CS FOR SENATE BILL NO. 146(FIN) "An Act relating to the amount and disposition of the commercial fishing license fee and to the fishermen's fund; and providing for an effective date." This was the first hearing for this bill. Co-Chair John Torgerson explained that this bill would increase the commercial fisheries crewmember license fees from $30 for residents to $60 and $90 for nonresidents to $125. It would also change the percent of money that was deposited into the fisherman's fund from 60 percent to 36 percent and require that all funds be deposited into the fish and game fund. Co-Chair John Torgerson spoke to his proposed Amendment #1. This would clarify that the legislation would apply only to crewmember licenses rather than all commercial fishing licenses. Senator Al Adams moved to adopt Amendment #1. It was adopted without objection. KEVIN BROOKS, Director, Division of Administrative Services, Department of Fish and Game testified. The department worked with the co-chair on this bill and appreciated the efforts to assist with the budget reductions. There were a couple items on the bill he wished to work with staff to fix. Co-Chair John Torgerson informed him the bill would be reported out of committee this meeting. Kevin Brooks voiced the department's concerns shared with the Department of Labor, who administered the fisherman's fund. They did not want to jeopardize the dedication of the fund. He realized it was stated in the language of the bill. The Department of Law warned that the change in the percentage allocation would need to be addressed to ensure the fund was not compromised. Co-Chair John Torgerson had the same conversation with the Department of Law and had done research himself and he did not believe there was a problem with the dedicated funds. He had researched the minutes of the Constitutional Convention, which stated that a change in the rate was not supposed to change the properties that set it up as a dedicated fund. He was aware there were attorney general opinions that found in favor of both sides of the issue. The most recent opinion stated that the change in rate did not affect the constitutional dedication. Kevin Brooks then brought up the second concern. The department wished to maintain the cost differential between the two licenses. Currently, it was sixty-dollar differential. Co-Chair John Torgerson informed the committee that there was a test that dictated what differential could be charged to nonresidents. It was his understanding that the fee of $125 did not exceed that and was suggested by the Division of Legislative Finance after they applied the formula. Senator Al Adams noted that this bill would double the fee for Alaskan fishermen but did not do the same for out-of- state crewmembers. He felt if the rates were to be raised for in-state crewmembers, it should be raised for out of state crewmembers at the same rate as well. His reason was because Alaskans paid for state services such as water and sewer facilities while out-of-state crewmembers did not. Co-Chair John Torgerson said that was his original intent. However, after discussions with the Division of Legislative Finance and the Division Legal Services, he learned that even the current differential did not fit the formula. If the bill raised the nonresident fee higher than $125 then they would be in violation of the Interstate Commerce Clause. Senator Dave Donley pointed out similar formulas that went as high as a four-to-one ratio on the East Coast had survived challenges in the US Supreme Court. He understood that there was another side to that test regarding the actual cost relationship. Co-Chair John Torgerson detailed the formula was the total amount of money spent on commercial fisheries divided by all the residents. That number could not be three times higher that what was charged residents. He stated that was a federal law. Senator Dave Donley argued that it was not a federal law, it was a court interpretation of the US Constitution. He did not feel it was an absolute rule. He suggested the Division of Legal Services testify to why they advised as they did. He suggested it was one thing to design a law that would never lose and another to design a law to where it should be when there was a gray area. Senator Dave Donley agreed with Senator Al Adams and noted the other benefits that the out of state crewmembers had besides the cost of running the specific fishery. The state provided basic infrastructure, roads, etc. Co-Chair John Torgerson read into the record the legal opinion given by the Division of Legal Services based on the Alaska Supreme Court ruling in Carlson vs. the State Of Alaska. "The court had determined that the fees paid by nonresident commercial fishermen may not exceed the total of the fee paid by a resident plus the per capita amount of in state taxes used by the state to support fish management and commercial fisheries. The Carlson case interpreted the privileges and immunity clause of Article 9 Section 2 of the federal constitution. The privileges and immunities clause allows the person to pursue a livelihood in any state without unjust discrimination based on the person's state of residence." "The per capita cost to the state commercial fisheries program is determined by dividing the total amount of state expenditures for commercial fisheries programs by the number of residents of the state." He offered to share the entire opinion with the committee. Senator Dave Donley stated it was his opinion that the Supreme Court decision interpreted the US Constitution. If that was the state court's decision, it was not the final ruling. He believed that ruling was wrong in that it did not consider the other state expenditures that supported the industry. He gave more examples of municipal revenue sharing and other infrastructure costs. He felt there was a legitimate public policy argument. It was a gray area and he admitted he could be wrong. But he agreed with Senator Al Adams that under a fairness issue, the state had a stronger argument. Co-Chair John Torgerson did not disagree. However, he did not want to have the bill subject to challenge. Kevin Brooks shared his discussions with the Department of Law. It was explained to him that all commercial fishing licenses were considered not just the crewmembers licenses. The test was applied to the total nonresident licenses. Other licenses had a greater discrepancy and were subject to court challenge. He guessed that the state would end up reimbursing some crewmembers. Senator Al Adams asked what was the maximum amount that could be charged to stay within the court decision. Kevin Brooks answered that the formula was more complex than the co-chair alluded to. He detailed the commercial fisheries census and the use of oil revenue figures. Therefore it was difficult to give an exact figure. Senator Al Adams noted a conflict of interest due to his holding of a limited entry permit. Senator Loren Leman noted the same. He didn't feel this was the same as the crewmember license provision in this bill. Co-Chair John Torgerson objected to both members' motions to be allowed to abstain from voting. Senator Gary Wilken wanted to know if there was an age limit that required an eight-year old to buy a license. Kevin Brooks said there was no age limit. Anyone who fished on a commercial fishing vessel was required to hold a crewmember license. However, many felt it was a form of insurance since the permit covered the cost of medical services through the fisherman's fund. Senator Gary Wilken asked if they did not purchase the license if they were excluded from use of the medical services and facilities. Kevin Brooks was not definite, but believed that was true. Senator Gary Wilken requested that information provided to him in the future. Kevin Brooks added that when looking at the upper amount that might be charged an unintended result could be that the crewmember license could be higher than the limited entry license itself. The law stated that a crewmember license was not required for a holder of a limited entry license. Therefore, there was a possibility that some would chose to purchase the lower cost, limited entry license instead. Co-Chair John Torgerson had researched that earlier. He asked if the limited entry license applied to only one person on the vessel. Kevin Brooks said that was correct, as the skipper would usually have the limited entry permit. However, the crew could have license for different fisheries such as for a herring fishery, etc. MARY MCDOWELL, Commercial Fisheries Limited Entry Commission, testified that limited entry permits ranged in renewal prices from $50 to $150 for residents. Anyone could purchase the lower priced permits, which were for unlimited fisheries. Therefore, there could be some motivation to buy a $50 permit rather than the $60 crewmember license. Co-Chair John Torgerson so the $50 fee was available to anyone regardless of what they were fishing. Mary McDowell answered that the unlimited fishery permit could be used to crew in any fishery. Co-Chair John Torgerson asked if vendors sold both licenses. Mary McDowell replied they only sold the crewmember licenses. Co-Chair John Torgerson wanted to know how would someone purchase the less expensive permit. Mary McDowell said that would have to be purchased by mail. Co-Chair John Torgerson than wanted to know if there were any plans to sell the permits by vendors. Mary McDowell answered no. Kevin Brooks noted the reason for raising the issue was because there were no estimates on how many licenses could be affected. Kevin Brooks added another concern relating to the dedication of the revenues to the fish and game fund. The Department of Law suggested changing the word in Section 4 from "deposit" to "appropriated". He felt that language would be more appropriate. Co-Chair John Torgerson had heard that argument but if the funds would then go to the general fund and it was not his intent to do that. Kevin Brooks said it was his understanding that the funds would be appropriated from the general fund to the fish and game funds. Senator Al Adams suggested making the change on page 2 line 24 to read, "shall be appropriated into the general fund to the fish and game fund." which should solve the budget concerns. He understood the relationship to the operating budget. Co-Chair John Torgerson asked it the Legislature appropriated or deposited the current forty-percent that went into the fund. He determined that went into the general fund and was appropriated. Kevin Brooks believed the remaining sixty-percent was deposited. Co-Chair John Torgerson wanted to know why the department wanted to change this. JIM BALDWIN, Assistant Attorney General, Governmental Affairs Section, Department of Law, answered that the part that was dedicated did not have to be appropriated. The part that went to the general fund went there automatically. He was unsure if that would change the general funds appropriation level. It would be similar to oil and hazardous substance surcharge fees. They were not considered general fund receipts, but were anticipated in the front section of the budget that once they were received, they were appropriated. It would take another appropriation at a later date for expenditure. Co-Chair John Torgerson said he would ask the Legal Services Division and the Division of Legislative Finance for an opinion on this matter. Kevin Brooks noted another item was with the fifteen- percent vender surcharge. He did not know if the intent of this legislation was to adjust that amount since it concerned a much higher dollar amount. Co-Chair John Torgerson noted the surcharge was a regulation not a statute. Kevin Brooks said he would have to check. Co- Chair John Torgerson suggested lowering the percentage. AT EASE 8:34 AM / 8:37 AM Co-Chair John Torgerson noted a call was being made to the Division of Legislative Finance for advice on the appropriation vs. deposit issue. Jim Baldwin testified. For the record, he stated that he had worked with the co-chair before this meeting. He felt some of the concerns raised by the department were worth consideration. There had been some confusion over the years, in the department's opinion, on the dedicated funds issue. In particular, changes in the rate of dedication on the pre- existing dedicated funds-those funds that pre-dated statehood and were continued under Article 9 of the Alaska Constitution. Most recently, the department dealt with this in connection with tobacco tax. Part of the tax was dedicated. When addressed in this committee during the last Legislature, the Division of Legal Services took the position that there was evidence in the minutes of the constitutional convention to support an interpretation that a rate of dedication could be changed. That was done in this bill with the rise of the fee and the lowering of the rate. The intent was that no more was being dedicated than what was in existing law. Therefore, there was not a change in the rate of dedication. The Department of Law opinion regarding the tobacco settlement at the time was that a change in rate would threaten a continuance of the dedicated funds. They advised installing back-up provisions in the bill to remove incentive to litigate and make it clear where the funds would go in the case of successful litigation. Another approach that had been used successfully in the area of tobacco tax was to send money to another place rather then dedicate. This would really impose an additional fee in a separate area and leave the dedication as is. He suggested doing this for the fish and game fund, which would avoid the issue altogether. He understood the committee might want to be consistent with the tobacco tax law. However, he warned there may be risks. The department would defend the actions, he assured. Senator Randy Phillips wanted to know how effectively the Department of Law would defend the Legislature's actions. Co-Chair John Torgerson said the reason he had worked with the Department of Law earlier was to avoid the perception of "smoke and mirrors". He had considered a surcharge but preferred this method He intended for the fees to offset the cost of commercial fishing in the state. It would be cleaner if the fees went through the fish and game funds and came out again in commercial fisheries expenditures. He referred to page 7 of the legal opinion issued by George Utermohle of the Legal Services Division, which addressed the dedicated rate in the form of gasoline taxes. The Chairman of the Finance Committee of the Constitutional Convention stated the intent did not have any reference to rates. The convention finance committee intended that this applied to the allocation of particular taxes to a particular purpose. Senator Dave Donley wanted to know if the Department of Law argued the Carlson case. Jim Baldwin said it had although he had not handled it personally. Senator Dave Donley wanted a copy of the brief to the Supreme Court. Kevin Brooks made a follow-up comment on the fifteen- percent surcharge. This was governed by statute AS 16.05.470(a). He recommended setting the figure at ten percent. Co-Chair John Torgerson had asked for a breakdown of tickets sold by month to determine the best effective date of the bill. Kevin Brooks had provided that information to staff and detailed that most revenues were generated during January and February. Therefore, an effective date of January 1, 2000 would capture revenues. Co-Chair John Torgerson wanted to know why the department recommended against an effective date of June this year. Kevin Brooks responded that because many permits were already issued and the vendors were distributed the current forms and information, there would be hardship in retrieving the permits to replace with the new. Co-Chair John Torgerson understood the argument and agreed. Senator Loren Leman noted Mary McDowell talked about the possibility of crewmembers choosing to purchase a limited entry license rather than a crewmember license. There was a benefit of an insurance fund to those who did not have other insurance. Was that fund also available to those who purchased the limited entry permit? Kevin Brooks said it was. Senator Loren Leman wanted an incentive to keep people from purchasing the permit instead. At Ease 8:50 AM / 9:00 AM Co-Chair John Torgerson said discussions showed that changing the word "deposit" to "appropriated" would not make that much difference. David Teal, Director, Division of Legislative Finance was present to answer specific questions. Senator Loren Leman moved conceptual Amendment #2. This would apply to AS 16.05.470(a) and change the vendor surcharge from fifteen-percent to ten-percent. It would also change page 2 line 24 to delete "deposited" and insert "appropriated." Without objection, it was adopted. Senator Dave Donley made a motion to move from committee SB 146 (FIN). Co-Chair John Torgerson noted the department would have fiscal notes later in the day that would show an increase in the revenue component to reflect the changes from Amendment #2. There was no objection and the bill moved from committee.