HB 116-AQUATIC FARM/HATCHERY SITE LEASES  1:28:24 PM CO-CHAIR TARR announced that the next 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." 1:28:50 PM REPRESENTATIVE ANDI STORY, Alaska State Legislature, sponsor of SSHB 116, stated that the bill seeks to simplify the Department of Natural Resources (DNR) lease renewal process for aquatic farms. Enactment of the bill, she said, would help Alaska-based aquaculture businesses succeed by expediting the renewal process and reducing risk for businesses that make significant capital investments. She further stated that the bill would reduce the workload on an overstretched state agency, while still allowing appropriate regulatory oversight, public engagement, and appeals of DNR's decision. 1:29:51 PM GREG SMITH, Staff, Representative Andi Story, Alaska State Legislature, directed attention to a DNR document included in the committee packet that answers the committee's questions from the bill's previous hearing. Regarding the question about how many aquatic farm lease renewals are approved by DNR each year, he said the document states zero in 2014, seven in 2015, ten in 2016, one in 2017, and zero in 2018 with twelve applications submitted. He offered his understanding that a number of lease renewal applications were submitted in 2017 that have not yet been approved due to the amount of work in the division. Regarding the question about the range in sizes of aquatic farm leases, Mr. Smith said the document states the range is from less than one acre on up to 127 acres of state-owned tide and submerged lands. Regarding the question of whether the director would have the authority to deny a lease renewal given that that authority appears to be removed in Section 3 of the bill, he said the document states that a director "may" renew or "may not renew a lease under AS 38.05.070(e). Regarding the questions on salmon hatcheries that have DNR general leases, he said the document states yes, there are some. Regarding the length of salmon hatchery leases, he said the document states that there is a 25-year lease and a 30-year lease. MR. SMITH continued speaking from the DNR document and noted there was a question about the length of aquatic farm leases and said that under regulation those are 10-year leases. Regarding questions about what DNR is able to do during the lease term, at renewal, and if there are violations of the lease terms, he said it appears from the document that DNR is able to deny, revoke, or rescind a lease during the lease term; change terms of the lease at renewal, both under the current renewal process and under the optional expedited renewal process under AS 38.05.070(e); and DNR is able to take action on a lease if there is a violation of the lease's terms. Regarding the question on the types of changes that would trigger a new lease application, Mr. Smith said the document states that changes to the lease's footprint or size, or changes to the lease's use, would trigger a new lease application. 1:33:47 PM REPRESENTATIVE HANNAN drew attention to the number of aquatic farm lease renewals each year. She surmised that the sponsor's interest in the issue stems from there being 12 applications submitted in 2018 with none of them renewed. She asked whether the sponsor has heard from the applicants and if that is what motivated the bill. She further asked whether an aquatic farm must abandon work on the site if DNR does not renew the lease in a timely manner. 1:34:29 PM REPRESENTATIVE STORY deferred to DNR to answer the question. 1:34:59 PM CHRISTY COLLES, Operations Manager, Central Office, Division of Mining, Land and Water, Department of Natural Resources (DNR), responded that the division is working through them, so they do not have an authorization, but the division also knows that it is due to the workload and is no fault of the applicants. She said it is a situation that neither the division nor the applicant likes, but the division must go through the process before it can say whether the applicant can continue to operate. The applications are being worked on, she continued, but are not completed yet. REPRESENTATIVE HANNAN asked what staffing levels are needed for this work to be completed in a timely fashion. She further asked whether DNR's operating budget for 2020 meets that operational need. MS. COLLES answered she doesn't feel comfortable giving those numbers. She said she doesn't know exactly what type of staffing would be needed and she hasn't seen the numbers that have been given for the operational budget in 2020. REPRESENTATIVE HANNAN asked what the staffing capacity was in 2016 as compared to 2018. MS. COLLES replied [the division] supports the governor's budget at this point. She said the 2018 staffing level is the same as it was in 2016. REPRESENTATIVE HANNAN interpreted Ms. Colles' answer as being that in 2016 the staffing level that could complete 12 renewal applications is the same staffing level that in 2018 was unable to complete any applications. MS. COLLES responded yes, but explained that the reason it has changed is because the division has more new applications coming in. In 2016, she continued, the division did not have the level of interest in the industry as there is now, and that is why it is more difficult for staff to adjudicate these renewal applications. REPRESENTATIVE HANNAN asked how many applications for new mariculture and shellfish permits were received in 2018. MS. COLLES offered her belief that there was 14-16 [new applications] in 2018. REPRESENTATIVE HANNAN inquired whether most of the applications were completed that year. MS. COLLES answered that the division was unable to complete all of the applications and get them to issuance. She said she could not recall the exact number of how many were issued. 1:38:12 PM REPRESENTATIVE RAUSCHER asked what the fate of the applications is now. MS. COLLES replied the division is continuing to work through them; they are not put aside. She said the division has one dedicated staff member and approximately five other staff members, who also work on general leases, that are assisting with the applications that are coming in for aquatic farming. She stated that there are competing interests and projects for time and while she won't say that they are not a priority, the division is balancing those priorities. REPRESENTATIVE RAUSCHER inquired whether processing of the applications will continue until they are finished, and that time will not kill them. MS. COLLES responded correct. REPRESENTATIVE RAUSCHER related his understanding from speaking with a former commissioner that sometimes the problem isn't lack of funding, but rather the problem of filling [the position]. He allowed, however, that this has nothing to do with today's discussions. 1:40:12 PM REPRESENTATIVE LINCOLN asked whether the businesses that are waiting for their leases to be renewed are able to continue operating until the department addresses their renewal request. MS. COLLES answered yes, [the applicants] are able to continue their business. 1:41:02 PM CO-CHAIR TARR opened invited testimony on SSHB 116. 1:41:13 PM META MESDAG, Owner, Salty Lady Seafood Company, testified in support of SSHB 116. She stated she is a board member of the Alaska Shellfish Growers Association and that both she and the association support the bill. She related that a year ago she submitted documents for a lease transfer for a farm site in Juneau, and it was just recently completed. She stated she currently has oysters at her farm and is getting ready to seed geoduck. Oysters take three years to become ready for market and geoducks take up to seven, she specified. She pointed out that her lease has five years left on it and she is not even through all of the process for getting her site fully permitted. During the next four years, she continued, [her renewal] will be up for public comment three times and no revenue will be seen from the geoduck before she has to start the leasing process all over again. MS. MESDAG said SSHB 116 would allow DNR to sign off one time on the renewal of leases that are in good standing. She stated this would improve efficiencies in the agencies regulating this industry and would provide assurances for farmers wanting to enter the industry. This easy solution, she continued, would grant the director the authority to renew leases that are in the state's best interest. MS. MESDAG pointed out that making changes to her lease takes years. She explained she has a parcel that is supposed to be for a hardening beach, but that it needs to be moved because it's not the right substrate. However, she continued, that move is going to take years, which means she is paying for property that she cannot actually utilize and the only reason is because the state is so backlogged that it cannot process new leases or transfers in a timely manner and in a way that makes it an industry thas easy for people to invest in. 1:43:40 PM CO-CHAIR TARR opened public testimony on SSHB 116. 1:43:51 PM MARGO REVEIL, President, Alaska Shellfish Growers Association, testified in support of SSHB 116. She said she owns a farm and that both her farm and the association support the bill. She stated the association successfully worked to develop the industry, with sales doubling in the last five years. But the industry is still in its nascent stages, she continued, with only $1.53 million in aquatic farm sales with 41 farms reporting. Mariculture has tremendous potential to diversify Alaska's economy and build resiliency in the state's coastal communities, she opined. She said SSHB 116 could alleviate the permitting bottlenecks that are hampering growth and causing lost revenue to the state. She stated that DNR currently processes lease renewals every 10 years using the same requirements as a new lease. She pointed out that this full process is required even if the farm has been a responsible steward of state water resources, has successfully met DNR's commercial use requirements, and is not proposing major changes to the lease. MS. REVEIL stated that shellfish farming is a heavily regulated industry with ample opportunity for agency and public input. She said regulation of her own 24-acre farm in Kachemak Bay includes the following: a DNR lease renewal every 10 years with periodic inspections; an ADF&G 10-year operation permit with periodic inspections and a development plan report that must be filed annually; an ADF&G special area habitat permit that is renewed annually; a U.S. Army Corps of Engineers permit that is renewed every five years and includes a review by the National Oceanic and Atmospheric Administration (NOAA); Department of Environmental Conservation (DEC) quarterly inspections at the farm's processing plant; annual inspection by the Food and Drug Administration (FDA) for Vibrio vulnificus compliance [a bacteria that can contaminate raw oysters]; and compliance with all U.S. Coast Guard requirements. Ms. Reveil pointed out that each of these agencies has its own mechanism for responding to and processing public input. She further noted that a significant part of her time is spent managing agency relations for her small business. MS. REVEIL stated that SSHB 116 is a modest bill that would accomplish several positive changes: reduce workload for DNR staff, make on-water leases more similar to land leases in terms of process, prioritize DNR staff time in new farm lease applications and managing DNR's program, and give more certainty for existing farmers who have invested in site infrastructure during the first 10-year lease; and slightly reduce [lease renewal] application times. She acknowledged opposition has been brought up regarding farm size and lack of public input, but said new farm applications and second renewals retain the extensive public input component where farm size and resource sharing issues are addressed. She added that the bill would just give DNR the ability to process a single lease renewal faster if the lease is in good standing. 1:47:28 PM NANCY HILLSTRAND, Pioneer Alaskan Fisheries Inc., noted her company has been in business since 1964. She said her main concern is the sponsor statement's [first line], which states: "helping small, Alaska-based businesses." She asked whether there is any way to define the meanings of "small" and "good standing." She said her business helped the oyster growers begin in Kachemak Bay in the early 1990s, but now problems are being seen as some of the oyster growers want to expand and as new oyster farmers come into the area because of the area's residents and navigable waters. She recalled statements that these leases should be aligned and standardized, but maintained that there is a difference because these are navigable waters belonging to the people of Alaska who are boating and fishing the near-shore waters. MS. HILLSTRAND stated that not all the scientific information is on the table. For example, she said, there isn't a magnitude included for salmon hatcheries, nor an on-off switch. She maintained that the suspension and revocation statute hasn't been utilized properly so some of the hatcheries continue even though they aren't in compliance with their permits, which is what makes her concerned about what "good standing" means. She cautioned about the possibility of over capitalization and then having to buy out the businesses. She said she is by no means opposed to small farms being allowed to continue business, but is concerned that as big industry starts to enter the people of Alaska be allowed a good voice after 10 years for getting down to any problems and finding solutions. 1:50:42 PM VICKI JO KENNEDY told the story of her friends in Sterling who invested $250,000 in a fisheries business that included smoked salmon, processed fish, and shellfish. She said they were controlled by four separate state entities and one federal entity. She related that one agency would say it was okay to do something and then the next one would say it wasn't, and after almost three years her friends threw in the towel because it was such a nightmare. She urged the committee to grow the state by working with the people trying to have a business, to let them get through their permitting in a timely manner, and to not let so many entities be in charge such that people cannot figure out what to do next. 1:52:38 PM HERMAN MORGAN expressed his concern with salmon hatcheries. He said the commercial fishermen in his area used to have a market for their chum and red salmon, but the market was taken away when the hatcheries came online and started overproducing. He maintained the hatcheries are putting out too many fish and are stressing the carrying capacity of the ocean. The hatcheries are making it hard for people in his area to make a living, he continued. He urged that salmon hatcheries be regulated. CO-CHAIR TARR pointed out that SSHB 116 affects shellfish hatcheries, not salmon hatcheries. She thanked Mr. Morgan for his comments. 1:54:59 PM REPRESENTATIVE HANNAN requested the legal definition of "good standing" in the context of SSHB 116. 1:55:15 PM ALPHEUS BULLARD, Attorney, Legislative Legal Counsel, Legislative Legal Services, responded that when it applies to a lease it means that there are no issues with the department, and it would be up to the department to define what those could be in this case. REPRESENTATIVE HANNAN asked whether, because this is about lease renewals, it could be presumed to mean that the applicant must be in compliance with all the terms of the original lease to be considered in good standing for this expedited lease renewal. MR. BULLARD replied, "That seems a reasonable interpretation." REPRESENTATIVE HANNAN noted the term "small" doesn't actually appear in SSHB 116. She inquired about the current sizes of shellfish farms and whether the agencies define all those sizes as being "small" leases. 1:56:55 PM MS. COLLES answered that for authorized leases the range is from less than one acre on up to 127 acres. She said most of the farms are less than 30 acres and only one is above 30 acres - a new farm that is 127 acres. She stated that the division is seeing some larger farms come online in applications. REPRESENTATIVE HANNAN inquired whether the 127-acre farm is a corporate type structure, rather than a mom-and-pop structure, for shellfish operation. MS. COLLES replied it is hard to tell. She said a lot of these companies come in with business licenses and sometimes they are getting funding from an outside source, but the division doesn't always know all the different factors of where their sourcing is coming from. Therefore, she continued, she cannot say for sure whether they are a mom-and-pop. REPRESENTATIVE HANNAN asked whether there is a difference in the division's application oversight based on the size of the acreage that is being sought for a lease; in other words, whether a 30-acre application is treated differently than an application for 127 acres. MS. COLLES responded that some regulations give different consideration for larger farms taking up more than one-third of a bay or cove. It isn't always the size being so much larger, she explained, it is the size taking up a large area that makes the division look closer at the application to consider a few criteria that are listed in regulation. But, she added, she wouldn't say the division treats them differently. A lot more comments are received when the farms are larger, she noted. For example, she related, recently a farm wanted to expand a couple acres in Kachemak Bay, and since that requires public notice the division got a lot of comments because it is in a well-populated area and [the public] was concerned about navigation issues. So, she continued, it really depends on the location. 2:00:04 PM REPRESENTATIVE TALERICO addressed Section 3 of the bill, page 2, lines 7-9, which state: "The commissioner, for good cause, may deny an application 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." He said this language seems to mean that the only person who has access to the written denial is the applicant. He asked whether this would create an issue. MR. BULLARD answered that this language would impose a duty on the commissioner to provide an applicant with the written findings that explain the reasons for the denial. He said there isn't anything [in the language] that would limit who else might see such a denial or that would make it confidential in any way. CO-CHAIR TARR noted this particular reference is under the responsibilities of the commissioner. She interpreted Mr. Bullard to be saying it doesn't otherwise limit the commissioner to providing this information to people in a nearby community. MR. BULLARD replied that that "is a reasonable interpretation of that phrase." He pointed out that the word "only" doesn't appear on line 8 or line 9 or page 2, "it's just requiring the commissioner to provide the applicant with those reasons." 2:02:45 PM CO-CHAIR LINCOLN moved to report SSHB 116, Version 31-LS0696\U, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, SSHB 116 was reported out of the House Resources Standing Committee.