CS FOR HOUSE BILL NO. 264(FIN) An Act levying and providing for the collection of and disposition of the proceeds of a fishery resource landing tax; and providing for an effective date. Co-chair Pearce directed that CSHB 264 (Fin) be brought on for discussion and noted a teleconference link to Seattle, Washington. REPRESENTATIVE CARL MOSES again came before committee. He explained that the proposed bill would establish a new tax on fishery resources caught and processed in the exclusive economic zone--waters directly off of Alaska--but which are then landed within Alaska's jurisdiction. These processed resources are currently not subject to state tax. The off- shore trawler fleet operating within the exclusive economic zone has been extremely profitable. It is now fully American with most vessels based in Washington State. The fleet targets groundfish with incidental catches of crab, halibut, herring, and salmon. Alaska provides significant benefits and services to the off-shore fleet and incurs additional fishery management and enforcement costs. The tax is one way to compensate the state for services. CSHB 264 (Fin) would impose a modest tax of 3.3% of the value of the processed resource landed in Alaska for shipment to markets elsewhere. The Alaska Seafood Marketing Institute would receive 0.3% of the tax. This new landing tax would place the off-shore fleet on the same tax level as on-shore facilities. The House Finance version of the bill authorizes a narrow tax credit limited to the tax on the value of fishery resources harvested under a community development quota program. The potential value of this credit is approximately $290.0. That is a small portion of the projected $8.6 million to be generated by the tax. The House Finance Committee Substitute also changes the definition of "value" used in computing the tax. The change was requested by the fishing industry to provide clarification and certainty in how the tax will be determined and applied. The original legislation provided a credit for equivalent taxes paid in other "states." House Finance extended that credit to taxes equivalent "in nature" paid in other "jurisdictions," including foreign countries. Representative Moses directed attention to a fishery tax study conducted by the Dept. of Revenue which recommended that a landing tax be established. He stressed that the current tax situation for shore-based versus off-shore processors is unfair. On-shore operations are taxed and contribute to the local economy through property taxes, etc. That tax is equivalent to what is now being proposed for off-shore processors. Discussion followed between Representative Moses and Senator Frank regarding application of the credit. Representative Moses said that community development quotas represent approximately 7% of the overall catch. The quota program will sunset in two to three years. Senator Sharp raised a question regarding what constitutes a qualified non-profit. MOLLY McCAMMON, aide to Representative Moses, explained that the credit was requested by CDQ groups. These groups now receive benefits from the Bering Sea Fishery Development Foundation. Funding would likely flow to that foundation but rather than specify a particular entity in statutes, CDQ representatives asked that the bill simply cite a "non-profit corporation." Moneys could then flow to other local non-profits and those associated with regional Native corporations. Moneys could only be used for training, development of fishery infrastructure, etc. End, SFC-93, #73, Side 2 Begin, SFC-93, #75, Side 1 CARL MEYER, Chief of Appeals, Income and Excise Audit Division, Dept. of Revenue, came before committee in response to questions regarding calculation of the tax and a definition of non-profit corporation. He then provided a verbal sectional analysis of the House Finance version of the bill. He assured that the legislation was constructed to avoid situations where fishery resources would be taxable under both business tax and landing tax provisions. The tax only applies to fishery resources that are "first landed in this state." Filing and tax payment provisions are essentially the same as for the business tax. Directing attention to credit provisions at page 2, line 7, Mr. Meyer explained that credit for "taxes equivalent in nature" paid in some other jurisdiction apply only to a similar processing tax. The credit would not include sales tax or import duty levied by other states or other countries. In practice, there should be little application of the credit. It relates to specific purposes, scholarships, training, capital for construction of infrastructure, etc. All contributions and related activities must be within Alaska. Application for the credit would be made to the Dept. of Revenue. The department, in consultation with the Dept. of Community and Regional Affairs, will make a determination within 60 days. The credit may be revoked at any time. It may also be denied if the taxpayer is found to be in arrears in other taxes under Title 43. Mr. Meyer noted that 0.3% of the tax would flow to ASMI while the remaining 3% would be deposited into a separate account in the general fund. The balance of the latter account may be appropriated to revenue sharing and distributed per provisions set forth at pages 3 through 5. Tax credits would be deducted from amounts flowing to municipalities. Pointing to definitions set forth on pages 5 and 6, Mr. Meyer noted that "fishery resource" is defined in business tax provisions. The definition of "landing" as the act of "unloading or transferring a fishery resource" is new. Discussion followed between Senator Rieger and Mr. Meyer concerning revenue sharing percentages set forth on page 4 of the bill. Senator Rieger directed attention to the position paper from the department and noted the general fund revenue estimate of $4.3 million. A like amount would be shared with municipalities. Mr. Meyer concurred. The department projects total collection of approximately $9 million. Discussion followed between Senator Kelly and Mr. Meyer regarding how the 3.3 tax percentage rate was selected. Mr. Meyers noted that on-shore operations presently pay 3% while floating processors pay 5%. Members of the American Factory Trawlers Association indicated that if a landing tax was to be applied, it should be fair. The Association further indicated that if the rate was the same as that charged shore-based processors, and if the value was the same value paid by shore-based processors, the association would not oppose the legislation as being unfair. The 3% rate evolved as a means of accommodating the industry. In considering constitutional aspects, the department came to the conclusion that the 3 rate would be fair. The 0.3% was then added for Alaska Seafood Marketing. Senator Sharp voiced his understanding that the state would retain 50% of tax revenues. Mr. Meyer concurred. JOE BLUM, American Factory Trawlers Association, next came before committee, accompanied by SUSAN BURKE of Gross and Burke. Mr. Blum explained that the association is comprised of 18 member companies operating 42 catcher, processor, and mother ships that fish in the 3 to 200-mile zone along the west coast, the Gulf of Alaska, and the Bering Sea. Mr. Blum voiced opposition to CSHB 264 (Fin) based on the constitutional issue of whether or not a state can tax a product that does not enter state jurisdiction until it is in finished form and is merely passing through to market. He acknowledged meetings with the Dept. of Revenue at which the association stressed need to address the constitutionality of the tax. Another area of concern relates to whether or not the tax is fair. The association asked that members not be taxed more than the shore-side sector, and that the tax be based upon the demand for services members make on the taxing authority. Factory Trawlers do not demand the same types of services, in the same amount, for the same period of time as do shore-side or floating processors. Trawlers make a different type of demand over a shorter period of time. The tax should be based upon that rather than the numerical rate of 3.3%. Senator Kerttula asked if factory trawlers employed Alaskans or if a majority of the work force was from out of state. Mr. Blum responded, "We do not have a preponderance of Alaskans . . . on the vessels, but we have a fair number." Alaska residency ranges from 800 to 1,000. Senator Kerttula noted that those workers generate tax needs in terms of schools for their children and other services. Mr. Blum next pointed to the Bering Sea Commercial Fisheries Development Foundation. The foundation has a nine-member board of directors, six of whom are Alaskans. It is a voluntary, non-profit foundation. The American Factory Trawler Association assesses itself $0.75 per ton on all fish caught in the Bering Sea, Aleutian Island, and Gulf of Alaska. That money is used for fishery development projects in Western Alaska. The cornerstone of the effort is the training program through the Seward vocational facility. Western Alaskans are selected for training for work in fish processing. The program has been in existence since the fall of 1991 and has trained more than 150 individuals. Those individuals have generated in excess of $3 to $4 million in cash wages in Western Alaska. Mr. Blum asked that a tax credit be given to any entity contributing to the foundation. He observed that the proposed CDQ credit is 7% of "one part of the resource." At $2,000 per trainee, the $290.0 CDQ credit will not train as many individuals as could be trained if the credit base was larger. In response to a question from Senator Kelly, Mr. Blum advised that the association has contributed approximately $1 million to the foundation since 1991. He further advised that when the state and federal governments agreed on the CDQ program, the foundation provided training grants of $500 per community for the 50 communities under the CDQ umbrella. If a tax is imposed upon the trawlers, it will make it difficult to both pay the tax and continue to contribute to the foundation. Mr. Blum explained that the association hoped the attorney general or House or Senate Judiciary Committees would review the bill. Failing those occurrences, the association asked that Gross and Burke review both pro and con aspects of the legislation. Co-chair Pearce noted the presence of both Judiciary and Resources committee chairmen as well as a representative of the Dept. of Law. The Co-chair further advised of indication from the attorney general that he would provide additional information on the legislation tomorrow morning. SUSAN BURKE, Gross and Burke, emphasized that her firm had taken a "quick look at the bill." It did not conducted in- depth review. End, SFC-93, #75, Side 1 Begin, SFC-93, #75, Side 2 She then highlighted concern relating to the fact that the proposed tax implicates two sections of the U.S. Constitution: one relating to interstate commerce and the other to the foreign commerce clause. States are not allowed to impose taxes on activities that form a part of interstate commerce. If a state does so, it must meet four United States Supreme Court tests: 1. There must be sufficient nexus--minimum contacts with the state. 2. The tax cannot discriminate against interstate commercial activities in terms of giving advantage to similar activities conducted by local taxpayers. 3. The tax must be fairly related to services the taxing jurisdiction is providing to the taxpayer. 4. The tax must be fairly apportioned. Ms. Burke said that she focused primarily upon the second test, dealing with discrimination, because it raises the most serious questions. Co-chair Pearce announced need to briefly recess the meeting to confer with House Finance co-chairs. RECESS - 6:05 P.M. RECONVENE - 6:25 P.M. Upon reconvening the meeting, Co-chair Pearce requested that Ms. Burke continue with her presentation. Ms. Burke noted that the proposed bill applies only to fish resources "brought into Alaska." That means that it applies to interstate and perhaps foreign commerce as opposed to domestic activities. It thus discriminates against interstate commerce. Courts will traditionally allow this type of tax on interstate commerce only if they determine that it is a proper "compensatory" tax--an effort to equalize the tax burden between people performing the same activities in the state. Ms. Burke cited, as an example, a sales and a use tax that essentially tax the same activity. She then questioned whether a court would view the proposed landing tax as compensatory to the existing business tax. The business tax is levied upon the business of processing fish. The landing tax is similar to a property tax. If the question of whether the landing tax is a proper compensating tax is bypassed, a further question of whether burdens on interstate commerce and local commerce are equal is raised. A state cannot place more burdens on interstate commerce than it places on local commerce. The question is further complicated by the tax differential between off- shore and domestic processors. Ms. Burke also raised questions concerning the 0.3% of the tax to flow to ASMI. She further noted a difference in tax burden between shore- based and out-of-state processors in terms of credits. Credits allowed under AS 43.75 are not allowed under the proposed landing tax. That is another serious issue. Ms. Burke advised of her understanding that a portion of the fishery resource subject to the proposed tax belongs to a foreign purchaser by the time it "hits Alaska." That squarely raises foreign commerce issues. She cited the Japan Lines case from California as an example of an attempt to impose a tax upon empty shipyard containers belonging to foreign shipping companies and used exclusively in foreign commerce. The Supreme Court held that the tax could not be levied. That decision was based on potential for double taxation and whether the state tax inhibited federal government ability to "speak with one voice rather than fifty voices" when dealing with foreign countries. Ms. Burke acknowledged that most of the problems appear to be fixable, given sufficient analysis and thought. She stressed the importance of stability in state tax policy. She further remarked on the expectations that would be raised should the proposed bill pass the legislature and subsequently be found to be unconstitutional. Pointing to language within the bill, Ms. Burke noted drafting problems, advising that the legislation does not require that the fish be processed. While the intent behind the tax is to capture revenues from resources processed outside the state, the bill does not limit application to processed resources. She further noted exclusions within AS 43.75 and noted that it appears that the proposed bill imposes a tax on what the legislature earlier sought to exclude from taxation. Ms. Burke stressed need, from a taxing policy standpoint, for review over the interim in order to develop legislation more likely to survive a constitutional challenge. HARVEY SAMUELSON from Dillingham, Alaska, next came before committee to speak on behalf of the Bristol Bay CDQ program and as a founding father of the Bering Sea Fishery Development Foundation. He observed that the foundation has done more good "than any social program that ever hit Western Alaska." It has provided jobs, self respect, and something for young people to look forward to. Both BIA and the state have failed in these efforts. Mr. Samuelson stressed need for the foundation to derive greater credit from landing fees. Much remains to be done, and it cannot be accomplished overnight. Foundation training has provided 300 to 350 jobs. After the first of the year, when 30 to 60 jobs were sought for Western Alaska residents, processors out of Dutch Harbor brought in over 1,000 cannery workers from "the states" and did not hire from Interior Alaska. In response to a question from Senator Kerttula, Mr. Samuelson said that the training programs cover "the entire Bering Sea coast up to Nome" as well as St. Lawrence Island. Senator Jacko noted that factory trawlers could continue current contributions with or without the legislation. Mr. Samuelson stressed that "Lots of them are on their deathbeds." Many factory trawlers will not be in existence much longer. There will then be no money with which to operate the foundation. Senator Jacko pointed to credits for CDQ program training modeled on the foundation program. Mr. Samuelson countered that the amount involved is less than $300.0 for "six outfits." Further, the state is loading down CDQ programs with scholarship and other requirements in the first year of operation. He argued that the "state is trying to make us spend all our money before we get it." PHIL CHITWOOD, Tyson Seafoods, next testified via teleconference from Seattle. He explained that Tyson entered the seafood industry through purchase of Arctic Alaska Fisheries Corporation. The company intends to expand its operation through expansion of existing and development of new facilities in Alaska. The extent to which these plans proceed will depend upon the economic environment provided by the state. The proposed bill would impose a 3.3% tax based on the raw fish value of fish caught and processed outside of state waters and transhipped inside state waters. It is estimated that the tax will cost Tyson "upwards of $1.5 million next year." Tyson operates a fleet of 31 vessels which catch and process ground and shellfish at sea. Because of declining prices in world fish markets, nearly half of the vessels are presently docked. Margins are insufficient to operate those vessels. Enactment of CSHB 264 (Fin) will significantly add to the cost of doing business in Alaska and will result in the docking of additional vessels. Tyson cannot expand its investment in Alaska while being forced to tie up additional ships. There could not be a worse time to burden the offshore fishing industry with additional expenses. Few, if any, Alaska groundfish participants had profitable operations last year. The outlook for the next few years is no brighter. Mr. Chitwood urged that CSHB 264 (Fin) be held in committee. He termed it seriously flawed, if not illegal. If enacted, Tyson would be forced to put additional dollars into litigation rather than its Alaska operations. Mr. Chitwood pointed to the self-assessed $0.75 per ton contribution by trawlers to the above-mentioned fishery development foundation. He stressed that the foundation has proven to be extremely successful in providing employment to Western Alaska residents. The proposed bill contains no tax credit for contributions Tyson makes to the foundation. Those contributions will stop if a credit is not included. A credit should also be allowed for fees paid on product shipped to foreign countries. That omission warrants legal review. CSHB 264 (Fin) would impose the same tax upon at-sea catcher/processors as on shore-side catcher/processors. That is unfair. At-sea processors provide their own support services while shore-side operations depend upon the state and local communities to do so. Each sector of the industry should be taxed in proportion to its receipt of services. The proposed tax on off-shore operations will result in curtailment of operations, loss of jobs, and decreased spending in coastal communities. Passage of the legislation will not have a positive impact. Mr. Chitwood urged that the bill be held in committee for further analysis to ensure that it is fair and acceptable to the industry. In response to a question from Co-chair Frank, Mr. Chitwood advised that Tyson processes approximately 200,000 tons of groundfish and 100,000 pounds of crab per year. He subsequently voiced Tyson's intent to move from a partially integrated business to a fully integrated seafood business whereby the product processed in Alaska "goes on somebody's plate" rather than to a secondary processor. THORN SMITH, North Pacific Longline Association, next spoke via teleconference from Seattle. [The following is a transcription of Mr. Smith's teleconference testimony.] Thank you, Madam Chair. For the record, my name is Thorn Smith. I represent the North Pacific Longline Association. Our association represents freezer longliners which catch and process ground fish in an exclusive economic zone in the Gulf of Alaska and the Bering Sea. Our vessels primarily fish for cod in the Bering Sea/Aleutian Islands area. I want to emphasize that these cod are caught, processed, packaged, and traded in the exclusive economic zone, outside of Alaska. In many cases it's done quite a number of miles outside of Alaska. The finished product is off- loaded at the transports within the territorial sea and put directly into foreign commerce for markets in Europe and the Far East. Often these transfers are made at anchor and do not involve the use of a dock. In the course of our operations, we purchase food, fuel, and services from Alaska businesses, making a substantial contribution to Alaska's economy. We use state facilities on a pay-as-you-go basis. A number of these freezer longliners are owned and operated by Alaskans and Alaska fishery pioneers. I'm sure names like John Winther, Jim Beason (sp?), and Beaver Nelson are familiar to you. I'm advised that Senator Ted Stevens was particularly enthusiastic when he was informed that a group of Kodiak fishermen were joining together to build the ALASKA LEADER, which is a substantial freezer longliner operating out of Kodiak. The Senator recognized that the relatively simple technology that we use, the [indiscernible] technology on these vessels, is accessible to ordinary Alaskans of ordinary means, and that it provides a very good opportunity for them to get into the [indiscernible] off-shore processing sector. Freezer longliners are relative newcomers to the ground fish fishery. They are able to harvest ground fish, particularly cod, in a conservation-oriented manner with minimal bycatch mortality and discard. Only when federal authorities, not too long ago, eliminated the Japanese downline and longline fisheries off Alaska were American fishermen able to gain access to premium markets. Our vessels are recently built. They're heavily capitalized, and they're particularly vulnerable to market fluctuations. A flood of cheap Russian white fish product in international markets has lowered prices drastically over the last year and has created a real economic crisis in our industry. The landing tax proposed here could drive many of us out of business. Unfortunately, this is not an exaggeration. The timing couldn't be worse. We support proposed amendments by the Fishing Company of Alaska to make it clear that the landing tax would not apply to product processed outside of state jurisdiction and transferred directly to foreign commerce, and also an amendment which would prevent double taxation. We, of course, have to pay export duties when we sell products to foreign markets. In our view, the constitutionality of the proposed landing tax has not been demonstrated. It has been shown that there is not a good nexus linking at-sea processing activity with the state to justify taxation. The finished product is merely transferred from one vessel to another in state waters. No processing takes place [indiscernible] foreign ports. This may or may not involve the use of a dock. There may not be a change of ownership in the product at the time of transfer. Any use of a major state facility, as I said, is on a pay-as-you-go basis. And there has been no showing that the proposed tax bears a fair relationship to the services provided by the state. We feel that it would be a mistake to move this legislation forward without a thorough legal analysis of these issues and without a very careful consideration, by the legislature, of its impact on Alaskans and non-Alaskan owners of freezer longliners. Thank you for your attention. I'd be happy to try to respond to any questions. SEN. PEARCE - Thank you very much, Mr. Smith. Are there any questions? SEN. KERTTULA - I have one. SEN. PEARCE - Senator Kerttula. SEN. KERTTULA - If you unload the fishery products in the state of Washington, do you pay any tax to the state of Washington? MR. SMITH - Phil is shaking his head, no. Actually, our vessels don't work off the state of Washington, and so I can't respond, Senator. SEN. KERTTULA - Okay. Others may well, though, right? MR. SMITH - I'm sorry, I can't tell you. I don't know. End, SFC-93, #75, Side 2 Begin SFC-93, #76, Side 1 FORMER SENATOR MIKE SZYMANSKI, next came before committee on behalf of Fishing Company of Alaska. He noted that the community of Dutch Harbor would be the primary recipient of the proposed tax. Mr. Szymanski provided a brief history of the Fishing Company of Alaska. He explained that the off-shore industry has predominantly been Americanized while shore-based operations are largely owned by Japan. The company has three long liners and seven trawlers. The proposed tax would not only impact trawlers but long liners, crabbers-- anyone involved in the process of bringing catch from the economic zone into the three-mile zone for offloading. All of the product is caught far off the coast and is produced exclusively for Korean and Japanese markets. The company employs 300 to 400 people on its vessels and in corporate headquarters in Seward, Anchorage, Dutch Harbor, and Seattle. Vessels offload to tramper ships bound for Korea and Japan. Many times offloading occurs in isolated bays, and the trampers do not enter Alaskan ports. The product is pre-sold before it enters the Alaskan zone. For these reasons, the bill poses serious problems in terms of the foreign commerce clause of the U.S. Constitution. The company is anticipating significant losses for the current year due to a market drop of almost 50% caused by foreign competition. If the proposed tax is imposed, it would put the company at great disadvantage in dealing with competitors, particularly Japanese and Korean fishermen who have the ability to fish former Soviet Union waters, take the product to market, and sell it below the cost of production in Alaska. Mr. Szymanski noted company contributions to the economy of Dutch Harbor by payments for garbage, water, sewer, electricity, security, medical, transportation, food and other direct services of offloading. The company also pays payroll and business taxes, docking, port, and piloting fees, etc. Operating costs are significant. Unlike shore- based processors, the company does not have the infrastructure support from local communities. Vessels homeported out of Seward spend more time in that community than at Dutch Harbor. Directing attention to a February 22, 1993, memorandum (copy on file in the HB 264 bill file) from Legislative Legal Services, Mr. Szymanski pointed to potential problems under the United States Constitution's commerce clause. He then read substantial portions of the memo. Mr. Szymanski next cited constitutional problems highlighted in a May 2, 1993, memorandum (copy on file) from Patton, Boggs & Blow. He stressed that once the issue becomes a matter of foreign commerce, the state is prohibited from taxing or regulating the effort. A corrective amendment was offered and partially adopted when the bill was in the House. However, the section relating to "Credit for Other Taxes Paid," page 2, remains flawed. Mr. Szymanski directed attention to a proposed amendment to correct problems by excluding "the whole foreign commerce practice." Mr. Szymanski next spoke to problems resulting from lack of nexus when attempting to apply the tax to a vessel that entered state waters only once and transferred its catch to a foreign tramper. In that situation, the tax does not bear a relationship to services provided by the state or a coastal community. Mr. Szymanski referenced a "port incentive development amendment" and explained that it would allow other ports an opportunity to provide "some portion of a tax-free zone." Discussion of expansion of CDQ programs followed between Mr. Szymanski and Senator Frank. In continued discussion, Mr. Szymanski questioned whether communities where offloading occurs should reap windfall rewards rather than the state general fund or communities (Seward, Petersburg, etc.) where the vessels winter over. Mr. Szymanski next spoke to the issue of a fair tax rate, terming the 3.3% tax unjustifiable in relation to direct services. If this taxation policy is found to be just, could it be extended to OCS oil and gas, international airport products, or similar products upon first landing in the state. A major challenge to this issue has already occurred in Louisiana where courts failed to uphold a proposed tax. Discussion followed between Senator Kerttula and Mr. Szymanski regarding industry support to schools and other state and community services. Speaking to the off-shore industry obligation, Mr. Szymanski suggested a 1% tax would cover impact. Senator Kerttula asked if a 1% tax would make the legislation constitutional. Mr. Szymanski said that while he could not speak in terms of nexus problems, he felt that the 1% tax would be more equitable in terms of off- shore impact. Discussion followed between Co-chair Frank and Mr. Szymanski regarding competition from Russian resources harvested by Korean and Japanese fishermen. Further discussion followed regarding federal export taxes and port and harbor fees. Senator Jacko asked if shore-based processors presently paying a 3% tax compete in the same market as off-shore operations. Mr. Szymanski acknowledged that they do. He noted, however, that on-shore processors receive services such as electricity, water, sewer, garbage pickup, etc. Off-shore operations bear the expense of on-board infrastructure to provide these services at sea. It is sometimes less costly and more efficient to operate on shore. MARK ERNEST, City Manager, Unalaska, and STEPHANIE MATSON, City Council Member, Unalaska, next came before committee. Mr. Ernest echoed statements by Representative Moses when speaking to impact sustained by communities from off-shore processing operations. In referring to immediately preceding comments by Mr. Szymanski, Mr. Ernest explained that in addition to the present 3% tax, on-shore processors also pay real property taxes and a 2% local fish use tax. The off-shore fleet is not subject to those taxes. An estimated 70,000 to 80,000 people travel through the Unalaska Airport annually. Crew changes generally occur in port, and there is substantial impact on the health clinic, roads, and education and recreation facilities. Mr. Ernest urged passage of the proposed bill. Co-chair Frank asked how the state might be able to protect against law suits challenging the constitutionality of the legislation. Mr. Ernest suggested that tax receipts and subsequent payments to municipalities could be held in escrow pending a ruling on the challenge. [Co-chair Pearce noted termination of the teleconference link at this time.] Discussion followed between Ms. Matson and Senator Jacko concerning a Fishing Company of Alaska contribution to the Unalaska health clinic. Referencing earlier comments by Mr. Szymanski regarding the small amount of time spent in port by off-shore processors, Ms. Matson noted that it is difficult to deputize sufficient police officers for duty when crews show up on an unknown schedule. The community must maintain full capacity to respond when needed. The city thus bases staffing on historical need. She reiterated that approximately 72,000 people pass through the air terminal each year. The community has a service population, besides shore-based processors, of 15,000 to 18,000. That can be verified by the number of patients who utilize services of the health clinic. Ms. Matson further noted that members of the American Factory Trawlers Association fish Russian waters and return the product to Unalaska. Discussion followed between Ms. Matson and Senator Kerttula regarding competition among coastline communities that offer port facilities to fishing operations. RICK LAUBER, representing the Pacific Seafood Processors Association, next came before committee. He attested to concern in the early 1970s that foreign fishermen were taking Alaskan resources, and the state was not being compensated for that taking. The 200-mile limit was thus imposed to prohibit that intervention. Alaska now has a "distant water fleet" fishing off its coast. That fleet pays no taxes to the state. Mr. Lauber acknowledged that a small number of fishermen and small processors that deliver to larger, floating operations are fighting to remain profitable. Large, off-shore operation have failed to mention that they spend millions attempting to "grab all of the resource so that Alaskans would not have a single pound of it." End, SFC-93, #76, Side 1 Begin, SFC-93, #76, Side 2 Mr. Lauber noted that all communities "around the rim of the Bering Sea," including those fifty miles inland, are involved in the CDQ program, with the exception of Dutch Harbor/Unalaska. The purpose of CDQs is to encourage communities to become involved in the fishing industry. One cannot talk about an amendment that would grant factory trawlers an exemption or tax credit without taking CDQ programs and the magnitude of the quotas into consideration. Factory trawlers have contributed approximately $600.0 to the foundation. Community Development Quotas for villages along the Bering Sea are worth between $20 to $25 million a year. The purpose of CDQs is to do "what this foundation is attempting to do." While the trawler fleet deserves recognition for its contributions, it does not deserve a tax credit. Mr. Lauber advised that the proposed legislation should have been passed a long time ago. He stressed that shore-based processors actually pay 5.3% because they pay municipal taxes in addition to those levied by the state. That percentage does not include real property and other taxes. Mr. Lauber spoke to the permanence of shore-based operation and noted that off-shore trawlers are flexible and able to move to alternative fishing grounds (Oregon, Russian waters, Australia, and New Zealand). Shore-based processors have invested hundreds of millions of dollars in facilities that cannot be moved. Off-shore competitors should be fairly taxes. Mr. Lauber urged the legislature to impose a tax on factory trawlers commensurate with their activities in the State of Alaska. Discussion followed between Mr. Lauber and Senator Kerttula regarding ownership of on-shore processing operations. JEFF KOENINGS, Director, Division of Commercial Fisheries Management and Development, Dept. of Fish and Game, next came before committee, voicing support for the proposed landing tax. He attested to the fact that off-shore factory trawlers harvest a bycatch of crab, halibut, herring, and salmon while targeting another species. This bycatch consists of species of great importance to Alaska's fishermen, processors, and coastal communities. The incidental harvest by factory trawlers has an economic impact on Alaskans by removing resources they would otherwise be harvesting and processing. Mr. Koenings next spoke extensively to department management in exclusive economic zone fisheries. DEAN PADDOCK, Bristol Bay Driftnetters Association, again came before committee. He voiced concern regarding salmon bycatch and spoke to need for an incentive to induce factory trawlers to reduce that bycatch. He concluded his comments by referencing the proposed landing tax and saying, "If this is it, go to it." Co-chair Pearce advised of notification that the Attorney General would provide a statement of defensibility at 11:00 a.m. tomorrow morning. She suggested that amendments for the bill be offered at that time. ADJOURNMENT The meeting was adjourned at approximately 8:15 p.m.