SB 141-AQUATIC FARMS FOR SHELLFISH  CHAIRMAN JOHN TORGERSON called the Senate Resources Committee meeting to order at 3:37 p.m. All members were present. Chairman Torgerson announced SB 141 to be up for consideration and said he thought that with the proposed committee substitute, the bill was ready to go forward. MR. DARWIN PETERSON, staff to Senator Torgerson, sponsor, said last year the Alaska Department of Fish and Game (ADF&G) proposed new mariculture regulations that were met with sharp criticism from the aquatic farming industry, which felt the regs were too restrictive and would constitute a regulatory ban on shellfish farming in Alaska. SB 141 was introduced as an effort to preserve an industry that has proven to be successful in the diversification of Alaska's economy. The committee substitute requires the Department of Natural Resources (DNR) to offer public leases for 60 suspended shellfish sites, 20-clam sites and 10 geoduck sites. These leases are in addition to permits that are already issued. Before offering the leases, the commissioner must solicit nominations for sites from the aquatic farming industry and the public and select sites that don't interfere with established commercial, subsistence or personal use. That requirement is intended to maintain the existence and prosperity of a valuable Alaskan industry without interfering with other user groups. MR. PETERSON explained the changes made in the proposed committee substitute (CS). Section 1 on page 1 was deleted in the CS because in the original version, aquatic farmers would pay a fisheries business tax of 3%, plus the price of the lease, which is $250 for the first acre and $150 for each remaining acre and, on top of that, at a predetermined value of the resource on the site and the potential productivity of the site of shellfish. That made sense because it skirted the public domain problem. DNR has a policy that says before a lease is issued, aquatic farm sites must be commercially fished out before the farmer can go in and plant seed. With the new language, this is a moot point. The second change is on page 1, line 12, where the date the leases must be made available to the public is changed from July 1, 2002 to July 1, 2003 since this is the new year. The third change is on page 1, line 15, and page 2, line 2, where language is added requiring DNR to offer leases that were not purchased at the public auction to be made available to the public over the counter. SENATOR WILKEN moved to adopt the proposed committee substitute to SB 141, (Version L) as the working document before the committee. There were no objections and it was so ordered. SENATOR TAYLOR asked if the bill contains a definition of the word "site." CHAIRMAN TORGERSON said it doesn't, but he understood that it was determined by DNR and depended on which area DNR was considering. MR. ROGER PAINTER, Alaska Shellfish Growers Association, supported CSSB 141(RES). He stated, "We think this version takes care of all the problems and concerns we had with the original legislation and it is a very good bill to be moving forward with…" He said he had a small concern in Section 1. The Shellfish Growers have no problem in restoring sites to the original population levels, which is part of existing regulations and conditions on their permit right now, but sometimes the leases are offered much in advance of when ADF&G makes the operational permits effective. For instance, he received the lease on his sites under the 1999 opening in early 2000, but he still doesn't have control of all of them. He noted, "They are open for common property harvest right now and my permits with ADF&G don't become effective until those common property harvests are complete. So, I don't know if any tinkering needs to be done with that language…" MR. PAINTER said the committee also might hear today that this bill directs DNR to identify and offer for lease 90 sites. He explained that DNR and ADF&G work together in making sites available. He explained: DNR needs to issue a lease and ADF&G offers a permit. These go through the Coastal Zone Management [CZM] process simultaneously. That process only responds to a specific proposal. In offering these sites for lease, the DNR will be just making some areas available. People will come in and apply and propose a specific farm plan, which will then go through the CZM process and Fish and Game can respond to that specific plan. I think the agencies really need to work together in this process. Fish and Game needs to work with DNR in identifying these sites and I don't think that Fish and Game needs to go out to each site and do detailed site assessment work. However, they should be involved to the extent that they flag for DNR potential problems. If they believe there is going to be some major conflicts on those sites, those should be identified before they are offered to the public and the public gets caught in a catch-22. You can come in and put your money down for a site, but you can't get your permit. I think by directing Fish and Game to work with DNR in identification of the sites, those problems can be taken care of. MR. PAINTER noted that the Alaska Trademark Shellfish Association proposed another amendment, but his board hadn't had time to discuss it. SENATOR TORGERSON asked him if he knew the population level before signing the lease, but didn't know how much common use would be taken between the time the lease is signed and the time it is turned over to him. MR. PAINTER replied that when they apply for a site, they are required to provide the agencies with some estimates of the standing stocks that are available at those sites. Then ADF&G, after it goes through the process, will open those sites for a common property harvest. After that harvest, the lessee does an assessment of the standing stocks according to ADF&G protocols for site assessments. At this point they determine the amount of standing stocks that have to be restored when the lease is terminated. He wants to make sure the restoration is to the levels that exist when the lessees get control of that site and those stocks, which is after the common property harvest. CHAIRMAN TORGERSON asked if they could add, "...when the common property harvest rights were satisfied." MR. PAINTER suggested, "...when Fish and Game operating permits become effective." SENATOR ELTON said he had assumed that DNR would work with the aquaculture community to try and identify sites, but it sounds like Mr. Painter is suggesting instead a dynamic between DNR and ADF&G. MR. PAINTER replied that he hoped that local communities and industry would send nominations to DNR and then DNR and ADF&G would respond to those. He would like to see the agencies work together to identify at least major problems within an area before they are offered for lease to the public. 3:52 p.m. SENATOR ELTON asked if it is realistic to expect that 90 sites would be ready for lease by July 1, 2003. MR. PAINTER responded that this gets back to Senator Taylor's question of site definition. Currently, farms are 1 - 10 acres and each farmer has different requirements for their specific operation. He is working on an aquaculture development plan for Prince of Wales Island and has done some reconnaissance work and would be prepared to offer a number of locations in this area that range in size from 50 - 100 acres to 10 acres. In each of the developable locations, it might be possible for DNR to offer five sites. He believed Sea Otter Sound could support as many as 40 or 50 farms. The identification of sites may be a large number, but it might not be as difficult to find them as one would imagine - geoducks for example. A number of sites were applied for in 1999, some of which had no geoducks and some had a few. There might not be very many geoducks, but the site might still meet the department's present criteria. It's their intention to work real hard if this legislation is adopted to identify sites and do site assessment work and provide the department a considerable amount of information on those sites. SENATOR TAYLOR asked if the lessee is held to the second assessment after the common property harvest for restocking to a sustained yield level. MR. PAINTER replied yes, they are held to numbers identified in the second assessment. SENATOR TAYLOR asked if that was after the harvest had already occurred. MR. PAINTER indicated that I s correct. SENATOR TAYLOR asked why they would restock to the original level. MR. PAINTER clarified: The standing stocks that are there before the common property harvest - let's take a geoduck site as an example. If there was a site leased out and they did a common property harvest, all the divers would show up or as many that were interested and harvest those stocks. The applicant may not be taking part in those harvests at all; it would be the commercial fishing fleet. And the farmers shouldn't be held liable to restore them to the original level before the common property harvest, because they are open to all citizens of the state, unless it's a limited entry fishery… CHAIRMAN TORGERSON reiterated that the bill currently does that. He asked Mr. Painter to focus on the bill. MR. PAINTER responded that when he got his leases from the 1999 openings for clam sites, they were made effective immediately, but DNR did not understand that ADF&G was not issuing the operating permit until the common property harvest had been completed. DNR discovered that when he started complaining about having to pay lease fees when he didn't have access to the sites to conduct aquatic farming. Now they are in the process of revising their leases so they become effective when the operating permit becomes effective, which would be after the common property harvest. 4:02 p.m. MR. PAUL FUHS, Alaska Trademark Shellfish Assoc. (ATSA), said ATSA is the subject of the lawsuit. The issues are that ATSA went through CZM and was consistent with that process. ATSA then got a best interest finding from DNR and people participated all along. That took a year and a half. When it came time to get the permits from ADF&G, ATSA was rejected because there were substantial amounts of standing stock on some of the sites. Although, the department's policy now is to let a fishery occur there and then open it to aquaculture, that's only true in the case of those fisheries that are not limited entry. He added: Although I hate to disagree with my good friend, Roger Painter, this is not a new idea. This is exactly what we do in the common property fishery. This would extend the same practice to limited entry fisheries. The issue is there when the constitutional amendment went into our Constitution, it says, 'No exclusive right or special privilege of fishery shall be created in the natural waters of the state except for limited entry and to promote the efficient development of aquaculture in the state.' He said that's never been tested or defined and that's before the Supreme Court right now. They hope to resolve the problem with their amendment, which reads, "In an area where there is no existing fishery." He stated: And that is the case with all the sites that have been applied for. No one else is using the resource now. If there's a standing stock there, there will be an open period for the divers to come in and take the resource and even take beyond what would be normal sustainable yield. I mean it's going to be an aquaculture site. Usually you take 2% per year, but they could go in and harvest at even a higher level, which is also what's done at the clam sites now with the proviso in the end the stock will be restored to the original level. For us, in the limited entry fisheries, we are willing to restore to the original level so this is not a violation of either the sustained yield concept in our Constitution or of the common property law provisions of our Constitution. That's why it's written that way. We make it a little bit different for intertidal species, which are like clams. You have to dig those at low tide and sometimes there's only a couple of days a month you can do that. For the dive fisheries, you can get right in and take care of it. This would make that clear. I do also want to make it clear that what ADF&G said - that you can have a permit if there aren't substantial stocks there. They have never defined what substantial is and a farm is looking for an area that has a lot of animals, because obviously that's a good place for them to grow. That's why they are there. These are broadcast spawners; they broadcast their eggs in the water. They float around everywhere and they settle in the places where you can make a living. So, it's a little bit of a disconnect of the science, common sense and our Constitution - is the solution that we're looking for here. My clients have said if we can resolve this, they'll drop the lawsuit and we can all forget about suing each other and the cost to the State of Alaska and we can all go to work. MR. FUHS said that he has discussed this with ADF&G, the Attorney General's Office and the Dive Association and, while he didn't think any of them were ready to take an official position now, everyone liked the general concept but wanted to see the details of the periods of public notice and harvest and how it would be set up. He felt that everyone wanted to resolve this issue. SENATOR TAYLOR asked if his group is willing to restore to the original level. MR. FUHS replied: The difference is that when you harvest like the little neck clams, you only harvest to a size of maybe an inch and a half and everything smaller than that is still left there. That's why you're just making up that difference. When you harvest geoducks, it's much more digging up the ground to get them and it's more disruptive. That's why I think it's more realistic for us to say we'd replace it to 100%, plus we're trying to deal with the constitutional issues of sustainable yield and common property access. SENATOR ELTON said it seems that his proposed language makes it almost impossible to do 90 different leases by July 1, 2003. MR. FUHS replied: This is really separate. What Roger is talking about is pre-identifying sites. There's a lot of sites out there. Private industry is out and they're doing the research to find the sites they think they can make a farm at. He thought the intent of this bill is to make the two departments pre-identify sites so it's easier to get the leasing. SENATOR ELTON said he might misunderstand, but he thought a lot of the sites Mr. Fuhs is interested in would be sites that a potential leaseholder would be interested in because of the already existing stocks. Given that, it seems that he wants to create an additional five-month period for a lot of potential sites that could be made available to a leaseholder. MR. FUHS replied that he didn't know how long the common property had to stay open to fish clams. His amendment calls for a three- month period for intertidal species - two months for notice and a three-month harvest period. He thought the period might be even longer now before one can have positive control of a site. His amendment just extends it to limited entry fisheries. SENATOR STEVENS asked if the common property fishery only allows a 2% annual harvest rate that could go on forever. MR. FUHS replied: You would allow them to go in and fish above what would normally be a sustainable level. In fact, they could potentially come in and take 100%, because the farmer is going to replace 100%. SENATOR STEVENS asked if under his recommendation, the lessee would replace back to the original assessment. MR. FUHS said that was correct even if 100% of the animals were taken. He added: So the divers could possibly fish 50 years worth of diving in a month, because you know this is going to be replanted. The hatcheries can do this. They've got the geoduck spat right now. We just can't get the permits to farm." He said that DNR requires bonding from the hatchery in Seward to make sure the resource is replaced. That is what the lawsuit is about. SENATOR STEVENS asked who makes the determination of when the common property is harvested. MR. FUHS replied under this proposal ADF&G would give them 60 days notice that this site is going to be open for 30 days to take all they can and then after that it's going to be an aquaculture site. At the end of the 10-year lease for aquaculture, it will be restored to the full population. SENATOR STEVENS asked him to contrast that to Mr. Painter's proposal. MR. FUHS replied that Mr. Painter wants to modify it a little bit for clams to say they will restore it to the point after the common property harvest. SENATOR STEVENS said he wanted to know who made that determination. CHAIRMAN TORGERSON said ADF&G does. SENATOR LINCOLN asked how long the lawsuit would continue. MR. FUHS replied that the appeal has been filed and he didn't know when the Supreme Court would issue a determination. It took the Superior Court eight months to issue the court ruling on July 19, 2001. CHAIRMAN TORGERSON asked what the verdict of the lawsuit was. MR. FUHS replied that the court said ADF&G's regulations were completely wrong and that an open dive fishery and aquaculture was unworkable. They said the proponents had violated the common property clause because there were substantial amounts of stock there, which was subject to a limited entry fishery. Trademark Fisheries is the appellant. MR. JOHN AGOSTI said he was representing a shellfish hatchery and the Alaska Shellfish Growers today and thanked Senator Torgerson for introducing this bill. SENATOR TAYLOR asked if he felt confident that his facility would have enough spat for the replanting. MR. AGOSTI replied yes. His organization didn't envision an avalanche of companies failing and requiring a mass amount of seed. The most likely scenario is a few failures over time and they could accommodate that. MR. RON LONG, Qutekcak Shellfish Hatchery, supported SB 141. He thought the industry had to do its own research to identify sites that are reasonably free of conflicting uses and offer those as their nominations. He liked the concept of a prefarming fishery. On the conceptual language for a substitute he needed a little more time to think about it, but if the sponsor and the dive fishery supported it, he would go for it. On reseeding to the initial biomass levels and the prefarming harvest, he liked it from a purely economic point of view because it provided more seed for him to sell. MS. JULIE DECKER, Executive Director, Regional Dive Association, supported SB 141, but requested that they hold the bill until her board can see it and give its support on March 8. She also would like to provide the board's comments on Mr. Fuhs' proposal. CHAIRMAN TORGERSON replied that he hadn't planned on passing the bill out today because it needed more work. He said the fiscal note was for $800,000, but that a new one would be needed. MS. JANICE ADAIR, Director, Division of Environmental Health, Department of Environmental Conservation (DEC), said she was available to answer questions. SENATOR TAYLOR said it was shocking to him that DEC submitted a $354,000 fiscal note to go out and look at 10 different sites to test the water. MS. ADAIR responded that they have to follow a National Shellfish Sanitation Program in order to classify areas for shellfish harvesting. Some presumptions about locations are made and a set number of samples have to be taken over a set number of times. DEC doesn't have options. If the areas are more remote than urban, their fiscal note would go down; if there are more urban areas than remote, the amount would go up. DEC estimated at 50/50 since they didn't know. SENATOR ELTON said she was assuming that 10 new growing areas will need to be certified and asked if she didn't need to certify unless a lease is actually offered and accepted by someone in the aquaculture industry. MS. ADAIR said that is right and added that they have many sites within a growing area. They certify the growing area and this helps reduce the cost. MR. BOB LOEFFLER, Director, Division of Mining, Land and Water, DNR, said that his division does the leasing under this bill. He had two areas of concern. He respected Mr. Painter's comments, but this is really a DNR/ADF&G proposal. Without ADF&G's preapproval of the sites, they run the risk of offering sites that can't be permitted. His division does not manage the resource and there are two places in the bill that put resource issues in DNR's purview - on page 2, lines 12 and 16. He explained: The consequence of putting Section 1 in DNR statutes rather than Fish and Games' is that Fish and Game has regulations, which address this question and, in fact, are parallel to this…. A law under Title 38 and a regulation under ADF&G's Title 16 can both be valid. This means that a site would have to go through two hoops to address a single situation. If someone didn't like their determination, they would appeal it to DNR, but it really has to go to ADF&G because it's their issue. TAPE 02-2, SIDE B    CHAIRMAN TORGERSON asked if other agencies didn't have to deal with cross-jurisdictions. MR. LOEFFLER replied if the legal jurisdiction is confused, that confusion always works against the applicant. CHAIRMAN TORGERSON said he didn't think so and asked if there were any other comments. MR. LOEFFLER added that it would be very difficult for them to complete this process by July 1, 2003. They have written their fiscal note for a two-year process with the dives occurring in the summer. That would mean July 1, 2004. Also, if they reduce the number of sites to offer, they would not run the likelihood of overwhelming the industry and they could reduce the fiscal note. CHAIRMAN TORGERSON replied that's why he made it over-the-counter sales. MR. DOUG MEEKUM, Director, Division of Commercial Fisheries, ADF&G, supported Ms. Decker's testimony in support of SB 141. The CS removes the section identifying the sites for auction and their common property concern. He thought that Mr. Painter was on the right track and that this regulation is more restrictive than current statute. CHAIRMAN TORGERSON asked if it would help to delete "lease" and add "operating permit". MR. MEEKUM replied that is one possibility and another would be to refer to the authority of the department to issue a permit, whichever comes first. CHAIRMAN TORGERSON asked if he had a chance to review the Trademark Shellfish language. MR. MEEKUM said he hadn't had a chance to. SENATOR ELTON asked if ADF&G could realistically have leases for 90 different sites done by July 1, 2003. MR. MEEKUM replied that would be difficult. He thought the suspended culture sites would be easier, but there are only 20 sites identified for clams and 10 for geoducks, which would be the primary thing they would be looking at in their site surveys. Last year they suggested that ADF&G's costs would be about $200,000 in the first year. He noted, "I guess we'd try and do our best to get it done. It's going to be difficult. I wouldn't say it's necessarily impossible." CHAIRMAN TORGERSON asked what happened to the $250,000 that the legislature gave them a couple of years ago. MR. MEEKUM replied that two or three years ago the department requested a CIT project that's very similar in terms of its intent to what they are trying to do here. They actually received only $100,000 from the legislature, but that particular set of CITs was funded out of CFEC receipt services, which went down by $1 million that year. He stated, "So, that money doesn't exist because the receipts never came in." CHAIRMAN TORGERSON said: I want these to pick up fiscal notes, because I believe the state should pay for this. This is a good industry. It's a clean industry and we've been messing around with it so long that it's the only way that I see we're going to turn it around. I wasn't expecting $800,000 fiscal notes, but I guess that's life in the fast lane. It was my hope today to do our work and amend it so that it is functionally okay and then send it up to Finance and let them argue with you up there. SENATOR TAYLOR said: My frustration is we know that we've got a salmon industry that's in trouble and I can't find a faster way to put the dive fishery in trouble than to have ongoing litigation up to the Supreme Court and we all sit around holding our hands and wringing them waiting and hoping something will happen out of the Supreme… MR. MEEKUM reiterated that he supports the bill. CHAIRMAN TORGERSON instructed the participants to read the suggestions. SENATOR WILKEN moved on page 1, line 8 to delete "lease" and insert "operating permits" and on page 1, line 12, to delete "2003" and insert "2004" [Amendment 1]. SENATOR TAYLOR said he didn't object to the first part of the amendment, but wanted to know more about the second part. He added, "I understand their reluctance and concerns, but I guarantee if their jobs depended on it, those permits would be out in a couple of months." SENATOR ELTON said his concern is if the date is too soon, the pressure may be on to identify sites to meet the time deadline and not the requirements of the industry. SENATOR TAYLOR said he had been involved in this for 17 years and he thought that someone in ADF&G could start moving on this program. SENATOR TAYLOR moved to divide the question. CHAIRMAN TORGERSON explained that they would call the first part Amendment 1(a) to delete "lease" and insert "operating permit". He asked if there was any objection. There were no objections and it was adopted. CHAIRMAN TORGERSON explained that Amendment 1(b) deletes "2003" and inserts "2004". He agreed with Senator Taylor that if ADF&G didn't have the backlog, all the work that's been done on sites, permits almost issued and work that's been done by the growers, one year would be pretty tough. But that's not the case. There are 50 - 60 sites in Sitka that will probably be nominated for this. He noted would not support this amendment. SENATOR LINCOLN said the committee heard testimony saying that 2003 might be a stretch, but the language says it should be offered to the public "before," and she hoped that if they could do it earlier, they should do everything possible to get it done. She supported 2004 and hoped that the department expedites it. SENATOR ELTON said he assumed if this amendment failed, work would have to be done on the fiscal notes since they are predicated on a two-year process. CHAIRMAN TORGERSON asked for the roll to be called. SENATORS ELTON, LINCOLN, and HALFORD voted yea; SENATORS TAYLOR, WILKEN, STEVENS and TORGERSON voted nay. By a 3 to 4 vote, Amendment 1(b) failed. SENATOR TAYLOR moved to pass CSSB 141(RES) to pass from committee with individual recommendations and accompanying fiscal notes. There were no objections and it was so ordered.