Legislature(2005 - 2006)BUTROVICH 205

04/07/2006 03:30 PM RESOURCES

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03:42:49 PM Start
03:43:13 PM HB218
04:27:24 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SCS CSHB 218(RES) Out of Committee
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         April 7, 2006                                                                                          
                           3:42 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Thomas Wagoner, Chair                                                                                                   
Senator Ben Stevens                                                                                                             
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Kim Elton                                                                                                               
MEMBERS ABSENT                                                                                                                
Senator Ralph Seekins, Vice Chair                                                                                               
Senator Albert Kookesh                                                                                                          
COMMITTEE CALENDAR                                                                                                            
CS FOR HOUSE BILL NO. 218(FIN)                                                                                                  
"An Act relating to cost recovery fisheries for private                                                                         
nonprofit hatchery facilities."                                                                                                 
     MOVED SCS CSHB 218(RES) OUT OF COMMITTEE                                                                                   
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 218                                                                                                                  
SHORT TITLE: PRIVATE HATCHERY COST RECOVERY FISHERIES                                                                           
SPONSOR(s): REPRESENTATIVE(s) THOMAS                                                                                            
03/15/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/15/05       (H)       FSH, RES                                                                                               
03/16/05       (H)       FSH AT 8:30 AM CAPITOL 124                                                                             
03/16/05       (H)       Heard & Held                                                                                           
03/16/05       (H)       MINUTE(FSH)                                                                                            
04/15/05       (H)       FSH AT 8:30 AM CAPITOL 124                                                                             
04/15/05       (H)       Moved CSHB 218(FSH) Out of Committee                                                                   
04/15/05       (H)       MINUTE(FSH)                                                                                            
04/18/05       (H)       FSH RPT CS(FSH) 3DP 3NR                                                                                
04/18/05       (H)       DP: WILSON, ELKINS, THOMAS;                                                                            
04/18/05       (H)       NR: HARRIS, SALMON, LEDOUX                                                                             
04/20/05       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
04/20/05       (H)       -- Meeting Canceled --                                                                                 
04/22/05       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
04/22/05       (H)       Moved CSHB 218(RES) Out of Committee                                                                   
04/22/05       (H)       MINUTE(RES)                                                                                            
04/25/05       (H)       RES RPT CS(RES) 2DP 3NR                                                                                
04/25/05       (H)       DP: CRAWFORD, ELKINS;                                                                                  
04/25/05       (H)       NR: LEDOUX, OLSON, SAMUELS                                                                             
04/25/05       (H)       FIN REFERRAL ADDED AFTER RES                                                                           
04/27/05       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
04/27/05       (H)       Heard & Held                                                                                           
04/27/05       (H)       MINUTE(FIN)                                                                                            
04/28/05       (H)       FIN RPT CS(FIN) 3DP 4NR                                                                                
04/28/05       (H)       DP: HAWKER, FOSTER, CHENAULT;                                                                          
04/28/05       (H)       NR: JOULE, MOSES, HOLM, KELLY                                                                          
04/28/05       (H)       FIN AT 8:30 AM HOUSE FINANCE 519                                                                       
04/28/05       (H)       Moved CSHB 218(FIN) Out of Committee                                                                   
04/28/05       (H)       MINUTE(FIN)                                                                                            
04/29/05       (H)       TRANSMITTED TO (S)                                                                                     
04/29/05       (H)       VERSION: CSHB 218(FIN)                                                                                 
05/01/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
05/01/05       (S)       FIN                                                                                                    
05/06/05       (S)       RES REFERRAL ADDED BEFORE FIN                                                                          
05/06/05       (S)       FIN AT 4:30 PM SENATE FINANCE 532                                                                      
05/06/05       (S)       Heard & Held                                                                                           
05/06/05       (S)       MINUTE(FIN)                                                                                            
04/05/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
04/05/06       (S)       Heard & Held                                                                                           
04/05/06       (S)       MINUTE(RES)                                                                                            
04/07/06       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
WITNESS REGISTER                                                                                                              
Ian Fisk, Legislative Aide                                                                                                      
Staff for Representative Bill Thomas                                                                                            
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT:  Introduced HB 218                                                                                        
Bob Thorstenson, Executive Director                                                                                             
Southeast Alaska Seiners Association                                                                                            
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 218                                                                           
ACTION NARRATIVE                                                                                                              
CHAIR THOMAS WAGONER called the Senate Resources Standing                                                                     
Committee meeting to order at 3:42:49 PM. Present were Senators                                                               
Kim Elton, Fred Dyson, Ben Stevens, and Chair Thomas Wagoner.                                                                   
     CSHB 218(FIN)-PRIVATE HATCHERY COST RECOVERY FISHERIES                                                                 
3:43:13 PM                                                                                                                    
CHAIR  THOMAS  WAGONER  announced  CSHB 218(FIN)  to  be  up  for                                                               
IAN  FISK,  Staff  to  Representative  Bill  Thomas,  offered  to                                                               
explain the committee substitute (CS)  version W. The changes are                                                               
relative to version 24-LS0544\R.                                                                                                
P.1, lines 6-7:  "contractees is replaced by  the phrase "persons                                                               
under contract; "under a permit  from the department" is added to                                                               
clarify  that the  Alaska  Department of  Fish  and Game  (ADF&G)                                                               
issues permits  for harvest  of salmon  by hatcheries  in special                                                               
harvest areas and the Board of Fisheries writes the regulations.                                                                
P.1, line 13:  "At the request of the hatchery  permit holder" is                                                               
inserted  to clarify  that  only the  hatchery  may initiate  the                                                               
process  of starting  a common  property  cost recovery  fishery.                                                               
This  was  added at  the  suggestion  of the  Northern  Southeast                                                               
Regional Aquaculture Association (NSRAA).                                                                                       
P.2, line  2: "if" is  changed to "when."  This was added  at the                                                               
suggestion of NSRAA.                                                                                                            
P.2, line 8: "as the  board considers appropriate" is replaced by                                                               
"under  AS  16.05.251" to  be  more  specific about  the  board's                                                               
authority to adopt regulations. This  was added at the suggestion                                                               
of the Department of Law (DOL).                                                                                                 
P.2, subsection (c):  Fishermen will be required to  deliver to a                                                               
licensed buyer.  Lines 24-29 are  deleted. This was added  at the                                                               
suggestion of the NSRAA.                                                                                                        
P.2, line 26:  after "annually", "March 1" is  inserted. This was                                                               
added at the suggestion of the NSRAA.                                                                                           
P.3, line  7: The maximum rate  of assessment is changed  from 40                                                               
percent  to 50  percent. This  change  was made  as a  compromise                                                               
between the proponents of the bill and the NSRAA.                                                                               
P.3, subsection (f)  is changed to allow prosecution  as either a                                                               
violation or a misdemeanor. This  will provide better flexibility                                                               
for  the state  in pursuing  any fishermen  who violates  the new                                                               
cost recovery system.  This was added to address  a general NSRAA                                                               
concern about enforcement.                                                                                                      
3:47:15 PM                                                                                                                    
SENATOR BERT STEDMAN joined the meeting.                                                                                        
MR. FISK  said there were  other changes  made to the  bill along                                                               
the way  at the behest  of some  of the hatcheries.  The original                                                               
version of the bill contained  findings that said the Legislature                                                               
finds that  it is in  the best interest  of the fishing  fleet to                                                               
minimize  the  direct sale  of  salmon  by  a hatchery  and  that                                                               
wherever possible  it should  be done  through a  common property                                                               
fishery. That language was deleted  because it coincided with the                                                               
initial  purpose  of  the  hatchery  program  and  therefore  was                                                               
The   sponsor  also   agreed  that   the  three   percent  salmon                                                               
enhancement  tax should  apply  to the  fish,  which was  another                                                               
request  of the  hatcheries,  and  that was  done  in a  previous                                                               
committee. The language in the CS is optional and not mandatory.                                                                
3:49:19 PM                                                                                                                    
CHAIR WAGONER asked for questions.                                                                                              
SENATOR STEDMAN  informed the  committee he  had an  amendment to                                                               
put on the table as a concept. It  had a drafting error and so he                                                               
said he  would offer it  in the  next committee of  referral. The                                                               
amendment would  clarify that it  takes a two-thirds vote  of the                                                               
board of directors  and a two-thirds vote by the  hatchery to opt                                                               
in, after  which the  entity would  be locked in  for a  year. He                                                               
offered to work with the sponsor on the details.                                                                                
3:51:17 PM                                                                                                                    
MR. FISK agreed to discuss the proposal.                                                                                        
SENATOR BEN  STEVENS asked for  clarification and the  reason the                                                               
hatcheries  were asking  to pay  the salmon  enhancement tax.  He                                                               
noted that they  currently do not pay the tax  when their fish is                                                               
harvested through the cost recovery program.                                                                                    
MR. FISK said the reason  the hatcheries asked for that provision                                                               
was because  it would  be under a  common property  cost recovery                                                               
system and  they wanted  to make  sure they  could get  the three                                                               
percent tax.                                                                                                                    
SENATOR BEN STEVENS asked where the revenue would go.                                                                           
MR. FISK replied it would go to the hatcheries.                                                                                 
SENATOR BEN STEVENS  asked, "The revenue they use  to harvest the                                                               
fish pays the hatchery?"                                                                                                        
MR.  FISK  said   yes.  "Whatever  they  get   with  the  regular                                                               
assessment through this bill would  apply but they wanted to make                                                               
sure that the three percent would apply as well."                                                                               
3:53:19 PM                                                                                                                    
SENATOR BEN STEVENS asked whether that was added from version R.                                                                
MR. FISK said  he did not remember the version  that it was added                                                               
in. It was during one of the first House committees.                                                                            
SENATOR BEN STEVENS said the total  rate on page 3; lines 7-8 say                                                               
'the total  rate of  assessment may not  exceed fifty  percent of                                                               
the value  of the salmon.'  So that  is the assessment  that goes                                                               
back to the cost recovery program.                                                                                              
MR. FISK agreed.                                                                                                                
SENATOR BEN STEVENS asked whether  the remaining portion would be                                                               
in addition to the salmon enhancement tax.                                                                                      
MR. FISK  responded the hatcheries  wanted to make sure  that the                                                               
tax  wouldn't   be  deducted  because  they   wanted  the  salmon                                                               
enhancement tax to apply to  their fish. They wanted to reiterate                                                               
that while  they don't pay the  tax now, in this  case they would                                                               
under the common property combination fishery.                                                                                  
SENATOR BEN  STEVENS said, "The  harvester pays the tax  under AS                                                               
43.76.001  and then  the  harvester in  agreement  with the  cost                                                               
recovery fish  is paying  up to fifty  percent assessment  on the                                                               
fish that is being harvested and  then the fifty percent is going                                                               
to the  hatchery within  the special harvest  area and  the three                                                               
percent  is going  to the  state, which  again reappropriates  it                                                               
back to the hatchery program.                                                                                                   
MR. FISK said  all of it would  go through the state  by the same                                                               
mechanism as the salmon enhancement tax.                                                                                        
SENATOR  BEN STEVENS  asserted the  reason for  his confusion  is                                                               
that the bill is a system  for harvesters to pay cost recovery in                                                               
harvesting in a  special terminal area. They would  be subject to                                                               
the  salmon enhancement  tax in  addition to  the agreement  that                                                               
they are  contracting with the  operator of the terminal  area up                                                               
to fifty  percent. He said  he does  not understand the  logic of                                                               
why the hatchery  operator is asking to pay more  into the system                                                               
than what they currently are.                                                                                                   
MR. FISK  said he did not  understand it either. He  thought they                                                               
wanted  to make  sure  it would  not be  deducted  from the  rate                                                               
applied by the department.                                                                                                      
3:56:57 PM                                                                                                                    
CHAIR  WAGONER   asked  whether   the  three  percent   tax  gets                                                               
redistributed  the same  as all  the  rest of  the three  percent                                                               
assessment throughout Southeast Alaska.                                                                                         
MR. FISK replied  all the revenue collected under  the bill would                                                               
go back  to the  regional aquaculture  association to  meet their                                                               
general  cost recovery  budget. It  would  not be  directed at  a                                                               
particular hatchery.                                                                                                            
SENATOR ELTON  said as  he read  page 3; line  7 he  assumed that                                                               
three percent plus forty-seven percent  would equal fifty percent                                                               
and it wouldn't go higher than fifty percent.                                                                                   
MR.  FISK  agreed with  Senator  Elton  that  the total  rate  of                                                               
assessment would not exceed fifty percent.                                                                                      
SENATOR STEDMAN  referred to page  3; line  1 and asked  Mr. Fisk                                                               
whether there should  be a separate asset account  on the balance                                                               
sheet with one hundred percent of the operating costs carried.                                                                  
MR. FISK  informed the committee  that the language  was inserted                                                               
as a request  of the DOL. Most of the  language in subsection (d)                                                               
was  intended   to  reiterate  the  taxation   authority  of  the                                                               
Department of  Revenue (DOR)  and in order  to be  more specific;                                                               
they wanted to list some of  the things that the department would                                                               
use to determine the rate. If  a hatchery does not have a reserve                                                               
fund  available it  wouldn't be  in a  position to  use the  cost                                                               
recovery program.                                                                                                               
4:00:08 PM                                                                                                                    
SENATOR STEDMAN noted  subsection (d) of Section 1  says the rate                                                               
of  assessment shall  provide sufficient  revenues  to cover  the                                                               
development and maintenance of a reserve fund.                                                                                  
MR. FISK  said there  is similar language  in statute  that deals                                                               
with the  sale of salmon  and salmon  eggs and what  the proceeds                                                               
could be  used for.  That particular  language is  in recognition                                                               
that a  reserve fund is a  good idea for circumstances  such as a                                                               
small run.                                                                                                                      
SENATOR  STEDMAN admitted  he was  confused whether  the language                                                               
means that  the hatchery would have  to be in a  strong financial                                                               
position on the day the program is implemented.                                                                                 
MR. FISK  said it was merely  suggesting a way of  doing business                                                               
and budgeting. The hatcheries keep  a big reserve fund and should                                                               
want to include that as a standard budget item.                                                                                 
4:02:17 PM                                                                                                                    
CHAIR   WAGONER  said   he  interpreted   subsection  (d)   as  a                                                               
determination factor when setting the rates.                                                                                    
MR. FISK divulged  there was a hatchery  that expressed concerned                                                               
about  it and  they  wanted to  make sure  the  reserve fund  was                                                               
included because it is part of their regular budget.                                                                            
SENATOR STEDMAN said  he could not ever  remember seeing anything                                                               
on  a  balance  sheet  referred  to as  a  reserve  fund.  It  is                                                               
generally referred  to as  net equity or  sinking funds.  He said                                                               
the  language  seemed  odd  and   hard  to  define.  He  had  the                                                               
impression that the language was  trying to say when the hatchery                                                               
sets  the  rate  it  should  equal one  hundred  percent  of  the                                                               
operating revenue.                                                                                                              
MR.   FISK  offered   to  work   to  clarify   that  point.   His                                                               
understanding  was that  the hatcheries  keep a  reserve fund  to                                                               
cover unforeseen expenses  and that it is a normal  part of their                                                               
budget. He  said that is the  term they used during  testimony on                                                               
the bill.                                                                                                                       
4:04:32 PM                                                                                                                    
SENATOR STEDMAN  referred to page 3;  line 10 and said  under the                                                               
current  system the  three  percent tax  is  "washed through  the                                                               
state and back  through the industry." He  expressed caution that                                                               
under the  bill the revenue to  run the hatchery would  go to the                                                               
state and  then after a  delay the Legislature  would appropriate                                                               
it to the hatchery.                                                                                                             
CHAIR  WAGONER   offered  to  address   that  concern.   He  said                                                               
historically  the original  legislation allowed  each aquaculture                                                               
association to establish an assessment  and they vary from one to                                                               
five percent.                                                                                                                   
SENATOR BEN  STEVENS interrupted to say  that now they can  go up                                                               
to thirty percent, as allowed by the salmon task force.                                                                         
CHAIR WAGONER  explained further it  was then determined  that it                                                               
was illegal for  the state to put into statute  the ability for a                                                               
non-profit to levy the tax and  then collect it. They made a deal                                                               
with the  state that the  state would collect the  assessment and                                                               
the state would give it back. That  is the way it has always been                                                               
done. It is cumbersome but  necessary because state law prohibits                                                               
doing it any other way.                                                                                                         
4:06:54 PM                                                                                                                    
SENATOR STEDMAN expressed  reluctance for the program  to have to                                                               
rely on an appropriation since  the majority of the population of                                                               
Alaska is not along the coast but in the interior.                                                                              
SENATOR BEN STEVENS  said he tracked down where  the exemption to                                                               
the salmon  enhancement tax was  changed. The original  bill said                                                               
that all  salmon harvested under  a special harvest area  are not                                                               
subject  to  the  salmon  enhancement   tax.  The  House  Finance                                                               
Committee changed  the language to  read, "salmon harvested  in a                                                               
common  property fishery  conducted  in a  terminal harvest  area                                                               
under  AS  16.10.455 are  subject  to  a salmon  enhancement  tax                                                               
levied under AS 43.76.001-43.76.040."                                                                                           
SENATOR BEN STEVENS said:                                                                                                       
     We know now that the  common property fish harvested in                                                                    
     a  special   area  of  harvest   are  taxed   a  salmon                                                                    
     enhancement tax.  Now if we  go back to the  part about                                                                    
     up to fifty  percent, the up to fifty  percent is under                                                                    
     AS  16.10.445, which  is a  new subsection  that allows                                                                    
     the department  to do an  assessment by  regulation. It                                                                    
     is not a tax. It is  an additional assessment on top of                                                                    
     an existing tax  because the tax that  is created under                                                                    
     Section  2  is  the  salmon  enhancement  tax  and  the                                                                    
     regulatory  assessment created  under Section  1 is  on                                                                    
     top of  it. It's an  additional tax. The  question that                                                                    
     comes down ...  is why are we charging  double for cost                                                                    
     recovery  fish in  a terminal  area. One  is caught  by                                                                    
     common property fishery and the  other one is harvested                                                                    
     specifically under contract by the hatchery operator.                                                                      
SENATOR BEN  STEVENS said he  needs further clarification  of the                                                               
reason for doing  that for the common property fish  when it's at                                                               
the terminal area.                                                                                                              
MR. FISK agreed and stood corrected.                                                                                            
4:13:01 PM                                                                                                                    
Bob Thorstenson,  Executive Director of Southeast  Alaska Seiners                                                               
Association, said:                                                                                                              
     Senator Stevens  is correct. We discovered  early on in                                                                    
     the process that the  hatcheries legitimate concern was                                                                    
     that  twenty-five percent  of its  fish was  extricated                                                                    
     under  a  cost recovery  program.  Those  fish are  not                                                                    
     subject  to the  three  percent  tax. The  seventy-five                                                                    
     percent that  the fleet  currently catches  are subject                                                                    
     to the  three percent.  If we  took this  cost recovery                                                                    
     system  as a  whole  and placed  a twenty-five  percent                                                                    
     assessment, have  the fleet  catch one  hundred percent                                                                    
     of  the fish  and now  there is  no more  cost recovery                                                                    
     fishery  by individuals  by myself  who have  done cost                                                                    
     recovery in the  past, they would be  gaining the three                                                                    
     percent  on the  twenty-five percent  that now  doesn't                                                                    
     get taxed  on. But  if we didn't  do any  three percent                                                                    
     tax, they  saw themselves  losing on  that seventy-five                                                                    
     percent, which  they normally  would be  collecting the                                                                    
     tax on.                                                                                                                    
Mr. Thorstenson  said it is a  little bit confusing but  from his                                                               
position this was very appropriate,  the hatcheries asked for it,                                                               
and so it was added in order to move the legislation on.                                                                        
SENATOR BEN STEVENS commented the  recipient of the cost recovery                                                               
at the  terminal area is  the hatchery  at the terminal  area and                                                               
not the regional aquaculture association.                                                                                       
Mr. Thorstenson said in this case  it is the same but it wouldn't                                                               
always be the same.                                                                                                             
SENATOR BEN STEVENS  said even if it wasn't the  same, a hatchery                                                               
knows what  its needs  are to recoup  the financial  revenue from                                                               
the cost recovery  program. He questioned the need  for the extra                                                               
three percent.  The system is in  place for cost recovery  and it                                                               
is still the same amount of  money. One is under contract and one                                                               
is common property and the  common property fisherman is paying a                                                               
higher  assessment  rate  as  well  as  a  higher  tax  rate.  He                                                               
suggested  that was  not reasonable  since the  hatchery operator                                                               
was going to receive the revenue either way.                                                                                    
4:17:11 PM                                                                                                                    
CHAIR WAGONER  said the  only time the  three percent  would come                                                               
into play was when the fifty percent maximum was reached.                                                                       
SENATOR  BEN STEVENS  said it  was  an issue  of fairness.  There                                                               
would  be two  mechanisms of  harvesting in  the special  harvest                                                               
area.  One is  a harvester  under contract  of the  cost recovery                                                               
program and one  is a common property fisherman allowed  to go in                                                               
there during an  opening. So there are two  classes of harvesting                                                               
mechanisms and one  has the salmon enhancement tax  and the other                                                               
one does not. He said the exemption clause should be eliminated.                                                                
CHAIR  WAGONER  said he  was  not  sure  he  agreed. He  posed  a                                                               
hypothetical  situation of  a  hatchery  contracting for  thirty-                                                               
eight  percent  of  a  contractor's  harvest.  That  thirty-eight                                                               
percent would include the three  percent tax. The common property                                                               
fisherman pays three percent of everything they catch.                                                                          
SENATOR BEN STEVENS  disagreed. He said the  fish harvested under                                                               
special  permit by  the  hatchery operator  are  exempt from  the                                                               
three  percent tax  under current  statute. HB  218 would  change                                                               
that  but it  would only  apply  to fish  harvested under  common                                                               
property. It does not remove  the exemption for the cost recovery                                                               
program. He reiterated that it was  an issue of fairness that all                                                               
harvesters in  a special  harvest area should  be subject  to the                                                               
same amount of tax.                                                                                                             
4:20:36 PM                                                                                                                    
SENATOR  FRED DYSON  said he  interpreted the  bill to  allow for                                                               
fisherman  to harvest  hatchery fish  so  that they  don't go  to                                                               
waste and the  fishermen would see a financial  benefit for their                                                               
MR. FISK said that was the basic idea of the bill.                                                                              
4:22:48 PM                                                                                                                    
SENATOR STEDMAN  said perhaps he  should introduce  his amendment                                                               
at this time.                                                                                                                   
4:24:44 PM                                                                                                                    
SENATOR DYSON  voiced a  reluctance to vote  on it  without input                                                               
from the bill sponsor.                                                                                                          
CHAIR WAGONER advised  the committee that he  and Senator Stedman                                                               
discussed  holding  the amendment  until  the  next committee  of                                                               
referral.  He  suggested  the committee  move  the  bill  forward                                                               
without amending it.                                                                                                            
SENATOR STEDMAN agreed.                                                                                                         
SENATOR DYSON  moved SCS CSHB  218(RES) version W  from committee                                                               
with individual  recommendations and  the attached  fiscal notes.                                                               
Hearing no objections, the motion carried.                                                                                      
There being no further business to come before the committee,                                                                   
Chair Wagoner adjourned the meeting at 4:27:24 PM.                                                                            

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