Legislature(1997 - 1998)
02/24/1997 05:00 PM House FSH
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON FISHERIES
February 24, 1997
5:00 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Chairman
Representative Scott Ogan
Representative Mark Hodgins
Representative Gene Kubina
MEMBERS ABSENT
Representative Ivan Ivan
COMMITTEE CALENDAR
PRESENTATION: Commercial Fisheries Entry Commission regarding
recent IRS seizures.
*HOUSE JOINT RESOLUTION NO. 23
Relating to the seizure and sale of Alaska commercial fishing entry
permits by the United States Internal Revenue Service.
- MOVED HJR 23 OUT OF COMMITTEE
*HOUSE BILL NO. 123
"An Act relating to the repeal of the termination date of the
Federal Tax Obligation Loan Program under the Commercial Fishing
Loan Act; and providing for an effective date."
- MOVED HB 123 OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HJR 23
SHORT TITLE: SALE OF LTD ENTRY PERMITS BY IRS
SPONSOR(S): REPRESENTATIVE(S) HUDSON, Grussendorf, Ivan
JRN-DATE JRN-PG ACTION
02/17/97 373 (H) READ THE FIRST TIME - REFERRAL(S)
02/17/97 373 (H) FSH, RESOURCES
02/18/97 388 (H) COSPONSOR(S): IVAN
02/24/97 (H) FSH AT 5:00 PM CAPITOL 124
BILL: HB 123
SHORT TITLE: TAX OBLIGATION LOAN PROGRAM
SPONSOR(S): REPRESENTATIVE(S) IVAN, Hudson
JRN-DATE JRN-PG ACTION
02/10/97 294 (H) READ THE FIRST TIME - REFERRAL(S)
02/10/97 294 (H) FISHERIES, RESOURCES
02/24/97 (H) FSH AT 5:00 PM CAPITOL 124
02/24/97 455 (H) COSPONSOR(S): HUDSON
WITNESS REGISTER
BRUCE TWOMLEY, Chairman
Commercial Fisheries Entry Commission
Department of Fish and Game
8800 Glacier Highway
Juneau, Alaska 99801
Telephone: (907) 789-6160
POSITION STATEMENT: Commercial Fisheries Entry Commission
Presentation.
REPRESENTATIVE BILL HUDSON
Alaska State Legislature
Capitol Building, 108
Juneau, Alaska 99801
Telephone: (907) 465-3744
POSITION STATEMENT: Presented HJR 23.
JERRY MCCUNE, President
United Fishermen of Alaska
211 Fourth Street, Suite 112
Juneau, Alaska 99801
Telephone: (907) 586-2820
POSITION STATEMENT: Testified in support of HJR 23.
BERNICE HEYANO
Bristol Bay Economic Development Corporation
Permit Brokerage
P.O. Box 964
Dillingham, Alaska 99576
Telephone: (907) 842-1994
POSITION STATEMENT: Testified on HJR 23.
JERRY LIBOFF, manager
Native Village Corporation
P.O. Box 646
Dillingham, Alaska 99576
Telephone: (907) 842-22512
POSITION STATEMENT: Testified in support of HJR 23 and HB 123.
HJALMAR OLSON, fisherman
P.O. Box 456
Dillingham, Alaska 99576
Telephone: (907) 842-5532
POSITION STATEMENT: Testified in support of HJR 23 and HB 123.
CHERI SHAW, Executive Director
Cordova District Fishermen United
P.O. Box 939
Cordova, Alaska 99574
Telephone: (907) 424-3447
POSITION STATEMENT: Testified in support of HJR 23 and HB 123.
JEFF STEPHENS
United Fishermen Marketing Association
103 Marine Way
Kodiak, Alaska 99615
Telephone: (907) 486-3453
POSITION STATEMENT: Testified in support of HJR 23 and HB 123.
MELANIE GUNDERSEN
Peninsular Marketing Association
P.O. Box 248
Sand Point, Alaska 99661
Telephone: (907) 383-3600
POSITION STATEMENT: Testified in support of HJR 23 and HB 123.
TOM WRIGHT, Legislative Assistant to Representative Ivan Ivan
Alaska State Legislature
Capitol Building, Room 418
Juneau, Alaska 99801
Telephone: (907) 465-3882
POSITION STATEMENT: Presented HB 123.
GREG WINEGAR, Juneau Lending Branch Manager
Division of Investments
Department of Commerce and Economic Development
P.O. Box 34159
Juneau, Alaska 99803
Telephone: (907) 465-2510
POSITION STATEMENT: Testified on HB 123.
ACTION NARRATIVE
TAPE 97-6, SIDE A
Number 001
CHAIRMAN ALAN AUSTERMAN called the House Special Committee on
Fisheries meeting to order at 5:00 p.m. Members present at the
call to order were Representatives Austerman, Ogan and Hodgins.
Representative Kubina arrived at 5:03 p.m. Representative Ivan was
absent.
Number 017
CHAIRMAN AUSTERMAN announced the first order of business would be
a presentation by the Commercial Fisheries Entry Commission (CFEC)
regarding recent IRS seizures.
Number 089
BRUCE TWOMLEY, Chairman, Commercial Fisheries Entry Commission,
Department of Fish and Game, stated that the committee had asked
for an overview of the problems that the commission has faced with
the IRS and their efforts to seize and force the sale of limited
entry permits. He stated that limited entry permits were created
by the legislature as a privilege with the intent to be revocable
or changeable by the state and the legislature. He stated that
permits were originally awarded based on need. He stated that
permits were made transferrable by the legislature in order to
empower fishermen and their families. Fishermen and their families
would be able to maintain their traditional access to the fisheries
they most depended upon. He stated that this has happened in the
rural areas. He stated that 78 percent of limited entry permits
are held by Alaskans and more than half of those are held by rural
Alaskans. He stated that the limited entry system is working, for
the most part, the way the legislature intended it to. It secures
access to the fisheries by Alaskans and preserves the state's
ability to manage fisheries for the benefit of the fishermen. He
stated that it gives fishermen a long term stake in the fishery
which provides an incentive for them to observe conservation laws.
He stated that it was intended that third parties could not come
along and take the privileges away. He stated that in 1992 the
legislature affirmed the commission's ability to say no to third
parties who attempted to take the privilege away from the
fishermen.
Number 378
MR. TWOMLEY stated that the IRS has taken a different view, since
1981 the IRS has made efforts to seize and force the sale of
limited entry permits. He stated that as a result only three cases
came to the commission for a decision.
Number 460
CHAIRMAN AUSTERMAN asked if this has been occurring for a ten year
period of time.
Number 469
MR. TWOMLEY replied that was correct for at least the last decade.
Number 474
CHAIRMAN AUSTERMAN asked what year was it when the IRS actually
seized its first permit.
Number 483
MR. TWOMLEY replied that it was in 1981.
Number 496
MR. TWOMLEY stated that in two of the three cases the buyers of the
sale were not eligible to receive entry permits and were denied the
sale. He stated that the third case was not approved because the
transfer was flawed. He stated that the IRS has not challenged the
decision. The state has made an effort to cooperate with the IRS.
The IRS realized it was having a difficult time collecting taxes
from fishermen and the IRS asked the state for help. Through 1993
the state requested from the IRS statistics to see how extensive
the problem was. He stated that the statistics showed that the
bulk of the people owed well under $30,000. He stated that the
legislature established the Tax Obligation Loan Program as a result
of the statistics. He stated that after 1988 things began to go
downhill as world markets affected the price of our salmon. He
stated that up until 1988 there were a number of fishermen who
planned on paying their taxes with the bonuses that came from their
fisheries after the first of the year. He stated that others
planned to pay this year's taxes with next year's earnings and
would get extensions to make that possible. In 1998 when the
bottom fell out from underneath salmon some individuals fell into
a trap that they had a hard time getting out of. He stated that
there are people in the state coming into the tax system for the
first time, 40 percent of the filings were rejected and turned back
because of having no record of the individuals involved. Many of
these people came from isolated fishing communities where
commercial fishing is the primary if not the only source of cash
income to those communities. He stated that these individuals fall
under the category of non-filers and when they do file it often
turns out that they owe little or no money to the IRS. He stated
that having recognized this problem the state and the IRS are
creating programs to help these individuals, some of the community
development quota organizations have financed help for individual
tax payers.
Number 1100
MR. TWOMLEY stated that in 1992 the commission was served with a
summons from the IRS with the 2,000 people who had not filed taxes
in 1992. He stated that in 1993 and 1994 the total who had not
filed was 684. He stated that the cooperative efforts with the IRS
has turned this problem around. He stated that it came as a shock
to the commission when the IRS gave the state two days of notice
and put two limited entry permits on the block. He stated that the
permits had a market value of $30,000 and the IRS was prepared to
sell them for as little as $3,375. He stated that they wondered
why the IRS was doing this and why there was not a more serious
attempt to raise revenue. People were told that the sale is
between the IRS and the state, the price is reduced because the IRS
would like the individual to sue the state but in any event the IRS
is prepared to pursue this issue to a resolution satisfactory to
the IRS. He stated that the sale was approved by the highest
levels of the IRS both in Seattle and in D.C. He stated that a
member of the public was told by an IRS revenue officer that if one
permit was approved it would open the flood gates on permit
seizures and transfers. He stated that there is a clear dichotomy
happening within the IRS. He stated that the cooperative measures
have produced $4.5 million in revenues to the IRS that they
wouldn't have been able to collect otherwise. He stated that there
is an effort within the IRS to undermine and disadvantage the
state. He stated that unfortunately Alaska has made commercial
fishermen an easy target for the IRS, due to the close track that
is kept on everything the commercial fisherman makes and what it is
worth.
Number 1316
CHAIRMAN AUSTERMAN asked what communication has he had with the IRS
since the sales took place and does he feel that same attitude is
present.
Number 1335
MR. TWOMLEY replied that they had a meeting last week in Anchorage
and the response was mixed. He stated that he expressed, to the
IRS, the importance of completing the cooperative projects and that
it is in no one's interest to undermine these projects as was done
with the pre-Christmas sales. He stated that the meeting ended
without an agreement on that point.
Number 1424
CHAIRMAN AUSTERMAN asked what could we as legislators do.
Number 1430
MR. TWOMLEY replied that the HJR 23 would be an important step to
be taken by the legislature and HB 123 would be a helpful
provision.
Number 1458
REPRESENTATIVE MARK HODGINS asked if there was a record of how many
of the loans actually get paid back.
Number 1475
MR. TWOMLEY replied that he believed the state has that and it will
be addressed as HJR 23 is presented.
HJR 23 - SALE OF LTD ENTRY PERMITS BY IRS
Number 1480
CHAIRMAN AUSTERMAN announced the next order of business would be
HJR 23, "Relating to the seizure and sale of Alaska commercial
fishing entry permits by the United States Internal Revenue
Service."
REPRESENTATIVE BILL HUDSON stated that he introduced HJR 23 after
talking to members of the CFEC and others in the fishing industry.
He stated that HJR 23 requests that the Alaska Congressional
Delegation use any means available to assure that the IRS will
collect past dues from income generated from the sale of fish and
voluntary sale of limited entry permits. He stated that HJR 23 is
to ensure that the IRS complies with Federal Law to avoid
inflicting economic hardship on the tax payers and to protect
fishing privileges and the right of Alaska fishermen to work. HJR
23 compliments Governor Knowles effort of appeal to the
congressional delegation to bring the pertinent members of the IRS
to work together with us. He stated that the CFEC had good
cooperation with some members of the IRS and now without the
cooperation it seems that economic harm could be the result to the
permit regime. He stated that the state of Alaska has established
the limited entry permits as a means to manage the fisheries from
over-harvesting and over-entry. He stated that for the IRS to sell
a permit worth $30,000 for $5,000, with threats to seize an
additional seven entry permits in the Dillingham area, is not
right. He stated that it does appear that the IRS' actions are
calculated. He stated that he has no intention to relieve any
taxpayer of the taxes that they owe. He stated that he would urge
the committee to adopt HJR 23 so Congress could take some action.
Number 1726
REPRESENTATIVE SCOTT OGAN stated that he agreed that people should
not have their livelihood taken away and it violates the spirit of
the U.S. Constitution. He stated that he would support HJR 23.
Number 1763
JERRY MCCUNE, President, United Fishermen of Alaska, stated that
United Fishermen of Alaska support HJR 23, to keep the permit
system intact. He stated that the IRS wants to get a permit so
they can go after other permits. He stated that they will end up
selling a $150,000 permit for a $10,000 tax obligation. He stated
that every fishermen he has talked to across the state supports HJR
23.
Number 1816
BERNICE HEYANO, Bristol Bay Economic Development Corporation Permit
Brokerage, testified via teleconference from Dillingham, that this
is not a program that hands out money to individuals who owe back
taxes, it is a loan program where individuals have to have a permit
in order to get the loan. She stated that rural individuals are
not able to get commercial loans to pay their back taxes because
they lack collateral. She stated that the loan program has
benefitted Bristol Bay in numerous ways by helping people if they
can't pay their taxes.
JERRY LIBOFF, manager, Native Village Corporation, testified via
teleconference from Dillingham, that he is a tax practitioner and
a commercial fisherman. He stated that he is in favor of HJR 23
and HB 123. Both of these will be positive tools toward getting
the IRS problems worked out so the permits will remain in the
villages. He stated that he has helped 100 people in Bristol Bay
to save their permits from loss and helped 10 people obtain the tax
obligation loan funds to get the IRS off their back.
Number 1963
HJALMAR OLSON, fisherman, testified via teleconference from
Dillingham, in support of HJR 23 and HB 123.
Number 2000
CHERI SHAW, Executive Director, Cordova District Fishermen United,
testified via teleconference from Cordova, in support of HJR 23 and
HB 123. She stated that since the Tax Obligation Loan Program came
into being it has been successful in enabling commercial fishermen
to pay tax obligations. She stated that extending this program
could only benefit the state and the commercial fishing industry.
She stated that the CFEC will be able to continue in their efforts
to bring commercial fishermen in compliance with their federal tax
obligation. She stated her husband was a recipient of the Federal
Tax Obligation Loan Program and has been a fishermen representative
at the Alaska Symposium with the IRS. She stated that she was
appalled that the IRS had tried to seize and sell two permits prior
to the Christmas holiday. She stated that the symposium discussed
the effort to avoid such drastic measures and to allow the CFEC to
intervene to try and rectify the problem by suggesting solutions.
She stated that it was reprehensible that the IRS could turn its
back on the agreements that were made.
Number 2112
JEFF STEPHENS, United Fishermen Marketing Association, testified
via teleconference from Kodiak, in support of HJR 23 and HB 123.
He stated that it is important to reaffirm Alaska's intention to
work with the IRS in a positive manner to help collect past taxes
while at the same time allowing commercial harvesters to continue
their commercial endeavors so they can continue in the commercial
enterprize.
Number 2207
MELANIE GUNDERSEN, Peninsular Marketing Association, testified via
teleconference from Sand Point, in support of HJR 23 and HB 123.
She stated that it would be good if Halibut Individual Fish Quotas
(IFQ) could be protected from seizure from the IRS.
Number 2250
REPRESENTATIVE GENE KUBINA made a motion to move HJR 23, with
individual recommendations and zero fiscal notes.
Number 2259
CHAIRMAN AUSTERMAN asked if there was an objection, hearing none
HJR 23 was moved out of the House Special Committee on Fisheries.
HB 123 - TAX OBLIGATION LOAN PROGRAM
Number 2263
CHAIRMAN AUSTERMAN announced the next order of business to be HB
123, "An Act relating to the repeal of the termination date of the
Federal Tax Obligation Loan Program under the Commercial Fishing
Loan Act; and providing for an effective date" and stated that Tom
Wright will present the bill to the committee.
Number 2272
TOM WRIGHT, Legislative Assistant to Representative Ivan Ivan,
stated that Representative Ivan sent a letter to Senator Stevens,
Senator Markowski and Representative Young, in December after the
sale of the permit by the IRS, to protest the action. He stated
that HB 123 repeals Sections 2, 9, 10 of SB 251. He stated that it
repeals the termination date of the Tax Obligation Loan Program.
Number 2386
REPRESENTATIVE OGAN asked it there were representatives from the
Division of Investments and if they could come forward.
Number 2394
GREG WINEGAR, Juneau Lending Branch Manager, Division of
Investments, Department of Commerce and Economic Development,
stated that the division administers the Tax Obligation Loan
Program as a part of the commercial fishing revolving loan fund.
He stated that the program came into existence because there were
a lot of commercial fishermen having difficulties with the IRS. He
stated that the program has helped 220 individuals get squared away
with the IRS and resulted in $4.7 million being collected. He
stated that there continues to be a need for the program although
to a lesser extent. He stated that about one-third of the loans
are delinquent at this time however, most of them have an extension
and are secured loans. He stated that it is a revolving fund that
loans out the money and the fund has not recently received any
general fund money. He stated that there is a zero fiscal note.
TAPE 97-6, SIDE B
Number 010
REPRESENTATIVE OGAN asked what the ratio of collateral is.
Number 022
MR. WINEGAR replied that it varies depending on the tax bill and
the amount that is borrowed but in no case would it exceed 90
percent, so there is always a 10 percent cushion and in many cases
it is much greater than that.
Number 028
REPRESENTATIVE OGAN asked it he could clarify that, 90 percent of
what to get a 10 percent cushion.
Number 041
MR. WINEGAR replied if you had a $10,000 permit the most that we
would be able to loan by law would be $9,000, so there would be a
ten percent cushion.
Number 044
REPRESENTATIVE OGAN stated that you are basically loaning by the
value of the permit. He asked if the permits are holding their
value.
Number 056
MR. WINEGAR stated that most of them are holding their value while
some of them are declining, but in many cases the amount of the
taxes owed is far less then the value of the permit.
Number 067
REPRESENTATIVE OGAN stated that 10 percent does not seem to be much
of a cushion and wondered if this would undermine the value of the
revolving fund.
Number 090
MR. WINEGAR responded that in most of the cases there is plenty of
collateral.
Number 108
REPRESENTATIVE MARK HODGINS asked what the loan portfolio size is.
Number 118
MR. WINEGAR responded that right now the total portfolio is about
$75 million. He stated that through the life of the program they
have loaned out about $300 million.
Number 125
REPRESENTATIVE HODGINS asked if there was interest income that
helps to turn money for that fund.
Number 138
MR. WINEGAR stated that it is completely revolving and has been
since 1985, so all of the funds that have been used to cover the
program and to make loans have come out of those repayments to the
fund.
Number 143
REPRESENTATIVE HODGINS asked if they would take a fishing permit if
a loan was not paid back.
Number 152
MR. WINEGAR responded that it could happen through this program,
however, it is a very last resort. He stated that there is a lot
of latitude to work with individuals.
Number 168
REPRESENTATIVE HODGINS stated that it seems that we would be
transferring ownership, instead of the IRS getting the permits the
state would be getting the permits.
Number 173
MR. WINEGAR stated that there could be that situation but the
division has a much different interest in how the program is run.
Number 177
CHAIRMAN AUSTERMAN stated that the division has not had a default
because they have always been able to work it out. He stated that
if there is a default he would rather it be the state of Alaska
that winds up with the permit rather than the IRS.
Number 188
REPRESENTATIVE KUBINA stated that he would like to echo that. He
stated that it is a program that is paying for itself, it has a
zero fiscal note and the division would not loan money if they were
going to lose it. He stated that he was astounded with the way the
IRS has worked with the state and with the people.
Number 227
REPRESENTATIVE KUBINA made a motion to move HB 123, with individual
recommendations and zero fiscal notes.
Number 230
CHAIRMAN AUSTERMAN asked if there was an objection.
Number 234
REPRESENTATIVE OGAN stated that he did not have an objection but he
wanted to state that he is worried that we are further enabling
people to not take care to pay their taxes because the state will
help them out.
Number 264
REPRESENTATIVE HODGINS stated that there are a lot of people in the
rural areas that do not realize there is an IRS so we need to help
these people by continuing on with the program.
Number 305
CHAIRMAN AUSTERMAN stated that this program has been around for
quite some time and we are not trying to create something new and
the default rate is not high.
Number 330
REPRESENTATIVE OGAN stated that there could be a high default rate
but since they have deferred loans they are not calling defaults.
Number 348
CHAIRMAN AUSTERMAN asked if there was an objection. Hearing none
HB 123 was moved out of the House Special Committee on Fisheries.
ADJOURNMENT
Number 359
CHAIRMAN AUSTERMAN adjourned the House Special Committee on
Fisheries at 5:56 p.m.
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