SB 67-LOAN FUNDS:CHARTERS/MARICULTURE/MICROLOAN  1:36:35 PM CHAIR EGAN announced SB 67 to be up for consideration and that it was requested by the Governor. DANA OWEN, staff to Senator Egan, presented CSSB 67(L&C), labeled 26-GS1728\M. He said there were a lot of conforming drafting changes, because bills from the governor are generally drafted by the Department of Law which uses a slightly different drafting manual than legislative drafters. The substance isn't different, but some of the language is. He said the substantive changes start with the title on page 1, and explained that because the microloan provisions were passed in another bill those provisions were deleted from this bill. On page 1, line 13, "grant" was added to the list; that also happens on page 5, line 13. On page 7, the department asked to include language about a vessel "determined to be integral to the operation of the farm" that makes these loans available for purchasing a boat for a mariculture site. Using these loans for boats was specifically prohibited before. The microloan provisions were deleted in addition to transitional language. 1:39:59 PM SENATOR PASKVAN moved to adopt the committee substitute (CS), version M. There were no objections and it was so ordered. SEAN RUDDY, member, Kachemak Shellfish Growers Co-op, and Vice President Alaska Shellfish Growers Association, Anchorage, said he is an oyster farmer in Halibut Cove in Kachemak Bay. He has been an oyster farmer for eight years and he said it takes a lot of cash to get up and rolling. If he didn't have some family backing, he would have had to give up by now. It takes many years to turn a product; you get a portion of your product in two years and you don't get any profit for those years. A boat is a significant portion of his investment aside from all the other operating costs of equipment and fees and he was happy to see that included. He said getting turned down for a loan is almost a formality and just a waste of the bank's time; so he was disappointed to see that language. MR. RUDDY said oyster farming is a "great green industry." You don't put any feed in the water; you just put the oysters in, keep them clean, and keep moving them around. So, there is a lot of work to do. But it's renewable and they can conceivably keep doing it for many years. SENATOR PASKVAN asked how long before he had sufficient cash inflow to meet the annual outflow. MR. RUDDY replied he is still paying a crew because he has had to take other jobs to get the capital he needs to operate. This will be the summer that he will take over more of the work. He originally started with plan of doing it all himself, but needed to have money to keep the operation going. SENATOR PASKVAN asked what he thought about the six-year provision before paying back the loan. MR. RUDDY responded that his operation was on year eight and he was "still just squeaking by," but he saw how it could be done in six years if everything was lined up properly. He explained you only get a percentage of your first crop back in two years. It takes a while to build up a farm to the point where it is constantly producing. For the first three years or so he had problems getting seed, but now there are more in-state nurseries and more seed is available. SENATOR PASKVAN said he applauded his optimism. 1:45:48 PM CHAIR EGAN asked how long it takes an oyster to mature under ideal conditions so he is making a profit. MR. RUDDY answered under ideal conditions, you might get a quarter of the oysters back in two years, but all the oysters in the same crop might take different times to mature. It might take as many as four or five years for some to mature. 1:47:26 PM PAUL FUHS, Pac Alaska, Anchorage, supported SB 67. He said this company has about 35 acres of state land under lease for the purpose of geoduck farming.{ This is a new industry that started seven or eight years ago when they just weren't sure it would work. So considering a bill like this earlier might have been premature. MR. FUHS displayed some of the first harvest in the form of frozen product explaining they were farmed geoducks that are six or seven years old. So, the term of the loan in the bill fits the biology of this animal. He said they planted about 250,000 seeds so far, but to get up to the level similar to what British Columbia or Washington State was doing, they would need to plant a half million to one million animals per year. He described the economic potential of this industry saying they are not just talking about the farm itself, but involve people in the community at many levels like buying the seed in Seward, flying it down to Ketchikan, hiring a local diver and a boat to go out and plant them, hiring divers to harvest them, and buying fuel. They also use the local fish processing plant in the off- season, so that keeps those workers working over the winter when salmon isn't being processed. That makes it a little easier for those companies to manage their processing crew and helps them hold on to their workers. Then the product gets put on an airplane and it gets shipped to Anchorage where it gets put on the international flights to Japan and China, the main markets. MR. FUHS said he appreciated the Governor and the Department of Commerce for bringing this bill forward and this committee for hearing it. They support this bill in its current form and would use the provisions to help them purchase more seed and expand the farms. There are additional expenses on the front end; for instance they are paying about $10,000 a year to the state in lease fees and of course, there is no revenue from that until further down the road. So, a program like this would really help. Once the business is up and running, it would not be needed. CHAIR EGAN asked if there is more acreage available for farming. MR. FUHS answered yes; there is quite a bit. You have to look for the right substrate conditions. It has to be soft enough for the animals to dig in and they siphon 85-90 gallons of water a day. The area needs good water flow. Southeast has a lot of good areas and to meet the best interest findings, one has to show the farm is not interfering with the commercial dive fishery or with any other users. SENATOR PASKVAN asked why the wrapping was from Cabela's. MR. FUHS explained that was just the bag they used to get the frozen product to Juneau and the animals are normally shipped alive. SENATOR GIESSEL asked if these geoducks are indigenous to Alaska. MR. FUHS answered yes; no other species is allowed in. So they take the brood stock, harvest them and send them to the hatchery in Seward. The hatchery in Seward warms the water causing the stock to spawn. It raises them to a certain size and sends them down to Pac Alaska. Alaska is too cold for oysters to reproduce here, he explained, and that is why importing spat is allowed. 1:54:01 PM SENATOR GIESSEL asked if there is an Alaskan market for geoducks or is it all exported. MR. FUHS replied there is a small Alaskan market. It is used in sushi and is called "mirugai." Some people make a stew. WANETTA AYERS, Director, Division of Economic Development, Department of Commerce, Community and Economic Development (DCCED), offered to answer questions regarding SB 67. There were no questions. 1:56:09 PM SENATOR PASKVAN moved to report CSSB 67(L&C), version M, from committee with individual recommendations and attached fiscal note(s). There were no objections and it was so ordered.