Legislature(2005 - 2006)SENATE FINANCE 532
03/14/2005 09:30 AM Senate FINANCE
| Audio | Topic |
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| Start | |
| SB63 | |
| SB93 | |
| SB46 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 63 | TELECONFERENCED | |
| + | SB 93 | TELECONFERENCED | |
| *+ | SB 46 | TELECONFERENCED | |
| + | TELECONFERENCED |
9:44:13 AM SENATE BILL NO. 93 "An Act relating to commercial fishing permit and vessel license fees; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken stated this bill "increases the annual license fee for commercial fishing vehicles based on the overall length of the boat. Commercial Fisheries Entry Commission proposed regulatory fee structure for limited entry permits is estimated to increase annual revenue by about $2.1 million." Co-Chair Wilken noted a new fiscal note dated 3/11/05 from the Department of Fish and Game. CHERYL SUTTON, Staff to Senator Ben Stevens, referenced handouts [copies on file] and read testimony into the record as follows. AT EASE 9:46:11 AM/9:47:20 AM Senate Bill 93 addresses the Commercial Fisheries Entry Commission. The first fact we need to understand about the commission is that they are totally fee-based funded. They receive no general funds. From the charts in your packets you can see that the commission has been on a downward trend in revenue and that revenues and operational costs will soon meet and revenues will continue in the downward trend under the current fee structure. This is in spite of the fact that the commission has greatly reduced their work force. Some of the contributing factors are the Carlson case, the decline in value in certain fisheries, and the consolidation of various fisheries. Senate Bill 93 accomplishes several purposes. It will bring the state into compliance with recent rulings in Carlson v. State of Alaska. The Carlson case was a class action brought against the state by nonresident fishermen who claimed that the fee structure was not lawful. The state had charged a 3 to 1 fee differential for nonresidents. The court agreed that the fees could not be established in this manner and issued a mandated formula that is now calculated by OMB. I have the information of what is included and how the fees are calculated if the committee members would like to review it. The major component contained in Senate Bill 93 is the removal of the $300 cap for annual permit renewal currently in statute. This is an artificial cap because the statute states that the base fee must "reasonably reflect the different rates of economic return for different fisheries." The cap results in fisheries with a very high economic return being charged fees that are disproportionately low. This bill asks you to remove the $300 cap and the commission will develop regulations for the categories and fees through a public hearing process. The other Carlson compliance element clarified in the bill is to charge a nonresident fee differential of $115 only one time regardless of how many permits a nonresident is issued. The court said that the state could only charge the differential once and the commission has been complying with this mandate. Another nonresident element pertains to those who qualify for a reduced, or "poverty" fee. These individuals would still be required to pay the full nonresident differential. The vessel license fees are also addressed in the bill. A modest modification is proposed. The 6 vessel length categories are maintained and the fees are raised by $15, $30, $60, $75, and $90 respectively. Ms. Sutton relayed that the United Fishermen of Alaska organization supports this legislation. The Commission would address the concerns of those who deem the proposed changes as unfair. She exampled that the fee increases for smaller vessels would be reconsidered. Senator Olson asked for an explanation of chart titled, "CFEC Revenue Received Compared To Authorized Receipt Supported Services Budget." This chart plots data for the years FY 98 through FY 10. One line represents Alaska State Accounting System (AKSAS) Actual Revenue; another line represents Total Commercial Fisheries Entry Commission (CFEC) Receipt Supported Services Obligation (includes Lease, Fishermen's Fund and Commercial Fisheries Division); and the third line represents CFEC Receipt Supported Services Budget and Fishermen's Fund. He noted the revenue would match the obligation amount then dip below a certain threshold. Ms. Sutton informed that the Commission is obligated to contribute a fee to the Fishermen's Fund, under the Department of Labor and Workforce Development. This fee is calculated at 39 percent of the first $60, which is approximately $24 for resident fisheries and 39 percent of $175 for nonresident fisheries, which is approximately $68.25. FRANK HOMAN, Limited Entry Commission, testified that as recently as 1998, the difference between the obligations and revenue was approximately $2 million, with the balance deposited to the State general fund. By FY 08 the revenue would be $800,000 less than the fiscal obligations and increase to over $1 million by FY 09. Regardless of the adoption of this bill and the additional $2.3 million generated revenue, the downward trend would continue. The amount of the deficit could not be calculated. Mr. Homan stated that in the year 2000 the legislature authorized the Department of Fish and Game to use excess revenues of the Commission for fishery related projects. The authorization amounts have been higher than the actual excess revenues and therefore the Department has never received the entire authorized amount. He spoke to the gap between the total CFEC obligation including the appropriation to the Division of Commercial Fisheries and the base obligations of the DFEC of its operating budget and fees to the Fishermen's Fund. Mr. Homan pointed out that Commission estimates that by the FY 06 the revenues would be less than the total DFEC obligation including the appropriation to the Division and the approximate $400,000 annual fee to the Fishermen's Fund. The obligation includes a lease payment for office rent. Co-Chair Wilken clarified that if this legislation passed the Commission would receive an additional $2.3 million in FY 06. Mr. Homan affirmed. Co-Chair Wilken asked if the revenue line should not reflect this increase to $5.7 million. Mr. Homan agreed, but cautioned that if the trend continued the revenue amounts and obligation amounts would converge again in about six or seven years. Co-Chair Wilken clarified this would occur if this legislation were not adopted. Mr. Homan responded that without this legislation revenues would be below obligations in FY 06. Co-Chair Wilken pointed out that with the passage of this legislation, the Commission would have a $2 million surplus in FY 08. Mr. Homan affirmed the Commission would have a surplus of approximately $2 million for the first couple years after this bill was implemented; however, the downward trend would resume. The proposed elimination of the fee limitation would result in increased revenues. Co-Chair Wilken surmised that the revenues would remain $5.7 million and by FY 15, the Commission would again be in the current situation with an impending deficit. Co-Chair Wilken and Mr. Homan continued deciphering the information contained on the graph and the projected fiscal impact of this legislation. Senator Stedman requested additional explanation of the continual bias of the downward trend line in relation to the apparent market value of these adjustments. Mr. Homan replied that a combination of factors cause the downward trend. The decision in Carlson vs. State of Alaska is a significant factor because "the three-to-one was eliminated as a fee." This legislation would reduce the $115 non-resident differential to a one-time annual fee with no regard to the number of permits owned. These factors would cause the trend to continue downward. Other factors include consolidation in the fisheries, particularly in halibut and black cod. That would continue downward. Also consolidation in the fisheries in halibut and black cod at the federal level has resulted in the State selling fewer permits. The downward trend in salmon permit values of the past several years is another factor because the fees are based on the value of the permit. Limitation of fisheries imposed by the State has also contributed to the downward trend. The combination of these factors has resulted in significant decline in the last five years. The Commission hoped that fisheries values would improve, but the trend line must be realistic. Ms. Sutton opined that the Senate has benefited from the excess revenues of the Commission generated from fees assessed to the industry. The Legislature has often appropriated these funds for projects in which general funds were not otherwise available. Those participating in the fishing industry appreciate this. Continuation of the surplus would be beneficial. The industry is improving; particularly the salmon industry, and the situation could change. Senator Stedman referenced the proposed fee structure, noting the "40 basis points off of the value of the permit" and asked if this is also used for "the final entry." He asked if the calculations remain the same for the proposed increase from $300 to $1,500 or almost $4,000. Mr. Homan replied that the two formulas utilized include the four- tenths of one percent of the permit value in a limited fishery, and four-tenths of one percent of the gross earnings in an unlimited fishery. The fisheries Senator Stedman indicated are unlimited fisheries. Senator Stedman understood this is a proposed schedule and that if this legislation passes, the Commission would undertake a public process to determine the actual fees. Public concerns would be addressed and considered at that time. Mr. Homan affirmed the information provided is a proposal. Upon passage of this legislation the Commission would develop a formal proposal and hold public hearings. The Commission is already communicating with fishermen about the fee amounts. He noted the backup information indicates questions raised with regard to the finfish category. The removal of the existing maximum fee provision would result in increased fees. Fishermen have requested the Commission consider adjusting fees to be based on vessel length with lower fees for smaller boats. SENATOR GARY STEVENS understood the fee-based issue, the Carlson case and the removal of the maximum fee provision. However he noted the significant excess revenue that would be generated in the first few years after the enactment of this legislation, thus over funding the Commission. He suggested fees could be increased gradually in phases as needed, which would be more equitable. Mr. Homan responded that the Commission has historically generated $2 to $3 million more than the budgetary needs. The Commission's budget needs are "fairly level". The Legislature has appropriated the additional revenue to fund other commercial fishery projects. This option would remain. The Commission is only authorized to expend the amount appropriated by the Legislature. Ms. Sutton furthered that the addition of the lease payment obligation could cause some difference in the amount of the total obligations. Mr. Homan spoke to the increased obligation resulting in the transfer of the office lease payment from the Department of Fish and Game to the Commission. The Department has historically included the lease in its budget utilizing revenue from the Commission. This year the component would be transferred. Senator G. Stevens opined that the Department supports funding projects from sources other than the general fund. He expressed concern about overcharging industries. Ms. Sutton asserted that the industry supports these projects and does not oppose the fees. The industry intends the Commission to remain functional. The Commission would maximize efforts to work with each fishing group to address concerns and to make the fees as reasonable as possible. Mr. Homan addressed the suggestion to increase the fees in phases. This option could be addressed in the Commission's public hearing process. This may be more functional than requesting additional statutory action in the event the trend continues downward. Senator Olson asked why the Department does not address the underlying problem through this legislation rather than delay implementing a solution. Mr. Homan responded that the "hope" is that the current trends developing would "pull us out of that". He exampled the positive trends in the salmon business and the marketing. Pricing has improved for some fisheries. Power troll "is looking good". The State has embarked on a major marketing effort. These would be beneficial, although increases would not be realized before FY 06 and the downward trend that would occur at that time. In the long term, "it will turn around" and much of the problem would be solved. Senator Olson countered that the witness was more optimistic than he was, particularly concerning the fisheries in his district. Senator Olson predicted that a significant increase would exacerbate the situation, as fishermen would become discouraged and demoralized by the additional overhead expense. Mr. Homan spoke to the current fee structure and indicated that the rates would not increase significantly for most salmon fisheries. Senator Stedman noted the basis on permit value and gross revenue, pointing out that gross revenue fluctuates every year and permit values change somewhat as well. He asked if the fee structure would be reviewed annually. Mr. Homan agreed the values fluctuate and informed that the Commission reevaluates the fees each year. Senator Stedman asked about the substantial number of permits held by the State and asked how these would be affected by this legislation. Mr. Homan replied that the Division of Investments within the Department of Commerce, Community and Economic Development holds the permits. The permits are not fished. Senator Stedman asked if fees are levied against these inactive permits that are held as collateral. Ms. Sutton responded that the fees are only charged when a permit is renewed. Mr. Homan "suspected" the number of permits in State possession was not more than "a few dozen". Senator Olson asked how the fees are determined. He noted that smaller operators would pay the majority of the increase. The proposed fees for vessels under 25 feet in length would be a 75 percent increase. Vessels 25 to 50 feet in length would have a 60 percent increase. However, vessels over 250 feet would have increased fees of only 12 percent. He asked how to respond to smaller vessel owners' complaints of being overcharged. Mr. Homan replied this pertains to a "different category" of vessel license, which are established in statutes. The Commission has less discretion with these fees. The majority of the commercial fishing fleet in Alaska is comprised of smaller vessels; however, the proposed fee increase is "fairly modest" of $15 to $30. There has been no fee increase for ten years. The fee structure could be changed to provide no increase for the smaller vessels and a higher increase for larger vessels; however 26 vessels are in the longer length category and 5,000 shorter-length vessels. Therefore the fees for the larger vessels must be increased significantly to offset the revenue that would not be generated from increases of fees for the smaller vessels. Ms. Sutton informed that she is a commercial fisherman and that her vessel is less than 25 feet in length. She has no objection to the proposed increase. She understands the efforts of the Commission, although she also understood Senator Olson's concerns. She interacts with other fishermen frequently and realized the impact of any increased expenses. Senator Olson remarked that the fishermen operating in the election district he represents are "adamantly opposed" to this legislation. He questioned the testimony regarding the position of the United Fishermen of Alaska (UFA). Ms. Sutton replied that the UFA endorsed this bill. She was unsure if any fishermen from Senator Olson's area are represented on the board of UFA. She offered to speak to any interested parties on this matter. Senator Stedman assumed that the Division of Investments and the Commercial Fishing and Agricultural Bank (CFAB) and other lenders held only a dozen permits outside of the fishing marketplace due to foreclosure. He has been told that a substantial number of permits are held out of the marketplace because reissuing them would suppress the value of active permits. He asked if a permit is not fished, whether the annual fee is still required. Mr. Homan replied that only two organizations could hold a permit: the Division of Investments and CFAB. He agreed that because of difficult seasons in the salmon fishing industry, the market had no demand for these permits. He did not deem the number of these permits to be significant. Statute provides that any permit not paid for two years would revert to the State. Some permit holders do not pay permit fees for two years and do not fish. However if the permit holder decides to fish the permit again, the fees must be paid. Senator Stedman asked if the fee payments are then paid retroactive. Mr. Homan affirmed. JOE CHILDERS, Executive Director, Western Gulf of Alaska Fishermen's Association, and Vice President, United Fisherman of Alaska, testified that the UFA did endorse this bill because it was believed that the funding must continue for fisheries management in Alaska. Some funds are transferred to other divisions. The UFA also supported efforts of the Division of Commercial Fisheries. The Commission assured the UFA that the proposed fee increases would undergo an extensive administrative hearing process. Mr. Childers next spoke in his capacity of the Western Gulf of Alaska Fishermen's Association. The members of this group are primarily involved in ground fish fisheries, but participate in many fisheries, including squid, sardines and pea cod in Alaska and the West Coast. They include long-line, purse seine, trawl and pot fishing. Approximately 80 percent of the fleet is comprised of vessels 60 feet in length or less. Many members were concerned about the proposed fee increase for the miscellaneous finfish statewide category, which includes all trawl fishery vessels. The current fees are based on the value of the permit of the fishery, which is a reflection of possible net profit. The limited entry system has changed the fisheries from "input control" to "output control quota share programs." He exampled a member of the Association who was fully vested as a long line fisherman, maximizing quotas for several fisheries. His gross earnings for sablefish and halibut fisheries are likely significantly over $1 million annually. The license fees for these fisheries are relatively low; however the proposed fee increases for trawl fisheries would be almost $4,000, although trawl fisheries generate significantly less income. Mr. Childers also relayed Association concerns with fees based on vessel length of more or less than 60 feet. This delineation is irrelevant. Instead, horsepower is a more significant factor in the ability to increase income. Many vessels participating in the salmon fishery are 58 feet in length with "tremendous" horsepower, and are able to hold 168,000 pounds of fish. This is compared to 74-foot vessels with less horsepower and able to hold only 110,000 pounds of fish. Therefore, fees imposed based on vessel length do not reflect actual earnings potential. As fisheries "migrate away" from entry permits to quota share systems, taxing output of fisheries must be considered. Mr. Childers warned that the proposed system of fees based on vessel length would "lead to the demise" of smaller vessel operators participating in commercial fishing. This has occurred in the Bering Sea Pollock fishery. It is economically efficient to maximize the use of vessels and the licenses are based on vessels. This would result in fewer vessels. The fees should be modified to tax quota shares instead. Mr. Childers stated that UFA and the Association support this legislation because they expect extensive dialog with the Commission. Senator Dyson agreed with the witness' comments. He spoke of the history in Alaska in taking arbitrary actions to attempt to accomplish social and local goals. The issue of vessel length categorization is an example of unintended consequences, in that vessels have been constructed of poor design, are not safe and could not be utilized for other fisheries. The legislature must "get out of the business of designing boats" and allow the marketplace and the fisherman flexibility needed. Senator Olson asked the witness' opinion of the demise of the smaller operators' involvement in the industry. He asked how could the downward trend be reversed. Mr. Childers recommended a system of licensing or a fee structure based on actual output from a fishery. He has been a fisherman since 1966 and currently salmon trolls and has a halibut quota in Southeast. This qualifies him as a smaller vessel operator, although he informed he operated large vessels in the past. The penalty to marginal producers is high, especially if the fees increase. "If you can't afford to fish, you certainly can't afford to pay a fee increase"; however more lucrative fisheries could absorb large increases of 500 percent. Senator Olson questioned why the organizations did not assist in proposing legislation that could provide a realistic and practical solution rather than the current proposal. Mr. Childers replied that the Association initially had misgiving about this bill. UFA endorsed this bill because they determined that a fee increase is necessary for current and future operations. Another approach to this issue is necessary and he was hopeful that the administrative hearing process, as well as debate on this bill, would result in solutions. Co-Chair Wilken ordered the bill HELD in Committee.
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