SB 315-ENTRY PERMIT BUY-BACK PROGRAM  CHAIR CON BUNDE called the Senate Labor and Commerce Standing Committee meeting to order at 1:35 p.m. Present were Senators Gary Stevens, Ralph Seekins, Hollis French and Chair Con Bunde. Senator Bettye Davis was excused. The first order of business to come before the committee was SB 315. MS. CHERYL SUTTON, Staff to Senator Ben Stevens and the Joint Legislative Salmon Industry Task Force, said SB 315 is a recommendation of the task force and provides language for the Commercial Fisheries Entry Commission (CFEC) to fund a buyback program. If CFEC was able to receive monies from any source, those monies might have to be paid back, but currently there is no process in statute under which that could happen. CHAIR BUNDE asked if buybacks were on the horizon anywhere. MS. SUTTON replied that the only buyback being discussed right now is in the Southeast seine fishery, which has been dealing with Senator Ted Stevens on the federal level. They have not moved forward under the state law. She thought one of the big reasons they hadn't moved forward is because laws governing buybacks are not in place at the state level. "We have been attempting to repair this statute over the last several years so that if that case comes up, we would have a workable statute." SENATOR RALPH SEEKINS asked if she was talking about a state- funded program. MS. SUTTON replied no and that an optimum numbers study, which would determine whether too many permits existed in a fishery, would need to be completed first. The proposed legislation also provides for an assessment of up to 7 percent on the value of an individual fisherman's fish ticket sales to fund the program. SENATOR SEEKINS asked if language stating the commission will cease a buyback once the optimum number has been reached has been in statute before. MS. SUTTON replied no. SENATOR GARY STEVENS said the optimum numbers study might show that there aren't enough permits in a fishery as well as show there are too many. MS. SUTTON followed up on the issue of the optimum number of permits saying that one number was an unreasonable concept so the statute was changed to reflect that an optimum number is really a range of numbers. CFEC also has the authority to add permits back into a fishery. CHAIR BUNDE said SB 315 is not intended to present the development of fisheries resources, but rather to optimize them. MS. SUTTON agreed that it would benefit all Alaskans, but particularly those in the coastal regions. MR. FRANK HOHMAN, Commissioner, Commercial Fisheries Entry Commission (CFEC), supported Ms. Sutton's comments and added that this measure would make fleet consolidation somewhat easier to accomplish. The reason for looking into fleet consolidation is that the economic return in some fisheries might be diminishing. An optimum number of permits could be found that would represent how many fishermen and boats could harvest the resource in an efficient manner and still have a reasonable economic return. The optimum number can tell you if there are too many permits in the fishery or too few in the fishery. In either case, we are told by the statutes that, if there are too many permits, then we can establish a buyback program to reduce the number of permits to an optimum number. If there are too few permits after a study, then we can provide more permits and sell them back into the fishery to bring that number up. CHAIR BUNDE asked how the state would reinject permits into the market. MR. HOHMAN replied that CFEC would probably do an analysis of the value of the existing permits and figure out an average cost and make them available using a currently unspecified method - first come first served basis, a lottery, a high bid, something like that. The 1 to 7 percent assessment would go into a fund over a period of years and when it reached a point where the required number of permits could be bought back, CFEC would go ahead and buy them back. Since establishing the fund would take a while, the task force discussed borrowing money for the buyback and then paying it back with the assessment money. But under that scenario, if the upfront money was used to buy back permits, current statute says the assessment has to stop. That's how this bill came about. All it says is that once you reach the optimum number, you can continue the assessment until repayment of any debt that the commission had to establish the buyback program in the beginning. MR. HOHMAN said that the commission has no idea of a fund of money out there for this purpose and also that, if grant monies were used, they would not have to be paid back. CHAIR BUNDE asked if there was any opposition to this program. MR. HOHMAN answered that he was not aware of any. SENATOR GARY STEVENS asked how an optimum number is defined. MR. HOHMAN replied that an actual optimum number would be very hard to find, but a couple of years ago, the CFEC changed the definition from one number to a range of numbers. CHAIR BUNDE questioned how the CFEC would determine what the range is. MR. HOHMAN replied that the CFEC would do a complete economic analysis of the fishery. SENATOR HOLLIS FRENCH asked if it is true that there is no money in the buyback fund currently. MR. HOHMAN replied that is right. SENATO FRENCH asked if the assessment would begin only after some monies are put into the fund and a buyback had taken place. MR. HOHMAN replied that the optimum number for the fishery would have to be established first. SENATOR FRENCH asked if the 1 to 7 percent assessment was in statute. MR. HOHMAN replied yes and that language was put into statute to accommodate the dedicated funds issue. SENATOR FRENCH asked once the buyback is done, does CFEC intend to totally repay the fund with the assessment or just the costs of operating the buyback program. MR. HOHMAN answered: It depends on how we got the money. If the money was a grant from somewhere, then we wouldn't have to repay it. It would be, like you say, the cost of the program. If the fund was established by the Legislature and it needed to be repaid, then we would continue it until we could repay. SENATOR FRENCH recapped that absent a gift of money to do a buyback, he envisions this program being some kind of loan. He asked if the assessment would apply to just the affected fishery or statewide. MR. HOHMAN replied that the assessment would be applied to the affected fishery. SENATOR FRENCH asked how he imagined "reasonable" costs would be figured out. MR. HOHMAN answered before CFEC would even enter into a buyback program, it would have to promulgate regulations and the assessment process would be in those. It would be a very visible process. SENATOR FRENCH said he thought it sounded like a good idea. MR. KEN DUCKETT, Executive Director, United Southeast Alaska Gillnetters Association (USAG), said his members really were undecided about supporting this legislation. One concern is that, as the various different ideas for the buyback programs have developed, a number of them have contained votes that would occur by the permit holders. Some call for a majority or a number of different percentages, but SB 315 does not require a vote of the people who would be affected by a buyback program. We think at the very minimum that it's prudent to have at least a vote of 50 [percent] and a plurality of 50 percent of the permit holders that would approve going into this program..... I'm sure it's fine that they would promulgate regulations and have hearings, but as you know, there's a lot of fishermen and a lot of people in the general public, some of which will participate in a hearing such as that and others will, even if it affects them, will sit on the sidelines and won't participate. We think, definitely, that some kind of vote of the people who would be affected is prudent in this situation. MR. DUCKETT outlined another concern his members have. In the mid-70s, if you had told people that we would be where we are today with prices and our current situation in the salmon market, folks wouldn't have really believed you - that things could change as much as they have changed. So, the point that I'm making is the way this thing is structured now, with the 7 percent assessment on fishermen, you're asking fishermen to buy permits back out of the fishery. If we see a big change, say the farmed fish - they're going to have too many PBCs or whatever have you, or we have a market condition that goes back to earlier times and we see a significant increase in prices in our fish, which a lot of us hope would happen, maybe additional permits want to be added to the fishery. That situation could happen just like the situation happens that makes us want to reduce the number now. It's not fair in our assessment that the fishermen are assessed for permits to leave the fishery and the state gets the benefit of selling permits back into the fishery if the number of permits wants to be increased later on. That really bothers us. MR. DUCKETT said USAG does not want to stand in the way of a fleet that wants to reduce the number of its permits and hopes the Southeast seiners are successful. Implementing a buyback program with a federal grant is totally different than assessing fishermen to have their permits bought back. "We think there are some inequities here and I guess at that, I'll conclude my testimony." CHAIR BUNDE thanked him and promised to have the sponsor reflect on and address his questions when the bill comes up again. SENATOR BEN STEVENS, sponsor of SB 315, who arrived in the middle of Mr. Duckett's testimony, said he sponsored this bill at the request of the Commercial Fisheries Entry Commission and wanted a chance to clarify Mr. Duckett's questions now. He said there are two programs: One does require a vote of the fishermen in the region and the other one would allow the CFEC to implement the program. So, there are two mechanisms for buyback. One is a CFEC-run buyback developed by the optimum yield; the other one is a buyback that's initiated by the regional association. CHAIR BUNDE said Mr. Duckett was also concerned that if a buyback program is funded by fishermen in a certain fishery, if on the flip side, additional permits were issued by CFEC, that profit would go back to the state. He, personally, could see that the state could issue permits at no expense, which would decrease the value of existing permits, but he didn't know of any mechanism whereby, if the state issued a new permit for $10,000, that money would end up being distributed to the members of the fishery. SENATOR STEVENS said that is one of the complexities of the situation right now. You have to have an optimum study in order to buy back the permits to retire them. It's just which way you do it. If the optimum study says that the state can buy them back, then the state can assess a buyback fund and then retire the permits for $10,000. If the association would buy back the permits, they would also retire the permits. The question is, can the permits that are bought back be retired and that's what the bill is designed to do - to make sure that that is correct - that when you buy the permits back, the CFEC is not forced to put them back into the market. CHAIR BUNDE thought he had heard testimony earlier indicating that, if the fishery expands, those permits would not be put back into the market and another study would have to be done to offer new permits. SENATOR STEVENS replied that the CFEC could be forced by the court to issue permits back again, but they wouldn't come from the buyback pool. "[The permits] would come from another interim use issuance." CHAIR BUNDE said that he would hold the bill for further work.