Legislature(2003 - 2004)

04/19/2004 01:38 PM Senate CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
        SB 387-COMMERCIAL FISHING LOANS FOR QUOTA SHARES                                                                    
CHAIR BERT STEDMAN announced SB 387 to be up for consideration.                                                                 
He asked Greg Winegar to come forward.                                                                                          
GREG WINEGAR, director, Division of Investments, said this bill                                                                 
changes an existing loan program to allow the division to make                                                                  
loans to a new type of  borrower called a community quota entity.                                                               
The borrower  is being  created as  a result  of changes  NMFS is                                                               
making in  the quota share  program. The North  Pacific Fisheries                                                               
Management Council has  asked for the change to  help reverse the                                                               
loss of quota share from these communities.                                                                                     
Under  the new  NMFS rule,  42 small  gulf communities  in Alaska                                                               
will be  able to  form non-profit  corporations. Then  they could                                                               
purchase quota share and lease  them back to community residents.                                                               
He noted the 42 eligible communities are listed in the packets.                                                                 
The goal is to improve  the economic viability of the communities                                                               
through local ownership of fishing  privileges. Since the program                                                               
was created in 1995, many  communities have seen significant loss                                                               
of  quota shares  and  the  amendment is  intended  to provide  a                                                               
mechanism to reverse the trend.                                                                                                 
There  is adequate  funding for  the program.  It is  a revolving                                                               
fund  that is  self-sufficient and  doesn't rely  on the  general                                                               
fund. The  existing staff is  sufficient to handle the  new loans                                                               
so  the  fiscal  note  is   zero.  Fish  and  Game  supports  the                                                               
legislation and has  submitted a zero fiscal  note. The effective                                                               
date is tied to the date the federal regulations pass.                                                                          
SENATOR  GARY  STEVENS  asked  what  the  advantage  is  for  the                                                               
community in this process.                                                                                                      
MR.  WINEGAR replied  the  concept  is that  this  is  a way  the                                                               
community can get  the shares back into the  community. They must                                                               
lease the  quotas to  community residents so  the income  will be                                                               
generated in the particular community.                                                                                          
SENATOR GARY  STEVENS asked  if the quotas  could migrate  out of                                                               
the community.                                                                                                                  
MR.  WINEGAR  thought  one  of the  requirements  under  the  new                                                               
federal program  is that  the quotas  would have  to stay  in the                                                               
SENATOR  KIM ELTON  asked whether  rules  that communities  would                                                               
have with the fishermen would be defined in regulation.                                                                         
MR. WINEGAR thought NMFS put  a number of program requirements in                                                               
to  ensure  the quotas  stayed  in  the  community. He  said  the                                                               
Division  of Investments  would only  be involved  from the  loan                                                               
SENATOR THOMAS WAGONER  asked how much was currently  in the fund                                                               
and available for loans.                                                                                                        
MR. WINEGAR  said the  total portfolio is  about $88  million and                                                               
they also have a cash balance that they are making loans from.                                                                  
CHAIR STEDMAN asked what the loan cap is per community.                                                                         
MR. WINEGAR replied the cap per community is $2 million.                                                                        
CHAIR STEDMAN  asked about the  percent of quota share  that they                                                               
could purchase.                                                                                                                 
MR.  WINEGAR thought  that  the maximum  that  any one  community                                                               
could purchase is one percent.                                                                                                  
SENATOR GARY  STEVENS asked  if a community  could turn  the loan                                                               
over  to  a  fisherman  so it  wasn't  their  responsibility  any                                                               
longer. If so, what would happen if the fisherman went bankrupt?                                                                
MR.  WINEGAR said  it's the  non-profit formed  by the  community                                                               
that would own  the shares. The fisherman would  simply lease the                                                               
shares   from  the   non-profit  so   the  non-profit   would  be                                                               
SENATOR GARY STEVENS asked if  the community could move the quota                                                               
from one fisherman to another from year to year.                                                                                
MR. WINEGAR said they could do that.                                                                                            
SENATOR  GARY STEVENS  said, "So  the  fisherman is  not the  one                                                               
responsible for paying the loan. It is the community."                                                                          
MR. WINEGAR said that's correct.                                                                                                
CHAIR STEDMAN clarified, it's the responsibility of the non-                                                                    
profit and he  understands there is no  collateralization back to                                                               
the community. The collateral is the quota share itself.                                                                        
MR. WINEGAR  agreed, the collateral  will typically be  the quota                                                               
share, but it may  be other things as well because  there is a 30                                                               
percent down payment requirement coming from some other source.                                                                 
SENATOR KIM  ELTON asked if  the community could sell  the quotas                                                               
to another purchaser.                                                                                                           
MR. WINEGAR  thought it would  have to stay within  the community                                                               
so they would have to lease it within the community.                                                                            
SENATOR ELTON asked if the  community could sell the quota shares                                                               
that they purchased.                                                                                                            
MR.   WINEGAR  believed   so,  but   he  didn't   know  all   the                                                               
circumstances because  that falls  under the federal  program and                                                               
not the Division of Finance.                                                                                                    
CHAIR  STEDMAN said  let's touch  on any  leverage the  state may                                                               
take to the  table through the loan program  to require purchases                                                               
of quota  from residents  outside the state  to bring  that quota                                                               
back to  Alaska. He said  he'd like to  know his thoughts  on how                                                               
that should be handled.                                                                                                         
MR. WINEGAR said  that is something they could look  into. In the                                                               
past, under the  commercial fishing and other  loan programs they                                                               
haven't  had any  control over  where their  borrowers buy  their                                                               
CHAIR STEDMAN  questioned, "Could there  not be a  requirement on                                                               
submittal of the  loan application along with  the full financial                                                               
disclosure and  collateral disclosure  a list of  available quota                                                               
and where they're  domiciled so your agency,  as the underwriter,                                                               
could go  ahead and review that  and try to put  some pressure on                                                               
the purchaser to  purchase that out of state quota  if its within                                                               
a reasonable price range within the state?"                                                                                     
MR. WINEGAR said  he would have concern with how  that would work                                                               
because they  haven't gotten involved in  business decisions made                                                               
by borrowers. There would be  legal issues involved in doing that                                                               
he said.                                                                                                                        
CHAIR STEDMAN responded, "The man  with the gold makes the rules.                                                               
The golden rule."                                                                                                               
Assuming they  require a lease  payment greater than the  cost of                                                               
the debt service,  how is that non-profit going  to be structured                                                               
and handled and  what's going to happen to that  as their capital                                                               
increases from their starting point of close to zero?                                                                           
MR. WINEGAR  said he knows that  NMFS is going to  have oversight                                                               
over who  qualifies. The Division  of Finance would look  at them                                                               
the same way they would look at any other borrower.                                                                             
SENATOR WAGONER asked  if the non-profit has to come  up with the                                                               
35 percent or the individual  fisherman that is leasing the quota                                                               
from the non-profit.                                                                                                            
MR. WINEGAR said  the non-profit would be responsible  for the 35                                                               
percent  and  the division  wouldn't  make  the loan  until  they                                                               
located shares and came in with a purchase agreement.                                                                           
SENATOR WAGONER asked where the non-profit gets the 35 percent.                                                                 
MR.  WINEGAR replied,  "That's a  good  question, it's  something                                                               
they're  working on  right now.  They're looking  at a  number of                                                               
different avenues  as to where  to come  up with those  assets or                                                               
that funding."                                                                                                                  
SENATOR  WAGONER asked  whether  the amount  includes $2  million                                                               
plus 35 percent or less 35 percent.                                                                                             
MR. WINEGAR  told him it would  be in addition to  that. They can                                                               
only loan 65 percent, up to $2 million.                                                                                         
SENATOR WAGONER asked  if the Division of  Investments would have                                                               
call back  on the  non-profit's quota  shares in  the event  of a                                                               
MR. WINEGAR said that's correct.                                                                                                
CHAIR STEDMAN  repeated that they  start with $2 million,  but as                                                               
they bring the total down to  $1.5 million or $1.25 million, they                                                               
can borrow back up to the $2  million cap and buy more quotas and                                                               
continue to build their market share up to the federal cap.                                                                     
MR. WINEGAR agreed.                                                                                                             
SENATOR  GARY   STEVENS  commented  that  this   is  an  exciting                                                               
revitalizing opportunity for small  communities. He read thru the                                                               
proposal and  asked for verification  that it's  cumulative. They                                                               
can  purchase 2  percent  a  year of  the  halibut and  sablefish                                                               
quotas  in the  area for  a 7-year  period up  to a  total of  21                                                               
MR. WINEGAR said that's true.                                                                                                   
SENATOR GARY STEVENS  asked if the product has to  be sold in the                                                               
community  or could  it  be sold  anywhere  there's an  available                                                               
MR. WINEGAR said wherever there's a market.                                                                                     
SENATOR  GARY STEVENS  added,  "Also an  opportunity  to do  some                                                               
local processing should that develop."                                                                                          
SENATOR WAGONER commented  that 21 percent of the  quota share is                                                               
a  massive   amount  of  fish.   He  then  posed   the  following                                                               
     Let's  say  a  community  is  in 3-A.  Now  is  this  a                                                                    
     percentage of the quota currently  available for 3-A or                                                                    
     is this the percentage of  the total quota available in                                                                    
     the state of Alaska waters.                                                                                                
MR. WINEGAR deferred to Mr. Smith  after which he said he thought                                                               
it's for the area. Also he  thought that each community is capped                                                               
at one  percent up to a  total of three so  you could potentially                                                               
have three communities,  if they each got one  percent that would                                                               
be the cap  for the year. "There are several  different caps that                                                               
NMFS has put into  place to try and be sure  that there isn't too                                                               
much of this that goes to any one place."                                                                                       
SENATOR WAGONER said that was his  question because he saw the 21                                                               
percent listed and three percent was mentioned.                                                                                 
MR. WINEGAR clarified  that it's three percent per  year and over                                                               
a period of seven years it would top out at 21 percent maximum.                                                                 
SENATOR WAGONER asked  if he was saying that a  community such as                                                               
Seldovia  could wind  up with  21 percent  of the  halibut quota.                                                               
"I'm  not  tracking this  whole  thing."  he said,  "That's  more                                                               
halibut than they can take care of."                                                                                            
MR.  WINEGAR thought  the  limit is  one  percent per  community.                                                               
Twenty one  percent is  the cap  for the whole  program -  all 42                                                               
CHAIR  STEDMAN asked  Mr.  Smith  to come  forward  and give  his                                                               
PHIL  SMITH,  program  administrator  or  the  restricted  access                                                               
management  program  of  the National  Marine  Fisheries  Service                                                               
(NMFS),  Alaska region,  introduced himself  as a  bureaucrat and                                                               
the  hands on  manager  of all  federal  limited entry  programs,                                                               
which  includes  the  halibut   and  sablefish  IFQ  program.  He                                                               
     What we are seeing with this new program is a response                                                                     
        on the part of the North Pacific Council and the                                                                        
     Secretary of  Commerce to  a phenomenon  that occurred,                                                                    
     and some  people predicted that it  would occur shortly                                                                    
     after  the  IFQ program  was  initiated  in 1995.  That                                                                    
     people  in  these  smaller  communities  distance  from                                                                    
     market, generally  low access to capital  and cash poor                                                                    
     were inclined to sell their  quotas to people who lived                                                                    
     in larger  areas closer to  market with more  access to                                                                    
     capital. Over  the ten years since  IFQs were initially                                                                    
     put in  place, something  like 40  some percent  of all                                                                    
     the halibut  quota in Southeast Alaska  communities has                                                                    
     transferred to places outside of  those communities - a                                                                    
     smaller percentage,  15 to 20 percent  in South Central                                                                    
     communities. But there has been this trend of decline.                                                                     
     People are  concerned about the impact  of that decline                                                                    
     on the  local economies. They  went to the  council and                                                                    
     over  a  three  or  four  year period,  and  a  lot  of                                                                    
     discussion  and debate  and a  lot  of compromise,  the                                                                    
     council  in  2002  approved   the  program  that  we're                                                                    
     talking about today. ...  Essentially it allows smaller                                                                    
     Gulf of  Alaska coastal communities to  form non-profit                                                                    
     entities that  may then apply for  recognition from our                                                                    
     office. Once  they obtain that recognition,  they enter                                                                    
     the market. Wherever they can  get the money from, they                                                                    
     can then buy quota share and hold it.                                                                                      
     One question that  came up for Greg  [Winegar] was this                                                                    
     concept  of leasing.  The quota  share IFQ  thing is  a                                                                    
     two-step  deal. A  person holds  quota share,  which is                                                                    
     measured  in units,  and annually  the amount  of quota                                                                    
     share  units that  one  holds as  a  percentage of  the                                                                    
     quota share  that everybody holds, is  divided into the                                                                    
     annual total  allowable catch and what  results then is                                                                    
     an IFQ permit  that is issued in pounds.  But it's only                                                                    
     good for that year.                                                                                                        
     Every  year the  quota  shareholder, in  this case  the                                                                    
     community  quota entity,  would receive  an IFQ  permit                                                                    
     and it  is that  IFQ permit that  is transferred  to or                                                                    
     leased to  a community  resident. So  it's not  a long-                                                                    
     term lease  in the sense  that, well I've got  my quota                                                                    
     share and I'm going to  lease it to Senator Lincoln and                                                                    
     ten  years  later she's  going  to  tell me  how  she's                                                                    
     doing. It's an annual  thing. The permit that transfers                                                                    
     under this  lease provision expires  and next  year the                                                                    
     whole agreement has to be reenacted.                                                                                       
     In  terms of  caps, [the]  council was  concerned about                                                                    
     non-profit entities  with some  type of  favored access                                                                    
     to  capital  -  government capital  perhaps  -  chasing                                                                    
     other individuals  out of the  market so they  put some                                                                    
     pretty strict caps  on the amount of  shares that these                                                                    
     entities can hold. For instance,  no community can hold                                                                    
     more  than   one  percent  of   all  the   quota  ever.                                                                    
     Cumulatively,  all  communities   together  during  the                                                                    
     first year cannot hold more  than three percent. Second                                                                    
     year it  goes up to six  percent and so forth  up to 21                                                                    
     There are  also caps on  the amount of blocks  of quota                                                                    
     share  these  entities  can   hold.  [There  are]  some                                                                    
     limitations on the  types of quota share  that they can                                                                    
     hold so as not to  interfere with the market that would                                                                    
     otherwise allow individuals to enter.                                                                                      
     I see that  you're passing out a little  summary of the                                                                    
     program  that I'd  prepared, which  really has  most of                                                                    
     the elements in  it. It's probably a  lot more detailed                                                                    
     than you  want to get  into now,  but it does  give you                                                                    
     some idea of how the program  is supposed to look. I as                                                                    
     a  fed am  not  in  a position  to  endorse  or not  to                                                                    
     endorse  this bill,  but  I  can say  that  one of  the                                                                    
     concerns  that people  have had  about this  program is                                                                    
     that there is no money with it.                                                                                            
     Hoonah can  form a non-profit  and that's all  well and                                                                    
     good and it doesn't cost a  lot of money to form a non-                                                                    
     profit. But  then what? We're  expecting that a  lot of                                                                    
     creativity and  imagination will  come to play  at that                                                                    
     community level and the people  will, over time, obtain                                                                    
     the bucks  that they  need to enter  the market  and to                                                                    
     start making the program work.                                                                                             
     Frankly if  we reach  those cap  levels it's  a problem                                                                    
     that I'd love to have.  I see instead, small amounts of                                                                    
     quota  entering the  community holdings  over time  and                                                                    
     this thing starting small and  then growing rather than                                                                    
     people  thinking in  terms  of  - well,  I  can get  my                                                                    
     100,000 pounds,  which is one percent  of the Southeast                                                                    
     quota, and  then we're done.  Isn't that awful.  Like I                                                                    
     say, I'd  love to  see a  village with  a 100,000-pound                                                                    
SENATOR GARY  STEVENS said he  was concerned about  the structure                                                               
of  the managing  organization in  each community.  He questioned                                                               
who  that non-profit  would be  and how  they would  decide which                                                               
fisherman would get the quota.                                                                                                  
MR. SMITH told him  that the council spent a lot  of time on that                                                               
issue and they set up parameters.                                                                                               
     First of all, the non-profit  that gets formed, when it                                                                    
     comes to  our office  to seek its  blessing to  get its                                                                    
     community  quota entity  status, it  does not  get that                                                                    
     until  two prior  things have  occurred. First  of all,                                                                    
     the village on whose behalf  it is acting or purporting                                                                    
     to act  must sign off on  it and say, 'Yes,  this is an                                                                    
     entity and  our community has passed  a resolution that                                                                    
     says ABC  entity is ours.'  Secondly, we  don't approve                                                                    
     the application for status until  it's been run through                                                                    
     the state.  I'm going  to ship  it off  to Commissioner                                                                    
     Blatchford [DCED]  as soon as  it lands on my  desk and                                                                    
     the state personnel who work  with these communities on                                                                    
     a regular  basis are  going to  have an  opportunity to                                                                    
     review and approve it.                                                                                                     
     Beyond that  once the authority  has been  conferred on                                                                    
     these entities,  we are sort  of loath  to micromanage.                                                                    
     Part of  the application is  they are supposed  to tell                                                                    
     us  how they  intend to  choose among  competing people                                                                    
     who want  to fish the  IFQ. They could say  we're going                                                                    
     to rotate it  on an annual basis; we're going  to do it                                                                    
     on a  basis of  who hires  the most  local crewmembers.                                                                    
     Whatever, we feel that that  is a decision that is best                                                                    
     made at the local level.                                                                                                   
     Assuming that  the decision that  is made at  the local                                                                    
     level ruffles  too many local feathers,  we expect that                                                                    
     the  local community  is going  to have  some authority                                                                    
     over the  non-profit either  through telling  its board                                                                    
     members how to  vote or naming board  members or things                                                                    
     like that. So the council  and our agency did not spend                                                                    
     an enormous  amount of time  trying to figure  out what                                                                    
     happened when things went wrong.                                                                                           
SENATOR GARY  STEVENS told him  the explanation was  helpful then                                                               
asked for  some idea of  the amount  of money entailed.  "What is                                                               
the X  vessel value  of three  percent of  the sablefish  and the                                                               
halibut and 21 percent of the sablefish and halibut," he asked.                                                                 
MR. SMITH  said this  is off the  top of his  head. There  are 60                                                               
million pounds total  allowable catch of halibut  off Alaska. Say                                                               
quotas  cost an  average of  $10 per  pound for  a total  of $600                                                               
million. Then it's three percent of that figure.                                                                                
SENATOR  GARY  STEVENS realized  that  there  was some  confusion                                                               
associated  with calculating  percentages mentally,  which caused                                                               
him to ask that the figures  be supplied to the committee so that                                                               
they would have a better idea of the dollar amount involved.                                                                    
SENATOR WAGONER  quipped that  he's standing in  line to  buy all                                                               
the $10 per pound shares you can find.                                                                                          
MR. SMITH conceded that $10 per pound is conservative.                                                                          
SENATOR  WAGONER announced  it's more  like $17.50  per unblocked                                                               
share  so  the total  annual  value  of  the  catch is  about  $1                                                               
SENATOR ELTON  asked whether a  community like Yakutat  could buy                                                               
quota share  from 2-C and  3-A or can  they buy quota  share only                                                               
from their region.                                                                                                              
MR.  SMITH replied  they  msy  buy quota  share  from just  their                                                               
SENATOR  ELTON  noted  that  it's necessary  to  have  access  to                                                               
capital  markets for  quota share,  but it's  also necessary  and                                                               
sometimes  difficult  for fishermen  to  have  access to  capital                                                               
markets for a boat, gear  and other capital requirements. Because                                                               
of the  investment fishermen make  in their fishing  business, he                                                               
questioned  whether  there  would  be  some  sort  of  regulatory                                                               
process to  keep the non-profit  from treating their  quota share                                                               
as  a  stock  portfolio  rather   than  a  community  development                                                               
MR.  SMITH  said  there's  no process  to  directly  protect  the                                                               
fishermen,  but  there  is a  prohibition  against  a  non-profit                                                               
selling its  shares and using  the money for anything  other than                                                               
enhancing or sustaining or expanding  the fishing program for the                                                               
SENATOR ELTON recapped the answer.                                                                                              
MR. SMITH  expanded his explanation  saying they can  sell 12,000                                                               
pounds of quota,  make money on it  and use it as  a down payment                                                               
to buy 20,000 pounds of quota.                                                                                                  
SENATOR ELTON  added that  purchasing an  ice machine  is another                                                               
MR. SMITH agreed.                                                                                                               
SENATOR WAGONER asked where the  quotas would come from and noted                                                               
that they would  probably have to be purchased  at current market                                                               
MR. SMITH agreed there would be no break in the purchase price.                                                                 
SENATOR WAGONER asked  if he thought the infusion  of $86 million                                                               
might affect the current pricing of IFQs.                                                                                       
MR. SMITH  issued a disclaimer  that he  didn't have a  degree in                                                               
economics before  saying that  he has  heard that  interest rates                                                               
are generally  so low that it's  not a real concern.  It would be                                                               
different,  he said,  "If  we were  back in  the  late 70s  where                                                               
interest  rates  were  15  or  16  percent,  and  the  state  was                                                               
subsidizing money by making 7 or  8 percent loans, then you would                                                               
see, perhaps,  a driving up  to overall price  phenomenon." There                                                               
has been a subsidized federal  loan program since Senator Stevens                                                               
enacted it  in 1996 that is  capitalized at about $5  million per                                                               
year. There is no evidence that  the subsidy has had an impact on                                                               
prices. The program is working,  which makes it valuable and it's                                                               
difficult to get your hands on more quota.                                                                                      
SENATOR WAGONER  asked about a  non-profit going out on  the open                                                               
market and buying quotas by  the block. He questioned whether the                                                               
integrity of the  block that they purchased was going  to have to                                                               
be maintained by  the community. For instance, "If  it's a 20,000                                                               
pound block of  unblocked quota, will that have  to be maintained                                                               
during the time that quota is in the hands of the non-profit?"                                                                  
MR.  SMITH said  yes,  if  they buy  it  as  blocked, it  remains                                                               
SENATOR WAGONER  added, "Unblocked  doesn't matter. They  can buy                                                               
up and down  however much they want." He then  asked if the quota                                                               
that's leased  to the fisherman  counts toward the two  block per                                                               
name restriction.                                                                                                               
MR. SMITH  said no and  clarified that the fisherman  doesn't get                                                               
blocks they get  pounds. The limit on the fisherman  is that they                                                               
can't fish more  than 50,000 pounds. Therefore, if  he had 10,000                                                               
of  his  own he  couldn't  get  more  than  40,000 from  the  CQE                                                               
[Community Quota Entities].                                                                                                     
SENATOR  WAGONER said  okay  and remarked  that  it answered  his                                                               
second  question  as   well.  "I  think  it's   a  good  program,                                                               
especially for the smaller communities," he said.                                                                               
SENATOR LINCOLN  read the  following from page  5 of  Mr. Smith's                                                               
handout: "A community may not  designate more than one non-profit                                                               
entity to  represent it,  but a  non-profit entity  may represent                                                               
more than  one eligible community."  She tried to  determine what                                                               
the designated CQE restrictions were  and opined they were fairly                                                               
vague. She asked Mr. Smith whether  he foresaw a time when a non-                                                               
profit  entity might  try  to be  the  designated non-profit  for                                                               
numerous communities. What  would be the benefit  and drawback to                                                               
doing that, she asked.                                                                                                          
MR.  SMITH told  her there  is  talk of  one entity  representing                                                               
several   communities  and   the   advantage  is   administrative                                                               
efficiency and the  strength provided in unity. The  down side is                                                               
that  a community  might  feel disenfranchised  by  a large  non-                                                               
profit  that they  didn't feel  they had  sufficient control  of.                                                               
With regard  to that,  he said,  "Our hope is  that before  a CQE                                                               
receives  authority to  represent a  village, they  have to  have                                                               
signoff  from  that  community."  They  hope  the  signoff  isn't                                                               
accorded  lightly  and  that  there will  be  mechanisms  in  the                                                               
articles of  incorporation and by  laws of the  non-profit giving                                                               
the communities  that are according  them the ability  to operate                                                               
on their behalf,  enough leverage to get the  behavior they like.                                                               
Once the designation  has occurred, there are  no particular ways                                                               
to withdraw support," he said.                                                                                                  
SENATOR WAGONER  asked if he as  a resident of Kenai  could go to                                                               
Seldovia and contract to fish some quota from there.                                                                            
MR. SMITH said he would have  to move to Seldovia, live there for                                                               
a  year, and  swear  that he  intended to  remain  there when  he                                                               
received the quota by transfer. Otherwise it's prohibited.                                                                      
SENATOR  WAGONER said  he was  wondering about  that. What  would                                                               
they do with the un-fished quota  if for example they got 150,000                                                               
pounds  and they  only  had  people to  fish  120,000 pounds,  he                                                               
MR. SMITH said  he love to see a community  with the problem that                                                               
they have too much quota to  fish. But in that sort of situation,                                                               
the community probably would know  it and if they really couldn't                                                               
find anybody to  fish, they could transfer the  quota. They could                                                               
also transfer the quota to a  fisherman and as a non-profit, take                                                               
an equity  position of the quota  in the hands of  the fisherman.                                                               
"There is  really no  mechanism for a  community that  can't find                                                               
people to  fish the quota  it holds except transferring  or doing                                                               
other things,"  he said.  There isn't,  however, an  exception to                                                               
the requirement  that those who  receive the quota to  fish, must                                                               
be permanent residents of the community.                                                                                        
SENATOR ELTON referred  to page 5 of the handout  and read: "CQEs                                                               
are   new   (organized   after   April   10,   2002)   non-profit                                                               
corporations" and  asked if  that wouldn't  preclude a  CDQ group                                                               
from also being a CQE.                                                                                                          
MR. SMITH said that's correct.                                                                                                  
SENATOR  LINCOLN  asked about  the  council's  ability to  expand                                                               
beyond  the 42  identified  communities.  "Under what  conditions                                                               
would you  expand it  and would  you expand  it for  within those                                                               
areas or expand it into absolutely new areas," she asked.                                                                       
MR.  SMITH said  council can  do as  it will,  but within  policy                                                               
parameters that  they establish they would  consider applications                                                               
from   communities   meeting   the  basic   requirements.   Those                                                               
requirements are  that they are  on the  Gulf of Alaska  and have                                                               
fewer than  1,500 people, but  they might revisit  old decisions.                                                               
For example, the communities of  Haines, Klukwan, and Saxman have                                                               
petitioned   to  be   included.  They   don't  meet   the  strict                                                               
requirements the council  set and aren't included  in the initial                                                               
list, but if  the council decides to accept  their petition, they                                                               
could  recommend  that  they be  included.  Seldovia  is  another                                                               
example.  It is  an unincorporated  area down  the road  from the                                                               
City of Seldovia  that is a tribe. "I would  see that those types                                                               
of marginal  places that  were sort  of left  out the  first time                                                               
out, but conceivably  meet most of the other  parameters would be                                                               
under consideration to be allowed in," he said.                                                                                 
SENATOR WAGONER  recapped that the  fisherman must be  a resident                                                               
of the community, but they won't  have to sell the product in the                                                               
community. It  would be within  their purview to go  wherever the                                                               
market is.                                                                                                                      
MR. SMITH said that's true, but  "If I were a creative non-profit                                                               
and  there  were  some  opportunity  to  develop  a  local  niche                                                               
marketing capability,  part of my  agreement on the  annual basis                                                               
with  that fisherman  would be  that  they would  work with  that                                                               
larger local  economic development opportunity." That  isn't part                                                               
of the program though, he said.                                                                                                 
SIDE B                                                                                                                        
2:25 pm                                                                                                                       
CHAIR STEDMAN asked for the  current collective status if the cap                                                               
is 21 percent of the overall quota.                                                                                             
MR. SMITH  said it's considerable less  than that. At the  end of                                                               
2003,  the  aggregate  quota  held   by  the  eligible  Southeast                                                               
communities was 1.5  million pounds. The aggregate  quota held by                                                               
the South Central communities was 2.3 million pounds.                                                                           
CHAIR STEDMAN pressed him to convert  that to a percentage of the                                                               
MR. SMITH  elected not  to do  the calculation  in his  head, but                                                               
assured  him that  it  was  nowhere near  21  percent  of the  60                                                               
million total allowable  catch. He added, "These  are shares that                                                               
are held by individuals that are currently in the program."                                                                     
CHAIR  STEDMAN  commented that  this  is  potentially a  dramatic                                                               
shift if it is successful and goes anywhere near the cap.                                                                       
MR.  SMITH   agreed  adding  that   this  is  an   allocation  of                                                               
opportunity and  the expectation is  that the people  forming the                                                               
non-profits will be creative and  bring home the benefits of what                                                               
has been a very successful  limited access system. But it's going                                                               
to take time he cautioned. This bill opens a door.                                                                              
CHAIR STEDMAN  asked where these communities  started in relation                                                               
to the overall quota allocation when the IFQ program began.                                                                     
MR. SMITH  conceded that his  data was very preliminary.  But, he                                                               
said,  "According to  our calculations,  in 1995,  which was  the                                                               
first year  of the program,  in Southeast, the total  holdings of                                                               
people who  lived in these  eligible communities was  2.3 million                                                               
pounds.  And that's  in 2004  pounds. And  now it's  1.4 million;                                                               
it's in  a decline of about  37 percent. And in  South Central it                                                               
was 2.7 million and it's declined to 2.3 million."                                                                              
CHAIR  STEDMAN repeated  that  if  it happens,  this  would be  a                                                               
dramatic shift. "It's no where near  where it was when the system                                                               
started. The  system started probably somewhere  around maybe 2.5                                                               
percent and now they  can go into this program all  the way up to                                                               
21  percent so  we'd  have  the reverse  in  place.  We'd have  a                                                               
substantial drain out of the  larger more established communities                                                               
into the smaller ones."                                                                                                         
MR. SMITH said  most people think that's  unlikely because shares                                                               
might cost from  $12 to $16 per pound. So,  "all the kings horses                                                               
and all  the kings men  aren't going to  put enough money  on the                                                               
street  to allow  these non-profit  entities to  buy up  quota to                                                               
that extent I don't think."                                                                                                     
SENATOR  ELTON commented  that that  only happens  if there  is a                                                               
willing seller in a larger community.                                                                                           
CHAIR STEDMAN  replied he understands  that, but he  also expects                                                               
that most of the quota would be held in the larger communities.                                                                 
Touching on  the structure  of the  non-profit, he  asked whether                                                               
they  could use  the capital  they build  to develop  or purchase                                                               
things outside the fishing industry.                                                                                            
MR. SMITH said  the short answer is no. When  they sell the quota                                                               
they  must   agree  that   it  is  to   enhance  or   expand  the                                                               
opportunities under  the program, but  as far as  spending excess                                                               
cash at the end of the  season, his office doesn't micromanage so                                                               
the community is the watchdog.                                                                                                  
CHAIR STEDMAN said there aren't any requirements then.                                                                          
MR.  SMITH  added   that  there  isn't  any   prior  approval  of                                                               
CHAIR STEDMAN  said, "Assuming  that they  hold this  quota share                                                               
for virtual perpetuity,  they can take that excess  cash flow and                                                               
spin it off into the infrastructure  of the community as they see                                                               
MR. SMITH  said that under the  current rules the answer  is yes,                                                               
but no  one expects the non-profit  to do that because  they have                                                               
to submit an annual report  revealing how they are performing and                                                               
the council  pays close  attention to what's  going on.  He said,                                                               
"The theory was  that we didn't want to saddle  these guys with a                                                               
bunch of bureaucrats."  The idea is to  encourage creativity, but                                                               
if the money is being  used for non-fishing related projects that                                                               
creativity would be reined in.                                                                                                  
CHAIR STEDMAN asked  if there is any structure  established for a                                                               
tie between the non-profit and the fisherman.                                                                                   
MR. SMITH told  him that NMFS intends  to stay out of  that if at                                                               
all possible. Their  only requirement is that the  fisherman be a                                                               
community resident.                                                                                                             
CHAIR STEDMAN added, "And the boat he fishes on."                                                                               
MR. SMITH disagreed saying it doesn't extend to the boat.                                                                       
CHAIR STEDMAN  said, "So the  resident fisherman. Then if  he got                                                               
10,000 pounds, he  could go to another community,  get on another                                                               
boat - a  one percent boat - go  for a ride and come  back and go                                                               
back home."                                                                                                                     
MR.  SMITH acknowledged  that is  conceivable, but  hopefully the                                                               
non-profit  wouldn't   enter  into  an  agreement   allowing  the                                                               
fisherman that latitude.                                                                                                        
CHAIR STEDMAN remarked, "I think  you'll probably find that their                                                               
margins  might  increase  and   that  sometimes  drives  economic                                                               
decisions  that  aren't  in  the best  interest  of  the  overall                                                               
MR.  SMITH  shrugged  and  said   the  purpose  is  to  give  the                                                               
opportunity for  these decisions to  be made at the  local level.                                                               
"But if we  find out at the  end of two or three  years that it's                                                               
just not going to work and  the margins are so marginal, that the                                                               
only  way  a guy  can  make  money in  that  community  is to  go                                                               
someplace  else to  fish then  I think  the council  will take  a                                                               
second look at this."                                                                                                           
CHAIR STEDMAN made the point  that some of these communities have                                                               
existed  for over  1,000 years  while others  are very  small and                                                               
have almost no community structure.  In reviewing the communities                                                               
listed in the 2-C area, he  said there's a big difference between                                                               
Kake or  Angoon that both  go back who  knows how long  and Point                                                               
Baker or  Port Alexander that  were just small harbors  100 years                                                               
ago  and have  since  developed into  small fishing  communities.                                                               
"There's a  substantial difference between the  structures of the                                                               
communities  and  their potential  desires  and  how they  handle                                                               
that.  I'm  not saying  you're  overly  optimistic, but  I  think                                                               
you're  going to  find  some  of these  boys  are  a little  more                                                               
creative  than you  might be  giving them  credit for."  Economic                                                               
opportunity is certainly on the table, he said.                                                                                 
SENATOR ELTON  noted that there are  some requirements associated                                                               
with  creating  a  CQE,  but  once  it  is  established  and  the                                                               
community  and  state have  signed  off,  there isn't  any  great                                                               
amount  of control  to induce  good behavior  over time.  Because                                                               
there  doesn't appear  to  be  any real  mechanism  to check  bad                                                               
behavior, he questioned whether the  state would have the ability                                                               
to call the loan.                                                                                                               
MR. SMITH deferred to the state for an answer.                                                                                  
MR. WINEGAR  thought that  was a good  suggestion and  said there                                                               
are protections they  could build into their  regulations just as                                                               
they've done with other programs.                                                                                               
2:40 pm                                                                                                                       
There were no  further questions and Chair  Stedman opened public                                                               
GAIL  VICK, executive  director for  the Gulf  of Alaska  Coastal                                                               
Community Coalition,  testified via teleconference in  support of                                                               
SB 387.  They are most interested  in following how CQEs  will be                                                               
She agreed  that there is  reason to  be cautious and  careful in                                                               
organizing CQEs.  They want  the program  to succeed  and realize                                                               
the process will take time because  there is neither a big pot of                                                               
money available nor a big  market share available. Others will be                                                               
sending in letters of support as time goes on, she said.                                                                        
SENATOR  LINCOLN greeted  her former  employee and  asked for  an                                                               
estimate  of the  number of  communities that  might form  a non-                                                               
MS.  VICK confessed  that they  really didn't  know, but  she did                                                               
know  that northern  Southeast  communities  were petitioning  to                                                               
form a non-profit  for all of Southeast. She  didn't believe that                                                               
all of  Southeast would be a  group, but she thought  a number of                                                               
communities would  join together. It  makes sense, she  said, for                                                               
the communities that have had  long standing close ties with each                                                               
other to build on that relationship.                                                                                            
CHUCK  TOTEMOFF,  president  and   CEO  of  Chenega  Corporation,                                                               
testified via teleconference  in support of SB 387.  He said he's                                                               
been on  the Gulf Coalition Board  for a number of  years and has                                                               
also been active in the  economic development of the community of                                                               
Chenega. They  have developed a  document that the  University of                                                               
Alaska   Anchorage  is   using  as   a  template   for  community                                                               
development and  a key to  its success is  fisheries development.                                                               
This is  a positive  step and  an economic key  to the  effort to                                                               
reverse  the  trend of  community  residents  migrating to  other                                                               
OLE  OLSEN said  he is  the president  of the  Old Harbor  Native                                                               
Corporation  subsidiary and  a  founding member  of  the Gulf  of                                                               
Alaska Coastal  Community Coalition. He spoke  via teleconference                                                               
in support  of SB 387 and  reiterated the testimony given  by Mr.                                                               
Totemoff and  Ms. Vick.  "This is an  opportunity that  has great                                                               
potential  for  those communities."  It  will  help maintain  the                                                               
lifestyles of these small fishing communities.                                                                                  
GORDON   JACKSON,  chairman   of   the  board   of  Kake   Tribal                                                               
Corporation,  testified  that  the  corporation  owns  processing                                                               
units in  Pelican and Kake.  They have been monitoring  a similar                                                               
operation  and  for  several  years   have  wanted  a  non-profit                                                               
corporation to work within communities.  It's their belief that a                                                               
similar program should have been set  up when the IFQ program was                                                               
established.  They anticipated  that  a lot  of  the quota  would                                                               
leave the community and that's what happened.                                                                                   
     In  Kake  for  instance,  they started  out  with  over                                                                    
     300,000 and  over the last  several years  they've lost                                                                    
     over 200,000 pounds of halibut  IFQs. If a similar bill                                                                    
     had  been around,  the first  right  of purchase  would                                                                    
     have been within the community - in the non-profit.                                                                        
     And if a non-profit  were available and were allocating                                                                    
     some  of this  200,000 quota,  what you  would have  in                                                                    
     that  community would  be an  allocation to  fishermen.                                                                    
     Not only to the captains,  but also to the young people                                                                    
     who were left out of  the IFQ program. The young people                                                                    
     are sitting  on the street  wondering how in  the world                                                                    
     to get into  the fishery and I truly  believe that this                                                                    
     would bring some of the young people into it.                                                                              
     On top of it, if you  have a processing unit within the                                                                    
     community like  Kake and Pelican, you  would retain the                                                                    
     raw fish  taxes within the community.  You would retain                                                                    
     the jobs  that were  created as a  result of  the quota                                                                    
     within the community.                                                                                                      
     I've  been   watching  this   and  monitoring   it  and                                                                    
     testifying   and  making   sure  that   they  got   our                                                                    
     information relating  to it. And we've  been looking at                                                                    
     various options  relating to the establishment  of non-                                                                    
     profits.  In Kake  for instance,  they've been  talking                                                                    
     among  the  Native  Corporation,   the  tribe  and  the                                                                    
     community  - the  municipality. If  they work  together                                                                    
     you  would  see that  the  best  possible situation  of                                                                    
     economic  development  in   any  village  situation  in                                                                    
     Southeast  Alaska. Working  together provides  a number                                                                    
     of benefits.                                                                                                               
     In the Central  Council we've been looking  at not only                                                                    
     local  control of  the fishery,  but  also region  wide                                                                    
     modules  of  operation.  We've  tried  to  secure  some                                                                    
     support  for a  region wide  non-profit. I  think we've                                                                    
     had  about  eight  letters of  support  or  resolutions                                                                    
     basically saying this is a good  way to do it. It would                                                                    
     bring down  the administrative costs. We  would be able                                                                    
     to allocate some of this quota.  We'd be able to buy it                                                                    
     and keep it within the community.                                                                                          
     Then there are some  communities that really want local                                                                    
     control.  Ones  with  processing units  like  Kake  and                                                                    
     Hoonah are  thinking very strongly  about that  kind of                                                                    
     model.  I  think that  one  of  the items  that's  been                                                                    
     missing  over the  last several  months since  this has                                                                    
     been  proposed  and  gone  through  the  North  Pacific                                                                    
     Fisheries Management  Council, is how are  you going to                                                                    
     buy it. How are you going to buy the quota?                                                                                
     I truly  believe that this  loan program that  has been                                                                    
     proposed is  one way of  doing it. I think  that having                                                                    
     this   loan  program   would   provide  more   economic                                                                    
     development for the local folks  than they've ever seen                                                                    
     proposed  within the  state  government  over the  last                                                                    
     several years.                                                                                                             
     We endorse it; the  Central Council and Convention just                                                                    
     finished  Saturday. They've  endorsed this  concept and                                                                    
     resolution.  Kake Tribal  has endorsed  this and  truly                                                                    
     believes this is a mechanism  that should be passed and                                                                    
     should be  passed real fast.  Because I think  that the                                                                    
     longer you  wait, the  more quota is  going to  be sold                                                                    
     outside of  the villages  and smaller  communities. And                                                                    
     the rich will get richer  and the poor will get poorer.                                                                    
     This gives an opportunity to even the playing field.                                                                       
SENATOR ELTON  remarked that  the hierarchy on  forming a  CQE is                                                               
city council if there is  a municipal government, tribal if there                                                               
is no city  council, and then non-profit association  if there is                                                               
neither of the  other. He asked if there has  been any discussion                                                               
of having both  work together if there is both  a city government                                                               
and  a tribal  government. He  thought that  would show  that the                                                               
total community was behind the idea.                                                                                            
MR.  JACKSON  told   him  that  in  Southeast   there  have  been                                                               
associations  between  the  village, the  municipality,  and  the                                                               
corporation.  You'll find  that sort  of memorandum  agreement in                                                               
Angoon, Prince  of Wales and to  a certain extent you'll  find it                                                               
in  Kake.  A number  of  communities  want  the  tribe to  be  in                                                               
control, but others  believe it's better to  work together rather                                                               
than  just   one  entity  having  control   over  the  non-profit                                                               
SENATOR ELTON asked whether the hierarchy is bothersome.                                                                        
MR.  JACKSON replied,  "It'll be  more work,  but what  the heck,                                                               
everything's work."                                                                                                             
CHAIR  STEDMAN  noted  that Kake  residents  have  about  100,000                                                               
pounds of the  original 300,000 pounds of halibut  quota left and                                                               
he wondered how much black cod quota was left.                                                                                  
MR. JACKSON  told him there  were no black cod  permits allocated                                                               
in any village in the beginning.                                                                                                
CHAIR STEDMAN  asked how  many salmon  seine boats  the community                                                               
had lost in  the last two decades. What are  the young guys doing                                                               
for work?                                                                                                                       
MR. JACKSON said he was glad  to answer the question. This is the                                                               
way purse seine permits have left communities:                                                                                  
     When  limited entry  fishing  permits  first came  out,                                                                    
     there  were 54  limited  entry purse  seine permits  in                                                                    
     Hoonah. They have  4 active permits right  now. In Kake                                                                    
     you had  27 limited  entry permits allocated  under the                                                                    
     limited entry program. You have  8 active permits right                                                                    
     now. I  think the  only reason  you have  8 in  Kake is                                                                    
     because you have active  industry within the community.                                                                    
     The same with  the community of Angoon,  they had about                                                                    
     27. They have 1 active permit right now.                                                                                   
     So you  see a  situation in the  villages that  is real                                                                    
     bleak. You  look back into  the history of  the fishing                                                                    
     industry  and in  the 1960s  the  communities of  Kake,                                                                    
     Angoon,  and  Hoonah  had canneries,  they  owned  fish                                                                    
     traps,  they   owned  boats,  they  owned   just  about                                                                    
     everything you could think of.                                                                                             
CHAIR STEDMAN chimed in and said, "Traps before statehood."                                                                     
MR. JACKSON laughed and said yes, before statehood.                                                                             
SENATOR  WAGONER  questioned  whether  the reduction  is  in  the                                                               
number of  permits or  the number of  people fishing  the permits                                                               
they have. For instance, in Cook  Inlet over a third of the fleet                                                               
didn't fish the last two years because of fish prices.                                                                          
MR. JACKSON said it's reduction in the number of permits.                                                                       
SENATOR WAGONER called that tragic.                                                                                             
MR. JACKSON agreed.                                                                                                             
CHAIR STEDMAN said there's no work for the young guys.                                                                          
SENATOR WAGONER added there's none for the old guys either.                                                                     
MR.  JACKSON  said  that's  why  he is  so  enthusiastic  in  his                                                               
endorsement. "It brings  back some semblance of  local control in                                                               
the fishing industry."                                                                                                          
SENATOR ELTON suggested that he  provide the committee staff with                                                               
a copy of  the Tlingit Haida resolution so it  moves forward with                                                               
the bill.                                                                                                                       
MR. JACKSON said he would do so.                                                                                                
DON BRENMER with the Tlingit  Haida Central Council and staff for                                                               
the  Southeast Alaska  Intertribal Fish  and Wildlife  Commission                                                               
testified in  support of SB 387.  He said they have  been working                                                               
on the groundwork on this program  for several years. They are in                                                               
contact with all 22 communities in  Southeast and have sent out a                                                               
survey asking them to join  the Southeast Community Coalition. He                                                               
described their  work as ahead of  the curve and opined  that the                                                               
Southeast coalition can work.                                                                                                   
They are promoting  the region non-profit entity for  a number of                                                               
reasons. Senator  Ted Stevens has been  promoting regionalism and                                                               
they  agree   because  this  would  be   efficient.  About  eight                                                               
communities  have  signed letters  of  support  saying they  have                                                               
similar  views.  The  other  communities   are  waiting  for  the                                                               
articles of  incorporation and the  by laws before coming  to the                                                               
table. That's reasonable  because they are key to  the success of                                                               
the  program  and  will  control  the  relationship  between  the                                                               
entities. It's a business organization  and they understand that,                                                               
he said.                                                                                                                        
This is  a good opportunity,  he said. It's a  cross generational                                                               
program and the benefit will grow over time.                                                                                    
SENATOR LINCOLN asked when the 04-43 resolution was passed.                                                                     
MR. BREMNER  said it  was passed in  the recent  General Assembly                                                               
[April 14-17, 2004].                                                                                                            
SENATOR LINCOLN  asked if  "Southeast Alaska  Community Coalition                                                               
of Fishing Communities" would be the name of the non-profit.                                                                    
MR. BREMNER said yes, that would be the regional entity.                                                                        
SENATOR LINCOLN asked which communities that would include.                                                                     
MR.  BREMNER  said  it  was  all  the  communities  in  Southeast                                                               
including  Yakutat. Some  of the  communities are  thinking about                                                               
doing this themselves, but the  Central Council is advocating for                                                               
a regional  coalition to provide  stability. "Look at  the salmon                                                               
industry, what happened there, it's  become so competitive within                                                               
the industry  that we've pretty much  shot our self in  the foot.                                                               
Halibut and black cod is one  of the stable markets that we have.                                                               
We want  to try to keep  stability and control in  the market and                                                               
not compete against one another as villages."                                                                                   
SENATOR  LINCOLN asked  whether  any of  the  42 communities  had                                                               
responded  to  say  that  they   wanted  to  participate  in  the                                                               
MR. BREMNER replied  they had heard from  about eight communities                                                               
and a number  say they want to see the  articles of incorporation                                                               
and by-laws before they commit.                                                                                                 
CHAIR STEDMAN asked  if the regional entity would cover  area 2 C                                                               
and parts of 3 B.                                                                                                               
MR.   BREMNER   said   it's  the   communities   that   have   no                                                               
infrastructure that  will be  particularly interested  in looking                                                               
at the regional organization.                                                                                                   
CHAIR  STEDMAN  commented  that   working  collectively  for  the                                                               
benefit of  all the villages  in a  region is an  important point                                                               
with a side benefit of not bidding up the price of the product.                                                                 
MR. BREMNER said  there's a lot of benefit to  forming a regional                                                               
coalition not the  least of which is to save  the cost of forming                                                               
a number of non-profits. "A lot  of the villages don't have money                                                               
to  form the  non-profit.  It's $15,000  to  $20,000 in  lawyer's                                                               
There was no further public testimony.                                                                                          
SENATOR LINCOLN  noted that  the fiscal note  was zero,  but DCED                                                               
stated that, "The department  anticipates making approximately $1                                                               
million  in CQE  loans in  FY05 and  approximately $3  million in                                                               
each  fiscal  year  thereafter   through  FY10."  She  hopes  the                                                               
department has the necessary manpower to follow through.                                                                        
CHAIR STEDMAN asked Mr. Winegar to speak to that.                                                                               
SENATOR LINCOLN added  that she was pleased that  the fiscal note                                                               
is  zero  because  she  didn't  want the  bill  to  have  another                                                               
committee referral.  However she  said, "I'm concerned  that when                                                               
the Legislature  has cut  within the  departments over  the years                                                               
that now we're adding another  responsibility to their department                                                               
that  it is  not going  to hinder  this or  any other  program in                                                               
having the zero fiscal note."                                                                                                   
MR.  WINEGAR  said he  appreciates  the  concerns and  they  have                                                               
thought  about that,  but  they do  have  the infrastructure  and                                                               
staff to follow  through. It won't cost  a lot of money  to add a                                                               
few  loans  because  the  structure is  already  in  place.  "I'm                                                               
confident that this is not  going to adversely impact our ability                                                               
to do our other functions," he said.                                                                                            
SENATOR ELTON  made a motion to  move SB 387 from  committee with                                                               
the attached two zero fiscal  notes. There being no objection, it                                                               
was so ordered.                                                                                                                 

Document Name Date/Time Subjects