02/22/2021 03:30 PM RESOURCES
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ALASKA STATE LEGISLATURE SENATE RESOURCES STANDING COMMITTEE February 22, 2021 3:31 p.m. MEMBERS PRESENT Senator Joshua Revak, Chair Senator Peter Micciche, Vice Chair Senator Gary Stevens Senator Natasha von Imhof Senator Jesse Kiehl Senator Scott Kawasaki (via teleconference) MEMBERS ABSENT Senator Click Bishop COMMITTEE CALENDAR SENATE BILL NO. 33 "An Act relating to a seafood product development tax credit; providing for an effective date by repealing secs. 32 and 35, ch. 61, SLA 2014; and providing for an effective date." - HEARD & HELD SENATE BILL NO. 64 "An Act relating to management of enhanced stocks of shellfish; authorizing certain nonprofit organizations to engage in shellfish enhancement projects; relating to application fees for salmon hatchery permits and shellfish enhancement project permits; allowing the Alaska Seafood Marketing Institute to market aquatic farm products; and providing for an effective date." - HEARD & HELD PREVIOUS COMMITTEE ACTION BILL: SB 33 SHORT TITLE: SEAFOOD PRODUCT DEVELOPMENT TAX CREDIT SPONSOR(s): SENATOR(s) STEVENS 01/25/21 (S) PREFILE RELEASED 1/8/21
01/25/21 (S) READ THE FIRST TIME - REFERRALS
01/25/21 (S) RES, FIN 02/22/21 (S) RES AT 3:30 PM BUTROVICH 205 BILL: SB 64 SHORT TITLE: SHELLFISH PROJECTS; HATCHERIES; FEES SPONSOR(s): SENATOR(s) STEVENS
01/29/21 (S) READ THE FIRST TIME - REFERRALS
01/29/21 (S) RES, FIN 02/22/21 (S) RES AT 3:30 PM BUTROVICH 205 WITNESS REGISTER TIM LAMKIN, Staff Senator Gary Stevens Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Provided an overview of SB 33. JEREMY WOODROW, Executive Director Alaska Seafoods Marketing Institute Juneau, Alaska POSITION STATEMENT: Testified in support of SB 33. CHRISTOPHER BARROWS, President Pacific Seafood Processors Association Seattle, Washington POSITION STATEMENT: Testified in support of SB 33. NICOLE REYNOLDS, Deputy Director Tax Division Department of Revenue Anchorage, Alaska POSITION STATEMENT: Answered questions regarding SB 33. MARK PALMER, CEO OBI Seafoods Seattle, Washington POSITION STATEMENT: Testified in support of SB 33. ABBEY FREDERICK, Director of Communications Silver Bay Seafoods Juneau, Alaska POSITION STATEMENT: Testified in support of SB 33. JULIANNE CURRY, Public Affairs Manager Icicle Seafoods Anchorage, Alaska POSITION STATEMENT: Testified in support of SB 33. TIM LAMKIN, Staff Senator Stevens Alaska State Legislature Juneau, Alaska POSITION STATEMENT: Provided an overview of SB 64. DR. GINNY ECKERT, ProfessorUniversity of Alaska, Director Alaska Sea Grant Fairbanks, Alaska POSITION STATEMENT: Testified in support of SB 64. HEATHER MCCARTY, Co-Chair Alaska King Crab Research, Rehabilitation and Biology Program Juneau, Alaska POSITION STATEMENT: Testified in support of SB 64. SAM RABUNG, Director Commercial Fisheries Division Alaska Department of Fish and Game Juneau, Alaska POSITION STATEMENT: Testified in support of SB 64. JEREMY WOODROW, Executive Director Alaska Seafoods Marketing Institute Juneau, Alaska POSITION STATEMENT: Testified in support of SB 64. JEFF HETRICK, Mariculture Director Alutiiq Pride Marine Institute Seward, Alaska POSITION STATEMENT: Testified in support of SB 64. JULIE DECKER, Executive Director Alaska Fisheries Development Foundation Wrangell, Alaska POSITION STATEMENT: Testified in support of SB 64. ACTION NARRATIVE 3:31:59 PM CHAIR JOSHUA REVAK called the Senate Resources Standing Committee meeting to order at 3:31 p.m. Present at the call to order were Senators Stevens, Kiehl, von Imhof, Micciche, Kawasaki (via teleconference), and Chair Revak. SB 33-SEAFOOD PRODUCT DEVELOPMENT TAX CREDIT 3:33:27 PM CHAIR REVAK announced the consideration of SENATE BILL NO. 33 "An Act relating to a seafood product development tax credit; providing for an effective date by repealing secs. 32 and 35, ch. 61, SLA 2014; and providing for an effective date." 3:34:04 PM SENATOR GARY STEVENS, Alaska State Legislature, Juneau, Alaska bill sponsor, stated SB 33 is about value-added legislation, true growth in market demand from the fishing industry, and it encourages innovation in the fishing industry. He noted the state has previously used a similar policy for direct economic development to support the long-term development of Alaska's seafood processing industry by specifically targeting salmon and herring fisheries. What SB 33 does is extends the sunset [date] and broadens the scope of the tax credit to include investment incentives of both pollock and cod products. 3:35:10 PM TIM LAMKIN, Staff, Senator Gary Stevens, Alaska State Legislature, Juneau, Alaska, explained the intent of SB 33 not only maintains but improves the business and marketing climate for seafood processing in Alaska. The bill essentially translates into partial reimbursement for investments, hardware, machinery, infrastructure in processing the byproducts from the respective fisheries' scales, fins, and the remaining biomass produced via laser cuts. The biomass is in turn used to render oil and long list of other downstream products that are in market demand that committee members will hear more about during proceeding testimony. He noted the sunset provision technically expired January 1, 2021 and that is one amendment the sponsor would like to make to make the legislation retroactive to a January 1 effective date; otherwise, the tax credit currently applies to salmon and herring fisheries. The bill would not only extend the sunset but also open the program to include invest incentives for pollock and cod. MR. LAMKIN said if the Chair wishes, he can go into the sectional analysis for SB 33. CHAIR REVAK asked him to proceed with the sectional analysis for SB 33. 3:36:33 PM MR. LAMKIN stated the bill first and foremost extends the sunset, otherwise the legislation is largely conforming amendments that includes the existing tax credits applied for salmon and herring to include two additional fisheries, cod and pollock. He addressed the sectional analysis for SB 33 as follows: Section 1 Relates to the tax credits applied to these products and applies them through the year 2025 and adds cod and pollock. Section 2 Conforming amendment that relates to applying the tax credit for equipment purchases for processing these products to include pollock and cod. Section 3 Conforming amendment, relating to a three-year carryforward of unused tax credits that exist for salmon and herring to also be applicable to pollock and cod. Section 4 Relates to a 50 percent liability cap on the tax credits and is essentially a statutory cleanup done by draftinglegislature's legal folksto delete a duplicate and redundant clause. Section 5 Conforming amendment that relates what is called a "state claw-back provision" on carryforward in the event that an asset used during this is sold can be recovered from the state, it adds to existing provisions that would include pollock and cod. Section 6 Conforming amendment relates to the definition of qualified investment under this program and adds pollock and cod. Section 7 Conforming amendment relates to the definition of value-added products under the program and again, adds pollock and cod. Sections 8-11 Are all consistent historical sunset dates and repealersagain, with the assistance of the legislature's legal folks to now consolidate them into a single section and effective date set for January 1, 2026. Section 12 The overall effective date of January 1, 2022. 3:38:56 PM MR. LAMKIN noted the bill sponsor's office received two additional support letters within the last 24 hours from the Southeast Alaska Fishermen's Alliance as well as Ocean Beauty Seafoods. SENATOR VON IMHOF asked him to confirm that he wanted the effective date to be 2022 or 2021 in Section 12 because he mentioned earlier the intent for a retroactive date to [January 1, 2021.] MR. LAMKIN answered correct, the bill sponsor's office would like to make that change. 3:39:49 PM CHAIR REVAK announced the committee will hear from invited testimony for SB 33. 3:40:07 PM JEREMY WOODROW, Executive Director, Alaska Seafoods Marketing Institute, Juneau, Alaska, testified in support of SB 33. He stated the Alaska Seafood Marketing Institute (ASMI) supports all efforts that will help increase the value of Alaska's fisheries. SB 33 would provide the Alaska seafood industry incentive and support to continue much needed investments in processing facilities and take additional measures to create more value for key Alaska seafood species. MR. WOODROW detailed Alaska's commercial fisheries annually harvest on average 5.5 billion pounds of seafood with approximately 2.5 billion pounds of seafood sold to markets worldwide after processing; that leaves an opportunity to add even more value to 3 billion pounds of Alaska's seafood resources. He noted products such as fish and bone meals, and fish oil currently generate hundreds of millions of dollars annually for Alaska's seafood industry. Forecasts call for additional growth in pet foods, nutraceuticals, medical advancements, food preservation, and moreall produced from byproducts via fish skin and heads, crab shells, and similar often discarded items. Any effort made to help maximize Alaska's sustainable seafood resources will benefit the state. He detailed the January 2020 economic value of Alaska's seafood industryreported via the McDowell Groupthe state's major shoreside seafood processors invest over $100 million annually in capital expenditures. Processors' investment and multiplier impacts closely tie to the resource value. Expanding value provides processing companies capital to modernize plants, expand production lines, and pay higher fish prices; all these benefit local communities in Alaska and provides growth elsewhere in the U.S. economy. He noted market research shows that consumers worldwide are increasingly seeking convenient, easy to prepare products that match their busy lifestyle. Consumers also no longer want to sacrifice health, flavor, and quality when choosing convenience- based products. This trend creates tremendous opportunity for Alaska's seafood products to capitalize on by producing new, innovative, and value-added seafood products. SB 33 supports this trend and would help Alaska's seafood companies develop products to match consumer demand. 3:42:59 PM CHRISTOPHER BARROWS, President, Pacific Seafood Processors Association, Seattle, Washington, testified in support of SB 33. He noted Pacific Seafood Processors Association (PSPA)founded in 1914is comprised of eight major seafood processing companies from Ketchikan to Unalaska, to Saint Paul. PSPA operates in the center of Alaska's wild and sustainable seafood supply chain. PSPA members operate 25 facilities in 15 coastal communities across Alaska, and that also includes 3 floating processors that purchases Alaska seafood from harvesters and process it into various product forms with distribution to the United States and around the world. MR. BARROWS said SB 33 is a bill that would reestablish and augment Alaska's Seafood Product Development Tax Credit Program which expired in 2020. PSPA's understanding is the bill would reestablish a longstanding program through 2025 and expand the list of eligible speciescurrently salmon and herringto also include pollock and cod. He stated the legislation is an important expansion because wild Alaska pollock and Pacific cod comprises 69 percent of Alaska's statewide harvest, which represents a lot of opportunity for obtaining more value from high-volume species over the long term. Higher value means more value to fishermen, processors, and to the local and state governments that base fish taxes on fish value; this type of program and investment incentive can make a difference by allowing companies to obtain value-added equipment and other types of investment that will benefit Alaska for years to come. He said PSPA's member companies and Alaska's wild seafood products compete in global markets and have a steady volume of annual harvest on the order of about 5.7 billion pounds. However, volume of Alaska's fisheries is not likely to change significantly over time, therefore increasing the value of Alaska's seafood is the key to future growth. Increasing seafood value requires market differentiations, research and development, and building consumer awarenessdetails that require significant investment. He stated SB 33 serves the objective of increasing seafood value by encouraging innovation in the seafood processing sector, facilitating greater utilization of each fish, and providing incentives to respond to changes in market demands. Seafood processors have used the previous authorized tax credit to make critical investments in processing technologies that would otherwise be cost prohibitive for some. Salmon is a great example as the previous tax credit has changed the face of salmon processing to increase production of filet and other value-added-salmon products that have a stronger U.S. market demand. He explained a higher value product means a higher return on investment for Alaska, coastal communities, and fishery participants. Value-added products also require more labor than simply freezing or heading-and-gutting and increases job and labor income to the state as well. MR. BARROWS summarized the health of the commercial fisheries and seafood industry is critical to Alaska as it annually generates between $5-$6 billion in economic value to Alaska and creates more direct jobs than any other private industry in the state. PSPA supports reauthorizing and expanding the Seafood Product Development Tax Credit Program as well as establishing an effective date of January 1, 2021 to allow for value-added investments during the current year. 3:47:00 PM SENATOR STEVENS thanked Mr. Barrows for his comments. He noted salmon processing plants have gone from canned and whole fish to frozen filets. He asked him what percentage of salmon are processors processing into filets. MR. BARROWS answered he will get back to him on that. He said some of his other colleagues may have the information. SENATOR STEVENS remarked the value of salmon seems to have increased so much via salmon filets over the simple processing. SENATOR MICCICHE asked Mr. Barrows, all processors, or the department to provide additional details to Senator Stevens' question to include specific species information and the ultimate return for the tax credits currently in existence without the expansion of pollock and cod. He added he would like to know how far the state has gotten with those credits, what have been the market improvements, and species specific versus general information. MR. BARROWS replied, his question will require further research. He asked him to confirm the basis of his question is to understand the return on investment from previous product forms to new product forms that benefited from the tax credit across all species. SENATOR MICCICHE answered yes. He said he wants to be able to demonstrate the value of the tax credits to the state as well as the processors and fishermen. 3:49:24 PM CHAIR REVAK noted Ms. Reynolds from the Department of Revenue may be able to answer his question. 3:49:40 PM NICOLE REYNOLDS, Deputy Director, Tax Division, Department of Revenue, Anchorage, Alaska, noted from 2017-2020 the tax credit value ranged from $2.3-$4.4 million; this value strictly represents the credit for the equipment used to create the value-added salmon and herring products. SENATOR MICCICHE commented he is obviously asking for something much more comprehensive. He said he would like to be able to demonstrate there is value to the state, not just the processors. He remarked he thinks there has been [value to the state] and collectively they can provide a comprehensive response that will prove that case. SENATOR VON IMHOF noted fish meal is a byproduct example that affects Alaska businesses where investment stays in the state. People from the Mat-Su Valley have used fish meal as an affective fertilizer alternative. She said she sees a benefit from knowing how many cottage industries in Alaska have created dog food treats, fish meal, or whatever; have there been any sales outside of Alaska and how are those numbers; and who is buying for how much. SENATOR STEVENS suggested to include the number of jobs added due to a more complicated form of processing. 3:52:58 PM MARK PALMER, CEO, OBI Seafoods, Seattle, Washington, testified in support of SB 33. He noted Ocean Beauty Seafoods changed its name to OBI Seafoods after the 2020 merger with Icicle Seafoods. OBI operates 10 processing plants in Alaska. He pointed out economic development revolves around investments derived from the tax credit. When OBI built its meal and oil plant in Cordova to utilize the facilities waste stream, the cost of building the infrastructure to support the equipment OBI used via the tax credit resulted in OBI hiring local electricians, concrete, construction labor; that part of the investment was over double what OBI paid for the processing equipment. He said the economic development derived from the tax credit resulted in job creation. Many processing plants around Alaska built in the early 1900scarry its waste stream into the ocean without providing jobs in the process. However, when adding a line to capture waste for a value-added product, the process adds at least 10 higher-paying jobs. OBI is putting in filet machines, computerized oil extractors, centrifuges, a lot of sophisticated equipment that pays more to those labors operating the equipment. MR. PALMER pointed out there is a great history with the legislation. Capacity increases at almost every plant when OBI adds [value-adding equipment]. Increased capacity means fisherfolk are less likely to go on limits in those times when there are large production peaks. When OBI diversifies product lines, the most important thing the company can do is get its customer base to compete for its products, the product forms the company has, the more markets and customers it can access. That is the way OBI competes for raw materials. He said to Senator Micciche's question, at the time the valued- added salmon tax credit came into existence, prices in Bristol Bay were at record lows, pink salmon prices were at record lows. What the tax credit did at the time, a case of pink salmon was selling for $16 a case on the wholesale market, which was 50- cents less than its production cost; sockeye salmonred halves was $36 a case; however, last year that averaged $60 a case, and OBI has seen a marked improvement in the product forms because OBI was not forced into canning everything. He noted OBI took a big chunk of its product that would normally have either gone [headed and gutted] (H&G), frozen, or canned, and moved20 percent of its capacityto fillets; that is the difference between not over-canning. Right sizing the market allows for producing for the market and its dynamics work. However, oversupplying any one area weakens a processor's whole product portfolio and lowers the return to the fisherfolk and the state. He reiterated there is great history with the legislation, the processors demonstrated it can increase product value, and resource utilization is something that worldwide customers demand. People want to see less waste of their products going into a waste stream, and they want to be able to talk about sustainability and full utilization. SB 33 gives processors a shot at full utilization. 3:58:14 PM ABBEY FREDERICK, Director of Communications, Silver Bay Seafoods, Juneau, Alaska, testified in support of SB 33. She detailed Silver Bay Seafoods is a vertically integrated, primary fisherman-owned processor that processes salmon, herring, Pacific cod, pollock, rockfish, and other Alaska species. Silver Bay Seafoods has significantly invested in state-of-the-art, high-volume-processing facilities throughout Alaska. Silver Bay Seafoods is relatively newstarted in 2007and operates in Sitka, Craig, Valdez, Naknek, False Pass, and Kodiak. MS. FREDERICK noted Silver Bay has been able to take advantage of the past versions of this legislation which encouraged its investment in additional equipment and infrastructure to produce more value-added products for salmon and herring in Alaska. She said SB 33 would provide a significant return on investment to Alaska through increased jobs, economic activity, as well as fish-tax revenue by maximizing the value of fish processed in the state. The bill provides long-term benefits for the state by creating value maximization via full fish resource utilization which benefits its harvesters, processors, and communities. She stated by expanding to other speciespollock and codsome of which has experienced the market impacts from COVID-19, the legislation promotes continued investment in the state's fisheries and encourages businesses like Silver Bay Seafoods to find innovative and adaptive ways to thrive in time of changing consumer demands. 4:00:45 PM JULIANNE CURRY, Public Affairs Manager, Icicle Seafoods, Anchorage, Alaska, testified in support of SB 33. She detailed Icicle Seafoods now solely operates as a shore-based processing facility in Dutch Harbor and a floating processor in the Dutch Harbor area, both of which participate mainly in the pollock and cod fisheries in the Bering Sea and Aleutian Islands. She said Icicle Seafoods was ecstatic to see SB 33 include pollock and cod as eligible species under the state's long standing and important program. SB 33 would be a game changer for Icicle Seafoods' operation. Creating higher value seafood products is one of the primary ways that Icicle Seafoods can increase the dockside price of fish for its harvesters and create stability for its workforce with additional product forms. She stated through SB 33 and the inclusion of pollock and cod as eligible species, Icicle Seafoods would be able to purchase equipment to not only increase the quality of seafood it produces, but to also finally produce value-added product forms that would help revolutionize its processing platforms. In an industry with razor-thin margins, SB 33 would give Icicle Seafoods the competitive advantage it needs to affectively compete in the domestic and global marketplace. SB 33 would also vastly improve Icicle Seafoods' ability to further capture the waste stream and turn that unused resource into a valuable Alaska product. MS. CURRY said COVID-19 has brought many challenges including drastically increased operating costs. Icicle Seafoods has worked hard to streamline its operations since COVID-19 began, but the company and the industry feels those impacted costs. Domestic and global retail sales are at all-time highs for seafoods, but those sales have not been enough to offset the staggering decrease in restaurant and other foodservice sales. Although SB 33 is beneficial even in non-pandemic times, Icicle Seafoods is even more supportive of the vital legislation given the current COVID-19 challenges facing the industry. She said in the hope that SB 33 passes during the legislative session, Icicle Seafoods is actively researching how to upgrade its processing platforms to bring more value to its processing efforts. Seafood is Alaska's only major renewable resource industry and as such, Icicle Seafood's processing efforts and its harvesters continually face uncertainty such as fluctuating resource levels as well as domestic and international market conditions. She thanked Senator Stevens for introducing SB 33 and helping create the short-term opportunity for Alaska's seafood industry that will have lasting impacts for Icicle Seafoods, its harvesters, and the state. She thanked Senator Kiehl for his co- sponsorship with the hope that others will similarly support the legislation that benefits Alaska's largest private sector employer. 4:03:51 PM At ease 4:04:12 PM CHAIR REVAK called the committee back to order. 4:04:17 PM CHAIR REVAK held SB 33 in committee. SB 64-SHELLFISH PROJECTS; HATCHERIES; FEES 4:04:32 PM CHAIR REVAK announced the consideration of SENATE BILL NO. 64 "An Act relating to management of enhanced stocks of shellfish; authorizing certain nonprofit organizations to engage in shellfish enhancement projects; relating to application fees for salmon hatchery permits and shellfish enhancement project permits; allowing the Alaska Seafood Marketing Institute to market aquatic farm products; and providing for an effective date." 4:04:52 PM SENATOR STEVENS, sponsor of Senate Bill 64 (SB 64), stated he appreciated the testimony for the previous bill and noted Ms. Curry made a good comment that the seafood industry is Alaska's only renewable industry; if the state treats it right, if the legislature creates opportunities for the processors to go into new lines, as well as shellfish enhancement, then the state will see a major long-term benefit. He said SB 64 is about strengthening Alaska's fisheries portfolios, promoting economic development policy, creating jobs, doing more research, and food security. In the big, long term picture the bill should be a win-win for Alaska, businesses, and consumers. 4:06:06 PM TIM LAMKIN, Staff, Senator Stevens, Alaska State Legislature, Juneau, Alaska, explained SB 64 is a result of a considerable amount of work by stakeholders, biologists, and scientists. The large focus of the bill is on the crab and clam industry. He noted most of Alaska's crab fisheries have been shutdown for quite sometime for reasons that the scientific community does not entirely understand, but certainly may include overfishing of the state's crab fisheries. However, the state has not provided any substantive tools to fix the situation other than to discontinue the fishing of those species. He pointed out there has been what scientists call an environmental regime shift in Alaska's oceans where at one time the crustaceansor crabswere the dominant biomass of the state's waters, but nowadays that has shifted to finfish dominance. He explained finfish, for example, virtually all creatures out there really enjoy feeding on baby crabs and clamswhich are very vulnerable in the earliest stage of their lifeand predation is probably a bit part of this picture. MR. LAMKIN said SB 64 provides a legal framework for large scale, shellfish hatchery projects to function in Alaska to nurture the shellfish younglingsking crab, razor clams, and geoducksin their formative stages to provide them with a better shot at survival in the wild. The intent of the legislation is to carefully balance Alaska's wild versus enhanced programs and resources. He explained the policy structure contained in the bill represents an investment in the state's science, fisheries related jobs, private sector, and in Alaska's constitution for the principle of sustainable yield. He said hopefully the bill will ultimately improve what shows up on Alaska's dinner tables. He noted earlier in the day, Senator Steven's office received two additional support letters from the Southeast Alaska Fishermen's Alliance as well as the Aleutian Pribilof Island Community Development Association in strong support of the bill. CHAIR REVAK asked Mr. Lamkin to proceed with the sectional analysis for SB 64. 4:09:07 PM MR. LAMKIN provided a sectional analysis for SB 64 as follows: Section 1 Provides the Board of Fisheries authority to direct the department to manage production of enhanced shellfish stocks, beyond broodstock needs, and for cost recovery harvests. He noted the billor new programis modeled after existing and longstanding salmon hatchery permitting processes. He said there are substantive differences, but he believesas Mr. Rabung [with Alaska Department of Fish and Game (ADF&G)] will likely touch on later in the bill's overviewAlaska's salmon hatchery processes have largely been a great success. The bill is an effort to craft a shellfish program based similarly on salmon hatcheries and salmon hatchery statutes. He continued to provide the sectional analysis for SB 64 as follows: Section 2 Removes a flat $100 application fee for the launching into these hatcheries, it is similar with the salmon hatcheries but instead would be determined by regulation by the department and that is described in the following section to kind of bring it up to speed and make it reflective of the costs associated with these processes. Section 3 Conforming language consistent with the other fee structures that we have begun to set up in various other statutes, adjusting by regulation the required fees for inflation and changing costs, and so forth. Section 4 Core of the bill, in the beginning there, adds a new chapter 12 inside of Title XVI entitled, Shellfish Stock Enhancement Projects; within that chapter is a new [AS 16.12.010]. It provides direction to the commissioner of ADF&G to issue permits for these shellfish projects. It goes into some detail as to how to go about doing that, setting fees, setting hearing schedules, and so forth as they work on the process to of working on these permits, it generally takes six months to a year. 4:11:55 PM MR. LAMKIN continued to provide the sectional analysis for SB 64 as follows: Section 5 Provides the Commercial Fisheries Entry Commission (CFEC) authority to issue special permits to private nonprofit shellfish rehab and enhancement project permits. Section 6 Defines what is the legal fishing gear for special harvest area entry permit holders. Section 7 Adds marketing and promotion of aquatic farm products to the power of the Alaska Seafood Marketing Institute (ASMI). Section 8 Conforming amendment, prohibiting ASMI from promoting products that are not from Alaska, it is consistent with the other products that they promote. Section 9 Conforming amendment regarding the definition of "seafood." Section 10 Referential subsection point to an existing definition of "aquatic farm product," it aligns the definition of what we are talking about aquatic farm, essentially translating into seaweed and kelp, and to include "or shellfish" which is propagated, farm, or cultivated in an aquatic farm and so forth. Section 11 Exempts shellfish raised in a private nonprofit from the definition of "farmed fish." Section 12 Makes the application fee received by ADF&G to be accounted for separately. Appropriations from those program receipts are not made from the unrestricted general revenue fund. Section 13 Exempts a nonprofit corporation holding a shellfish hatchery permit from the state corporate income tax program when making shellfish sales and engaging in cost recovery activities. Section 14 Technical conforming amendment required by prior session law and has no direct impact on the bill. That was a component from our legal folks that required that language there. Section 15 Exempts the shellfish harvested under their permit from seafood development taxing. Section 16 Establishes an effective date for the salmon hatchery permit application fee process described above. Section 17 Authorizes ADF&G to adopt regulations. Section 18 Establishes an immediate effective date. Section 19 Conforming amendmenttechnical in naturewith the other effective components of the bill. 4:14:41 PM CHAIR REVAK announced the committee will hear invited testimony for SB 64. 4:15:04 PM DR. GINNY ECKERT, ProfessorUniversity of Alaska, Director Alaska Sea Grant, Fairbanks, Alaska, testified in support of SB 64. She noted her expertise is in shellfishhaving worked in shellfish in Alaska since 2000and has worked in king crab rehabilitation since 2007 as well as served as the science director and co-chair of the Alaska King Crab Research, Rehabilitation and Biology (AKCRRAB) Program. She thanked Senator Stevens and the legislature for their work on SB 64, noting she testified in support of the previous version of the legislation in 2016. She stated she will speak to the need for rehabilitation for shellfish, a fishery resource that includes crabs, clams, and abalonemany of these stocks are in decline. She noted she has done some recent work on abalone, a species with potential as well. She said she is going to talk more about king crab, an iconic species native to Alaska. Many of the state's king crab stocks have crashed. In the Gulf of Alaska, king crab stocks crashed in the early 1980s and have not recovered since, even with fisheries closure. Over fishing is very likely the cause of the decline due to very high fishing rates, and the state did not have much knowledge about fishery science then. There is great concern about bycatch, including at that time an allowance for foreign fleets until the early 1970s. She noted the king crab stocksin the absence of fishinghave not recovered in almost 40 years. There are current stocks todaythe Bristol Bay red king crab fisheryin decline that warrants concern for possible closure in the upcoming years. She said AKCRRAB has done quite a bit of research on the feasibility of rehabilitation through culturing king crab in a hatchery and out-planting them. AKCRRAB has learned a lot about king crabs and is learning more about the bottlenecks and potential for recovery. AKCRRAB has very good evidence these stocks are recruitment-limited, and enhancement could help. AKCRRAB has out-planted animals on a small scale and is able to find these animals when they grow larger several years later However, moving forward, doing experiments at a larger scale, and to potentially rehabilitate stocks through stock enhancement requires SB 64. DR. ECKERT said she understands there could be concerns about genetics; however, the noted shellfish are very different from salmon. Hatcheries collect adult salmon and decide who is mating with each other. Through shellfish stock enhancement, the animals are reproducing in the wild, they are mating in the wild, and AKCRRAB brings them into the lab with the offspring somewhat intact. The females sort of carry the embryos, so AKCRRAB can just hatch them out to give them an advantage in the early stages and then put them out into the wild so that they can be more successful. 4:18:52 PM SENATOR KIEHL noted terminal harvest areas are associated with salmon hatcherieswhich is relatively easy because the salmon comeback to their release location. He asked her if crab show the same affinity towards a place and whether that is an option the department will have in managing those cost recovery fisheries. CHAIR REVAK asked her how the crab migrates. DR. ECKERT replied crabs are very different from salmon, they are not going to migrate back to the place where they were born. She conceded AKCRRAB has a lot to learn about where these crabs go. She said AKCRRAB has done work in recent years that suggest the young crabs inhabit shallower waters and migrate into deeper waters. Crab fisherfolk will note crabs go deeper in the summer and shallower in the winter. Colleagues at the National Marine Fisheries Service in Kodiak have out-planted very small juveniles and they have been able to find them a couple of years later. She summarized AKCRRAB has opportunities to do more work, but the program believes these animals are probably staying relatively in a small area; ADF&G could talk about how to manage this in the future. SENATOR KIEHL noted the bill has a prohibition on genetic modified shellfish and included a definition. He pointed out freshwater fish hatcheries will modify its fish so they cannot reproduce. However, the sponsor spoke about the intension of the bill to enhance recovery and get reproducing stock numbers up. He asked her if there is the possibility in the future especially if shellfish stick to a particular areato do the same sort of thing or does the genetic modification definition rule out the possibility of enhancing a localized area with nonreproducing shellfish. 4:21:43 PM DR. ECKERT replied she does not know the answer. She explained AKCRRAB does not understand the biology that much but there are fascinating things that are happening with technology now. The way AKCRRAB currently grows crab in the hatchery is to allow female crabs to hatch-out their embryos without genetic manipulation. AKCRRAB wants to focus carefully to not overwhelm any of the natural genetic diversity. She noted there is potential for future modification. Norway is working on lobster; they are a leader in many of the aquaculture efforts. However, she does not know if Norway has done anything like [genetic modification], but if that were to happen, they would be first. SENATOR KIEHL conceded that concern is 15-20 years out at the closest and is not an issue. 4:23:36 PM HEATHER MCCARTY, Co-Chair, Alaska King Crab Research, Rehabilitation and Biology (AKCRRAB) Program, Juneau, Alaska, testified in support of SB 64. She noted she is also the Chair of the Alaska Governor's Mariculture Task Force (AMTF). She said her main interest in crab came from her employer, Central Bering Sea Fishermen's Association (CBSFA), one of Western Alaska's six [Community Development Quota] (CDQ) Program groups for St. Paul Island in the Pribilof Islands. Blue king crab used to surround St. Paul Island, it was a viable and lucrative fishery both for the local people and for the State of Alaska for many years. However, like several other crab stocks, the blue king crab had precipitously declined in the early 1980s and fisherfolk have not fished the area since then, but the stocks continue to decline. A group started the AKCRRAB Program in 2006 to try and bring the stock back as well as the red king crab in the Kodiak area. MS. MCCARTY noted she has been part of AMTF since the beginning in 2016. AMTF consists of scientists, industry people, community representatives, and agency representatives for the State of Alaska. AMTF is dedicated to developing mariculture in Alaska for the benefit of the state and its people. AMTF supports the passage of SB 64noting previous support for the legislation's various iterations for the last two legislative sessions. She said AMTF believes that the mariculture of shellfish and seaweed has great potential in Alaska to benefit the economies particularly of coastal communitiesto provide ocean-related jobs in those communities in entry-level ways for residents to make use of their experience on the water and their existing equipment such as boats and so onnot to mention the existing processing opportunities in those coastal communities. SB 64 is a big piece of that development. She explained the bill is one of AMTF's priorities because advancing the culture of shellfishas Dr. Eckert described requires the legislation for advancement. AMFT spent the last decade and a half developing methods of crab in captivity, release monitoring, and understanding habitat needs. AMTF cannot go the extra step into larger scale production without the benefit of SB 64 to implement regulations and help the program go one step further into making shellfish a viable industry. 4:27:50 PM SAM RABUNG, Director, Commercial Fisheries Division, Alaska Department of Fish and Game, Juneau, Alaska, testified in support of SB 64. He explained Alaska currently limits mariculture to aquatic farming, sometimes called "wet farming," which entails growing privately-owned organisms under positive control and not releasing themit is private property for private business for profit. In contrast, the fisheries in Alaska are common property and owned by all the people of Alaska. Mariculture could restore extirpated stocks, rehabilitate weak stocks, and enhance fisheries to support harvest levels above natural production; however, currently that is not legal and that is the reason for SB 64. He said in response to Senator Kiehl's earlier question about special harvest areas for crab, there is a provision in SB 64 that allows for a fishery assessment as a cost recovery tool, so the common property could harvest the organisms in a release area and they pay an assessment to fund the cost of the project, it is just one of the many available tools if SB 64 were to pass. MR. RABUNG noted to answer the previous question by Senator Kiehl regarding releasing non-reproducing organisms, the problem with that is that would preclude being able to restore or rehabilitate stocks because they would not be able to reproduce. Brood stock collection would occur in an area near the release location area and brought into a hatchery for spawning inducement and progency protection until their sizes allow for out-planting survival until maturity for harvest. He said SB 64 would require that the entities performing the hatchery work be nonprofits. Mechanisms to support the hatchery work would entail either a fisheries assessment tax, stakeholder self-assessment, or a direct cost recovery from fishing. The program would require self-support. 4:31:15 PM SENATOR KIEHL referenced cost recovery to a fishery. He asked him if the department is concerned with the comingling of a common property stocknatural versus enhancedor does he see the fishery as comparable to the incidental catch of some wild stock when a hatchery cost recovery is fishing salmon. MR. RABUNG replied yes, the department will start off at low levels with monitoring with the intention to augment the harvest. The harvest will have wild stock with it, but the intent for a direct cost recovery harvest is to focus on hatchery or project-produced organisms. He conceded [crabs] are not as clean a fit as the salmon because the salmon returns to their release location at maturity; however, this is a species-by-species approach. For example, crabs are mobile and can move around, but clams are beach planted, so each species is unique. He noted the Eastside Cook Inlet razor clams are in declineno personal-use permits openings for 5-7 yearsand they are a candidate for a rehabilitation project for those beaches via hatchery out- planting. He said dive fisheries for [sea cucumbers] and geoducks in Southeast Alaska is another enhancement-type project example. Rotating harvests for common-property dive fisheries occur approximately every three yearsfor natural stock recovery. Out- planting hatchery juveniles from the area after the fishery occurs could speed up the rotation. MR. RABUNG said he feels that most of these projects are probably not going to be directed-cost recovery because it is not as easy to sort them out and keep them segregated from their naturally produced cohorts. The other tools in the billfishery assessment tax or stakeholders taxing themselveswould probably be more likely used. 4:35:23 PM JEREMY WOODROW, Executive Director, Alaska Seafoods Marketing Institute, Juneau, Alaska, testified in support of SB 64. He said he will speak to the parts of the bill that pertain to the Alaska Seafoods Marketing Institute (ASMI). The Alaska Mariculture Task Force (AMTF) and the Alaska Shellfish Growers Association support the statutory change. He said as a public-private partnership between the State of Alaska and the Alaska seafood industry, ASMI has established a fostered economic development of Alaska's renewable natural seafood resources. ASMI plays a key role in the repositioning of Alaska's seafood industry as a competitive, market driven, food production industry. He detailed ASMI accomplished its work to boost the value of Alaska's seafood through partnerships with retail grocers, foodservice distributors and operators, restaurant chains, universities, culinary schools, and the media. ASMI conducts consumer campaigns, public relations, advertising activities, and aligns with industry efforts to maximize effectiveness. ASMI also functions as a brand manager for the Alaska seafood family of brands. He said the economic opportunity for mariculture in Alaska is expanding quickly. With the support and efforts of AMTF, the industry is seeing growth from small family businesses selling boutique products to fisherfolk looking to utilize their vessels and skills in shoulder-seasons, to significant investment in production by Alaska's major seafood companies, recognizing the opportunity to diversify their existing Alaska product portfolios. He detailed AMTF has identified the goal to build Alaska's mariculture production into a $100 million per year industry; this is no small feat and will require quite literally all- hands-on-deck to meet this objective. Providing the same opportunity for Alaska mariculture products that have benefited Alaska's fisheries for 40 years will undoubtingly help meet this goal by utilizing ASMI's expertise to include mariculture products and consumer retail foodservice and food aid outreach, and domestic and both in targeted markets. MR. WOODROW said the ASMI board would like to thank Chairman Revak and the members of the Senate Resources Committee for recognizing the value of Alaska's maritime economy and for the committee's consideration of meaningful legislation to aid economic development across Alaska's coastal communities. 4:38:21 PM JEFF HETRICK, Mariculture Director, Alutiiq Pride Marine Institute (APMI), Seward, Alaska, testified in support of SB 64. He detailed the Alutiiq Pride Marine Institute (APMI) houses its shellfish hatchery in Seward. APMI has been developing the hatchery technology for many of the important Alaska shellfish species such as littleneck clams, butter clams, razor clams, softshell clams, cockles, purple-hinged rock scallops, as well as red and blue king crab, Bosworth abalone, sea cucumbers, and most recently kelp; APMI is the first entity to successfully raise many of these species. He said in response to the questions concerning genetic manipulation, it is a common practice to create triploid or infertile mollusk shellfish. However, technology for crustaceans is not quite as understoodas Dr. Eckert saidbut triploidy is a valuable tool for addressing concerns with genetic impacts from shellfish hatcheries. He noted, although APMI produces geoducks and oysters for the commercial operations, a major focus has been invested beyond the aquatic farm industry to conduct trial shellfish enhancement projects and APMI does that through planting and monitoring local beaches with clams and other species in an effort to have some tools to perhaps bring back some of these declining populations; all this work to date has been conducted under research permits through the Alaska Department of Fish and Game (ADF&G)they have been wonderful partnersas APMI develops this technology. He explained due to lack of legislation, APMI has not been able to conduct programs that might be large enough to provide more scientific data and harvest opportunities. APMI has worked in some areasPort Graham, Seldovia, Lower Cook Inletwhere locals are actually harvesting some of APMI's enhanced populations, but those were planted under research permits and minimal. MR. HETRICK noted with king crabs, APMI has assembled a large team of experts in crab biology and management. APMI just finished its third year of an out-stocking program in Kodiak that has given APMI great expectations for success if APMI continues along the crab enhancement path. He said he cannot understate the significance of having SB 64 in play. Alaska's native coastal communities that have financially supported APMI's work for almost 20 years are anxiously awaiting some projects to bring back some of those resources. AMPI is certainly prepared to move beyond the experimental to the implementation phase of AMPI's work. 4:41:52 PM JULIE DECKER, Executive Director, Alaska Fisheries Development Foundation, Wrangell, Alaska, testified in support of SB 64. She said the bill creates a framework to develop the shellfish fishery enhancement and allows for ASMI to market aquatic products which will further the development of the new mariculture industry. She stated SB 64 accomplishes two-priority recommendations of the AMTFwhich she also serves onas a part of a larger plan to fully develop the mariculture industry in Alaska with a goal to grow a $100-million-per-year industry in 20 years. She detailed Alaska Fisheries Development Foundation (AFDF) membership is comprised of seafood harvesters, seafood processors, and support businesses. AFDFfounded in 1978has a mission to identify opportunities common to the Alaska seafood industry; and develop efficient, sustainable outcomes that benefit the economy, environment, and coastal communities. She noted one of foundation's recent areas of work is the development of mariculture. As a direct result of this work with others, AMTFestablished in 2016completed a statewide comprehensive plan in 2018 with the goal of growing a $100- million industry. She explained as the facilitator for the certification of the Alaska salmon fishery as sustainable, AFDF has a unique viewpoint on some of the concerns of others for the potential of negative impacts from SB 64. AFDF is the client for both the Alaska Responsible Fisheries Management (RFM) and the Marine Stewardship Council (MSC) certifications of Alaska salmon. As a part of these certifications, ADF&G management of the salmon fishery, including salmon enhancement program, receives review every year by independent third-party experts to determine whether it meets internationally accepted standards for sustainably managed fisheries. Alaska salmon is currently certified as sustainable under both the RFM and MSC programs because ADF&G's management incorporates a cautionary approach that prioritizes wild fish and minimizes adverse impacts to wild stocks. MS. DECKER pointed out ADF&G has extensive enhancement policies which protect wild stocks, including genetics policies, release sites, marking, and disease policies; given these policies, ADF&G's is fulfilling its constitutional mandate to manage the state's fishery resources for sustainability. ADF&G will similarly manage shellfish enhancement with the same constitutional mandate to protect wild stocks. She said another benefit of developing shellfish fishery enhancement is the important role that shellfish hatcheries may play in helping the state adapt to ocean changes and acidification. During additional shellfish hatchery technique development, the state will learn more about its abilities to mitigate the effects of ocean acidification in a hatchery setting. For example, adjusting pH levels at critical juvenile stages in hatchery can improve survival after crab release into the wild. Therefore, shellfish hatcheries may play a critical role in the future by helping to protect wild stocks from negative impacts of ocean acidification. She stated shellfish enhancement can diversify and expand economic opportunities by increasing harvest for sports, subsistence, and commercial uselike Alaska's salmon enhancement program. For example, salmon enhancement, from 2012-2017, contributed approximately $720 million in ex-vessel value and $2.1 billion in first wholesale value to the state's economy. Similarly, shellfish enhancement can infuse the economies of Alaska's communities. She said AFDF believes that growth of the mariculture industry can play an important role in Alaska's economic recovery from the COVID-19 disaster, and passage of SB 64 is central to fully enabling that recovery and potential. 4:47:10 PM CHAIR REVAK announced the committee will open public testimony for SB 33 and SB 64 during an upcoming meeting. 4:47:18 PM CHAIR REVAK held SB 64 in committee. 4:47:40 PM There being no further business to come before the committee, Chair Revak adjourned the Senate Resources Standing Committee meeting at 4:47 p.m.