for discussion purposes the committee substitute for HB 118, version M, dated 2/15/96. There being no objection, it was so ordered. Number 0160 TOM MEARS, Executive Director, Cook Inlet Aquaculture Association, testified via teleconference from Kenai. He indicated the 1percent marketing tax on fish they sold was not a financial burden, as it would amount to only $10,000 per year. On the other hand, as a private nonprofit corporation, they currently paid no income tax and were exempt from property and sales taxes in both the Kenai Borough and the Matanuska-Susitna Borough. Therefore, it 2would be "new ground" to be paying taxes. Number 0208 MR. MEARS said secondly, if they paid the 1 percent tax, they would simply pass it along to the fishermen. "We'll just have to catch more fish in our special harvest areas in order to be able to pay the tax," he said. He suggested the fisherman probably would not think that was a good idea, as they would pay additional amounts to the Alaska Seafood Marketing Institute (ASMI). Finally, if they and the oyster growers were to be subject to a tax, Mr. Mears thought they should be entitled to representation on the ASMI board. He suggested that the political difficulties of doing that would make it not worth the small amount of revenue created by their participation. Mr. Mears reiterated that it was "not that big a deal to us one way or the other," and added that they could live with whatever was decided. Number 0292 REPRESENTATIVE DAVIS, in response to Mr. Mears, mentioned that representation on the ASMI board was spelled out and that there were fishermen on that board. He noted that "under the statute, you're considered something other than a fisherman, even though you are fishing," and asked Mr. Mears if that was correct. MR. MEARS replied that was correct. Their special limited entry permits allowed the harvest of fish just in a special harvest area. "We're clearly not commercial fishermen," he said. "Those are all individual persons ... and what we are is corporations. Our ability to catch fish is limited to just that very small place in the special harvest area." Number 0389 MR. MEARS explained they established a cash goal for the year, based primarily on operating expenses for the year. If operating costs increased by 1 percent because of this tax, they would correspondingly increase their cost-recovery cash goal by 1 percent. They would then need to catch more fish in the special harvest area for purposes of paying for the aquaculture association, leaving less fish of the total net return available to fishermen. Number 0465 REPRESENTATIVE DAVIS asked if that cash goal was established by Mr. Mears and his board. MR. MEARS replied that was correct. Number 0479 REPRESENTATIVE KIM ELTON expressed ambivalence about the provision. He suggested an assumption had been made that hatchery production, as well as other production, was contributing to the market problem and in fact added "a couple of wrinkles to the market problem." He said, "the assumption may have been that since there's a contribution to the market problem, there may need to be a contribution to help address the market problem." Representative Elton thought it was a good point that the aquaculture association was "neither fish nor foul," being neither a fisherperson nor a processor. He indicated the ASMI board had been vexed by that in the past. Because of some of those questions and the need to get hatchery representation on the board, he noted, the Governor had appointed a public member who at the time was affiliated with the Prince William Sound Aquaculture Corporation (PWSAC), but who no longer had that affiliation. Representative Elton said there was a sensitivity to the need that "if you're going to be contributing, you ought to have some representation." He reiterated to Mr. Mears that he felt some ambivalence about it. Number 0599 DON AMEND, General Manager, Southern Southeast Regional Aquaculture Association (SSRAA), testified via teleconference from Ketchikan, saying he echoed some of the comments by Tom Mears. He briefly discussed SSRAA's situation, which he suggested was the same as for Cook Inlet. If SSRAA were to pay an additional 1 percent tax, it would increase its revenue goal, resulting in harvesting more fish. Mr. Amend indicated this would be counter to the objectives of SSRAA of providing the maximum amount of value and revenue to the fishermen, who, if they were allowed to catch those fish, would pay that 1 percent tax, as well. He concluded by saying that SSRAA would not be in favor of the additional tax for the same reasons outlined by Tom Mears. Number 0738 DAVE COBB, Business Manager, Valdez Fisheries Development Association, testified via teleconference, explaining that his nonprofit association was not a regional hatchery. He wished to echo the same things said by Tom Mears and by SSRAA. Having budgets set by the board of directors, based on revenue goals, any taxes would result in taking more fish from the fishermen. Mr. Cobb said it had been the goal of his board to provide as many fish to the commercial fishing fleet and sport fishery as possible. A 1percent tax would be about $28,000 per year. "It certainly won't break us up in business," he said, "but there certainly is a distinction between ... us as a corporation and us as a fisherman. We're certainly not a fisherman. We're a producer. We're producing a product out there," he said. "And for this reason, we're opposed to the additional language." Number 0847 TED ACHILLES, President, Prince William Sound Aquaculture Corporation (PWSAC), testified via teleconference from Cordova, saying he also wanted to echo Tom Mears's thoughts. He explained that PWSAC operated a little differently, as they had no revenue goal. Instead, they tried to make ends meet "within 40 percent of the catch," he said. They would not be passing the tax along; it would simply come out of the operating budget. Although it would not break PWSAC, it would limit their ability to accomplish goals in terms of raising salmon for Prince William Sound. From PWSAC's point of view, it would probably be a counter-productive assessment. Number 0918 BRUCE SCHACTLER testified via teleconference from Kodiak, saying he did not agree with anyone who had spoken thus far. "I don't think they're looking at it from the point of view of the rest of the fishermen in Alaska that are supporting the products that those guys are selling to keep themselves in business," he stated. He noted that the aquaculture associations were going to cost-recover and put onto the open market approximately $16 million worth of fish. This was in competition or in addition to the rest of the fish from Alaska and the world. Mr. Schactler said that was more than the entire pack was worth in the Kodiak area this summer, and was a significant amount of fish being put on the market. Right now, fishermen were subsidizing the selling and marketing of those $16 million worth of fish. Number 0980 MR. SCHACTLER emphasized that the aquaculture associations worked for a group of fishermen who had formed a corporation to raise fish for profit. "This is not just some company that's doing charitable work here," he said. Mr. Schactler explained that the associations put fish on the market and ASMI was marketing those fish, just as ASMI marketed the rest of the fish in the state, increasing demand for fish worldwide through their efforts. This theoretically increased prices, resulting in the aquaculture associations having to cost-recover less fish. "It's all part of the same business. They're in the business of catching fish and selling them to keep themselves in business. This 1percent is the cost of doing business," he added. Number 1100 MR. SCHACTLER concluded that it was a fair way of doing business. The approximately $160,000 would enable ASMI to continue to do its job. He added that fishermen in the different aquaculture associations had a position on ASMI's board. Number 1160 BRUCE BACHEN, Operations Manager, Northern Southeast Regional Aquaculture Association (NSRAA), testified via teleconference from Sitka. He emphasized that NSRAA operated hatcheries for the benefit of the public, including commercial, sport and subsistence fishermen. He indicated NSRAA had provided to the sport fishery 65,000 Chinook salmon in Juneau and Sitka, as well as 2,500 coho for sport fishermen in northern Southeast Alaska. When NSRAA's fish left the hatchery, they were available to anyone interested in catching them. Mr. Bachen explained that NSRAA received its funding from the enhancement tax collected from fishermen, as well as from the sale of returning fish. "Our expenditures are strictly to cover our costs," he said, including the year's operations, repaying state loans and, in good years, putting away some reserves to provide stability. Number 1223 MR. BACHEN explained that NSRAA tried to keep costs to an absolute minimum, resulting in minimum cost-recovery needs. He suggested this provided the greatest benefit to the public. He expressed concern about anything that raised costs, as this tax would do. It would force NSRAA to take additional fish away from what was available to the users of those fish, he said. Rather than harming NSRAA, he suggested the tax would harm the fishery and the people who participated in it. He said that ran counter to the goals established by NSRAA. Number 1282 MR. BACHEN acknowledged the need for marketing and provided an example. He concluded by saying, "We'd ask you not to include the cost-recovery harvest as part of the revenue generator for ASMI." Number 1320 CHAIRMAN AUSTERMAN noted that Representative Gene Kubina had joined the meeting. RODGER PAINTER, President, Alaska Shellfish Growers Association, and Board Member, Alaska Seafood Marketing Institute, noted that he was also an oyster farmer. He spoke in favor of the provisions of HB 118 relating to aquatic farming. He provided the committee with hand-outs from the Department of Fish and Game which reported data on aquatic farm permits, operations, sales and inventory. He said, "We'd really like to see the assessment in place." He mentioned that when the subject had been brought before membership for the past two years, members had voted unanimously in favor of the marketing assessment. Number 1410 MR. PAINTER explained that ASMI was currently promoting oysters, and doing a pretty good job of it, even though oyster farmers were not subject to the marketing assessment. Since oysters were being promoted, the growers felt it was only fair to pay their own way. They were keenly interested in keeping ASMI interested in oysters because there would be lots of them to sell. He discussed inventory figures from the Department of Fish and Game hand-out. Aggressive promotion was needed, he said, and ASMI was the best vehicle they had. Mr. Painter urged the committee to move CSHB 118, at least the provisions relating to aquatic farming, out of committee. Number 1495 REPRESENTATIVE DAVIS asked Mr. Painter if there were problems marketing the 866,000 oysters they had. MR. PAINTER replied, "I wouldn't say that we're not having any problem marketing it." They had been aggressively promoting oysters for the past four years. For example, the last year, ASMI had contributed $10,000 towards the Alaska Oyster Festival in Anchorage, which had helped immensely in moving the product. Number 1543 REPRESENTATIVE DAVIS asked how many years it would take to reach 10 million. MR. PAINTER responded that it took two to three years to grow the product to market size. He explained that a number of farms had started up but not made it. In addition, some oysters in inventory might never see the marketplace. Looking at reports over the past few years, there had been a lot in inventory but a much smaller number reaching the marketplace. With oysters, there was also a high mortality; probably half of the oysters planted did not make it to market size or were misshapen or otherwise unmarketable. Out of 10 million, only 5 million would reach market size. Mr. Painter referred to the chart provided and said in terms of sales, there was a steady growth curve. He expected the chart to "jump up" significantly in the next two years. For example, in 1996, there would probably be twice as many farms selling product as there were the previous year. Therefore, they should see a big jump in sales this year. Number 1659 CHRIS BERNS testified via teleconference from Kodiak. He suggested that fishermen from Bristol Bay, Kodiak and the peninsula were in direct competition with and paying for marketing of cost-recovered fish. He suggested that aquaculture associations should share the burden of trying to market those fish. Number 1765 REPRESENTATIVE ELTON moved that CSHB 118, version M, dated 2/15/96, move from committee with attached fiscal note. REPRESENTATIVE DAVIS objected for the purpose of asking a question. He wanted to know what ASMI's current budget was and where those funds came from. Number 1787 DWAYNE PEEPLES, Administrative Officer, Alaska Seafood Marketing Institute (ASMI), explained that ASMI had three sources of revenue, one of which was receipts from assessments from the processors, calculated at .3 percent on all products sold on shore. There was also a 1 percent assessment on all salmon at ex-vessel value. In addition, the export program was supported by a United States Department of Agriculture grant and some state matching funds. In relation to assessments for FY 1996, Mr. Peeples projected approximately $4.5 million from the 1 percent salmon marketing tax, plus approximately $3 million from the processor tax. As for HB118, he said, the ASMI board had not addressed the proposed legislation but was meeting in Juneau the following two days, at which time they would address the board's position and discuss HB118. Number 1850 REPRESENTATIVE DAVIS asked Mr. Peeples if he knew the amounts of the federal and state shares. MR. PEEPLES replied yes, the state match right now was $890,000, with the federal money being $3.9 million. Number 1866 REPRESENTATIVE GENE KUBINA asked Mr. Peeples whether ASMI received anything over and above the fish tax for the eggs. He suggested the eggs were the "high-value product" from the fish being marketed by the hatcheries. MR. PEEPLES asked if Representative Kubina was referring to cost- recovery and hatcheries. REPRESENTATIVE KUBINA clarified that he was referring to eggs taken from fish sold by the processors. Number 1883 MR. PEEPLES replied that for most fish sold to the processor, ASMI collected on the ex-vessel value at the time of the sale. Once the product had been sold one time, there was no further assessment. Number 1895 CHAIRMAN AUSTERMAN noted that there was a motion on the table and asked if there was still an objection. REPRESENTATIVE DAVIS recalled when the state had been getting rid of hatcheries and given up state funding, turning it over to the nonprofits to handle themselves. Now, he said, we were going back and charging them. It had been a fairly short time since telling them, "Go out and make it on your own," and Representative Davis thought it was counter-active. Now, the aquaculture associations were funded, with their dollars coming from commercial fishermen, who were already part of ASMI. Now, the cost-recovery and the fish that they caught were being charged. It seemed like they were being cut short. Something just did not seem proper, Representative Davis said. He indicated it was like giving an assignment and then making it tougher. Number 1991 REPRESENTATIVE ELTON responded that another way of looking at it was to say, "Okay, this is a tax assessed against the fish. And if we have a salmon marketing problem and we're assessing this tax against one portion of the salmon pack - and that's the portion that's caught by the commercial fishermen and the portion bought by the processing industry - and so, without this provision, we're allowing some of those fish that are going to end up in the market to compete with fish that have paid their share toward the marketing costs." Number 2051 REPRESENTATIVE ELTON said, "it's no secret that we have a real problem." Production was rising faster than consumption. The previous year, production exceeding consumption by 3 million metric tons. A large portion of Alaska's production was from the hatchery component. "We have a lot of people on the ropes in this industry, in the salmon segment of the commercial fishing industry," he said. He suggested the Division of Investments might be able to testify as to the dimensions of the problem. Some of the people on the ropes were processors, he said. For cost-recovery fish, the solution was to catch a few more. Number 2099 REPRESENTATIVE ELTON expressed that he did not feel strongly about the issue. However, if there was going to be hatchery production contributing to the market problems, it also ought to contribute to the market solution. "It will be less onerous for them to contribute to the market solution than it is for the fisherman or the processor," he said, "because all they do is increase their cost-recovery catch." Number 2114 REPRESENTATIVE DAVIS wondered how much this would contribute to the solution. He thought it seemed to be a very small portion of the problem. He withdrew his objection to the motion to move CSHB 118 out of committee. Number 2134 CHAIRMAN AUSTERMAN noted that there was a motion on the floor to move CSHB 118 out of committee, with accompanying fiscal note, to the next committee of referral. There being no objection to the motion, it was so ordered.