Legislature(2001 - 2002)
02/25/2002 03:37 PM Senate RES
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES COMMITTEE
February 25, 2002
3:37 p.m.
MEMBERS PRESENT
Senator John Torgerson, Chair
Senator Gary Wilken, Vice Chair
Senator Rick Halford
Senator Robin Taylor
Senator Ben Stevens
Senator Kim Elton
Senator Georgianna Lincoln
MEMBERS ABSENT
All Members Present
COMMITTEE CALENDAR
SENATE BILL NO. 141
"An Act relating to aquatic farming of shellfish; and providing
for an effective date."
MOVED CSSB 141(RES) OUT OF COMMITTEE
CS FOR SENATE BILL NO. 266(L&C)
"An Act authorizing the commissioner of community and economic
development to refinance and extend the term of a fishery
enhancement loan."
MOVED CSSB 266(RES) OUT OF COMMITTEE
SENATE BILL NO. 277
"An Act relating to the definitions of 'floating fisheries
business' and 'shore-based fisheries business' for the purposes
of the fishery business tax; and providing for an effective
date."
MOVED CSSB 277(RES) OUT OF COMMITTEE
PREVIOUS SENATE COMMITTEE ACTION
SB 141 - See Resources minutes dated 4/2/01.
SB 266 - See Labor and Commerce minutes dated 2/14/02.
SB 277 - No previous action to record.
WITNESS REGISTER
Mr. Darwin Peterson
Staff to Senator Torgerson
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Commented on SB 141 for sponsor.
Mr. Roger Painter
Alaska Shellfish Growers Association
Juneau, AK
POSITION STATEMENT: Supported CSSB 141(RES).
Mr. Paul Fuhs
Alaska Trademark Shellfish
No address provided
POSITION STATEMENT: Supported CSSB 141(RES).
Mr. Jon Agosti
Alaska Shellfish Growers Association
P.O. Box 3475
Seward AK 99664
POSITION STATEMENT: Supported SB 141.
Mr. Ron Long
Qutekcak Shellfish Hatchery
P.O. Box 2464
Seward AK 99664
POSITION STATEMENT: Supported SB 141.
Ms. Julie Decker, Executive Director
Regional Dive Association
Wrangell AK
POSITION STATEMENT: Supported SB 141.
Ms. Janice Adair, Director
Division of Environmental Health
Department of Environmental Conservation
555 Cordova Street
Anchorage AK 99501
POSITION STATEMENT: Commented on SB 141.
Mr. Bob Loeffler, Director
Division of Mining, Land and Water
Department of Natural Resources
550 W 7th Ave., Ste 1070
Anchorage AK 99501
POSITION STATEMENT: Commented on SB 141.
Mr. Doug Meekum, Director
Division of Commercial Fisheries
Department of Fish & Game
PO Box 25526
Juneau, AK 99802-5226
POSITION STATEMENT: Supported SB 141.
Mr. Greg Winegar, Director
Division of Investments
Department of Community and Economic Development
P.O. Box 34159
Juneau AK 99803
POSITION STATEMENT: Commented on SB 266.
Mr. Dave Cobb, Business Manager
Valdez Fisheries Development Association, Inc.
P.O. Box 125
Valdez AK 99686
POSITION STATEMENT: Supported SB 266.
Ms. Sue Aspelund, Executive Director
Cordova District Fishermen United (CDFU)
P.O. Box 939
Cordova AK 99574
POSITION STATEMENT: Supported SB 266.
Mr. Carl Rosier
Alaska Outdoor Council
P.O. 73902
Fairbanks AK 99707
POSITION STATEMENT: Supported CSSB 266(RES).
Mr. John Carter, Director
Douglas Island Pink and Chum
2697 Channel Dr.
Juneau AK 99801
POSITION STATEMENT: Supported CSSB 266(RES).
Mr. Chuck Harlamert
Juneau Section Chief
Tax Division
Department of Revenue
P.O. Box 110420
Juneau AK 99811-0420
POSITION STATEMENT: Commented on SB 277.
ACTION NARRATIVE
TAPE 02-2, SIDE A
Number 001
SB 141-AQUATIC FARMS FOR SHELLFISH
CHAIRMAN JOHN TORGERSON called the Senate Resources Committee
meeting to order at 3:37 p.m. All members were present. Chairman
Torgerson announced SB 141 to be up for consideration and said he
thought that with the proposed committee substitute, the bill was
ready to go forward.
MR. DARWIN PETERSON, staff to Senator Torgerson, sponsor, said
last year the Alaska Department of Fish and Game (ADF&G) proposed
new mariculture regulations that were met with sharp criticism
from the aquatic farming industry, which felt the regs were too
restrictive and would constitute a regulatory ban on shellfish
farming in Alaska. SB 141 was introduced as an effort to preserve
an industry that has proven to be successful in the
diversification of Alaska's economy. The committee substitute
requires the Department of Natural Resources (DNR) to offer
public leases for 60 suspended shellfish sites, 20-clam sites and
10 geoduck sites. These leases are in addition to permits that
are already issued. Before offering the leases, the commissioner
must solicit nominations for sites from the aquatic farming
industry and the public and select sites that don't interfere
with established commercial, subsistence or personal use. That
requirement is intended to maintain the existence and prosperity
of a valuable Alaskan industry without interfering with other
user groups.
MR. PETERSON explained the changes made in the proposed committee
substitute (CS). Section 1 on page 1 was deleted in the CS
because in the original version, aquatic farmers would pay a
fisheries business tax of 3%, plus the price of the lease, which
is $250 for the first acre and $150 for each remaining acre and,
on top of that, at a predetermined value of the resource on the
site and the potential productivity of the site of shellfish.
That made sense because it skirted the public domain problem. DNR
has a policy that says before a lease is issued, aquatic farm
sites must be commercially fished out before the farmer can go in
and plant seed. With the new language, this is a moot point.
The second change is on page 1, line 12, where the date the
leases must be made available to the public is changed from July
1, 2002 to July 1, 2003 since this is the new year.
The third change is on page 1, line 15, and page 2, line 2, where
language is added requiring DNR to offer leases that were not
purchased at the public auction to be made available to the
public over the counter.
SENATOR WILKEN moved to adopt the proposed committee substitute
to SB 141, (Version L) as the working document before the
committee. There were no objections and it was so ordered.
SENATOR TAYLOR asked if the bill contains a definition of the
word "site."
CHAIRMAN TORGERSON said it doesn't, but he understood that it was
determined by DNR and depended on which area DNR was considering.
MR. ROGER PAINTER, Alaska Shellfish Growers Association,
supported CSSB 141(RES). He stated, "We think this version takes
care of all the problems and concerns we had with the original
legislation and it is a very good bill to be moving forward
with…"
He said he had a small concern in Section 1. The Shellfish
Growers have no problem in restoring sites to the original
population levels, which is part of existing regulations and
conditions on their permit right now, but sometimes the leases
are offered much in advance of when ADF&G makes the operational
permits effective. For instance, he received the lease on his
sites under the 1999 opening in early 2000, but he still doesn't
have control of all of them. He noted, "They are open for common
property harvest right now and my permits with ADF&G don't become
effective until those common property harvests are complete. So,
I don't know if any tinkering needs to be done with that
language…"
MR. PAINTER said the committee also might hear today that this
bill directs DNR to identify and offer for lease 90 sites. He
explained that DNR and ADF&G work together in making sites
available. He explained:
DNR needs to issue a lease and ADF&G offers a permit.
These go through the Coastal Zone Management [CZM]
process simultaneously. That process only responds to a
specific proposal. In offering these sites for lease,
the DNR will be just making some areas available.
People will come in and apply and propose a specific
farm plan, which will then go through the CZM process
and Fish and Game can respond to that specific plan. I
think the agencies really need to work together in this
process. Fish and Game needs to work with DNR in
identifying these sites and I don't think that Fish and
Game needs to go out to each site and do detailed site
assessment work. However, they should be involved to
the extent that they flag for DNR potential problems.
If they believe there is going to be some major
conflicts on those sites, those should be identified
before they are offered to the public and the public
gets caught in a catch-22. You can come in and put your
money down for a site, but you can't get your permit. I
think by directing Fish and Game to work with DNR in
identification of the sites, those problems can be
taken care of.
MR. PAINTER noted that the Alaska Trademark Shellfish Association
proposed another amendment, but his board hadn't had time to
discuss it.
SENATOR TORGERSON asked him if he knew the population level
before signing the lease, but didn't know how much common use
would be taken between the time the lease is signed and the time
it is turned over to him.
MR. PAINTER replied that when they apply for a site, they are
required to provide the agencies with some estimates of the
standing stocks that are available at those sites. Then ADF&G,
after it goes through the process, will open those sites for a
common property harvest. After that harvest, the lessee does an
assessment of the standing stocks according to ADF&G protocols
for site assessments. At this point they determine the amount of
standing stocks that have to be restored when the lease is
terminated. He wants to make sure the restoration is to the
levels that exist when the lessees get control of that site and
those stocks, which is after the common property harvest.
CHAIRMAN TORGERSON asked if they could add, "...when the common
property harvest rights were satisfied."
MR. PAINTER suggested, "...when Fish and Game operating permits
become effective."
SENATOR ELTON said he had assumed that DNR would work with the
aquaculture community to try and identify sites, but it sounds
like Mr. Painter is suggesting instead a dynamic between DNR and
ADF&G.
MR. PAINTER replied that he hoped that local communities and
industry would send nominations to DNR and then DNR and ADF&G
would respond to those. He would like to see the agencies work
together to identify at least major problems within an area
before they are offered for lease to the public.
3:52 p.m.
SENATOR ELTON asked if it is realistic to expect that 90 sites
would be ready for lease by July 1, 2003.
MR. PAINTER responded that this gets back to Senator Taylor's
question of site definition. Currently, farms are 1 - 10 acres
and each farmer has different requirements for their specific
operation. He is working on an aquaculture development plan for
Prince of Wales Island and has done some reconnaissance work and
would be prepared to offer a number of locations in this area
that range in size from 50 - 100 acres to 10 acres. In each of
the developable locations, it might be possible for DNR to offer
five sites. He believed Sea Otter Sound could support as many as
40 or 50 farms.
The identification of sites may be a large number, but it might
not be as difficult to find them as one would imagine - geoducks
for example. A number of sites were applied for in 1999, some of
which had no geoducks and some had a few. There might not be very
many geoducks, but the site might still meet the department's
present criteria. It's their intention to work real hard if this
legislation is adopted to identify sites and do site assessment
work and provide the department a considerable amount of
information on those sites.
SENATOR TAYLOR asked if the lessee is held to the second
assessment after the common property harvest for restocking to a
sustained yield level.
MR. PAINTER replied yes, they are held to numbers identified in
the second assessment.
SENATOR TAYLOR asked if that was after the harvest had already
occurred.
MR. PAINTER indicated that I
s correct.
SENATOR TAYLOR asked why they would restock to the original
level.
MR. PAINTER clarified:
The standing stocks that are there before the common
property harvest - let's take a geoduck site as an
example. If there was a site leased out and they did a
common property harvest, all the divers would show up
or as many that were interested and harvest those
stocks. The applicant may not be taking part in those
harvests at all; it would be the commercial fishing
fleet. And the farmers shouldn't be held liable to
restore them to the original level before the common
property harvest, because they are open to all citizens
of the state, unless it's a limited entry fishery…
CHAIRMAN TORGERSON reiterated that the bill currently does that.
He asked Mr. Painter to focus on the bill.
MR. PAINTER responded that when he got his leases from the 1999
openings for clam sites, they were made effective immediately,
but DNR did not understand that ADF&G was not issuing the
operating permit until the common property harvest had been
completed. DNR discovered that when he started complaining about
having to pay lease fees when he didn't have access to the sites
to conduct aquatic farming. Now they are in the process of
revising their leases so they become effective when the operating
permit becomes effective, which would be after the common
property harvest.
4:02 p.m.
MR. PAUL FUHS, Alaska Trademark Shellfish Assoc. (ATSA), said
ATSA is the subject of the lawsuit. The issues are that ATSA went
through CZM and was consistent with that process. ATSA then got a
best interest finding from DNR and people participated all along.
That took a year and a half. When it came time to get the permits
from ADF&G, ATSA was rejected because there were substantial
amounts of standing stock on some of the sites. Although, the
department's policy now is to let a fishery occur there and then
open it to aquaculture, that's only true in the case of those
fisheries that are not limited entry. He added:
Although I hate to disagree with my good friend, Roger
Painter, this is not a new idea. This is exactly what
we do in the common property fishery. This would extend
the same practice to limited entry fisheries. The issue
is there when the constitutional amendment went into
our Constitution, it says, 'No exclusive right or
special privilege of fishery shall be created in the
natural waters of the state except for limited entry
and to promote the efficient development of aquaculture
in the state.'
He said that's never been tested or defined and that's before the
Supreme Court right now. They hope to resolve the problem with
their amendment, which reads, "In an area where there is no
existing fishery." He stated:
And that is the case with all the sites that have been
applied for. No one else is using the resource now. If
there's a standing stock there, there will be an open
period for the divers to come in and take the resource
and even take beyond what would be normal sustainable
yield. I mean it's going to be an aquaculture site.
Usually you take 2% per year, but they could go in and
harvest at even a higher level, which is also what's
done at the clam sites now with the proviso in the end
the stock will be restored to the original level.
For us, in the limited entry fisheries, we are willing
to restore to the original level so this is not a
violation of either the sustained yield concept in our
Constitution or of the common property law provisions
of our Constitution. That's why it's written that way.
We make it a little bit different for intertidal
species, which are like clams. You have to dig those at
low tide and sometimes there's only a couple of days a
month you can do that.
For the dive fisheries, you can get right in and take
care of it. This would make that clear. I do also want
to make it clear that what ADF&G said - that you can
have a permit if there aren't substantial stocks there.
They have never defined what substantial is and a farm
is looking for an area that has a lot of animals,
because obviously that's a good place for them to grow.
That's why they are there. These are broadcast
spawners; they broadcast their eggs in the water. They
float around everywhere and they settle in the places
where you can make a living. So, it's a little bit of a
disconnect of the science, common sense and our
Constitution - is the solution that we're looking for
here. My clients have said if we can resolve this,
they'll drop the lawsuit and we can all forget about
suing each other and the cost to the State of Alaska
and we can all go to work.
MR. FUHS said that he has discussed this with ADF&G, the
Attorney General's Office and the Dive Association and,
while he didn't think any of them were ready to take an
official position now, everyone liked the general concept
but wanted to see the details of the periods of public
notice and harvest and how it would be set up. He felt that
everyone wanted to resolve this issue.
SENATOR TAYLOR asked if his group is willing to restore to the
original level.
MR. FUHS replied:
The difference is that when you harvest like the little
neck clams, you only harvest to a size of maybe an inch
and a half and everything smaller than that is still
left there. That's why you're just making up that
difference. When you harvest geoducks, it's much more
digging up the ground to get them and it's more
disruptive. That's why I think it's more realistic for
us to say we'd replace it to 100%, plus we're trying to
deal with the constitutional issues of sustainable
yield and common property access.
SENATOR ELTON said it seems that his proposed language makes it
almost impossible to do 90 different leases by July 1, 2003.
MR. FUHS replied:
This is really separate. What Roger is talking about is
pre-identifying sites. There's a lot of sites out
there. Private industry is out and they're doing the
research to find the sites they think they can make a
farm at.
He thought the intent of this bill is to make the two departments
pre-identify sites so it's easier to get the leasing.
SENATOR ELTON said he might misunderstand, but he thought a lot
of the sites Mr. Fuhs is interested in would be sites that a
potential leaseholder would be interested in because of the
already existing stocks. Given that, it seems that he wants to
create an additional five-month period for a lot of potential
sites that could be made available to a leaseholder.
MR. FUHS replied that he didn't know how long the common property
had to stay open to fish clams. His amendment calls for a three-
month period for intertidal species - two months for notice and a
three-month harvest period. He thought the period might be even
longer now before one can have positive control of a site. His
amendment just extends it to limited entry fisheries.
SENATOR STEVENS asked if the common property fishery only allows
a 2% annual harvest rate that could go on forever.
MR. FUHS replied:
You would allow them to go in and fish above what would
normally be a sustainable level. In fact, they could
potentially come in and take 100%, because the farmer
is going to replace 100%.
SENATOR STEVENS asked if under his recommendation, the lessee
would replace back to the original assessment.
MR. FUHS said that was correct even if 100% of the animals were
taken. He added:
So the divers could possibly fish 50 years worth of
diving in a month, because you know this is going to be
replanted. The hatcheries can do this. They've got the
geoduck spat right now. We just can't get the permits
to farm."
He said that DNR requires bonding from the hatchery in Seward to
make sure the resource is replaced. That is what the lawsuit is
about.
SENATOR STEVENS asked who makes the determination of when the
common property is harvested.
MR. FUHS replied under this proposal ADF&G would give them 60
days notice that this site is going to be open for 30 days to
take all they can and then after that it's going to be an
aquaculture site. At the end of the 10-year lease for
aquaculture, it will be restored to the full population.
SENATOR STEVENS asked him to contrast that to Mr. Painter's
proposal.
MR. FUHS replied that Mr. Painter wants to modify it a little bit
for clams to say they will restore it to the point after the
common property harvest.
SENATOR STEVENS said he wanted to know who made that
determination.
CHAIRMAN TORGERSON said ADF&G does.
SENATOR LINCOLN asked how long the lawsuit would continue.
MR. FUHS replied that the appeal has been filed and he didn't
know when the Supreme Court would issue a determination. It took
the Superior Court eight months to issue the court ruling on July
19, 2001.
CHAIRMAN TORGERSON asked what the verdict of the lawsuit was.
MR. FUHS replied that the court said ADF&G's regulations were
completely wrong and that an open dive fishery and aquaculture
was unworkable. They said the proponents had violated the common
property clause because there were substantial amounts of stock
there, which was subject to a limited entry fishery. Trademark
Fisheries is the appellant.
MR. JOHN AGOSTI said he was representing a shellfish hatchery and
the Alaska Shellfish Growers today and thanked Senator Torgerson
for introducing this bill.
SENATOR TAYLOR asked if he felt confident that his facility would
have enough spat for the replanting.
MR. AGOSTI replied yes. His organization didn't envision an
avalanche of companies failing and requiring a mass amount of
seed. The most likely scenario is a few failures over time and
they could accommodate that.
MR. RON LONG, Qutekcak Shellfish Hatchery, supported SB 141. He
thought the industry had to do its own research to identify sites
that are reasonably free of conflicting uses and offer those as
their nominations. He liked the concept of a prefarming fishery.
On the conceptual language for a substitute he needed a little
more time to think about it, but if the sponsor and the dive
fishery supported it, he would go for it. On reseeding to the
initial biomass levels and the prefarming harvest, he liked it
from a purely economic point of view because it provided more
seed for him to sell.
MS. JULIE DECKER, Executive Director, Regional Dive Association,
supported SB 141, but requested that they hold the bill until her
board can see it and give its support on March 8. She also would
like to provide the board's comments on Mr. Fuhs' proposal.
CHAIRMAN TORGERSON replied that he hadn't planned on passing the
bill out today because it needed more work. He said the fiscal
note was for $800,000, but that a new one would be needed.
MS. JANICE ADAIR, Director, Division of Environmental Health,
Department of Environmental Conservation (DEC), said she was
available to answer questions.
SENATOR TAYLOR said it was shocking to him that DEC submitted a
$354,000 fiscal note to go out and look at 10 different sites to
test the water.
MS. ADAIR responded that they have to follow a National Shellfish
Sanitation Program in order to classify areas for shellfish
harvesting. Some presumptions about locations are made and a set
number of samples have to be taken over a set number of times.
DEC doesn't have options. If the areas are more remote than
urban, their fiscal note would go down; if there are more urban
areas than remote, the amount would go up. DEC estimated at 50/50
since they didn't know.
SENATOR ELTON said she was assuming that 10 new growing areas
will need to be certified and asked if she didn't need to certify
unless a lease is actually offered and accepted by someone in the
aquaculture industry.
MS. ADAIR said that is right and added that they have many sites
within a growing area. They certify the growing area and this
helps reduce the cost.
MR. BOB LOEFFLER, Director, Division of Mining, Land and Water,
DNR, said that his division does the leasing under this bill. He
had two areas of concern. He respected Mr. Painter's comments,
but this is really a DNR/ADF&G proposal. Without ADF&G's
preapproval of the sites, they run the risk of offering sites
that can't be permitted. His division does not manage the
resource and there are two places in the bill that put resource
issues in DNR's purview - on page 2, lines 12 and 16. He
explained:
The consequence of putting Section 1 in DNR statutes
rather than Fish and Games' is that Fish and Game has
regulations, which address this question and, in fact,
are parallel to this…. A law under Title 38 and a
regulation under ADF&G's Title 16 can both be valid.
This means that a site would have to go through two
hoops to address a single situation. If someone didn't
like their determination, they would appeal it to DNR,
but it really has to go to ADF&G because it's their
issue.
TAPE 02-2, SIDE B
CHAIRMAN TORGERSON asked if other agencies didn't have to deal
with cross-jurisdictions.
MR. LOEFFLER replied if the legal jurisdiction is confused, that
confusion always works against the applicant.
CHAIRMAN TORGERSON said he didn't think so and asked if there
were any other comments.
MR. LOEFFLER added that it would be very difficult for them to
complete this process by July 1, 2003. They have written their
fiscal note for a two-year process with the dives occurring in
the summer. That would mean July 1, 2004. Also, if they reduce
the number of sites to offer, they would not run the likelihood
of overwhelming the industry and they could reduce the fiscal
note.
CHAIRMAN TORGERSON replied that's why he made it over-the-counter
sales.
MR. DOUG MEEKUM, Director, Division of Commercial Fisheries,
ADF&G, supported Ms. Decker's testimony in support of SB 141. The
CS removes the section identifying the sites for auction and
their common property concern. He thought that Mr. Painter was on
the right track and that this regulation is more restrictive than
current statute.
CHAIRMAN TORGERSON asked if it would help to delete "lease" and
add "operating permit".
MR. MEEKUM replied that is one possibility and another would be
to refer to the authority of the department to issue a permit,
whichever comes first.
CHAIRMAN TORGERSON asked if he had a chance to review the
Trademark Shellfish language.
MR. MEEKUM said he hadn't had a chance to.
SENATOR ELTON asked if ADF&G could realistically have leases for
90 different sites done by July 1, 2003.
MR. MEEKUM replied that would be difficult. He thought the
suspended culture sites would be easier, but there are only 20
sites identified for clams and 10 for geoducks, which would be
the primary thing they would be looking at in their site surveys.
Last year they suggested that ADF&G's costs would be about
$200,000 in the first year. He noted, "I guess we'd try and do
our best to get it done. It's going to be difficult. I wouldn't
say it's necessarily impossible."
CHAIRMAN TORGERSON asked what happened to the $250,000 that the
legislature gave them a couple of years ago.
MR. MEEKUM replied that two or three years ago the department
requested a CIT project that's very similar in terms of its
intent to what they are trying to do here. They actually received
only $100,000 from the legislature, but that particular set of
CITs was funded out of CFEC receipt services, which went down by
$1 million that year. He stated, "So, that money doesn't exist
because the receipts never came in."
CHAIRMAN TORGERSON said:
I want these to pick up fiscal notes, because I believe
the state should pay for this. This is a good industry.
It's a clean industry and we've been messing around
with it so long that it's the only way that I see we're
going to turn it around. I wasn't expecting $800,000
fiscal notes, but I guess that's life in the fast lane.
It was my hope today to do our work and amend it so
that it is functionally okay and then send it up to
Finance and let them argue with you up there.
SENATOR TAYLOR said:
My frustration is we know that we've got a salmon
industry that's in trouble and I can't find a faster
way to put the dive fishery in trouble than to have
ongoing litigation up to the Supreme Court and we all
sit around holding our hands and wringing them waiting
and hoping something will happen out of the Supreme…
MR. MEEKUM reiterated that he supports the bill.
CHAIRMAN TORGERSON instructed the participants to read the
suggestions.
SENATOR WILKEN moved on page 1, line 8 to delete "lease" and
insert "operating permits" and on page 1, line 12, to delete
"2003" and insert "2004" [Amendment 1].
SENATOR TAYLOR said he didn't object to the first part of the
amendment, but wanted to know more about the second part. He
added, "I understand their reluctance and concerns, but I
guarantee if their jobs depended on it, those permits would be
out in a couple of months."
SENATOR ELTON said his concern is if the date is too soon, the
pressure may be on to identify sites to meet the time deadline
and not the requirements of the industry.
SENATOR TAYLOR said he had been involved in this for 17 years and
he thought that someone in ADF&G could start moving on this
program.
SENATOR TAYLOR moved to divide the question.
CHAIRMAN TORGERSON explained that they would call the first part
Amendment 1(a) to delete "lease" and insert "operating permit".
He asked if there was any objection. There were no objections and
it was adopted.
CHAIRMAN TORGERSON explained that Amendment 1(b) deletes "2003"
and inserts "2004". He agreed with Senator Taylor that if ADF&G
didn't have the backlog, all the work that's been done on sites,
permits almost issued and work that's been done by the growers,
one year would be pretty tough. But that's not the case. There
are 50 - 60 sites in Sitka that will probably be nominated for
this. He noted would not support this amendment.
SENATOR LINCOLN said the committee heard testimony saying that
2003 might be a stretch, but the language says it should be
offered to the public "before," and she hoped that if they could
do it earlier, they should do everything possible to get it done.
She supported 2004 and hoped that the department expedites it.
SENATOR ELTON said he assumed if this amendment failed, work
would have to be done on the fiscal notes since they are
predicated on a two-year process.
CHAIRMAN TORGERSON asked for the roll to be called. SENATORS
ELTON, LINCOLN, and HALFORD voted yea; SENATORS TAYLOR, WILKEN,
STEVENS and TORGERSON voted nay. By a 3 to 4 vote, Amendment 1(b)
failed.
SENATOR TAYLOR moved to pass CSSB 141(RES) to pass from committee
with individual recommendations and accompanying fiscal notes.
There were no objections and it was so ordered.
SB 266-FISHERY ENHANCEMENT LOANS
MS. DEBORAH GRUNDMAN, staff to Senator Stevens, sponsor, said:
SB 266 authorizes the Commissioner of the Department of
Community and Economic Development to refinance loans
made by the Fisheries Enhancement Revolving Loan Fund.
It also gives the commissioner the ability to extend
the term of the loan when justified. A majority of the
loans made under this program carry the maximum
allowable interest rate of 9.5%. Alaska statutes allow
for interest rates of 1% over prime not to exceed 9.5%.
New loans, if received today, would be at 6%.
Hatcheries would like to take advantage of a lower
interest rate to bring down their debt service, just as
other businesses and homeowners are currently doing
throughout Alaska and the nation.
SENATOR HALFORD noted that one provision was for interest rates
and the other allows for refinancing in excess of 30 years. He
asked when that would be necessary.
CHAIRMAN TORGERSON noted he had drafted a committee substitute
that has new language on page 3, line 1, that reads: "the
commissioner shall submit annually a report to the legislature
summarizing the commissioner's decisions during the prior
calendar year to approve or deny requests to extend loans under
this paragraph and the reasons for the decisions;".
SENATOR WILKEN moved to adopt the proposed committee substitute
(CS), labeled Utermohle 2/19, Version T. There were no objections
and it was so ordered.
MR. GREG WINEGAR, Director, Division of Investments, answered
Senator Halford's question by saying it was similar to
refinancing a home. He explained:
The way the department has interpreted the statute is
under this program is you get 30 years total. So, this
would give us the ability if someone had paid in to the
loan for five or six years that we would be able to,
like refinancing your home, go ahead and give them a
30-year loan.
SENATOR HALFORD asked if there is another section of statute that
clearly says that the collateral has to be considered also. He
stated: "All this says is the term of the loan would be extended
if it meets financial hardship." He assumed that somewhere in
statute, the division must follow some kind of a standard that
says it has to follow good financial practices relating to the
life of the collateral.
MR. WINEGAR said that is correct, but he didn't have it with him.
He responded, "It is something we look at when we look at a
refinancing request."
SENATOR HALFORD asked what the status of the loans are right now
with regard to collateral to face value.
MR. WINEGAR replied that is difficult to answer. In regional
associations they have an assignment of the tax, for example.
They also make an assignment of the fish that are out in the
ocean, as well as the physical plant, etc.
SENATOR HALFORD asked if they do an annual report that weighs
that out.
MR. WINEGAR replied they don't.
SENATOR HALFORD asked if there was a database as to hard assets
on the loans.
MR. WINEGAR replied that they do that analysis when making the
loan, but they don't review it on an annual basis.
SENATOR HALFORD said he would like to know what happens when the
product comes down to $.05 per lb., and if that's part of the
collateral.
CHAIRMAN TORGERSON said they must have some idea between fixed
assets and loans.
MR. WINEGAR said they look at that at the time they make the
loans. He stated:
Normally we have a whole series of types of collateral
to secure the loan including, sometimes, EVOS
assignments on loans that were affected by the oil
spill. We do evaluate that at the time we make the
loan. It's just we don't do that on an annual basis for
the whole portfolio.
SENATOR ELTON pointed out the collateral would be reviewed at the
time of refinancing and this would provide a system for one
update that wouldn't be there if they didn't refinance.
MR. WINEGAR said that is correct.
SENATOR HALFORD requested a status report of the loans in terms
of their current assessment based on current collateral values.
MR. WINEGAR said the division would work on that.
SENATOR STEVENS said he thought they could address Senator
Halford's concern with a synopsis of the total number of loans to
each hatchery and their amortization schedule.
MR. WINEGAR replied the division could.
SENATOR HALFORD said the collateral value was something else.
SENATOR STEVENS pointed out that each hatchery that receives
loans has a series of loans. So, each time they do a loan, the
division has to do that analysis.
MR. WINEGAR replied:
What we have in this portfolio is about a dozen
borrowers that have multiple loans and so we're looking
at them periodically as they request new loans or if
they need assistance…. For example, if they need to ask
for an extension of some sort, we evaluate them at that
time as well.
MR. DAVE COBB, business manager, Valdez Fisheries Development
Association, Inc., supported SB 266 and said:
This bill sponsored by Senator Stevens and others is
one of the tools needed by the commercial fishing
industry and the hatchery system to remain competitive
in today's global fisheries environment. The
refinancing of hatchery loans at the prevailing
interest rate will allow most hatcheries to reduce
their annual loan payment significantly and reduce
their operating costs. Any reduction in the overall
operation budget of Valdez Fisheries Development
Association will mean more fish to the commercial
fishermen of the area because their cost [indisc.].
While this bill is a very important step to the state
hatchery system, it is only one of the many changes
that must occur to the commercial fishing industry in
Alaska to survive. [This program] started by the
legislature in 1974 has met or exceeded the
expectations placed on the program. However, the
competitive playing field has changed from a position
of strong market presence to one of massive world
competition and dumping of fisheries products on the
market at less than the cost of production.
We, the State of Alaska, and all of the interested
players, must change in order for us to survive in a
competitive market place. This bill begins the process
of change. Thank you.
MS. SUE ASPELUND, Executive Director, Cordova District Fishermen
United, gave them some specifics of what their aquaculture
association provides to their region. She stated:
In 2,000, estimated economic impacts resulting from the
production and harvest of Prince William Sound
Aquaculture Corporation [PWSAC] were $109 million in
total output, including $34 million in labor income and
more than 1,280 jobs. Within the commercial harvesting
sector, Alaska resident permit holders see most of the
economic benefits of PWSAC production. In 2000, Alaska
permit holders harvested about 75% or $15 million of
the PWSAC ex-vessel value with the remaining 25% going
to non-residents. Commercial fishing residents from 30
Alaskan communities earn an income from PWSAC families,
not only from coastal communities, but including those
from urban areas such as Anchorage, Palmer, Wasilla,
Juneau and Fairbanks. Between 1990 and 2000, the total
wholesale value of commercial and cost recovery harvest
of PWSAC salmon was worth over half a billion to over
20 Alaskan seafood processors with an average annual
value of more than $45 million.
Processing of PWSAC fish generated an estimated $70
million in total output in 2000, including $19 million
in payroll and 700 jobs. The PWSAC salmon also counted
the following percentages of sport fish harvest in the
Prince William Sound region from 1996 to 2000 - 80
percent of the chum salmon, 70% of Chinook, 35% of
sockeye, 20% of coho and 10% of the pinks. The economic
impacts from the 2000 sport fish harvest were an
estimated $2 million in total output, including
$800,000 in payroll and 64 jobs.
Since 1995, Alaskans from 140 towns across the state
harvested nearly 150,000 PWSAC sockeye salmon during
the Copper River personal use and subsistence
fisheries. PWSAC contributes about 70 annual average
jobs to their economy with an annual payroll of more
than $2.6 million.
The economic impact from PWSAC employment and
expenditures to the regional [indisc.] of 2000 for
$10.1 million in total output including $4.6 million in
payroll and 154 jobs. These facts provide a graphic
demonstration…of PWSAC's importance as a regional and
statewide economic engine.…
She said that the changing global marketplace and the faltering
Japanese economy have resulted in a lower ex-vessel value that
require our hatcheries to take greater percentages of production
as cost recovery in an effort to make their loan payments. They
need the ability to refinance hatchery debt to take advantage of
decreased interest rates provided for in SB 266. This would
result in hatcheries being able to immediately supply more fish
to the common property harvest.
MR. CARL ROSIER, Alaska Outdoor Council, said the hatchery
program has been a real boon all over Alaska as far as the
recreation fishery is concerned. He supported CSSB 266(RES).
Their early concerns were taken care of.
MR. JOHN CARTER, Director, Douglas Island Pink and Chum (DIPAC),
supported CSSB 266(RES) and said:
The private non-profit (PNP) hatchery program was
created by the legislature to replace the hatchery
program operated by the state's Fish and Game FRED
Division. The FRED hatcheries were operated through
annual appropriations to the State Department of Fish
and Game. The PNP hatchery program was created as a
user pay entity. To get the program started, the state
gifted some existing hatcheries to regional
corporations, but primarily created the fishery
enhancement revolving loan fund. This fund, along with
a tax on commercial fishermen, was to provide for
construction and operational funds as the enhancement
program developed.
Twenty-five plus years later and over $1 billion in
fish, the PNP hatchery programs are described even by
some of its detractors as "some of the best in North
America." They have made dramatic financial
contributions to many areas of the state. When asked by
others who don't understand the concept of private non-
profit, I usually fall back on the phrase "public
trust." I really believe that that's the best
description of the way most of us view the job.
That being said, we are still a business and are
responsible for budgets and payroll and of course debt
service. What we are asking for here is the ability to
refinance our debt at a lower interest rate. This is
obviously going on in many businesses across the state
and across the country. Taking advantage of the current
low interest environment just makes good business
sense. Simply put, refinancing will strengthen our
financial position, make us better able to pay our debt
and more able to continue doing the job of providing
fish to the commercial and sport fishers across the
state. This will mean principal and interest are paid
into the fund at a slower rate, but loan demand on the
fund is slowed dramatically so the fund will still be
financially sound. I thank you for any support you can
give and I'm available for questions.
SENATOR TAYLOR moved to pass CSSB 266(RES) with individual
recommendations and the accompanying zero fiscal note. There were
no objections and it was so ordered.
SB 277-DEFINITIONS OF FISHERIES BUSINESSES
CHAIRMAN TORGERSON announced SB 277 to be up for consideration.
MR. IAN FISK, staff to Senator Austerman, sponsor, said that both
the original and the committee substitute address an inequity in
state taxation for the Bering Sea pollock fishery. He said:
This bill seeks to ensure that all pollock processors
are assessed at the same rate. The American Fisheries
Act (AFA), which was passed by Congress in 1998 to
rationalize the Bering Sea pollock industry, divided
the industry into three sectors, those being the
factory trawlers, which both harvest and process their
catch at sea, mother ships, which process catches
harvested by other vessels at sea and the inshore
sector. The AFA limits participation in the pollock
industry to these sectors and specifically leaves out
entities, which are allowed to process pollock.
The tax inequity that we have here in the industry is
that floating processors were included with the inshore
sector in AFA, but [is] the only sector of the industry
to be taxed at 5% by the state, whereas the other
sectors are taxed at 3%.
The first draft of this bill intended to accomplish tax
equity by changing the definition of 'shore based
processor' in order to accommodate pollock floating
processors. This approach created a fiscal note that
was somewhat larger than anticipated and it also raised
some concern that floating processors and other
fisheries could be affected and that is certainly not
the intent of the sponsor.
MR. FISK said that the committee substitute reduces the fiscal
note and focuses the bill specifically on the pollock fishery by
specifying a 3% rate for floating processors, which would level
the tax situation, thus providing equity for all sectors of the
Bering Sea pollock industry. He explained that the fiscal note
before the committee actually applies to the first version of the
bill. The estimated fiscal note for the committee substitute will
be even less. He said:
It is important to note that the general fund impact in
this case will actually be half of the fiscal note that
the department presents to you, because half of the
income is shared back with municipalities.
CHAIRMAN TORGERSON asked which municipalities.
MR. FISK replied a number of municipalities in the Aleutian's
east borough and southwestern Alaska. Unalaska would be affected.
SENATOR TAYLOR moved to adopt the proposed committee substitute
to SB 277, labeled Version F, as the working document of the
committee. There were no objections and it was so ordered.
SENATOR LINCOLN referred to a letter from the City of Unalaska
saying they were concerned about the language in the bill, "due
to the loss of business, fish tax, and revenues" and asked him
how much that amounts to. She said, "The fiscal note that you
allude to suggests that the communities could lose approximately
50% of their share of the state revenue loss, which they are
saying is $217,000."
She wanted to know if he was cutting the $217,000 in half again
and asked him to comment on the loss of revenue to the
communities.
MR. FISK replied that in terms of revenue sharing, the Department
of Revenue said that data is confidential. He explained:
As far as loss of income to the communities, on a
community by community basis, it will not be a very
large number, especially in light of the revenue that's
already generated by this industry and is shared back
to these communities…As far as the $217,000, it will
actually be slightly less than that, because as I
indicated we had some confusion with the department
over the fiscal note [which will be less].
SENATOR HALFORD asked what level factory trawlers are presently
taxed at.
MR. FISK replied that they are taxed at 3% under the Fisheries
Resource Landing Tax; but, under AFA, the pollock industry is
taxed at 5%.
SENATOR HALFORD asked about mother ships.
MR. FISK replied that they are taxed at 3%.
SENATOR HALFORD asked, "Why, if we're going to take floating
processors down to 3% from 5%, why don't we put factory trawlers
and mother ships up to the 5% and regain the revenue?"
MR. FISK replied that the industry is already paying a
significant amount of tax, and because of the general state of
the industry, higher taxes would not be warranted.
SENATOR HALFORD commented, "Factory trawlers' total contribution
to the state is 3% and the mother ships are the same thing?"
MR. FISK said that is correct.
SENATOR HALFORD explained that the principal was to try and help
on-shore and Alaska-based operations.
And yet you have those two categories that have the
most preferential of any tax treatment available, the
same as if they were essentially based onshore in
Alaska. I wonder why you don't make both adjustments at
the same time and [indisc] your goal with a positive
fiscal note instead of a negative one?
MR. FISK replied that he thought taxation through the AFA is
another issue that would have to be addressed through
modification to the American Fisheries Act, which is a much more
complicated process than what is before them today.
SENATOR HALFORD said he thought that was set at the state level.
MR. FISK replied that he was less familiar with the American
Fisheries Act.
MR. KRIS NORRIS, Manager, Icicle Seafood, said Icicle is a U.S.
corporation started in Petersburg in 1965. She supported CSSB 277
(RES) because the intention of this bill is to seek a level
playing field. She reminded the committee that twice in the last
eight years the State of Alaska has argued that both the onshore
and offshore sectors should be treated the same with regard to
taxation. She maintained:
When the Fisheries Resource Landing Tax was originally
enacted in 1994 and contested by the offshore sector,
it was settled in '96 and the argument that the state
used was that those two sectors should be treated the
same. That reasoning was used again in 1998, when the
state was negotiating in Washington D.C. with the
passage of the American Fisheries Act. It was our U.S.
Senator Stevens' desire to help the State of Alaska and
ensure that everyone that's doing business with the
resources in our water and near them would contribute
to the state's economy. That's why the mother ships
were also brought under the Fishery Resource Landing
Tax. The argument made was that the offshore and the
onshore sectors needed to be treated the same.
What's happened under state statute enacted several
decades ago is that the floating processors were
assessed at a different rate and I don't have a problem
with that when it comes to species like salmon and
herring and some of our traditional species, because
anyone can get into the processing end of that
business. But what the American Fisheries Act did when
it was passed in 1998, is it limited who was qualified
to process pollock. Under current state statute coupled
with the American Fisheries Act, we're in a situation
where not everyone is treated equal, yet we're all
competing with each other in the same market place. So,
what we have is a situation where we have two qualified
floating processors that are assessed at a rate of 5%
while all their competitors, regardless of what sector
they're in or how they operate, are assessed at a 3%
rate.[END OF TAPE]
TAPE 02-3, SIDE A
MS. NORRIS continued:
The only thing they do on board is to process the fish.
They don't catch it. They have other boats bring the
fish to them and then they process it. The difference
is where they operate. One is considered part of the
onshore sector, which operates within three miles in
state waters. The mother ship sector operates outside
of that three miles. But operationally speaking they're
the same. I think because of that, all the sectors need
to be treated the same when it comes to taxation.
SENATOR HALFORD said Ms. Norris wants to change the system that
was the rule until now, but she is not willing to change the rule
to go in reverse. He asked if this bill passed, would anyone be
left paying the 5% rate.
MS. NORRIS replied that this would equalize the rate paid on
pollock only. For other species, floating processors would still
pay the 5% rate and she didn't have a problem with that.
SENATOR HALFORD noted that the differentials would still be
there.
MS. NORRIS replied yes.
SENATOR HALFORD asked if they had the authority to apply the
differential in reverse under the American Fisheries Act.
MS. NORRIS replied, "The American Fisheries Act isn't tying the
hands of the State of Alaska in how they can apply a taxation
rate. What it's doing is determining who is included to be
subject to a tax."
MR. CHUCK HARLAMERT, Department of Revenue, said he would answer
questions.
CHAIRMAN TORGERSON asked what the committee substitute did to the
fiscal note.
MR. HARLAMERT replied that they did a fiscal note on the same law
last year based on 2000 data. They had to estimate a range
because the taxpayer population is so low, they had to guard
confidentiality. He remembered that the fiscal note said they
would lose $333,000 to $400,000 to bring pollock down from 5% to
3% for floaters.
SENATOR ELTON explained that loss would be shared equally between
local communities and the State of Alaska. Mr. Harlamert agreed.
SENATOR HALFORD asked him if they reverse the tax with regard to
mother ships and factory trawlers, what income that would
generate.
MR. HARLAMERT responded with some background on the Fisheries
Land Tax:
When we adopted it, we had a choice between assessing
it at 5% or 3% and that's within the state's
prerogative. The Department of Revenue recommended
using 3% because 5% would put them too much at risk of
discriminating against interstate commerce. Essentially
we have free reign to tax any activity that occurs
within Alaska within our waters and we have no ability
to tax on our own activities that occurs outside our
waters. If we were to impose a discriminatory tax rate
on fishing agencies who merely landed fish in the
state, there's a possibility that it might not stand.
It is our recommendation at the time to not move to 5%
as we do with instate floating processors, but to stay
with the base 3%. The 5% rate is in part aimed at
drawing a form of equity between floating processors
and onshore processors based upon local taxation…
MR. HARLAMERT said if they were to move ahead and tax the
offshore pollock fleet at 5% on their landings, the entire tax
base would need to change to tax everybody at 5%, even shore
based processors, and allow a credit against the state tax for
local taxes paid.
SENATOR HALFORD said that would achieve the same differential.
MR. HARLAMERT agreed with that.
SENATOR LINCOLN said the City of Unalaska was concerned about the
loss of the fish tax and revenue to their community. She asked if
he knew how many communities would be affected by this and what
the range of the impact would be to a given community.
MR. HARLAMERT said he couldn't do that because the population of
taxpayers they are talking about is so small that if they were to
go further into detail and talk about the communities, their
department's confidentiality requirements would be violated.
SENATOR LINCOLN said she didn't have any idea if they were
talking about $10,000 or $100,000 and that makes it hard for her
to know what the impacts would be.
CHAIRMAN TORGERSON said he thought since they only got one letter
and the area was so small that it couldn't be disclosed, so
Unalaska is taking the brunt of this.
SENATOR WILKEN asked if he understood correctly that the
proximity of the processor to the municipality was the
determinant as to whether the tax is 3% or 5%.
MR. HARLAMERT said that outside of three miles the state doesn't
have taxing jurisdiction. The state can only tax the offshore
fleet when it lands fish in the state or, under the American
Fisheries Act, the "feds" do it for us.
SENATOR WILKEN asked if he had a floating offshore ship he would
pay 5% but if he brought it in and hooked it up to the dock, he
would pay 3%.
MR. HARLAMERT replied yes, if it is hooked up permanently.
SENATOR WILKEN said this bill takes the ship that's three miles
offshore and can move from fishery to fishery and makes it a 3%.
MR. HARLAMERT said it does that for one species - pollock.
SENATOR ELTON asked if he could tell them the total revenues that
would be lost for pollock.
MR. HARLAMERT replied that he wasn't prepared for the committee
substitute, but he could get that data.
SENATOR HALFORD asked how much the 3% tax generates annually on
the factory trawlers and mother ships.
MR. HARLAMERT replied about $7 million and this figure is
published under the fisheries landing tax in their annual report.
SENATOR TAYLOR moved to pass CSSB 277(RES) from committee with
individual recommendations. There were no objections and it was
so ordered.
CHAIRMAN TOGERSON adjourned the meeting at 5:27 p.m.
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