Legislature(2001 - 2002)

04/30/2002 04:43 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     CS FOR HOUSE BILL NO. 288(FIN) am                                                                                          
     "An  Act relating to  commercial fishing  limited entry  permit                                                            
     buy-back  programs,  to a permit  buy-back  assessment, and  to                                                            
     voluntary  relinquishment  of commercial  fishing permits;  and                                                            
     defining 'optimum number.'"                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
REPRESENTATIVE  DREW SCALZI informed the Committee  this legislation                                                            
addresses repurchasing  commercial  fishing permits. He stated  that                                                            
current State  statutes allow this  buy-back provision; however,  it                                                            
has  been problematic  and  never implemented  because  "an  optimum                                                            
number  study has to  be conducted  in order to  establish what  the                                                            
economic  level is that would  support the  fishery, but yet  not go                                                            
below a certain  level to not make  it too exclusive." He  continued                                                            
that once  the optimum  number study is  completed, current  statute                                                            
"mandates that there be  a buy-back." He stated that similar optimum                                                            
number  studies   have  been  considered   by  different   fisheries                                                            
throughout  the  State,  but not  implemented  because  of  concerns                                                            
regarding the requirement  to purchase the permits, coupled with the                                                            
inability  to predict when  the permits would  become available.  He                                                            
furthered that  the current statute  specifies that, in addition  to                                                            
purchasing  the commercial fishing  permit, the fishing industry  is                                                            
also required to purchase the vessels and gear.                                                                                 
Representative  Scalzi informed the  Committee that this  bill would                                                            
allow  for the  purchase of  the permit  without  the obligation  to                                                            
purchase the  vessel and the gear.  He stressed that the  bill would                                                            
additionally allow the  buy-back to be studied "voluntarily" without                                                            
mandating a buy-back.                                                                                                           
Co-Chair Kelly asked what  funding source would be available for the                                                            
buy-back program.                                                                                                               
Representative   Scalzi  responded   that  the  State's   Commercial                                                            
Fisheries Entry Commission  envisioned creating a loan program to be                                                            
funded  by a tax  of up  to seven  percent assessed  on the  fishing                                                            
industry. He stated the  tax would be collected by the Department of                                                            
MARY MCDOWELL, Commissioner,  Commercial Fisheries Entry Commission,                                                            
Department of Fish and  Game, stated the funding mechanism currently                                                            
in place for  the buy-back program  law is unconstitutional  because                                                            
it  mandates a  dedicated  fund to  be funded  by  an assessment  on                                                            
fishermen. She  qualified that another problem with  the current law                                                            
is that  the Entry Commission  would be  responsible for  collecting                                                            
the money assessed  on the fishing  industry for the dedicated  buy-                                                            
back fund; however,  the Commission does not have  taxing authority.                                                            
Ms. McDowell elaborated  that this proposed legislation  would allow                                                            
the fund  to operate  similar to  the operation  of the Aquaculture                                                             
Assessment  by  Alaska  Seafood  Marketing   Institute  (ASMI).  She                                                            
continued  that the new  process would entail  the Entry  Commission                                                            
undertaking an optimum  number of permits study to determine whether                                                            
a buy-back  program  should be  undertaken. Ms.  McDowell  continued                                                            
that  if an optimum  number  study determined  there  were too  many                                                            
permits in a fishery,  a buy-back program would be  established, and                                                            
the Commission  would work  with the industry  to develop an  action                                                            
plan to establish a tax  levy for the fishermen. She stated this tax                                                            
would  be assessed  on the  "fish tickets,"  a common  practice  for                                                            
levying taxes in the fishing  industry by the Department of Revenue.                                                            
She  stated  the  Commission   would  request  the  Legislature   to                                                            
appropriate  funds to the  buy-back program;  thereby, enabling  the                                                            
fund to be a constitutionally approved funding mechanism.                                                                       
Ms. McDowell continued  that language currently under  discussion in                                                            
HB  286  would  create  a  mechanism  whereby   the  industry  could                                                            
establish  its own  program  to buy-back  permits,  would allow  the                                                            
Entry  Commission the  leeway to  discuss options  for the  buy-back                                                            
funding source  mechanism, and would allow for the  establishment of                                                            
the assessment  level. She remarked  this process would essentially                                                             
tax the remaining  fishermen who would  be "making a better  living"                                                            
because with  fewer fishermen  in the fishery,  the remaining  fleet                                                            
would, "hopefully, earn more revenue."                                                                                          
Senator Hoffman voiced  concern that if a buy-back price for permits                                                            
is  not determined,  a  reduction  of the  number  of  permits in  a                                                            
fishery  could  result   in  the  remaining  permits   becoming  too                                                            
Representative Scalzi replied this could occur; however, if a buy-                                                              
back plan were  established, the individual  fishermen could  decide                                                            
if they wished to sell or purchase at the established price.                                                                    
Senator Green  asked for clarification whether individual  fishermen                                                            
or a fishing industry group  could participate in the buy-back plan.                                                            
Ms. McDowell  explained that  the State would  establish a  buy-back                                                            
plan  and  notify  the  industry  that  a pool  of  money  would  be                                                            
available to purchase  permits. She noted that permit  holders would                                                            
decide whether  to sell their  permits at  the price established  in                                                            
the  plan, and  that the  number  of permits  bought  back would  be                                                            
determined by the amount of money in the pool.                                                                                  
Representative  Scalzi stated the optimum number study  is "the key"                                                            
to the program. He hypothesized  that if 100 permits existed and the                                                            
study determined "30 to  be the optimum number that could be bought-                                                            
back without  making it  an exclusive fishery,"  the industry  could                                                            
decide to only  buy-back and be assessed  for 20 permits.  He stated                                                            
"it is  up to the  fishermen remaining  in the  industry to  control                                                            
their own destiny  on how much they would want to  pay." He reminded                                                            
the Committee  that the current law  gives the fishermen  no choice,                                                            
little flexibility, and  is not conducive for development of a plan.                                                            
Co-Chair  Donley,   referring  to  an  Alaska  Supreme   Court  case                                                            
regarding a limited  entry program constitutional  amendment, voiced                                                            
his  understanding  that  there  is a  requirement  for  a  buy-back                                                            
program whenever  a fishery is endangered, and that  the funding for                                                            
the buy-back  program would be the  responsibility of the  people in                                                            
the industry.  He asked if this legislation is consistent  with that                                                            
Ms.  McDowell  responded  that  the  Court  and the  law  have  been                                                            
consistent   in  supporting   the   State   Constitution   regarding                                                            
protection from allowing  a fishery from becoming too exclusive. She                                                            
stated  that more  harm  would result  from  the fishery  being  too                                                            
exclusive than  from having too many  fishermen in the fishery.  She                                                            
stressed  that the  study would  assist in determining  the  optimal                                                            
number of permits,  which is the constitutional concern.  She stated                                                            
the limited  entry program  is constitutional  as "long as it  is no                                                            
more exclusive than necessary  for the resource and the economics of                                                            
the  fishery."  She stressed  that  the  study  is crucial  in  this                                                            
Co-Chair Donley asked how  the funding mechanism in this legislation                                                            
conforms to the  Supreme Court ruling specifying that  funds be from                                                            
the fishermen.                                                                                                                  
Ms. McDowell  voiced uncertainty  that the  Court has established  a                                                            
funding source;  however,  she noted the  Court has determined  that                                                            
the funding  mechanism currently in  place "doesn't work  because of                                                            
the dedicated  fund problem."  She stated  the proposed legislation                                                             
corrects this problem.                                                                                                          
Senator   Hoffman   asked  what   factors   are  included   in   the                                                            
determination of the optimum number of permits.                                                                                 
Ms. McDowell  informed the Committee  that the optimum number  study                                                            
could  be  a  lengthy  process  and  involves  a  full  analysis  of                                                            
biological  and  economic  factors  including  such things  as:  the                                                            
average  fish price;  the  average overhead  including  crew  costs,                                                            
average earnings,  average food costs  and debt load. She  continued                                                            
that the study takes into  consideration net earnings, net costs and                                                            
biological factors.                                                                                                             
Ms.  McDowell  stated  that  the definition  of  the  term  "optimum                                                            
number" is  one of the  most valuable components  of this bill.  She                                                            
explained this term "as  being a range" instead of the current "one"                                                            
number; thereby  allowing the number  to vary based on a  variety of                                                            
pertinent factors.                                                                                                              
Co-Chair Donley  asked if, in addition  to the determination  of the                                                            
optimum  number, whether  the  number of  permits  considered for  a                                                            
"threatened" fishery would affect the buy-back program.                                                                         
Ms. McDowell stated that  conservation is a primary consideration of                                                            
the buy back program, the  other being to avoid economic distress of                                                            
the fishing  industry. She  stated "it is  a balancing act"  and the                                                            
optimum number takes these factors into consideration.                                                                          
Co-Chair Donley asked how  a threatened fishery affects the buy-back                                                            
equation under this legislation.                                                                                                
Ms.  McDowell stated  that  "the balancing  act"  of conserving  the                                                            
resource  and ensuring  a viable  economic industry  are taken  into                                                            
consideration.  She  informed the  Committee  that there  is also  a                                                            
provision  in this  bill that allows  individual  permit holders  to                                                            
relinquish their permits at any time.                                                                                           
Senator Hoffman  asked, when talking about the fishery  resource, if                                                            
the optimum  number  factors in  subsistence fishing  and the  sport                                                            
fishing industry.                                                                                                               
Ms. McDowell  stated that  the optimum  number is  based on  what is                                                            
allocated to that  specific fishery and whether "someone  can make a                                                            
living and the resource can be conserved" within that fishery.                                                                  
Senator  Hoffman asked  if the number  is determined  on a  seasonal                                                            
Ms. McDowell qualified  that this number does not vary year to year,                                                            
but rather  is determined  over time. She  stated that if a  fishery                                                            
experiences  a  considerable  change, then  another  optimum  number                                                            
study might be conducted.                                                                                                       
Senator  Hoffman  asked who  makes the  determination  that  another                                                            
study is needed.                                                                                                                
Ms.  McDowell  responded,  "there is  not  a specific  mechanism  in                                                            
place" for determining  what would trigger an optimum  number study;                                                            
and, at  this point,  usually it  would be a  determination  that "a                                                            
fishery is  getting too  exclusive or overloaded."  She stated  that                                                            
conducting an optimum number  study "is a big undertaking" and would                                                            
require staff to "put other work aside."                                                                                        
Representative  Scalzi stated  this bill, along  with HB 286,  which                                                            
addresses  Fishing  Permits,  Associations   and  Assessments,  "are                                                            
viewed as tools  by the industry to help them help  themselves."  He                                                            
stated there is no fiscal note accompanying this bill.                                                                          
Representative  Scalzi,  referring  to Co-Chair  Donley's  questions                                                            
regarding conservation  of a fishery, noted this issue  is addressed                                                            
in "the  North Pacific  Management  Council under  the Magnuson  Act                                                            
which does have a buy-back  provision for conservation purposes." He                                                            
stated the  Magnuson Act also includes  language specifying,  "there                                                            
could be no re-allocation  of the resource to another  user group as                                                            
the resource  has to  be dedicated  to pay that  buy-back back."  He                                                            
stated this is  the only conservation buy-back proposal  he is aware                                                            
Senator Leman  asked if this fund  could include money from  sources                                                            
other than the  fishing permit holders as this process  could affect                                                            
other groups.                                                                                                                   
Representative  Scalzi stated the legislation does  provide for this                                                            
option. He  stated, "if he  was going to be  involved in a  buy-back                                                            
program, he would want  those checks and balances in to make sure we                                                            
are going  to have  enough of the  wherewithal to  pay it back."  He                                                            
stressed this  is the reason it is  so important for the  program to                                                            
be voluntary.                                                                                                                   
Senator  Leman asked if  the Department  of Revenue recommendations                                                             
included  in  their   March  5,  2002  fiscal  note  analysis   were                                                            
incorporated in the bill.                                                                                                       
Ms McDowell  responded that those  recommendations were adopted  and                                                            
included in the CS for HB #288(FIN)am.                                                                                          
SUE ASPELUND, Executive  Director, Cordova District Fishermen United                                                            
which represents  fishermen and their  families in the Cooper  River                                                            
and Prince William Sound  regions, testified via teleconference from                                                            
Cordova and voiced  support for this bill. She stressed  it includes                                                            
important   changes  to  the  existing   buy-back  program   and  is                                                            
appropriate to the changing  needs of Alaska's fishing industry. She                                                            
urged the Committee to support the bill.                                                                                        
DON JOHNSON, testified  offnet from Soldotna in support of the bill;                                                            
however, he voiced concern  about the lack of a defined mechanism to                                                            
trigger a new optimum number  study to be conducted, and asked for a                                                            
"more precise mechanism"  to be determined. He then pointed out that                                                            
the legal definition  for the optimum number of permits  established                                                            
for a particular area,  as defined under AS 16.43.290, is determined                                                            
by the economic  health of the commercial  industry, maintenance  of                                                            
biological  health of the  fishery, and the  economical hardship  of                                                            
the industry.  He voiced  concern that the  optimum number  does not                                                            
factor in the  public's viewpoint,  and he suggested this  also be a                                                            
consideration  as subsistence  needs  and economic  hardship of  the                                                            
public  is  important.  He continued  this  would  also need  to  be                                                            
addressed in AS 16.43.300.  He reiterated that the needs and desires                                                            
of  the public  should  be  a factor  in the  determination  of  the                                                            
optimal number of permits.  He contended this is a good bill, but it                                                            
needs some "fine-tuning."                                                                                                       
Ms. McDowell  responded that once  the Limited Entry Commission  has                                                            
made  its determination  on what  the optimum  number  should be,  a                                                            
public comment  period is required  which would allow the  public to                                                            
participate in the process.                                                                                                     
Co-Chair  Donley offered  a motion to  "move the  CS for House  Bill                                                            
288(FIN) amended from Committee  with individual recommendations and                                                            
three accompanying fiscal notes."                                                                                               
There  being no  objections,  CS  HB 288(FIN)am  was  REPORTED  from                                                            
Committee  with  a  zero  fiscal  note,   dated  2/01/02,  from  the                                                            
Department  of Fish  and Game; a  zero fiscal  note, dated  3/05/02,                                                            
from  the   Treasury  Division,  Department   of  Revenue;   and  an                                                            
indeterminate fiscal note,  dated 3/05/02, from the Division of Tax,                                                            
Department of Revenue.                                                                                                          
AT EASE 5:28 PM / 5:30 PM                                                                                                       

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