Legislature(2001 - 2002)

02/25/2002 03:37 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                    
                   SENATE RESOURCES COMMITTEE                                                                                 
                        February 25, 2002                                                                                       
                            3:37 p.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator John Torgerson, Chair                                                                                                   
Senator Gary Wilken, Vice Chair                                                                                                 
Senator Rick Halford                                                                                                            
Senator Robin Taylor                                                                                                            
Senator Ben Stevens                                                                                                             
Senator Kim Elton                                                                                                               
Senator Georgianna Lincoln                                                                                                      
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All Members Present                                                                                                             
                                                                                                                              
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
SENATE BILL NO. 141                                                                                                             
"An Act relating to aquatic farming of shellfish; and providing                                                                 
for an effective date."                                                                                                         
                                                                                                                                
     MOVED CSSB 141(RES) OUT OF COMMITTEE                                                                                       
                                                                                                                                
CS FOR SENATE BILL NO. 266(L&C)                                                                                                 
"An Act authorizing the commissioner of community and economic                                                                  
development to refinance and extend the term of a fishery                                                                       
enhancement loan."                                                                                                              
                                                                                                                                
     MOVED CSSB 266(RES) OUT OF COMMITTEE                                                                                       
                                                                                                                                
SENATE BILL NO. 277                                                                                                             
"An  Act  relating  to  the  definitions  of  'floating  fisheries                                                              
business' and  'shore-based fisheries  business' for  the purposes                                                              
of  the fishery  business  tax;  and  providing for  an  effective                                                              
date."                                                                                                                          
                                                                                                                                
     MOVED CSSB 277(RES) OUT OF COMMITTEE                                                                                       
                                                                                                                              
PREVIOUS SENATE COMMITTEE ACTION                                                                                              
                                                                                                                                
SB 141 - See Resources minutes dated 4/2/01.                                                                                    
                                                                                                                                
SB 266 - See Labor and Commerce minutes dated 2/14/02.                                                                          
                                                                                                                                
SB 277 - No previous action to record.                                                                                          
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Mr. Darwin Peterson                                                                                                             
Staff to Senator Torgerson                                                                                                      
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 141 for sponsor.                                                                          
                                                                                                                                
Mr. Roger Painter                                                                                                               
Alaska Shellfish Growers Association                                                                                            
Juneau, AK                                                                                                                      
POSITION STATEMENT: Supported CSSB 141(RES).                                                                                  
                                                                                                                                
Mr. Paul Fuhs                                                                                                                   
Alaska Trademark Shellfish                                                                                                      
No address provided                                                                                                             
POSITION STATEMENT:  Supported CSSB 141(RES).                                                                                 
                                                                                                                                
Mr. Jon Agosti                                                                                                                  
Alaska Shellfish Growers Association                                                                                            
P.O. Box 3475                                                                                                                   
Seward AK 99664                                                                                                                 
POSITION STATEMENT: Supported SB 141.                                                                                         
                                                                                                                                
Mr. Ron Long                                                                                                                    
Qutekcak Shellfish Hatchery                                                                                                     
P.O. Box 2464                                                                                                                   
Seward AK 99664                                                                                                                 
POSITION STATEMENT: Supported SB 141.                                                                                         
                                                                                                                                
Ms. Julie Decker, Executive Director                                                                                            
Regional Dive Association                                                                                                       
Wrangell AK                                                                                                                     
POSITION STATEMENT: Supported SB 141.                                                                                         
                                                                                                                                
Ms. Janice Adair, Director                                                                                                      
Division of Environmental Health                                                                                                
Department of Environmental Conservation                                                                                        
555 Cordova Street                                                                                                              
Anchorage AK 99501                                                                                                              
POSITION STATEMENT: Commented on SB 141.                                                                                      
                                                                                                                                
Mr. Bob Loeffler, Director                                                                                                      
Division of Mining, Land and Water                                                                                              
Department of Natural Resources                                                                                                 
550 W 7th Ave., Ste 1070                                                                                                        
Anchorage AK 99501                                                                                                              
POSITION STATEMENT: Commented on SB 141.                                                                                      
                                                                                                                                
Mr. Doug Meekum, Director                                                                                                       
Division of Commercial Fisheries                                                                                                
Department of Fish & Game                                                                                                       
PO Box 25526                                                                                                                    
Juneau, AK  99802-5226                                                                                                          
POSITION STATEMENT: Supported SB 141.                                                                                         
                                                                                                                                
Mr. Greg Winegar, Director                                                                                                      
Division of Investments                                                                                                         
Department of Community and Economic Development                                                                                
P.O. Box 34159                                                                                                                  
Juneau AK 99803                                                                                                                 
POSITION STATEMENT: Commented on SB 266.                                                                                      
                                                                                                                                
Mr. Dave Cobb, Business Manager                                                                                                 
Valdez Fisheries Development Association, Inc.                                                                                  
P.O. Box 125                                                                                                                    
Valdez AK 99686                                                                                                                 
POSITION STATEMENT: Supported SB 266.                                                                                         
                                                                                                                                
Ms. Sue Aspelund, Executive Director                                                                                            
Cordova District Fishermen United (CDFU)                                                                                        
P.O. Box 939                                                                                                                    
Cordova AK 99574                                                                                                                
POSITION STATEMENT: Supported SB 266.                                                                                         
                                                                                                                                
Mr. Carl Rosier                                                                                                                 
Alaska Outdoor Council                                                                                                          
P.O. 73902                                                                                                                      
Fairbanks AK 99707                                                                                                              
POSITION STATEMENT: Supported CSSB 266(RES).                                                                                  
                                                                                                                                
Mr. John Carter, Director                                                                                                       
Douglas Island Pink and Chum                                                                                                    
2697 Channel Dr.                                                                                                                
Juneau AK 99801                                                                                                                 
POSITION STATEMENT: Supported CSSB 266(RES).                                                                                  
                                                                                                                                
Mr. Chuck Harlamert                                                                                                             
Juneau Section Chief                                                                                                            
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
P.O. Box 110420                                                                                                                 
Juneau AK 99811-0420                                                                                                            
POSITION STATEMENT: Commented on SB 277.                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 02-2, SIDE A                                                                                                             
Number 001                                                                                                                      
               SB 141-AQUATIC FARMS FOR SHELLFISH                                                                           
                                                                                                                                
CHAIRMAN  JOHN TORGERSON  called  the Senate  Resources  Committee                                                            
meeting to order  at 3:37 p.m. All members were  present. Chairman                                                              
Torgerson announced SB 141 to be  up for consideration and said he                                                              
thought that with the proposed committee  substitute, the bill was                                                              
ready to go forward.                                                                                                            
                                                                                                                                
MR. DARWIN  PETERSON, staff  to Senator  Torgerson, sponsor,  said                                                              
last year the Alaska Department of  Fish and Game (ADF&G) proposed                                                              
new mariculture  regulations  that were  met with sharp  criticism                                                              
from the  aquatic farming industry,  which felt the regs  were too                                                              
restrictive  and would  constitute a regulatory  ban on  shellfish                                                              
farming in Alaska. SB 141 was introduced  as an effort to preserve                                                              
an   industry  that   has   proven  to   be   successful  in   the                                                              
diversification  of  Alaska's economy.  The  committee  substitute                                                              
requires  the  Department  of Natural  Resources  (DNR)  to  offer                                                              
public leases for 60 suspended shellfish  sites, 20-clam sites and                                                              
10 geoduck  sites. These  leases are in  addition to  permits that                                                              
are already issued.  Before offering the leases,  the commissioner                                                              
must  solicit  nominations  for sites  from  the  aquatic  farming                                                              
industry  and the  public and  select sites  that don't  interfere                                                              
with  established commercial,  subsistence or  personal use.  That                                                              
requirement is  intended to maintain the existence  and prosperity                                                              
of  a valuable  Alaskan industry  without  interfering with  other                                                              
user groups.                                                                                                                    
                                                                                                                                
MR. PETERSON explained the changes  made in the proposed committee                                                              
substitute  (CS).  Section 1  on  page 1  was  deleted  in the  CS                                                              
because  in the  original  version, aquatic  farmers  would pay  a                                                              
fisheries business tax  of 3%, plus the price of  the lease, which                                                              
is $250 for the  first acre and $150 for each  remaining acre and,                                                              
on top of  that, at a predetermined  value of the resource  on the                                                              
site  and the  potential productivity  of the  site of  shellfish.                                                              
That made sense because it skirted  the public domain problem. DNR                                                              
has a  policy that  says before  a lease  is issued, aquatic  farm                                                              
sites must be commercially fished  out before the farmer can go in                                                              
and plant seed. With the new language, this is a moot point.                                                                    
                                                                                                                                
The  second change  is on  page 1,  line  12, where  the date  the                                                              
leases must be  made available to the public is  changed from July                                                              
1, 2002 to July 1, 2003 since this is the new year.                                                                             
                                                                                                                                
The third change is on page 1, line  15, and page 2, line 2, where                                                              
language  is added requiring  DNR  to offer leases  that were  not                                                              
purchased  at the  public  auction  to be  made  available to  the                                                              
public over the counter.                                                                                                        
                                                                                                                                
SENATOR WILKEN  moved to adopt  the proposed committee  substitute                                                              
to  SB  141,  (Version  L) as  the  working  document  before  the                                                              
committee. There were no objections and it was so ordered.                                                                      
                                                                                                                                
SENATOR  TAYLOR asked  if the bill  contains a  definition  of the                                                              
word "site."                                                                                                                    
                                                                                                                                
CHAIRMAN TORGERSON said it doesn't,  but he understood that it was                                                              
determined by DNR and depended on  which area DNR was considering.                                                              
                                                                                                                                
MR.   ROGER  PAINTER,   Alaska  Shellfish   Growers   Association,                                                              
supported CSSB 141(RES).  He stated, "We think  this version takes                                                              
care of  all the problems  and concerns  we had with  the original                                                              
legislation  and it  is  a very  good bill  to  be moving  forward                                                              
with…"                                                                                                                          
                                                                                                                                
He  said he  had  a  small concern  in  Section 1.  The  Shellfish                                                              
Growers  have  no  problem  in restoring  sites  to  the  original                                                              
population  levels,  which is  part  of existing  regulations  and                                                              
conditions  on their permit  right now,  but sometimes  the leases                                                              
are offered  much in advance of  when ADF&G makes  the operational                                                              
permits  effective. For  instance, he  received the  lease on  his                                                              
sites under the  1999 opening in early 2000, but  he still doesn't                                                              
have control of  all of them. He noted, "They are  open for common                                                              
property harvest right now and my  permits with ADF&G don't become                                                              
effective until  those common property harvests  are complete. So,                                                              
I  don't  know  if  any tinkering  needs  to  be  done  with  that                                                              
language…"                                                                                                                      
                                                                                                                                
MR. PAINTER  said the  committee also might  hear today  that this                                                              
bill directs  DNR to  identify and  offer for  lease 90  sites. He                                                              
explained  that  DNR  and  ADF&G work  together  in  making  sites                                                              
available. He explained:                                                                                                        
                                                                                                                                
     DNR needs  to issue a lease  and ADF&G offers  a permit.                                                                   
     These  go  through  the Coastal  Zone  Management  [CZM]                                                                   
     process simultaneously. That  process only responds to a                                                                   
     specific  proposal. In offering  these sites for  lease,                                                                   
     the  DNR  will  be just  making  some  areas  available.                                                                   
     People  will come in  and apply  and propose a  specific                                                                   
     farm plan,  which will then  go through the  CZM process                                                                   
     and Fish and  Game can respond to that specific  plan. I                                                                   
     think the agencies really need  to work together in this                                                                   
     process.  Fish  and  Game  needs  to work  with  DNR  in                                                                   
     identifying these sites and  I don't think that Fish and                                                                   
     Game needs to  go out to each site and  do detailed site                                                                   
     assessment  work. However,  they should  be involved  to                                                                   
     the extent  that they flag  for DNR potential  problems.                                                                   
     If  they  believe  there  is  going  to  be  some  major                                                                   
     conflicts  on those  sites, those  should be  identified                                                                   
     before  they are offered  to the  public and the  public                                                                   
     gets caught in a catch-22. You  can come in and put your                                                                   
     money down for a site, but you  can't get your permit. I                                                                   
     think by  directing Fish  and Game to  work with  DNR in                                                                   
     identification  of  the  sites, those  problems  can  be                                                                   
     taken care of.                                                                                                             
                                                                                                                                
MR. PAINTER noted that the Alaska  Trademark Shellfish Association                                                              
proposed  another amendment,  but  his board  hadn't  had time  to                                                              
discuss it.                                                                                                                     
                                                                                                                                
SENATOR  TORGERSON  asked him  if  he  knew the  population  level                                                              
before  signing the  lease, but didn't  know how  much common  use                                                              
would be taken between  the time the lease is signed  and the time                                                              
it is turned over to him.                                                                                                       
                                                                                                                                
MR. PAINTER  replied that  when they  apply for  a site,  they are                                                              
required  to  provide the  agencies  with  some estimates  of  the                                                              
standing stocks  that are  available at  those sites. Then  ADF&G,                                                              
after it  goes through the  process, will  open those sites  for a                                                              
common property  harvest. After that  harvest, the lessee  does an                                                              
assessment  of the standing  stocks according  to ADF&G  protocols                                                              
for site assessments.  At this point they determine  the amount of                                                              
standing  stocks  that have  to  be  restored  when the  lease  is                                                              
terminated.  He wants  to  make sure  the  restoration  is to  the                                                              
levels that  exist when the lessees  get control of that  site and                                                              
those stocks, which is after the common property harvest.                                                                       
                                                                                                                                
CHAIRMAN TORGERSON  asked if they  could add, "...when  the common                                                              
property harvest rights were satisfied."                                                                                        
                                                                                                                                
MR. PAINTER  suggested, "...when  Fish and Game operating  permits                                                              
become effective."                                                                                                              
                                                                                                                                
SENATOR ELTON  said he had  assumed that  DNR would work  with the                                                              
aquaculture  community to try  and identify  sites, but  it sounds                                                              
like Mr. Painter  is suggesting instead a dynamic  between DNR and                                                              
ADF&G.                                                                                                                          
                                                                                                                                
MR.  PAINTER replied  that  he hoped  that  local communities  and                                                              
industry  would send  nominations to  DNR and  then DNR and  ADF&G                                                              
would respond  to those.  He would like  to see the  agencies work                                                              
together  to  identify at  least  major  problems within  an  area                                                              
before they are offered for lease to the public.                                                                                
                                                                                                                                
3:52 p.m.                                                                                                                       
                                                                                                                                
SENATOR ELTON  asked if  it is realistic  to expect that  90 sites                                                              
would be ready for lease by July 1, 2003.                                                                                       
                                                                                                                                
MR.  PAINTER responded  that this  gets back  to Senator  Taylor's                                                              
question of  site definition.  Currently, farms  are 1 -  10 acres                                                              
and  each farmer  has different  requirements  for their  specific                                                              
operation. He  is working on  an aquaculture development  plan for                                                              
Prince of Wales  Island and has done some reconnaissance  work and                                                              
would be  prepared to  offer a  number of  locations in  this area                                                              
that range  in size from 50  - 100 acres  to 10 acres. In  each of                                                              
the developable locations,  it might be possible for  DNR to offer                                                              
five sites. He  believed Sea Otter Sound could support  as many as                                                              
40 or 50 farms.                                                                                                                 
                                                                                                                                
The identification  of sites may be  a large number, but  it might                                                              
not be as difficult  to find them as one would  imagine - geoducks                                                              
for example. A number  of sites were applied for  in 1999, some of                                                              
which had no geoducks and some had  a few. There might not be very                                                              
many  geoducks, but  the site  might still  meet the  department's                                                              
present criteria. It's  their intention to work real  hard if this                                                              
legislation is  adopted to identify  sites and do  site assessment                                                              
work  and  provide   the  department  a  considerable   amount  of                                                              
information on those sites.                                                                                                     
                                                                                                                                
SENATOR  TAYLOR  asked  if  the  lessee  is  held  to  the  second                                                              
assessment after the  common property harvest for  restocking to a                                                              
sustained yield level.                                                                                                          
                                                                                                                                
MR. PAINTER  replied yes, they are  held to numbers  identified in                                                              
the second assessment.                                                                                                          
                                                                                                                                
SENATOR TAYLOR  asked if  that was after  the harvest  had already                                                              
occurred.                                                                                                                       
                                                                                                                                
MR. PAINTER indicated that I                                                                                                    
s correct.                                                                                                                      
                                                                                                                                
SENATOR  TAYLOR  asked why  they  would  restock to  the  original                                                              
level.                                                                                                                          
                                                                                                                                
MR. PAINTER clarified:                                                                                                          
                                                                                                                                
     The  standing stocks  that are there  before the  common                                                                   
     property  harvest -  let's  take a  geoduck  site as  an                                                                   
     example. If there  was a site leased out and  they did a                                                                   
     common property  harvest, all  the divers would  show up                                                                   
     or  as  many  that were  interested  and  harvest  those                                                                   
     stocks. The  applicant may not  be taking part  in those                                                                   
     harvests  at all;  it would  be  the commercial  fishing                                                                   
     fleet.  And  the farmers  shouldn't  be held  liable  to                                                                   
     restore  them to the  original level  before the  common                                                                   
     property harvest, because they  are open to all citizens                                                                   
     of the state, unless it's a limited entry fishery…                                                                         
                                                                                                                                
CHAIRMAN TORGERSON  reiterated that the bill currently  does that.                                                              
He asked Mr. Painter to focus on the bill.                                                                                      
                                                                                                                                
MR. PAINTER  responded that when he  got his leases from  the 1999                                                              
openings  for clam sites,  they were  made effective  immediately,                                                              
but  DNR  did  not understand  that  ADF&G  was  not  issuing  the                                                              
operating  permit  until  the common  property  harvest  had  been                                                              
completed. DNR  discovered that when he started  complaining about                                                              
having to pay lease  fees when he didn't have access  to the sites                                                              
to  conduct  aquatic farming.  Now  they  are  in the  process  of                                                              
revising their leases so they become  effective when the operating                                                              
permit  becomes  effective,  which   would  be  after  the  common                                                              
property harvest.                                                                                                               
                                                                                                                                
4:02 p.m.                                                                                                                       
                                                                                                                                
MR.  PAUL FUHS,  Alaska Trademark  Shellfish  Assoc. (ATSA),  said                                                              
ATSA is the subject of the lawsuit.  The issues are that ATSA went                                                              
through CZM and was consistent with  that process. ATSA then got a                                                              
best interest finding from DNR and  people participated all along.                                                              
That took a year and a half. When  it came time to get the permits                                                              
from  ADF&G, ATSA  was  rejected  because there  were  substantial                                                              
amounts  of standing  stock on some  of the  sites. Although,  the                                                              
department's policy  now is to let a fishery occur  there and then                                                              
open it  to aquaculture,  that's only  true in  the case  of those                                                              
fisheries that are not limited entry. He added:                                                                                 
                                                                                                                                
     Although I hate  to disagree with my good  friend, Roger                                                                   
     Painter, this  is not a new  idea. This is  exactly what                                                                   
     we do in the common property  fishery. This would extend                                                                   
     the same practice to limited  entry fisheries. The issue                                                                   
     is  there when  the constitutional  amendment went  into                                                                   
     our  Constitution,  it  says,  'No  exclusive  right  or                                                                   
     special  privilege of  fishery shall  be created in  the                                                                   
     natural  waters of  the state except  for limited  entry                                                                   
     and to promote the efficient  development of aquaculture                                                                   
     in the state.'                                                                                                             
                                                                                                                                
He said that's never been tested  or defined and that's before the                                                              
Supreme Court  right now.  They hope to  resolve the  problem with                                                              
their  amendment, which  reads,  "In  an area  where  there is  no                                                              
existing fishery." He stated:                                                                                                   
                                                                                                                                
     And that is  the case with all the sites  that have been                                                                   
     applied for. No  one else is using the resource  now. If                                                                   
     there's a  standing stock there,  there will be  an open                                                                   
     period for the  divers to come in and take  the resource                                                                   
     and even  take beyond what  would be normal  sustainable                                                                   
     yield.  I mean  it's going  to be  an aquaculture  site.                                                                   
     Usually you take  2% per year, but they could  go in and                                                                   
     harvest  at even a  higher level,  which is also  what's                                                                   
     done at the  clam sites now with the proviso  in the end                                                                   
     the stock will be restored to the original level.                                                                          
                                                                                                                                
     For us, in  the limited entry fisheries,  we are willing                                                                   
     to  restore to  the  original  level so  this  is not  a                                                                   
     violation of  either the sustained yield concept  in our                                                                   
     Constitution  or of the  common property law  provisions                                                                   
     of our Constitution.  That's why it's written  that way.                                                                   
     We  make  it  a  little  bit  different  for  intertidal                                                                   
     species, which are like clams.  You have to dig those at                                                                   
     low tide and  sometimes there's only a couple  of days a                                                                   
     month you can do that.                                                                                                     
                                                                                                                                
     For the  dive fisheries, you  can get right in  and take                                                                   
     care of it.  This would make that clear. I  do also want                                                                   
     to make  it clear that  what ADF&G  said - that  you can                                                                   
     have a permit if there aren't  substantial stocks there.                                                                   
     They have never  defined what substantial is  and a farm                                                                   
     is  looking for  an  area that  has  a lot  of  animals,                                                                   
     because obviously that's a good  place for them to grow.                                                                   
     That's   why  they  are   there.  These  are   broadcast                                                                   
     spawners; they  broadcast their eggs in the  water. They                                                                   
     float around  everywhere and  they settle in  the places                                                                   
     where you can make a living.  So, it's a little bit of a                                                                   
     disconnect  of   the  science,  common  sense   and  our                                                                   
     Constitution  - is the solution  that we're  looking for                                                                   
     here.  My clients  have  said if  we  can resolve  this,                                                                   
     they'll  drop the lawsuit  and we  can all forget  about                                                                   
     suing each  other and  the cost to  the State of  Alaska                                                                   
     and we can all go to work.                                                                                                 
                                                                                                                                
MR. FUHS  said that  he has  discussed this  with ADF&G,  the                                                                   
Attorney  General's  Office  and the  Dive  Association  and,                                                                   
while  he didn't  think any  of them  were ready  to take  an                                                                   
official  position now,  everyone liked  the general  concept                                                                   
but  wanted to  see  the details  of  the periods  of  public                                                                   
notice and harvest  and how it would be set up.  He felt that                                                                   
everyone wanted to resolve this issue.                                                                                          
                                                                                                                                
SENATOR TAYLOR asked if his group is willing to restore to the                                                                  
original level.                                                                                                                 
                                                                                                                                
MR. FUHS replied:                                                                                                               
                                                                                                                                
     The difference is that when  you harvest like the little                                                                   
     neck clams, you only harvest  to a size of maybe an inch                                                                   
     and a  half and  everything smaller  than that is  still                                                                   
     left  there.  That's  why you're  just  making  up  that                                                                   
     difference.  When you harvest  geoducks, it's much  more                                                                   
     digging  up  the  ground  to  get  them  and  it's  more                                                                   
     disruptive. That's  why I think it's more  realistic for                                                                   
     us to say we'd replace it to  100%, plus we're trying to                                                                   
     deal  with  the  constitutional  issues  of  sustainable                                                                   
     yield and common property access.                                                                                          
                                                                                                                                
SENATOR ELTON  said it seems that  his proposed language  makes it                                                              
almost impossible to do 90 different leases by July 1, 2003.                                                                    
                                                                                                                                
MR. FUHS replied:                                                                                                               
                                                                                                                                
     This is really separate. What  Roger is talking about is                                                                   
     pre-identifying  sites.  There's  a  lot  of  sites  out                                                                   
     there.  Private industry  is out and  they're doing  the                                                                   
     research to  find the sites  they think they can  make a                                                                   
     farm at.                                                                                                                   
                                                                                                                                
He thought the intent of this bill  is to make the two departments                                                              
pre-identify sites so it's easier to get the leasing.                                                                           
                                                                                                                                
SENATOR ELTON  said he might misunderstand,  but he thought  a lot                                                              
of the  sites Mr.  Fuhs is  interested  in would  be sites that  a                                                              
potential  leaseholder  would  be  interested in  because  of  the                                                              
already existing  stocks. Given  that, it seems  that he  wants to                                                              
create  an additional  five-month period  for a  lot of  potential                                                              
sites that could be made available to a leaseholder.                                                                            
                                                                                                                                
MR. FUHS replied that he didn't know  how long the common property                                                              
had to stay open  to fish clams. His amendment calls  for a three-                                                              
month period for intertidal species  - two months for notice and a                                                              
three-month harvest  period. He thought  the period might  be even                                                              
longer now  before one can  have positive  control of a  site. His                                                              
amendment just extends it to limited entry fisheries.                                                                           
                                                                                                                                
SENATOR STEVENS asked  if the common property  fishery only allows                                                              
a 2% annual harvest rate that could go on forever.                                                                              
                                                                                                                                
MR. FUHS replied:                                                                                                               
                                                                                                                                
     You would allow them to go in  and fish above what would                                                                   
     normally  be a sustainable  level.  In fact, they  could                                                                   
     potentially  come in and take  100%, because  the farmer                                                                   
     is going to replace 100%.                                                                                                  
                                                                                                                                
SENATOR  STEVENS asked  if under  his  recommendation, the  lessee                                                              
would replace back to the original assessment.                                                                                  
                                                                                                                                
MR. FUHS said  that was correct even  if 100% of the  animals were                                                              
taken. He added:                                                                                                                
                                                                                                                                
     So  the divers  could possibly  fish 50  years worth  of                                                                   
     diving in a month, because you  know this is going to be                                                                   
     replanted. The  hatcheries can do this. They've  got the                                                                   
     geoduck spat  right now. We  just can't get  the permits                                                                   
     to farm."                                                                                                                  
                                                                                                                                
He said that  DNR requires bonding from the hatchery  in Seward to                                                              
make sure  the resource is replaced.  That is what the  lawsuit is                                                              
about.                                                                                                                          
                                                                                                                                
SENATOR  STEVENS asked  who makes  the determination  of when  the                                                              
common property is harvested.                                                                                                   
                                                                                                                                
MR. FUHS  replied under  this proposal  ADF&G  would give them  60                                                              
days notice  that this  site is going  to be open  for 30  days to                                                              
take  all they  can  and  then after  that  it's  going  to be  an                                                              
aquaculture   site.  At  the   end  of   the  10-year   lease  for                                                              
aquaculture, it will be restored to the full population.                                                                        
                                                                                                                                
SENATOR  STEVENS  asked him  to  contrast  that to  Mr.  Painter's                                                              
proposal.                                                                                                                       
                                                                                                                                
MR. FUHS replied that Mr. Painter  wants to modify it a little bit                                                              
for clams  to say  they will  restore  it to the  point after  the                                                              
common property harvest.                                                                                                        
                                                                                                                                
SENATOR   STEVENS  said   he  wanted   to  know   who  made   that                                                              
determination.                                                                                                                  
                                                                                                                                
CHAIRMAN TORGERSON said ADF&G does.                                                                                             
                                                                                                                                
SENATOR LINCOLN asked how long the lawsuit would continue.                                                                      
                                                                                                                                
MR. FUHS  replied that  the appeal  has been  filed and  he didn't                                                              
know when the  Supreme Court would issue a determination.  It took                                                              
the Superior Court eight months to  issue the court ruling on July                                                              
19, 2001.                                                                                                                       
                                                                                                                                
CHAIRMAN TORGERSON asked what the verdict of the lawsuit was.                                                                   
                                                                                                                                
MR.  FUHS replied  that the  court said  ADF&G's regulations  were                                                              
completely  wrong and that  an open  dive fishery and  aquaculture                                                              
was unworkable. They  said the proponents had  violated the common                                                              
property clause  because there were  substantial amounts  of stock                                                              
there, which  was subject  to a limited  entry fishery.  Trademark                                                              
Fisheries is the appellant.                                                                                                     
                                                                                                                                
MR. JOHN AGOSTI said he was representing  a shellfish hatchery and                                                              
the Alaska Shellfish  Growers today and thanked  Senator Torgerson                                                              
for introducing this bill.                                                                                                      
                                                                                                                                
SENATOR TAYLOR asked if he felt confident  that his facility would                                                              
have enough spat for the replanting.                                                                                            
                                                                                                                                
MR.  AGOSTI  replied  yes. His  organization  didn't  envision  an                                                              
avalanche  of companies  failing and  requiring a  mass amount  of                                                              
seed. The  most likely scenario  is a  few failures over  time and                                                              
they could accommodate that.                                                                                                    
                                                                                                                                
MR. RON  LONG, Qutekcak Shellfish  Hatchery, supported SB  141. He                                                              
thought the industry had to do its  own research to identify sites                                                              
that are  reasonably free of conflicting  uses and offer  those as                                                              
their nominations.  He liked the concept of a  prefarming fishery.                                                              
On the  conceptual language  for a substitute  he needed  a little                                                              
more  time to think  about  it, but if  the sponsor  and the  dive                                                              
fishery supported  it, he  would go  for it.  On reseeding  to the                                                              
initial biomass  levels and  the prefarming  harvest, he  liked it                                                              
from a  purely economic  point of  view because  it provided  more                                                              
seed for him to sell.                                                                                                           
                                                                                                                                
MS. JULIE DECKER,  Executive Director, Regional  Dive Association,                                                              
supported SB 141, but requested that  they hold the bill until her                                                              
board can see it  and give its support on March  8. She also would                                                              
like to provide the board's comments on Mr. Fuhs' proposal.                                                                     
                                                                                                                                
CHAIRMAN TORGERSON  replied that he hadn't planned  on passing the                                                              
bill out  today because  it needed more  work. He said  the fiscal                                                              
note was for $800,000, but that a new one would be needed.                                                                      
                                                                                                                                
MS.  JANICE ADAIR,  Director,  Division of  Environmental  Health,                                                              
Department  of  Environmental  Conservation  (DEC), said  she  was                                                              
available to answer questions.                                                                                                  
                                                                                                                                
SENATOR TAYLOR  said it was shocking  to him that DEC  submitted a                                                              
$354,000 fiscal note  to go out and look at 10  different sites to                                                              
test the water.                                                                                                                 
                                                                                                                                
MS. ADAIR responded that they have  to follow a National Shellfish                                                              
Sanitation  Program  in  order to  classify  areas  for  shellfish                                                              
harvesting. Some presumptions  about locations are made  and a set                                                              
number of  samples have to  be taken over  a set number  of times.                                                              
DEC  doesn't have  options.  If the  areas  are  more remote  than                                                              
urban, their  fiscal note would go  down; if there are  more urban                                                              
areas than remote, the amount would  go up. DEC estimated at 50/50                                                              
since they didn't know.                                                                                                         
                                                                                                                                
SENATOR  ELTON said  she was assuming  that 10  new growing  areas                                                              
will need to be certified and asked  if she didn't need to certify                                                              
unless a lease is actually offered  and accepted by someone in the                                                              
aquaculture industry.                                                                                                           
                                                                                                                                
MS. ADAIR said that  is right and added that they  have many sites                                                              
within  a growing area.  They certify  the growing  area and  this                                                              
helps reduce the cost.                                                                                                          
                                                                                                                                
MR. BOB  LOEFFLER, Director, Division  of Mining, Land  and Water,                                                              
DNR, said that  his division does the leasing under  this bill. He                                                              
had two  areas of  concern. He respected  Mr. Painter's  comments,                                                              
but  this  is   really  a  DNR/ADF&G  proposal.   Without  ADF&G's                                                              
preapproval  of the  sites, they  run the risk  of offering  sites                                                              
that  can't  be  permitted.  His  division  does  not  manage  the                                                              
resource and  there are two places  in the bill that  put resource                                                              
issues  in  DNR's  purview -  on  page  2,  lines  12 and  16.  He                                                              
explained:                                                                                                                      
                                                                                                                                
     The  consequence of  putting Section  1 in DNR  statutes                                                                   
     rather than  Fish and Games'  is that Fish and  Game has                                                                   
     regulations, which  address this question and,  in fact,                                                                   
     are  parallel to  this….  A  law under  Title  38 and  a                                                                   
     regulation  under ADF&G's  Title 16  can both be  valid.                                                                   
     This  means that  a site would  have to  go through  two                                                                   
     hoops to address  a single situation. If  someone didn't                                                                   
     like their  determination, they would appeal  it to DNR,                                                                   
     but  it really  has to go  to ADF&G  because it's  their                                                                   
     issue.                                                                                                                     
                                                                                                                                
TAPE 02-2, SIDE B                                                                                                             
                                                                                                                              
CHAIRMAN TORGERSON  asked if  other agencies  didn't have  to deal                                                              
with cross-jurisdictions.                                                                                                       
                                                                                                                                
MR. LOEFFLER replied  if the legal jurisdiction  is confused, that                                                              
confusion always works against the applicant.                                                                                   
                                                                                                                                
CHAIRMAN  TORGERSON said  he didn't  think so  and asked if  there                                                              
were any other comments.                                                                                                        
                                                                                                                                
MR. LOEFFLER  added that  it would be  very difficult for  them to                                                              
complete this  process by  July 1, 2003.  They have written  their                                                              
fiscal note  for a two-year  process with  the dives  occurring in                                                              
the summer.  That would  mean July 1,  2004. Also, if  they reduce                                                              
the number  of sites to offer,  they would not run  the likelihood                                                              
of  overwhelming the  industry and  they could  reduce the  fiscal                                                              
note.                                                                                                                           
                                                                                                                                
CHAIRMAN TORGERSON replied that's  why he made it over-the-counter                                                              
sales.                                                                                                                          
                                                                                                                                
MR.  DOUG  MEEKUM, Director,  Division  of  Commercial  Fisheries,                                                              
ADF&G, supported Ms. Decker's testimony  in support of SB 141. The                                                              
CS  removes the  section  identifying the  sites  for auction  and                                                              
their common property concern. He  thought that Mr. Painter was on                                                              
the right track and that this regulation  is more restrictive than                                                              
current statute.                                                                                                                
                                                                                                                                
CHAIRMAN TORGERSON  asked if it would  help to delete  "lease" and                                                              
add "operating permit".                                                                                                         
                                                                                                                                
MR. MEEKUM  replied that is one  possibility and another  would be                                                              
to refer  to the authority  of the department  to issue  a permit,                                                              
whichever comes first.                                                                                                          
                                                                                                                                
CHAIRMAN  TORGERSON  asked  if  he  had a  chance  to  review  the                                                              
Trademark Shellfish language.                                                                                                   
                                                                                                                                
MR. MEEKUM said he hadn't had a chance to.                                                                                      
                                                                                                                                
SENATOR ELTON asked  if ADF&G could realistically  have leases for                                                              
90 different sites done by July 1, 2003.                                                                                        
                                                                                                                                
MR.  MEEKUM  replied  that  would be  difficult.  He  thought  the                                                              
suspended culture  sites would  be easier, but  there are  only 20                                                              
sites identified  for clams  and 10 for  geoducks, which  would be                                                              
the primary thing they would be looking  at in their site surveys.                                                              
Last  year  they  suggested  that ADF&G's  costs  would  be  about                                                              
$200,000 in  the first year.  He noted, "I  guess we'd try  and do                                                              
our best to  get it done. It's  going to be difficult.  I wouldn't                                                              
say it's necessarily impossible."                                                                                               
                                                                                                                                
CHAIRMAN TORGERSON  asked what happened  to the $250,000  that the                                                              
legislature gave them a couple of years ago.                                                                                    
                                                                                                                                
MR. MEEKUM  replied  that two or  three years  ago the  department                                                              
requested  a CIT  project  that's  very similar  in  terms of  its                                                              
intent to what they are trying to  do here. They actually received                                                              
only $100,000  from the  legislature, but  that particular  set of                                                              
CITs was funded  out of CFEC receipt services, which  went down by                                                              
$1 million  that year.  He stated, "So,  that money doesn't  exist                                                              
because the receipts never came in."                                                                                            
                                                                                                                                
CHAIRMAN TORGERSON said:                                                                                                        
                                                                                                                                
     I want these to pick up fiscal  notes, because I believe                                                                   
     the state should pay for this.  This is a good industry.                                                                   
     It's  a clean  industry and  we've  been messing  around                                                                   
     with it so long that it's the  only way that I see we're                                                                   
     going  to turn it  around. I  wasn't expecting  $800,000                                                                   
     fiscal notes, but I guess that's  life in the fast lane.                                                                   
     It was  my hope  today to do  our work  and amend  it so                                                                   
     that  it is functionally  okay  and then  send it up  to                                                                   
     Finance and let them argue with you up there.                                                                              
                                                                                                                                
SENATOR TAYLOR said:                                                                                                            
                                                                                                                                
     My  frustration  is we  know  that  we've got  a  salmon                                                                   
     industry  that's in trouble  and I  can't find a  faster                                                                   
     way  to put the  dive fishery  in trouble  than to  have                                                                   
     ongoing litigation  up to the  Supreme Court and  we all                                                                   
     sit around  holding our hands and wringing  them waiting                                                                   
     and hoping something will happen out of the Supreme…                                                                       
                                                                                                                                
MR. MEEKUM reiterated that he supports the bill.                                                                                
                                                                                                                                
CHAIRMAN  TORGERSON  instructed   the  participants  to  read  the                                                              
suggestions.                                                                                                                    
                                                                                                                                
SENATOR  WILKEN moved  on page  1, line  8 to  delete "lease"  and                                                              
insert  "operating permits"  and  on page  1, line  12, to  delete                                                              
"2003" and insert "2004" [Amendment 1].                                                                                         
                                                                                                                                
SENATOR TAYLOR  said he  didn't object  to the  first part  of the                                                              
amendment,  but wanted  to know  more  about the  second part.  He                                                              
added,  "I  understand  their  reluctance   and  concerns,  but  I                                                              
guarantee if  their jobs  depended on it,  those permits  would be                                                              
out in a couple of months."                                                                                                     
                                                                                                                                
SENATOR ELTON  said his concern  is if the  date is too  soon, the                                                              
pressure may  be on to  identify sites  to meet the  time deadline                                                              
and not the requirements of the industry.                                                                                       
                                                                                                                                
SENATOR TAYLOR said he had been involved  in this for 17 years and                                                              
he  thought that  someone  in ADF&G  could  start  moving on  this                                                              
program.                                                                                                                        
                                                                                                                                
SENATOR TAYLOR moved to divide the question.                                                                                    
                                                                                                                                
CHAIRMAN TORGERSON  explained that they would call  the first part                                                              
Amendment 1(a)  to delete "lease"  and insert "operating  permit".                                                              
He asked if there was any objection.  There were no objections and                                                              
it was adopted.                                                                                                                 
                                                                                                                                
CHAIRMAN TORGERSON  explained that  Amendment 1(b) deletes  "2003"                                                              
and inserts  "2004". He agreed with  Senator Taylor that  if ADF&G                                                              
didn't have the  backlog, all the work that's been  done on sites,                                                              
permits almost  issued and work that's  been done by  the growers,                                                              
one year  would be pretty  tough. But  that's not the  case. There                                                              
are 50  - 60 sites  in Sitka that  will probably be  nominated for                                                              
this. He noted would not support this amendment.                                                                                
                                                                                                                                
SENATOR  LINCOLN said the  committee heard  testimony saying  that                                                              
2003  might be  a stretch,  but  the language  says  it should  be                                                              
offered to the  public "before," and she hoped that  if they could                                                              
do it earlier, they should do everything  possible to get it done.                                                              
She supported 2004 and hoped that the department expedites it.                                                                  
                                                                                                                                
SENATOR  ELTON said  he  assumed if  this  amendment failed,  work                                                              
would  have  to  be  done  on the  fiscal  notes  since  they  are                                                              
predicated on a two-year process.                                                                                               
                                                                                                                                
CHAIRMAN  TORGERSON asked  for  the roll  to  be called.  SENATORS                                                              
ELTON, LINCOLN,  and HALFORD voted  yea; SENATORS  TAYLOR, WILKEN,                                                              
STEVENS and TORGERSON voted nay.  By a 3 to 4 vote, Amendment 1(b)                                                              
failed.                                                                                                                         
                                                                                                                                
SENATOR TAYLOR moved to pass CSSB  141(RES) to pass from committee                                                              
with  individual recommendations  and  accompanying fiscal  notes.                                                              
There were no objections and it was so ordered.                                                                                 
                                                                                                                                
                SB 266-FISHERY ENHANCEMENT LOANS                                                                            
                                                                                                                              
MS. DEBORAH GRUNDMAN, staff to Senator Stevens, sponsor, said:                                                                  
                                                                                                                                
     SB 266 authorizes the Commissioner  of the Department of                                                                   
     Community  and Economic Development  to refinance  loans                                                                   
     made by  the Fisheries Enhancement Revolving  Loan Fund.                                                                   
     It  also gives the  commissioner the  ability to  extend                                                                   
     the term of  the loan when justified. A majority  of the                                                                   
     loans  made   under  this  program  carry   the  maximum                                                                   
     allowable interest  rate of 9.5%. Alaska  statutes allow                                                                   
     for interest rates of 1% over  prime not to exceed 9.5%.                                                                   
     New loans, if received today, would be at 6%.                                                                              
                                                                                                                                
     Hatcheries  would  like to  take  advantage  of a  lower                                                                   
     interest rate to bring down  their debt service, just as                                                                   
     other  businesses  and homeowners  are  currently  doing                                                                   
     throughout Alaska and the nation.                                                                                          
                                                                                                                                
SENATOR HALFORD  noted that one  provision was for  interest rates                                                              
and the  other allows for  refinancing in  excess of 30  years. He                                                              
asked when that would be necessary.                                                                                             
                                                                                                                                
CHAIRMAN  TORGERSON noted  he had drafted  a committee  substitute                                                              
that  has  new language  on  page  3,  line  1, that  reads:  "the                                                              
commissioner  shall submit  annually a report  to the  legislature                                                              
summarizing   the  commissioner's   decisions  during   the  prior                                                              
calendar year  to approve or deny  requests to extend  loans under                                                              
this paragraph and the reasons for the decisions;".                                                                             
                                                                                                                                
SENATOR WILKEN  moved to adopt  the proposed committee  substitute                                                              
(CS), labeled Utermohle 2/19, Version  T. There were no objections                                                              
and it was so ordered.                                                                                                          
                                                                                                                                
MR.  GREG WINEGAR,  Director,  Division of  Investments,  answered                                                              
Senator   Halford's  question   by  saying   it  was  similar   to                                                              
refinancing a home. He explained:                                                                                               
                                                                                                                                
     The way  the department has  interpreted the  statute is                                                                   
     under this program  is you get 30 years total.  So, this                                                                   
     would give us the ability if  someone had paid in to the                                                                   
     loan for  five or six  years that  we would be  able to,                                                                   
     like refinancing  your home,  go ahead  and give them  a                                                                   
     30-year loan.                                                                                                              
                                                                                                                                
SENATOR HALFORD asked if there is  another section of statute that                                                              
clearly says  that the  collateral has to  be considered  also. He                                                              
stated: "All this  says is the term of the loan  would be extended                                                              
if  it meets  financial hardship."  He assumed  that somewhere  in                                                              
statute, the  division must  follow some kind  of a standard  that                                                              
says it  has to follow  good financial  practices relating  to the                                                              
life of the collateral.                                                                                                         
                                                                                                                                
MR. WINEGAR said that is correct,  but he didn't have it with him.                                                              
He  responded, "It  is something  we  look at  when we  look at  a                                                              
refinancing request."                                                                                                           
                                                                                                                                
SENATOR HALFORD asked  what the status of the loans  are right now                                                              
with regard to collateral to face value.                                                                                        
                                                                                                                                
MR.  WINEGAR replied  that  is difficult  to  answer. In  regional                                                              
associations  they have  an assignment  of the  tax, for  example.                                                              
They  also make  an assignment  of the  fish that  are out in  the                                                              
ocean, as well as the physical plant, etc.                                                                                      
                                                                                                                                
SENATOR  HALFORD asked  if they do  an annual  report that  weighs                                                              
that out.                                                                                                                       
                                                                                                                                
MR. WINEGAR replied they don't.                                                                                                 
                                                                                                                                
SENATOR HALFORD  asked if there was  a database as to  hard assets                                                              
on the loans.                                                                                                                   
                                                                                                                                
MR. WINEGAR  replied that  they do that  analysis when  making the                                                              
loan, but they don't review it on an annual basis.                                                                              
                                                                                                                                
SENATOR HALFORD said  he would like to know what  happens when the                                                              
product comes  down to  $.05 per  lb., and if  that's part  of the                                                              
collateral.                                                                                                                     
                                                                                                                                
CHAIRMAN TORGERSON  said they  must have  some idea between  fixed                                                              
assets and loans.                                                                                                               
                                                                                                                                
MR. WINEGAR  said  they look  at that  at the time  they make  the                                                              
loans. He stated:                                                                                                               
                                                                                                                                
     Normally we have  a whole series of types  of collateral                                                                   
     to   secure   the  loan   including,   sometimes,   EVOS                                                                   
     assignments  on  loans that  were  affected  by the  oil                                                                   
     spill.  We do  evaluate that  at  the time  we make  the                                                                   
     loan. It's just we don't do  that on an annual basis for                                                                   
     the whole portfolio.                                                                                                       
                                                                                                                                
SENATOR ELTON pointed out the collateral  would be reviewed at the                                                              
time  of refinancing  and  this would  provide  a  system for  one                                                              
update that wouldn't be there if they didn't refinance.                                                                         
                                                                                                                                
MR. WINEGAR said that is correct.                                                                                               
                                                                                                                                
SENATOR HALFORD  requested a status  report of the loans  in terms                                                              
of their current assessment based on current collateral values.                                                                 
                                                                                                                                
MR. WINEGAR said the division would work on that.                                                                               
                                                                                                                                
SENATOR  STEVENS  said  he  thought  they  could  address  Senator                                                              
Halford's concern with a synopsis  of the total number of loans to                                                              
each hatchery and their amortization schedule.                                                                                  
                                                                                                                                
MR. WINEGAR replied the division could.                                                                                         
                                                                                                                                
SENATOR HALFORD said the collateral value was something else.                                                                   
                                                                                                                                
SENATOR  STEVENS  pointed out  that  each hatchery  that  receives                                                              
loans has  a series of  loans. So, each time  they do a  loan, the                                                              
division has to do that analysis.                                                                                               
                                                                                                                                
MR. WINEGAR replied:                                                                                                            
                                                                                                                                
     What  we  have  in  this  portfolio  is  about  a  dozen                                                                   
     borrowers that have multiple  loans and so we're looking                                                                   
     at them  periodically as  they request  new loans  or if                                                                   
     they need assistance…. For example,  if they need to ask                                                                   
     for an extension of some sort,  we evaluate them at that                                                                   
     time as well.                                                                                                              
                                                                                                                                
MR.  DAVE COBB,  business  manager, Valdez  Fisheries  Development                                                              
Association, Inc., supported SB 266 and said:                                                                                   
                                                                                                                                
     This  bill sponsored  by Senator Stevens  and others  is                                                                   
     one  of  the  tools needed  by  the  commercial  fishing                                                                   
     industry and  the hatchery system to  remain competitive                                                                   
     in   today's    global   fisheries   environment.    The                                                                   
     refinancing   of  hatchery   loans  at  the   prevailing                                                                   
     interest  rate  will  allow most  hatcheries  to  reduce                                                                   
     their  annual  loan  payment  significantly  and  reduce                                                                   
     their  operating  costs. Any  reduction  in the  overall                                                                   
     operation   budget  of   Valdez  Fisheries   Development                                                                   
     Association  will  mean  more  fish  to  the  commercial                                                                   
     fishermen of the area because their cost [indisc.].                                                                        
                                                                                                                                
     While this  bill is a very  important step to  the state                                                                   
     hatchery  system, it  is only  one of  the many  changes                                                                   
     that must  occur to the  commercial fishing  industry in                                                                   
     Alaska  to  survive.  [This   program]  started  by  the                                                                   
     legislature   in   1974   has  met   or   exceeded   the                                                                   
     expectations  placed   on  the  program.   However,  the                                                                   
     competitive  playing field has  changed from a  position                                                                   
     of  strong  market  presence  to one  of  massive  world                                                                   
     competition  and dumping  of fisheries  products on  the                                                                   
     market at less than the cost of production.                                                                                
                                                                                                                                
     We,  the State  of  Alaska, and  all  of the  interested                                                                   
     players,  must change in  order for us  to survive  in a                                                                   
     competitive market  place. This bill begins  the process                                                                   
     of change. Thank you.                                                                                                      
                                                                                                                                
MS. SUE ASPELUND, Executive Director, Cordova District Fishermen                                                                
United, gave them some specifics of what their aquaculture                                                                      
association provides to their region. She stated:                                                                               
                                                                                                                                
     In 2,000, estimated economic  impacts resulting from the                                                                   
     production   and  harvest   of   Prince  William   Sound                                                                   
     Aquaculture  Corporation [PWSAC]  were  $109 million  in                                                                   
     total output, including $34  million in labor income and                                                                   
     more than  1,280 jobs. Within the commercial  harvesting                                                                   
     sector, Alaska  resident permit holders see  most of the                                                                   
     economic benefits  of PWSAC production. In  2000, Alaska                                                                   
     permit  holders harvested  about 75%  or $15 million  of                                                                   
     the PWSAC  ex-vessel value with the remaining  25% going                                                                   
     to non-residents.  Commercial fishing residents  from 30                                                                   
     Alaskan communities earn an  income from PWSAC families,                                                                   
     not only  from coastal communities, but  including those                                                                   
     from  urban areas  such as  Anchorage, Palmer,  Wasilla,                                                                   
     Juneau and  Fairbanks. Between 1990 and 2000,  the total                                                                   
     wholesale value of commercial  and cost recovery harvest                                                                   
     of PWSAC  salmon was worth over  half a billion  to over                                                                   
     20  Alaskan seafood  processors with  an average  annual                                                                   
     value of more than $45 million.                                                                                            
                                                                                                                                
     Processing  of PWSAC  fish  generated  an estimated  $70                                                                   
     million in  total output in 2000, including  $19 million                                                                   
     in payroll and  700 jobs. The PWSAC salmon  also counted                                                                   
     the following  percentages of sport fish harvest  in the                                                                   
     Prince  William Sound  region  from 1996  to  2000 -  80                                                                   
     percent  of the  chum  salmon, 70%  of  Chinook, 35%  of                                                                   
     sockeye, 20% of coho and 10%  of the pinks. The economic                                                                   
     impacts  from  the  2000  sport  fish  harvest  were  an                                                                   
     estimated   $2  million  in   total  output,   including                                                                   
     $800,000 in payroll and 64 jobs.                                                                                           
                                                                                                                                
     Since  1995, Alaskans  from 140 towns  across the  state                                                                   
     harvested  nearly 150,000  PWSAC  sockeye salmon  during                                                                   
     the   Copper   River  personal   use   and   subsistence                                                                   
     fisheries.  PWSAC contributes  about  70 annual  average                                                                   
     jobs to  their economy  with an  annual payroll of  more                                                                   
     than $2.6 million.                                                                                                         
                                                                                                                                
     The   economic   impact  from   PWSAC   employment   and                                                                   
     expenditures  to  the  regional [indisc.]  of  2000  for                                                                   
     $10.1 million in total output  including $4.6 million in                                                                   
     payroll  and 154  jobs. These  facts  provide a  graphic                                                                   
     demonstration…of  PWSAC's importance  as a regional  and                                                                   
     statewide economic engine.…                                                                                                
                                                                                                                                
She said  that the changing  global marketplace and  the faltering                                                              
Japanese economy  have resulted  in a  lower ex-vessel  value that                                                              
require our hatcheries  to take greater percentages  of production                                                              
as cost recovery  in an effort  to make their loan  payments. They                                                              
need the ability  to refinance hatchery debt to  take advantage of                                                              
decreased  interest  rates provided  for  in  SB 266.  This  would                                                              
result in  hatcheries being able  to immediately supply  more fish                                                              
to the common property harvest.                                                                                                 
                                                                                                                                
MR.  CARL  ROSIER,  Alaska  Outdoor  Council,  said  the  hatchery                                                              
program  has been  a  real boon  all  over Alaska  as  far as  the                                                              
recreation  fishery  is  concerned. He  supported  CSSB  266(RES).                                                              
Their early concerns were taken care of.                                                                                        
                                                                                                                                
MR. JOHN CARTER,  Director, Douglas Island Pink  and Chum (DIPAC),                                                              
supported CSSB 266(RES) and said:                                                                                               
                                                                                                                                
     The  private  non-profit  (PNP)   hatchery  program  was                                                                   
     created  by  the legislature  to  replace  the  hatchery                                                                   
     program  operated  by the  state's  Fish and  Game  FRED                                                                   
     Division.  The  FRED hatcheries  were  operated  through                                                                   
     annual appropriations  to the  State Department  of Fish                                                                   
     and  Game. The  PNP hatchery  program was  created as  a                                                                   
     user pay entity.  To get the program started,  the state                                                                   
     gifted    some   existing    hatcheries   to    regional                                                                   
     corporations,   but   primarily  created   the   fishery                                                                   
     enhancement revolving  loan fund. This fund,  along with                                                                   
     a  tax  on  commercial fishermen,  was  to  provide  for                                                                   
     construction  and operational  funds as the  enhancement                                                                   
     program developed.                                                                                                         
                                                                                                                                
     Twenty-five  plus years  later  and over  $1 billion  in                                                                   
     fish, the  PNP hatchery programs  are described  even by                                                                   
     some of  its detractors  as "some of  the best in  North                                                                   
     America."    They   have    made   dramatic    financial                                                                   
     contributions to many areas  of the state. When asked by                                                                   
     others who don't understand  the concept of private non-                                                                   
     profit,  I  usually  fall back  on  the  phrase  "public                                                                   
     trust."   I  really   believe  that   that's  the   best                                                                   
     description of the way most of us view the job.                                                                            
                                                                                                                                
     That  being  said,  we  are still  a  business  and  are                                                                   
     responsible for  budgets and payroll and of  course debt                                                                   
     service. What we  are asking for here is  the ability to                                                                   
     refinance  our debt at  a lower  interest rate. This  is                                                                   
     obviously going  on in many businesses across  the state                                                                   
     and across the country. Taking  advantage of the current                                                                   
     low  interest  environment   just  makes  good  business                                                                   
     sense.  Simply  put,  refinancing  will  strengthen  our                                                                   
     financial position, make us  better able to pay our debt                                                                   
     and more  able to  continue doing  the job of  providing                                                                   
     fish  to the  commercial and  sport  fishers across  the                                                                   
     state. This  will mean principal  and interest  are paid                                                                   
     into the fund  at a slower rate, but loan  demand on the                                                                   
     fund is  slowed dramatically so  the fund will  still be                                                                   
     financially sound.  I thank you for any support  you can                                                                   
     give and I'm available for questions.                                                                                      
                                                                                                                                
SENATOR TAYLOR moved to pass CSSB 266(RES) with individual                                                                      
recommendations and the accompanying zero fiscal note. There were                                                               
no objections and it was so ordered.                                                                                            
                                                                                                                                
           SB 277-DEFINITIONS OF FISHERIES BUSINESSES                                                                       
                                                                                                                              
CHAIRMAN TORGERSON announced SB 277 to be up for consideration.                                                                 
                                                                                                                                
MR. IAN FISK, staff to Senator Austerman, sponsor, said that both                                                               
the original and  the committee substitute address  an inequity in                                                              
state taxation for the Bering Sea pollock fishery. He said:                                                                     
                                                                                                                                
     This bill  seeks to ensure  that all pollock  processors                                                                   
     are assessed  at the same  rate. The American  Fisheries                                                                   
     Act  (AFA), which  was  passed by  Congress  in 1998  to                                                                   
     rationalize  the Bering  Sea  pollock industry,  divided                                                                   
     the  industry  into  three   sectors,  those  being  the                                                                   
     factory trawlers,  which both harvest and  process their                                                                   
     catch  at  sea,  mother  ships,  which  process  catches                                                                   
     harvested  by  other  vessels  at sea  and  the  inshore                                                                   
     sector.  The AFA  limits  participation  in the  pollock                                                                   
     industry  to these sectors  and specifically leaves  out                                                                   
     entities, which are allowed to process pollock.                                                                            
                                                                                                                                
     The tax  inequity that we have  here in the  industry is                                                                   
     that floating processors were  included with the inshore                                                                   
     sector in AFA, but [is] the  only sector of the industry                                                                   
     to  be taxed  at  5% by  the  state, whereas  the  other                                                                   
     sectors are taxed at 3%.                                                                                                   
                                                                                                                                
     The first draft of this bill  intended to accomplish tax                                                                   
     equity  by  changing  the  definition  of  'shore  based                                                                   
     processor'  in  order to  accommodate  pollock  floating                                                                   
     processors.  This approach  created a  fiscal note  that                                                                   
     was somewhat larger than anticipated  and it also raised                                                                   
     some   concern  that  floating   processors  and   other                                                                   
     fisheries could  be affected  and that is certainly  not                                                                   
     the intent of the sponsor.                                                                                                 
                                                                                                                                
MR. FISK  said that  the committee  substitute reduces  the fiscal                                                              
note and focuses  the bill specifically on the  pollock fishery by                                                              
specifying a  3% rate for  floating processors, which  would level                                                              
the tax  situation, thus providing  equity for all sectors  of the                                                              
Bering Sea  pollock industry.  He explained  that the fiscal  note                                                              
before the committee actually applies  to the first version of the                                                              
bill. The estimated fiscal note for  the committee substitute will                                                              
be even less. He said:                                                                                                          
                                                                                                                                
     It is important to note that  the general fund impact in                                                                   
     this case will actually be half  of the fiscal note that                                                                   
     the  department presents  to  you, because  half of  the                                                                   
     income is shared back with municipalities.                                                                                 
                                                                                                                                
CHAIRMAN TORGERSON asked which municipalities.                                                                                  
                                                                                                                                
MR.  FISK replied  a number  of municipalities  in the  Aleutian's                                                              
east borough and southwestern Alaska.  Unalaska would be affected.                                                              
                                                                                                                                
SENATOR TAYLOR  moved to adopt  the proposed committee  substitute                                                              
to  SB 277,  labeled Version  F, as  the working  document of  the                                                              
committee. There were no objections and it was so ordered.                                                                      
                                                                                                                                
SENATOR LINCOLN  referred to  a letter from  the City  of Unalaska                                                              
saying they  were concerned about  the language in the  bill, "due                                                              
to the  loss of business,  fish tax,  and revenues" and  asked him                                                              
how much  that amounts  to. She  said, "The  fiscal note  that you                                                              
allude to suggests  that the communities could  lose approximately                                                              
50%  of their  share of  the state  revenue loss,  which they  are                                                              
saying is $217,000."                                                                                                            
                                                                                                                                
She wanted  to know if he was  cutting the $217,000 in  half again                                                              
and  asked  him  to  comment  on   the  loss  of  revenue  to  the                                                              
communities.                                                                                                                    
                                                                                                                                
MR. FISK replied that in terms of  revenue sharing, the Department                                                              
of Revenue said that data is confidential. He explained:                                                                        
                                                                                                                                
     As  far as  loss  of income  to  the communities,  on  a                                                                   
     community  by community  basis, it  will not  be a  very                                                                   
     large number, especially in  light of the revenue that's                                                                   
     already generated  by this industry  and is  shared back                                                                   
     to  these communities…As  far as the  $217,000, it  will                                                                   
     actually  be  slightly  less  than that,  because  as  I                                                                   
     indicated  we had  some  confusion with  the  department                                                                   
     over the fiscal note [which will be less].                                                                                 
                                                                                                                                
SENATOR HALFORD  asked what level  factory trawlers  are presently                                                              
taxed at.                                                                                                                       
                                                                                                                                
MR. FISK  replied that they  are taxed  at 3% under  the Fisheries                                                              
Resource  Landing Tax;  but, under  AFA, the  pollock industry  is                                                              
taxed at 5%.                                                                                                                    
                                                                                                                                
SENATOR HALFORD asked about mother ships.                                                                                       
                                                                                                                                
MR. FISK replied that they are taxed at 3%.                                                                                     
                                                                                                                                
SENATOR  HALFORD asked,  "Why,  if we're  going  to take  floating                                                              
processors down to  3% from 5%, why don't we  put factory trawlers                                                              
and mother ships up to the 5% and regain the revenue?"                                                                          
                                                                                                                                
MR.  FISK   replied  that  the   industry  is  already   paying  a                                                              
significant amount  of tax,  and because of  the general  state of                                                              
the industry, higher taxes would not be warranted.                                                                              
                                                                                                                                
SENATOR HALFORD  commented, "Factory trawlers'  total contribution                                                              
to the state is 3% and the mother ships are the same thing?"                                                                    
                                                                                                                                
MR. FISK said that is correct.                                                                                                  
                                                                                                                                
SENATOR HALFORD explained  that the principal was to  try and help                                                              
on-shore and Alaska-based operations.                                                                                           
                                                                                                                                
     And  yet you  have those  two categories  that have  the                                                                   
     most preferential  of any  tax treatment available,  the                                                                   
     same  as  if  they were  essentially  based  onshore  in                                                                   
     Alaska. I wonder why you don't  make both adjustments at                                                                   
     the same  time and  [indisc] your  goal with a  positive                                                                   
     fiscal note instead of a negative one?                                                                                     
                                                                                                                                
MR.  FISK replied  that he  thought  taxation through  the AFA  is                                                              
another   issue  that   would  have   to   be  addressed   through                                                              
modification to the  American Fisheries Act, which is  a much more                                                              
complicated process than what is before them today.                                                                             
                                                                                                                                
SENATOR HALFORD said he thought that was set at the state level.                                                                
                                                                                                                                
MR.  FISK replied  that he  was less  familiar  with the  American                                                              
Fisheries Act.                                                                                                                  
                                                                                                                                
MR. KRIS  NORRIS, Manager, Icicle  Seafood, said Icicle is  a U.S.                                                              
corporation started in Petersburg  in 1965. She supported CSSB 277                                                              
(RES)  because the  intention  of this  bill  is to  seek a  level                                                              
playing field. She  reminded the committee that twice  in the last                                                              
eight years the  State of Alaska has argued that  both the onshore                                                              
and offshore  sectors should  be treated the  same with  regard to                                                              
taxation. She maintained:                                                                                                       
                                                                                                                                
     When the  Fisheries Resource Landing Tax  was originally                                                                   
     enacted in  1994 and contested  by the offshore  sector,                                                                   
     it was  settled in '96 and  the argument that  the state                                                                   
     used was  that those two  sectors should be  treated the                                                                   
     same. That  reasoning was used  again in 1998,  when the                                                                   
     state  was  negotiating  in  Washington  D.C.  with  the                                                                   
     passage of the  American Fisheries Act. It  was our U.S.                                                                   
     Senator Stevens' desire to help  the State of Alaska and                                                                   
     ensure  that everyone  that's  doing  business with  the                                                                   
     resources in  our water and  near them would  contribute                                                                   
     to  the state's  economy. That's  why  the mother  ships                                                                   
     were  also brought  under the  Fishery Resource  Landing                                                                   
     Tax. The  argument made  was that  the offshore and  the                                                                   
     onshore sectors needed to be treated the same.                                                                             
                                                                                                                                
     What's  happened  under state  statute  enacted  several                                                                   
     decades  ago  is  that  the   floating  processors  were                                                                   
     assessed at a different rate  and I don't have a problem                                                                   
     with  that when  it  comes to  species  like salmon  and                                                                   
     herring  and some  of our  traditional species,  because                                                                   
     anyone  can   get  into  the  processing  end   of  that                                                                   
     business. But  what the American Fisheries  Act did when                                                                   
     it was passed  in 1998, is it limited who  was qualified                                                                   
     to process pollock. Under current  state statute coupled                                                                   
     with the  American Fisheries  Act, we're in  a situation                                                                   
     where  not  everyone is  treated  equal, yet  we're  all                                                                   
     competing with each other in  the same market place. So,                                                                   
     what we have is a situation  where we have two qualified                                                                   
     floating processors  that are assessed  at a rate  of 5%                                                                   
     while all  their competitors, regardless of  what sector                                                                   
     they're  in or how  they operate, are  assessed at  a 3%                                                                   
     rate.[END OF TAPE]                                                                                                         
                                                                                                                                
TAPE 02-3, SIDE A                                                                                                             
                                                                                                                                
MS. NORRIS continued:                                                                                                           
                                                                                                                                
     The only thing they do on board  is to process the fish.                                                                   
     They don't  catch it.  They have  other boats bring  the                                                                   
     fish to  them and then  they process it. The  difference                                                                   
     is where  they operate.  One is  considered part of  the                                                                   
     onshore  sector, which  operates within  three miles  in                                                                   
     state waters.  The mother  ship sector operates  outside                                                                   
     of that three miles. But operationally  speaking they're                                                                   
     the same. I think because of  that, all the sectors need                                                                   
     to be treated the same when it comes to taxation.                                                                          
                                                                                                                                
SENATOR HALFORD  said Ms. Norris  wants to change the  system that                                                              
was the rule until now, but she is  not willing to change the rule                                                              
to go in  reverse. He asked if  this bill passed, would  anyone be                                                              
left paying the 5% rate.                                                                                                        
                                                                                                                                
MS.  NORRIS replied  that this  would  equalize the  rate paid  on                                                              
pollock only. For  other species, floating processors  would still                                                              
pay the 5% rate and she didn't have a problem with that.                                                                        
                                                                                                                                
SENATOR  HALFORD  noted  that the  differentials  would  still  be                                                              
there.                                                                                                                          
                                                                                                                                
MS. NORRIS replied yes.                                                                                                         
                                                                                                                                
SENATOR  HALFORD asked  if they  had  the authority  to apply  the                                                              
differential in reverse under the American Fisheries Act.                                                                       
                                                                                                                                
MS. NORRIS  replied, "The American  Fisheries Act isn't  tying the                                                              
hands of  the State  of Alaska in  how they  can apply  a taxation                                                              
rate.  What  it's doing  is  determining  who  is included  to  be                                                              
subject to a tax."                                                                                                              
                                                                                                                                
MR. CHUCK HARLAMERT,  Department of Revenue, said  he would answer                                                              
questions.                                                                                                                      
                                                                                                                                
CHAIRMAN TORGERSON asked what the  committee substitute did to the                                                              
fiscal note.                                                                                                                    
                                                                                                                                
MR. HARLAMERT replied that they did  a fiscal note on the same law                                                              
last  year based  on  2000  data. They  had  to estimate  a  range                                                              
because  the taxpayer  population  is so  low, they  had to  guard                                                              
confidentiality.  He remembered  that  the fiscal  note said  they                                                              
would lose $333,000  to $400,000 to bring pollock  down from 5% to                                                              
3% for floaters.                                                                                                                
                                                                                                                                
SENATOR ELTON explained that loss  would be shared equally between                                                              
local communities and the State of Alaska. Mr. Harlamert agreed.                                                                
                                                                                                                                
SENATOR HALFORD asked  him if they reverse the tax  with regard to                                                              
mother  ships  and  factory  trawlers,   what  income  that  would                                                              
generate.                                                                                                                       
                                                                                                                                
MR.  HARLAMERT responded  with some  background  on the  Fisheries                                                              
Land Tax:                                                                                                                       
                                                                                                                                
     When we  adopted it, we  had a choice between  assessing                                                                   
     it  at   5%  or  3%   and  that's  within   the  state's                                                                   
     prerogative.  The  Department   of  Revenue  recommended                                                                   
     using 3% because  5% would put them too much  at risk of                                                                   
     discriminating against interstate  commerce. Essentially                                                                   
     we  have free  reign  to tax  any activity  that  occurs                                                                   
     within Alaska  within our waters and we have  no ability                                                                   
     to tax  on our  own activities  that occurs outside  our                                                                   
     waters. If we  were to impose a discriminatory  tax rate                                                                   
     on  fishing  agencies  who merely  landed  fish  in  the                                                                   
     state, there's  a possibility  that it might  not stand.                                                                   
     It is our  recommendation at the time to not  move to 5%                                                                   
     as we do  with instate floating processors,  but to stay                                                                   
     with  the base  3%.  The 5%  rate is  in  part aimed  at                                                                   
     drawing  a form  of equity  between floating  processors                                                                   
     and onshore processors based upon local taxation…                                                                          
                                                                                                                                
MR.  HARLAMERT  said  if they  were  to  move  ahead and  tax  the                                                              
offshore pollock  fleet at  5% on their  landings, the  entire tax                                                              
base  would need  to change  to tax  everybody at  5%, even  shore                                                              
based processors,  and allow  a credit against  the state  tax for                                                              
local taxes paid.                                                                                                               
                                                                                                                                
SENATOR HALFORD said that would achieve the same differential.                                                                  
                                                                                                                                
MR. HARLAMERT agreed with that.                                                                                                 
                                                                                                                                
SENATOR LINCOLN said the City of  Unalaska was concerned about the                                                              
loss of the fish tax and revenue  to their community. She asked if                                                              
he knew how  many communities would  be affected by this  and what                                                              
the range of the impact would be to a given community.                                                                          
                                                                                                                                
MR. HARLAMERT said  he couldn't do that because  the population of                                                              
taxpayers they are talking about  is so small that if they were to                                                              
go  further into  detail  and talk  about  the communities,  their                                                              
department's confidentiality requirements would be violated.                                                                    
                                                                                                                                
SENATOR  LINCOLN  said she  didn't  have  any  idea if  they  were                                                              
talking about $10,000  or $100,000 and that makes  it hard for her                                                              
to know what the impacts would be.                                                                                              
                                                                                                                                
CHAIRMAN TORGERSON said he thought  since they only got one letter                                                              
and  the area  was so  small  that it  couldn't  be disclosed,  so                                                              
Unalaska is taking the brunt of this.                                                                                           
                                                                                                                                
SENATOR  WILKEN   asked  if  he  understood  correctly   that  the                                                              
proximity   of  the  processor   to  the   municipality   was  the                                                              
determinant as to whether the tax is 3% or 5%.                                                                                  
                                                                                                                                
MR. HARLAMERT said  that outside of three miles  the state doesn't                                                              
have  taxing jurisdiction.  The state  can only  tax the  offshore                                                              
fleet  when it  lands fish  in the  state or,  under the  American                                                              
Fisheries Act, the "feds" do it for us.                                                                                         
                                                                                                                                
SENATOR WILKEN asked  if he had a floating offshore  ship he would                                                              
pay 5% but  if he brought it in  and hooked it up to  the dock, he                                                              
would pay 3%.                                                                                                                   
                                                                                                                                
MR. HARLAMERT replied yes, if it is hooked up permanently.                                                                      
                                                                                                                                
SENATOR WILKEN  said this bill takes  the ship that's  three miles                                                              
offshore and can move from fishery to fishery and makes it a 3%.                                                                
                                                                                                                                
MR. HARLAMERT said it does that for one species - pollock.                                                                      
                                                                                                                                
SENATOR ELTON asked if he could tell  them the total revenues that                                                              
would be lost for pollock.                                                                                                      
                                                                                                                                
MR. HARLAMERT  replied that he  wasn't prepared for  the committee                                                              
substitute, but he could get that data.                                                                                         
                                                                                                                                
SENATOR HALFORD  asked how much the  3% tax generates  annually on                                                              
the factory trawlers and mother ships.                                                                                          
                                                                                                                                
MR.  HARLAMERT  replied  about  $7  million  and  this  figure  is                                                              
published under the fisheries landing  tax in their annual report.                                                              
                                                                                                                                
SENATOR TAYLOR  moved to  pass CSSB  277(RES) from committee  with                                                              
individual recommendations. There were no objections and it was                                                                 
so ordered.                                                                                                                     
                                                                                                                                
CHAIRMAN TOGERSON adjourned the meeting at 5:27 p.m.                                                                            
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects