CS FOR HOUSE BILL NO. 288(FIN) am "An Act relating to commercial fishing limited entry permit buy-back programs, to a permit buy-back assessment, and to voluntary relinquishment of commercial fishing permits; and defining 'optimum number.'" This was the first hearing for this bill in the Senate Finance Committee. REPRESENTATIVE DREW SCALZI informed the Committee this legislation addresses repurchasing commercial fishing permits. He stated that current State statutes allow this buy-back provision; however, it has been problematic and never implemented because "an optimum number study has to be conducted in order to establish what the economic level is that would support the fishery, but yet not go below a certain level to not make it too exclusive." He continued that once the optimum number study is completed, current statute "mandates that there be a buy-back." He stated that similar optimum number studies have been considered by different fisheries throughout the State, but not implemented because of concerns regarding the requirement to purchase the permits, coupled with the inability to predict when the permits would become available. He furthered that the current statute specifies that, in addition to purchasing the commercial fishing permit, the fishing industry is also required to purchase the vessels and gear. Representative Scalzi informed the Committee that this bill would allow for the purchase of the permit without the obligation to purchase the vessel and the gear. He stressed that the bill would additionally allow the buy-back to be studied "voluntarily" without mandating a buy-back. Co-Chair Kelly asked what funding source would be available for the buy-back program. Representative Scalzi responded that the State's Commercial Fisheries Entry Commission envisioned creating a loan program to be funded by a tax of up to seven percent assessed on the fishing industry. He stated the tax would be collected by the Department of Revenue. MARY MCDOWELL, Commissioner, Commercial Fisheries Entry Commission, Department of Fish and Game, stated the funding mechanism currently in place for the buy-back program law is unconstitutional because it mandates a dedicated fund to be funded by an assessment on fishermen. She qualified that another problem with the current law is that the Entry Commission would be responsible for collecting the money assessed on the fishing industry for the dedicated buy- back fund; however, the Commission does not have taxing authority. Ms. McDowell elaborated that this proposed legislation would allow the fund to operate similar to the operation of the Aquaculture Assessment by Alaska Seafood Marketing Institute (ASMI). She continued that the new process would entail the Entry Commission undertaking an optimum number of permits study to determine whether a buy-back program should be undertaken. Ms. McDowell continued that if an optimum number study determined there were too many permits in a fishery, a buy-back program would be established, and the Commission would work with the industry to develop an action plan to establish a tax levy for the fishermen. She stated this tax would be assessed on the "fish tickets," a common practice for levying taxes in the fishing industry by the Department of Revenue. She stated the Commission would request the Legislature to appropriate funds to the buy-back program; thereby, enabling the fund to be a constitutionally approved funding mechanism. Ms. McDowell continued that language currently under discussion in HB 286 would create a mechanism whereby the industry could establish its own program to buy-back permits, would allow the Entry Commission the leeway to discuss options for the buy-back funding source mechanism, and would allow for the establishment of the assessment level. She remarked this process would essentially tax the remaining fishermen who would be "making a better living" because with fewer fishermen in the fishery, the remaining fleet would, "hopefully, earn more revenue." Senator Hoffman voiced concern that if a buy-back price for permits is not determined, a reduction of the number of permits in a fishery could result in the remaining permits becoming too expensive. Representative Scalzi replied this could occur; however, if a buy- back plan were established, the individual fishermen could decide if they wished to sell or purchase at the established price. Senator Green asked for clarification whether individual fishermen or a fishing industry group could participate in the buy-back plan. Ms. McDowell explained that the State would establish a buy-back plan and notify the industry that a pool of money would be available to purchase permits. She noted that permit holders would decide whether to sell their permits at the price established in the plan, and that the number of permits bought back would be determined by the amount of money in the pool. Representative Scalzi stated the optimum number study is "the key" to the program. He hypothesized that if 100 permits existed and the study determined "30 to be the optimum number that could be bought- back without making it an exclusive fishery," the industry could decide to only buy-back and be assessed for 20 permits. He stated "it is up to the fishermen remaining in the industry to control their own destiny on how much they would want to pay." He reminded the Committee that the current law gives the fishermen no choice, little flexibility, and is not conducive for development of a plan. Co-Chair Donley, referring to an Alaska Supreme Court case regarding a limited entry program constitutional amendment, voiced his understanding that there is a requirement for a buy-back program whenever a fishery is endangered, and that the funding for the buy-back program would be the responsibility of the people in the industry. He asked if this legislation is consistent with that ruling. Ms. McDowell responded that the Court and the law have been consistent in supporting the State Constitution regarding protection from allowing a fishery from becoming too exclusive. She stated that more harm would result from the fishery being too exclusive than from having too many fishermen in the fishery. She stressed that the study would assist in determining the optimal number of permits, which is the constitutional concern. She stated the limited entry program is constitutional as "long as it is no more exclusive than necessary for the resource and the economics of the fishery." She stressed that the study is crucial in this determination. Co-Chair Donley asked how the funding mechanism in this legislation conforms to the Supreme Court ruling specifying that funds be from the fishermen. Ms. McDowell voiced uncertainty that the Court has established a funding source; however, she noted the Court has determined that the funding mechanism currently in place "doesn't work because of the dedicated fund problem." She stated the proposed legislation corrects this problem. Senator Hoffman asked what factors are included in the determination of the optimum number of permits. Ms. McDowell informed the Committee that the optimum number study could be a lengthy process and involves a full analysis of biological and economic factors including such things as: the average fish price; the average overhead including crew costs, average earnings, average food costs and debt load. She continued that the study takes into consideration net earnings, net costs and biological factors. Ms. McDowell stated that the definition of the term "optimum number" is one of the most valuable components of this bill. She explained this term "as being a range" instead of the current "one" number; thereby allowing the number to vary based on a variety of pertinent factors. Co-Chair Donley asked if, in addition to the determination of the optimum number, whether the number of permits considered for a "threatened" fishery would affect the buy-back program. Ms. McDowell stated that conservation is a primary consideration of the buy back program, the other being to avoid economic distress of the fishing industry. She stated "it is a balancing act" and the optimum number takes these factors into consideration. Co-Chair Donley asked how a threatened fishery affects the buy-back equation under this legislation. Ms. McDowell stated that "the balancing act" of conserving the resource and ensuring a viable economic industry are taken into consideration. She informed the Committee that there is also a provision in this bill that allows individual permit holders to relinquish their permits at any time. Senator Hoffman asked, when talking about the fishery resource, if the optimum number factors in subsistence fishing and the sport fishing industry. Ms. McDowell stated that the optimum number is based on what is allocated to that specific fishery and whether "someone can make a living and the resource can be conserved" within that fishery. Senator Hoffman asked if the number is determined on a seasonal basis. Ms. McDowell qualified that this number does not vary year to year, but rather is determined over time. She stated that if a fishery experiences a considerable change, then another optimum number study might be conducted. Senator Hoffman asked who makes the determination that another study is needed. Ms. McDowell responded, "there is not a specific mechanism in place" for determining what would trigger an optimum number study; and, at this point, usually it would be a determination that "a fishery is getting too exclusive or overloaded." She stated that conducting an optimum number study "is a big undertaking" and would require staff to "put other work aside." Representative Scalzi stated this bill, along with HB 286, which addresses Fishing Permits, Associations and Assessments, "are viewed as tools by the industry to help them help themselves." He stated there is no fiscal note accompanying this bill. Representative Scalzi, referring to Co-Chair Donley's questions regarding conservation of a fishery, noted this issue is addressed in "the North Pacific Management Council under the Magnuson Act which does have a buy-back provision for conservation purposes." He stated the Magnuson Act also includes language specifying, "there could be no re-allocation of the resource to another user group as the resource has to be dedicated to pay that buy-back back." He stated this is the only conservation buy-back proposal he is aware of. Senator Leman asked if this fund could include money from sources other than the fishing permit holders as this process could affect other groups. Representative Scalzi stated the legislation does provide for this option. He stated, "if he was going to be involved in a buy-back program, he would want those checks and balances in to make sure we are going to have enough of the wherewithal to pay it back." He stressed this is the reason it is so important for the program to be voluntary. Senator Leman asked if the Department of Revenue recommendations included in their March 5, 2002 fiscal note analysis were incorporated in the bill. Ms McDowell responded that those recommendations were adopted and included in the CS for HB #288(FIN)am. SUE ASPELUND, Executive Director, Cordova District Fishermen United which represents fishermen and their families in the Cooper River and Prince William Sound regions, testified via teleconference from Cordova and voiced support for this bill. She stressed it includes important changes to the existing buy-back program and is appropriate to the changing needs of Alaska's fishing industry. She urged the Committee to support the bill. DON JOHNSON, testified offnet from Soldotna in support of the bill; however, he voiced concern about the lack of a defined mechanism to trigger a new optimum number study to be conducted, and asked for a "more precise mechanism" to be determined. He then pointed out that the legal definition for the optimum number of permits established for a particular area, as defined under AS 16.43.290, is determined by the economic health of the commercial industry, maintenance of biological health of the fishery, and the economical hardship of the industry. He voiced concern that the optimum number does not factor in the public's viewpoint, and he suggested this also be a consideration as subsistence needs and economic hardship of the public is important. He continued this would also need to be addressed in AS 16.43.300. He reiterated that the needs and desires of the public should be a factor in the determination of the optimal number of permits. He contended this is a good bill, but it needs some "fine-tuning." Ms. McDowell responded that once the Limited Entry Commission has made its determination on what the optimum number should be, a public comment period is required which would allow the public to participate in the process. Co-Chair Donley offered a motion to "move the CS for House Bill 288(FIN) amended from Committee with individual recommendations and three accompanying fiscal notes." There being no objections, CS HB 288(FIN)am was REPORTED from Committee with a zero fiscal note, dated 2/01/02, from the Department of Fish and Game; a zero fiscal note, dated 3/05/02, from the Treasury Division, Department of Revenue; and an indeterminate fiscal note, dated 3/05/02, from the Division of Tax, Department of Revenue. AT EASE 5:28 PM / 5:30 PM