HB 354-DIVE FISHERY ASSESSMENTS  4:00:27 PM CHAIR GIESSEL announced consideration of HB 354 [version 30- LS1368\D, was before the committee]. REPRESENTATIVE DAN ORTIZ, sponsor of HB 354, Alaska State Legislature, said this measure streamlines the process in which the Southeast Alaska Regional Dive Fisheries Association (SARDFA) can amend an assessment. SARDFA is a non-profit association that represents all dive fishery permit holders in the Southeast commercial fishing region. It is the only dive fishery association in the state regulated under AS 43.76.150.210, and current statutes require a majority of permit holders to participate in an election to modify an assessment. He explained that due to the Southeast Alaska dive fishery becoming a limited entry fishery in the 1990s, many of the permits are non-transferrable and are no longer actively being fished. The proposed legislation allows for a change in assessment to be initiated by a three-fourths vote of the SARDFA board and passed with a majority of permit holders participating in an election. REPRESENTATIVE ORTIZ explained that this bill changes the existing way SARDFA conducts assessments on their different fisheries. Their fishermen are assessed to fund Alaska Department of Fish and Game (ADF&G) activities to manage those fisheries. The problems is that originally, the assessment required a majority of permit holders to participate in an election and there is less and less participation, because people are aging out of the fisheries. CHAIR GIESSEL asked staff to go through the bill. LIZ HARPOLD, staff to Representative Ortiz, Alaska State Legislature, explained that HB 354 essentially changes the threshold for initiating a change and also electing that change in an assessment. Section 1 adds language to clarify which sections the assessment is levied, amended, and terminated. Page 1, lines 7-10, clarify that it's a majority of permit holders versus participating in an election instead of a majority of all permit holders total. Page 1, lines 11-12 create the minimum threshold of permit holders being required to participate at 25 percent. Section 2 on page 2, line 4, is conforming language reflecting the changes made in section 1. She pointed out that AS 43.76. sections (a)-(d) have to do with the notice for election, the election procedures, and the certification of results. Adding subsection (b) reiterates that levying, amending, or terminating an assessment must pass with a majority of permit holders participating in an election with a minimum of 25 percent participation. Sections 3 and 4 change how the amendment of (3) or the termination of (4) an assessment is initiated. So, instead of it being brought forward to the commissioner of the Department of Revenue (DOR) by 25 percent of the fishermen who participated in the previous election, the initiation of changing this assessment will be brought forward by the three-quarters vote of the board of directors. 4:05:22 PM SENATOR WIELECHOWSKI asked what a dive fishery management assessment is. REPRESENTATIVE ORTIZ answered it is a tax that is put on the value of, for example, the sale of geoduck that goes directly to the Department of Revenue (DOR) that disburses it to the Alaska Department of Fish and Game (ADF&G) so it can continue to manage that particular fishery, in this instance the geoduck fishery. No general funds are used; it's all their own money. SENATOR WIELECHOWSKI asked if industry is setting its own rates of taxation. REPRESENTATIVE ORTIZ replied yes, but like any other fishing industry, they want to see preservation of the stocks for the future, so they can continue being part of the economy. The tax is based on what ADF&G sees itself needing to manage the stocks. 4:07:03 PM SENATOR WIELECHOWSKI asked what the money is used for. REPRESENTATIVE ORTIZ replied that the money is used by ADF&G to assess the stocks through a variety of ways. SENATOR WIELECHOWSKI asked what if ADF&G says it needs a 5 percent tax and people say no, it should be 4 percent. Can they set a lower rate? REPRESENTATIVE ORTIZ replied yes, theoretically; but if fishermen want their stocks to be managed, they have to pay for it. SENATOR BISHOP commented that at end of the day, the dive fishery funds the department to assess whether it has an opening or not. REPRESENTATIVE ORTIZ replied yes. SENATOR STEDMAN said this tax is in addition to the state fisheries tax, but this is the direction they want industries to go: to be self-supporting and not rely on the general fund. The challenge is if they hit the score a little high and the revenue needs adjusting. 4:10:45 PM SENATOR MEYER asked if the industry in Southeast is healthy in general. Should we maintain it or make it stronger? 4:11:13 PM SCOTT KELLEY, Director, Division of Commercial Fisheries, Alaska Department of Fish and Game (ADF&G), answered that the three fisheries - sea urchins, cucumbers, and geoduck clams - are all healthy. Those fisheries have generated $8.5-12.5 million in ex- vessel value. SENATOR WIELECHOWSKI asked if the department supports this bill and how the amount of funding has worked so far. What is done with the excess funds? MR. KELLEY replied that the assessment goes to the DOR and the ADF&G gets just a small piece of that through what is called a "cooperative agreement." Their piece of the assessment is relatively small and the most of it goes to the dive fishery for water testing, and staffing. He added that these fisheries can't happen by regulation unless the stocks are assessed. He brings that up because that motivates the association to fund ADF&G operations. The department is currently adequately funded. SENATOR WIELECHOWSKI asked how much is collected and how much goes to each department. MR. KELLEY replied that the Division of Commercial Fisheries receives about $104,000 per year from the dive fishery assessments and he didn't know how that broke down. SENATOR WIELECHOWSKI asked if he supported this measure and if the department has sufficient funds to continue doing what he wants to do. MR. KELLEY replied that the department supports this bill, but in a way, it is an internal matter for the association. The ADF&G commissioner is only charged with certifying the election and making sure the statutory voting requirements are followed. 4:15:35 PM SENATOR STEDMAN commented that legislators had worked on this dive fishery for years. It's nice to see that it is successful and that outside of the sea otter predation problem, it is self- sustaining. CHAIR GIESSEL remarked that geoducks are highly sought in the Orient. MR. KELLEY replied that is true and that sometimes live geoducks go for $11.50 a pound; processed ones are worth about 65 cents a pound. SENATOR WIELECHOWSKI asked if he could have his question about the assessments answered. KEN ALPER, Director, Tax Division, Department of Revenue (DOR), replied that the value of the assessment is a percentage of the value and it varies from year to year. Part of the reason this is an issue is that the sea cucumbers are having somewhat of a boom and have contributed more money through the assessment than is needed and are struggling to reduce the rate. Total collections in recent years from the three dive fisheries is $600,000-800,000. SENATOR WIELECHOWSKI said he thought he heard ADF&G testify that they need about $104,000 and that they are getting much more. MR. ALPER replied that the Tax Division's role is mechanical; they are collecting the assessment alongside all of the other fish taxes. It is designated general fund subject to appropriation. Put into context, it is similar to the hatchery and Alaska Seafood Marketing Institute (ASMI) assessments. He understands that SARDFA is accumulating something of a "reserve account" that they are funding their own operations to manage their fishery from their end, but it's in a pot where they can't just use it, and they have more than they need. That is part of why they want to reduce the assessment. SENATOR WIELECHOWSKI said he knows some fishery funds are dedicated and asked if the excess money goes into the general fund, and if he sees it diminish there. MR. ALPER answered these three fisheries' funds are designated general fund and are intended to be within the state's dedicated funds restrictions, meaning they are approved by the legislature, and to a certain extent, the assessment has to be approved by the user group in a vote. He understands that has been upheld so long as the money, itself, remains subject to appropriation. SENATOR WIELECHOWSKI asked if that is an appropriation to the general fund, because he said it was "dedicated." MR. ALPER replied if he said that word, it was in the context of avoiding any linkage to a dedicated fund. This is considered designated general fund (DGF) within the revenue system. It comes in with the expectation that it's going to a purpose that is subject to appropriation annually. SENATOR WIELECHOWSKI asked what is happening to the other $500,000. MR. ALPER replied that his understanding is that it goes to SARDFA, which is a non-profit, and sits in their reserve account. That is why they want to reduce the assessments for a couple of years while they spend it down. SENATOR MEYER asked him to explain the indeterminate fiscal note that says additional revenue may come to the state. MR. ALPER replied that he didn't have the fiscal note before him but there had been several versions. Originally, it was indeterminate and then was changed to zero. The reason it was indeterminate is that this bill might make it easier for the fishermen user group to reduce their rate, and therefore, reduce the direct flow of cash to the state. However, dollar for dollar, whatever comes in reduces the amount that passes through to the user group, and the net effect regardless of that rate will be zero in regard to budgeting the state's revenue. SENATOR MEYER said it seems that as this industry grows, they might generate a lot of funds that the state could use for other fisheries, but that was a discussion for another time. MR. ALPER responded that the self-assessment for dive fishery management is in addition to the traditional fisheries tax that all Alaska's commercial fishermen pay, which is all general fund-shared with the municipality. This was added at their request to support their own operations, and to the extent that their fishery grows, ADF&G's costs are going to increase, too. He believes that compared to salmon in a creek, it costs more to assess these fisheries. It is more capital intensive, because divers have to be sent down to figure out the health of the fishery and what sort of openers they can have. SENATOR MEYER remarked they have to deal with the sea otters, too. MR. ALPER declined to touch that. 4:23:41 PM CHAIR GIESSEL, finding no further questions, opened public testimony. PHIL DOHERTY, Executive Director, Southeast Alaska Regional Dive Fisheries Association (SARDFA), Ketchikan, Alaska, supported HB 354. The association, working with the sponsors, generated this legislation through the board of directors, their two reactive fisheries committees - the geoduck clam and the sea urchin fisheries - and the sea cucumber committee. Through all of those steps, they did not have a negative vote. SARDFA wants this to happen. He explained that the three fisheries have a mandatory tax above and beyond the 3 percent state fisheries tax. They tax themselves 5 percent of the sea cucumber and red sea urchin ex- vessel value and 7 percent of the geoduck clam ex-vessel value. They enter, under regulation, an annual operating plan with the ADF&G. Then sit down at the table with them and discuss what is needed for the upcoming year for assessments of the three species and agree on that. Then SARDFA, through these taxes, pays the ADF&G to manage and do the assessment work and necessary research on the three species. This is done through the regulatory process on any given year. If they do not give ADF&G the necessary funds for them to conduct research, management, and assessment, they don't have a fishery. Obviously, they want fisheries. MR. DOHERTY explained that the excess money above and beyond what is given to the department goes into the three separate reserve funds and those funds can't be intermingled. Whatever is done for each of the three fisheries is paid for by that fishery with the department is paid off the top. Sea cucumber enhancement has been ongoing for the last 20 years, but that might not be possible for wild stocks because of sea otter predation. The Alutiiq Pride Shellfish Hatchery (APSH) has spent over $300,000 to get that industry off the ground; they have an association and the excess money goes into running that association. MR. DOHERTY said the sea urchin and geoduck clam fisheries don't have a lot of money to put in the bank at the end of the day. Fortunately, the sea cucumber fishery has been able to bank enough money that the fishermen feel they can lower their 5 percent tax down to either 3 percent or 1 percent and still meet their financial requirements for the State of Alaska. That will enable these fishermen, by reducing their tax, to actually realize real money into their pockets at the end of the season. Unfortunately, the initial legislation that was formed over 20 years ago says that a majority of all the permit holders is needed to change the tax, and now a number of those are latent permits that are still bought on an annual basis, but they don't get fished. But if you have a permit card, even though you have not made a landing, you are part of the association and your vote counts. MR. DOHERTY said three years ago they tried to change the sea cucumber tax from 5 percent to 3 percent, but couldn't meet the hurdle of getting a majority of the sea cucumber permit holders to vote. This legislation is 100 percent agreed upon within the association; they are just trying to lower the bar to be able to have a vote that will help fishermen who are still fishing to lower the assessment. He added that if the financial commitments to the State of Alaska are not met, they won't fish, and every permit holder understands that. CHAIR GIESSEL thanked him for that explanation. 4:30:59 PM SENATOR WIELECHOWSKI asked how many permit holders there are and how many of them live in Alaska. MR. DOHERTY replied that individuals in all the three fisheries get a limited entry permit. So, one permit doesn't let you dive in all three fisheries. There are a little over 300 permits in the fisheries that has dropped from about 350. Some permits are non-renewable so the number of permits is dropping on an annual basis. About 65 percent of the permits are from Alaskan residents. 4:32:01 PM SENATOR WIELECHOWSKI asked if there is an annual fee to hold a permit. MR. DOHERTY answered yes: the geoduck permit is about $225, the sea cucumber fishery is $75, and the same for the red sea urchin fishery. He added that of the 310 permit holders there are about 210 active divers. Unfortunately, when they need to vote on the annual tax, they couldn't get enough fishermen to return the ballots to lower the tax. It frustrated many of the active fishermen. SENATOR WIELECHOWSKI said he would like to see some ideas on how to get the 35 percent who don't live in Alaska transferred into Alaskans' hands. 4:33:38 PM CHAIR GIESSEL, finding no further questions, closed public testimony. SENATOR COGHILL moved to report HB 354, version D, from committee with individual recommendations and attached zero fiscal note. There were no objections and it was so ordered.