Legislature(1993 - 1994)

03/16/1994 08:30 AM House FSH

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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              HOUSE SPECIAL COMMITTEE ON FISHERIES                             
                         March 16, 1994                                        
                            8:30 a.m.                                          
                                                                               
                                                                               
  MEMBERS PRESENT                                                              
                                                                               
  Representative Carl E. Moses, Chair                                          
  Representative Cliff Davidson                                                
  Representative Harley Olberg, Vice Chair                                     
                                                                               
  MEMBERS ABSENT                                                               
                                                                               
  Representative Gail Phillips                                                 
  Representative Irene Nicholia                                                
                                                                               
  OTHER LEGISLATORS PRESENT                                                    
                                                                               
  Representative Ben Grussendorf                                               
                                                                               
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
  HJR 61:   Relating to the Western Alaska Community                           
            Development Quota Program and the North Pacific                    
            Fishery Management Council Comprehensive                           
            Rationalization Program.                                           
                                                                               
  DOCUMENT OVERVIEW PRESENTATION:  Pacific Seafood Processors                  
  Association "The Economic Impact of the Shoreside Processing                 
  Industry Upon Alaska During 1992."                                           
                                                                               
                                                                               
  WITNESS REGISTER                                                             
                                                                               
  RICK LAUBER                                                                  
  Pacific Seafood Processors Association                                       
  321 Highland Drive                                                           
  Juneau, Alaska 99801                                                         
  POSITION STATEMENT:  Gave a presentation relating to, "The                   
                       Economic Impact of the Shoreside                        
                       Processing Industry Upon Alaska                         
                       During 1992."                                           
                                                                               
                                                                               
  LARRY COTTER                                                                 
  Pacific Associates                                                           
  116 Gold Street                                                              
  Juneau, Alaska  99801                                                        
  POSITION STATEMENT:  Gave a presentation relating to, "The                   
                       Economic Impact of the Shoreside                        
                       Processing Industry Upon Alaska                         
                       During 1992."                                           
                                                                               
                                                                               
  PREVIOUS ACTION                                                              
                                                                               
  BILL:  HJR 61                                                                
  SHORT TITLE: COMMUNITY DEVELOPMENT FISHING QUOTAS                            
  TASK FORCE                                                                   
                                                                               
  JRN-DATE     JRN-PG               ACTION                                     
  03/09/94      2682    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/09/94      2682    (H)   FSH, RESOURCES                                   
  03/16/94              (H)   FSH AT 08:30 AM CAPITOL 17                       
                                                                               
  ACTION NARRATIVE                                                             
                                                                               
  TAPE 94-14, SIDE A                                                           
  Number 001                                                                   
                                                                               
  CHAIRMAN CARL MOSES called the House Special Committee on                    
  Fisheries meeting to order at 8:38 a.m.  He noted members in                 
  attendance.                                                                  
  HJR 61 - COMMUNITY DEVELOPMENT FISHING QUOTAS                                
                                                                               
  CHAIRMAN MOSES announced that the committee would be hearing                 
  HJR 61, "Relating to the Western Alaska Community                            
  Development Quota Program and the North Pacific Fishery                      
  Management Council Comprehensive Rationalization Program."                   
  He informed the committee that HJR 61 was introduced by                      
  House Rules by request of the House Economic Task Force.  It                 
  addresses the allocation of groundfish and crab to the                       
  Community Development Quota Groups by the North Pacific                      
  Management  Council (NPMC).  He noted there is a sponsor                     
  statement in the committee packets.  (A copy is on file).                    
                                                                               
  Number 048                                                                   
                                                                               
  There being no testimony, REPRESENTATIVE CLIFF DAVIDSON                      
  moved and asked unanimous consent that HJR 61 be passed out                  
  of the House Special Committee on Fisheries with individual                  
  recommendations.  Hearing no objection, the motion carried.                  
  Number 068                                                                   
                                                                               
  CHAIRMAN MOSES announced the next order of business would be                 
  a presentation by Rick Lauber of the Pacific Seafood                         
  Processors Association (PSPA) relating to, "The Economic                     
  Impact of the Shoreside Processing Industry Upon Alaska                      
  During 1992."                                                                
                                                                               
  RICK LAUBER, Pacific Seafood Processors Association, came                    
  before the committee members.  He introduced Larry Cotter of                 
  Pacific Associates and explained they did most of the work                   
  on the preparation of the document the committee members had                 
  before them.                                                                 
                                                                               
  MR. LAUBER explained that several years ago there was a                      
  tremendous battle regarding the allocation of                                
  seafood/groundfish to fishermen who fish for plants located                  
  onshore versus the factory trawl fleet that operates                         
  offshore of Alaska.  Mr. Lauber said that resulted in an                     
  allocation of pollack in the Bering Sea to the shoreside                     
  portion of the industry of 35 percent of the pollack                         
  resource.  In the Gulf of Alaska, it was substantially                       
  higher.                                                                      
                                                                               
  MR. LAUBER explained the North Pacific Fishery Management                    
  Council (NPFMC) is currently studying what is termed                         
  "comprehensive rationalization."  The council is looking at                  
  several potential options, mainly a license limitation                       
  system relating to vessel licensing, similar to the current                  
  Alaska Salmon Limited Entry Program.  The council is also                    
  looking at an individual transferable quota system.                          
                                                                               
  MR.  LAUBER said the Pacific seafood processors felt the                     
  potential impacts of an Individual Transferrable Quota (ITQ)                 
  on Alaska and on the shoreside processing and fishing                        
  component of that industry would be significant.  He said                    
  his organization thought they needed to know, and needed to                  
  be able to tell people what was at risk as far as the down                   
  side of an ITQ system.  Mr. Lauber noted that they                           
  anticipated there would be significant impacts.  He                          
  explained that Dr. Scott Matlich of the University of                        
  Washington State did a study and was the author of a concept                 
  called "Two Pie System."  If it was implemented it would                     
  grant quota shares.  There would be a "Catcher Pie System"                   
  which would be of equal size.  The people with processor                     
  shares would have to go buy product harvested by people                      
  owning catcher shares.  Mr. Lauber said that Dr. Matlich                     
  testified before the council that if this didn't take place,                 
  the shoreside industry and the fishermen fishing for the                     
  shoreside industry would be significantly impacted and the                   
  industry would go into a death spiral that would last                        
  between five and seven years before the total collapse of                    
  the shoreside industry.  Most of the product would go                        
  offshore.                                                                    
                                                                               
  MR. LAUBER said it became evident that a lot of information                  
  was solely in the possession of the processors because they                  
  are the ones that are aware of exactly how much money they                   
  spend on purchases of supplies, payroll, benefits, etc.  He                  
  said his organization asked Capitol Associates and Pacific                   
  Associates to help with the document before the committee                    
  members entitled "The Economic Impact of the Shoreside                       
  Processing Industry Upon Alaska During 1992."  He explained                  
  the document is in no way an effort to compare the seafood                   
  industry with any other industry or component in the state.                  
  It is solely a study of the shoreside processing sector.                     
  He explained in 1992, the shoreside portion of the industry                  
  purchased 2.26 billion pounds of fish for which they paid                    
  approximately $1 billion to the harvesters of that fish.                     
  During that year, the average employment was 11,233                          
  employees in the shoreside portion of the industry.  Salary                  
  and benefits totaled $371 million.  He pointed out the                       
  figure doesn't include the fishing vessels, vessel owners,                   
  captains, or crew wages.  It is only the shoreside portion                   
  of the industry.  Mr. Lauber said the total economic impact                  
  of all factors on the state of Alaska was almost $4 billion                  
  for 1992.                                                                    
                                                                               
  MR. LAUBER explained that the shoreside portion of the                       
  industry paid approximately $57 million in state and local                   
  raw fish taxes.  In some areas of the state, that impact is                  
  more significant than others.  He noted that 80 percent of                   
  the Aleutian East Borough's revenue comes from fish taxes                    
  generated by the shoreside industry.                                         
                                                                               
  Number 250                                                                   
                                                                               
  MR. LAUBER explained that several years ago, there was a                     
  tremendous battle of what is called inshore/offshore                         
  allocation.  It became evident that the factory trawl fleet                  
  had the capability of harvesting up to three times the                       
  amount of fish available.  They were preempting the                          
  fishermen or delivering to shoreside plants.  They were                      
  gobbling up the resource at such a rate that it was evident                  
  that there wasn't going to be any fish available and the                     
  impacts to the coastal communities and fishermen who                         
  delivered to processors was going to be significant.  The                    
  NPFMC adopted an inshore allocation of 35 percent that was                   
  approved by the secretary of Commerce.                                       
                                                                               
  MR. LAUBER referred to 1991 when the pollack allocation                      
  wasn't in place for the Bering Sea and said the shore plants                 
  received 681 million pounds.  In 1992, when the allocation                   
  was in place, the shore plants received 996 million pounds.                  
  In the Gulf of Alaska, for 1991 the shore plants received                    
  128 million pounds of pacific cod.  In 1992, that figure                     
  jumped to 166 million.  The impacts of regulation is                         
  significant on the industry as far as inshore fisheries and                  
  as far as budgets for the Department of Fish and Game and                    
  Department of Environmental Conservation, etc.  Mr. Lauber                   
  said we must keep in mind that we need seafood sanitation                    
  inspection in order to put a good product on the market.  He                 
  said we also need rational reasonable management of our                      
  fisheries inshore as well as offshore.                                       
                                                                               
  Number 296                                                                   
                                                                               
  MR. LAUBER referred to a speech that was given by the                        
  president of the American Factory Trawlers Association to                    
  the Unalaska/Dutch Harbor Chamber of Commerce and said he                    
  announced the factory trawlers had a significant impact on                   
  that area because they had spent $62 million.  Mr. Lauber                    
  said he suspects that a vast majority of that $62 million                    
  was for fuel for their vessels.  He explained that the                       
  shoreside industry in that same area spent $384 million and                  
  the fuel wasn't counted in that amount.                                      
                                                                               
  MR. LAUBER pointed out the council has included an option in                 
  vessel licensing and in any type of an ITQ program that                      
  would continue the CDQ (Community Development Quota)                         
  Program.  In the CDQ Program, the decision as to which                       
  partners the groups would select is made by the individual                   
  CDQ groups with oversight by the Governor's Office and state                 
  agencies.  Mr. Lauber said two of the major processors that                  
  are members of PSPA are CDQ partners.  He said the mix and                   
  match of product is such that they try to put the product in                 
  a form where they get the most value.  At this time, because                 
  the most value of the product is that which is being                         
  produced by the shoreside processors, much of the CDQ                        
  impacts of some of the CDQ groups is going onshore.  He said                 
  they would like to have more product come on shore and in                    
  the future, maybe that will be the case.                                     
                                                                               
  Number 351                                                                   
                                                                               
  REPRESENTATIVE DAVIDSON asked if the group that owns the CDQ                 
  could designate that a portion, or whatever percentage they                  
  wish, would come ashore.                                                     
                                                                               
  MR. LAUBER said he would assume that if the CDQ groups                       
  wanted to do so, they could do it by the selection of who                    
  their CDQ partners are or they could set a policy.  He noted                 
  it would probably be with the oversight and approval of the                  
  governor.  Mr. Lauber said he believes that a majority of                    
  the CDQ groups found that they got the best offer from                       
  people operating off shore.  There were at least two that                    
  opted for a combination.                                                     
                                                                               
  Number 372                                                                   
                                                                               
  LARRY COTTER, Pacific Associates, was next to address the                    
  committee.  He informed committee members that a lengthy                     
  questionnaire was developed which was distributed to all the                 
  members of PSPA.  He said there was an excellent response.                   
  A variety of questions were asked relating to the species                    
  they harvested by quarter, by plant, by area, number of                      
  employees employed by month, amount of payroll, number of                    
  employees they flew to and from various locations, amount of                 
  money spent on transportation, amount of money spent on                      
  consumables, services, utilities, etc.  Mr. Cotter explained                 
  that they then contacted the Department of Fish and Game,                    
  Commercial Fishery Entry Commission, and the National Marine                 
  Fisheries Service and obtained harvest and processing                        
  information.  He noted the Department of Fish and Game does                  
  not have adequate personnel to be able to handle the data                    
  they receive.  Mr. Cotter explained they then went to the                    
  Department of Labor and obtained employment and earnings                     
  information by region.  It was interesting that each                         
  department seems to have a different definition as to                        
  regions.  He said they looked at the direct expenditures and                 
  realized there was more to the impact of the industry then                   
  what is spent directly.                                                      
                                                                               
  MR. COTTER said his organization had to try and identify an                  
  appropriate multiplier to accurately describe the real                       
  financial impact upon the communities in the regions.  There                 
  has been little work done in Alaska on developing a                          
  multiplier to describe the impact to the seafood industry.                   
  Mr. Cotter said there was a study done a few years ago where                 
  it stated that for every dollar spent, an additional                         
  seventy-three cents was generated in the seafood industry.                   
  He said they contacted a variety of economists and in some                   
  places in the lower forty-eight they ascribed multipliers of                 
  up to $5 for every $1 spent.  Mr. Cotter said what Pacific                   
  Associates chose to use in Alaska was for every $1 spent an                  
  additional $1.50 is generated.   He noted that is probably a                 
  conservative figure.                                                         
                                                                               
  MR. COTTER explained that in 1992 in the region encompassing                 
  Kodiak, the Alaska Peninsula, the Aleutians, the Bering Sea,                 
  and Bristol Bay, 56 percent of the total jobs available were                 
  seafood processing jobs, 20 percent were other private                       
  sector jobs, and the remaining were distributed between                      
  federal and local government.  He pointed out that those                     
  numbers do not include employment on harvesting vessels.  He                 
  noted crew and skipper jobs aren't counted by the Department                 
  of Labor as part of the state employment numbers in the fish                 
  industry.                                                                    
                                                                               
  MR. COTTER referred to inshore/offshore and said there was a                 
  significant increase in the amount of pollack processed                      
  onshore in the Gulf of Alaska during 1993 compared to 1991.                  
  He explained that the Alaska Peninsula showed a substantial                  
  increase in the amount of economic activity in 1992.  A lot                  
  of that is directly related to inshore/offshore because                      
  there was pollack processing activity at Sand Point and                      
  Chignik when there hasn't been in the preceding years.                       
  Mr. Cotter said in 1991, Southeast Alaska had the second                     
  largest economic impact in the state, second to the Bering                   
  Sea - Aleutian Islands.  In 1992, Southeast Alaska fell to                   
  third place but still maintained about the same level of                     
  activity.   He noted there are a lot of species being                        
  harvested in Southeast Alaska.                                               
                                                                               
  MR. COTTER referred to Prince William Sound and said in 1991                 
  pink salmon dominated.  In 1992, herring was the largest                     
  harvest.  He noted if it wasn't good for sockeye prices in                   
  1992, Prince William Sound would have suffered an incredible                 
  disaster.                                                                    
                                                                               
  Number 531                                                                   
                                                                               
  CHAIRMAN MOSES said he would like to volunteer Mr. Cotter to                 
  talk to the Anchorage Chamber of Commerce, Fairbanks Chamber                 
  of Commerce and the Dutch Harbor/Unalaska Chamber of                         
  Commerce.  He said there are a lot of people in Unalaska who                 
  don't realize what the shore-based operations mean.  There                   
  is a certain segment that supports the offshore facilities.                  
                                                                               
  MR. LAUBER said he thinks the shore-based facilities are                     
  old, familiar and are taken for granted.   He said a few                     
  years ago we thought we had the control over salmon prices,                  
  etc.  With the infusion of farm raised salmon and the access                 
  to Russia's  salmon, it is obviously having a significant                    
  impact.  That portion of the industry is substantially                       
  stressed and fishermen are going broke.  He discussed                        
  testimony given by economists, the Scientific and                            
  Statistical Committee of the North Pacific Management                        
  Council relating to the ITQ Program.                                         
                                                                               
  CHAIRMAN MOSES referred to the Aleutians East Borough and                    
  said he thinks they have been very modest in their taxing                    
  powers.                                                                      
                                                                               
  REPRESENTATIVE DAVIDSON referred to the information before                   
  him and said it sounds like coastal Alaska is in serious                     
  trouble.  He asked if the reality of the situation is that                   
  whoever gets the product to the consumer in the best quality                 
  and at the cheapest price, that is where the future is.  He                  
  said if that is true, does it mean that the operations on                    
  shoreside Alaska can't compete because the factory trawlers                  
  are producing a quality product and are getting it to the                    
  consumer cheaper than what we can from coastal Alaska.                       
                                                                               
  MR. LAUBER said if one was to assume what Representative                     
  Davidson said is correct, the answer would be "yes," but                     
  that is not correct.  The shore-based operations can compete                 
  and can turn out a quality product.  He said he isn't going                  
  to say that some of the shore-based industry is not impacted                 
  and they may well be losing money but the only bankruptcies                  
  and failures in that segment of the industry has been in the                 
  factory trawler operation.  Mr. Lauber said a substantial                    
  percentage of factory trawlers are being propped up by                       
  Christiana Bank.  The bank is holding their papers and there                 
  are not any payments being made on their loans except                        
  interest payments.  The collapse in that industry would be                   
  substantial.                                                                 
                                                                               
  MR. LAUBER explained that a disadvantage of the shore-based                  
  industry is that they are tied to the shore and the                          
  operational areas of their fishing vessels.                                  
                                                                               
  Number 582                                                                   
                                                                               
  REPRESENTATIVE DAVIDSON asked what the legislature can do to                 
  ensure the long term viability of the shore-based industry.                  
                                                                               
  MR. LAUBER said to support the concept of the long term                      
  viability of the industry in Alaska.  He said there is the                   
  feeling that if we go to an ITQ system, it should be given                   
  to the factory trawlers and the catcher boats.  The shore                    
  industries would then take care of themselves.  Mr. Lauber                   
  explained that one problem is that if they are freely                        
  transferrable, the factory trawlers will buy out the quota                   
  of the catcher boats and transfer it to their vessels.  He                   
  said there are a lot of options, but if we don't do the                      
  right thing we will loose the industry.                                      
                                                                               
  Number 623                                                                   
                                                                               
  MR. COTTER explained his organization represents a CDQ                       
  group, APITKA.  Their partner is Trident Seafoods and                        
  Starbound which is a factory trawler.  He said as they went                  
  through the process in selecting a partner, they received a                  
  lot of RFP responses.  It became obvious that the shoreside                  
  industry was at a clear disadvantage in bidding for CDQs, as                 
  the shoreside plants have to pay their fishermen to catch                    
  the fish and the factory trawl industry does not.                            
                                                                               
  MR. COTTER referred to Mr. Lauber's discussion about the                     
  Bank of Christiana and said the Government of Norway owns 98                 
  percent of the bank.                                                         
                                                                               
  TAPE 94-14, SIDE B                                                           
  Number 001                                                                   
                                                                               
  There was general discussion regarding the report before the                 
  committee members.                                                           
                                                                               
  MR. LAUBER explained that the report doesn't attempt to make                 
  a case beyond what is contained in it.  He said they are                     
  trying to indicate the economic impact of the shore-based                    
  processing on the state of Alaska.  The implications that                    
  one could read into that would depend on where you're coming                 
  from.  He said the report is to inform the committee of the                  
  impacts of what may happen.                                                  
                                                                               
  There was discussion regarding the contents of the Executive                 
  Summary, graphs, economic impacts by region, etc.                            
                                                                               
  Number 120                                                                   
                                                                               
  CHAIRMAN MOSES said we are at a point where the fishermen                    
  and processors are going to have to get together and work on                 
  some common goals.                                                           
                                                                               
  REPRESENTATIVE DAVIDSON said there should be something given                 
  to each legislator, every week in writing, that gives people                 
  "cause for pause" to think about the future of the state.                    
  He said the first thing he would like to see is exactly how                  
  much money does the shoreside seafood processing industry                    
  impact the economy of Anchorage in a week.  Representative                   
  Davidson said he would like to know how many PSPA members                    
  are involved in offshore operations.  CHAIRMAN MOSES said he                 
  doesn't know of any.                                                         
                                                                               
  CHAIRMAN MOSES thanked Mr. Cotter and Mr. Lauber for coming                  
  before the committee.                                                        
                                                                               
  Number 184                                                                   
                                                                               
  There being no further business to come before the House                     
  Special Committee on Fisheries, Chairman Moses adjourned the                 
  meeting at 9:35 a.m.                                                         

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