SB 245-SALMON PRODUCT DEVELOP. TAX CREDIT  3:52:25 PM CO-CHAIR WIELECHOWSKI called the meeting back to order and announced SB 245 to be up for consideration. 3:52:43 PM DARWIN PETERSON, Staff to Senator Stedman, sponsor of SB 245, said it extends the deadline for salmon processors in Alaska to apply for their salmon product development tax credit. The program allows applicants to claim a credit on their annual fisheries business tax for the purchase of eligible equipment. Credits received may not exceed 50 percent of a taxpayer's liability. Under current law, processors can claim the credit for property first placed in service by December 31, 2001. This bill would extend that date to December 31, 2015 allowing the processors ample time to continue their long-range investment planning that is already in place. He explained that the salmon product development tax credit was a key recommendation of the Joint Legislative Salmon Industry Task Force that was first enacted in 2003 by Senator Stevens. The credit was part of an effort by the legislature and the fishing industry to develop innovative value-added salmon products. Since then the program has stimulated some important changes in Alaska's commercial fishing industry. He explained that new processing equipment eligible for the tax credit enables businesses to offer a more diverse compliment of Alaska salmon products which helps increase overall customer acceptance. Modern equipment also helps increase efficiency of processing operations and improves throughput. This tax credit also encourages instate processing of out salmon which is critical to job creation and retention in fishing communities. MR. PETERSON said that although the Alaska salmon industry is beginning to recover from years of low values caused by factors such as competition from fish farming, the industry continues to be challenged by the recent economic depression, changes in the market place, and increasing labor and energy costs. Extending the tax credit beyond its current sunset date of December 31, 2011 will allow the industry to continue the progress that is being made in developing and producing salmon products that will keep Alaska's fisheries competitive in the world markets. 3:55:07 PM MARK PALMER, Ocean Beauty Seafoods, supported SB 245. He said this tax credit has given Ocean Beauty the ability to change the complexity of the products they offer to the market. He explained that when Ocean Beauty first started, the Alaska salmon industry was headed and gutted frozen fish and lots of canned salmon. But this bill has given them the ability to invest in value-added processing equipment that they have put into four of their seven facilities. The incremental jobs created with each one of these lines range anywhere from 24-38 employees. In each instance they have also created jobs that go beyond the peak of the season; it's most efficient to run these for as many days as possible when you are managing a steady flow of fish. So, the kinds of jobs they have created in the communities where their shore-based processing exists lend themselves to local employment. The tax credit has also given them the ability to increase capacity through their production facilities. For example, in Southeast the pink salmon fishery was always tasked with a capacity issue, and in the last six years daily production capacity has increased by 70 percent. In that same time they have seen grounds prices to fishermen increase by over two and a half times. In other parts of the state, because they have premium programs to attract fishermen that have the ability to ice and bleed and take better care of their fish, they get better raw material to put into their fillet line. Areas like Bristol Bay are seeing more and more premiums being paid to the fleet to deliver higher quality raw materials. So, there is a direct benefit to the fishermen on these investments, as well. MR. PALMER said the communities they reside in as a shore-based processor were generally a large component of the employment base in them. As they install more equipment they can hire more people. Developments for Ocean Beauty have accelerated considerably and he believed it had done so across the industry. 3:58:50 PM CHRIS NORRIS, Icicle Seafoods, supported SB 245. She said they process salmon in Southeast, Prince William Sound, Kodiak, Cook Inlet and Bristol Bay, and they have used the salmon tax credit to purchase new equipment that has allowed them to develop new products in all of these areas. She said all of their fishermen have benefited in the communities they operate in. 3:59:31 PM SENATOR STEVENS asked how the Alaska fishing industry is doing compared to farmed salmon. MS. NORRIS answered that Alaska's wild products are well- received in the market place. But being in the global market place is challenging. One of the challenges is competing against other protein sources in addition to seafood in countries without environmental, health, and safety regulations and where their workers don't get paid much. SENATOR HUGGINS asked how much the tax is worth to them in dollars and cents. MS. NORRIS answered that she didn't have annual figures, but she knew it was a range from a couple hundred thousand up to six hundred thousand, and she said they didn't use it every year. She explained that in their business some of the seasons are very short and sometimes when they purchase new equipment it takes a while to get it tuned up and running. And you're reluctant to buy more equipment until the first set is running. 4:01:34 PM MARY MCDOWELL, Vice President, Pacific Seafood Processors Association, supported SB 245. She said her association has member companies with salmon operations in 15 communities around Alaska including Southeast, Prince William Sound, the Alaska Peninsula and Bristol Bay. The tax credit is tightly constructed to accomplish specific goals and it has been very successful so far. It is a way that Alaska can invest in the future to keep its products positioned in world markets. She said there were many letters from companies in their packet who had made good use of it, but there is still a lot to do. 4:02:36 PM MARK VINSEL, Executive Director, United Fishermen of Alaska (UFA), supported SB 245 for the reasons that have already been stated especially well in the sponsor summary. Getting Alaska's salmon into a range of products has allowed fishermen to stay in the business and communities to be able to thrive on their salmon resource. They can never rest on their laurels, because the market is very competitive, but increasing sales are coming from the value-added processing the credit encourages. SENATOR FRENCH asked if this tax credit should be expanded to other species. MR. VINSEL replied that idea is something to keep in mind. Many professional fishermen have had to diversify into other species. Some in the farmed salmon industry have had problems, but in the meanwhile other farmed fish are quite successful in growing market share. 4:05:13 PM TIMOTHY COTTONGIM, Tax Division, Department of Revenue (DOR), said the administration recognizes the benefit this credit has offered to the processors and supported SB 245. SENATOR STEDMAN asked for a synopsis of the kinds of equipment that are being purchased under this program. MR. COTTONGIM replied that they had seen brining equipment, curing equipment, fillet lines, filleting machines, blast freezers, glazers, Ikura packing machines, pin bone machines, plate freezers, the pop top canning equipment, roe drying machines, roe rubbing machines, roe separators, roe vibrating machines, roe washers, skinning machines, smoke houses, and vacuum packaging machines - to name a majority of them. SENATOR FRENCH asked for a copy of the list. SENATOR STEDMAN asked what equipment is excluded. MR. COTTONGIM answered the same list has a list of things that don't qualify like building construction, equipment overhauling costs, retooling, retrofitting (with the exception of pop top canning), fishing vessels, grinders (dealing with waste), heading machines that are beyond the heading and gutting requirement of the value-added salmon product definition, scales, tables, tools, and totes. SENATOR STEDMAN noted that the list of inclusions is half the size of the exclusions. So they have tailored it well. CO-CHAIR WIELECHOWSKI closed public testimony and held the bill. 4:09:32 PM