Legislature(1995 - 1996)
01/24/1995 05:15 PM House FSH
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON FISHERIES
January 24, 1995
5:15 p.m.
MEMBERS PRESENT
Representative Alan Austerman, Chairman
Representative Carl Moses, Vice Chair
Representative Gary Davis
Representative Scott Ogan
Representative Kim Elton
MEMBERS ABSENT
None
OTHER LEGISLATORS PRESENT
Representative Vic Kohring
COMMITTEE CALENDAR
Limited Entry Commission Overview and Current Issues
NMFS Update and Overview on IFQs
WITNESS REGISTER
FRANK HOMAN, COMMISSIONER
Commercial Fisheries Entry Commission
8800 Glacier Highway #109
Juneau, AK 99801
Phone: 789-6160
POSITION STATEMENT: Presented overview of commission
BRUCE TWOMLEY, COMMISSIONER
Commercial Fisheries Entry Commission
8800 Glacier Highway #109
Juneau, AK 99801
Phone: 789-6160
POSITION STATEMENT: Assisted with the overview
JESSICA A. GHARRETT, OPERATIONS MANAGER
Restricted Access Management Division
National Marine Fisheries Service
709 W. 9th, Suite 413
P.O. Box 21668
Juneau, AK 99802
Phone: 586-7344
POSITION STATEMENT: Provided the IFQ presentation
ACTION NARRATIVE
TAPE 95-1, SIDE A
Number 000
CHAIRMAN ALAN AUSTERMAN called the meeting to order at 5:15 p.m.
He noted for the record Representatives Ogan, Elton and Davis were
present and noted for the record a quorum was present.
Number 027
CHAIRMAN AUSTERMAN began with introductions and said, "This
committee under my direction will be heading down the line, trying
to hold a neutral ground when it comes to sport fish and commercial
fish, and hopefully we will go along the basis that the resource is
the number one issue. Its protection and enhancement is our goal."
Number 058
REPRESENTATIVE CARL MOSES joined the committee at 5:08 p.m.
REPRESENTATIVE GARY DAVIS described the district he represents as
having both commercial and sports interests.
REPRESENTATIVE KIM ELTON described his two year commercial fishing
background and his recent job experience as the Executive Director
of the Alaska Seafood Marketing Institute and said, "I have a very
strong interest in the commercial fisheries industry and what we
need to do to keep it as one of our major economic machines in the
state of Alaska."
REPRESENTATIVE SCOTT OGAN said to the chairman, "I think we share
the common goal of managing fisheries on a resource base... One of
the issues in my district is the decline of the king salmon
fisheries in the Susitna River drainage. The Deshka River which
used to be the largest producer of king salmon, is off limits to
sport fishing entirely... If we lose the resource, then everybody
loses: Sport, commercial and tourism combined."
REPRESENTATIVE CARL MOSES introduced himself as the representative
from District 40, "where over 50 percent of all of the commercial
fishing takes place (in Alaska)."
Number 155
FRANK HOMAN, COMMISSIONER, COMMERCIAL FISHERIES ENTRY COMMISSION,
(CFEC or Limited Entry Commission) testified describing the Limited
Entry Commission by saying, "It was designed to protect the
resource and to protect the livelihood and the economic dependence
of Alaska's fishermen." He gave committee members information
which included the commission's annual report that showed a list of
permit prices that the commission generates each month by following
the transactions of permit sales. The report also showed a chart
of the salmon harvests, and charts and graphs that shows the
organization of the commission, their budget, and what they
actually do. He said, "To begin with, the Limited Entry Commission
is 20 years old. It was created actually in 1973 by legislation
but actually never issued the first permit until 1975. But what
led to the creation of the Limited Entry Commission was the
disastrous fishing of the 1960s. Actually starting about the
1930s. But at the same time, the fishing effort and the numbers of
fishermen were going up each year. In fact, in Bristol Bay between
1960 and 1970, the effort doubled and throughout the state it
increased by thousands between 1960 and 1980. What this did was
not only to impact the resource significantly, but the average
individual fisherman was also not able to make an economic living
because of the competition and the reduced resource." Commissioner
Homan discussed a chart the committee members had before them. "In
1975 Limited Entry started issuing permanent permits and I don't
want to suggest that we had very much to do with this, but we were
at least a factor. Since that time the resource has particularly
improved. That's due to a lot of reasons; management being one of
the significant reasons. Other reasons were natural causes and
hatchery production around the state. A significant part was that
the numbers were limited to those that had been in the fishery at
the time of limitation."
COMMISSIONER HOMAN continued, "In the 60s there were several
attempts at limited entry program but none of them survived court
rulings because they tended to create a closed class of fishermen
where there was no ability for anyone to enter into it, the permits
were not transferable and didn't have a value in some of the
schemes, and, to a large part it excluded nonresidents which the
courts didn't allow. So, through a whole series of court cases and
Board of Fishery attempts and legislation, in 1971, the Alaska
courts ruled that limited entry scheme that they had at that time
was unconstitutional and violated the Alaska Constitution. One was
in Article 8 of Section 3, the Common Use Clause, which says in one
sentence, `Whenever occurring in their natural state, fish
wildlife, and waters are reserved to the people for common use.'
Then in Article 8 of Section 15 there was a no exclusive right of
fishery, which at the time said `No exclusive right of special
privilege of fishery shall be created or authorized in the natural
waters of the state.' It was hard to get through those
constitutional restrictions and the court said that, and they said
it would take a constitutional amendment by the people to allow the
limited scheme to work. An initiative was placed on the ballot in
1972 which won with overwhelming support from the public. An
addition was made to Article 8, Section 15, on the no exclusive
right and I'll just quickly read that so you can see where the
focus was. `This section does not restrict the power of the state
to limit entry into any fishery for the purpose of resource
conservation, to prevent economic distress among fishermen and
those dependent upon them for a livelihood and to promote the
efficient development of aquaculture in the state.' That gave the
basis for 1973, when Governor Egan put in a limited entry bill that
passed the legislative session. That created the Alaska Limited
Entry Commission, and as I mentioned before, our first permits were
issued in 1975. But that wasn't the end of the challenges. There
were still a couple of major events to occur. One was in 1976,
another initiative was on the ballot that asked the public, `Shall
we repeal the Limited Entry section of the Constitution?' That was
defeated, almost two to one, and the public again said that they
wanted to keep limited entry.
Number 425
COMMISSIONER HOMAN then described some of the limited entry case
law challenges such State v. Ostrosky. He said the Alaska Supreme
Court upheld limited entry as a system of protecting the resource.
It was appealed to the U.S. Supreme Court and they failed to take
up the issue which meant that it would stand the Alaska Supreme
Court decision. From those legal basis, the current Limited Entry
program exists. Commissioner Homan said the program's purpose is
similar to what is in the Constitution, which is to promote
conservation and the sustained management of Alaska's fishery
resource and the economic health and stability of the commercial
fishing industry in Alaska by regulating and controlling entry into
commercial fisheries. He said to accomplish that, it created the
Commercial Fisheries Entry Commission as a regulatory and quasi-
judicial agency of the state. It is independent, but attached to
the Department of Fish and Game.
COMMISSIONER HOMAN discussed the composition of the Limited Entry
Commission using a document before the committee members entitled,
"CFEC Overview for House Special Committee on Fisheries" dated
January 24, 1995, and described the organization, procedures and
functions of the Limited Entry Commission. (A copy of this
document can be found in Room 434 of the Capitol Building and after
adjournment of the second session of the Nineteenth Legislature in
the Legislative Reference Library.)
COMMISSIONER HOMAN explained the commission issues about 30,000
permits and 18,000 to 20,000 vessel licenses. He said they issue
about 50,000 licenses each year and they derive a significant
revenue of about $5 to $6 million a year. He noted the cost of
doing business is about $2.6 million.
COMMISSIONER HOMAN pointed out that the commission has lost one
position per year for the last few years. He then talked about the
commission's data processing capabilities referring to a database
of twenty years of fish tickets.
COMMISSIONER HOMAN pointed out that the commission's caseload is
very heavy because in the last 20 years, fifty new fisheries have
been limited. He clarified, "The early fisheries were limited
because they were distressed fisheries but in the later years we
limit by petition and it's usually by petition from fishermen who
come to us and ask us to look into a limitation system for their
fishery. And we do extensive research and analysis and it takes
some time to make that decision to limit it. We don't limit all
the fisheries."
COMMISSIONER HOMAN emphasized, "The perception out in the public is
that many nonresidents are coming into Alaska and getting permits
and that simply isn't the case. There are some, of course, and
there always have been nonresidents in the fisheries." He
specified, "For all fisheries, in 1994, we had 29,250 active
permits and those included limited and unlimited (fisheries).
Residents had 80 percent of those permits, nonresidents had 20
percent. If we look at just the salmon permits for 1994, we had an
active 12,071 permits in Alaska which 77 percent were resident and
23 percent were nonresident. If we look at all limited fisheries,
including salmon, crab, herring and others. The total resident
(count) is 78 percent and nonresident is 22 percent. So there's a
very high percentage of residents in the fisheries and those
permits that are owned by residents are their access to the
fishery. More than half of the permanent permits are held by rural
Alaskans in rural areas where that may be the only means for
livelihood in a lot of small communities."
COMMISSIONER HOMAN continued, "Because of the free transferability
of permits, some of those permits are sold to nonresidents. On the
other side of things, some of the nonresidents sell their permits
to residents. It goes back and forth each year. But in the 20
years that the Limited Entry permit system has been operational,
their have been only 203 permits, on a net basis, that have gone
from resident to nonresident from over 14,000 permits. So it's not
a flood." He pointed out that the Bristol Bay Native Association
and the state's Division of Investment loan program also help keep
fishing permits in the state.
COMMISSIONER HOMAN added, "A limited entry permit is not a
negotiable instrument in that it is prohibited from being lienee
upon or used as security in a loan. And only two agencies are
allowed to loan on limited entry permits and one is the Division of
Investments from the state, the other is CFAB, the Commercial
Fishing and Agriculture Bank. And this was done in the early days
to protect the permit from falling into the hands of financial
institutions or processors or banks or creditors and it was done to
protect the livelihood of the fishermen because it allowed them
access to the resource and in many areas of the state, it was the
family's livelihood."
COMMISSIONER HOMAN informed the committee about current legal
challenges. He said, "The Internal Revenue Service, we're in court
with now in a case called Gatter v. IRS and it's over the
involuntary transfer of a limited entry permit for tax obligations.
In 1992, there was a case cited called Lorensen v. United States
and Lorensen was a permit holder and the IRS foreclosed on his
permit and it went to court and the federal court ruled that the
IRS could seize a limited entry permit to pay for taxes. The
limited entry law that was passed by the state of Alaska didn't
have any provisions in it for involuntary transfer. So in 1992,
through legislation, there were a series of restrictions put on the
transfer of an involuntary foreclosure. These restrictions were
put on to protect the state's interest in the limited entry permit.
The state created it and had some interest protecting the transfer
of that permit even though it was involuntary, because once it was
an involuntary transfer, then the IRS could sell it at an auction.
Most of the restrictions follow the lines of what our normal
transfer restrictions are and that you have to be an individual,
you can't be a company and you have to be actively able to
participate and a number of other things. The significant thing
was: If the permit holder could show a hardship by the loss of
that permit and the loss of that income to himself and his family
that was dependent on that family. That in certain cases the
limited entry commission could restrict the transfer even though it
was seized by the IRS. To date, no permits have transferred, but
the IRS has the ability to seize the permit and no one's
questioning that, but we have never had one brought to us for
transfer, but the IRS has filed suit to the court to ask them to
transfer the permit immediately. We haven't been approached by the
permit holder yet, so it's not quite ripe for a showdown yet but we
are in court this very moment with the IRS and the outcome of that
court case will be very significant. It's not to say that the IRS
doesn't have that power, but the state also has an interest in
protecting the people of the state, particularly those that depend
on fisheries."
COMMISSIONER HOMAN also described Carlson v. Commercial Fisheries
Entry Commission in which nonresidents have sued the state for back
payments of nonresident fees for limited entry permits. He
emphasized, "The stakes are very high. It's now estimated to be
about $25 million, that the state could lose if it loses this
case."
COMMISSIONER HOMAN concluded, "While limited entry is not the most
popular program in a lot of areas, it has protected a lot of
Alaskans' access to the fisheries and without it, it would be easy
to see that the continuing rush into the fishery would have had
disastrous effects. A completely open fishery with a limited
resource, eventually would affect not only that resource and the
commercial fishermen that depend on it, but all other users of that
resource: Subsistence or sport or personal use."
REPRESENTATIVE OGAN asked for comparison to the game board issues
which has experienced legal problems.
COMMISSIONER HOMAN said, "There may be a distinction in that
commercial fishermen with limited entry permits, do pay a fee for
that permit based on the value of that permit. So as the permit
goes up and down, the annual fee does too. In a sense, that's
making a contribution back to the state for the use of the
resource."
REPRESENTATIVE OGAN voiced concern about the process for appeals
within the commission.
TAPE 95-1 SIDE B
Number 000
COMMISSIONER HOMAN described the levels of the appeal process
within CFEC.
COMMISSIONER BRUCE TWOMLEY interjected, "The people who sit on the
Limited Entry Commission can't hold permits, can't own a piece of
a fishing vessel. We're pretty much divorced from the industry and
that's unlike other regulatory boards, like the Board of Fish.
That's one distinction that helps insulate us from conflict.
Another thing is the court is most immediate and our direct
supervisor. The court is looking over our shoulder every time we
make a decision and we know it's going to be subject to review."
REPRESENTATIVE DAVIS asked about the numbers of nonresidency and
residency permit holders.
COMMISSIONER HOMAN reiterated the numbers he previously gave the
committee.
JESSICA GHARRETT, Operations Manager, Restricted Access Management
Division, National Marine Fisheries Service (NMFS), began her
presentation on IFQs (Individual Fishing Quotas) describing the
Restricted Access Management Division of NMFS and added, "The
program includes a number of safeguards that were designed by the
Council (North Pacific Fisheries Management Council) and the
secretary to preserve the nature of the fishing fleet and protect
the coastal communities that are known to be dependent on fishing.
That includes the fact that quota shares are issued in vessel
categories. There are restrictions in transferring quota share,
restrictions on how much a person may hold, restrictions on how
much fish a particular vessel may land in a given year."
MS. GHARRETT continued, "We are now in the process of completing
issuance of quota share. We anticipate fishing beginning sometime
this spring," and then described the limitations of IFQs ownership.
MS. GHARRETT proceeded, "Our program has just withstood the first
court challenge by the Alliance Against IFQs. The challenge had a
number of points to it and the judge ruled from the bench in favor
of NMFS on all counts. That lawsuit is in appeal now." She then
described other responsibilities of the division.
MS. GHARRETT added, "The reauthorization of the Magnuson Act which
did not occur during the last congressional session: Senators
Kerry and Stevens have introduced legislation and in there, I
believe, there is a provision for fee collection for IFQs. This
presumably would be some kind of a percent basis, based on value."
MS. GHARRETT then brought up that the council is considering
limitation on charter fishing for halibut and said, "So restricting
access in various methods and ways is certainly a response in
several areas to the kinds of open access problems that all
fisheries are beginning to experience."
MS. GHARRETT concluded, "We have about 8300 individual quota share
permits that have been applied for. We have already issued about
5400 to 5500 so we still have about 2800 hundred to go that will
occur in the next several weeks. We have about 88 halibut and 53
sablefish applications in conflict, primarily over whether or not
a lease existed. The council recognized that many of the business
arrangements were oral in this industry and wanted us to allow oral
leases to be captured." She then talked about the approximately
199 applications which have been denied and indicated, "We had a
six month application window and a number of persons couldn't get
theirs in on time for one reason or another. Of those we have had
15 appeals filed."
Number 280
REPRESENTATIVE OGAN asked, "You spoke of a limitation on charter
fishing on halibut?"
MS. GHARRETT replied, "Right (but) I'm not really prepared to
discuss that, but the council has formed a working group which is
concerning itself with the question of whether or not it's
desirable to limit charter fishing," and added, "It's not just in
the commercial fishing area that people see a need to limit the
continued entrance to the fisheries."
Number 295
REPRESENTATIVE OGAN indicated that he would like to "keep abreast
of that issue" and asked if there was a point system like the one
in the Big Game Commercial Services Board and referred to that one
as a "liar's contest."
MS. GHARRETT said, "Our problem is not an in or out type of system.
We have an eligibility in which you're in or out and once you're
eligible, the question is what is the size of your quota share
award. This program was designed to award quota share initially to
vessel owners who may or may not have been fisherman at any
particular time and leaseholders. And the idea behind that was
that primarily these are the people who shoulder the financial
burdens of fishing by having a large capital investment... The
eligibility criteria were U.S. citizenship and owning or leasing a
boat during that three-year window and you must have had legal
fixed gear commercial landings... It does not include sport fish,
charter fish, or fish taken under state limited entry programs
which are separately regulated. The other part of the answer to
your question is that they have at least 150 days on the harvesting
crew of a U.S. Commercial Fishery. The council and the secretary
deemed this as a substantial dependence and risk-taking involved in
that fishery and therefore may apply to us for a certificate saying
they are transfer eligible and may buy into the fishery. This was
seen as a way for children of persons who owned or leased boats to
move into the fishery."
Number 344
REPRESENTATIVE DAVIS asked if there was the distinction in permits
varies by boat size.
MS. GHARRETT explained the variations in quota share issued.
REPRESENTATIVE DAVIS asked if one company could purchase many IFQs.
MS. GHARRETT spoke about the purchase limitations of IFQs saying,
"You may only hold an amount of quota share in a particular
person's name. So let's just say a corporation was initially
issued quota share, we would restrict them from acquiring more
beyond their use limit. Also, we have only a certain amount which
may be used on a particular vessel in a given year..."
Number 486
REPRESENTATIVE ELTON asked about the specifics of transferring
permit shares. He asked, "So you won't approve transfers to
brokers?"
MS. GHARRETT agreed, but qualified that a certain number of IFQs
will transfer by a security agreement or operation of law and would
be honored by them. She specified, "A bank could collateralize
their quota share purchases. The bank might repossess it. We
would effect that transfer in that the bank could not just find
someone to go fish it. One of the restrictions is that, in
Southeast Alaska..., you may not transfer to a corporation or a
partnership. It must be transferred to an individual."
ADJOURNMENT
CHAIRMAN AUSTERMAN thanked his guest and adjourned the meeting at
6:30 p.m.
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