SB 275-AQUATIC FARMING  4:22:54 PM CO-CHAIR MCGUIRE announced the next order of business to come before the committee was SB 275. ESTHER CHA, aide to Senator McGuire, said SB 275 addresses the issue of reasonable compensation for the removal of wild stocks of geoducks, exceeding an insignificant amount, from an aquatic farm site. Reasonable compensation is required because shellfish are a public trust resource committed to the common use of the public. Previous legislation defined insignificant populations of geoducks as less than 2000 lbs per acre but did not set a compensation rate. SB 275 proposes compensation to the state in the amount of 50 percent of the net profits from harvesting surplus wild geoducks from farm sites. SB 275 sets the tax rate for live geoducks at 10 percent of the exvessel value. This figure was determined by using the ADF&G's formula of providing the state with 50 percent of the net profits of the sales. The 10 percent compensation to ADF&G is on top of the 3.5 percent fisheries business tax that farmers have to pay. As the price for processed geoducks is much lower than for live geoducks, SB 275 also sets a tax rate of 3 percent of the exvessel value on processed geoducks. The 3 percent rate was suggested by geoduck farmers during the public comment period on proposed regulations as a good faith offer to provide some compensation to the state even though they would lose money if they had to sell processed geoducks. CO-CHAIR MCGUIRE said when the legislature passed the Aquatic Farm Act in 1984, finfish farming was explicitly excluded. But the feeling was that an aquaculture economy in Alaska could be good for small communities and a healthy shell fish mari-culture industry has been a dream of some legislators. The state constitution requires sharing resources and developing them for the maximum benefit of Alaskans. 4:26:29 PM CO-CHAIR MCGUIRE called an at ease from 4:26 p.m. to 4:27 p.m. due to technical difficulties. 4:27:35 PM CO-CHAIR MCGUIRE continued and said the idea of SB 275 is to get the industry moving by fixing reasonable challenges. In 2004, the Supreme Court made it clear that these sites could not have significant stock on them. The legislature defined significant stock at more than 2,000 pounds. For sites with more than an insignificant stock, the question is, what is the value. She commented that she is in conversation with the governor and ADF&G to see if this can be handled by regulation. PAUL FUHS, Sea Farms Alaska, said when the Supreme Court made its ruling, the Legislature had 3 weeks left in the session. Without enough time to go through the numbers, a hurried statute was passed saying reasonable compensation would be provided. Coming up with what is reasonable has been difficult for ADF&G without any guidance from the Legislature who usually sets tax rates for resources. SB 275 is an attempt to do that. On page 4 of SB 275, "reasonable compensation" is defined. He referred to a calculations worksheet and said $3.50 per pound was a figure provided by ADF&G. 4:30:54 PM Referring to the calculations worksheet, he explained that the exvessel value is a public, published number representing the value of all fish caught divided by the number of pounds each year. ADF&G provided the figure of $3.50 per pound as the average exvessel price. He summarized the farmer costs for harvesting and replacing wild geoducks: A diver is paid $2.00 per pound. Every geoduck taken must be replaced at a rate of 5 to 1. A geoduck from the hatchery costs about 57 cents. PSP testing is about 12 cents per pound and involves flying samples to the Department of Environmental Conservation (DEC). The state raw fish tax is about 11 cents per pound. That leaves about 70 cents per pound [profit]. A 50 percent net profits tax is 35 cents per pound which is 10 percent of the exvessel price. He noted that processed geoducks get a much lower price and do not make any profit. He also noted that the standard raw fish tax is also paid at 3.5 percent. MR. FUHS said he has committed to the governor and commits to the committee that if this issue is resolved reasonably, all outstanding lawsuits will be dismissed. He also said he was surprised by the United Fisherman of Alaska (UFA) letter. He has talked regularly to geoduck dive fisherman and they did not take a position. He said the UFA letter debates what is "reasonable" and not the legislation itself. SENATOR HUGGINS asked if the economic structure and taxing of geoducks and clams are different. MR. FUHS replied that normally a 3.5 percent raw fish tax is paid and will be paid for farmed fish product too. Use of the state waters is paid for in addition to an annual lease fee to the Department of Natural Resources (DNR). This is a public resource that is owned by everybody and geoduck farmers should pay more for exclusive use of those geoducks. 4:35:12 PM RODGER PAINTER, president, Alaskan Shellfish Growers Association (ASGA) said SB 275 has limited applicability. Before the Supreme Court decision, this tax may have been applied to seven sites. Afterwards, ADF&G adopted very strict pre-leasing survey requirements to ensure that no new farm sites would have more than an insignificant amount [of geoducks]. A tax rate equal to the highest tax rate the state has for any resource meets the definition of reasonable compensation. Resolving this issue would allow the industry to move forward and contribute to the economy of rural Alaska. SENATOR STEVENS asked Mr. Painter to speak to the UFA letter. MR. PAINTER replied that one point in the UFA letter is that the Supreme Court said farm sites with significant amount of stock cannot be issued. Following the Supreme Court decision, provisions were written into law, knowing that some sites with significant stock may exist and that is why the tax was developed. The UFA letter also refers to an agreement between ASGA and divers made right after the Supreme Court decision. The UFA letter refers to a provision that was not implemented. The Legislature at the time decided it should be reasonable compensation rather than 100 percent as shown in the agreement. 4:39:16 PM MARK VINCEL, executive director, United Fisherman of Alaska (UFA), said the matter of SB 275 was brought to a recent board meeting by representatives of Southeast Alaska Regional Dive Fisheries Association (SARDFA). The UFA board unanimously approved SARDFA's motion to oppose SB 275 on the grounds that it is against the intent of the Supreme Court decision that they do not have rights to large amounts of standing stock that belong to the public. It is against the agreement that SARDFA made with the divers at the time and the subsequent regulations that were promulgated through the public process of proposed regulation and public comment. ADF&G codified the tax at 21 cents per pound on the standing stock to be sold live. The amount of geoducks that can be sold live, which is more lucrative, has increased dramatically due to the state's investment in a testing facility and changes in the testing protocols. The production of shellfish should be increased, not just reallocated. Rather than a high tax on standing stock in places with a lot of geoducks, choosing locations to grow geoducks should be incentivized. This will increase production. 4:42:42 PM CO-CHAIR MCGUIRE pointed out that SB 275 is just trying to wrap up the issue of the few sites that were in place prior to the Supreme Court ruling and asked if this lessened Mr. Vincel's concerns. She pointed out that SB 275 is not a mechanism to go back on a Supreme Court decision and say any site is available, even ones with significant stock. MR. VINCEL responded yes, he understands that the sites being discussed have already been established - existing sites where someone wanted a lease on something with a large amount of geoducks because that can be very profitable. CO-CHAIR MCGUIRE said she will continue to read the UFA letter but the policy decision has been made by the Supreme Court and SB 275 is trying to comply with that decision and deal with the question of value. She said Section 2 of UFA's letter deals with value and will be a part of the record. CO-CHAIR MCGUIRE closed public testimony and set SB 275 aside.