HOUSE BILL NO. 419 An Act relating to regional seafood development associations and to regional seafood development taxes. REPRESENTATIVE DAN OGG testified in support of HB 419. The bill was recommended by the Joint Legislative Salmon Industry Task Force and would allow fishermen to form regional seafood development associations to tax themselves, providing a stable funding source for their marketing efforts. Representative Ogg noted that farmed salmon production has increased dramatically over the past decade, exceeding the wild salmon catch and causing prices to plummet. In order to compete in that market, Alaska's salmon fishermen have sought creative ways to differentiate wild fish from their penned counterparts. One method that has proven effective in distinguishing the two is regional marketing. Copper River fishermen took the lead in establishing a brand for their catch, proving the enormous potential for niche markets. Now several other regional brands have been established in communities such as Kenai, the Aleutian Islands, and Kodiak. Representative Ogg pointed out that most branding organizations are currently dependent on a mix of State and federal grants to fund marketing efforts. However, the grants are often unreliable and one-time revenue sources. HB 419 would allow regional seafood development associations to assess themselves between one-half and two percent to provide a steady stream for marketing dollars. HB 419 creates 12 distinct seafood development regions based on commercial fishing management areas established by the Board of Fish. Under the bill, all the fishermen in a region can vote to participate in an association or it may be limited to a specific fishery or fisheries. Once a regional association is formed, other fisheries can vote themselves into or out of the association, but there can only be one association per region. Representative Ogg pointed out that as the amount of imported and farmed seafood continues to rise, regional marketing associations would provide a valuable tool for Alaska's commercial fishermen. Regional associations are able to focus on the unique areas where the fish are harvested, building on Alaska's reputation for pristine waters that yield superior fish. Representative Stoltze questioned if there would be more value in allowing areas to opt out of the Alaska Seafood Marketing Institute (ASMI). Representative Ogg responded that through his discussions, there was agreement that people want to keep that separate, and do not want to negatively impact ASMI, but instead work cooperatively. Representative Stoltze asked if the "pit falls" of ASMI could be avoided. Representative Ogg responded that ASMI does an excellent job marketing all Alaskan seafood's. The proposed associations would have more freedom in marketing particular products and with access to specific development. Representative Stoltze inquired if the amendment he distributed for a three-year sunset made it into the member's packets. Representative Ogg commented that the associations would be done voluntarily. The bill would establish a vehicle for individual areas of the State to go through with a set up and that they would either make it or they would fail. To require coming back to the Legislature and going through it again would not be productive. He believed that they would stand on their own. He requested that a sunset not be tied to the proposed legislation. Co-Chair Williams recommended that a conceptual amendment could be brought forward. Representative Fate noticed the twelve regions and asked how a situation would be handled when a specific brand was indicated for a specific area. Representative Ogg replied that was why there would be twelve regions established. The bill attempts to acquire flexibility and would not preclude an association from adopting two products. That flexibility is already included in the bill. Representative Fate commented on the different qualities of each region and that marketing different brands would be important. Representative Ogg acknowledged that will be allowable under the bill. The Salmon Task Force noted that the Yukon River is divided into three regions in recognition that there are different fisheries taking place over a broad distance. Representative Hawker referenced Page 11, stipulating that a qualified regional seafood association be brought into existence, and may request State financial assistance from the Department. He highlighted the use of "may and shall" and the determinations that could be made using that language. He inquired the intent, understanding that it would be a self-assessment. TAPE HFC 04 - 64, Side B  Representative Ogg explained that section allows for programs currently in place. The Office of the Governor is funding some of those regional start-up efforts. There has been recognition of that status and at a future date, there could be some sort of development for that fishery with money flowing from that office. The proposed language leaves that window open for applying. The intent is that the associations are self-standing. Representative Hawker inquired if the bill could be as effective and accessible without Sections D & E on Page 11. Representative Ogg responded that removing that language would not foreclose them, as most of the entities are non- profits. If non-profits are available to apply for State or federal grants, it would not make a difference. Representative Joule referenced Page 10, Lines 27 & 28 and asked how that language would affect the inclusion of Kotzebue with the Yukon-Northern region as opposed to Norton Sound-Port Clarence area. Representative Ogg explained that when the decision was made, representatives of each area indicated that they thought that would be the best choice. He admitted that he did not know exactly how the decision had been determined. Co-Chair Williams referenced Page 4, Lines 25-31, and the two ballots for each eligible interim-use permit and entry permit holder. Representative Ogg explained that language was crafted from pre-existing situations. CHUCK HARLAMERT, REVENUE AUDIT SUPERVISOR, TAX DIVISION, DEPARTMENT OF REVENUE, offered to answer questions of the Committee. JERRY MCCUNE, UNITED FISHERMAN OF ALASKA (UFA), JUNEAU, voiced strong support for the legislation, as it will help fishermen to finance their own promotional programs. He noted that alternate sources of financing are beginning to dry up. Co-Chair Harris asked if it would be mandatory that fisherman join. Mr. McCune explained that in the current version of the bill, the 1% salmon tax would be dropped. He added that there would be the option of being taxed and with that option, the person would then have a vote. He pointed out the infrastructure of the proposed legislation. Co-Chair Williams understood that all fishermen would have to pay the tax in their area. Mr. McCune acknowledged that was correct and that if a majority of the permit holders voted, then all permit holders would have to pay that tax. He noted that a mechanism was included to help remove it. Representative Hawker questioned if the sections indicating that the seafood development associations "may," request State financial assistance, were critical to UFA's support of the bill. Mr. McCune responded that there are grants available to non-profits through the Department of Community & Economic Development. The language attempts to guarantee if a new non-profit was formed that they be eligible for it. He indicated that if the sponsor was satisfied with removing that language, then UFA would also support that action. Representative Stoltze MOVED to adopt Amendment #1, #23- LS1418\V.1, Utermohle, 3/9/04. (Copy on File). Co-Chair Williams OBJECTED. Representative Stoltze advised that the amendment would add a sunset clause, which is a common procedure used for new programs. He pointed out that ASMI currently has a sunset. Representative Ogg advised that the amendment also deletes language on Page 1, Line 8. Representative Stoltze corrected that was a drafting style for sun setting a bill. Representative Ogg stated he did not support the three-year sunset or the amendment. He thought that Amendment #1 would complicate the issues. Co-Chair Harris referenced Page 2, Line 4, Section 7, of the amendment. Representative Stoltze advised those were repealers. Co-Chair Williams informed members that he had worked on the Fish Task Force and that the fishermen have worked very hard to come to an agreement. The proposed legislation has a lot of support from fishermen statewide. He stated that he did not support the amendment and thought that the Alaskan fishermen should be shown support during these difficult times. He emphasized that the fishermen support the tax to themselves. Representative Stoltze inquired if it currently was a voluntary tax. Representative Ogg responded that if you were in a fishery and the fishery decides to participate, and 51% of those permit holders make that decision, everyone must pay the tax. He stressed that it is as voluntary as possible in Alaska and added that there could be a petition to be removed. Representative Hawker indicated concern that the sunset will th take place December 30, 2007. The industry members would have to make the decision, establish the association and then move forward. Establishing a non-profit association becomes durable and perpetual. He thought the operations of the bill would be inconsistent and would provide only a brief authority for the durability of the association. He concurred that the sunset may not be appropriate in the proposed circumstance. Co-Chair Harris pointed out that establishing the associations must be a majority rule. He noted that all the dissenters would be forced to pay the tax. He asked if that would create friction among the fishermen. Representative Ogg referenced the history of the entities, pointing out that there have been fisheries that have opted for such a status. The action will provide for a salmon enhancement organization. It has worked in the past and should work in the future. Co-Chair Harris asked if Representative Ogg would be willing to support a five-year sunset rather than the proposed three-year. He believed that five years would provide the program the opportunity to determine satisfaction. He thought that the next authorization would be a straightforward process. Co-Chair Williams warned that the proposed program should not be compared to ASMI. ASMI is a tax bill, whereas, HB 419 is a self imposed taxation by vote. Co-Chair Harris pointed out that ASMI too, was put in place at the recommendation of fishermen. Representative Ogg acknowledged that ASMI is different as it is a State imposed tax. He admitted that had been a "tough" vote to pass. Co-Chair Harris inquired that if the legislation was passed and an association was formed, would those fishermen then also pay the ASMI tax. Representative Ogg replied that if the law remains as is, then they would pay both. Representative Stoltze MOVED to AMEND Amendment #1, Page 2, Line 6, deleting "2007" and inserting "2009". th Co-Chair Harris requested to change the date to "June 30, 2009". There being NO OBJECTION, the amendment was amended. Representative Fate asked what the Legislature could do if something went wrong with the proposal with the extension and sunset. Representative Stoltze explained that he did not know the fishery issues and was not comfortable voting for taxes in a new program. He warned that taxation should be approached cautiously especially in a group as diverse as the fisheries. The sunset would provide more comfort to him personally. Representative Fate interjected that HB 419 is a tax bill but not an imposition to levy a tax. Co-Chair Williams advised that he himself has been working on a fisheries tax bill, pointing out that all the fisheries support HB 419. BOB THORSTENSON, PRESIDENT, UNITED FISHERMEN OF ALASKA (UFA), appreciated Representative Stoltze's concern with the current number of taxes paid by fishermen. He noted that on an average year, 68% of his revenue was taken through taxation. There are many groups who are taking the opportunity to use the proposed vehicle to implement a package supported statewide. There has been a thorough review of the legislation from the UFA with no objections from any of the 34 member groups. He thought that the sunset amendment would "cripple" the legislation. Representative Stoltze asked if the support was 51% of the actual membership or of those voting. Mr. Thorstenson responded that it was 51% of the permit holders voting. Representative Stoltze interjected that the small fishing people might not be aware of the election. Mr. Thorstenson stated that was out of the purview of the UFA. Those that missed the vote would most likely be the non-resident voters living outside of the State. He noted that there has been concern voiced in creating a level playing field for the commercial fishing business. There has been a massive consolidation in the processing sector that has not been accompanied by a consolidation in the harvesting center. The processing sector has the opportunity to do a tremendous amount of marketing through new legislation and programs. The proposed legislation dovetails nicely with the U.S. ASMI legislation brought forward by Senator Stevens. The opportunity for fishermen to do their own thing and market by region would be vastly facilitated through the legislation. Co-Chair Williams asked if there was a vote, who could start it. Mr. Thorstenson replied that would be the Commissioner of Department of Community & Economic Development. A roll call vote was taken on the motion to adopt the amended Amendment #1. IN FAVOR: Meyer, Stoltze, Harris OPPOSED: Moses, Chenault, Croft, Fate, Foster, Hawker, Joule, Williams The MOTION FAILED (3-8). Representative Foster MOVED to report CS HB 419 (RES) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CS HB 419 (RES) was reported out of Committee with a "do pass" recommendation and with a zero note #1 by the Department of Community & Economic Development and in determent note #2 by the Department of Revenue.