Legislature(2003 - 2004)

02/21/2003 08:33 AM House FSH

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB  22-COMMERCIAL FISHING PERMIT BROKERS                                                                                      
CHAIR SEATON announced that the  first order of business would be                                                               
HOUSE BILL NO. 22, "An  Act relating to commercial fishing permit                                                               
brokers; and providing for an effective date."                                                                                  
Number 0089                                                                                                                     
REPRESENTATIVE   BRUCE  WEYHRAUCH,   Alaska  State   Legislature,                                                               
sponsor of  HB 22, began his  testimony by asking that  no action                                                               
be taken  on the bill  at this time  but that today's  meeting be                                                               
used to introduce and bring  issues to the committee's attention.                                                               
He stated  that the  bill was  introduced in  order to  address a                                                               
problem that occurred in Homer in  which a boat broker had stolen                                                               
money.   He  explained  the broker's  role,  saying that  fishing                                                               
quotas are  obtained from the  National Marine  Fisheries Service                                                               
and that the  quota is in the  form of a certificate  that can be                                                               
sold to another  fisherman.  A broker is used  to facilitate that                                                               
REPRESENTATIVE WEYHRAUCH  told the  committee that the  broker in                                                               
the  Homer  area  took  money  from fishermen,  put  it  into  an                                                               
account, and  used it  for personal reasons.   The  fisherman who                                                               
wanted  to  sell   the  quota  didn't  get  the   money  for  his                                                               
transaction because  the broker was  using the money for  her own                                                               
purposes.   She was caught,  found guilty  of theft, and  sent to                                                               
prison;  however,  in the  meantime,  fishermen  were "out  their                                                               
money."    The original  intent  of  the  bill  was to  use  some                                                               
mechanism  such  as  having  brokers  post a  bond,  so  that  if                                                               
fishermen were  wronged by a  broker, at  least a portion  of the                                                               
money could be recovered through the use of the bond.                                                                           
Number 0428                                                                                                                     
REPRESENTATIVE WEYHRAUCH  cautioned that the committee  should be                                                               
aware  that brokers  are  used in  roughly 40  to  55 percent  of                                                               
federal fish certificate  transfers, so it is  a fairly important                                                               
industry.  He said he was  unsure and didn't have the information                                                               
as to how  often brokers were used to facilitate  the transfer of                                                               
state permits  such as  limited entry  permits.   He said  it was                                                               
important for  the committee to  realize that almost  all brokers                                                               
operate  ethically and  honestly, and  that this  bill is  not an                                                               
indictment  of  the broker  industry.    Many brokers  use  trust                                                               
accounts, in  which money from  the person buying the  share goes                                                               
into a trust account, and  the money is thereby treated properly.                                                               
He reiterated  that this bill  is designed to address  one severe                                                               
problem that harmed fishermen in the Homer area.                                                                                
Number 0548                                                                                                                     
REPRESENTATIVE WEYHRAUCH  continued that  when he  talked further                                                               
with brokers  in the  Juneau area,  the Division  of Occupational                                                               
Licensing, and the Commercial  Fisheries Entry Commission (CFEC),                                                               
issues  affecting brokers  and agencies  became apparent,  and he                                                               
said he  is interested in simplifying  the bill so that  it won't                                                               
be unnecessarily  burdensome to  those involved in  the brokering                                                               
business.  He  reiterated that although HB 22  doesn't address an                                                               
industry-wide  problem, the  focus on  a specific  broker may  be                                                               
helpful  in  shedding light  on  a  weakness within  the  system,                                                               
indicating  that perhaps  this should  be addressed  as a  public                                                               
policy matter.                                                                                                                  
Number 0600                                                                                                                     
JOHN MITCHELL,  Owner, Alaska Permit Services,  testified that he                                                               
has been involved with the  brokerage business of Alaskan limited                                                               
entry permits for over 20 years,  and said that he fully supports                                                               
the principal concept of the  bill, although he remains concerned                                                               
that important  aspects including bonding and  reciprocity issues                                                               
be addressed properly.   He said that this is  a very complicated                                                               
business  that takes  place in  an area  with cultural  concerns,                                                               
distribution issues,  and language challenges.   Events transpire                                                               
over a  calendar year  that contains  sensitive deadlines  and in                                                               
which the documentation  must meet the high  standards of various                                                               
government agencies of  authority, he said.   Mr. Mitchell stated                                                               
that fiduciary  duties must  be maintained  at all  times, saying                                                               
that his role is subject  to a demanding standard of performance,                                                               
as required by law.                                                                                                             
CHAIR  SEATON asked  for  an  explanation of  what  was meant  by                                                               
"language issues."                                                                                                              
MR. MITCHELL  responded that  in dealing  with permits,  one also                                                               
deals  with  a  varied  public,  inclusive  of  Native  Alaskans,                                                               
Italians, and people of different ethnic and cultural origins.                                                                  
CHAIR SEATON  asked if Mr.  Mitchell dealt with both  federal and                                                               
state permitting.                                                                                                               
MR. MITCHELL replied that he only dealt with state permitting.                                                                  
Number 0783                                                                                                                     
REPRESENTATIVE GUTTENBERG asked if  brokers were usually involved                                                               
with  both state  and federal  permitting or  if they  more often                                                               
addressed one type of permitting or the other.                                                                                  
MR.  MITCHELL responded  that the  majority  of brokers  combined                                                               
state and federal permitting services.                                                                                          
Number 0829                                                                                                                     
BRUCE  TOLLACK, Co-Owner,  Tidewater Brokerage,  Inc., began  his                                                               
testimony  by commenting  that the  letter  by Bill  De Vries  of                                                               
Alaska Boats &  Permits, Inc., included in  the committee packet,                                                               
was well written.   He said that after the  incident had occurred                                                               
in Homer, he had gone to  an insurance agent, assuming that there                                                               
would be a problem of lack of  trust in the industry, but did not                                                               
find that to be  a problem.  He told the  committee that he would                                                               
have difficulty  providing the equity  necessary to post  a bond,                                                               
and pointed out  that established real estate agents  only have a                                                               
$10,000 bond.   He wondered,  if HB  22 became regulation,  if it                                                               
would be  applicable to all  brokers, resident  and non-resident,                                                               
or if  it would only apply  to the four brokers  who were Alaskan                                                               
residents.    He also  mentioned  that  while this  pertained  to                                                               
permit brokers, not  to individual fishery quota  (IFQ) or vessel                                                               
brokers, in  reality, most brokers  "do a little  of everything."                                                               
He  reiterated  that  his  two  main  issues  were:  fairness  in                                                               
comparison  with other  industries, and  the issue  of residency.                                                               
He said he doesn't really have  a solution to the problem of what                                                               
to do when "somebody goes astray"  and added that posting a bond,                                                               
as has  been suggested,  may be prohibitive  to some  brokers who                                                               
want to remain in business.                                                                                                     
CHAIR SEATON  said the committee  is looking into  the difference                                                               
between  a bond  and utilizing  a  trust account,  and asked  for                                                               
MR. TOLLACK  replied that  he had absolutely  no problem  using a                                                               
trust account,  and considered it  to be the only  proper method,                                                               
adding  that  it  would  be  very unethical  to  use  a  personal                                                               
account.   He  offered that  he has  a trust  account with  Wells                                                               
Fargo  and  has had  that  account  since  the beginning  of  his                                                               
business, which was eight years ago.                                                                                            
Number 1130                                                                                                                     
STUART  RICKEY,   Owner  and   Operator,  Rickey   &  Associates,                                                               
testified that he  had been in business since 1977  and said that                                                               
his business  involves brokering  quota shares  and permits.   He                                                               
said  he supports  HB 22  and hopes  to work  with Representative                                                               
Weyhrauch to further address the scope of the bill.                                                                             
Number 1180                                                                                                                     
REPRESENTATIVE WILSON  asked for  his input regarding  the amount                                                               
of money involved with bonding.                                                                                                 
MR. RICKEY  replied that  the amount was  workable, but  was high                                                               
compared with others in the  brokerage industry.  He wondered why                                                               
the  bond was  10 times  the  amount of  that for  a real  estate                                                               
CHAIR SEATON  asked how Mr.  Rickey felt about a  requirement for                                                               
the use  of a trust account  rather than putting that  money in a                                                               
personal account.                                                                                                               
MR. RICKEY replied that he, in fact, had a trust account.                                                                       
Number 1264                                                                                                                     
CHRIS GARCIA, Cook Inlet Fishermen's  Fund, testified that he had                                                               
mixed feelings  about HB 22.   He said that  in light of  how the                                                               
cost  of bonding  can  hurt small  businesses,  the $50,000  bond                                                               
doesn't  come  close  to  covering  the  costs  of  most  of  the                                                               
transactions that  usually take place.   He said that  the Senate                                                               
version of this bill was asking  for a $100,000 bond, and that in                                                               
his opinion he believed that either  an escrow or a trust account                                                               
would  be the  smartest way  to handle  the situation  because of                                                               
protecting both the buyer and the  seller.  He explained that the                                                               
bonds could  become very  prohibitive and that  even if  a person                                                               
went out of  business, that bond would need to  be maintained for                                                               
a certain amount of time.                                                                                                       
Number 1375                                                                                                                     
MARY   McDOWELL,   Commissioner,   Commercial   Fisheries   Entry                                                               
Commission  (CFEC), Alaska  Department  of Fish  & Game  (ADF&G),                                                               
testified that  in the 30  years that  limited entry has  been in                                                               
effect in Alaska,  this was the first incident that  they know of                                                               
in which  people had lost  such money, and said  that "certainly,                                                               
one time  is too many."   She wondered whether HB  22 should also                                                               
cover  vessel brokering,  since  most brokers  are involved  with                                                               
vessels  as well  as  with  permits and  quota  shares, with  the                                                               
vessel often being  the most valuable piece in the  package.  She                                                               
suggested  that the  $50,000  bond  was a  very  high amount  for                                                               
smaller brokers, and that it might  be wiser to go with demanding                                                               
that anyone  in the  brokering business in  the state  use escrow                                                               
agents or  trust accounts so  that the money wasn't  available to                                                               
one's personal account.                                                                                                         
Number 1518                                                                                                                     
MS. McDOWELL  told the  committee that CFEC  has a  regulation in                                                               
place  that  allows  for  the  conducting  of  hearings  and  the                                                               
suspension  of a  broker's ability  to  do business  if there  is                                                               
misconduct.  She  noted that these actions prevent  such a person                                                               
from doing transactions, but does not recoup anyone's money.                                                                    
CHAIR  SEATON  asked  about delays  involved  in  the  permitting                                                               
process  in  which  the money  resides  in  an  interest-bearing,                                                               
personal  account for  quite a  while.   Utilization  of a  trust                                                               
account  might get  rid of  this propensity  for the  delaying of                                                               
transactions,  he  said.    He  asked  if  there  had  been  many                                                               
complaints regarding delays.                                                                                                    
Number 1639                                                                                                                     
KAREN  (TAFFY)   WELLS,  Licensing  Project   Leader,  Commercial                                                               
Fisheries Entry  Commission (CFEC),  Alaska Department of  Fish &                                                               
Game  (ADF&G), said  that a  broker could  submit a  transfer and                                                               
there could  be a  delay of  60 days while  the notice  of intent                                                               
becomes effective.   Or, she said, a delay could  result if there                                                               
was a problem with obtaining the necessary information.                                                                         
MS. McDOWELL suggested that it  would be useful to further define                                                               
the term "broker" to clarify exactly  who would be covered by the                                                               
provisions within  the bill.   She said  it would also  be useful                                                               
for the broker  to be required to sign  something indicating that                                                               
he/she  understands the  statutes and  regulations governing  the                                                               
transfer of permits and IFQs.                                                                                                   
CHAIR SEATON asked  if it was within Ms.  McDowell's authority to                                                               
implement her suggestion.                                                                                                       
MS.  McDOWELL responded  that if  it were  made mandatory  that a                                                               
person  had this  "extra layer  of requirements,"  then it  would                                                               
probably be useful to have statutory direction.                                                                                 
Number 1814                                                                                                                     
REPRESENTATIVE  KOTT referred  to a  testifier's earlier  comment                                                               
regarding   fair  treatment   of  in-state   versus  out-of-state                                                               
brokers, and asked how this is currently being handled.                                                                         
MS.  McDOWELL responded  that business  is  currently being  done                                                               
with approximately  one dozen brokers,  some handling just  a few                                                               
transactions a  year, and some being  major firms.  She  said she                                                               
thought that  roughly half  were in  state, although  the out-of-                                                               
state  firms  tend  to  be  the  bigger  firms.    She  said  her                                                               
understanding   was  that   whatever   requirements  were   being                                                               
considered  in  this bill  would  be  requirements pertaining  to                                                               
conducting business  in Alaska,  regardless of the  broker's home                                                               
base.  She  stated, "We can't discriminate against  who is acting                                                               
as  a  broker,  just  like   we  can't  discriminate,  under  the                                                               
constitution, against who is buying or selling a permit."                                                                       
REPRESENTATIVE  KOTT  asked if  there  was  a requirement  for  a                                                               
broker's physical presence to be in Alaska.                                                                                     
MS.  McDOWELL  responded  that  this  was  a  paper  transaction,                                                               
requiring  a  notarized  signature.   She  said  that  often  the                                                               
transactions were between Alaskans,  although they may be handled                                                               
by a brokerage located in Seattle.                                                                                              
REPRESENTATIVE  WILSON asked  if any  people who  do business  in                                                               
Alaska, even  if they live in  Seattle, would have to  "go by our                                                               
MS. McDOWELL confirmed that she understood this to be so.                                                                       
Number 1992                                                                                                                     
RICK URION,  Director, Division of Occupational  Licensing (DOL),                                                               
Department of Community &  Economic Development (DCED), suggested                                                               
that the bill is currently fairly  cumbersome and that there is a                                                               
simpler solution, at least for  the buying and selling of limited                                                               
entry permits, whereas transferring of  the federal IFQs might be                                                               
more  difficult.   He  said  he didn't  want  to  "pass off  this                                                               
responsibility to  Mary McDowell,"  but that  it would  be fairly                                                               
simple to  require that all sales  and permits go into  either an                                                               
escrow or  trust account.  He  said the division would  work with                                                               
the sponsor and the Department of  Law to come up with a solution                                                               
that could more readily be adopted.                                                                                             
CHAIR  SEATON  asked  if  the  bill includes  a  broad  range  of                                                               
permits, including IFQs.                                                                                                        
Number 2050                                                                                                                     
REPRESENTATIVE WEYHRAUCH responded that  the bill was intended to                                                               
be broadly  applied; if  someone is doing  business in  the state                                                               
and is  representing people who are  fishing in Alaska, and  if a                                                               
substantial amount of  that business involves the  use of federal                                                               
fishing, then  that person would  be subject to  the restrictions                                                               
and provisions  contained in the bill.   He pointed out  that the                                                               
broker from the Homer area who  stole the money was involved with                                                               
taking money relating to federal fishing permits.                                                                               
CHAIR  SEATON  clarified  that  the  bill's  intent  didn't  just                                                               
pertain to Alaska-issued permits, but covered other permits too.                                                                
REPRESENTATIVE WEYHRAUCH  agreed, saying  this was similar  to an                                                               
out-of-state  corporation's needing  to register  in Alaska.   He                                                               
agreed that  it might be  worthwhile to explore CFEC's  and DOL's                                                               
comments regarding a required statement  to indicate that brokers                                                               
understand Alaska's laws and regulations.                                                                                       
REPRESENTATIVE WILSON commented that  using a trust account might                                                               
be a "simple thing to do" and that  it would be wise to make sure                                                               
that this gets done.                                                                                                            
CHAIR  SEATON ascertained  that there  was no  further testimony.                                                               
He then announced that HB 22 would be held over.                                                                                

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