Legislature(2013 - 2014)BELTZ 105 (TSBldg)

04/01/2014 03:30 PM LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Time Change --
*+ SB 214 INSURANCE ADJUSTER LICENSING TELECONFERENCED
Heard & Held
+ HB 204 SALMON & HERRING PRODUCT DEV'T TAX CREDIT TELECONFERENCED
Heard & Held
+ HB 141 WORKERS' COMPENSATION MEDICAL FEES TELECONFERENCED
Heard & Held
Bills Previously Heard/Scheduled
        HB 204-SALMON & HERRING PRODUCT DEV'T TAX CREDIT                                                                    
                                                                                                                                
3:44:02 PM                                                                                                                    
CHAIR  DUNLEAVY   reconvened  the   meeting  and   announced  the                                                               
consideration  of   HB  204."An   Act  relating  to   a  product                                                               
development tax  credit for certain salmon  and herring products;                                                               
and providing for an effective date."  He noted that this was the                                                               
first hearing. [CSSSHB 204(FIN) was before the committee.]                                                                      
                                                                                                                                
3:44:20 PM                                                                                                                    
ASTRID ROSE, Staff, Representative Alan Austerman, introduced HB
204 on behalf of the sponsor. She spoke to the following sponsor                                                                
statement: [Original punctuation provided.]                                                                                     
                                                                                                                                
     The Alaska  Salmon Product  Development Tax  Credit has                                                                    
     been in  place since 2003  and is widely credited  as a                                                                    
     major  factor of  the increase  in commercial  value of                                                                    
     Alaska  salmon. The  ASDTC  is  currently scheduled  to                                                                    
     sunset on December 31st, 2015.                                                                                             
                                                                                                                                
     There  have been  positive trends  since this  bill was                                                                    
     enacted  in  2003.  We   have  seen  increased  product                                                                    
     diversity, increased state  revenues from the fisheries                                                                    
     business tax and increased permit prices.                                                                                  
                                                                                                                                
     The  current tax  credit applies  to investment  in new                                                                    
     property that meets a requirement  for creating a value                                                                    
     added  salmon  product.  House  Bill  204  extends  the                                                                    
     ability of industry  to use this credit  until 2020 and                                                                    
     expands the credit for herring value-added processing.                                                                     
                                                                                                                                
     Herring is  an established fishery  in Alaska and  is a                                                                    
     prime candidate  to start utilizing  more fully.  If we                                                                    
     expand  out  of  the  roe fishery  and  into  the  food                                                                    
     fishery,  there  are significant  economic  development                                                                    
     opportunities  that will  be developed.  Up until  now,                                                                    
     the herring  fishery has been an  underutilized fishery                                                                    
     where only  about 10  percent of  the fish  is utilized                                                                    
     and 90 percent has very little value.                                                                                      
                                                                                                                                
     Another   impending   burden   to   industry   is   the                                                                    
     Environmental  Protection  Agency's  efforts  to  force                                                                    
     industry  to  eliminate seafood  discharges  containing                                                                    
     solids into  near shore waters. Many  salmon processing                                                                    
     facilities   in  Alaska   currently   grind  and   pump                                                                    
     discharge.  HB  204  would  incentivize  investment  in                                                                    
     equipment  that  would  reduce the  waste  stream  from                                                                    
     salmon and  herring processing thereby  alleviating the                                                                    
     pressure to comply with these burdensome mandates.                                                                         
                                                                                                                                
     Currently,  statute only  allows investment  in pop-top                                                                    
     cans.  HB  204  also provides  industry  the  necessary                                                                    
     flexibility to  respond to changing market  demands for                                                                    
     can  sizes. This  bill responds  to this  limitation by                                                                    
     expanding the  credit to any  new equipment  to herring                                                                    
     and also to  produce can sizes other  than 14.75 ounces                                                                    
     or 7.5 ounces.                                                                                                             
                                                                                                                                
     The continued  growth of the  Alaska seafood  market is                                                                    
     vital to  increased revenues from our  fisheries. House                                                                    
     Bill  204 will  further  encourage in-state  processing                                                                    
     and  expand  market  opportunities to  processors.  The                                                                    
     extension  of  the tax  credit  will  continue to  spur                                                                    
     economic development  opportunities and  create quality                                                                    
     Alaska products.                                                                                                           
                                                                                                                                
MS. ROSE  noted that  the packets contain  a document  that tells                                                               
what the  Environmental Protection Agency (EPA)  is proposing for                                                               
processing facilities to comply  with the discharge requirements,                                                               
letters of  support, information on the  expenditures and credits                                                               
taken  for  the  last  three  years, and  a  sheet  showing  what                                                               
equipment  is allowed  under the  salmon product  development tax                                                               
credit.                                                                                                                         
                                                                                                                                
3:48:06 PM                                                                                                                    
MS. ROSE reviewed the major changes in statute.                                                                                 
                                                                                                                                
   · The term herring is added in all sections of the bill.                                                                     
   · On page 3, "qualified investment" includes new parts                                                                       
     necessary for  or costs associated with  converting a canned                                                               
     salmon line to produce can  sizes other than the 14.75 ounce                                                               
     and  7.5  ounce  cans.  It   also  adds  freezing,  scaling,                                                               
     grinding meat and bone separation  to what already qualifies                                                               
     for the tax credit.                                                                                                        
   · On page 4, lines 11-12, say that equipment used to                                                                         
     transport salmon or herring byproduct that is discarded as                                                                 
     waste and unsalable product would now be a qualified                                                                       
     investment.                                                                                                                
                                                                                                                                
3:49:57 PM                                                                                                                    
SENATOR  ELLIS directed  attention  to the  list of  disqualified                                                               
equipment for the  tax credit and asked for a  definition of "dud                                                               
detector."                                                                                                                      
                                                                                                                                
MS. ROSE deferred the question to the Department of Revenue.                                                                    
                                                                                                                                
3:51:06 PM                                                                                                                    
MICHAEL KAZMAC, Tax Auditor, Tax  Division, Department of Revenue                                                               
(DOR), explained that  a dud detector is a device  that detects a                                                               
defective vacuum seal on a finished can of salmon.                                                                              
                                                                                                                                
3:51:55 PM                                                                                                                    
VINCE   O'SHEA,  Vice   President,  Pacific   Seafood  Processors                                                               
Association (PSPA),  Juneau, Alaska, stated that  he was speaking                                                               
on behalf  of the PSPA  members that collectively  operates about                                                               
18 salmon processing plants in  Alaska. He summarized that HB 204                                                               
allows processers to  take a credit against  the fishery business                                                               
tax  they  pay on  fish  they  buy  to  offset purchases  of  new                                                               
equipment that  would add  value to  products they're  making. In                                                               
the past the credit has gone  to things like fillet machines, ice                                                               
makers, and centrifuges  to convert fish oil into  a product that                                                               
could be made into fish capsules.  The intention is to expand the                                                               
product line from  cans to items that generate  a greater return.                                                               
He noted  that he submitted  written testimony and it  points out                                                               
that  extending  the  tax  credit   for  five  years  would  give                                                               
stability to  the industry and  would allow it to  take advantage                                                               
of new technology and new markets.                                                                                              
                                                                                                                                
3:54:32 PM                                                                                                                    
JOE  PLESHA,  Chief  Legal Officer,  Trident  Seafoods,  Seattle,                                                               
Washington,  testified in  support  of HB  204.  He advised  that                                                               
Alaska is the  only state that allows seafood waste  to be ground                                                               
and  discarded,  and  that  may  not  be  allowed  once  the  EPA                                                               
concludes the  review of its effluent  limitation guidelines. The                                                               
general belief  is that  most of the  communities in  Alaska will                                                               
have to  screen their waste  and then  handle it in  some manner.                                                               
The most  obvious use  of the  waste is to  produce some  sort of                                                               
product and HB 204 is a step in that direction.                                                                                 
                                                                                                                                
3:56:03 PM                                                                                                                    
MARK  PALMER,  President and  CEO,  Ocean  Beauty Seafood,  Inc.,                                                               
Seattle,  Washington,   testified  in  support  of   HB  204.  He                                                               
discussed the  history of the  legislation and explained  that HB
204  encourages market  diversification beyond  just two  product                                                               
forms, which will help right  size the markets. He also discussed                                                               
the value of  extending the development tax  credit and expanding                                                               
it  to herring.  To  date  it has  stimulated  investment in  the                                                               
industry and brought revenue to the state.                                                                                      
                                                                                                                                
SENATOR MICCICHE  said he  supports the bill  because of  all the                                                               
Europeans he's seen  adding finishing value to  Alaska salmon. He                                                               
asked for assurance  that this tax credit will be  used to employ                                                               
more Alaskans in the finishing of Alaskan seafood.                                                                              
                                                                                                                                
MR.  PALMER described  the current  European market  for boneless                                                               
sockeye salmon fillets and the  expectation that there would be a                                                               
market for frozen chum this year  both of which have created jobs                                                               
in  Alaska.  He added  that  there  were also  opportunities  for                                                               
machinist   positions  to   operate   and   maintain  this   very                                                               
sophisticated machinery.                                                                                                        
                                                                                                                                
SENATOR MICCICHE  asked about the  current herring market  and if                                                               
there was demand for gourmet human food.                                                                                        
                                                                                                                                
MR. PALMER  said Ocean Beauty  produced a small amount  of canned                                                               
herring fillets last year and  expects to produce more this year.                                                               
The target market  is food aid programs and the  product has been                                                               
well  received. Ocean  Beauty  also produces  and  sells a  large                                                               
volume  of  pickled herring  and  they  have customers  that  are                                                               
interested in test marketing that  product with Alaska herring on                                                               
the label.                                                                                                                      
                                                                                                                                
SENATOR MICCICHE asked if packaging is limited or wide open.                                                                    
                                                                                                                                
MR. PALMER  replied the packaging  options are wide open  but the                                                               
bill does  allow the tax  credit to  apply to smaller  can sizes,                                                               
which will help the industry because that's what consumers want.                                                                
                                                                                                                                
4:05:28 PM                                                                                                                    
SENATOR MICCICHE  asked if  there are  options for  other markets                                                               
like fish meal, animal food, and organic fertilizer.                                                                            
                                                                                                                                
MR.  PALMER said  they do  oil  recovery at  the Excursion  Inlet                                                               
facility  that's  used for  supplements  for  pet food,  but  the                                                               
refining  isn't sophisticated  enough for  human consumption.  He                                                               
suggested Mr. Plesha describe Trident's markets.                                                                                
                                                                                                                                
MR.  PLESHA explained  that Trident  is encapsulating  salmon oil                                                               
for  human consumption,  they produce  a  liquid fertilizer,  and                                                               
they produce  fish meal which  is increasingly used as  a protein                                                               
source.                                                                                                                         
                                                                                                                                
SENATOR MICCICHE repeated a joke  from Clem Tillion and expressed                                                               
hope that  the bill would  help develop  some of the  products in                                                               
this state that for years have largely gone to waste.                                                                           
                                                                                                                                
4:08:50 PM                                                                                                                    
ANNA KIM,  Chief of Revenue Operations,  Tax Division, Department                                                               
of  Revenue  (DOR),  introduced herself  and  offered  to  answer                                                               
questions.                                                                                                                      
                                                                                                                                
JOE  JACOBSON,   Director,  Division  of   Economic  Development,                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
(DCCED), introduced himself.                                                                                                    
                                                                                                                                
4:09:28 PM                                                                                                                    
At Ease                                                                                                                         
                                                                                                                                
4:12:29 PM                                                                                                                    
CHAIR DUNLEAVY  reconvened the meeting  and invited  Mr. Jacobson                                                               
to give a presentation.                                                                                                         
                                                                                                                                
MR.  JACOBSON delivered  a PowerPoint  in support  of HB  204. He                                                               
reminded  the  committee that  while  Alaska  is a  huge  seafood                                                               
state, it only produces only  one-third of the global wild salmon                                                               
supply. He  said that the  only way  to increase value  to Alaska                                                               
fishermen is  by increasing  the value  of the  product. Recently                                                               
there have been strong runs,  but production won't always be this                                                               
high so investing  in value-added products is  very important for                                                               
the  state.  He  noted  that  his  prior  job  was  international                                                               
director with the Alaska Seafood Marketing Institute.                                                                           
                                                                                                                                
He discussed  that a key  benefit of the product  development tax                                                               
credit  is  product  diversity.  Just  as it's  not  wise  to  be                                                               
dependent  on  any one  market,  it's  likewise  not wise  to  be                                                               
dependent  on  any  one  product  form.  When  the  industry  was                                                               
exclusively headed  and gutted and  canned salmon,  the commodity                                                               
was  much  more  susceptible  to  the whims  of  the  market.  By                                                               
increasing  value in  the product  and having  different products                                                               
for  different  markets  worldwide,   the  Alaskan  fisherman  is                                                               
generally benefitted.                                                                                                           
                                                                                                                                
Focusing  on underutilized  species  like herring  and the  waste                                                               
byproduct provides a huge opportunity  for the state to take what                                                               
may  be  a problem  for  the  industry  and  use it  to  generate                                                               
revenue. For  canned salmon there's incentive  for new production                                                               
with smaller size cans.                                                                                                         
                                                                                                                                
MR. JACOBSON  displayed a graph  to illustrate that the  price of                                                               
canned   salmon  prices   since  2005   has  doubled.   With  few                                                               
exceptions, the  predominant can sizes  are 7.5 ounces  and 14.75                                                               
ounces, but consumers  want smaller sizes. The  number of herring                                                               
permits  has dropped  precipitously in  recent years  so anything                                                               
that can be  done to stimulate the  herring fisheries, especially                                                               
in  Western  Alaska, would  be  very  beneficial. This  could  be                                                               
through  food  aid  or innovation  that  could  generate  another                                                               
consumer product.                                                                                                               
                                                                                                                                
4:16:32 PM                                                                                                                    
CHAIR DUNLEAVY  asked if the issue  with herring is that  the roe                                                               
is going to Japan.                                                                                                              
                                                                                                                                
MR.  JACOBSON said  the market  in Japan  has softened.  Although                                                               
it's  a  traditional  product,  the  younger  generations  aren't                                                               
consuming  the same  quantities  and aren't  willing  to pay  the                                                               
prices they  used to. Speaking generally,  he said that a  lot of                                                               
production is geared predominantly for  roe and those prices have                                                               
dropped such  that they  don't support  harvesting the  fish just                                                               
for roe.                                                                                                                        
                                                                                                                                
CHAIR  DUNLEAVY  asked if  that  was  why  the number  of  permit                                                               
holders was dropping.                                                                                                           
                                                                                                                                
MR. JACOBSON answered yes.                                                                                                      
                                                                                                                                
SENATOR MICCICHE  asked what the  favored gear type is  for food-                                                               
quality products.                                                                                                               
                                                                                                                                
MR. JACOBSON said he wasn't sure.                                                                                               
                                                                                                                                
He  continued  the  presentation   explaining  that  the  largest                                                               
challenge  with the  EPA is  that  non-remote seafood  processing                                                               
centers will be  required to go to a zero  discharge on any waste                                                               
products. This  means they'll  need to  screen and  transfuse the                                                               
product into  a saleable good or  collect the waste and  barge it                                                               
to an offload  site. The costs are dependent on  location, but it                                                               
could be $0.20 per  pound or more and that would  come out of the                                                               
fisherman's  pocket. The  waste  byproduct opportunities  include                                                               
fish meal, fish oil, and protein isolates.                                                                                      
                                                                                                                                
He emphasized that  key marketing, investing in  quality, and the                                                               
diversification of products has been  a key element of increasing                                                               
the  value of  the industry  to  the state.  Whether it's  permit                                                               
holders  or  crew,  the participation  in  Alaska  fisheries  has                                                               
increased significantly  in recent years. The  difference between                                                               
what  it costs  the  state  and the  revenue  generated from  the                                                               
fisheries business tax clearly demonstrates  that there is a good                                                               
return on investment.                                                                                                           
                                                                                                                                
4:21:23 PM                                                                                                                    
CHAIR   DUNLEAVY   held  HB   204   in   committee  for   further                                                               
consideration. Public testimony was open.                                                                                       

Document Name Date/Time Subjects
HB0204A.PDF SL&C 4/1/2014 3:30:00 PM
HB 204
HB0204_Version P.PDF SL&C 4/1/2014 3:30:00 PM
HB 204
HB 204 Sponsor Statement.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204SS-DOR-TAX-02-05-2014 Fiscal Note.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB 204 Presentation_DCCED.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_Alaskan-Seafood-Processing-Effluent-Guidelines-Notice-of-Data-Availability-Factsheet.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_DOR 2013 Annual Report Page 19.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_DOR Qualified Equipment.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_DOR_ Data on Fishery Business Tax Credits 2004-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_SupportLetter_AFDF.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_SupportLetter_AK General SF.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_SupportLetter_Bristol Bay Borough.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_SupportLetter_PSPA.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_SupportLetter_SE AK Fishermans Alliance.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_SupportLetter_Westward Seafoods.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
HB204_WrittenTestimony_Ocean Beauty SF.pdf SL&C 4/1/2014 3:30:00 PM
HB 204
SB0214A.PDF SL&C 4/1/2014 3:30:00 PM
SB 214
SB214_SponsorStatement.pdf SL&C 4/1/2014 3:30:00 PM
SB 214
SB214_Sectional Analysis.pdf SL&C 4/1/2014 3:30:00 PM
SB 214
SB214-DCCED-DOI-03-28-14.pdf SL&C 4/1/2014 3:30:00 PM
SB 214
HB141 ver N.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Sponsor Statement.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Sectional Analysis.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141-DOL 2-05-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-Letter Alaska Timber Exchange 1-28-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-Letter AMLJIA 1-29-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-Letter ANIC 2-05-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-Letter ASHNHA 2-06-2014.PDF SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-Letter City of Kenai 2-07-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-Letter CPH 2-06-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-Letter KPBSD 2-03-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-Letter Liberty Mutual 2-04-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-Letter NFIB 2-04-2014.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-NCCI Medical Data Report 09-2013.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141 Supporting Document-WC Fee Comparison.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141_Support_Letter_Timber_EX.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB141_SupportLetter_AK Chamber.pdf SL&C 4/1/2014 3:30:00 PM
HB 141
HB204_SupportLetter_UFA.pdf SL&C 4/1/2014 3:30:00 PM
HB 204