SENATE BILL NO. 322 "An Act relating to the rate of the salmon enhancement tax." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken stated this bill, sponsored by Senator B. Stevens, by request "authorizes regional aquaculture associations to hold elections to change the tax rates for the salmon enhancement tax." Senator B. Stevens testified that this legislation would provide another option for regional aquaculture associations, which are comprised of commercial fishers in the region and the hatcheries operating in that region. Currently, he stated that statute provides the ability for members of the associations to assess themselves one, two, or three-percent. He noted those rates have not changed since 1976. Senator B. Stevens explained this bill would increase the allowable rates from four to ten percent, and permit the associations to "super access themselves" for the purpose of paying off debt, if they so choose. He characterized this legislation as a modernization of the salmon enhancement program. He stated this legislation is an attempt to mitigate concerns of industry participants relating to the percentages of "cost recovery versus common property." Senator B. Stevens referenced a spreadsheet titled "Alaska Hatchery Commercial Common Property & Cost Recovery Return Data - 1993-2003" [copy on file], showing the "cost recovery percentages" and "commercial harvest percentages". He indicated that over several years, the cost recovery percentage has averaged approximately 30 percent. He remarked that this demonstrates the declining value of the fish produced, therefore forcing an increase in the number of fish required to pay the operation costs of the hatcheries. He reiterated this legislation would permit the members of an association to opt to harvest a greater number of fish and increase their assessment to generate revenue for hatchery operations. He stressed that such a change could not be implemented without a majority vote of the permit-holders in the region. Senator B. Stevens informed that currently the commercial fishers could pay no more than three-percent and thus forcing cost recovery methods to cover a larger portion of the operating expenses. Co-Chair Wilken referenced letters in opposition to this bill [copies on file]. Senator B. Stevens addressed the letter from Kate File and agreed she has a legitimate concern, although it is not germane to this legislation. He explained this legislation does not pertain to the cost recovery practices of non-profit hatcheries. He assured that this bill only applies to those areas included in a regional association, and that the members of the associations have the authority to impose these taxes on themselves. Co-Chair Wilken requested an explanation of cost recovery in the context of this legislation. Senator B. Stevens gave an example of a hatchery that produces ten million fish with annual operating costs of $4 million. He explained the current process whereby the hatchery contracts with certain commercial fishers to catch and return five million fish to the hatchery to pay the operating costs. The remaining five million fish, he continued, are available for catch by other commercial fishers and taxed at a rate of two percent to recover additional costs. He stated this bill would "change the dynamics" and allow the commercial fishers to assess a higher tax on their portion of the harvest and thus reduce the number of fish reserved for contracted harvesting and increase the number of fish available to them for harvest. Co-Chair Wilken citing the spreadsheet, noted that one third of the hatchery produced fish are harvested for the purpose of paying operating costs. Senator B. Stevens affirmed, qualifying that the percentage varies by region depending upon the number of hatcheries operating in a region. Senator Bunde pointed out that cost of producing fish increases over time, although the price of fish varies. He surmised that with a large debt service, a hatchery would have to take virtually all the fish if produces to pay its operating costs. He stated this bill offers the option to pay overhead costs down in years of higher prices. Senator Bunde commented that participation in associations is optional for commercial fishers in some areas and there is concern that fishers might not vote. He predicted that this legislation could provide more incentive for participation if fisher's tax assessments could change. Senator Hoffman asked the percentage of hatcheries still producing pink salmon. Senator B. Stevens replied that most hatcheries are producing pink salmon, with the largest productions in Prince William Sound. He relayed that trends indicate the cost recovery percentages is rising. Senator B. Stevens listed the Northern Southeast Regional Aquaculture Association (NSRAA), a region comprised of several hatcheries, is an example of how this legislation could be beneficial. He told how this association paid its costs down early, and was able to limit the amount of cost recovery harvesting. However, he pointed out that cost recovery has increased in recent years due to lower fish prices. He explained this association could chose to reduce the percentage of cost recovery harvesting by paying a higher tax assessment. He stressed this would be a choice determined by the members of the association through an election process. He also noted that the association members could subsequently reduce its taxes in the event of a market change and increased prices. He opined this legislation provides "self determination" within an association. He expressed this could allow for the release of more fish for commercial harvest and change the current trend of hatcheries catching a significant percentage of the fish they produce to pay the operating expenses of the hatchery. Co-Chair Wilken asked how the cost recovery percentage is determined. He noted the increase of the NSRAA cost recovery percentage and asked if it was a result of increased debt. Senator B. Stevens was uncertain of the NSRAA situation. He detailed that each hatchery submits a plan to annually to the regional planning team, which is approved by the board of directors of the regional association. Co-Chair Wilken asked why the Douglas Island Pink and Chum (DIPAC) hatchery is not relevant to this legislation. Senator B. Stevens replied DIPAC is a private nonprofit corporation and is therefore not included in a regional aquaculture association. He stated it operates only under the authority of its board of directors and has no involvement from a regional planning team. He noted this speaks to Ms. File's concern about increased cost recovery percentages without input from area commercial fishers. Senator Hoffman asserted the more fish produced, the lower percentages of cost recovery. He asked for affirmation that the value of pink salmon is from roe. Senator B. Stevens affirmed. He relayed discussions regarding the declining value of pink salmon and subsequent increased production, resulting in a downward cycle. Senator Hoffman indicated this is his concern. Senator B. Stevens agreed this is the reason this bill is necessary. He detailed the price fluctuation for pink salmon over 20 years ranging between 80 cents per pound to the current eight cents per pound. He referenced a graph titled, "Alaska Historical Commercial Salmon Catches (all species) 1878-2003", prepared by the Department of Fish and Game [copy on file], showing that hatchery activities have contributed to an increased stabilized production rate of almost 100 million fish annually statewide. However, he pointed out that the value has diminished. Co-Chair Wilken asked if the hatchery program was implemented in 1978. Senator B. Stevens affirmed. He informed that most hatcheries in Alaska had been State-owned, but currently most are either held by an association or a non-profit corporation. Senator Hoffman pointed out the supporting documentation for this legislation does not indicate the percentages of hatchery salmon. He understood the hatchery programs primarily operate in Prince William Sound and Southeastern Alaska, although the largest fishery is located in Bristol Bay. Senator B. Stevens agreed the Bristol Bay fishery has the highest value. He spoke to the price trends for sockeye salmon, which average between 80 cents and $1.80 per pound. Senator Hoffman countered that Senator Dyson would say that increased production of pink salmon in Prince William Sound during the 1980s and 1990s resulted in a flood of the market and impacted the sockeye salmon fishery. He also noted other factors such as farmed fish have impacted the fishery markets. Senator Bunde added that foreign market crashes have had a significant impact on the fishing industry. He commented on the State trend of receding from the "hatchery business", while making efforts to enter the "oil business'. He suggested this should be considered. Senator Bunde asked if the demand for cost recovery increases, whether the Department of Fish and Game would be pressured to facilitate cost recovery to limit fishing in distant waters to allow more fish to return closer to the hatchery location. Senator B. Stevens replied the matter would be a regional management decision. Co-Chair Wilken told of discussions to operate a fish hatchery in Fairbanks to supply fish to Interior and Southeast Alaska, and asked whether this hatchery would be included in the provisions of this legislation. Senator B. Stevens answered it would if it practiced cost recovery and depending upon whether it produced fish for commercial harvest or personal and subsistence use, as well as the volume of fish produced. He added that such a hatchery would participate only if it secured funding through the Fisheries Enhancement Revolving Loan Fund. He indicated on a map showing the locations of hatcheries within Alaska [copy on file]. He noted that hatcheries located at Fort Richardson and Fort Elmendorf are not included, as they produce fish for personal use. Co-Chair Wilken understood the proposed Fairbanks hatchery was intended to produce fish for personal and subsistence use. Senator B. Stevens expressed he has discussed the hatchery issue extensively, and that this is legislation is an option for those regional aquaculture associations to utilize if they chose. Co-Chair Green clarified this legislation would stipulate no mandates. Senator B. Stevens affirmed. Co-Chair Wilken ordered the bill HELD in Committee.