Legislature(1993 - 1994)
03/11/1994 09:00 AM 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
MINUTES JOINT SENATE AND HOUSE FINANCE COMMITTEE March 11, 1994 9:00 a.m. TAPES SFC-94, #37, Side 1 (000-end) SFC-94, #37, Side 2 (end-000) SFC-94, #39, Side 1 (000-450) CALL TO ORDER Senator Drue Pearce, Co-chair, convened the meeting at approximately 9:00 a.m. PRESENT The following Senate and House Finance members were present: Co-chair Pearce Representative Grussendorf Co-chair Frank Representative Martin Senator Jacko Senator Rieger Senator Sharp (Senators Kerttula, Kelly, Representatives Larson, MacLean, Brown, Foster, Hanley, Hoffman, Parnell and Therriault did not attend.) ALSO ATTENDING: Former Governor Jay Hammond; Senator Leman; Representatives Carl Moses, Cliff Davidson, Fran Ulmer, and Con Bunde; Bruce Schactler, salmon seiner, Kodiak; Peggy Moore, salmon setnetter and seiner, Cook Inlet; Bart Eaton, processor, Trident Seafoods; Ken Gross, salmon gillnetter, Southeast; Eugene Asicksik, salmon gillnetter, AYK; Dick Jacobson, salmon seiner, Alaska Peninsula; Dan Hull, salmon gillnetter, Prince William Sound; Nels Anderson, salmon gillnetter, Bristol Bay/Chignik; Jim Bacon, salmon seiner, Southeast; McKie Campbell, Deputy Commissioner, Department of Fish & Game; Kim Elton, Executive Director, Alaska Seafood Marketing Institute, Department of Commerce & Economic Development; Paul Fuhs, Commissioner, Department of Commerce & Economic Development; representatives of the media, aides to committee members and other members of the legislature. VIA TELECONFERENCE: The following sites were listen only: Anchorage, Bethel, Cordova, Dillingham, Glennallen, Homer, Kodiak, Kotzebue, Ketchikan, Nome, Petersburg, Seward, Sitka, Valdez, Sand Point, Wrangell, and Port Protection. SUMMARY INFORMATION Statewide Salmon Forum Agenda 1. Former Governor Jay Hammond - Overview 2. Bruce Schactler, salmon seiner, Kodiak Topic: Benefits of Salmon Industry to State 3. Peggy Moore, salmon setnetter and seiner, Cook Inlet Topic: Markets and Marketing 4. Bart Eaton, processor, Trident Seafoods Ken Gross, salmon gillnetter, southeast Topic: Quality and Cost of Regulatory Compliance 5. Eugene Asicksik, salmon gillnetter, AYK Topic: Value-Added Production 6. Dick Jacobson, salmon seiner, Alaska Peninsula Topic: Impact to Local Governments 7. Dan Hull, salmon gillnetter, Prince William Sound Topic: Individual Fisherman Costs and Income 8. Nels Anderson, salmon gillnetter, Bristol Bay/Chignik Topic: Loss of Permits, Effect on Region 9. Jim Bacon, salmon seiner, southeast Topic: ADF&G Management and Research Budget 10. Former Governor Jay Hammond - Conclusion STATEWIDE SALMON FORUM: CO-CHAIR DRUE PEARCE welcomed former Governor Jay Hammond to the table for an overview of the Statewide Salmon Forum and introduction of speakers. FORMER GOVERNOR JAY HAMMOND said he was surprised but appreciated the opportunity to facilitate this function. At first he thought he would be called on the carpet for recently advocating a sliding scale royalty on limited entry permits, or maybe be asked to do penance for other alleged sins of commission. He admitted he had introduced legislation that created the Board of Fish & Game over violent protests from some individuals. Later, one of his bills doubled the fish tax on municipalities. Two other bills he advocated giving advantages to resident over non- resident fishermen were struck down by the courts. While he was mayor of the Bristol Bay borough, he enacted the first local raw fish tax in the state. Although, engulfing the borough in millions of dollars, it enraged the fishermen who lived elsewhere who paid 90 percent of the tax. Later, he did nothing to cool their anger by promoting the sliding gear scale and pooling regulation. Despite the protest of many from elsewhere, it far better accomplished limited entry in Bristol Bay on behalf of local Alaskans than did the current limited entry system. He found atonement was not at all what his hosts had in mind. Instead, they asked him to MC what might appear to be the worst, most ill-timed, sales pitch ever, in light of current financial conditions confronting the state and the budget concerns of this legislature. The objective of the forum was to try to convince the legislature, that fisheries, unlike any other natural resource in the state, could yield a profitable return on investment. He cited studies that indicated such investments already did, as subsequent panelists would attest. He pleaded that the state not be penny-wise, pound-foolish, by curbing the essential fisheries related investment dollars which yield a profit. Reducing those dollars would do nothing but further stagger an industry already reeling under a "1-2 punch" of depressed prices and increased competition. Today, he said, a broad range of presentations would be heard which reflected the differences encountered in the fishing industry. However, they were not here to whine or complain, but to outline facts that might not be readily apparent, realized, or understood. Even with his extensive fishing background as both a drift and setnet fisherman since the days of sailboats in Bristol Bay, he would learn from the testimony today. He hoped proposals would emerge from these discussions that would permit our fisheries to rise up from the canvas and get a second wind. In 1899, Congress imposed a tax on the Alaskan canned salmon industry, 50 percent of which was to be deposited in the so-called Alaska fund to pay for the cost of territorial government. In the past, the territory of Alaska could not have survived financially without salmon. It is unlikely the state of Alaska could do so today and still bear much resemblance to the kind of place in which most of us choose to live. He hoped the forum would be informative and provocative, and on behalf of the panel, he thanked the committee for the opportunity to present the fishermen's case which, he reminded them, is their case as well. In speaking for everyone, he said fishermen looked forward to continuing the long-standing partnership with the state to further mutual interests. With that, former Governor Hammond introduced Bruce Schactler, salmon seiner from Kodiak, who would speak to the benefits of the salmon industry to the state. BRUCE SCHACTLER said he was a salmon seiner and had lived in Kodiak for 25 years. He participated in as many fisheries as he could to keep his business intact. He reiterated what former Governor Hammond had said, that the Alaskan salmon industry was about 100 years old, and the largest employer in the state employing over 35,000. Also, the fishing industry, a non-renewable resource, was the largest contributor to the state's economy except for oil. It produced more seafood than any of the other seafood countries of the world and Alaska was only a state. He wanted everyone to know that this industry was paying its way in the state. There was a tremendous investment, not only by the state, but by the private sector. As much as $87M had gone into the general fund from all the different programs, assessments, and taxes, from the fishing industry. This included programs and benefits which were not only beneficial to the fishing industry, but mutually beneficial to tourism, timber, mineral, and even oil development. The communities also benefited by roads and other infrastructure that is required to support the fishing industry. In rural Alaska, the salmon industry virtually supports the communities 100 percent other than government. In Kodiak, over 50 percent of the personal income is from fisheries. That percentage gets higher in the smaller communities that do not have the diversification that larger ones may have such as a Coast Guard base. In the little communities, salmon runs the town. He felt it was difficult to estimate the investment by the private sector, but assumed it was billions of dollars. He went on to say that there were 500 processing plants along the coast of Alaska, most of which, if not still, originally dealt with salmon alone, and as the fisheries have expanded, so have the plants. The raw fish tax that was placed on the fishing industry was designed to pay for the fisheries management, and the state's business with fisheries. He noted it was doing this and more. In actuality, the fishermen were investing more in the state than the fishermen were receiving in return, dollar for dollar. The hidden benefits to the state that come from the fishing industry were all around, for example, the houses we live in, and the property we own. When the season's over, fishermen go to Anchorage, to Cosco, and spend their money. He felt it was a little known fact that Anchorage was the largest fishing community in Alaska. It had more fishing permits than any town by almost double. The seafood volume of salmon is 50 percent of the x-vessel value landed in the sate of Alaska, even with the huge bottom fish industry of $400M that has steam-rolled in the last ten years. Over $135M was spent in labor and related costs. Another $45M was spent on groceries, gear, and services. In 1993, over $18M in raw fish taxes, local taxes, aquaculture associations, ASMI, and self-imposed taxes had been collected to support the fishing industry. The aquaculture associations are some of the largest corporations within the state with investments in the $100s of millions, some completely liquid, without debt. The state cannot do without these type of industries. The salmon industry, besides the largest employer, has the longest season. This year seven months. This is an industry that is happening in the communities and lasts almost 75 percent of the year. The fishermen are coming into the communities buying groceries, fuel, etc. on each side of the season, fixing their boats and gear. Without salmon, the coastal communities would not be able to exist. The salmon fishery is a resident business, 78 percent of the residents hold all the permits and half of those are in rural Alaska. The largest portion are in Anchorage. He went on to say that the industry has had its ups and downs over the last 100 years, but what is going on right now was not a cycle. The world had changed, the business had changed, and this downturn was not a cycle. Unless something radically changed, this downturn will not reverse. The state was in the same position as the fishermen. If fishermen are only getting 12 cents a pound for their salmon, the general fund is cut proportionately. He compared it to the plight of the automobile industry in the early 80s. The industry had to retool, close plants, and change their whole operation and had been very successful. Now American car sales have overtaken import sales. The fishing industry was going to have to undertake such a move, and it would have to be a cooperative endeavor to be successful. Every time a fisherman loses a penny a pound in the price of salmon, that equals $7M lost to the fishermen of Alaska. In the past five years, fishermen have lost approximately 50 cents a pound, quite a sum. He said between 1992 and 1993, the state had lost $8M in taxes because of depressed salmon prices. If we lose 10 cents a pound, that equals $4.5M in tax revenues. Over the last five years, that equals over $30M a year in lost revenue, dollars sorely missed by the state. He said that the state and the fishermen had been in this together for over 100 years. The state historically had done its part in supporting the salmon resource but he wanted to remind the legislature of its continued reliance on this industry and resource, a driving source especially in rural Alaska. The salmon industry is Alaska. The state must continue to work with the fishing industry if we want life and government in Alaska to continue. The state revenues are declining and the most visible way to increase it was the seafood industry. It would be a direct benefit to the state. The industry was going to need new research, and market development. He believed that marketing, and research and development went hand in hand. Industry was going to do it, and fishermen must do it. Fishermen were funding 100 percent of the marketing at present and the state needed to act as a partner to support that any way it could. He felt it would take at least a 20-cent a pound increase to sustain the industry since the fishermen were already losing money. If the price was raised 20 cents a pound it would mean $150M to the fishermen, and $10M to the state in raw fish taxes. In conclusion, Mr. Schactler reiterated that the fishing industry was paying its own way, and supporting the state in many ways. he encouraged the legislature not to take this industry for granted, and not assume that it would always be there. He wanted the state to give its commitment as a partner in supporting the industry without asking for more unjustified taxes or assessments. The next speaker introduced was Peggy Moore, salmon setnetter and seiner from Cook Inlet, and her topic was markets and marketing. PEGGY MOORE said she was an owner-operator in the seafood industry, better known as a commercial fisherman. She harvested salmon in Cook Inlet as a setnetter, and in Prince William Sound as a seiner. She also participated in the herring seine fishery in Cook Inlet and Togiak. She said she would like to talk about what was happening to her business and why this should be the state's business too. She felt changes should be made in marketing. Salmon were a common property resource that provided a net gain to the general fund and also helped support our boroughs and communities. This industry and the jobs it provided were at risk. The industry was in the midst of a dramatic change, moving to be driven by marketing rather than production. The state had managed its resources well. Fishermen were becoming more sophisticated in their harvest methods and industrial salmon producers were pumping out more and more farmed salmon. In addition, Russian salmon production was a threat to our foreign markets, especially Japan. Alaska's share of the Japanese market had dropped from 85 percent in 1988 to 57 percent in 1992. This was a direct result of salmon production in Russia and Chile. She believed production was not the problem. There was an abundance of salmon but not enough interest in Alaska's salmon stocks. She knew there was no lack of consumers or customers. The state just needed to do a better job of marketing our products. First, research must be done to realize what the public wants, and then develop quality salmon markets to meet those demands. Finally, the public must become aware of Alaskan products through marketing. As an example of marketing, she asked how many Alaskan homes have a can of the "T" word (tuna) in their cupboards. She called tuna a marketing success story. She knew there was no reason Alaskan salmon could not capture a large share of that domestic market. To summarize the problems, she said salmon production, in the last 15 years, had gone from 850 million pounds per year to 2.6 billion pounds per year, while consumption had grown from 850 million pounds to 2.3 billion pounds. This left a 300 million pound gap between production and consumption, which limited fishermen like herself, from making a profit. It also limited the state's ability to preserve the only resource industry, other than oil and gas, that provided a net gain to the general fund. As policy makers, legislators play a vital role in this scenario. Over the past three years, study groups had identified the following market problems. First, an anemic market. The dairy and pork industry spend $56M a year on marketing. Last year, the salmon industry spent less than $5M for domestic marketing of Alaskan salmon - a very small amount. Secondly, a weakened fish management team. The Fish and Game budget has been repeatedly cut while the duties of commercial fish biologists have been expanded. Effective management was imperative to insure the continued viability of our fishery resources. Thirdly, new products. The Alaska Fisheries Development Foundation was the product development component that brought about the new surimi industry. New products are an important key to successful marketing. Fewer investment dollars, on the private side of our economy profit margins, have declined due to reduced prices. On the public side, committed federal and state funds have all but vanished. These problems should mean something to the legislature. The very important fact was that the fishing industry was the coastal economy from Dillingham to Ketchikan and every port in between. The industry provided jobs for Alaskans and played a major role in the economic stability of the state. Alaska should not only recognize but promote the salmon industry in much the same way that Florida promotes citrus, Washington promotes apples, and Kansas, wheat. Can we afford to neglect Alaska's number one renewable resource, making it a net economic loser to the state general fund rather than a contributor? The answer obviously is no. The state has had a long standing financial vested interest in the salmon industry. Alaska's resources, including salmon, belong to Alaskans, and the legislature manages them on behalf of its citizens. We all need to realize that we, the state, manage, market and support the business plan components of research and development, and it directly effects the value of our fish. She reminded everyone it was not how many fish were harvested but the quality of those fish and how they got to market. Product viability, variety, and promotion would insure that value. It would not only add to the fishermen and the processors' profits, but to the general fund revenues. The state had invested $100s of millions in the salmon industry and the private sector had invested another $5 billion in plants, boats and equipment. She stressed these investments and her viability as a small business owner were at stake if the state did not come to grips with the reality that value equals quality. First, we must provide quality products, and then we need to vigorously market those products. We need to educate the public on the health benefits of eating salmon, and the superior quality of wild salmon versus farmed, and let people know, that, if handled properly, fresh-frozen was a very marketable and diverse product. Since 1988, U.S. salmon consumption had increased from half a pound per person to 1.2 pounds per person. There was definitely a demand for salmon, but farmed fish had been allowed to dominate that market. The fishing industry and the state needed to form a working partnership in order to encourage research and product development, new investments, management, and salmon promotion. Through aggressive marketing, she felt Alaska could increase its share of the salmon market and thus increase x-vessel prices to fishermen, profits to processors, and revenue to the general fund. This would benefit all Alaskans. ASMI's new salmon marketing committee, which was created through the harvesters' assessment legislation last session, had just accepted a proposal from the National Seafood Educators to undertake an Alaska Salmon Health and Nutrition Education Campaign for consumers in conjunction with the National Heart Association. More of this positive marketing needed to happen. Effective marketing was expensive and the state needed to play a partnership role in this area as it does in the oil, timber and tourism industries. She encouraged the legislators to consider their role in the economic viability of the salmon industry. She also asked that they remember the contribution to the general fund by commercial fishing when going through the budget process and when voting for bills that could help the fishing industry. In answer to Co-chair Frank, a member of the audience said the sales increase in salmon was in the fresh market. Unfortunately, she said the increase in imported farmed salmon had been 30 to 90 million pounds during that time. Senator Jacko said processors in other industries played a large role in developing new markets. He asked if Ms. Moore thought the fish processors were attempting to develop or pursue those markets. Ms. Moore said she personally felt the processors could play a larger role but the state also needed to help. Senator Sharp felt that the aquaculture industry should help by supplying farmed fish during the salmon's off season in order to stay competitive. Ms. Moore reiterated that if salmon was handled properly, fresh-frozen was an extremely viable product. She really believed that the public needed to be educated in this area. Bart Eaton, processor, Trident Seafoods, and Ken Gross, a gillnetter, were invited to the table by former Governor Hammond. Their topic was quality and cost of regulatory compliance. BART EATON joked that he and Mr. Gross were invited to the table at the same time to see how long they could sit together and survive. The audience thoroughly enjoyed this comment and Co-chair Pearce said she would start the timer. Mr. Eaton said that Trident Seafoods had a cannery in Ketchikan, North Naknek, South Naknek, a fish support operation at Clark's Point, a white fish and salmon plant in Sand Point, and a plant at Akutan. He personally fished in Kodiak for years for salmon, shrimp and crab and fished on the Bering Sea. He had also served on the North Pacific Council for two terms. What he wanted to comment on was his perception of the salmon business today. He felt it would be instructive for all to think about other wild renewable resources around the world and what they had endured. His examples were rubber in Brazil and spices in east Asia. Both of these products, like Alaskan wild salmon, were very unique. The market problem must be addressed immediately. The fishing industry could not afford to lose its customers. Getting them back after losing them would be even harder. He suggested the competition must also be examined. Norway and Chile had a national policy to develop farmed fish and even though these countries had gone through several stages of bankruptcy in developing farmed fish, the government had bailed them out and their costs were becoming quite streamlined. He confirmed that Alaska wild salmon was the best there was if only a system could be created between the fishermen and the processor so that good quality fish could get to the U.S. and world customers. The fishing industry needed government support in creating a system to insure a quality product at a lower cost. In the end, the industry had to be a low cost producer or the market would continue to be lost. He complimented the Seafood Task Force and said it had helped with communication between regulators and fishermen. He also complimented Commissioner Paul Fuhs for his help in this area, and all other commissioners that were involved. One main issue was that processors operate under the same restrictions for housing for short term employees as if the bunkhouse was to be used year-round. The state requirement of 60 square feet per employee, while the same federal requirement was only 50, and off-shore vessels require only 18, made it very prohibitive to build a unit that was used only 3 or 4 weeks out of the year. He would like to see some flexibility in the regulations for short seasons. The days were gone when volume fish was the goal. Now quality pounds was imperative. He felt that Fish & Game regulations, quality impact statements and their implications should be examined. A conscious decision (regarding allocations, etc.) should be made based on true costs to the industry and how it impacts quality. KEN GROSS introduced himself as a southeast gillnetter who had been marketing all his own fish for the last several years. He wanted to share his views regarding fishing and marketing problems. When he first decided to market his fish, and made inquiries, the response was poor. Consumers loved the taste and red color, especially sockeye, of Alaskan wild salmon but response was poor because about half of the salmon received on the market had not been taken care of properly by the fishermen or processors. He believed that regulations must be changed to ensure the quality of the fish assuring a longer shelf life and a more consistent product for markets. End SFC-93 #37, Side 1 Begin SFC-93 #37, Side 2 In his desire to do his own sales, he continued to take excellent care of his fish, and slowly carved out a market for himself. Demand increased the next year because he had maintained the high quality of his fish. He then asked other fishermen to join him and his market continued to increase. He wanted to assure the forum that farmed fish were no competition for Alaskan wild salmon. What was missing is the fishermen's incentive to ice immediately and in every way provide a quality product. He gave an example of a restaurant in New York that finally trusted his quality and now his Alaskan wild salmon was in high demand. He felt the Russian salmon was "garbage." He felt the public's outlook needed to be shift and regulations changed so the Alaskan salmon could achieve the equivalent to the "starbucks" name and quality. REPRESENTATIVE BUNDE agreed that salmon connoisseurs would prefer Alaskan salmon but the average salmon buyer, the majority of consumers, would not be able to compare a farmed fish and an Alaskan wild salmon. Mr. Gross said one reason small fish stores were not buying Alaskan salmon was because the shelf life was so much shorter than farmed fish. Farmed fish were bled immediately while still alive, which increases their shelf life up to three days. The Alaska name was preferred and will continue to be bought if consumers do not get "burned." Quality was why the market had problems. He assured the audience that the small grocer or seafood market would prefer to sell Alaskan salmon if the price was the same and the quality was good. Representative Bunde had knowledge of a recent test with the general public where farmed fish had been chosen over Alaskan salmon. Mr. Gross wanted to know who did the test and the condition of the Alaskan salmon. Representative Bunde congratulated Mr. Gross on his marketing techniques but felt the general public were not salmon connoisseurs and price the most important component. SENATOR RIEGER commented on his problems with the infrastructure, airlines, etc. He wanted to know if farmed fish could create a year-round infrastructure that Alaskan salmon could use and help support during its season. Mr. Gross said that some restaurants combine farmed and wild fish for flavor and color, so that could be an option. In answer to Co-chair Frank, Mr. Gross said that his fish sold on the fresh market but there was a window for frozen salmon as well. He went on to explain the disadvantage of not selling through a broker because of the increase of 10 cents per pound if boxes shipped weighed less than 2,000 pounds. Mr. Gross agreed that his broker probably also dealt in farmed fish. In answer to Senator Jacko, Mr. Eaton repeated regulations for off-shore processors were 18 square feet per employee, in Alaska 60, and federal were 50 square feet. He agreed that off-shore processors had an advantage. Representative Davidson said that the battle of farmed fish vs wild salmon had been fought for several years and continued to be fought in the political process. He asked if an emphasis should be put on wild salmon and would then put off even longer the idea of farming fish in Alaska. Mr. Eaton voiced his opinion that Alaska was the largest most successful salmon farm in the world, and if we took care of the stocks and streams, we could maintain that reputation. He agreed that there might be options to look at as far as farmed fish and that quantum leaps had been made in the industry as far as feed, etc. However, he did not believe the world needed more salmon volume. Eugene Asicksik, salmon gillnetter, AYK, was the next speaker and his topic was value-added production. EUGENE ASICKSIK remarked that because of the expected continuation of high production levels and record high salmon inventories there was little hope that salmon prices would recover under current conditions. The AYK had seen some chum and king salmon harvest decline. He felt one of the most important ways to increase the value of our salmon was by adding value ourselves, therefore increasing the demand for salmon by making it available to consumers in new and more convenient products. It would also increase local employment by expanding processing job opportunities. He pointed out this was particularly important in rural Alaska where commercial fishing provided the only cash economy to the region. The single, largest road block to value added production and new product forms was the lack of an efficient mechanical method of pinbone removal from salmon. This past summer Norton Sound Community Development Quota (CDQ) Group worked with their harvesting partner, Glacier Fish Co., to produce boneless, skinless, pink, salmon blocks. This product form is used by the European and U.S. food industry to manufacture more convenient frozen food products, and was an important development for the North Sound fishermen who have been unable to secure buyers for their pink salmon for several years. In order to meet the product specification, the fishermen were required to bleed, chill, ice, and use brailer bags in handling their fish. Glacier Fish Co. brought in one of their factory trawlers which had high speed pollack filleting machines on board that could process 200 fillets per minute. Since there was not adequate pinbone removal the machinery had to be stopped and that process had to be done by hand. While the North Sound CDQ Group and its partners had no trouble finding markets for the salmon product, making a profit was difficult. Success of these product forms will never be realized until salmon pinbones can be removed efficiently. Other value-added salmon product development efforts are being pursued by the CDQ groups representing communities on the Yukon Delta Kuskokwin and Aleutian region. (He said that he would not go into statistics since a report would soon be delivered to the members' offices.) In order for these plants to be successful, ice production, and cold storage capacity needed to increase. These improvements would increase the quality needed for new product forms and allow the local plants to hold fish longer so it can be processed into value added products. These infrastructure developments are needed statewide. The Alaskan salmon industry needs the support of the state and its agencies in providing infrastructure support like increase ice, cold storage capacity, and value added processing facilities so that industry participants can afford to make the investment risk and move forward. The current market collapse does not permit individual industry participants to take these risks alone. Dick Jacobson, salmon seiner, Alaska Peninsula, then spoke to his topic - impact to local governments. DICK JACOBSON said over the last two years, Alaska had encouraged regional governments to be formed and bills had been introduced to encourage them to tax and support themselves. Coastal Alaska almost completely depends on seafood resources to do that. He was mayor of a community typical of Kodiak, and other regions. About 82 percent of their revenues came from seafood resources. About 42 percent come from their own tax, the rest from revenue sharing, etc. from the state. These statistics show how dependent these communities are on seafood. In Bristol Bay, where the bottom fish and pollack fisheries are not available, dependency on salmon is even higher. Regional and local governments must provide services for the infrastructure such as health, public safety, water and sewer, transportation, fuel service, and solid waste. Services that are required by the fishing industry, in general, include off-shore services as well as on-shore. The off-shore services do not provide any income so it is critical to have a support and a working relationship with the state. Regional government that has been encouraged to develop needed legislative support. Over the last couple of years, local revenues have taken quite a hit. Just in salmon alone, there had been approximately a 30 percent decrease in income and this year it could reach 50 percent. The services would still be required and the cost for those services continue to rise. He felt the local communities were in an even more severe situation than the state because the local communities did not have oil revenues for help. Senator Jacko added that Mr. Jacobson, in addition to being mayor, was a member of the Fish Board. Representative Davidson said he wanted to note the significance of funds going to local governments. Dan Hull, salmon gillnetter in Prince William Sound, spoke to the individual fisherman's costs and income. DAN HULL provided a handout titled "Economic Information on the Prince William Sound Salmon Fisheries," (copy on file, Attachment C). He said it was the best information available at this time. The first two graphs showed estimated average revenues and costs for PWS drift gillnet and purse seine holders for the years 1977-1993. He felt it was more effective to describe these visuals as the income and expenses of the small businessmen and women who work in the fishing industry. He pointed out that there was an increasing amount of women involved in fisheries. He also noted that estimates were conservative and did not include costs associated with permit payments but it did show the ups and downs in the fishery for these men and women and how disastrous the past three years had been for them. Purse seiners had been especially hit hard. As a gillnetter, he had fared a little better than average since he got into it before the high permit prices. He wanted to emphasize the problems were structural and worldwide and were not expected to get better. In answer to Senator Rieger, Mr. Hull said these graphs took into account all salmon species. The next graph showed revenues and expenses to the PWS Aqua Corp. in FY 1990-94, the same trend as that of the fishermen. Their current return of fish was at 30 percent. In 1990, in anticipation of poor returns, larger harvests were made in order to pay for future operations. He felt it was a wise move but now those monies have been spent and revenues were not keeping up with expenses. Responsibilities have also increased with the addition of several facilities, and sport fish releases in Whittier and Valdez. Evaluation costs had increased and a product development and marketing project for pink salmon had started. Award winning salmon chowder was one outcome of this product development. The next graph showed the real dollar value of pink salmon in PWS from 1977 to 1993. In 1977, in real dollars, it was a little over 80 cents, and the last few years it had been below 20 cents a pound. Aside from 1987-89, there had been a steady decline. Low salmon prices was the primary reason the industry was in trouble effecting both fishermen and aquaculture. The last graph was an estimate of the salmon fisheries on the economy of PWS and Seward, based on a recent evaluation through the Alaska Fisheries Economic Assessment model done by Craig Weese with the Marine Advisory Program. The total impact of salmon fisheries (direct, indirect, and the induced economic impact) was over $58M and the impact of the salmon enhancement program, $21M. He was unable to decipher the model for Anchorage and other parts of Alaska, but planned to work out those figures as well. In conclusion, he voiced his opinion that fishermen, processors, and the state must work together to find solutions to this problem and develop a relationship with the legislature to introduce and initiate those solutions. Senator Jacko pointed out that Mr. Hull's presentation showed the gross misconception of consistent profit margins in the fishing industry. Also, although the presentation only showed PWS, he pointed out that fishermen everywhere were facing the same problem. In fact, in some instances where revenues dipped below the fixed costs, and the fixed costs were controlled by the processors, crew shares were not even getting paid. Senator Rieger asked if hatcheries were producing species other than pinks. Mr. Hull said that in 1991, the first returns of sockeye, chum, and coho had been returning. Again, in answer to Senator Rieger, Mr. Hull said that each region differs. In Cook Inlet there were minimal cost recovery harvests (fish returning to the hatchery). Operating costs were based on the enhancement tax revenues that were assessed on all harvests. The primary production was pink salmon. There are constraints on facilities to change over to other species. To raise chum, for example, fresh water rearing space was needed and there was no capital money available to build in that requirement. In answer to Representative Davidson, Mr. Hull said that other user groups benefited but no revenues were received from them. In answer to Co-chair Frank, Mr. Hull explained that average capital costs were an estimate of vessel and gear costs amortized over a 15-year period, and agreed that it was likened to the interest and principle on a 15-year payment authorization. Senator Jacko pointed out that it would be interesting to see the average capital costs today compared to 10 or 15 years ago. Mr. Hull said purse seiners' costs were based on a 1979 survey so this graph was a conservative estimate in relationship to 1993 dollars. Senator Jacko said there was a concern in the industry of over-capitalization. Nels Anderson, salmon gillnetter in Bristol Bay and Chignik, was introduced. His topic was addressing loss of permits, and its effect on the region. NELS ANDERSON said he came in place of gillnetter, Robin Samualson. He had fished most of his life in Bristol Bay as a setnetter and gillnetter and retired in 1967. He had represented Bristol Bay for years in the legislature and felt confident that he could carry area concerns to this forum. Everyone had been speaking to economic and structural issues, but Mr. Anderson pointed out that a person could not fish unless he had purchased an expensive limited entry permit and then invested in a boat, gear, crew, insurance and covered all other costs that go with that permit. In general, Alaskans have fared well in the limited entry permit system. Even with the net losses and gains, Alaskan residents own 78 percent of more than 10,000 of all limited entry permits. More than half of the Alaskan permits were held by rural Alaskans where commercial fishing was the primary source of cash. The initial ranking of applicants was determined by demonstrating economic hardship and past participation. However, generally speaking, there were no transfer restrictions. The primary method of transfer was not selling permits but gifting them to other Alaskans. Limited entry permits were initially issued in 1975 and require a vessel and gear. Limited entry permits were a valuable license but only as valuable as the species being fished. In Bristol Bay, the benchmark for the salmon industry, prices had dropped over 70 percent since the 1988 salmon season. For all salmon fishermen statewide, the value of their catch had dropped drastically in the last several years. In the past three years, more than 1,200 requests for loan extensions from the state's revolving loan fund have been processed by the Department of Commerce and Economic Development. That stake equals $130M loaned to salmon fisheries and aquaculture associations. Despite the severe economic conditions facing fishermen, the default rate of state commercial fishing loans was only 4 percent, lowest of any state program. Limited entry permits can be used for collateral by only the state loan program and the SeaFab loan program. Permits are not only valuable to individuals but represent an important security and a valuable commodity to the state. The market system, however, discriminates against those that are not as wealthy and cannot as easily obtain financing. As a result, this skews permits away from rural residents who for the most part do not have good credit history or the ability to capitalize entry into the fishery. He went on the say it was not the primary problem since most permits are being gifted to family members. The primary and most significant problem was the IRS's threat to seize permits. The IRS has shown no qualms about seizing a permit for repayment of debt even if the debt was only worth a fraction of the value of the permit. The IRS had identified over 1,200 limited permit holders that have outstanding tax debt, the total estimated to be $14M. This was a direct symptom of hard times. Compliance rates are no worse for fishermen than for other small businesses throughout the country. A major difference was that the IRS can seize a permit and completely wipe out a fisherman's earning potential. Another factor in the IRS problem was that the IRS had access to fish tickets which allow them to reconstruct past earnings. The largest area of non- compliance was in rural Alaska, the majority village fishermen. A federal judge had ruled that limited entry permits were a type of property that could be seized by the IRS for repayment of tax debt. IRS seized them because of their high value. As most of you know, the cultural profile of rural fishermen is primarily a subsistence lifestyle supplemented by cash from the salmon industry. There are some clear cultural and language difficulties between people who are native vs non- native. Village fishermen were not as profit oriented as urban or non-resident fishermen. The fishing industry was changing and becoming more of a year-round business. Most villages hold their subsistence activities as their first priority and income from salmon fishing supplements subsistence. Historical reliance on the cannery has been there for a hundred years as a source of financing for boats and permits. These days more out-reach facilities for help in financing operations are to be found such as the Bristol Bay Economic Corp. and the Alaska Business Development Center. Even though the IRS was a major problem, there had been an attempt to work with the IRS to insure as few permits as possible were put on the auction block. Financial awareness training was being conducted in cooperation with the Alaska Business Development Center so people could receive help in these areas. End SFC-93 #37, Side 2 Begin SFC-93 #39, Side 1 The Bristol Bay Economic Development Corp., a CDQ organization, is run by a 14-member board of directors. A lot of people were happy that a brokerage presence had been established in Bristol Bay along with counseling programs and IRS workshops. The main objective under the permit stabilization program was to stop the out-migration of permits from Bristol Bay. The permit brokerage had tried to bring a marriage between Bristol Bay and those permits available for sale. Just recently, the Bristol Bay Native Assoc. had established a blue ribbon task force on the permit system. Former Governor Hammond was a member as well as Ed Rasmussen, Bruce Twomley, Harvey Samuelson, John Christenson and himself. The committee will meet several times to develop recommendations on the economic implications of permits leaving Bristol Bay and the Chignik areas. The committee will also research the native population. He reiterated the overall objective of the committee was to develop a long term strategy to slow the out-migration of permits from the Bristol Bay region. Co-chair Pearce announced that SB 251, Commercial Fish Loans for Certain Obligations, would be heard on Saturday, March 12, 1994. She informed the forum that the general public's response to that bill had been very negative. She urged the fishing community to build support for the bill so that the legislature could bring it to the floor. In answer to Representative Davidson, Mr. Anderson said that both the Bristol Bay Economic Development Corp. and the Bristol Bay Native Assoc. met with limited success in trying to work with the IRS. Mr. Anderson said he went directly to Anchorage and met with Dave Tucker, IRS representative in Alaska, and explained the effect of their program on the Bristol Bay people and the disruption it caused in people's lives. He received a positive response from the meeting but he had heard conflicting reports from the villages that the collection program was continuing. He believed work would continue on this issue and hoped for positive results. In answer to Representative Davidson, Mr. Anderson said that the Bristol Bay Permit Brokerage, Inc. hesitated to become involved in a loan program since the outstanding debt was approximately $14M. However, since the area cannot afford to lose those permits to non-resident fishermen, the organization would look at all options. Senator Jacko applauded the brokerage program. Mr. Anderson said that as soon as there was knowledge of a permit for sale, people were notified in the villages and then work was done with the existing financing organizations to help secure funds to purchase the permits. Beyond that, counseling services would be available so people could learn how to run their business, how to keep costs down, etc. Jim Bacon, salmon seiner from Southeast, was introduced as the next speaker. His topic was ADF&G's management and research budget. JIM BACON agreed that the salmon industry had been the backbone of the commercial fisheries since the beginning of documented commerce in Alaska. The salmon harvest total, over the last 100 years, was more than 6 billion fish. That was enough for every person in the world to have one fish, although, he joked, some would want two. The industry has had its ups and downs, and was, by nature, cyclical. However, the pressure now confronting the industry was more intense than ever experienced before. It was important to remember that the news was not all bad. Management and research for fisheries, good ocean survival, and a little luck had kept Alaska on an upward trend in production. He went on to say that the present budget situation affected all state agencies and their programs. The agency critical to today's topic was the one charged as caretakers of our fisheries resources, the Department of Fish and Game. He chose not to repeat the numbers relating to the state and the job base, but reminded the joint committee that those figures reflect favorably on the investment the state has put towards fish management. It had also been stated that the commercial fishing industry paid its own way in terms of management, research, enforcement, and administration. He felt the fishing industry could surpass paying its way to a greater degree if it were in a position to direct more efforts towards management and research. When information was not available, Fish & Game was forced to manage conservatively. This meant that harvest opportunities were foregone translating into revenues lost to the state. Better information leads to more effective utilization of the resource, and of course, greater benefits to the state. Fish and Game cannot explore these opportunities when it is trying to survive with only a core management and research program for major fisheries. What the legislature intends to do relative to Fish & Game's budget had not been seen as yet, but he feared further cuts. He stressed, since Fish & Game had sustained significant cuts over the last few years, further reductions would seriously effect the salmon industry and the commercial fishing industry as a whole. He pointed out that Fish & Game had a series of issues in the national and international arenas that require their attention. One example in Southeast was the U.S. Canada Pacific Salmon Treaty. The issues effecting the state's interest in these treaty negotiations kept increasing and the state must be there, not only as a participant, but as a leader. Every loss realized in these negotiations translated to lost revenue and put further constraints on the fishing industry. The Department of Fish & Game also played a major role in the management of fisheries within the 200-mile exclusive economic zone. These activities also involve a number of international treaties. Habitat issues all over the state must be addressed if all of the resource industries were to function effectively. The Pacific Northwest, Washington, Oregon, and Idaho were now looking at staggering costs in trying to address the loss of fish production in their waters, a loss brought on in part, by the loss of habitat. In Alaska, we have the opportunity to avoid these kinds of staggering costs with proper planning and commitment to all of our resource industries. Stock assessments through well- designed research programs need to occur. Conservation was the bottom line. If we do not have sufficient money to fund research programs than conservation was at risk. He named just some of the areas in which Fish & Game must be involved to be good caretakers of the salmon industry. He reiterated the fact that state revenues derived from the commercial fishing industry surpassed Fish & Game's general fund budget. He said they were not asking for a new deal program but were here to present factual information about the salmon industry and, hopefully, convince the legislature that we were all in this together, not just for the short term, but the long term. The fishing industry pledges to solve the issues it could. It requested that the state become its partner and provide the Department of Fish & Game with an adequate budget. Representative Davidson again underscored the significance of Mr. Bacon's remarks and hoped they reached the ears of those that allocated the budget dollars. In closing remarks, former Governor Hammond said although he was there to talk fish, he might have to "eat a bit of crow." He had once pronounced that while it came close, the fishing industry did not pay its way, and now he saw the error of his words. Not only had the fishing industry paid its way, it may render a substantial profit that was not easily understood to the general public. Some studies even suggested that it returned 97 cents on the dollar. If all the general fund dollars invested were considered, it would be substantially greater. That did not take into account the monies that were returned to local government entities which were a selected benefit to the state. Now, he believed, his view should have included a collective benefit. He had suggested years ago that the type of fish tax should have been in the form of an advalorem tax such as the oil pipeline tax, so all citizens of the state could have seen some discernible benefit accruing to them from the fisheries. One of the reasons he was concerned, was the diminishment of public support brought on by the aggravation and antagonism that had developed between sport, subsistence, commercial and regional groups. Also, many Alaskans do not have the privilege to fish because they do not have limited entry permits. That possibly could have been overcome if the state had imposed a royalty appended to the limited entry permit so a portion went into the permanent fund for a modest dividend. He knew his timing was poor, but other processes could have been permitted such as an imposition of a royalty that would have only impacted non-resident fishermen. He did not want to go into details today, but one of his major concerns was the enormous amount of untapped revenues leaving the state in the pockets of non-residents. He knew there were ways of accessing these revenues and encouraged that they be explored. He again admitted he had been wrong and that the fishing industry more than paid its way. Rather than cutting those investment dollars, he asked the legislature to at least sustain the present situation, or even dare to enhance it. In regard to the limited entry permit situation, he had been under the assumption that there were more permits going to non-residents. He said, however, there continued to be a slow migration of permits to non-residents, and in the long term, that was just as terminal. He believed there were means and methods of stopping that and referred to existing pending legislation before committees. He said some would take into account the elderly fisherman that wished to leave his permit to his grandchild. At the present time, if that fisherman chose not to fish, he could only get an emergency transfer for one year and needed another medical condition for any other year's transfer. He thought this was poorly structured. In consulting with the limited entry commission, he understood there were means by which to address this situation without putting it into a regulation. The Commission was concerned about putting it into law because it could eliminate those alternate means altogether. He would like to see a clear-cut, easily understood method where people leaving the fishery would have an option other than simply selling their permit. He cautioned that pending legislation may not deal with this issues in the best interests of the fishermen. Former Governor Hammond felt the other problem was that the state had over-capitalized the fishery. First, the limited entry program adopted required the purchase of an expensive permit. He felt regulations put in place before limited entry permits worked much better. Also, now expensive boats were also needed in Bristol Bay to be competitive. All the salmon in Bristol Bay could have been harvested in river mouths with nets and skiffs. Management and regulatory processes have forced people to over-capitalize, and that has another spin-off. In order to sustain the investment in the over-capitalization, state loans, etc., the state cannot back off and deny those folks a substantial amount of the harvest since they need it to stay solvent. He repeated that the fishing industry was reeling under a 1- 2 punch of depressed prices and increased competition. He feared many people were going to be forced out of business. The ones that did not have huge investments were going to survive. The extent to which the state tried to help those in trouble had to be looked at very carefully. He wished he could offer a happy prognosis. He urged the legislature to look at the budget with the idea that the fishing industry wanted to stay in partnership with the state government. Cutting back on the Department of Fish & Game budgets, for instance, would not make the budget more economically stable, but would, in fact, have the opposite effect. He thanked the committee for their time and the participants for coming to speak. Co-chair Pearce thanked Senator Jacko and Representative Moses for requesting the forum. Representative Moses thanked the Department of Commerce, Department of Fish & Game, Limited Entry Commission, and ASMI for all their input and assistance. He particularly thanked Commissioner Fuhs and the aides involved and former Governor Hammond for his participation. He acknowledged the fine attendance of the Senate but was disappointed in lack of attendance by the House. Senator Jacko stressed the significance of the Salmon Forum and thanked the fishermen for their unity in appearance today. ADJOURNMENT The meeting was adjourned at approximately 11:00 a.m.
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