Legislature(2001 - 2002)

04/08/2002 04:48 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
   CSHB 288(FIN) am-LIMITED ENTRY BUY-BACK PROGRAM/ASSESSMENT                                                               
CHAIRMAN TORGERSON announced HB 288 to be up for consideration.                                                                 
REPRESENTATIVE DREW  SCALZI, sponsor of HB 288,  told members that                                                              
he  looked at  tools  to revitalize  the  fishing industry.  Since                                                              
limited  entry was  instituted,  a lot  of  efficiencies had  been                                                              
developed but  some inefficiencies  were developed as  well. Those                                                              
inefficiencies need to be evaluated. He stated:                                                                                 
     Buying  back  permits  is  certainly   authorized  under                                                                   
     statute currently.  To authorize a buy back,  we have to                                                                   
     do  an  optimum  number study  to  determine  what  that                                                                   
     number  is. When CFEC  asks the  courts what the  number                                                                   
     is,  the courts say  go ahead  and have  a buy back  and                                                                   
     we'll tell you  when you hit it. They will  not tell you                                                                   
     ahead  of  time  what  that   optimum  number  is.  But,                                                                   
     currently  under  statute, if  you  do have  an  optimum                                                                   
     number study, it automatically  triggers a buy back. You                                                                   
     can't turn  back. CFEC, according  to statute has  to go                                                                   
     through with a buy back. In  a buy back proposal now you                                                                   
     have  to  buy  back  the permit,  the  boat,  the  gear,                                                                   
     skiffs, nets - everything involved  in the fishery. That                                                                   
     can be  cumbersome and  very expensive  and it could  be                                                                   
     certainly a  number that would  be hard to  hit, because                                                                   
     every fisherman  has different  values to their  gear to                                                                   
     their vessels. So, it wouldn't be a simple task.                                                                           
     What  HB 288 does  is it  first of  all lets an  optimum                                                                   
     number study come forward and  not automatically trigger                                                                   
     a buy  back. But,  what it  would allow  is the CFEC  to                                                                   
     develop a  plan and take that  to the public and  see if                                                                   
     it's worth implementing a buy back.                                                                                        
     It also does not require that  the gear and the boat and                                                                   
     the ex-wife  and everybody that  goes along with  it has                                                                   
     to be bought back. Only the  permits may be bought back.                                                                   
     It  also  makes  it  voluntary  rather  than  mandatory.                                                                   
     Currently,  if you have  an optimum  number study,  as I                                                                   
     said, and  you implement a buy  back, it is  a mandatory                                                                   
     buy back.                                                                                                                  
Being voluntary,  this  wouldn't keep someone  from selling  their                                                              
permit and boat as a package, if they wanted to do.                                                                             
CHAIRMAN TORGERSON asked who set the assessments.                                                                               
REPRESENTATIVE SCALZI replied that  the assessment is up to 7% and                                                              
that is developed in the plan.                                                                                                  
CHAIRMAN  TORGERSON noted  that  it says  CFEC  may establish  the                                                              
assessment by regulation and asked  if that's what CFEC intends to                                                              
REPRESENTATIVE  SCALZI said  he understood  that CFEC already  has                                                              
the authority  to set  it but,  under this  provision, CFEC  would                                                              
have to develop  a plan that went through public  review first. It                                                              
would have to be  related to the numbers in each  fishery and CFEC                                                              
would be the best agency to know that.                                                                                          
SENATOR  STEVENS asked  if optimum  studies had  been done  on any                                                              
salmon fisheries.                                                                                                               
MS.  MCDOWELL,  CFEC,  replied  that  CFEC  did  one  full-fledged                                                              
optimum salmon study  on the Sitka sac roe fishery  and on Chatham                                                              
Straits black cod. CFEC has just  undertaken another optimum study                                                              
on  the  Bristol  Bay  drift  gill  net  fishery.  Staff  is  just                                                              
completing  a survey  to send to  permit holders.  She added  that                                                              
there is  a buy back statute  in current law that  also functions,                                                              
theoretically, with  the assessment. The problem  with the current                                                              
statute is that the funding mechanism  is unconstitutional because                                                              
it creates a dedicated fund. She explained:                                                                                     
     So,  the   main  feature  of   this  bill  is   that  it                                                                   
     restructures  the path the money  would take to  make it                                                                   
     constitutional. Under  the current statute it  just says                                                                   
     the  commission will  decide  there needs  to  be a  buy                                                                   
     back. The  commission does an  assessment and  creates a                                                                   
     buy  back  program,  which  is  a  dedicated  fund.  The                                                                   
     Department of Law has given us an opinion on that…                                                                         
She  explained that  the  funding  path would  be  similar to  the                                                              
aquaculture assessment or the ASMI  1% tax where CFEC would create                                                              
a  buy back  program  and  a plan  for  it and  adopt  regulations                                                              
establishing  an  assessment.  The  Department  of  Revenue  would                                                              
collect the assessment through fish  tickets, just like the salmon                                                              
enhancement tax. That  money would go into the  state treasury and                                                              
the legislature  could appropriate  it back  to CFEC to  implement                                                              
this fisheries  program for which  it was collected. It  creates a                                                              
constitutional   funding  mechanism   for  what  they   originally                                                              
anticipate  by the  legislature.  She noted  regarding a  question                                                              
about  the  Entry  Commission not  having  taxing  authority,  the                                                              
Department of Revenue does so this bill fixes those problems.                                                                   
SENATOR WILKEN asked what an optimal study is.                                                                                  
MS. MCDOWELL replied that by statute,  when CFEC originally limits                                                              
a  fishery, it  creates a  maximum  number of  permits to  target.                                                              
After  that,  once the  permits  have  been  issued, CFEC  can  be                                                              
petitioned if there's a belief that  the fishery has either become                                                              
too  exclusive,  is   too  small  and  lucrative   or,  it's  over                                                              
capitalized.  CFEC  can  be petitioned  to  undertake  an  optimum                                                              
number study where  they do an economic analysis  to determine the                                                              
target  number  that  would  be   the  best  number  to  meet  the                                                              
constitutional  provisions of  limited entry:  not more  exclusive                                                              
than necessary  to provide  for conservation  of the resource  and                                                              
the economic health of the fishery.                                                                                             
SENATOR WILKEN asked  if that method is used worldwide  or whether                                                              
it is an Alaskan invention.                                                                                                     
MS.  MCDOWELL  said  she  didn't  know,  but  it  is  one  of  the                                                              
provisions  that  keeps  limited entry  constitutional  under  our                                                              
state constitution.  She added that  another important  feature of                                                              
this  bill  is that  it  defines  optimum  number  as a  range  of                                                              
numbers,  which makes the  process much  more meaningful.  Current                                                              
statute just says optimum number. She added:                                                                                    
     If we  have to choose one  number - this is  the perfect                                                                   
     number of permits  for this given fishery  over all time                                                                   
     - you  can see  how any variable  could change and  make                                                                   
     that a  pretty meaningless number  - the price  of fish,                                                                   
     the strength  of the run, the economics of  the fishery.                                                                   
     By giving us  the authority to define optimum  number as                                                                   
     a  range, we've  got  a target  range  so  any of  those                                                                   
     variables can  fluctuate a little  bit and you're  still                                                                   
     in  your target  range and  that's a  valuable piece  of                                                                   
     this legislation.                                                                                                          
CHAIRMAN  TORGERSON asked  Representative  Scalzi  if he  intended                                                              
this to piggy-back on top of the previous legislation, HB 286.                                                                  
REPRESENTATIVE SCALZI said no, they're  independent of each other.                                                              
CHAIRMAN TORGERSON  asked if  they could both  be in place  at the                                                              
same time.                                                                                                                      
REPRESENTATIVE SCALZI  they could and  he noted that  the industry                                                              
is taxed pretty heavily.                                                                                                        
4:55 p.m.                                                                                                                       
CHAIRMAN TORGERSON said it looked like they were starting to be.                                                                
REPRESENTATIVE SCALZI  said the industry  and members of  UFA came                                                              
up  with the  association  idea and  they were  going  to have  to                                                              
figure out whether they wanted to be taxed.                                                                                     
SENATOR  ELTON thought  this bill  is a little  different in  that                                                              
there is an assessment  to buy back permits, but  the value of the                                                              
permits that  are held would probably  go up at the same  time, so                                                              
he thought it would work out to be a wash.                                                                                      
CHAIRMAN TORGERSON  asked if under  this program the  permit would                                                              
come back to the person who retired it.                                                                                         
REPRESENTATIVE SCALZI indicated that was right.                                                                                 
MR. DON JOHNSON, Soldotna, said he  wanted to speak to the optimum                                                              
number definition.  He thought using a  range is a good  idea, but                                                              
he believes the  most important issue is that  under AS 16.43.290,                                                              
three points are used to qualify  the optimum number, that being a                                                              
single  number or a  range of  numbers. The  points are  basically                                                              
laid out  by the commercial fishing  industry. The first  point is                                                              
the economic health of the commercial  industry; the second is the                                                              
amount of harvestable fish to be  taken efficiently; and the third                                                              
is  to avoid  economic  hardship in  the  commercial industry.  He                                                              
agreed that the optimum numbers keep  limited entry constitutional                                                              
but since the  range was laid out by the commercial  industry, the                                                              
public, including  subsistence users and the sport  industry, need                                                              
to be involved too. He thought the  federal government would agree                                                              
with him.                                                                                                                       
MS. MCDOWELL responded that when  they look at the optimum number,                                                              
they look at the number of people  in a given fishery harvesting a                                                              
resource as it's  been allocated by the Board  of Fisheries, which                                                              
decides what goes  to sport and commercial, etc.  In looking at an                                                              
optimum  number, they  look at  what  has been  allocated to  that                                                              
fishery and  the number of participants  in that fishery  that can                                                              
make a reasonable living.                                                                                                       
CHAIRMAN  TORGERSON  asked where  in  the legislation  the  public                                                              
comments  were covered  and what  process they  would use if  they                                                              
were to implement the 7% assessment.                                                                                            
MS. MCDOWELL replied:                                                                                                           
     This bill directs us to, once  we get an optimum number,                                                                   
     at that point, assuming that  you pass HB 286 as well as                                                                   
     this bill,  most likely what  would happen is if  we did                                                                   
     an optimum number study that  showed there were too many                                                                   
     participants  than the  optimum number  in the  fishery,                                                                   
     probably  the first  thing  we  would do  is  go to  the                                                                   
     industry and see  if they plan to do something  under HB
     286. Are they  going to among themselves work  out a way                                                                   
     to get  the number of permits  down? If not,  that would                                                                   
     leave us  with this tool where  we could then  propose a                                                                   
     plan…and then propose an assessment.  The only mechanism                                                                   
     that we, as  an agency, have for doing things  like that                                                                   
     is by regulation. So, that presupposes  we would propose                                                                   
     regulations that would create  that and then we would go                                                                   
     through the entire public process.                                                                                         
CHAIRMAN TORGERSON asked if CFEC  does it through regulation only.                                                              
MS. MCDOWELL answered that is correct.                                                                                          
CHAIRMAN TORGERSON  asked if CFEC promulgates  regulations fishery                                                              
by fishery.                                                                                                                     
MS. MCDOWELL said it does.                                                                                                      
CHAIRMAN TORGERSON  asked if they  intend to wait until  they have                                                              
the  money collected  before buying  the permits  or whether  they                                                              
would enter into  lease/loan agreements that they  would pay based                                                              
upon receiving the 7% income.                                                                                                   
MS. MCDOWELL said that question is one of the shortfalls of the                                                                 
buy back program. She explained:                                                                                                
     The best way for a buy back  program to work would be if                                                                   
     you had upfront  money, whether it was funding  from the                                                                   
     state or the  federal government, where you  could do it                                                                   
     all  at once  and then  use  an assessment  to pay  that                                                                   
     back.  I think  that would  be the  ideal situation.  We                                                                   
     don't have  lending authority.  We would need  statutory                                                                   
     language  for  that. Otherwise  the  mechanism  proposed                                                                   
     here is an  assessment and as you accrue  the money, you                                                                   
     do a  buy back. But it  would be much more  effective to                                                                   
     have upfront money that we could use.                                                                                      
CHAIRMAN TORGERSON asked her to make sure that CFEC has the                                                                     
authority to receive federal funds to do this.                                                                                  
SENATOR WILKEN moved to pass CSHB 288(FIN) am from committee with                                                               
individual recommendations and attached fiscal notes. There were                                                                
no objections and it was so ordered.                                                                                            

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