Legislature(1995 - 1996)

02/21/1996 05:03 PM FSH

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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           
 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                      
 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              
 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           
 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                
 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.                                                    

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