Legislature(2003 - 2004)
03/23/2004 09:04 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 322
"An Act relating to the rate of the salmon enhancement tax."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated this bill, sponsored by Senator B. Stevens,
by request "authorizes regional aquaculture associations to hold
elections to change the tax rates for the salmon enhancement tax."
Senator B. Stevens testified that this legislation would provide
another option for regional aquaculture associations, which are
comprised of commercial fishers in the region and the hatcheries
operating in that region. Currently, he stated that statute
provides the ability for members of the associations to assess
themselves one, two, or three-percent. He noted those rates have
not changed since 1976.
Senator B. Stevens explained this bill would increase the allowable
rates from four to ten percent, and permit the associations to
"super access themselves" for the purpose of paying off debt, if
they so choose. He characterized this legislation as a
modernization of the salmon enhancement program. He stated this
legislation is an attempt to mitigate concerns of industry
participants relating to the percentages of "cost recovery versus
common property."
Senator B. Stevens referenced a spreadsheet titled "Alaska Hatchery
Commercial Common Property & Cost Recovery Return Data - 1993-2003"
[copy on file], showing the "cost recovery percentages" and
"commercial harvest percentages". He indicated that over several
years, the cost recovery percentage has averaged approximately 30
percent. He remarked that this demonstrates the declining value of
the fish produced, therefore forcing an increase in the number of
fish required to pay the operation costs of the hatcheries. He
reiterated this legislation would permit the members of an
association to opt to harvest a greater number of fish and increase
their assessment to generate revenue for hatchery operations. He
stressed that such a change could not be implemented without a
majority vote of the permit-holders in the region.
Senator B. Stevens informed that currently the commercial fishers
could pay no more than three-percent and thus forcing cost recovery
methods to cover a larger portion of the operating expenses.
Co-Chair Wilken referenced letters in opposition to this bill
[copies on file].
Senator B. Stevens addressed the letter from Kate File and agreed
she has a legitimate concern, although it is not germane to this
legislation. He explained this legislation does not pertain to the
cost recovery practices of non-profit hatcheries. He assured that
this bill only applies to those areas included in a regional
association, and that the members of the associations have the
authority to impose these taxes on themselves.
Co-Chair Wilken requested an explanation of cost recovery in the
context of this legislation.
Senator B. Stevens gave an example of a hatchery that produces ten
million fish with annual operating costs of $4 million. He
explained the current process whereby the hatchery contracts with
certain commercial fishers to catch and return five million fish to
the hatchery to pay the operating costs. The remaining five million
fish, he continued, are available for catch by other commercial
fishers and taxed at a rate of two percent to recover additional
costs. He stated this bill would "change the dynamics" and allow
the commercial fishers to assess a higher tax on their portion of
the harvest and thus reduce the number of fish reserved for
contracted harvesting and increase the number of fish available to
them for harvest.
Co-Chair Wilken citing the spreadsheet, noted that one third of the
hatchery produced fish are harvested for the purpose of paying
operating costs.
Senator B. Stevens affirmed, qualifying that the percentage varies
by region depending upon the number of hatcheries operating in a
region.
Senator Bunde pointed out that cost of producing fish increases
over time, although the price of fish varies. He surmised that
with a large debt service, a hatchery would have to take virtually
all the fish if produces to pay its operating costs. He stated this
bill offers the option to pay overhead costs down in years of
higher prices.
Senator Bunde commented that participation in associations is
optional for commercial fishers in some areas and there is concern
that fishers might not vote. He predicted that this legislation
could provide more incentive for participation if fisher's tax
assessments could change.
Senator Hoffman asked the percentage of hatcheries still producing
pink salmon.
Senator B. Stevens replied that most hatcheries are producing pink
salmon, with the largest productions in Prince William Sound. He
relayed that trends indicate the cost recovery percentages is
rising.
Senator B. Stevens listed the Northern Southeast Regional
Aquaculture Association (NSRAA), a region comprised of several
hatcheries, is an example of how this legislation could be
beneficial. He told how this association paid its costs down early,
and was able to limit the amount of cost recovery harvesting.
However, he pointed out that cost recovery has increased in recent
years due to lower fish prices. He explained this association could
chose to reduce the percentage of cost recovery harvesting by
paying a higher tax assessment. He stressed this would be a choice
determined by the members of the association through an election
process. He also noted that the association members could
subsequently reduce its taxes in the event of a market change and
increased prices. He opined this legislation provides "self
determination" within an association. He expressed this could allow
for the release of more fish for commercial harvest and change the
current trend of hatcheries catching a significant percentage of
the fish they produce to pay the operating expenses of the
hatchery.
Co-Chair Wilken asked how the cost recovery percentage is
determined. He noted the increase of the NSRAA cost recovery
percentage and asked if it was a result of increased debt.
Senator B. Stevens was uncertain of the NSRAA situation. He
detailed that each hatchery submits a plan to annually to the
regional planning team, which is approved by the board of directors
of the regional association.
Co-Chair Wilken asked why the Douglas Island Pink and Chum (DIPAC)
hatchery is not relevant to this legislation.
Senator B. Stevens replied DIPAC is a private nonprofit corporation
and is therefore not included in a regional aquaculture
association. He stated it operates only under the authority of its
board of directors and has no involvement from a regional planning
team. He noted this speaks to Ms. File's concern about increased
cost recovery percentages without input from area commercial
fishers.
Senator Hoffman asserted the more fish produced, the lower
percentages of cost recovery. He asked for affirmation that the
value of pink salmon is from roe.
Senator B. Stevens affirmed. He relayed discussions regarding the
declining value of pink salmon and subsequent increased production,
resulting in a downward cycle.
Senator Hoffman indicated this is his concern.
Senator B. Stevens agreed this is the reason this bill is
necessary. He detailed the price fluctuation for pink salmon over
20 years ranging between 80 cents per pound to the current eight
cents per pound. He referenced a graph titled, "Alaska Historical
Commercial Salmon Catches (all species) 1878-2003", prepared by the
Department of Fish and Game [copy on file], showing that hatchery
activities have contributed to an increased stabilized production
rate of almost 100 million fish annually statewide. However, he
pointed out that the value has diminished.
Co-Chair Wilken asked if the hatchery program was implemented in
1978.
Senator B. Stevens affirmed. He informed that most hatcheries in
Alaska had been State-owned, but currently most are either held by
an association or a non-profit corporation.
Senator Hoffman pointed out the supporting documentation for this
legislation does not indicate the percentages of hatchery salmon.
He understood the hatchery programs primarily operate in Prince
William Sound and Southeastern Alaska, although the largest fishery
is located in Bristol Bay.
Senator B. Stevens agreed the Bristol Bay fishery has the highest
value. He spoke to the price trends for sockeye salmon, which
average between 80 cents and $1.80 per pound.
Senator Hoffman countered that Senator Dyson would say that
increased production of pink salmon in Prince William Sound during
the 1980s and 1990s resulted in a flood of the market and impacted
the sockeye salmon fishery. He also noted other factors such as
farmed fish have impacted the fishery markets.
Senator Bunde added that foreign market crashes have had a
significant impact on the fishing industry. He commented on the
State trend of receding from the "hatchery business", while making
efforts to enter the "oil business'. He suggested this should be
considered.
Senator Bunde asked if the demand for cost recovery increases,
whether the Department of Fish and Game would be pressured to
facilitate cost recovery to limit fishing in distant waters to
allow more fish to return closer to the hatchery location.
Senator B. Stevens replied the matter would be a regional
management decision.
Co-Chair Wilken told of discussions to operate a fish hatchery in
Fairbanks to supply fish to Interior and Southeast Alaska, and
asked whether this hatchery would be included in the provisions of
this legislation.
Senator B. Stevens answered it would if it practiced cost recovery
and depending upon whether it produced fish for commercial harvest
or personal and subsistence use, as well as the volume of fish
produced. He added that such a hatchery would participate only if
it secured funding through the Fisheries Enhancement Revolving Loan
Fund. He indicated on a map showing the locations of hatcheries
within Alaska [copy on file]. He noted that hatcheries located at
Fort Richardson and Fort Elmendorf are not included, as they
produce fish for personal use.
Co-Chair Wilken understood the proposed Fairbanks hatchery was
intended to produce fish for personal and subsistence use.
Senator B. Stevens expressed he has discussed the hatchery issue
extensively, and that this is legislation is an option for those
regional aquaculture associations to utilize if they chose.
Co-Chair Green clarified this legislation would stipulate no
mandates.
Senator B. Stevens affirmed.
Co-Chair Wilken ordered the bill HELD in Committee.
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