Legislature(1993 - 1994)
05/03/1993 02:50 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 264(FIN)
An Act levying and providing for the collection of and
disposition of the proceeds of a fishery resource
landing tax; and providing for an effective date.
Co-chair Pearce directed that CSHB 264 (Fin) be brought on
for discussion and noted a teleconference link to Seattle,
Washington.
REPRESENTATIVE CARL MOSES again came before committee. He
explained that the proposed bill would establish a new tax
on fishery resources caught and processed in the exclusive
economic zone--waters directly off of Alaska--but which are
then landed within Alaska's jurisdiction. These processed
resources are currently not subject to state tax. The off-
shore trawler fleet operating within the exclusive economic
zone has been extremely profitable. It is now fully
American with most vessels based in Washington State. The
fleet targets groundfish with incidental catches of crab,
halibut, herring, and salmon. Alaska provides significant
benefits and services to the off-shore fleet and incurs
additional fishery management and enforcement costs. The
tax is one way to compensate the state for services.
CSHB 264 (Fin) would impose a modest tax of 3.3% of the
value of the processed resource landed in Alaska for
shipment to markets elsewhere. The Alaska Seafood Marketing
Institute would receive 0.3% of the tax. This new landing
tax would place the off-shore fleet on the same tax level as
on-shore facilities.
The House Finance version of the bill authorizes a narrow
tax credit limited to the tax on the value of fishery
resources harvested under a community development quota
program. The potential value of this credit is
approximately $290.0. That is a small portion of the
projected $8.6 million to be generated by the tax.
The House Finance Committee Substitute also changes the
definition of "value" used in computing the tax. The change
was requested by the fishing industry to provide
clarification and certainty in how the tax will be
determined and applied.
The original legislation provided a credit for equivalent
taxes paid in other "states." House Finance extended that
credit to taxes equivalent "in nature" paid in other
"jurisdictions," including foreign countries.
Representative Moses directed attention to a fishery tax
study conducted by the Dept. of Revenue which recommended
that a landing tax be established. He stressed that the
current tax situation for shore-based versus off-shore
processors is unfair. On-shore operations are taxed and
contribute to the local economy through property taxes, etc.
That tax is equivalent to what is now being proposed for
off-shore processors.
Discussion followed between Representative Moses and Senator
Frank regarding application of the credit. Representative
Moses said that community development quotas represent
approximately 7% of the overall catch. The quota program
will sunset in two to three years.
Senator Sharp raised a question regarding what constitutes a
qualified non-profit. MOLLY McCAMMON, aide to
Representative Moses, explained that the credit was
requested by CDQ groups. These groups now receive benefits
from the Bering Sea Fishery Development Foundation. Funding
would likely flow to that foundation but rather than specify
a particular entity in statutes, CDQ representatives asked
that the bill simply cite a "non-profit corporation."
Moneys could then flow to other local non-profits and those
associated with regional Native corporations. Moneys could
only be used for training, development of fishery
infrastructure, etc.
End, SFC-93, #73, Side 2
Begin, SFC-93, #75, Side 1
CARL MEYER, Chief of Appeals, Income and Excise Audit
Division, Dept. of Revenue, came before committee in
response to questions regarding calculation of the tax and a
definition of non-profit corporation. He then provided a
verbal sectional analysis of the House Finance version of
the bill. He assured that the legislation was constructed
to avoid situations where fishery resources would be taxable
under both business tax and landing tax provisions. The tax
only applies to fishery resources that are "first landed in
this state." Filing and tax payment provisions are
essentially the same as for the business tax.
Directing attention to credit provisions at page 2, line 7,
Mr. Meyer explained that credit for "taxes equivalent in
nature" paid in some other jurisdiction apply only to a
similar processing tax. The credit would not include sales
tax or import duty levied by other states or other
countries. In practice, there should be little application
of the credit. It relates to specific purposes,
scholarships, training, capital for construction of
infrastructure, etc. All contributions and related
activities must be within Alaska.
Application for the credit would be made to the Dept. of
Revenue. The department, in consultation with the Dept. of
Community and Regional Affairs, will make a determination
within 60 days. The credit may be revoked at any time. It
may also be denied if the taxpayer is found to be in arrears
in other taxes under Title 43.
Mr. Meyer noted that 0.3% of the tax would flow to ASMI
while the remaining 3% would be deposited into a separate
account in the general fund. The balance of the latter
account may be appropriated to revenue sharing and
distributed per provisions set forth at pages 3 through 5.
Tax credits would be deducted from amounts flowing to
municipalities.
Pointing to definitions set forth on pages 5 and 6, Mr.
Meyer noted that "fishery resource" is defined in business
tax provisions. The definition of "landing" as the act of
"unloading or transferring a fishery resource" is new.
Discussion followed between Senator Rieger and Mr. Meyer
concerning revenue sharing percentages set forth on page 4
of the bill. Senator Rieger directed attention to the
position paper from the department and noted the general
fund revenue estimate of $4.3 million. A like amount would
be shared with municipalities. Mr. Meyer concurred. The
department projects total collection of approximately $9
million.
Discussion followed between Senator Kelly and Mr. Meyer
regarding how the 3.3 tax percentage rate was selected. Mr.
Meyers noted that on-shore operations presently pay 3% while
floating processors pay 5%. Members of the American Factory
Trawlers Association indicated that if a landing tax was to
be applied, it should be fair. The Association further
indicated that if the rate was the same as that charged
shore-based processors, and if the value was the same value
paid by shore-based processors, the association would not
oppose the legislation as being unfair. The 3% rate evolved
as a means of accommodating the industry. In considering
constitutional aspects, the department came to the
conclusion that the 3 rate would be fair. The 0.3% was then
added for Alaska Seafood Marketing.
Senator Sharp voiced his understanding that the state would
retain 50% of tax revenues. Mr. Meyer concurred.
JOE BLUM, American Factory Trawlers Association, next came
before committee, accompanied by SUSAN BURKE of Gross and
Burke. Mr. Blum explained that the association is comprised
of 18 member companies operating 42 catcher, processor, and
mother ships that fish in the 3 to 200-mile zone along the
west coast, the Gulf of Alaska, and the Bering Sea. Mr.
Blum voiced opposition to CSHB 264 (Fin) based on the
constitutional issue of whether or not a state can tax a
product that does not enter state jurisdiction until it is
in finished form and is merely passing through to market.
He acknowledged meetings with the Dept. of Revenue at which
the association stressed need to address the
constitutionality of the tax.
Another area of concern relates to whether or not the tax is
fair. The association asked that members not be taxed more
than the shore-side sector, and that the tax be based upon
the demand for services members make on the taxing
authority. Factory Trawlers do not demand the same types of
services, in the same amount, for the same period of time as
do shore-side or floating processors. Trawlers make a
different type of demand over a shorter period of time. The
tax should be based upon that rather than the numerical rate
of 3.3%.
Senator Kerttula asked if factory trawlers employed Alaskans
or if a majority of the work force was from out of state.
Mr. Blum responded, "We do not have a preponderance of
Alaskans . . . on the vessels, but we have a fair number."
Alaska residency ranges from 800 to 1,000. Senator Kerttula
noted that those workers generate tax needs in terms of
schools for their children and other services.
Mr. Blum next pointed to the Bering Sea Commercial Fisheries
Development Foundation. The foundation has a nine-member
board of directors, six of whom are Alaskans. It is a
voluntary, non-profit foundation. The American Factory
Trawler Association assesses itself $0.75 per ton on all
fish caught in the Bering Sea, Aleutian Island, and Gulf of
Alaska. That money is used for fishery development projects
in Western Alaska. The cornerstone of the effort is the
training program through the Seward vocational facility.
Western Alaskans are selected for training for work in fish
processing. The program has been in existence since the
fall of 1991 and has trained more than 150 individuals.
Those individuals have generated in excess of $3 to $4
million in cash wages in Western Alaska. Mr. Blum asked
that a tax credit be given to any entity contributing to the
foundation. He observed that the proposed CDQ credit is 7%
of "one part of the resource." At $2,000 per trainee, the
$290.0 CDQ credit will not train as many individuals as
could be trained if the credit base was larger.
In response to a question from Senator Kelly, Mr. Blum
advised that the association has contributed approximately
$1 million to the foundation since 1991. He further advised
that when the state and federal governments agreed on the
CDQ program, the foundation provided training grants of $500
per community for the 50 communities under the CDQ umbrella.
If a tax is imposed upon the trawlers, it will make it
difficult to both pay the tax and continue to contribute to
the foundation.
Mr. Blum explained that the association hoped the attorney
general or House or Senate Judiciary Committees would review
the bill. Failing those occurrences, the association asked
that Gross and Burke review both pro and con aspects of the
legislation. Co-chair Pearce noted the presence of both
Judiciary and Resources committee chairmen as well as a
representative of the Dept. of Law. The Co-chair further
advised of indication from the attorney general that he
would provide additional information on the legislation
tomorrow morning.
SUSAN BURKE, Gross and Burke, emphasized that her firm had
taken a "quick look at the bill." It did not conducted in-
depth review.
End, SFC-93, #75, Side 1
Begin, SFC-93, #75, Side 2
She then highlighted concern relating to the fact that the
proposed tax implicates two sections of the U.S.
Constitution: one relating to interstate commerce and the
other to the foreign commerce clause. States are not
allowed to impose taxes on activities that form a part of
interstate commerce. If a state does so, it must meet four
United States Supreme Court tests:
1. There must be sufficient nexus--minimum
contacts with the state.
2. The tax cannot discriminate against
interstate commercial activities in terms of giving
advantage to similar activities conducted by
local taxpayers.
3. The tax must be fairly related to services
the taxing jurisdiction is providing to the taxpayer.
4. The tax must be fairly apportioned.
Ms. Burke said that she focused primarily upon the second
test, dealing with discrimination, because it raises the
most serious questions.
Co-chair Pearce announced need to briefly recess the meeting
to confer with House Finance co-chairs.
RECESS - 6:05 P.M.
RECONVENE - 6:25 P.M.
Upon reconvening the meeting, Co-chair Pearce requested that
Ms. Burke continue with her presentation. Ms. Burke noted
that the proposed bill applies only to fish resources
"brought into Alaska." That means that it applies to
interstate and perhaps foreign commerce as opposed to
domestic activities. It thus discriminates against
interstate commerce. Courts will traditionally allow this
type of tax on interstate commerce only if they determine
that it is a proper "compensatory" tax--an effort to
equalize the tax burden between people performing the same
activities in the state. Ms. Burke cited, as an example, a
sales and a use tax that essentially tax the same activity.
She then questioned whether a court would view the proposed
landing tax as compensatory to the existing business tax.
The business tax is levied upon the business of processing
fish. The landing tax is similar to a property tax.
If the question of whether the landing tax is a proper
compensating tax is bypassed, a further question of whether
burdens on interstate commerce and local commerce are equal
is raised. A state cannot place more burdens on interstate
commerce than it places on local commerce. The question is
further complicated by the tax differential between off-
shore and domestic processors. Ms. Burke also raised
questions concerning the 0.3% of the tax to flow to ASMI.
She further noted a difference in tax burden between shore-
based and out-of-state processors in terms of credits.
Credits allowed under AS 43.75 are not allowed under the
proposed landing tax. That is another serious issue.
Ms. Burke advised of her understanding that a portion of the
fishery resource subject to the proposed tax belongs to a
foreign purchaser by the time it "hits Alaska." That
squarely raises foreign commerce issues. She cited the
Japan Lines case from California as an example of an attempt
to impose a tax upon empty shipyard containers belonging to
foreign shipping companies and used exclusively in foreign
commerce. The Supreme Court held that the tax could not be
levied. That decision was based on potential for double
taxation and whether the state tax inhibited federal
government ability to "speak with one voice rather than
fifty voices" when dealing with foreign countries.
Ms. Burke acknowledged that most of the problems appear to
be fixable, given sufficient analysis and thought. She
stressed the importance of stability in state tax policy.
She further remarked on the expectations that would be
raised should the proposed bill pass the legislature and
subsequently be found to be unconstitutional.
Pointing to language within the bill, Ms. Burke noted
drafting problems, advising that the legislation does not
require that the fish be processed. While the intent behind
the tax is to capture revenues from resources processed
outside the state, the bill does not limit application to
processed resources. She further noted exclusions within AS
43.75 and noted that it appears that the proposed bill
imposes a tax on what the legislature earlier sought to
exclude from taxation. Ms. Burke stressed need, from a
taxing policy standpoint, for review over the interim in
order to develop legislation more likely to survive a
constitutional challenge.
HARVEY SAMUELSON from Dillingham, Alaska, next came before
committee to speak on behalf of the Bristol Bay CDQ program
and as a founding father of the Bering Sea Fishery
Development Foundation. He observed that the foundation has
done more good "than any social program that ever hit
Western Alaska." It has provided jobs, self respect, and
something for young people to look forward to. Both BIA and
the state have failed in these efforts. Mr. Samuelson
stressed need for the foundation to derive greater credit
from landing fees. Much remains to be done, and it cannot
be accomplished overnight. Foundation training has provided
300 to 350 jobs. After the first of the year, when 30 to 60
jobs were sought for Western Alaska residents, processors
out of Dutch Harbor brought in over 1,000 cannery workers
from "the states" and did not hire from Interior Alaska.
In response to a question from Senator Kerttula, Mr.
Samuelson said that the training programs cover "the entire
Bering Sea coast up to Nome" as well as St. Lawrence Island.
Senator Jacko noted that factory trawlers could continue
current contributions with or without the legislation. Mr.
Samuelson stressed that "Lots of them are on their
deathbeds." Many factory trawlers will not be in existence
much longer. There will then be no money with which to
operate the foundation. Senator Jacko pointed to credits
for CDQ program training modeled on the foundation program.
Mr. Samuelson countered that the amount involved is less
than $300.0 for "six outfits." Further, the state is
loading down CDQ programs with scholarship and other
requirements in the first year of operation. He argued that
the "state is trying to make us spend all our money before
we get it."
PHIL CHITWOOD, Tyson Seafoods, next testified via
teleconference from Seattle. He explained that Tyson
entered the seafood industry through purchase of Arctic
Alaska Fisheries Corporation. The company intends to expand
its operation through expansion of existing and development
of new facilities in Alaska. The extent to which these
plans proceed will depend upon the economic environment
provided by the state. The proposed bill would impose a
3.3% tax based on the raw fish value of fish caught and
processed outside of state waters and transhipped inside
state waters. It is estimated that the tax will cost Tyson
"upwards of $1.5 million next year." Tyson operates a fleet
of 31 vessels which catch and process ground and shellfish
at sea. Because of declining prices in world fish markets,
nearly half of the vessels are presently docked. Margins
are insufficient to operate those vessels. Enactment of
CSHB 264 (Fin) will significantly add to the cost of doing
business in Alaska and will result in the docking of
additional vessels. Tyson cannot expand its investment in
Alaska while being forced to tie up additional ships. There
could not be a worse time to burden the offshore fishing
industry with additional expenses. Few, if any, Alaska
groundfish participants had profitable operations last year.
The outlook for the next few years is no brighter.
Mr. Chitwood urged that CSHB 264 (Fin) be held in committee.
He termed it seriously flawed, if not illegal. If enacted,
Tyson would be forced to put additional dollars into
litigation rather than its Alaska operations.
Mr. Chitwood pointed to the self-assessed $0.75 per ton
contribution by trawlers to the above-mentioned fishery
development foundation. He stressed that the foundation has
proven to be extremely successful in providing employment to
Western Alaska residents. The proposed bill contains no tax
credit for contributions Tyson makes to the foundation.
Those contributions will stop if a credit is not included. A
credit should also be allowed for fees paid on product
shipped to foreign countries. That omission warrants legal
review.
CSHB 264 (Fin) would impose the same tax upon at-sea
catcher/processors as on shore-side catcher/processors.
That is unfair. At-sea processors provide their own support
services while shore-side operations depend upon the state
and local communities to do so. Each sector of the industry
should be taxed in proportion to its receipt of services.
The proposed tax on off-shore operations will result in
curtailment of operations, loss of jobs, and decreased
spending in coastal communities. Passage of the legislation
will not have a positive impact. Mr. Chitwood urged that
the bill be held in committee for further analysis to ensure
that it is fair and acceptable to the industry.
In response to a question from Co-chair Frank, Mr. Chitwood
advised that Tyson processes approximately 200,000 tons of
groundfish and 100,000 pounds of crab per year. He
subsequently voiced Tyson's intent to move from a partially
integrated business to a fully integrated seafood business
whereby the product processed in Alaska "goes on somebody's
plate" rather than to a secondary processor.
THORN SMITH, North Pacific Longline Association, next spoke
via teleconference from Seattle.
[The following is a transcription of Mr. Smith's
teleconference testimony.]
Thank you, Madam Chair. For the record, my name is
Thorn Smith. I represent the North Pacific Longline
Association. Our association represents freezer
longliners which catch and process ground fish in an
exclusive economic zone in the Gulf of Alaska and the
Bering Sea. Our vessels primarily fish for cod in the
Bering Sea/Aleutian Islands area. I want to emphasize
that these cod are caught, processed, packaged, and
traded in the exclusive economic zone, outside of
Alaska. In many cases it's done quite a number of
miles outside of Alaska. The finished product is off-
loaded at the transports within the territorial sea and
put directly into foreign commerce for markets in
Europe and the Far East. Often these transfers are
made at anchor and do not involve the use of a dock.
In the course of our operations, we purchase food,
fuel, and services from Alaska businesses, making a
substantial contribution to Alaska's economy. We use
state facilities on a pay-as-you-go basis. A number of
these freezer longliners are owned and operated by
Alaskans and Alaska fishery pioneers. I'm sure names
like John Winther, Jim Beason (sp?), and Beaver Nelson
are familiar to you.
I'm advised that Senator Ted Stevens was particularly
enthusiastic when he was informed that a group of
Kodiak fishermen were joining together to build the
ALASKA LEADER, which is a substantial freezer longliner
operating out of Kodiak. The Senator recognized that
the relatively simple technology that we use, the
[indiscernible] technology on these vessels, is
accessible to ordinary Alaskans of ordinary means, and
that it provides a very good opportunity for them to
get into the [indiscernible] off-shore processing
sector.
Freezer longliners are relative newcomers to the ground
fish fishery. They are able to harvest ground fish,
particularly cod, in a conservation-oriented manner
with minimal bycatch mortality and discard. Only when
federal authorities, not too long ago, eliminated the
Japanese downline and longline fisheries off Alaska
were American fishermen able to gain access to premium
markets. Our vessels are recently built. They're
heavily capitalized, and they're particularly
vulnerable to market fluctuations.
A flood of cheap Russian white fish product in
international markets has lowered prices drastically
over the last year and has created a real economic
crisis in our industry. The landing tax proposed here
could drive many of us out of business. Unfortunately,
this is not an exaggeration. The timing couldn't be
worse. We support proposed amendments by the Fishing
Company of Alaska to make it clear that the landing tax
would not apply to product processed outside of state
jurisdiction and transferred directly to foreign
commerce, and also an amendment which would prevent
double taxation. We, of course, have to pay export
duties when we sell products to foreign markets.
In our view, the constitutionality of the proposed
landing tax has not been demonstrated. It has been
shown that there is not a good nexus linking at-sea
processing activity with the state to justify taxation.
The finished product is merely transferred from one
vessel to another in state waters. No processing takes
place [indiscernible] foreign ports. This may or may
not involve the use of a dock. There may not be a
change of ownership in the product at the time of
transfer.
Any use of a major state facility, as I said, is on a
pay-as-you-go basis. And there has been no showing
that the proposed tax bears a fair relationship to the
services provided by the state. We feel that it would
be a mistake to move this legislation forward without a
thorough legal analysis of these issues and without a
very careful consideration, by the legislature, of its
impact on Alaskans and non-Alaskan owners of freezer
longliners.
Thank you for your attention. I'd be happy to try to
respond to any questions.
SEN. PEARCE - Thank you very much, Mr. Smith. Are there any
questions?
SEN. KERTTULA - I have one.
SEN. PEARCE - Senator Kerttula.
SEN. KERTTULA - If you unload the fishery products in the
state of
Washington, do you pay any tax to the state of
Washington?
MR. SMITH - Phil is shaking his head, no. Actually, our
vessels
don't work off the state of Washington, and so I can't
respond, Senator.
SEN. KERTTULA - Okay. Others may well, though, right?
MR. SMITH - I'm sorry, I can't tell you. I don't know.
End, SFC-93, #75, Side 2
Begin SFC-93, #76, Side 1
FORMER SENATOR MIKE SZYMANSKI, next came before committee on
behalf of Fishing Company of Alaska. He noted that the
community of Dutch Harbor would be the primary recipient of
the proposed tax.
Mr. Szymanski provided a brief history of the Fishing
Company of Alaska. He explained that the off-shore industry
has predominantly been Americanized while shore-based
operations are largely owned by Japan. The company has
three long liners and seven trawlers. The proposed tax
would not only impact trawlers but long liners, crabbers--
anyone involved in the process of bringing catch from the
economic zone into the three-mile zone for offloading. All
of the product is caught far off the coast and is produced
exclusively for Korean and Japanese markets. The company
employs 300 to 400 people on its vessels and in corporate
headquarters in Seward, Anchorage, Dutch Harbor, and
Seattle. Vessels offload to tramper ships bound for Korea
and Japan. Many times offloading occurs in isolated bays,
and the trampers do not enter Alaskan ports. The product is
pre-sold before it enters the Alaskan zone. For these
reasons, the bill poses serious problems in terms of the
foreign commerce clause of the U.S. Constitution.
The company is anticipating significant losses for the
current year due to a market drop of almost 50% caused by
foreign competition. If the proposed tax is imposed, it
would put the company at great disadvantage in dealing with
competitors, particularly Japanese and Korean fishermen who
have the ability to fish former Soviet Union waters, take
the product to market, and sell it below the cost of
production in Alaska.
Mr. Szymanski noted company contributions to the economy of
Dutch Harbor by payments for garbage, water, sewer,
electricity, security, medical, transportation, food and
other direct services of offloading. The company also pays
payroll and business taxes, docking, port, and piloting
fees, etc. Operating costs are significant. Unlike shore-
based processors, the company does not have the
infrastructure support from local communities. Vessels
homeported out of Seward spend more time in that community
than at Dutch Harbor.
Directing attention to a February 22, 1993, memorandum (copy
on file in the HB 264 bill file) from Legislative Legal
Services, Mr. Szymanski pointed to potential problems under
the United States Constitution's commerce clause. He then
read substantial portions of the memo. Mr. Szymanski next
cited constitutional problems highlighted in a May 2, 1993,
memorandum (copy on file) from Patton, Boggs & Blow. He
stressed that once the issue becomes a matter of foreign
commerce, the state is prohibited from taxing or regulating
the effort. A corrective amendment was offered and
partially adopted when the bill was in the House. However,
the section relating to "Credit for Other Taxes Paid," page
2, remains flawed. Mr. Szymanski directed attention to a
proposed amendment to correct problems by excluding "the
whole foreign commerce practice."
Mr. Szymanski next spoke to problems resulting from lack of
nexus when attempting to apply the tax to a vessel that
entered state waters only once and transferred its catch to
a foreign tramper. In that situation, the tax does not bear
a relationship to services provided by the state or a
coastal community.
Mr. Szymanski referenced a "port incentive development
amendment" and explained that it would allow other ports an
opportunity to provide "some portion of a tax-free zone."
Discussion of expansion of CDQ programs followed between Mr.
Szymanski and Senator Frank.
In continued discussion, Mr. Szymanski questioned whether
communities where offloading occurs should reap windfall
rewards rather than the state general fund or communities
(Seward, Petersburg, etc.) where the vessels winter over.
Mr. Szymanski next spoke to the issue of a fair tax rate,
terming the 3.3% tax unjustifiable in relation to direct
services. If this taxation policy is found to be just,
could it be extended to OCS oil and gas, international
airport products, or similar products upon first landing in
the state. A major challenge to this issue has already
occurred in Louisiana where courts failed to uphold a
proposed tax.
Discussion followed between Senator Kerttula and Mr.
Szymanski regarding industry support to schools and other
state and community services. Speaking to the off-shore
industry obligation, Mr. Szymanski suggested a 1% tax would
cover impact. Senator Kerttula asked if a 1% tax would make
the legislation constitutional. Mr. Szymanski said that
while he could not speak in terms of nexus problems, he felt
that the 1% tax would be more equitable in terms of off-
shore impact.
Discussion followed between Co-chair Frank and Mr. Szymanski
regarding competition from Russian resources harvested by
Korean and Japanese fishermen. Further discussion followed
regarding federal export taxes and port and harbor fees.
Senator Jacko asked if shore-based processors presently
paying a 3% tax compete in the same market as off-shore
operations. Mr. Szymanski acknowledged that they do. He
noted, however, that on-shore processors receive services
such as electricity, water, sewer, garbage pickup, etc.
Off-shore operations bear the expense of on-board
infrastructure to provide these services at sea. It is
sometimes less costly and more efficient to operate on
shore.
MARK ERNEST, City Manager, Unalaska, and STEPHANIE MATSON,
City Council Member, Unalaska, next came before committee.
Mr. Ernest echoed statements by Representative Moses when
speaking to impact sustained by communities from off-shore
processing operations.
In referring to immediately preceding comments by Mr.
Szymanski, Mr. Ernest explained that in addition to the
present 3% tax, on-shore processors also pay real property
taxes and a 2% local fish use tax. The off-shore fleet is
not subject to those taxes. An estimated 70,000 to 80,000
people travel through the Unalaska Airport annually. Crew
changes generally occur in port, and there is substantial
impact on the health clinic, roads, and education and
recreation facilities. Mr. Ernest urged passage of the
proposed bill.
Co-chair Frank asked how the state might be able to protect
against law suits challenging the constitutionality of the
legislation. Mr. Ernest suggested that tax receipts and
subsequent payments to municipalities could be held in
escrow pending a ruling on the challenge.
[Co-chair Pearce noted termination of the teleconference
link at this time.]
Discussion followed between Ms. Matson and Senator Jacko
concerning a Fishing Company of Alaska contribution to the
Unalaska health clinic. Referencing earlier comments by Mr.
Szymanski regarding the small amount of time spent in port
by off-shore processors, Ms. Matson noted that it is
difficult to deputize sufficient police officers for duty
when crews show up on an unknown schedule. The community
must maintain full capacity to respond when needed. The
city thus bases staffing on historical need. She reiterated
that approximately 72,000 people pass through the air
terminal each year. The community has a service population,
besides shore-based processors, of 15,000 to 18,000. That
can be verified by the number of patients who utilize
services of the health clinic. Ms. Matson further noted
that members of the American Factory Trawlers Association
fish Russian waters and return the product to Unalaska.
Discussion followed between Ms. Matson and Senator Kerttula
regarding competition among coastline communities that offer
port facilities to fishing operations.
RICK LAUBER, representing the Pacific Seafood Processors
Association, next came before committee. He attested to
concern in the early 1970s that foreign fishermen were
taking Alaskan resources, and the state was not being
compensated for that taking. The 200-mile limit was thus
imposed to prohibit that intervention. Alaska now has a
"distant water fleet" fishing off its coast. That fleet
pays no taxes to the state. Mr. Lauber acknowledged that a
small number of fishermen and small processors that deliver
to larger, floating operations are fighting to remain
profitable. Large, off-shore operation have failed to
mention that they spend millions attempting to "grab all of
the resource so that Alaskans would not have a single pound
of it."
End, SFC-93, #76, Side 1
Begin, SFC-93, #76, Side 2
Mr. Lauber noted that all communities "around the rim of the
Bering Sea," including those fifty miles inland, are
involved in the CDQ program, with the exception of Dutch
Harbor/Unalaska. The purpose of CDQs is to encourage
communities to become involved in the fishing industry. One
cannot talk about an amendment that would grant factory
trawlers an exemption or tax credit without taking CDQ
programs and the magnitude of the quotas into consideration.
Factory trawlers have contributed approximately $600.0 to
the foundation. Community Development Quotas for villages
along the Bering Sea are worth between $20 to $25 million a
year. The purpose of CDQs is to do "what this foundation is
attempting to do." While the trawler fleet deserves
recognition for its contributions, it does not deserve a tax
credit.
Mr. Lauber advised that the proposed legislation should have
been passed a long time ago. He stressed that shore-based
processors actually pay 5.3% because they pay municipal
taxes in addition to those levied by the state. That
percentage does not include real property and other taxes.
Mr. Lauber spoke to the permanence of shore-based operation
and noted that off-shore trawlers are flexible and able to
move to alternative fishing grounds (Oregon, Russian waters,
Australia, and New Zealand). Shore-based processors have
invested hundreds of millions of dollars in facilities that
cannot be moved. Off-shore competitors should be fairly
taxes. Mr. Lauber urged the legislature to impose a tax on
factory trawlers commensurate with their activities in the
State of Alaska.
Discussion followed between Mr. Lauber and Senator Kerttula
regarding ownership of on-shore processing operations.
JEFF KOENINGS, Director, Division of Commercial Fisheries
Management and Development, Dept. of Fish and Game, next
came before committee, voicing support for the proposed
landing tax. He attested to the fact that off-shore factory
trawlers harvest a bycatch of crab, halibut, herring, and
salmon while targeting another species. This bycatch
consists of species of great importance to Alaska's
fishermen, processors, and coastal communities. The
incidental harvest by factory trawlers has an economic
impact on Alaskans by removing resources they would
otherwise be harvesting and processing.
Mr. Koenings next spoke extensively to department management
in exclusive economic zone fisheries.
DEAN PADDOCK, Bristol Bay Driftnetters Association, again
came before committee. He voiced concern regarding salmon
bycatch and spoke to need for an incentive to induce factory
trawlers to reduce that bycatch. He concluded his comments
by referencing the proposed landing tax and saying, "If this
is it, go to it."
Co-chair Pearce advised of notification that the Attorney
General would provide a statement of defensibility at 11:00
a.m. tomorrow morning. She suggested that amendments for
the bill be offered at that time.
ADJOURNMENT
The meeting was adjourned at approximately 8:15 p.m.
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