HB 116-AQUATIC FARM/HATCHERY SITE LEASES  2:31:48 PM CO-CHAIR LINCOLN announced that the final order of business would be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 116, "An Act relating to the renewal or extension of site leases for aquatic farming and aquatic plant and shellfish hatchery operations." 2:32:07 PM REPRESENTATIVE ANDI STORY, Alaska State Legislature, sponsor, explained that SSHB 116 would simplify the Department of Natural Resources (DNR) lease renewal process for aquatic farms that grow products such as oysters, kelp, and other shellfish. She continued: If enacted, HB 116 would help Alaska-based aquaculture businesses succeed by shortening the lease renewal process. Aquaculture is an industry with a lot of promise and Alaska with more coastline than all the other states combined has a bountiful potential. The Alaska Mariculture Taskforce set a goal of making this a $100 million industry in the next 20 years. As you can see from the flowchart in your bill packet, requirements to permit and operate an aquatic farm, or related hatchery, is complex. The most rigorous and time-consuming portion of the approval process is the DNR aquatic farming site lease, both the original lease and the subsequent renewal. Due to recent increases in the number of aquaculture farm applications - there was one application in 2016, 17 applications in 2017, and 16 in 2018 - coupled with recent cuts to agency staff, it now takes an average of 18 months or more to approve an aquatic farm lease. By simplifying the renewal process, we can reduce risk for businesses making significant capital investments and reduce the workload on overstretched agency staff. House Bill 116 aligns the lease renewal process for aquatic farms to the process used for other DNR leases. This would significantly shorten the first renewal process while still allowing appropriate regulatory oversight, public engagement, and appeals of DNR's decisions. I would like to mention that this bill would not affect leases for salmon hatcheries. As a new legislator, I am pleased with how this bill began and how it was developed. Shortly after taking office I was contacted by a constituent who is currently in the process of transferring an aquatic farm lease, a process that would not be affected by this bill. They shared their experiences with the lease transfer process and suggested a few possible changes that might help applicants. During subsequent conversations DNR staff mentioned the streamlining of the aquatic farm renewal process as a way to reduce uncertainty for applicants and increase agency efficiency. 2:35:51 PM REPRESENTATIVE TUCK inquired whether hatchery includes salmon hatchery. REPRESENTATIVE STORY replied no. REPRESENTATIVE TUCK observed there was a title change from one version to another version of the bill where it states shellfish hatchery. He asked whether the only change was the title. REPRESENTATIVE STORY responded yes, the title was specifically changed because people were thinking the bill did include salmon and she wanted to make it clear that [salmon hatchery leases] wouldn't be affected. REPRESENTATIVE TUCK requested the committee be shown how the process currently works. 2:36:41 PM GREG SMITH, Staff, Representative Andi Story, Alaska State Legislature, on behalf of the sponsor explained that when applying for a DNR lease to use public lands for a private purpose, aquatic farm leases are under a separate section of statute. Most leases given by DNR are under AS 38.05.070, he said, which includes general leases for things like cabins, lodges, fish processing plant docks, hydroelectric facilities, grazing, and other uses where the state grants a private entity rights to public land. MR. SMITH brought attention to the aquatic farm application flow chart in the committee packet and stated that the first application for a lease goes through a large public notification and comment process that can be found in AS 38.05.945. He explained aquatic farms get up to a 10-year lease, and near the end of that 10-year lease a renewal can be applied for but that it currently involves a very lengthy public comment process. However, he pointed out, general leases can be renewed by the director under a shortened public comment process if the lease is in good standing and is determined to be in the best interest of the state. MR. SMITH said the sponsor's understanding from DNR in terms of the impacts on the applicant of the [proposed] change, is that the applicant [for an aquatic farm lease renewal] would still submit similar information to DNR. But the [proposed] benefit, he continued, would be that under the AS 38.05.945 notice it would take about 90 days for the shortened, optional lease renewal process rather than taking 18 months for renewal. 2:40:27 PM REPRESENTATIVE TUCK offered his understanding that the leases [for aquatic farms] are good for 10 years. He inquired whether there are any records for lease renewals that have been denied. MR. SMITH answered that, according to DNR, the department has never denied an aquatic farm lease renewal under the current process. CO-CHAIR LINCOLN asked how many have been renewed. MR. SMITH replied he doesn't know the total number of lease renewals. He said an impetus for this bill is that the number of lease applications has increased significantly in recent years and those will be coming up for renewal 10 years after the initial lease was started. So, he continued, probably only a handful of lease renewals have been happening every year, but the concern is that 10 years from now there will be 17-20 lease renewals. 2:42:11 PM REPRESENTATIVE HOPKINS offered his understanding that there are a fair number of aquatic farms in Southcentral and Southeast Alaska. He inquired whether there is productivity or the potential for development in other coastal areas of the state or along lakes. MR. SMITH responded he doesn't know and deferred to the Alaska Department of Fish and Game to provide an answer. GAROLD "FLIP" PRYOR, Fish and Game Coordinator, Alaska Department of Fish and Game (ADF&G), confirmed there is potential in other areas, but that he cannot say specifically where concentrations of interest are located. 2:43:10 PM REPRESENTATIVE RAUSCHER asked whether there is a typical amount of land involved or whether the amount varies. He further asked whether the amount is a lot of land, and, if so, the reason why. MR. SMITH answered that the amount varies significantly, with some of the largest being over 150 acres and some with acreage in the single digits. He deferred to DNR to provide specifics. MARTY PARSONS, Director, Central Office, Division of Mining, Land and Water, Department of Natural Resources (DNR), confirmed there is a wide variety from the single digits up to 200 acres. He explained it depends upon what the individual is farming; for example, spat for oysters is confined to a penned area that doesn't take up much state tideland, whereas kelp needs hundreds of acres to produce a large volume of the product. 2:45:14 PM REPRESENTATIVE HANNAN recalled the statement that SSHB 116 does not impact salmon or finfish hatcheries as opposed to shellfish hatcheries. She inquired whether these two types of hatcheries are linked together under the current statute such that they both have the same lengthy renewal process as was described [for aquatic farms], or whether finfish hatcheries fall under the general leasing statute. MR. SMITH replied that a variety of mechanisms are used for the land that salmon hatcheries utilize. He offered his belief that the nonprofit Douglas Island Pink and Chum, Inc. (DIPAC) hatchery is an agreement between the City and Borough of Juneau and DIPAC. He offered his further belief that others are situated on private land ... REPRESENTATIVE HANNAN interjected that they all are on public land [in this case]. She reiterated her question of whether salmon hatcheries fall under the same current statute as shellfish hatcheries for a lengthy renewal process, or fall under the general leasing statute's shortened renewal process. MR. SMITH offered his understanding that when salmon hatcheries require a DNR lease and when that lease is renewed, it is typically done under AS 38.05.070, the general lease statute. REPRESENTATIVE HANNAN concluded that only shellfish hatcheries have been held to this lengthy renewal process. MR. SMITH responded only shellfish and other aquatic organisms like kelp, but not salmon hatcheries. 2:47:39 PM CO-CHAIR LINCOLN opened invited testimony. 2:47:54 PM JULIE DECKER, Executive Director, Alaska Fisheries Development Foundation (AFDF), testified in support of SSHB 116. She said AFDF has been spearheading an effort to develop the mariculture industry in Alaska. She stated that through the governor's Mariculture Taskforce a comprehensive statewide plan for developing the industry has been completed, with a goal to grow a $100 million industry in 20 years. She noted the industry would be applicable in Southeast, Southcentral, Kodiak, and Southwest Alaska, and that currently there are farms in Kodiak. She offered her understanding that there has been at least one farm application for near Sand Point. A positive result of the Mariculture Taskforce's work has been increased private sector interest in aquatic farming, she said. The recent interest has increased applications to the state, she continued, which has led to a backlog and increased the processing time from about 12 months to about 24 months as DNR works through the applications. MS. DECKER noted that the initial application process is very rigorous. She said DNR consults with multiple agencies and considers user conflicts, biological concerns, habitat concerns, marine mammal protection, navigation hazards, public comment periods, and others. If an application makes it through this process and is approved, she continued, the farm must, after 10 years, go through a renewal process that is at a higher standard than other industries and other leases, which is what is being talked about. She stated SSHB 116 would be a good step in the direction to efficiently develop this industry because it would reduce the workload at DNR; prioritize DNR's staff time on the new farm lease applications, which would help grow the industry; and give more certainty to farmers who have invested in infrastructure during the first 10 years of the lease. 2:51:09 PM REPRESENTATIVE RAUSCHER drew attention to the flow chart for the existing process and asked whether the sponsor has one for what the bill is addressing. REPRESENTATIVE STORY replied that the main process being talked about in this flow chart is within the box labeled "DNR *Aquatic Farm Lease". She said a main point is that people put up a lot of capital to start their farm and it takes three to seven years to get to the spot of knowing whether the farm is going to be viable. The renewal comes at 10 years, she continued, and currently for this second step the farmer must go through the whole rigorous process again. She said [SSHB 116] would make the [first] renewal simpler and smoother for everyone, and then at 20 years the farmer would have to go through the whole original process again [for renewal]. She deferred to ADF&G to elaborate further. MR. PRYOR responded that the aforementioned is an accurate description of what is going on with the flow chart. 2:53:04 PM CO-CHAIR LINCOLN restated Representative Rauscher's question as to how the proposed change to the renewals would affect the flow chart. Co-Chair Lincoln asked whether the steps in the proposed changes are captured on the flow chart, or some steps would be eliminated, or how it would vary under the proposed changes. MR. PRYOR answered, "I believe you just take the last line of the flow chart and where it says you get approval then you go to the bottom line. After the 10 years you would just start over at that bottom line again." CO-CHAIR LINCOLN asked whether it is at the line labeled "DNR Final Decision". MR. PRYOR replied, "That's my understanding." 2:53:44 PM REPRESENTATIVE RAUSCHER inquired how the shorter process would be enacted; for example, whether it would be enacted with an application or whether it would be an understanding that it is going to happen. He further inquired whether at 20 years it would be by going through the whole thing again with an application process. REPRESENTATIVE STORY responded that for the 10 years the applicant goes through the rigorous process, and then the farmer would still have to fill out an application and practically do a lot of the same steps. She said it's just that there would be a shorter public review process involved, and that there would still be regulatory oversight and opportunity for the public to weigh in, and DNR would hear any appeal of it. 2:55:03 PM REPRESENTATIVE HANNAN requested Mr. Pryor to describe the difference in the current leasing process between a shellfish hatchery and a finfish hatchery and how it would be different under SSHB 116. MR. PRYOR offered his understanding that [SSHB 116] would bring this more on line with how the finfish leases work - when it comes time to renew, rather than starting at Step A in the flow chart the renewal would go through the commissioner, and the commissioner would look at the renewal and make the decision there without going through the top five or six steps. REPRESENTATIVE HANNAN surmised that currently finfish farms are allowed to have the shortened renewal process and it is only shellfish hatcheries and farms that have been unable to do this for DNR renewals. MR. PRYOR answered that that is his understanding. REPRESENTATIVE HANNAN asked whether shellfish farms are limited to a 10-year lease by practice or by statute. She further asked whether finfish hatcheries are limited to [a 10-year lease]. MR. PRYOR replied he is unsure how that works. REPRESENTATIVE HANNAN asked what the average length of [time] is for finfish hatchery leasing locations. MR. PRYOR responded that he doesn't know. 2:57:18 PM REPRESENTATIVE RAUSCHER read aloud from a letter he received, which states in part: "Leave the word "Renewal" in as critical for [relevant] considerations in AS 38.05.083 ... Please do not remove the opportunity of [relevant] consideration upon renewal of an oyster farm. We are just beginning to understand all the repercussions this presents, as farming in our navigable waters grows...." Representative Rauscher requested a response from the sponsor because he would like to understand the concern and how it equates to where the sponsor is at with the bill. MR. SMITH, on behalf of the sponsor, offered his understanding that in terms of the function of the bill, "or renew" must be removed throughout AS 38.05.083 or it will always be triggering the more extensive public comment period. He pointed out that the shortened renewal process available for other types of DNR leases with equal or significant potential impacts on public lands is an optional choice for the director of the Division of Mining, Land and Water. He said he understands from DNR that it would be case dependent, such that if a leasee wasn't following stipulations of the lease, or if there were significant problems with neighbors and the public, and there was a lot of clamor about a lease for any type of reason, the director doesn't have to choose the [proposed] shortened lease renewal process and could choose to use the process as outlined from the beginning of the flow chart. He offered his further understanding that if there are issues with a lease, upon renewal [the department] could make changes to that lease. REPRESENTATIVE RAUSCHER inquired whether the bill states that there is an option to choose [the longer lease renewal process] if there is a problem. MR. SMITH offered his understanding that that optional choice is found in the bill on page 1, Section 1, line 5, which states, "The director may renew a lease issued under this section". He pointed out that the word "may" is used as opposed to "shall". REPRESENTATIVE RAUSCHER asked whether anyone else interprets that to mean the same thing. Responding to Co-Chair Lincoln, he requested Mr. Smith to restate this question. MR. SMITH responded that the question is, "Where is it stated in statute that this expedited lease renewal process is an optional decision?" Responding further to Representative Rauscher, he said it is stated in the bill on page 1, Section 1, line 5. REPRESENTATIVE RAUSCHER inquired whether the word "may" gives [the director] that power. 3:01:20 PM ALPHEUS BULLARD, Attorney, Legislative Legal Counsel, Legislative Legal Services, Legislative Affairs Agency, said if the question is, "What provides the director with the discretion to decide to renew a lease?" Mr. Smith is correct that it is the word "may" on page 1, line 5, of the bill. 3:03:04 PM CO-CHAIR LINCOLN drew attention to page 2, lines 7-9, which state: "The commission, for good cause, may deny an application for issuance [OR RENEWAL] of a lease under this section but shall provide the applicant with written findings that explain the reasons for the denial." Noting that "or renewal" would be deleted under this section, he asked whether being able to deny an application for "issuance" of a lease, but not for "renewal" of a lease, has any relevance to the question right now. REPRESENTATIVE RAUSCHER answered that he thinks the questioning was whether input from the community was still in there. He offered his belief that [Mr. Smith] was addressing that if there seems to be a problem that [DNR] would revert back to the process of asking the community. He inquired whether his understanding is correct. MR. SMITH replied that his understanding from DNR is that the public can weigh in during the initial lease and also at renewal. CO-CHAIR LINCOLN stated he would hold public testimony until the bill's next hearing and noted that there is one more invited testifier yet to be heard by the committee. 3:04:39 PM REPRESENTATIVE TUCK offered his understanding that the initial [aquatic farm application] process would remain the same, and then there would be the renewal. He said his concern is page 2, Section 3, lines 7-10, and asked whether it would still stand that the commissioner could deny the renewal of a lease. He pointed out that "or renew" would be deleted and further asked whether the commissioner's ability to deny a lease for renewal would be taken away. 3:05:10 PM REPRESENTATIVE STORY replied, "We are taking out the renewal here, but in the statute that we refer to earlier ... it still can be denied in the renewal process that we would be switching to, if they had any cause for that." She welcomed clarification in this regard from ADF&G or anyone else online. She added, There can always be a reason for denying the renewal, it would just be it's expedited." REPRESENTATIVE TUCK requested that the person who answers the aforementioned question also address whether the commissioner can deny a person who is in the middle of a lease. 3:06:40 PM MR. BULLARD responded that in this case it would be the director and the director would have the latitude to deny a lease on renewal under AS 38.05.070, which is where the renewal process is moving from AS 38.05.083. He said if the director determines that the lease is not in the best interests of the state the director should not renew the lease. He stated he doesn't know the answer to the second question of whether that can happen in the middle of a lease term. CO-CHAIR LINCOLN requested Mr. Pryor to respond to the question of whether a lease can be terminated mid-lease. MR. PRYOR replied he is unable to answer the question off the top of his head. Responding further to Co-Chair Lincoln, he agreed to follow up and provide the committee with an answer to the question. 3:08:28 PM CO-CHAIR LINCOLN reiterated that he would hold testimony from the public and from the second invited testifier until the bill's next hearing. 3:08:43 PM REPRESENTATIVE TALERICO related that he has experience dealing with these leases with municipal government as well as privately. He offered his belief that under statute, violations of the lease terms can result in forfeiture of all of the lease provisions. [SSHB 116 was held over.]