HOUSE BILL NO. 4006 "An Act relating to the fisheries business tax and fishery resource landing tax; removing the minimum and maximum restrictions on the annual base fee for the reissuance or renewal of an entry permit or an interim-use permit; relating to refunds of the fisheries business tax and the fishery resource landing tax to local governments; and providing for an effective date." 5:16:30 PM Representative Wilson MOVED to ADOPT Amendment 1, 29- GH2460\A.3 (Glover/Nauman, 5/28/16) (copy on file): Page l, lines 1 - 2: Delete "removing the minimum and maximum restrictions on" Insert "relating to the calculation of' Page 1, line 7, through page 2, line 3: Delete all material and insert: "*Section 1. AS 16.43.160(c) is amended to read: (c) The annual base fee for issuance or renewal of an entry permit or an interim-use permit shall be established under this subsection [MAY NOT BE LESS THAN $30 OR MORE THAN $3,000. THE ANNUAL BASE FEE MUST REASONABLY REFLECT THE DIFFERENT RA TES OF ECONOMIC RETURN FOR DIFFERENT FISHERIES]. In addition to the annual base fee established by the commission under this subsection, a nonresident shall pay an annual nonresident surcharge for the issuance or renewal of one or more entry permits or interim-use permits. The commission shall annually determine the annual fee for the issuance or renewal of an entry permit or interim- use permit as follows: (1) the annual base fee for the issuance or renewal of an entry permit or interim-use permit in a limited entry fishery is 0.4 percent of the estimated value of the entry permit, subject to adjustment under (3) of this subsection; if insufficient data is available to determine the estimated value of an entry permit or if no permit sale values have been recorded for the most recent three years, the calculation of an annual fee in a limited entry fishery may be calculated as if the limited entry fishery were an unlimited entry fishery under (2) of this subsection, subject to adjustments under (3) of this subsection; (2) the annual base fee for the issuance or renewal of an interim-use permit in an unlimited entry fishery is 0.4 percent of the estimated average gross earnings for each permit in the most recent three years for which data are available; (3) the commission may make an adjustment to an annual base fee if (A)more than one permit type allows the directed harvest of the same species with the same gear in the same area or if one permit allows the directed harvest of the same species by a combination of gear in the same area; or (B) the amounts determined under (1) and (2) of this subsection would result in an annual base fee that is not proportional to the rate of economic return for the fisheries covered by that permit [THE COMMISSION SHALL ESTABLISH THE ANNUAL NONRESIDENT SURCHARGE BY REGULATION AT AN AMOUNT THAT IS AS CLOSE AS IS PRACTICABLE TO THE MAXIMUM ALLOWED BYLAW]." Co-Chair Thompson OBJECTED for discussion. Representative Wilson read from a prepared statement: The fisheries business tax is paid by Alaska's small boat fleet -those who work and live in Alaska communities. The fisheries landing tax is paid by the Seattle-based trawl fleet. Representative Wilson believed she was referring to the incorrect talking points and requested an "at ease." 5:17:11 PM AT EASE 5:17:29 PM RECONVENED Representative Wilson explained Amendment 1. She noted there had been a $3,000 cap, which had been removed [in the CS]. However, there was an existing regulation that would maintain fairness. She asked to hear from the administration about the difference between the regulation and the cap. She believed the smaller boats were paying the full amount because they were underneath the $3,000 cap when the calculation was done. She furthered the larger boats were capped at $3,000 and would be paying more. She remarked it meant the possibility of "millions of dollars currently not going." She wanted to ensure it was the right move to make versus an overhaul of the regulations and the particular section of the fishing tax. Representative Edgmon asked if the department would address the committee. BENJAMIN BROWN, COMMISSIONER, ALASKA COMMERCIAL FISHERIES ENTRY COMMISSION (CFEC), DEPARTMENT OF FISH AND GAME, answered the item under discussion was not strictly speaking a tax; it was a permit renewal fee collected by CFEC. The fee amount was not set in statute. The statute required the fee to proportionately reflect the economic value of the fishery. A regulation adopted by CFEC set the formula at four-tenths of one percent of either the average value of a permit or in the case of all interim-use permits not in limited entry fisheries, four-tenths of one percent of the average gross earnings in the fishery for the three years before the fee category was set. The fee cap had been put into statute (with SB 93 sponsored by former legislator Senator Ben Stevens) in 2005 when the cap was raised from $300. At the time, there had been testimony by Cheryl Sutton that the $300 cap was artificial because the statute stated the base fee needed to reasonably reflect the different rates of economic return for different fisheries. He elaborated the cap resulted in fisheries with a very high economic return being charged fees that were disproportionately low. He believed it was fair to say the statement would apply to the current circumstance related to the $3,000 cap. He explained it resulted in some fishermen not paying $7,000 they would otherwise pay. Mr. Brown elucidated the other side of the argument. He explained that merely looking at the gross earnings for three years before did not paint a full picture of how the fishermen were doing in whether or not they can easily absorb a $7,000 increase in fees. The current bill dealt with a permit increase and two different kinds of taxes. The items were all pieces of a puzzle that inform whether or not removing the cap would be the fair and equitable thing to do. The commission would do whatever the wisdom of the legislature designated. He furthered if the $3,000 cap was removed the CFEC would charge fishermen more in accordance with the four-tenths of one percent formula. Alternatively, if the cap was not removed, CFEC could look at some of the more nuanced elements of whether or not the fees were fair and if there was a superior way to calculate them so it did not unfairly benefit or hinder one category of fishermen. BRUCE TWOMLEY, CHAIRMAN, ALASKA COMMERCIAL FISHERIES ENTRY COMMISSION, DEPARTMENT OF FISH AND GAME, added that there was a formula for interim-use permits (IUP) in fisheries not limited by the state. He elaborated they were the only permits that would be impacted by the removal of the cap. The function of Section 1 was to ensure all captains were subject to the same formula. 5:22:16 PM Representative Gara deduced if four-tenths of one percent of the value of for a small fishing operation equaled $3,000, the fisherman would be paying a higher percentage than someone with a large factory trawler, which also paid the $3,000 fee. He asked for verification that the factory trawler would be paying a much smaller percentage of the value of its vessel than a smaller vessel paying $2,800. Mr. Twomley answered in the affirmative. Representative Gara surmised in that instance a person with a small vessel paid a higher percentage of the value of their operation. Mr. Twomley replied in the affirmative. Representative Gara asked for verification that the bill as written was trying to make the situation equitable so everyone paid the same percentage. Mr. Twomley replied the bill would subject all captains in fisheries not limited by the state to the same formula. Representative Munoz asked for verification that within a certain class of boat and fisheries (e.g. vessels between 60 and 90 feet), one vessel could catch significantly more than another vessel but pay the same fee. Mr. Twomley answered that the formula was only reflective of average earnings by permit in the fishery; it did not attempt to measure capacity. Representative Munoz's scenario was a possibility, which would require an analysis. He detailed it was possible some vessels with lighter capacity paid more in fees than some vessels with less capacity. Representative Munoz provided an example of a 55-foot vessel with a greater capacity than a larger boat in the 60 to 90-foot category. She asked if the change would make it possible for the smaller boat to pay less than another boat with a smaller catch. Mr. Twomley answered that it was possible or the fees may come out the same depending on the application of the formula. Representative Munoz stated that the fee was associated with the captain. She reasoned some boats had more than one skipper. She wondered if the fee would be assessed multiple times for the same operation [if a boat had more than one captain]. Mr. Twomley answered that the fee applied to captains; therefore, each captain would pay for the needed IUP. 5:26:16 PM Representative Edgmon was concerned that the proposed change would put into statute what CFEC did by regulation. He worried that it would hinder the commission's ability to make changes to the regulatory process in the future. Mr. Twomley replied that it was a fair assessment. Vice-Chair Saddler summarized his understanding of the amendment. He believed the amendment would eliminate the $3,000 cap on the entry permit fee. Representative Wilson interjected that the cap had already been removed. The concern was the regulation could be easily changed without going before the legislature because the cap had been removed. She agreed the amendment would tie the commission's hands, which was the purpose. Co-Chair Thompson confirmed that the CS reflected the elimination of the $3,000 cap. The amendment would put the formula in statute. Representative Edgmon stated that it captured his concern. He believed the committee was doing things on an ad hoc basis related to the bills. He had spoken with Mr. Twomley and he wanted to ensure the committee was taking action with the proper amount of analysis and foresight. He was uncertain he could "get there" on the amendment. Vice-Chair Saddler believed the primary purpose of the amendment was to set the formula for the fee in statute. He pointed to page 2, line 6, paragraph 3, which gave CFEC the ability to adjust the fee under certain circumstances. He asked for an explanation of the conditions. Mr. Twomley provided an example related to Southeast crab fisheries CFEC had limited (i.e. red king, brown king, and tanner), more often than not in the recent past, the red king crab fishery had not opened. Under the circumstances, when a fishery did not open, the permit holder was entitled to a refund if they had paid the fee. The authority provided under the aforementioned section would allow the commission to value the permit at zero during a year in which the fishery would not open. The ability would avoid the refund procedure and meant CFEC could yield a fairer evaluation of the value of a permit combining king and tanner crab fisheries. Mr. Brown elaborated that in his 6 years of work with CFEC, the research staff annually prepared and provided the gross earnings and average permit values, provided commissioners with detail on the fee class would be according to the formula, and pointed out potential anomalies such as the Southeast king crab fishery. Almost all of the fees were decided according to the formula - CFEC only deviated from the formula when there was clear evidence it was necessary. Based on his experience, any deviation from the formula was always in the interest of ensuring fishermen were not unduly burdened by a fee they would not be able to pay. Vice-Chair Saddler asked if the amendment would make it more difficult, impossible, or have little impact on the commission's ability to operate. Mr. Twomley answered that the amendment accurately captured the formula portion of CFEC's regulations. As long as the remainder of the regulations remained in place CFEC could function. Mr. Brown referred to consultation with Representative Wilson when she had prepared the amendment. He shared she had been concerned about unduly tying the commission's hands. He explained the commission was already generating millions of dollars in excess of its operating costs. Additionally, CFEC had taken a "sizeable hit" in the current year and was also downsizing. He believed the concern would come into play if a commission were in a position to change a regulation and had an incentive to dramatically increase the revenues. He did not believed CFEC's structure gave incentive to do that, but he did not know what the future would hold. 5:32:12 PM Co-Chair Neuman disputed a statement that regulations could be easily removed. He stated regulations were hard to change and required 30 days of public comment. He furthered that statutes were very difficult to change because it required going through the legislature. He surmised the legislature did not know how fees changed and did not know what was coming in the future. He opposed the amendment because of that issue. He reasoned every time something was put in statute it made it much more difficult to make adjustments. He referred to Mr. Brown's testimony that CFEC did not expect to have to change regulations for quite some time and the commission would try to ensure any change did not unduly burden anyone within the fishing industry. He asked what process the commission took to change regulations. Mr. Twomley answered that CFEC went through a fairly rigorous process dictated by the Administrative Procedure Act. The process required notification, public hearings (some near the Board of Fish) and other. The commission took the public comment period very seriously and reviewed it prior to taking action. Representative Gara thought the maker of the amendment was trying to reestablish the $3,000 cap; however, he believed the amendment removed the cap. Co-Chair Thompson clarified that the cap had been removed in the CS. The amendment addressed "how to do the brackets" in statute. Representative Gara thought the amendment simply removed the cap, but it actually related to the brackets. He asked the commission how the amendment would change the bill. Mr. Brown answered that in addition to removing the $3,000 cap [the CS removed the cap], if the amendment were adopted it would put the four-tenths of one percent formula into statute (it was currently only in the department's regulations); therefore, it would require a future legislative action to change the formula. The formula could currently be changed by CFEC at its own discretion in compliance with the Administrative Procedures Act. Representative Gara asked for verification the amendment in no way implemented the cap. He asked for confirmation the cap had been removed in the bill. Mr. Brown answered in the affirmative. Representative Gara asked for a recap of what the amendment would do. Representative Wilson explained that when the cap had been removed there had been concern from fishermen who were fine with the formula. The commission currently had regulations in place. Although regulations were not easy to change, they were easier to change than statute. The fishermen she had heard from felt more comfortable uplifting the regulations in place of the cap so the small and large fishermen would be treated equitably because the formula would be equal. Currently with the cap removed, it would still be equal, but would take a different process to change the formula. 5:37:05 PM Representative Gara asked if the amendment had any fiscal impact. Mr. Brown answered in the negative. The commission would be able to implement its fee structure with no additional staff or fiscal impact. Representative Gara wondered if the amendment would have any impact on revenue to the state. Mr. Brown answered that the removal of the fee cap could yield approximately $2.1 million. Putting the formula in statute would in theory mean revenue would remain the same going forward if average gross earnings and permit values remained the same. If those items changed dramatically and it became necessary to change the four-tenths of one percent formula it would have to be done legislatively and not by regulation. The amendment would not have a big fiscal impact. The removal of the cap was the item that would result in a $2.1 million positive fiscal impact. Representative Gara understood that the formula was based on the average earnings of a vessel. He asked for detail. Mr. Twomley answered that it was the average earnings of the permit in the fishery, which was measured over the most recent 3-year period. The formula applied to IUPs in fisheries not limited by the state. The earnings were averaged, which provided a figure to plug into fee classes. Representative Gattis asked if the fishermen Representative Wilson had heard from were from the Bristol Bay region. She asked if it was a region-specific fishery issue or encompassed all fisheries. Representative Wilson replied the concern related to all fishermen. The amendment was in response to a concern that once the cap was removed, the amounts may be changed arbitrarily. She believed some of the fishermen she had spoken with probably did not know what it took to change a regulation. Representative Munoz asked for clarification on fees associated with permit classes. She asked for verification that the fee pertained to an entire population of fisherman in a particular class. Alternatively, she wondered if the fee was directed to a specific boat operation. Mr. Twomley answered that the fee was derived from all of the permits fishing in a given fishery. In some fisheries the IUPs were sold based on vessel length (there was a cutoff point). Fees could be different but it was still traceable in the average. Representative Munoz stated that her concern about removing the cap was within the class of fishery a vessel was paying the same fee, but may have a different total catch, which varied a great deal in the fee class. Mr. Twomley answered that the fee was traceable to the average of all participants. Mr. Brown elaborated that the way to solve Representative Munoz's concern was to redefine the interim-use open access fisheries where some of the vessel length designations that were part of the gear definition may not reflect current practices in the fishery. He stated it was a separate issue from whether or not the fee cap should remain in place. He understood from the perspective of a fisherman who believed someone else's fee was going to increase but theirs would not or vice versa. He reasoned some fishermen would be happy while others would not be. He agreed the policy question was important, but it was separate from the fee cap. 5:42:00 PM Representative Pruitt relayed he had spoken with several of his colleagues from coastal communities who had different thoughts about the issue. He was concerned the amendment would potentially limit the ability of young people to captain boats if every captain would have to pay the fee. He asked if the amendment would prevent CFEC from being able to address the concern if the bill removed the cap. He asked what the department had the ability to do under the current regulation that had not been done and potentially needed to be done and how the amendment could potentially CFEC's hands to be able to address the concerns. Mr. Twomley pointed out that the vessels and IUPs impacted by removing the fee cap were among some of the largest and most productive vessels fishing in Alaska. He did not foresee the issue coming up in those fisheries. He detailed all of the other fisheries would remain in place as they currently existed. The amendment only impacted IUPs in place in fisheries within the $3,000 fee cap (i.e. larger boats, high seas fisheries, factory trawlers, and etcetera). Representative Pruitt shared that one of his colleagues from a coastal region had highlighted the potential for a ship under the 60-foot limit to have a larger catch than a larger vessel, but to not pay the same amount the larger vessel had to pay. Whether the cap was removed or not, he believed the issue needed to be addressed. He asked if the amendment would bind CFEC's hands from fixing something he believed needed to be addressed. Mr. Twomley replied it had been said that fishermen were slow to change, but quick to adapt. He believed Representative Pruitt's example related to adaptations where fishermen increased their capacity. He detailed the phenomenon had existed in Bristol Bay for the life of the fishery where a 32-foot limit existed, but fishermen found ways to expand their capacity. It was an issue CFEC would be happy to look at in any given fishery and could make an effort to correct an inequity if there was a solution. Representative Pruitt believed it addressed the concern his colleague had brought to him about whether or not the cap was removed or maintained. He addressed the amendment, which would place the current regulation in statute. He asked if the amendment limited the department's ability to address the various aspects of how CFEC assessed the fees. He wondered if the amendment would bind CFEC's hands to address the fee structure. Mr. Twomley replied the fee structure was based on the average permit earnings in the fishery. Within particular fisheries sometimes there were divisions between the vessel lengths. Analyzing the problem presented by Representative Pruitt would require an analysis of the fishery, which was possible irrespective of the passage of the amendment. 5:47:23 PM Representative Edgmon was opposed to the amendment. He believed the discussion underscored the complexity of the issue. He liked the direction the sponsor of the amendment was going, but believed there should be an analysis before making the change. He did not want to tie the commission's hands if circumstances changed down the road. Mr. Brown noted that his term ran through 2019, Mr. Twomley's term ran through 2018, and the third commissioner position was currently vacant. He relayed Governor Bill Walker had recently solicited applications for the vacancy. He stated "in an uncertain world, that's as much certainty as we can tell you about what the commission might do if there's not a statute mandating that there be a four-tenths of one percent formula." He believed he and Mr. Twomley were of the mind to address the concerns raised about the potential for inequities based on fisheries that use vessel length in their classifications. He stated the issue was separate from the fee cap and whether or not the four- tenths of one percent formula was in regulation or statute. Co-Chair Thompson remarked that they appeared to be looking for a problem with a solution, but the answer had not yet been determined. Representative Wilson provided a wrap up on the amendment. She explained the amendment aimed to address the concern that when the cap was removed it may become easier for the department to increase fees. The amendment maintained CFEC's current regulation and would put it into statute. She summarized the amendment would put into statute CFEC's current regulations for the calculation of the annual base fee, a renewal and issuance of an entry permit or limited use permit. With the removal of the statutory cap of a maximum fee in the current bill, there was a concern that fees could be raised arbitrarily in the future because the calculation for the fee was in regulation. She acknowledged there was a process to change the fee, which would have to be followed. She detailed the amendment protected smaller Alaskan fishing operations as well as larger operations and retained the current fiscal impact of removing the cap, while ensuring the calculation for the fees remained consistent with the current regulation and calculation CFEC approved of. She relayed she had spoken with CFEC about the amendment. She observed there appeared to be many other concerns that were unrelated to the regulation. Co-Chair Thompson MAINTAINED his OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Wilson OPPOSED: Pruitt, Saddler, Edgmon, Gara, Gattis, Guttenberg, Kawasaki, Munoz, Neuman, Thompson The MOTION to adopt Amendment 1 FAILED (1/10). 5:51:24 PM Representative Munoz MOVED to ADOPT Amendment 2, 29- GH2460\A.5 (Martin/Nauman, 5/28/16) (copy on file): Page 1, lines 1 - 2: Delete "removing the minimum and maximum restrictions on the annual base fee for the reissuance" Insert "relating to the nonresident surcharge for the issuance" Page 1, lines 9 - 10: Delete "[MAY NOT BE LESS THAN $30 OR MORE THAN $3,000. THE ANNUAL BASE FEE]" Insert "may not be less than $30 or more than $3,000. The annual base fee" Co-Chair Thompson OBJECTED for discussion. Representative Munoz explained that Mr. Brown had discussed the inequities where vessel length was part of the criteria in establishing permit fees. She detailed the fees followed the captain or boat skipper. She furthered that many vessels had multiple skippers; therefore, the removal of the fee would significantly impact the operations. She discussed that in a certain vessel length class where the length was one of the criteria in establishing the fee (e.g. 60 to 90 feet), there could be a great variation in the actual catches on the various vessels. The current formula used an average of the fishery permits within a specific class; therefore, there was an inherent inequity in the way the permits were currently calculated. She believed it was necessary to maintain the cap until there was a more thorough analysis of the issue and recommendations on a comprehensive change. Representative Edgmon mentioned that the House Fisheries Committee chair was present in the room and had been very active on the issue [Representative Louise Stutes]. He asked if the cap was removed whether it would give the commission the opportunity to begin working on points of concern raised by House members. He thought it was a valid point. Alternatively, he asked if the commission would prefer to have the cap in place with a separate plan to address the other issues in the following year. He noted the removal of the cap would mean $2 million to the state in a time it was looking everywhere for revenue. Mr. Twomley answered that he did not believe the removal of the cap would enhance or hinder CFEC's chances to do something. He detailed it would require analysis and review of specific cases. He relayed CFEC was neutral on the bill. Mr. Brown added that HB 4006 had an effective date of January 1, 2017. He noted the original effective date was July 1, 2016, which would have been a bad idea because CFEC fees were assessed on a calendar year basis. He explained that individuals who did not want to pay a higher fee would not be happy about it when they received their notices in the fall. The commission's research staff had been cut from four positions to two - a hiring freeze had been implemented and other there were other structural existential issues affecting the agency; therefore, the present was not the easiest time for the commission to commit to doing a full-blown analysis of the issues raised by November. The removal of the cap was a policy call for the legislature. The commission would do its best to address the inequities if the cap was removed or maintained. He relayed CFEC would do whatever the legislature directed it to do. 5:56:09 PM Representative Edgmon asked for verification that CFEC believed it would not have the ability to achieve the goal of the amendment at least in the first year the additional fees may be issued if the cap was removed. Alternatively, Mr. Brown was telling the committee CFEC would do the best it could and did not know what the outcome would be. Mr. Brown answered that if the cap was removed it would not be difficult for the commission's research staff to calculate the fees - the exercise would be formulaic. Alternatively, it would be difficult to do an analysis quickly on whether or not some skippers paying dramatically increased fees were being unfairly burdened because of the removal of the cap. He reiterated implementing the cap removal would not be difficult. He detailed that the more challenging research project would be analyzing the effect of the cap removal on a 6 skipper operation where varying quotas impacted the ability to pay the increased fee. Representative Edgmon surmised that CFCE would require a statutory change in order to do the analysis properly. Mr. Brown answered in the negative. He explained that the commission would need certainty about its future and an ability to hire one or two more researchers to look at each permit issued in the entry permit fisheries where the fees would be increasing by $75 to $7,000 in order to determine how the removal of the cap was impacting the fishermen and why it was or was not equitable. Representative Edgmon asked for verification that the commission could achieve the amendment's action without a statutory change. Mr. Brown believed the commission had submitted a fiscal note for another bill (HB 241) showing there would be zero cost to the commission if the cap were to be removed. He stated a simple cap removal was absorbable by the commission's existing staff resources. Whereas, an exhaustive analysis on the effect of the cap removal on fishermen was more of an unknown quantity of work. Co-Chair Neuman surmised the answer was no. Representative Edgmon understood that it was a complicated issue, but he was not getting a clear "yes" or "no" he needed in order to make a decision. He summarized the amendment was not needed in order for CFEC to do its analysis, but an additional research person would be needed to get the analysis done due to the complexity of the work. At the same time, there was a significant amount of money attached to the amendment. He wanted to make sure he understood what he was voting on. He surmised the issue was not clear cut. 5:59:53 PM Co-Chair Neuman saw some fairly simple changes in the tax structure but now it appeared the community was taking the opportunity to try to change other pieces of statute that did not seem to have been vetted in the House Fisheries or Resources Committees. He could not support something that the committee did not know about and had not discussed. The committee had heard CFEC needed to analyze the issue further. Additionally, he believed CFEC could already take action under regulation. He reasoned that when amendments were not fully vetted, mistakes could be made. He was uncomfortable with the amendment. Representative Munoz replied that the biggest impact was on individual fishermen. She thought it was necessary to be careful in removing the cap due to any inadvertent impact it could have on Alaskan fisheries operations, specifically on individual captains. She believed in some cases the permit fee could go from $3,000 to $6,000 overnight for an individual skipper. She furthered that many operations required six skippers over the course of a season. She agreed with Co-Chair Neuman's comments, but she believed the removal of the cap rose greater concerns and supported his comments more than leaving the cap in place. Co-Chair Neuman stated he did not believe CFEC was ready to take the action because analysis was needed. Additionally, he believed the agency could already take the action if it chose to do so. Representative Gara noted the CFEC commissioners had already testified the formula was based on the earnings of the vessel. He wondered what kind of vessels would pay above the current $3,000 cap if it was removed. Mr. Twomley answered that the applicable vessels were large high sea factory trawlers and crab vessels, which had substantial earnings. Representative Gara asked for further explanation on high sea vessels that were not factory trawlers. Mr. Twomley answered that he was referring to substantial vessels capable of functioning in high seas. Representative Gara surmised captains were not the same on every boat, but they shared the value of the catch in some way. Mr. Twomley answered that captains were compensated in some way by the venture. Representative Gara stated the cap applied to the captain. Mr. Twomley affirmed. Representative Gara provided an example of a factory trawler with three captains in one year and five captains the next. He asked if each captain paid the same amount if the boat had the same costs each year. Alternatively, he wondered if the cost was proportional and divided among the number of captains. Mr. Twomley responded that each captain would pay the same fee; the fee applied to the IUP, which was a captain's ticket to operate the vessel. A number of vessels at sea for long periods had numerous captains. Representative Gara asked if a captain's share of the fee decreased when the number of captains on a vessel increased. Mr. Twomley answered in the negative; the fee would remain the same for the IUP for each captain. 6:05:15 PM Representative Munoz asked for verification the captains on a high sea vessel of 80 feet or more would pay the same as captains on a 60-foot vessel if it they fell into the same vessel length category. Mr. Twomley answered that it could be but was not necessarily the case. He elaborated there would be an average based on the vessel length within the vessel category. He furthered the fee could come out the same, but could vary; it would depend on the vessel earnings. Representative Munoz stated there could be a category for vessels between 60 to 90 feet and CFEC would average out the earnings within the fishery in the specific vessel category. Mr. Twomley answered in the affirmative. Representative Munoz surmised a captain on a larger vessel over 80 feet would pay the same as a captain on a 60-foot vessel. Mr. Twomley replied in the negative. He detailed IUPs were issued based on vessel size; CFEC averaged per vessel size category, which would yield a different fee from one vessel category to another within the same fishery. Representative Munoz asked for examples of vessel categories. Mr. Twomley answered there were vessels over 90 feet, vessels under 90 feet. He stated there could be a variety. The categories were based on data and where there were cutoff points that made sense when categories were established. Representative Munoz asked if 60 feet was a cutoff point on the low end. Mr. Twomley answered yes, in some fisheries. Representative Munoz asked for verification 90 feet was the cutoff on the high end within the same category. Mr. Twomley answered yes, in some fisheries. Representative Munoz believed captains on a 90-foot and 60- foot vessels were paying the same fee because it was averaged over the fishery within the category. Mr. Twomley replied in the negative. He detailed that within the vessel categories the fees were based on the average earnings of the IUPs within the categories. Mr. Brown clarified that every fishery was defined by a geographical area that could be statewide and a species, which could be miscellaneous finfish. He detailed all skippers fishing statewide waters for miscellaneous finfish on vessels that were 60 feet applied for the same kind of IUP. He elaborated that if the next category was for vessels between 60 to 90 feet, those vessels would all fall into the same category. He explained the skippers in the first group would not pay the same amount as the skippers in the second group; however, people within the second group may be earning different amounts of money. He continued that skippers may not even pay their own fee, which could be paid by whoever owned the boat; it was a contractual arrangement CFEC was not aware of. The agency only had visibility into was the average boat's earnings landed on a specific permit category in the past three years multiplied by 0.04; the fee was then charged and capped at $3,000 at present. He expounded that it would be a hardship for some people and not for others. The fee was not arbitrary in the sense that someone on a very large boat was paying the same fee as someone on a very small boat; it only became an issue at the margins of where the fishery was defined by vessel length that the disparities were arising. 6:09:25 PM Representative Gattis believed the issue should be vetted through the House Fisheries Committee. She did not believe the committee could do the necessary due diligence it should. She was uncomfortable the committee may be breaking open an issue that was bigger than the committee. Representative Wilson stated that the governor was responsible for bringing up the issue. She questioned whether to keep or discard the cap. She referred to CFEC testimony that it was easy to do the math if the cap was removed, but the problem involved needing time and personnel to do the research to understand the impact of removing the cap. She noted the information was not something the committee had received from the administration. She stressed the topic was being discussed because it is a tax issue. She stressed the removal of the cap could mean a person currently paying the cap of $3,000 could pay upwards of $15,000. She observed the difference was substantial. She surmised a boat may be big enough and earn enough to pay the amount, but that was not known. The bill would remove the cap and bring the state $2.1 million in revenue, but she wondered how many boats could be put out of business because of that decision. She did not know the answer. She would vote to maintain the cap to give time for CFEC to do the research and present the analysis. She agreed the committee should know the answers prior to voting on the bill, but she would be fine to set the bill aside until the following session in order to make the right decisions based on information that would help the economy. She did not want to devastate the state's fisheries. She would vote for the amendment because the current cap was working. Although smaller vessels were paying the full amount, she was nervous about what they could be "doing on the outside" and she could wait one year to find out. Co-Chair Thompson MAINTAINED his OBJECTION. Representative Pruitt expressed frustration with the issue and believed the legislature had been given half of a solution. He had heard from colleague who supported maintaining the cap to fix it later and another colleague who wanted to remove the cap in order to force the agency to fix the problem sooner. He wondered if the administration believed the legislature would be addressing the issue again the following year. He believed the problem needed to be fixed. He noted the situation was not a failure on CFEC's part, but he wanted to know if the agency could come back the following year with information to help the legislature address the issue. Mr. Twomley answered that CFCE could use its best efforts to try to analyze the problems put forward by the committee to determine if there was a practicable solution. He communicated the agency would appreciate hearing from fishermen experiencing a problem. The agency would hope to come back with the best information it could generate. Representative Pruitt stated that he would vote to keep the cap. He was expecting to have a conversation the following year where the entire issue was addressed. He reiterated his frustration with the bill. He surmised it appeared to be more of a money grab than addressing an equity scenario within an industry. He wanted a whole picture instead of an incomplete one. A roll call vote was taken on the motion. IN FAVOR: Wilson, Pruitt, Gattis, Munoz, Kawasaki OPPOSED: Saddler, Edgmon, Gara, Guttenberg, Thompson, Neuman The MOTION to adopt Amendment 2 FAILED (5/6). 6:15:49 PM AT EASE 6:25:42 PM RECONVENED Representative Wilson MOVED to ADOPT new Amendment 3, 29- GH2460\A.4 (Glover/Nauman, 5/28/16) (copy on file): Page 2, line 8: Delete "five" Insert "4.5" Page 2, line 12: Delete "four" Insert "3.5" Page 2, following line 14: Insert a new bill section to read: "*Sec. 3. AS 43.75.015(b) is amended to read: (b) Instead of the taxes levied by (a) of this section, a person who processes a developing commercial fish species is liable for and shall pay a tax equal to (1) 3.5 [ONE] percent of the value of the developing commercial fish species processed by a shore-based fisheries business during the year; and (2) six [THREE] percent of the value of the developing commercial fish species processed by a floating fisheries business during the year." Renumber the following bill sections accordingly. Page 2, line 19: Delete "one" Insert "3.5 [ONE]" Page 2, line 21: Delete "four" Insert "3.5" Page 2, lines 28 - 29: Delete "The amount of tax revenue equal to one percent of the value of each fishery taxed under this chapter shall be deposited into the general fund." Page 2, line 30, through page 3, line 1: Delete "and not including the revenue equal to one percent of the value of each fishery taxed under this section deposited in the general fund" Insert "and not including the revenue derived from the value of each fishery taxed under this chapter deposited in the general fund as provided in (h) of this section" Page 3, following line 11: Insert a new bill section to read: "*Sec. 7. AS 43.75.130 is amended by adding a new subsection to read: (h) Notwithstanding (a) of this section, the amount of tax revenue from the following sources in the following amounts shall be deposited in the general fund: (1) one-half percent of the tax revenue collected under AS 43.75.015(a)(l) and (2); (2) one percent of the tax revenue collected under AS 43.75.015(a)(3); (3) two and one-half percent of the tax revenue collected under AS 43.75.015(d)(l); and (4) one-half percent of the tax revenue collected under AS 43.75.015(d)(2)." Renumber the following bill sections accordingly. Page 3, line 19: Delete "one" Insert "five [ONE]" Page 3, line 21: Delete "four" Insert "five" Page 3, lines 23 - 24: Delete "The amount of tax revenue equal to one percent of the value of each fishery taxed under this chapter shall be deposited into the general fund." Page 3, lines 25 - 27: Delete "and not including the revenue equal to one percent of the value of each fishery taxed under this section deposited in the general fund" Insert "and not including the revenue derived from the value of each fishery taxed under this chapter deposited in the general fund as provided in m of this section" Page 4, lines 12 - 13: Delete "The amount of tax revenue equal to one percent of the value of each fishery taxed under this chapter shall be deposited in the general fund." Page 4, lines 15 - 16: Delete "equal to one percent of the value of each fishery taxed under this section deposited in the general fund" Insert "derived from the value of each fishery taxed under this chapter deposited in the general fund as provided in (g) of this section" Page 5, following line 10: Insert a new bill section to read: "*Sec. 11. AS 43.77.060 is amended by adding new subsections to read: (f) Notwithstanding (a) of this section, the amount of tax revenue from the following sources in the following amounts shall be deposited in the general fund: (1) four percent of the tax revenue collected under AS 43.77.010(1); and (2) two percent of the tax revenue collected under AS 43.77.010(2). (g) Notwithstanding (b) of this section, the amount of tax revenue from the following sources in the following amounts shall be deposited in the general fund: (1) four percent of the tax revenue collected under AS 43.77.010(1); and (2) two percent of the tax revenue collected under AS 43.77.010(2)." Renumber the following bill sections accordingly. Page 5, line 13, following "AS 43.75.015(a)": Insert", AS 43.75.015(b)," Page 5, lines 13 - 14: Delete "secs. 2 and 3" Insert "secs. 2 - 4" Page 5, lines 14 - 15: Delete "secs. 2 and 3" Insert "secs. 2 - 4" Page 5, line 16: Delete "sec. 6" Insert "sec. 8" Page 5, line 17 Delete "sec. 6" Insert "sec. 8" Page 5, line 25: Delete "Section 10" Insert "Section 13" Page 5, line 26: Delete "secs. 11 and 12" Insert "secs. 14 and 15" Representative Gattis OBJECTED for discussion. Representative Wilson read from prepared remarks: The fisheries business tax is paid by Alaska's small boat fleet - the gillnetters, trollers, and more, who live and work in Alaska communities. The fisheries landing tax is paid by the Seattle-based trawl fleet. Our tax rates should be equitable to those fishermen who invest in Alaska. The small boat fleet already pays into Alaska's economy in more diverse ways than through taxes. They home port in Alaska's harbors, live in Alaska communities, hire local crews, and buy local groceries. The revenue gets recirculated in Alaska many times over and the economic impact on Alaska is proportionately far greater. This orients Alaska's fisheries tax structure in a way that doesn't penalize small boat fishermen who generally fish clean with very little Chinook salmon or halibut bycatch. This is in contrast to the largely Seattle-based trawl fleet, which has an unfortunate track record of vast amounts of halibut and king salmon bycatch, which are caught, killed, and discarded and never able to be caught by Alaska-based sports and commercial fishermen. Co-Chair Thompson clarified that the committee was addressing the new Amendment 3. Representative Wilson responded in the affirmative. Representative Gara supported the amendment. He communicated he did not care who owned the trawl fleet and relayed it would be unconstitutional for the state to tax fishermen from Washington a different tax than fishermen from Alaska. However, he cared that the trawl fleet had cost the state significant money in terms of research on king salmon bycatch and soon halibut bycatch. He detailed those fisheries were being decimated. He reasoned if the state had to keep researching the issue it would continue to cost the state money. He surmised if the issue kept costing the state money, it needed to have the means to pay for the research. He wished he could solve the issue related to bycatch of some of the state's most prized wild fish and was very troubled by the situation. He reasoned there was nothing to do about the issue in the current bill, but the legislature could factor in the knowledge that continued research was needed to determine how to limit the bycatch. He referred to page 3, lines 4 through 6 of the amendment and referenced the high seas boats that fished beyond Alaska's territorial limit and returned to Alaska to process or transport their fish. He stressed the boats were costing the state a huge amount of grief and money. He suggested increasing the number from 4 to 5.5 percent. He stressed the boats were fishing the world's greatest fishery. He reasoned the boats were not going to leave because Alaska was one of the last great wild fisheries in the world. He emphasized the factory trawlers were contributing greatly to the bycatch problem and damaging the fisheries. He believed the trawlers should help contribute to the cost of the damage they were causing. 6:30:42 PM Representative Edgmon stated that the numbers in new Amendment 3 were all over the place. He requested to hear from DOR. He referred to Representative Gara's comments related to bycatch. He mentioned federal fisheries bycatch, the North Pacific Fisheries Management Council, and federal funds. He was hearing remarks on taxation issues and management issues, which did not seem to be linked together. Mr. Alper summarized Representative Edgmon's question about the numbers listed in the amendment. He relayed the administration's intent with the original bill was to increase tax rates on the fisheries business and landing taxes by 1 percent. Additionally, the 1 percent was not subject to the existing 50/50 revenue sharing formula with municipalities. The 1 percent was intended to go directly to the state and the remaining amount (the original tax prior to the proposed tax increase) would be split 50/50 holding municipalities harmless. Amendment 3 changed some of the increases so the shore-based processers, which were primarily buying from the small boat fleet in coastal communities, would receive a smaller tax increase. Whereas, the large floating processers and the landing tax in particular received a larger tax increase. The intent was to shift the tax burden towards those perceived as not supporting the local economy to the same degree or having a large amount of bycatch. He explained the changed numbers in the amendment (some of the increases were 0.5 percent or 2 percent). He detailed if 1 percent went to the state and the remainder was split, it created some distortion to the revenue sharing formula. For example, if a 4 percent tax increased to 5 percent the state would receive 1 percent and remaining 4 percent was split, municipalities would still receive the same 2 percent they received prior to the increase. However, if the tax was raised from 4 percent to 4.5 percent, municipalities would only receive 1.75 percent. He elaborated that while benefiting the fishermen with a smaller tax increase, it would actually harm the community. Therefore, changes in new Amendment 3 equalized the revenue sharing formula by specifying the state's piece was limited to the amount of the increase (whether it was 0.5 percent, 1 percent, or 2 percent) and the municipality received half of the remainder, thereby holding municipalities harmless in the changes made by the legislation. Representative Edgmon was trying to assign the numbers to the proper category. He had voted against all amendments during the day because the theme had been consistent. He felt the amendments could not be properly analyzed during the meeting; therefore he would oppose the amendment. Representative Gara recalled that several years earlier the legislature had funded a king salmon study, which had been in part based on bycatch (from boats outside the state's 3- mile limit) that was damaging the returns of fish to the state's streams. The study had been to determine how much of the issue pertained to certain areas; it had also included what the state could do to help enhance returns. There had been some impact, but he did not want to exaggerate it. 6:36:04 PM Vice-Chair Saddler agreed with Representative Edgmon that the question of bycatch was biological, scientific, and financial and the North Pacific Fishery Management Council was staffed and funded and scheduled to conduct the complicated analysis, but the state was not. He did believe not enough information was available to make an informed decision; therefore, he was opposed to the amendment. Co-Chair Thompson expressed confusion. He remarked that the original Amendment 3 had a big impact on communities. He discussed the governor's original bill designated 1 percent of the value of each fishery tax to the General Fund and increased the taxes by 1 percent on each fishery, which meant many of the communities did not get the revenue sharing back. He asked if that was still the case. Mr. Alper replied that the administration's bill did not affect the municipalities. For example, under existing law a 4 percent tax was split 50/50 with municipalities. Under the original legislation a 4 percent tax increased to 5 percent and the state received the additional 1 percent increase, while the original 4 percent was split; therefore, municipalities still received 2 percent, while the state received 3 percent. The language had been included in order to exempt the additional 1 percent from the 50/50 split. The amendment increased taxes on shore- based fisheries by 0.5 percent and increased floating fishery taxes by 2 percent, which would go to directly to the state. He explained the new Amendment 3 maintained the idea that whatever the tax increase was, the municipalities would be held harmless and would continue to receive their current amount. Representative Gattis WITHDREW her OBJECTION. Co-Chair Thompson OBJECTED. Representative Wilson explained that her intent had never been to take any money away from municipalities - the situation had been corrected in the new Amendment 3. She explained there were fishermen who required more state spending because it was necessary for the state to do research studies on impacts. She relayed it was one way for the state to recoup costs from people using state resources. The amendment would also protect local fishermen more and charged more to those from out-of-state who were not investing the same amount into Alaska's economy. The amendment tried to make the situation more equal. She stressed the state was paying for the studies. A roll call vote was taken on the motion. IN FAVOR: Wilson, Gara, Gattis, Kawasaki, Munoz, OPPOSED: Edgmon, Guttenberg, Pruitt, Saddler, Neuman, Thompson The MOTION to adopt new Amendment 3 FAILED (5/6). 6:41:08 PM At EASE 6:41:25 PM RECONVENED Representative Gara MOVED to ADOPT Amendment 4, 29- GH2460\A.2 (Glover/Nauman, 5/28/16)(copy on file): Page 3, line 21: Delete "four" Insert "five" Co-Chair Thompson OBJECTED for discussion. He asked for verification the amendment was similar to the amendment the committee had just voted against. Representative Gara replied in the negative. He explained that the amendment increased the tax rate from 4 percent to 5 percent. Co-Chair Thompson noted new Amendment 3 would have done the same thing. Representative Gara replied that new Amendment 3 would have done a number of things. He explained that Amendment 4 would increase the tax on high seas vessels fishing from 4 to 5 percent. He elaborated the large vessels fished beyond the state's 3-mile limit and returned to Alaska for processing or to deliver fish. He continued the vessels (e.g. factory trawlers and other) had the privilege of fishing some of the most pristine wild fish in the world. He underscored the state owned the resource in common and under the constitution it was supposed to receive the maximum benefit for its commonly owned resources. He thought that the percentage increase would be fair to Alaska and reflected the value of the fisheries. 6:43:32 PM Co-Chair Thompson MAINTAINED his OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Gara, Guttenberg, Kawasaki OPPOSED: Edgmon, Gattis, Munoz, Pruitt, Saddler, Wilson, Neuman, Thompson The MOTION to adopt Amendment 4 FAILED (3/8). 6:44:14 PM Co-Chair Thompson MOVED to ADOPT Amendment 5, 29-GH2460\A.1 (Martin/Nauman, 5/28/16) (copy on file): Page 2, lines 1 - 3: Delete "[AT AN AMOUNT THAT IS AS CLOSE AS IS PRACTICABLE TO THE MAXIMUM ALLOWED BYLAW]" Insert "at an amount that is as close as is practicable to the maximum allowed by law" Representative Guttenberg OBJECTED for discussion. Co-Chair Thompson relayed the amendment was conforming regarding the Carlson case [a class action case filed against the state in 1984 related to commercial fishing fees]. Mr. Brown relayed that CFEC strongly supported Amendment 5. When the commission had seen the original bill, it had communicated there was no reason to remove language calling for a nonresident surcharge to be as close as practicable as law to the maximum amount. He understood Legislative Legal Services initially thought the language was superfluous. He continued that Mr. Twomley could speak to the long history of the Carlson case. He emphasized the language was not superfluous. The state did not want to return to undercharging nonresidents any more than it wanted to be accused of unconstitutionally overcharging them. Co-Chair Neuman asked for clarification on the amendment. He observed the language to be deleted was identical to the language to be inserted. Representative Gara had the same question. Mr. Brown clarified that the current version of the bill deleted the language. The amendment would reinstate the language. Representative Guttenberg WITHDREW his OBJECTION. There being NO further OBJECTION, Amendment 5 was ADOPTED. HB 4006 was HEARD and HELD in committee for further consideration. Co-Chair Thompson relayed the agenda for the following day. The meeting was recessed to a call of the chair. [Note: the meeting never reconvened.]