Legislature(2005 - 2006)CAPITOL 124

02/03/2005 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Failed To Move Out Of Committee
Moved Out of Committee
HB  25-REFUND OF FISH BUSINESS TAX TO MUNIS                                                                                   
CO-CHAIR THOMAS announced that the  first order of business would                                                               
be  HOUSE  BILL NO.  25,  "An  Act  relating  to the  sharing  of                                                               
fisheries   business  tax   revenue   with  municipalities;   and                                                               
providing for an effective date."                                                                                               
CO-CHAIR  OLSON  moved to  adopt  CSHB  25, Version  24-LS0169\F,                                                               
Utermohle,  1/28/05, as  the working  document.   There being  no                                                               
objection, Version F was before the committee.                                                                                  
8:06:28 AM                                                                                                                    
REPRESENTATIVE  PAUL SEATON,  Alaska State  Legislature, sponsor,                                                               
noted  that  the  committee  packet  should  include  letters  of                                                               
support  and  charts.    He  reminded  the  committee  that  this                                                               
legislation only addresses the portion  of the fisheries business                                                               
tax  for those  fish  landed  in a  municipality  or borough  and                                                               
exported  unprocessed.   The legislation  doesn't  change the  50                                                               
percent of  the fisheries business  tax for those  fish processed                                                               
in the state or for those  processed within the state but outside                                                               
of  a municipality.   Representative  Seaton turned  attention to                                                               
the document entitled "Distribution of  Fish Business Tax on Fish                                                               
Exported Unprocessed" that  is based on the estimate  of what the                                                               
2005 return  will be, which is  $743,000.  The more  recent chart                                                               
specifies  the  actual [return]  for  2004,  which was  $534,000.                                                               
Therefore, there has been growth.   Representative Seaton pointed                                                               
out  that  the  committee  packet should  also  include  a  chart                                                               
showing  the  growth  of  the  program going  back  to  1999.  In                                                               
response  to concerns  that he  has heard,  Representative Seaton                                                               
explained that formula  takes the tax generated  across the state                                                               
and proportionally distributes  that to each of  the 14 fisheries                                                               
management areas based  on total poundage processed  in the area.                                                               
"Within that  management area then  there's another  formula that                                                               
distributes generally  it's 50  percent based  on an  equal share                                                               
basis, each  community applying and  50 percent on  population or                                                               
there's  a longer  formula that  distributes it  based on  actual                                                               
impacts," he explained.  This  legislation addresses the division                                                               
between  the management  areas so  that  the tax  generated in  a                                                               
particular  area would  return to  that area  rather than  to the                                                               
location  of the  largest  amount of  poundage  processed in  the                                                               
8:11:33 AM                                                                                                                    
REPRESENTATIVE LEDOUX inquired  as to the impacts  to a community                                                               
when fish  are landed in  a community  but not processed  in that                                                               
REPRESENTATIVE  SEATON   specified  that   [the  impact   to  the                                                               
community could be the use  of infrastructure to prepare the fish                                                               
to  be shipped  out fresh],  which would  include cranes,  harbor                                                               
facilities, washing  facilities, et cetera.   For example, troll-                                                               
dressed  salmon landed  in Juneau  [and  exported elsewhere]  are                                                               
unprocessed per  the Department of Natural  Resources' definition                                                               
of  processed.   The location  within  the state  where fish  are                                                               
processed would receive the revenue,  the 50 percent split.  This                                                               
legislation  doesn't impact  the aforementioned.   He  reiterated                                                               
that this  legislation only  impacts that  fish which  is brought                                                               
into a  community and then  exported [out of  state] unprocessed.                                                               
If the  fish is processed outside  of the state, the  tax base is                                                               
lost  although the  price for  that unprocessed  "fresh" fish  is                                                               
higher.    He  mentioned  that  there  has  been  review  of  the                                                               
possibility  of coordinating  DNR's definition  of processed  and                                                               
the   Department   of   Revenue's  definition,   however,   those                                                               
definitions serve different purposes.                                                                                           
8:14:41 AM                                                                                                                    
REPRESENTATIVE  LEDOUX   expressed  concern  because   she  can't                                                               
identify which  communities will  win and  which will  lose under                                                               
this  legislation.   She expressed  further concern  that smaller                                                               
communities   may   be   disproportionately  impacted   by   this                                                               
REPRESENTATIVE SEATON  clarified that  this [formula]  isn't tied                                                               
to the  size of the  community.   He informed the  committee that                                                               
DOR  hasn't collected  data  in a  manner by  which  it could  be                                                               
broken  down   [by  community].     Furthermore,  confidentiality                                                               
requirements  specify  that  DOR can't  provide  a  community-by-                                                               
community breakdown unless there are  three major processors in a                                                               
community.     Still,  this  legislation  specifies   that  taxes                                                               
generated  in a  community will  be shared  with that  community.                                                               
Therefore,  those communities  dealing more  in high  value fresh                                                               
marketing will  have the tax  returned to the community,  such as                                                               
would be  the case with Chignik.   He turned to  the community of                                                               
Unalaska  and   the  Bering   Sea  rationalization,   which  many                                                               
anticipate will  result in  more King crab  being flown  out live                                                               
because  it's a  higher  value product.    As the  aforementioned                                                               
happens, the  direct tax  benefit from that  50 percent  is lost.                                                               
He acknowledged that  [Unalaska] is the largest port  in the area                                                               
by poundage,  which the distribution  formula favors.   Fisheries                                                               
have  grown  away  from  the  state's  tax  structure,  he  said.                                                               
Representative  Seaton explained  that  in  1991 the  legislature                                                               
decided that 50 percent of the  raw fish tax would be distributed                                                               
back to  the local communities  where the processing  took place.                                                               
At that  time everything was  processed in Alaska.   However, now                                                               
fisheries  have  moved toward  fresh  fish  being flown  out  and                                                               
processed  elsewhere, which  results in  a higher  value for  the                                                               
fishermen.   Representative Seaton specified that  if a community                                                               
doesn't send out fresh product, then  it can't expect to have the                                                               
tax  returned.    He  informed the  committee  that  [under  this                                                               
legislation]  Kodiak  will  gain  $52,000 in  revenue  that  it's                                                               
currently  losing by  exporting unprocessed  fish outside  of the                                                               
8:21:07 AM                                                                                                                    
REPRESENTATIVE CISSNA inquired as  to which communities have more                                                               
than  three processors  because  such information  would seem  to                                                               
anecdotally suggest the impacts.                                                                                                
REPRESENTATIVE SEATON said that the  best information he has been                                                               
able to obtain  is the chart ["Distribution of  Fish Business Tax                                                               
on  Fish Exported  Unprocessed"]  in the  committee  packet.   He                                                               
pointed  out   that  most  communities  don't   have  over  three                                                               
significant processors, and therefore  due to the confidentiality                                                               
requirements  of  DOR  the  information   can't  be  released  by                                                               
8:23:41 AM                                                                                                                    
REPRESENTATIVE  CISSNA   related  her  understanding   that  some                                                               
communities  recognize  this  problem  and already  have  a  tax.                                                               
Therefore, she questioned why this  couldn't be addressed locally                                                               
in the areas without a fish tax.                                                                                                
REPRESENTATIVE SEATON reiterated that the  purpose of HB 25 is to                                                               
share  the revenue  with communities  as  originally intended  in                                                               
1981.    However, the  fisheries  have  developed away  from  the                                                               
original definition  of processed fish, which  wasn't foreseen in                                                               
the original tax  distribution.  With regard to  those areas with                                                               
additional taxes,  Representative Seaton said that's  a different                                                               
question than whether the state  would want to distribute part of                                                               
its tax  money back  to the impacted  communities.   The question                                                               
becomes whether that distribution should  be to where the impacts                                                               
occur  because  the  impacted   communities  can  be  identified.                                                               
Representative  Seaton  specified that  HB  25  merely says  that                                                               
those  taxes  generated  within a  municipal  community  will  be                                                               
shared  back with  that community  rather than  being distributed                                                               
broadly based on poundages processed across the state.                                                                          
8:27:51 AM                                                                                                                    
REPRESENTATIVE  NEUMAN  asked if  it's  a  substantial amount  of                                                               
money for those communities negatively impacted.                                                                                
REPRESENTATIVE  SEATON  answered  that most  [of  the  negatively                                                               
impacted communities face  a loss] of less than $1,000.   A chart                                                               
[entitled "ESTIMATED  DCCED Payments"] reviews the  difference in                                                               
funding.    This  chart  only  shows what  comes  out  and  isn't                                                               
distributed, and  therefore one must  keep in mind that  the same                                                               
amount  will come  back  to the  communities  and be  distributed                                                               
based  on what  communities generate  the money.   Representative                                                               
Seaton  informed the  committee that  each region  can propose  a                                                               
distribution formula to  DCCED, which could mitigate  most of the                                                               
8:30:27 AM                                                                                                                    
REPRESENTATIVE NEUMAN surmised then that  there is a mechanism by                                                               
which those  communities that are  negatively impacted can  go to                                                               
their own local government to mitigate the [loss].                                                                              
REPRESENTATIVE SEATON replied yes.                                                                                              
8:30:45 AM                                                                                                                    
REPRESENTATIVE  LEDOUX asked  if that  would be  true of  all the                                                               
negatively  impacted communities,  including  the communities  in                                                               
the Lake  & Peninsula Borough.   She further asked if  the Lake &                                                               
Peninsula   Borough  would   receive   more   money  under   this                                                               
legislation, and  thus the communities  within the  borough could                                                               
[seek help from the] borough.                                                                                                   
REPRESENTATIVE  SEATON  specified  that   the  Lake  &  Peninsula                                                               
Borough is  an aggregate area.   "When you  take the tax  back to                                                               
the communities that generate the  revenue," the Alaska Peninsula                                                               
aggregate  area  is  going  to lose  revenue  because  under  the                                                               
current  distribution   formula  the  large  volume   of  fishery                                                               
poundage generated in Unalaska results  in Unalaska receiving the                                                               
taxes  generated  in   northern  Southeast,  southern  Southeast,                                                               
Kodiak,  and Kenai.   Therefore,  the tax  shifts from  the areas                                                               
generating the  revenue to the largest  port.  He noted  that the                                                               
Lake  &  Peninsula  can  change its  formula  to  accentuate  the                                                               
smaller communities.                                                                                                            
8:33:43 AM                                                                                                                    
MICHAEL KAMPNICH,  Harbormaster, City of Craig,  related the City                                                               
of  Craig's  support  for  HB  25.   Craig  is  a  small  coastal                                                               
community  where commercial  fishing  is important  to the  local                                                               
economy.   Mr. Kampnich informed  the committee that the  City of                                                               
Craig operates three  harbors, two docks with cranes,  and an ice                                                               
house.     The  aforementioned  facilities,  as   well  as  other                                                               
facilities,  support  the commercial  fishing  fleet.   Over  the                                                               
years, the  revenue the City of  Craig has received from  the raw                                                               
fish tax  has been used  to purchase equipment and  materials for                                                               
the harbor facilities  and have also been used  as matching funds                                                               
for  larger  harbor  or  marine-related  projects  the  city  has                                                               
undertaken.    As  the  fishing industry  has  bounced  back,  an                                                               
increasing amount  of fish are  being shipped out because  of the                                                               
demands  for quicker  delivery  and higher  quality.   While  the                                                               
aforementioned  is  good for  fishermen  and  the industry  as  a                                                               
whole, it has left the City  of Craig with a decreasing string of                                                               
revenue  from the  fisheries business  tax.   In conclusion,  Mr.                                                               
Kampnich said,  "House Bill 25  reestablishes the  important link                                                               
between   fishery  landings   and   revenues   received  by   the                                                               
communities.   This, at  a time  when it  is more  important than                                                               
ever for communities  to support the industry in  their effort to                                                               
produce the highest quality product possible."                                                                                  
8:36:20 AM                                                                                                                    
JEFF  CURRIER, Manager,  Lake  &  Peninsula Borough,  highlighted                                                               
that  under this  proposal  there would  be  negative impacts  on                                                               
about 100 communities in the  state.  He further highlighted that                                                               
69 percent of the funding  being shifted through this legislation                                                               
comes from  the Alaska Peninsula.   Furthermore, this comes  at a                                                               
time  when  most  of  communities, particularly  in  the  Lake  &                                                               
Peninsula Borough, face failing prices.   Mr. Currier stated that                                                               
he  doesn't agree  with the  rationale  behind this  legislation.                                                               
Mr.   Currier  requested   the   committee   give  very   careful                                                               
consideration to HB 25.                                                                                                         
8:38:08 AM                                                                                                                    
CHRIS  HLADICK,  Manager,  City  of Unalaska,  said  that  he  is                                                               
confused  with DOR's  numbers because  one can't  really see  the                                                               
winners, although  the losers are  obvious.  He pointed  out that                                                               
the City of  Unalaska stands to lose $180,000,  and therefore the                                                               
City  of Unalaska  isn't going  to be  in favor  of HB  25.   Mr.                                                               
Hladick said although he could  understand communities wanting to                                                               
capture  some  tax  of  exported unprocessed  fish,  he  said  he                                                               
couldn't  understand  it   if  it's  at  the   expense  of  other                                                               
communities.  In closing, Mr.  Hladick related that the mayor and                                                               
city council of the City of Unalaska will be against HB 25.                                                                     
8:40:00 AM                                                                                                                    
JULIE DECKER, Executive Director,  Southeast Alaska Regional Dive                                                               
Fisheries Association  (SARDFA), related  SARDFA's support  of HB
25.  She  highlighted that the market is demanding  more live and                                                               
fresh seafood.   For example,  the geoduck fishery  has increased                                                               
live shipments to over 90 percent  of the annual quota, which has                                                               
increased  the  value  by  about   300  percent.    However,  the                                                               
communities  that  have  supported [development  of  the  geoduck                                                               
industry]  are  being  penalized  because the  tax  on  the  live                                                               
seafood is being redistributed  to coastal communities throughout                                                               
the  state.   She  didn't  believe  the aforementioned  is  fair.                                                               
Furthermore, the communities have  to provide much infrastructure                                                               
for [fresh  seafood to  be exported].   She echoed  the sponsor's                                                               
earlier  comments  that the  marketplace  has  changed since  the                                                               
implementation of the fisheries business tax.                                                                                   
8:42:26 AM                                                                                                                    
VALERY McCANDLESS,  Mayor, City of Wrangell,  related support for                                                               
HB 25.   As is the case in many  communities in Southeast Alaska,                                                               
Wrangell is in a transitioning  economy.  The fishing industry is                                                               
also  making  a  transition  and   shipping  more  live  product.                                                               
Although this  live product would be  classified as "unprocessed"                                                               
fish, it impacts  the local community through use of  a myriad of                                                               
services.   Therefore, it's  very important  to capture  this tax                                                               
revenue stream,  particularly in light  of the lack  of municipal                                                               
revenue sharing  funds.  "It  is critical  for us to  capture the                                                               
fair level of  taxes for what is really happening  in the fishing                                                               
industry,"  she   emphasized.    Ms.  McCandless   commended  the                                                               
sponsors  for  bringing  this legislation  forward  because  it's                                                               
important  that laws  reflect  what is  really  happening in  the                                                               
fishing industry.                                                                                                               
8:44:26 AM                                                                                                                    
BOB  JUETTNER, Administrator,  Aleutians East  Borough, commented                                                               
that  all  coastal  communities share  common  concerns  and  are                                                               
dealing  with a  lot  of infrastructure  to  support the  fishing                                                               
industry.   Mr.  Juettner indicated  that in  the Aleutians  East                                                               
Borough  there  is  only one  industry,  the  commercial  fishing                                                               
industry.   Therefore, everything done  in the borough  is geared                                                               
toward the  commercial fishing industry, which  has changed [over                                                               
the years].   Mr. Juettner suggested that this is  a local issue.                                                               
He  informed the  committee that  the communities  on the  Alaska                                                               
Peninsula tax the  fishing industry at all levels.   Mr. Juettner                                                               
further  suggested  that  the  committee   needs  to  review  the                                                               
definition of  "processed" and [write]  the legislation  in terms                                                               
of passing the  test of time not just a  current change in market                                                               
conditions.  In conclusion, Mr.  Juettner emphasized the need for                                                               
the law to match reality.                                                                                                       
8:48:36 AM                                                                                                                    
CLARK CORBRIDGE,  Manager, City  of King Cove,  said that  he has                                                               
the same concerns as Mr. Juettner  articulated.  The City of King                                                               
Cove  has a  lot of  infrastructure that  is impacted  by vessels                                                               
coming in but  not processing the fish in King  Cove, such as the                                                               
port and  harbor facilities, water,  sewer, and  support services                                                               
like emergency  and police.   Therefore, the loss of  revenue due                                                               
to HB 25 will significantly impact  King Cove.  He predicted that                                                               
the  passage of  HB  25 will  have a  devastating  impact on  the                                                               
communities smaller  than King Cove  where the revenue  lost will                                                               
proportionally be a greater portion of the community's budget.                                                                  
8:50:01 AM                                                                                                                    
REPRESENTATIVE  NEUMAN inquired  as  to  how serious  communities                                                               
will be impacted.                                                                                                               
MR.  CORBRIDGE related  that information  he  has indicates  that                                                               
passage of  the current version  of HB  25 will result  in places                                                               
such  as  Cold Bay  and  False  Pass  losing  about half  of  the                                                               
revenues they  currently receive.   He noted  that both  Cold Bay                                                               
and False Pass have no revenue to lose.                                                                                         
8:50:57 AM                                                                                                                    
REPRESENTATIVE LEDOUX  said she  didn't feel comfortable  with HB
25 without  figures.  She  opined that it's difficult  to believe                                                               
that no  more specific figures  can be obtained to  determine the                                                               
winners and losers.   Therefore, she said she would  be remiss in                                                               
passing out HB 25.                                                                                                              
8:51:55 AM                                                                                                                    
REPRESENTATIVE CISSNA  concurred with Representative  LeDoux, and                                                               
questioned  whether there  has not  been  discussion with  enough                                                               
communities   to  mollify   those   who  have   concerns.     She                                                               
acknowledged that  the fishing  industry has  changed enormously.                                                               
Therefore, it's probably  good to take time with  this matter and                                                               
perhaps have a subcommittee work on it.                                                                                         
8:53:43 AM                                                                                                                    
CO-CHAIR  OLSON moved  to report  CSHB  25, Version  24-LS0169\F,                                                               
Utermohle,   1/28/05,   out    of   committee   with   individual                                                               
recommendations and the accompanying fiscal notes.                                                                              
8:53:55 AM                                                                                                                    
REPRESENTATIVE LEDOUX objected.                                                                                                 
8:54:02 AM                                                                                                                    
A roll call  vote was taken.  Representatives  Neuman, Olson, and                                                               
Thomas voted in favor of  reporting CSHB 25, Version 24-LS0169\F,                                                               
Utermohle, 1/28/05,  out of  committee.   Representatives Cissna,                                                               
Salmon, Kott, and  LeDoux voted against it.   Therefore, CSHB 25,                                                               
Version F, failed  to be reported out of the  House Community and                                                               
Regional Affairs Standing Committee by a vote of 3-4.                                                                           

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