Legislature(2013 - 2014)SENATE FINANCE 532
04/16/2014 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB297 | |
| HB293 | |
| HB263 | |
| HCR15 | |
| HB268 | |
| HB121 | |
| HB204 | |
| HB379 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 297 | TELECONFERENCED | |
| += | HB 293 | TELECONFERENCED | |
| += | HB 263 | TELECONFERENCED | |
| += | HCR 15 | TELECONFERENCED | |
| += | HB 268 | TELECONFERENCED | |
| + | HB 121 | TELECONFERENCED | |
| + | HB 204 | TELECONFERENCED | |
| + | HB 379 | TELECONFERENCED | |
| + | HB 308 | TELECONFERENCED | |
| + | HB 361 | TELECONFERENCED | |
| + | HB 160 | TELECONFERENCED | |
| + | HB 116 | TELECONFERENCED | |
| += | SB 48 | TELECONFERENCED | |
| + | TELECONFERENCED |
CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 204(FIN)
"An Act relating to a product development tax credit
for certain salmon and herring products; and providing
for an effective date."
10:18:36 AM
Vice-Chair Fairclough MOVED to ADOPT the proposed committee
substitute for HB 204, Work Draft 28-LS0463\Y (Bullard,
4/15/14) as a working document. There being NO OBJECTION,
it was so ordered.
10:19:15 AM
ASTRID ROSE, STAFF REPRESENTATIVE ALAN AUSTERMAN, reported
that the changes in the committee substitute were
recommended by the legislative legal department. The
department pointed out additions in the title as well the
addition of section 9 which fixed uncodified law.
10:19:55 AM
Vice-Chair Fairclough asked to hear more about the
underlying bill.
10:20:08 AM
REPRESENTATIVE ALAN AUSTERMAN, provided some history as to
the reason the bill was before the committee. He relayed
that salmon tax credits had been in existence for an
extended time and that there had been significant changes
and many investments made in the State of Alaska in the
seafood industry as a result of the credits. A request was
made regarding foregone harvests a few years back by a
group of fishermen from the Togiak area in Southwest
Alaska. There were large numbers of salmon going up the
rivers unharvested because processing capability was not
available. The fishermen came forward and inquired that if
the herring fishery had a market they believed processors
would have the additional incentive needed to encourage
them to provide processing capacity for both herring and
salmon concurrently. He continued that four years
previously the state set aside about $300 thousand for the
Alaska Seafood Marketing Institute (ASMI) to review how to
market herring in a way it had not been marketed before.
Herring had previously been processed for either bait or
row with the remaining carcasses being either ground up or
dumped. The state thought the carcasses could be valuable
and had spent the past few years looking at the market
which showed a very strong desire for another protein to
enter the marketplace. The U.S. international food aid
program was one entity that expressed interest. The bill
would extend the tax credit and add herring to the seafood
roster.
Co-Chair Austerman reported an additional item contained in
the bill pertaining to byproduct. He indicated that there
was a strong desire to see the waste stream turned into a
usable product. Currently, efforts were focused on
producing a concentrated protein in the form of a dry
powder. He pointed out that over time all of the fisheries
in the State of Alaska would require 100 percent retention.
At present, millions of pounds of product were being dumped
in the ocean. The product was not economically viable
because of either being too small or the wrong species. He
informed the committee that Europe was moving in the
direction of 100 percent retention within the following 10
years. He anticipated pressure being placed on Alaska to
follow suit. He expressed his desire for Alaska to move
forward with implementing 100 percent retention. He posed
the question about what to do with byproduct resulting from
commercial fishing. He suggested either product be brought
to shore, ground, and thrown back into the ocean, or made
into another product.
10:24:30 AM
Representative Austerman continued to speak to the bill. He
relayed that in the prior two years the Environmental
Protection Agency (EPA) restricted processors from dumping
anything into the ocean. Alternatively, processors had to
take their byproduct to a bio-dry plant to make into
chicken feed. He wanted the state to further pursue the
maximum usage of its seafood.
Vice-Chair Fairclough wondered about fishing tax credits.
Specifically, she asked if the state was holding down the
price of fish and the price consumers paid by continuing to
offer tax credits. She understood the state's efforts were
made to incentivize, but expressed concern that it was
depressing the price of fish.
Representative Austerman thought that the committee would
hear more from the department, but observed that fish
prices were being held at the current level due to farmed
fish entering the global marketplace. The economics
associated with farmed fish were much lower than with wild
fish. He suggested that although it might be financially
prudent for the State of Alaska to invest in the business
of farmed fish, he believed it was important to protect
Alaska's wild stocks. He was not opposed to Alaska farming
fish and was in favor of expanding the base for fishing. He
believed a closer examination that would take some time was
necessary.
10:27:20 AM
Vice-Chair Fairclough mentioned that over the last eight
years in office she observed that credits had not been
viewed as cash. The state offered specific industries
incentives to promote Alaska's ability to compete. She
wanted to know if the state was achieving its goals with
its investments. She referred to the Carolina's and how the
federal government subsidized tobacco farms and the
associated health costs. She opined that the state was
changing the market conditions and depressing costs
resulting in a change in behavior. She was not sure if the
change was for the better or for the worse. She understood
that for those that made money on the issue the tax credit
provided their families economic benefits. She wondered
whether all of the state's tax credits achieved what the
state wanted them to accomplish. She suggested that the
Senate Finance Committee take a hard look at all of the tax
credits on the books, how they were being utilized, and to
what extent they benefit Alaskans.
Co-Chair Meyer appreciated Senator Fairclough's comments.
He was under the impression the state was going to attempt
to limit some of the tax credits. He argued that just the
opposite had happened. He pointed out that at some point
the state had to be concerned about the revenue being less
than the tax credits.
10:29:26 AM
Representative Austerman agreed with Senator Meyer and
added that there was a bill in the House (HB306) that would
place all of the tax credits on a review schedule and a
cost benefit ratio formula would be set up and used as an
assessment tool. He relayed that the bill had been passed
out of the House Finance Committee and was currently in
House Rules. He asserted that if the bill did not make it
through the House it should be revised and reintroduced. He
restated that the state had tax credits in all of its
industries.
Senator Meyer remarked that he had hoped to see HB 306 come
over to the Senate but that time was running short.
10:30:52 AM
VINCE O'SHEA, VICE-PRESIDENT, PACIFIC SEAFOOD PROCESSORS
ASSOCIATION, JUNEAU, indicated that five of the
association's member companies operated 18 salmon
processing plants in Alaska. He spoke in strong support of
HB 204. He relayed that Pacific Seafood Processors
Association (PSPA) had a letter on record and offered to
answer any questions from committee members.
Vice-Chair Fairclough asked Mr. O'Shea to speak to the
fishery tax. She remarked that it went up in FY 14 to $27.4
million but was projected to go down in FY 15 to $26
million in the spring forecast. She further inquired
whether it was the actual pounds of fish being brought in
that was affecting the forecast or if it was something
else.
Mr. O'Shea reported that what processors were paying in a
state landing tax was a combination of the volume of fish
being purchased as well as the price of the fish. Both
numbers were variable. He had a graph that showed the
increased value processors were paying for Alaska salmon.
Processors were the price takers rather than the price
makers in the global market. He pointed out that the change
in total revenue fluctuated depending on how much fish was
in the quota.
10:33:43 AM
MARK PALMER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, OCEAN
BEAUTY SEAFOODS, SEATTLE (via teleconference), testified in
support of HB 204. He affirmed the effectiveness of the
bill and relayed that upon examining the price history of
salmon over the previous ten years, prices had not been
depressed. He reported seeing grounds price increases year-
after-year to the point that the value of the salmon
harvest had doubled from the time the original legislation
had been introduced. He stressed that the tax credit was
not a subsidy of existing markets. The bill had stimulated
market diversification through product expansion.
Processors had been over-dependent on too few products,
canned and frozen, headed and gutted fish. By diversifying
its product mix new product markets opened up around the
world. The tax credits helped to incentivize processors to
create new products and reduced investment risk. Some of
Alaska's seasonal fisheries presented challenges due to the
kind of investment required and the time constraints in
which investments had to be made. The tax credits helped to
reduce some of the risk in making big capital investments,
helped to create jobs, and provided much more tax revenue
for communities and the fishing fleet. The current
legislation was a continuation of further investment in the
shore-side communities in which Ocean Beauty Seafoods had a
presence.
10:36:06 AM
JOE PLESHA, TRIDENT SEAFOODS, SEATTLE (via teleconference),
spoke in strong support of HB 204. He pointed out that EPA
was considering amending the existing effluent limitation
guidelines and requiring screening of all seafood waste in
many communities in Alaska, the result of which would
require the production of a fish meal or some other
byproduct with fish waste. The bill was important for the
Alaska salmon industry to remain competitive on a world
market basis.
10:37:19 AM
JOE JACOBSON, DIRECTOR, DIVISION OF ECONOMIC DEVELOPMENT,
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT,
conveyed that the department was in support of the bill. He
added that without having the ability to turn on a spigot
to increase production, the only real way to increase the
value of the state's wild fisheries resource was to
increase the value of the underlying product through state
programs. He reported improvement in quality, marketing via
ASMI, and product diversification. Twenty years ago the
industry was dependent upon canned salmon and headed and
gutted product, largely exported in most cases. He pointed
out that one of the reasons fish prices had gone up
dramatically was because there was a larger variety of
products appealing to different markets around the world.
Mr. Jacobsen relayed that prior to taking over his current
position he had been the international director for ASMI.
In his position he received feedback from people across the
world expressing their approval of the diversification and
the quality of Alaska's fish product on the market. He
continued that over the past 10 years the price to Alaska's
fishermen had increased dramatically. Permit values had
increased resulting in more community investment. He added
that there was also larger resident participation in the
state's fisheries.
Mr. Jacobson remarked that the issuance of tax credits was
one of three major components that supported fish prices
across the state. The bill was targeted in terms of looking
at new can-sized production. A tall can of Sockeye Salmon
in the grocery store was currently priced over $11. Not
only was the consumer getting over a pound of fish, too
much for the average family, it was a significant amount of
money. By incentivizing the reduction of the can size it
allowed the state to maintain a canned market where the
state might otherwise loose it. He furthered that with the
upcoming EPA effluent limitation guidelines he anticipated
significant expenses required into the future. One of the
specific provisions in the bill before the committee was a
transformation of a waste byproduct into a salable good. He
referred to Iceland as an example of a country that had
been able to take many things that would have been
discarded in the past and transform them into salable
goods, which in some cases exceeded the value of the flesh
themselves. He restated the department's support of HB 204
indicating the help it provided to the fishing industry,
the resident fleet putting more money in the hands of the
state. He reported than the net revenues from the seafood
industries will return monies back to the state. Revenues
remained fairly stable.
10:40:59 AM
Senator Dunleavy inquired if the department viewed the tax
credit as permanent or transitional. Mr. Jacobson responded
that it incentivized the further transformation of the
industry but he believed the state had a significant way to
go. He suggested that the quality had additional room for
improvement in terms of capturing as much value as was
possible. He acknowledged the strides the state had made in
quality improvement but also believed there was room for
growth. He opined that until the fishing industry reached a
plateau the tax credit would continue to play a
transformational roll. He relayed that a sunset date was
included in the bill and that the credit should be treated
as a transitional piece.
10:42:16 AM
Senator Bishop noted that he was not an expert in the
seafood industry but had a good working knowledge having
been around it the majority of his life. He returned to Mr.
Jacobson's comment on reducing can sizes from the 14.75
ounces down to 7.5 ounces. He pointed out that not every
processor had the ability to freeze all of its fish. The
canned component needed to remain competitive. He specified
that everybody benefited from being able to utilize the
whole pack. He supported getting 7.5 ounce cans to stay
competitive. He praised Ocean Beauty Seafood's efforts in
revitalizing the fishery in Kaltag with new technology;
both jobs and economic development resulted from its
efforts which benefited rural Alaska.
Mr. Jacobson followed up by indicating that the intent of
the tax credit was to ensure that the canned market
remained competitive. He estimated that 95 percent of
canned fish was packed in 7.5 ounce and 14.75 ounce cans.
He stated that in some markets the 7.5 ounce cans were
considered too large and furthered that because of the
current value of Sockeye salmon even a 7.5 ounce can was
expensive for the average person. He stated that Alaska
could maintain its market share by reducing the can size.
There was a variety of products with different can sizes
including 3.5 ounce and 5 ounce cans. The bill did not
incentivize producing the same can sizes that have already
been produced including the 7.5 ounce and 14.75 ounce cans.
He reported that the canned industry was an essential
product alternative due to costs.
10:45:19 AM
Co-Chair Meyer stated that he was having difficulty
understanding why the private sector would not just make a
can size adjustment on its own without the need for a tax
credit. He added that it was business and the free market.
Mr. Jacobson responded in agreement to Senator Meyer's
comment. He referred to a variety of factors at play. He
noted EPA requirements, the continued investments in fillet
lines and other value-added processing. He also mentioned
time and budget limitations. He alleged that the bill would
speed the transformation and emphasized the areas in which
the industry had identified as promising areas of
expansion.
Co-Chair Meyer surmised that EPA was involved in every
industry including the mining, oil, and construction
industries.
Co-Chair Meyer CLOSED public testimony.
HB 204 was HEARD and HELD in committee for further
consideration.