Legislature(2021 - 2022)BUTROVICH 205
02/22/2021 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB33 | |
| SB64 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 33 | TELECONFERENCED | |
| *+ | SB 64 | TELECONFERENCED | |
| + | TELECONFERENCED |
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, speaking as sponsor, stated SB 33 is
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 is to
improve 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.
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 it is largely conforming amendments that
includes the existing tax credits applied for salmon and herring
to include two additional fisheries, cod and pollock.
He presented the following sectional analysis for SB 33::
Section 1
AS 43.75.035(b)(1) and (2), relating to tax credits
applied to value-added activity for the processing of
salmon and herring products, (1) adds the fisheries of
pollock and cod as applicable for the tax credit; and
(2) extends the sunset of the applicable tax credits
through year 2025.
Section 2
AS 43.75.035(c), conforming amendment, relating to
applying a tax credit for investment equipment used to
process salmon or herring, to include equipment used
for processing pollock and cod.
Section 3
AS 43.75.035(d), conforming amendment, relating to a
3-year carry-forward of unused tax credits for the
processing of salmon and herring, adds the same carry-
forward of tax credits to be applicable for pollock
and cod processing.
Section 4
AS 43.75.035(e), relating to the 50% of liability cap
on applicable tax credits, is legal drafting statutory
clean-up, deleting a duplicative and redundant clause
already contained in Section 1 of the bill.
Section 5
AS 43.75.035(g)(5), conforming amendment, relating to
state claw-back of a carry-forward tax credit, in the
event an asset used for the processing of salmon or
herring to which a carry-forward applies, if the asset
is removed from the state, adds pollock and cod in
determining qualified investment of processing within
the state.
Section 6
AS 43.75.035(j)(3), conforming amendment, relating to
the definition of "qualified investment" under this
tax credit program, adds investment in assets used for
processing pollock and cod products.
Section 7
AS 43.75.035(j)(6), conforming amendment, relating to
the definition of "value-added" products under this
tax credit program, adds processing of pollock and cod
byproducts.
Sections 8-11
Are historical sunset dates and repealers of this tax
credit program, consolidating all of the various
sunset provisions of the program into a single sunset,
occurring now in section 8, and set for Jan. 1, 2026.
Section 12
Sets an effective date for the bill of Jan. 1, 2022.
3:38:56 PM
MR. LAMKIN noted that the 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 he wanted the effective date in Section
12 to be 2021, as he mentioned.
MR. LAMKIN answered the bill sponsor's office would like to make
that change.
3:39:49 PM
CHAIR REVAK announced the committee will hear 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.
MR. BARROWS 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.
MR. BARROWS 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 asked what percentage of salmon is processed
into filets.
MR. BARROWS answered he will get back to him on that, although
some of his 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 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 including 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.
MR. PALMER 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.
MS. FREDERICK 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.
MS. CURRY 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.
MS. CURRY 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.