Legislature(2021 - 2022)BUTROVICH 205
02/22/2021 03:30 PM RESOURCES
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SB 33-SEAFOOD PRODUCT DEVELOPMENT TAX CREDIT 3:33:27 PM CHAIR REVAK announced the consideration of SENATE BILL NO. 33 "An Act relating to a seafood product development tax credit; providing for an effective date by repealing secs. 32 and 35, ch. 61, SLA 2014; and providing for an effective date." 3:34:04 PM SENATOR GARY STEVENS, Alaska State Legislature, Juneau, Alaska bill sponsor, stated SB 33 is about value-added legislation, true growth in market demand from the fishing industry, and it encourages innovation in the fishing industry. He noted the state has previously used a similar policy for direct economic development to support the long-term development of Alaska's seafood processing industry by specifically targeting salmon and herring fisheries. What SB 33 does is extends the sunset [date] and broadens the scope of the tax credit to include investment incentives of both pollock and cod products. 3:35:10 PM TIM LAMKIN, Staff, Senator Gary Stevens, Alaska State Legislature, Juneau, Alaska, explained the intent of SB 33 not only maintains but improves the business and marketing climate for seafood processing in Alaska. The bill essentially translates into partial reimbursement for investments, hardware, machinery, infrastructure in processing the byproducts from the respective fisheries' scales, fins, and the remaining biomass produced via laser cuts. The biomass is in turn used to render oil and long list of other downstream products that are in market demand that committee members will hear more about during proceeding testimony. He noted the sunset provision technically expired January 1, 2021 and that is one amendment the sponsor would like to make to make the legislation retroactive to a January 1 effective date; otherwise, the tax credit currently applies to salmon and herring fisheries. The bill would not only extend the sunset but also open the program to include invest incentives for pollock and cod. MR. LAMKIN said if the Chair wishes, he can go into the sectional analysis for SB 33. CHAIR REVAK asked him to proceed with the sectional analysis for SB 33. 3:36:33 PM MR. LAMKIN stated the bill first and foremost extends the sunset, otherwise the legislation is largely conforming amendments that includes the existing tax credits applied for salmon and herring to include two additional fisheries, cod and pollock. He addressed the sectional analysis for SB 33 as follows: Section 1 Relates to the tax credits applied to these products and applies them through the year 2025 and adds cod and pollock. Section 2 Conforming amendment that relates to applying the tax credit for equipment purchases for processing these products to include pollock and cod. Section 3 Conforming amendment, relating to a three-year carryforward of unused tax credits that exist for salmon and herring to also be applicable to pollock and cod. Section 4 Relates to a 50 percent liability cap on the tax credits and is essentially a statutory cleanup done by draftinglegislature's legal folksto delete a duplicate and redundant clause. Section 5 Conforming amendment that relates what is called a "state claw-back provision" on carryforward in the event that an asset used during this is sold can be recovered from the state, it adds to existing provisions that would include pollock and cod. Section 6 Conforming amendment relates to the definition of qualified investment under this program and adds pollock and cod. Section 7 Conforming amendment relates to the definition of value-added products under the program and again, adds pollock and cod. Sections 8-11 Are all consistent historical sunset dates and repealersagain, with the assistance of the legislature's legal folks to now consolidate them into a single section and effective date set for January 1, 2026. Section 12 The overall effective date of January 1, 2022. 3:38:56 PM MR. LAMKIN noted the bill sponsor's office received two additional support letters within the last 24 hours from the Southeast Alaska Fishermen's Alliance as well as Ocean Beauty Seafoods. SENATOR VON IMHOF asked him to confirm that he wanted the effective date to be 2022 or 2021 in Section 12 because he mentioned earlier the intent for a retroactive date to [January 1, 2021.] MR. LAMKIN answered correct, the bill sponsor's office would like to make that change. 3:39:49 PM CHAIR REVAK announced the committee will hear from invited testimony for SB 33. 3:40:07 PM JEREMY WOODROW, Executive Director, Alaska Seafoods Marketing Institute, Juneau, Alaska, testified in support of SB 33. He stated the Alaska Seafood Marketing Institute (ASMI) supports all efforts that will help increase the value of Alaska's fisheries. SB 33 would provide the Alaska seafood industry incentive and support to continue much needed investments in processing facilities and take additional measures to create more value for key Alaska seafood species. MR. WOODROW detailed Alaska's commercial fisheries annually harvest on average 5.5 billion pounds of seafood with approximately 2.5 billion pounds of seafood sold to markets worldwide after processing; that leaves an opportunity to add even more value to 3 billion pounds of Alaska's seafood resources. He noted products such as fish and bone meals, and fish oil currently generate hundreds of millions of dollars annually for Alaska's seafood industry. Forecasts call for additional growth in pet foods, nutraceuticals, medical advancements, food preservation, and moreall produced from byproducts via fish skin and heads, crab shells, and similar often discarded items. Any effort made to help maximize Alaska's sustainable seafood resources will benefit the state. He detailed the January 2020 economic value of Alaska's seafood industryreported via the McDowell Groupthe state's major shoreside seafood processors invest over $100 million annually in capital expenditures. Processors' investment and multiplier impacts closely tie to the resource value. Expanding value provides processing companies capital to modernize plants, expand production lines, and pay higher fish prices; all these benefit local communities in Alaska and provides growth elsewhere in the U.S. economy. He noted market research shows that consumers worldwide are increasingly seeking convenient, easy to prepare products that match their busy lifestyle. Consumers also no longer want to sacrifice health, flavor, and quality when choosing convenience- based products. This trend creates tremendous opportunity for Alaska's seafood products to capitalize on by producing new, innovative, and value-added seafood products. SB 33 supports this trend and would help Alaska's seafood companies develop products to match consumer demand. 3:42:59 PM CHRISTOPHER BARROWS, President, Pacific Seafood Processors Association, Seattle, Washington, testified in support of SB 33. He noted Pacific Seafood Processors Association (PSPA)founded in 1914is comprised of eight major seafood processing companies from Ketchikan to Unalaska, to Saint Paul. PSPA operates in the center of Alaska's wild and sustainable seafood supply chain. PSPA members operate 25 facilities in 15 coastal communities across Alaska, and that also includes 3 floating processors that purchases Alaska seafood from harvesters and process it into various product forms with distribution to the United States and around the world. MR. BARROWS said SB 33 is a bill that would reestablish and augment Alaska's Seafood Product Development Tax Credit Program which expired in 2020. PSPA's understanding is the bill would reestablish a longstanding program through 2025 and expand the list of eligible speciescurrently salmon and herringto also include pollock and cod. He stated the legislation is an important expansion because wild Alaska pollock and Pacific cod comprises 69 percent of Alaska's statewide harvest, which represents a lot of opportunity for obtaining more value from high-volume species over the long term. Higher value means more value to fishermen, processors, and to the local and state governments that base fish taxes on fish value; this type of program and investment incentive can make a difference by allowing companies to obtain value-added equipment and other types of investment that will benefit Alaska for years to come. He said PSPA's member companies and Alaska's wild seafood products compete in global markets and have a steady volume of annual harvest on the order of about 5.7 billion pounds. However, volume of Alaska's fisheries is not likely to change significantly over time, therefore increasing the value of Alaska's seafood is the key to future growth. Increasing seafood value requires market differentiations, research and development, and building consumer awarenessdetails that require significant investment. He stated SB 33 serves the objective of increasing seafood value by encouraging innovation in the seafood processing sector, facilitating greater utilization of each fish, and providing incentives to respond to changes in market demands. Seafood processors have used the previous authorized tax credit to make critical investments in processing technologies that would otherwise be cost prohibitive for some. Salmon is a great example as the previous tax credit has changed the face of salmon processing to increase production of filet and other value-added-salmon products that have a stronger U.S. market demand. He explained a higher value product means a higher return on investment for Alaska, coastal communities, and fishery participants. Value-added products also require more labor than simply freezing or heading-and-gutting and increases job and labor income to the state as well. MR. BARROWS summarized the health of the commercial fisheries and seafood industry is critical to Alaska as it annually generates between $5-$6 billion in economic value to Alaska and creates more direct jobs than any other private industry in the state. PSPA supports reauthorizing and expanding the Seafood Product Development Tax Credit Program as well as establishing an effective date of January 1, 2021 to allow for value-added investments during the current year. 3:47:00 PM SENATOR STEVENS thanked Mr. Barrows for his comments. He noted salmon processing plants have gone from canned and whole fish to frozen filets. He asked him what percentage of salmon are processors processing into filets. MR. BARROWS answered he will get back to him on that. He said some of his other colleagues may have the information. SENATOR STEVENS remarked the value of salmon seems to have increased so much via salmon filets over the simple processing. SENATOR MICCICHE asked Mr. Barrows, all processors, or the department to provide additional details to Senator Stevens' question to include specific species information and the ultimate return for the tax credits currently in existence without the expansion of pollock and cod. He added he would like to know how far the state has gotten with those credits, what have been the market improvements, and species specific versus general information. MR. BARROWS replied, his question will require further research. He asked him to confirm the basis of his question is to understand the return on investment from previous product forms to new product forms that benefited from the tax credit across all species. SENATOR MICCICHE answered yes. He said he wants to be able to demonstrate the value of the tax credits to the state as well as the processors and fishermen. 3:49:24 PM CHAIR REVAK noted Ms. Reynolds from the Department of Revenue may be able to answer his question. 3:49:40 PM NICOLE REYNOLDS, Deputy Director, Tax Division, Department of Revenue, Anchorage, Alaska, noted from 2017-2020 the tax credit value ranged from $2.3-$4.4 million; this value strictly represents the credit for the equipment used to create the value-added salmon and herring products. SENATOR MICCICHE commented he is obviously asking for something much more comprehensive. He said he would like to be able to demonstrate there is value to the state, not just the processors. He remarked he thinks there has been [value to the state] and collectively they can provide a comprehensive response that will prove that case. SENATOR VON IMHOF noted fish meal is a byproduct example that affects Alaska businesses where investment stays in the state. People from the Mat-Su Valley have used fish meal as an affective fertilizer alternative. She said she sees a benefit from knowing how many cottage industries in Alaska have created dog food treats, fish meal, or whatever; have there been any sales outside of Alaska and how are those numbers; and who is buying for how much. SENATOR STEVENS suggested to include the number of jobs added due to a more complicated form of processing. 3:52:58 PM MARK PALMER, CEO, OBI Seafoods, Seattle, Washington, testified in support of SB 33. He noted Ocean Beauty Seafoods changed its name to OBI Seafoods after the 2020 merger with Icicle Seafoods. OBI operates 10 processing plants in Alaska. He pointed out economic development revolves around investments derived from the tax credit. When OBI built its meal and oil plant in Cordova to utilize the facilities waste stream, the cost of building the infrastructure to support the equipment OBI used via the tax credit resulted in OBI hiring local electricians, concrete, construction labor; that part of the investment was over double what OBI paid for the processing equipment. He said the economic development derived from the tax credit resulted in job creation. Many processing plants around Alaska built in the early 1900scarry its waste stream into the ocean without providing jobs in the process. However, when adding a line to capture waste for a value-added product, the process adds at least 10 higher-paying jobs. OBI is putting in filet machines, computerized oil extractors, centrifuges, a lot of sophisticated equipment that pays more to those labors operating the equipment. MR. PALMER pointed out there is a great history with the legislation. Capacity increases at almost every plant when OBI adds [value-adding equipment]. Increased capacity means fisherfolk are less likely to go on limits in those times when there are large production peaks. When OBI diversifies product lines, the most important thing the company can do is get its customer base to compete for its products, the product forms the company has, the more markets and customers it can access. That is the way OBI competes for raw materials. He said to Senator Micciche's question, at the time the valued- added salmon tax credit came into existence, prices in Bristol Bay were at record lows, pink salmon prices were at record lows. What the tax credit did at the time, a case of pink salmon was selling for $16 a case on the wholesale market, which was 50- cents less than its production cost; sockeye salmonred halves was $36 a case; however, last year that averaged $60 a case, and OBI has seen a marked improvement in the product forms because OBI was not forced into canning everything. He noted OBI took a big chunk of its product that would normally have either gone [headed and gutted] (H&G), frozen, or canned, and moved20 percent of its capacityto fillets; that is the difference between not over-canning. Right sizing the market allows for producing for the market and its dynamics work. However, oversupplying any one area weakens a processor's whole product portfolio and lowers the return to the fisherfolk and the state. He reiterated there is great history with the legislation, the processors demonstrated it can increase product value, and resource utilization is something that worldwide customers demand. People want to see less waste of their products going into a waste stream, and they want to be able to talk about sustainability and full utilization. SB 33 gives processors a shot at full utilization. 3:58:14 PM ABBEY FREDERICK, Director of Communications, Silver Bay Seafoods, Juneau, Alaska, testified in support of SB 33. She detailed Silver Bay Seafoods is a vertically integrated, primary fisherman-owned processor that processes salmon, herring, Pacific cod, pollock, rockfish, and other Alaska species. Silver Bay Seafoods has significantly invested in state-of-the-art, high-volume-processing facilities throughout Alaska. Silver Bay Seafoods is relatively newstarted in 2007and operates in Sitka, Craig, Valdez, Naknek, False Pass, and Kodiak. MS. FREDERICK noted Silver Bay has been able to take advantage of the past versions of this legislation which encouraged its investment in additional equipment and infrastructure to produce more value-added products for salmon and herring in Alaska. She said SB 33 would provide a significant return on investment to Alaska through increased jobs, economic activity, as well as fish-tax revenue by maximizing the value of fish processed in the state. The bill provides long-term benefits for the state by creating value maximization via full fish resource utilization which benefits its harvesters, processors, and communities. She stated by expanding to other speciespollock and codsome of which has experienced the market impacts from COVID-19, the legislation promotes continued investment in the state's fisheries and encourages businesses like Silver Bay Seafoods to find innovative and adaptive ways to thrive in time of changing consumer demands. 4:00:45 PM JULIANNE CURRY, Public Affairs Manager, Icicle Seafoods, Anchorage, Alaska, testified in support of SB 33. She detailed Icicle Seafoods now solely operates as a shore-based processing facility in Dutch Harbor and a floating processor in the Dutch Harbor area, both of which participate mainly in the pollock and cod fisheries in the Bering Sea and Aleutian Islands. She said Icicle Seafoods was ecstatic to see SB 33 include pollock and cod as eligible species under the state's long standing and important program. SB 33 would be a game changer for Icicle Seafoods' operation. Creating higher value seafood products is one of the primary ways that Icicle Seafoods can increase the dockside price of fish for its harvesters and create stability for its workforce with additional product forms. She stated through SB 33 and the inclusion of pollock and cod as eligible species, Icicle Seafoods would be able to purchase equipment to not only increase the quality of seafood it produces, but to also finally produce value-added product forms that would help revolutionize its processing platforms. In an industry with razor-thin margins, SB 33 would give Icicle Seafoods the competitive advantage it needs to affectively compete in the domestic and global marketplace. SB 33 would also vastly improve Icicle Seafoods' ability to further capture the waste stream and turn that unused resource into a valuable Alaska product. MS. CURRY said COVID-19 has brought many challenges including drastically increased operating costs. Icicle Seafoods has worked hard to streamline its operations since COVID-19 began, but the company and the industry feels those impacted costs. Domestic and global retail sales are at all-time highs for seafoods, but those sales have not been enough to offset the staggering decrease in restaurant and other foodservice sales. Although SB 33 is beneficial even in non-pandemic times, Icicle Seafoods is even more supportive of the vital legislation given the current COVID-19 challenges facing the industry. She said in the hope that SB 33 passes during the legislative session, Icicle Seafoods is actively researching how to upgrade its processing platforms to bring more value to its processing efforts. Seafood is Alaska's only major renewable resource industry and as such, Icicle Seafood's processing efforts and its harvesters continually face uncertainty such as fluctuating resource levels as well as domestic and international market conditions. She thanked Senator Stevens for introducing SB 33 and helping create the short-term opportunity for Alaska's seafood industry that will have lasting impacts for Icicle Seafoods, its harvesters, and the state. She thanked Senator Kiehl for his co- sponsorship with the hope that others will similarly support the legislation that benefits Alaska's largest private sector employer. 4:03:51 PM At ease 4:04:12 PM CHAIR REVAK called the committee back to order. 4:04:17 PM CHAIR REVAK held SB 33 in committee.