Legislature(2003 - 2004)
02/24/2004 01:35 PM Senate L&C
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ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
February 24, 2004
1:35 p.m.
TAPE(S) 04-14
MEMBERS PRESENT
Senator Con Bunde, Chair
Senator Ralph Seekins, Vice Chair
Senator Gary Stevens
Senator Hollis French
MEMBERS ABSENT
Senator Bettye Davis
COMMITTEE CALENDAR
SENATE BILL NO. 315
"An Act relating to the administration of commercial fishing
entry permit buy-back programs."
HEARD AND HELD
SENATE BILL NO. 322
"An Act relating to the rate of the salmon enhancement tax."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 315
SHORT TITLE: ENTRY PERMIT BUY-BACK PROGRAM
SPONSOR(s): SENATOR(s) STEVENS B BY REQUEST OF SALMON INDUSTRY
TASK FORCE
02/11/04 (S) READ THE FIRST TIME - REFERRALS
02/11/04 (S) L&C, FIN
02/24/04 (S) L&C AT 1:30 PM BELTZ 211
BILL: SB 322
SHORT TITLE: SALMON ENHANCEMENT TAX
SPONSOR(s): SENATOR(s) STEVENS B BY REQUEST OF SALMON INDUSTRY
TASK FORCE
02/11/04 (S) READ THE FIRST TIME - REFERRALS
02/11/04 (S) L&C, FIN
02/24/04 (S) L&C AT 1:30 PM BELTZ 211
WITNESS REGISTER
Ms. Cheryl Sutton
Staff to Senator Ben Stevens
Alaska State Capitol
Juneau AK 99801-1182
POSITION STATEMENT: Commented on SB 315 for the sponsor.
Mr. Frank Hohman, Commissioner
Commercial Fisheries Entry Commission (CFEC)
Alaska Department of Fish and Game
8800 Glacier Highway, Suite 109
Juneau AK 99801
POSITION STATEMENT: Supports SB 315.
Mr. Ken Duckett, Executive Director
United Southeast Alaska gillnetters Association
PO Box 22427
Juneau AK 99801
POSITION STATEMENT: Commented on SB 315 and opposes SB 322.
Ms. Kate File
Juneau AK
POSITION STATEMENT: Opposes SB 322.
Mr. E.J. Cheshier
Prince William Sound aquaculture Association
Cordova AK
POSITION STATEMENT: Supports SB 322.
ACTION NARRATIVE
TAPE 04-14, SIDE A
SB 315-ENTRY PERMIT BUY-BACK PROGRAM
CHAIR CON BUNDE called the Senate Labor and Commerce Standing
Committee meeting to order at 1:35 p.m. Present were Senators
Gary Stevens, Ralph Seekins, Hollis French and Chair Con Bunde.
Senator Bettye Davis was excused. The first order of business to
come before the committee was SB 315.
MS. CHERYL SUTTON, Staff to Senator Ben Stevens and the Joint
Legislative Salmon Industry Task Force, said SB 315 is a
recommendation of the task force and provides language for the
Commercial Fisheries Entry Commission (CFEC) to fund a buyback
program. If CFEC was able to receive monies from any source,
those monies might have to be paid back, but currently there is
no process in statute under which that could happen.
CHAIR BUNDE asked if buybacks were on the horizon anywhere.
MS. SUTTON replied that the only buyback being discussed right
now is in the Southeast seine fishery, which has been dealing
with Senator Ted Stevens on the federal level. They have not
moved forward under the state law. She thought one of the big
reasons they hadn't moved forward is because laws governing
buybacks are not in place at the state level. "We have been
attempting to repair this statute over the last several years so
that if that case comes up, we would have a workable statute."
SENATOR RALPH SEEKINS asked if she was talking about a state-
funded program.
MS. SUTTON replied no and that an optimum numbers study, which
would determine whether too many permits existed in a fishery,
would need to be completed first. The proposed legislation also
provides for an assessment of up to 7 percent on the value of an
individual fisherman's fish ticket sales to fund the program.
SENATOR SEEKINS asked if language stating the commission will
cease a buyback once the optimum number has been reached has
been in statute before.
MS. SUTTON replied no.
SENATOR GARY STEVENS said the optimum numbers study might show
that there aren't enough permits in a fishery as well as show
there are too many.
MS. SUTTON followed up on the issue of the optimum number of
permits saying that one number was an unreasonable concept so
the statute was changed to reflect that an optimum number is
really a range of numbers. CFEC also has the authority to add
permits back into a fishery.
CHAIR BUNDE said SB 315 is not intended to present the
development of fisheries resources, but rather to optimize them.
MS. SUTTON agreed that it would benefit all Alaskans, but
particularly those in the coastal regions.
MR. FRANK HOHMAN, Commissioner, Commercial Fisheries Entry
Commission (CFEC), supported Ms. Sutton's comments and added
that this measure would make fleet consolidation somewhat easier
to accomplish. The reason for looking into fleet consolidation
is that the economic return in some fisheries might be
diminishing. An optimum number of permits could be found that
would represent how many fishermen and boats could harvest the
resource in an efficient manner and still have a reasonable
economic return.
The optimum number can tell you if there are too many
permits in the fishery or too few in the fishery. In
either case, we are told by the statutes that, if
there are too many permits, then we can establish a
buyback program to reduce the number of permits to an
optimum number. If there are too few permits after a
study, then we can provide more permits and sell them
back into the fishery to bring that number up.
CHAIR BUNDE asked how the state would reinject permits into the
market.
MR. HOHMAN replied that CFEC would probably do an analysis of
the value of the existing permits and figure out an average cost
and make them available using a currently unspecified method -
first come first served basis, a lottery, a high bid, something
like that. The 1 to 7 percent assessment would go into a fund
over a period of years and when it reached a point where the
required number of permits could be bought back, CFEC would go
ahead and buy them back.
Since establishing the fund would take a while, the task force
discussed borrowing money for the buyback and then paying it
back with the assessment money. But under that scenario, if the
upfront money was used to buy back permits, current statute says
the assessment has to stop. That's how this bill came about.
All it says is that once you reach the optimum number,
you can continue the assessment until repayment of any
debt that the commission had to establish the buyback
program in the beginning.
MR. HOHMAN said that the commission has no idea of a fund of
money out there for this purpose and also that, if grant monies
were used, they would not have to be paid back.
CHAIR BUNDE asked if there was any opposition to this program.
MR. HOHMAN answered that he was not aware of any.
SENATOR GARY STEVENS asked how an optimum number is defined.
MR. HOHMAN replied that an actual optimum number would be very
hard to find, but a couple of years ago, the CFEC changed the
definition from one number to a range of numbers.
CHAIR BUNDE questioned how the CFEC would determine what the
range is.
MR. HOHMAN replied that the CFEC would do a complete economic
analysis of the fishery.
SENATOR HOLLIS FRENCH asked if it is true that there is no money
in the buyback fund currently.
MR. HOHMAN replied that is right.
SENATO FRENCH asked if the assessment would begin only after
some monies are put into the fund and a buyback had taken place.
MR. HOHMAN replied that the optimum number for the fishery would
have to be established first.
SENATOR FRENCH asked if the 1 to 7 percent assessment was in
statute.
MR. HOHMAN replied yes and that language was put into statute to
accommodate the dedicated funds issue.
SENATOR FRENCH asked once the buyback is done, does CFEC intend
to totally repay the fund with the assessment or just the costs
of operating the buyback program.
MR. HOHMAN answered:
It depends on how we got the money. If the money was a
grant from somewhere, then we wouldn't have to repay
it. It would be, like you say, the cost of the
program. If the fund was established by the
Legislature and it needed to be repaid, then we would
continue it until we could repay.
SENATOR FRENCH recapped that absent a gift of money to do a
buyback, he envisions this program being some kind of loan. He
asked if the assessment would apply to just the affected fishery
or statewide.
MR. HOHMAN replied that the assessment would be applied to the
affected fishery.
SENATOR FRENCH asked how he imagined "reasonable" costs would be
figured out.
MR. HOHMAN answered before CFEC would even enter into a buyback
program, it would have to promulgate regulations and the
assessment process would be in those. It would be a very visible
process.
SENATOR FRENCH said he thought it sounded like a good idea.
MR. KEN DUCKETT, Executive Director, United Southeast Alaska
Gillnetters Association (USAG), said his members really were
undecided about supporting this legislation. One concern is
that, as the various different ideas for the buyback programs
have developed, a number of them have contained votes that would
occur by the permit holders. Some call for a majority or a
number of different percentages, but SB 315 does not require a
vote of the people who would be affected by a buyback program.
We think at the very minimum that it's prudent to have
at least a vote of 50 [percent] and a plurality of 50
percent of the permit holders that would approve going
into this program..... I'm sure it's fine that they
would promulgate regulations and have hearings, but as
you know, there's a lot of fishermen and a lot of
people in the general public, some of which will
participate in a hearing such as that and others will,
even if it affects them, will sit on the sidelines and
won't participate. We think, definitely, that some
kind of vote of the people who would be affected is
prudent in this situation.
MR. DUCKETT outlined another concern his members have.
In the mid-70s, if you had told people that we would
be where we are today with prices and our current
situation in the salmon market, folks wouldn't have
really believed you - that things could change as much
as they have changed. So, the point that I'm making is
the way this thing is structured now, with the 7
percent assessment on fishermen, you're asking
fishermen to buy permits back out of the fishery. If
we see a big change, say the farmed fish - they're
going to have too many PBCs or whatever have you, or
we have a market condition that goes back to earlier
times and we see a significant increase in prices in
our fish, which a lot of us hope would happen, maybe
additional permits want to be added to the fishery.
That situation could happen just like the situation
happens that makes us want to reduce the number now.
It's not fair in our assessment that the fishermen are
assessed for permits to leave the fishery and the
state gets the benefit of selling permits back into
the fishery if the number of permits wants to be
increased later on. That really bothers us.
MR. DUCKETT said USAG does not want to stand in the way of a
fleet that wants to reduce the number of its permits and hopes
the Southeast seiners are successful. Implementing a buyback
program with a federal grant is totally different than assessing
fishermen to have their permits bought back. "We think there are
some inequities here and I guess at that, I'll conclude my
testimony."
CHAIR BUNDE thanked him and promised to have the sponsor reflect
on and address his questions when the bill comes up again.
SENATOR BEN STEVENS, sponsor of SB 315, who arrived in the
middle of Mr. Duckett's testimony, said he sponsored this bill
at the request of the Commercial Fisheries Entry Commission and
wanted a chance to clarify Mr. Duckett's questions now. He said
there are two programs:
One does require a vote of the fishermen in the region
and the other one would allow the CFEC to implement
the program. So, there are two mechanisms for buyback.
One is a CFEC-run buyback developed by the optimum
yield; the other one is a buyback that's initiated by
the regional association.
CHAIR BUNDE said Mr. Duckett was also concerned that if a
buyback program is funded by fishermen in a certain fishery, if
on the flip side, additional permits were issued by CFEC, that
profit would go back to the state. He, personally, could see
that the state could issue permits at no expense, which would
decrease the value of existing permits, but he didn't know of
any mechanism whereby, if the state issued a new permit for
$10,000, that money would end up being distributed to the
members of the fishery.
SENATOR STEVENS said that is one of the complexities of the
situation right now.
You have to have an optimum study in order to buy back
the permits to retire them. It's just which way you do
it. If the optimum study says that the state can buy
them back, then the state can assess a buyback fund
and then retire the permits for $10,000. If the
association would buy back the permits, they would
also retire the permits. The question is, can the
permits that are bought back be retired and that's
what the bill is designed to do - to make sure that
that is correct - that when you buy the permits back,
the CFEC is not forced to put them back into the
market.
CHAIR BUNDE thought he had heard testimony earlier indicating
that, if the fishery expands, those permits would not be put
back into the market and another study would have to be done to
offer new permits.
SENATOR STEVENS replied that the CFEC could be forced by the
court to issue permits back again, but they wouldn't come from
the buyback pool. "[The permits] would come from another interim
use issuance."
CHAIR BUNDE said that he would hold the bill for further work.
SB 322-SALMON ENHANCEMENT TAX
CHAIR CON BUNDE announced SB 322 to be up for consideration.
2:10 p.m.
SENATOR BEN STEVENS, sponsor of SB 322, said it relates to the
salmon enhancement tax, which is available to regional
aquaculture associations. Statute allows regional associations
to tax themselves at 1 to 3 percent of their harvest value to
help pay for the operations of their hatcheries.
SB 322 is the result of the hatchery subcommittee of the Salmon
Task Force that he chaired. The hatchery subcommittee discussed
the fact that with the declining values in some of the regions'
salmon harvest, the 2 percent that is being collected is not
paying for the operational costs of those hatcheries. The
subcommittee suggested increasing the tax range up to 10 percent
so the associations could vote to assess themselves to pay for
the operating costs of the hatcheries producing fish in those
regions. After discussions with a couple of people, he added in
the larger numbers of 15, 20 and 30 percent to allow regionals
to super-assess themselves to pay down large capital debts. Some
private non-profit hatcheries have already gone through periods
of high self-assessment to pay down on capital costs and those
hatcheries are operating at very low-cost recovery rates to the
benefit of the local harvesters. He referenced supporting data
in the committee's packets.
SENATOR FRENCH asked what was the estimated value of fish in
1993.
SENATOR STEVENS answered that the statewide value of fish in
1992 was about $167 million and in 2003 it was about $197
million with a five-year average of about $315 million. The 2002
figure is the low point of the modern commercial fishery. The
important thing about the bill is that it allows hatcheries
under a regional aquaculture association to vote to increase
their assessment if they choose.
MS. KATE FILE, Juneau resident, opposed SB 322 with the
following testimony:
My family is a fishing family in a unique position.
Our boat and permit are paid for. If this proposed tax
were implemented, we would have to consider whether or
not it would be cost effective for our crew and family
to fish salmon. For those fishers who have loans, it
would be almost impossible to make expenses, pay their
crew and take home income to live on for the winter.
Several fishermen I have talked to say that SB 322
would completely wipe out their profit margin.
I believe this bill could work, but in a different
format. This bill is missing a major component. Please
bear with me as I start from the beginning. SB 322
would stop the practice of taking cost recovery for
regional hatcheries, like SNRRA and SSRRA, while
allowing non-regionals, like Kake, DIPAC and Port
Armstrong, to continue the practice of cost recovery.
As you look at the information provided to you by [The
Department of] Fish and Game on 'The Alaska Hatchery
Commercial Common Property and Cost Recovery Return'
handout, you will see the regionals are within their
salmon enhancement allocation goals. In contrast, it
is the non-regionals who are, in some cases, taking
far and above the Board of fish suggested allocation
goals for cost recovery.
In the Board of Fish findings, the suggested salmon
enhancement allocation goals for cost recovery are for
regionals - 70 percent to common property and 30
percent for cost recovery. Also keep in mind that
regionals receive a 3 percent aquaculture tax in
Southeast Alaska. For the non-regionals, the suggested
salmon allocation goals are 60 percent to common
property [fisheries] with 40 percent to cost recovery.
Non-regionals receive no aquaculture tax and have no
taxing authority.
As you can see, it is not the regionals' cost recovery
practices that are affecting your average commercial
fisher. It is the non-regionals who are taking far and
above the suggested salmon allocation. In some
hatchery operations you will see 74 percent and 89
percent being taken for cost recovery purposes. This
practice is harmful to commercial fishers.
The component that is missing to SB 322 is to
regionalize all non-regional hatcheries. The only way
taxing fishers to replace cost recovery is going to
work is if you eliminate all cost recovery fishing in
that region.
To benefit the fishers of Southeast Alaska, we would
need to take all hatcheries in the region and create a
single regional association. This would also benefit
the region by decreasing overhead administrative
costs.
I ask that serious consideration be given to this
suggestion. Many fishers feel that, if the bill were
amended in this way, it would go a long way to help
stabilize the salmon industry. It would also help
hatcheries reach their full potential and be of
benefit to the commercial fisher.
This bill, as it is written now, will not help the
commercial fleet. It will make a bad situation
disastrous. I ask that you not approve SB 322 in its
current form.
CHAIR BUNDE responded that the fishermen in each fishery would
have to vote to assess themselves and asked if that would
address any negative concerns that she has. "Obviously, if this
is going to cause people to have a negative cash flow, they
would vote no, wouldn't they?"
MS. FILE replied that she didn't understand his point. She
thought the regionals are not the problem. "Unless you eliminate
a cost recovery across the board, this really doesn't work."
CHAIR BUNDE sought to clarify his position saying if fishermen
find a serious negative financial impact, they would vote no on
the assessment. She agreed. He then asked if that didn't mean
she was really in charge of whether the assessment happened or
not.
MS. FILE replied:
Ultimately we are, but unfortunately there is a lot of
apathy out there and I know quite a few fishermen who
get ballots in the mail and things like that and they
don't even open them anymore. They just toss them in
the garbage. Yes, you're right;' it is the fishermen's
responsibility.
CHAIR BUNDE politely exhorted her to urge those fishermen to
start reading their mail.
MS. FILE said, "I'm working on it. I'm trying."
CHAIR BUNDE thanked her for her testimony.
MR. KEN DUCKETT, Executive Director, United Southeast Alaska
Gillnetters Association (USAG), opposed SB 322. The fishery
cannot afford any more direct taxes on its gross. Fishermen do
not want any chance for additional taxes to be levied. "They
don't want to let the cat out of the bag."
TAPE 04-14, SIDE B
CHAIR BUNDE asked if fishermen have to vote to assess
themselves, wouldn't the ultimate decision lay in their hands.
MR. DUCKETT replied that is correct, except Southeast Alaska has
three different fleets - 1,000 trollers, 400 gillnetters and
approximately 400 seiners.
That different population would obviously have
different motives for voting different ways.... In
theory what you say is true, but my guys that I talk
to are not interested in increased taxes, they are not
interested in any additional assessment on their gross
and, quite frankly, they're not interested in
participating in a campaign one way or the other to
try to convince some other people to do it or not to
do it.
CHAIR BUNDE doggedly pointed out that if hatcheries can't
support themselves, the state has divorced itself of providing
that funding. "It's between the devil and the deep blue sea, if
that's not a bad analogy for fishermen."
MR. DUCKETT came back saying that he has also been on the board
of directors for the Southern Southeastern Alaska Regional
Aquaculture Association (SSRAA) for 16 years. He explained:
Fishermen basically control the boards, at least for
the regional associations. There are certainly people
at large and folks that represent other boat interests
and subsistence interests, but the predominance of
people on these boards are commercial fishermen. SSRAA
has entered into a program of trying to get our debt
under control, pay our debt down. In fact, we have
been successful over the last five years, in part, due
to some help from [The Department of] Commerce and
Economic Development where we have been able to cut
our debt load from about $14 million to just about $6
million at this point in time. So, we've been somewhat
successful. We've had some good seasons and a good
marketing program that helped us on this.
But right now, our general manager, John Berg, did an
analysis at a meeting we had about a week ago and if
we were to try and cover all operating costs plus debt
retirement with an assessment on fishermen's gross and
completely eliminate cost recovery, it would take over
50 percent of the gross that the fishermen make to
cover that. We think that the cost recovery program,
the way it's currently structured, is a reasonable
program. It works, at least it certainly works for the
regionals.
MR. E.J. CHESHIER, Prince William Sound Aquaculture Association
(PWSAC), said the association generally supports new tools that
allow fishermen to control their destiny and this does open new
options for them.
I think you kind of hit the nail on the head. If
fishermen don't want to change the way they are doing
things, they don't have to vote for that. That's one
reason that this bill doesn't scare us here.
CHAIR BUNDE thanked him for his testimony and said he would set
SB 322 aside for another week so that the questions could be
worked out. He asked the sponsor if he had any final comments.
SENATOR BEN STEVENS sought to convince the committee with these
closing comments:
Fishermen are being taxed this rate anyway. The cost
recovery for the fish that are produced by a hatchery
that they don't get to catch, competes with their fish
in the market and competes with their fish in the
capacity of the local processing facility that is a
tax on their production. The intent of the bill is to
allow more fish to be caught by the independent
fishermen, therefore increasing his bottom line. If at
some point in time they have to do a super-accelerated
assessment in order to achieve that, that's what this
bill permits.
To respond to Ms. File's comments, she's right. There
is a large portion of the hatchery production that
does not fall under the jurisdiction of this language.
That is another issue to be attacked at another day.
Her comments are correct, but the portion of the bill
that does fall under this jurisdiction in the bill is
intended to increase the amount of fish that those
individuals are allowed to catch and allows them to
catch it instead of a cost recovery process that takes
place.
SENATOR STEVENS concluded saying he looked forward to having
more discussions on this issue.
CHAIR BUNDE thanked Senator Stevens for his testimony and said
SB 322 would have another hearing next week. There being no
further business to come before the committee, he adjourned the
meeting at 2:30 p.m.
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