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
= bill was previously heard/scheduled
= bill was 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.