JOINT MEETING OF THE HOUSE RESOURCES STANDING COMMITTEE AND HOUSE SPECIAL COMMITTEE ON FISHERIES February 17, 1993 8:00 a.m. HOUSE RESOURCES COMMITTEE MEMBERS PRESENT Representative Bill Williams, Chairman Representative Bill Hudson, Vice Chairman Representative Con Bunde Representative Pat Carney Representative John Davies Representative Joe Green Representative Jeannette James Representative Eldon Mulder Representative David Finkelstein MEMBERS ABSENT None HOUSE SPECIAL COMMITTEE ON FISHERIES MEMBERS PRESENT Representative Carl Moses, Chairman Representative Harley Olberg, Vice Chairman Representative Irene Nicholia Representative Cliff Davidson Representative Gail Phillips MEMBERS ABSENT None OTHER LEGISLATORS PRESENT Representative Fran Ulmer Representative Jerry Sanders COMMITTEE CALENDAR Joint Meeting: Briefing on Community Development Quotas (CDQ) Resources Only: EO 86: Transferring the functions and duties of the division of fisheries rehabilitation, enhancement and development (FRED) to the Department of Fish and Game. MOVED OUT OF COMMITTEE WITH NO RECOMMENDATION WITNESS REGISTER Edgar Blatchford, Commissioner Department of Community and Regional Affairs P. O. Box 112100 Juneau, Alaska 99811-2100 Phone: 465-4700 Position Statement: Testified on CDQ's John Jemewouk, Executive Director Norton Sound Economic Development Corporation P.O. Box 89 Elim, Alaska 99739 Phone: 890-3071 Position Statement: Supported CDQ Mark Snigaroff, Chairman Aleutian Pribilof Island Community Development Association P.O. Box 47007 Atka, Alaska 99547 Phone: 586-3107 Position Statement: Supported CDQ Robin Samuelson, Jr. Bristol Bay Economic Development Corporation P.O. Box 412 Dillingham, Alaska 99516 Phone: 842-5257 Position Statement: Supported CDQ Perfinia Pletnikoff, Jr., President Central Bering Sea Fishermen's Association 1500 W. 33rd St., Suite 100 Anchorage, Alaska 99503 Phone: 278-2312 Position Statement: Supported CDQ Fred Phillip Coastal Villages Fishing Cooperative P.O. Box 6 Kwigillingok, Alaska 99622 Phone: 588-8114 Position Statement: Supported CDQ Laurentia Mike Yukon Delta Fisheries Development Association P.O. Box 20269 Kotlik, Alaska 99620 Phone: 899-4220 Position Statement: Supported CDQ John Walsh, Deputy Director Division of Community and Rural Development Department of Community and Regional Affairs P.O. Box 112100 Juneau, Alaska 99811-2100 Phone: 465-4898 Position Statement: Responded to question on CDQ Mark Springer Yukon Delta Fisheries Development Association General Delivery Hooper Bay, Alaska 99604 Phone: 758-4535 Position Statement: Supported CDQ Clem Tillion, Adviser Office of the Governor State Capitol Juneau, Alaska 99811 Phone: 465-3500 Position Statement: Supported CDQ Geron Bruce, Special Assistant Alaska Department of Fish & Game P.O. Box 25526 Juneau, Alaska 99802-5526 Phone: 465-4100 Position Statement: Testified on EO 86 Jeff Koenings, Director FRED Division Alaska Department of Fish & Game P.O. Box 25526 Juneau, Alaska 99802-5526 Phone: 465-4100 Position Statement: Testified on EO 86 ACTION NARRATIVE TAPE 93-19, SIDE A Number 000 The joint meeting of the House Resources Committee and House Special Committee on Fisheries was called to order by Fisheries' Chairman Carl Moses at 8:08 a.m. Resources Committee members present at the call to order were Representatives Williams, Hudson, Bunde, Carney, Davies, James, Finkelstein and Mulder. Absent was Representative Green. Fisheries Committee members present at the call to order were Representatives Moses, Olberg, Nicholia, Davidson, and Phillips. No Fisheries Committee members were absent at the call. CHAIRMAN CARL MOSES announced the purpose of the joint meeting would be to hear a briefing on the Community Development Quota (CDQ) program. After the briefing, he explained, the Fisheries Committee would reconvene in its regular meeting place, and the Resources Committee would also reconvene to hear regular business. Number 059 EDGAR BLATCHFORD, COMMISSIONER, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS, explained that the CDQ program had grown from a joint effort with himself, Commissioners Paul Fuhs of the Department of Commerce and Economic Development, Carl Rosier of the Alaska Department of Fish and Game (ADF&G), and Clem Tillion, who served as an advisor on the project for the Governor's Office. The purpose of the program, he said, was to strengthen local economies by bringing opportunities for commercial fishing home. MR. BLATCHFORD remarked on opposition to the CDQ program by outside interests, such as the Washington state fishing industry and foreign markets, who perceived the CDQs as a threat to their own jobs and profitability. He mentioned editorials against the CDQs that had appeared in Seattle area newspapers. He reported that in the view of the Alaska administration, the program did not take jobs away from anyone; it simply created new jobs. He said the burden to show the program worked was on the six applicant groups which comprised 55 communities. Number 150 MR. BLATCHFORD described the initial success of the new program, and noted the CDQs had generated $20 million in its first month, December, 1992, in economically depressed areas. He told the committee Governor Hickel was behind the effort and had instructed the commissioners to move forward. The cost to the state for the program, he said, included an initial investment of $300,000 late in the 1992 legislative session. Those funds were intended to monitor the program, he added. The applicant groups have received maximum grants of $5,000. He equated the success and importance of the CDQs in the coastal communities of Southwest Alaska to the economic impact of Prudhoe Bay to the North Slope. Number 233 JOHN JEMEWOUK, EXECUTIVE DIRECTOR, NORTON SOUND ECONOMIC DEVELOPMENT CORPORATION, introduced representatives of the CDQ applicant groups. In Norton Sound, he said, there had been a dramatic interest in developing the fisheries as a means of boosting local economies. The CDQs were planned to continue through 1995, he said, but recommended extending the program indefinitely, and expanding it to include other fisheries, such as crab, cod, sablefish, and halibut. He added the CDQ applicant groups have worked closely with the state in development of the regulations for the program, and with the state acting as liaison with the U.S. Department of Commerce. He asked for the committees' support in expanding the program to other fisheries, and concluded his remarks with a comment on how much the program had benefitted many user groups. Number 350 MARK SNIGAROFF, CHAIRMAN, ALEUTIAN PRIBILOF ISLAND COMMUNITY DEVELOPMENT ASSOCIATION (APICDA), referred members' attention to a handout in their files, an overview of APICDA and its role in the CDQ program. He reported the fishery had been successful in 1992, and the profits were placed in escrow for the 1994 fishery. Programs underway now, he said, would be completed by 1995. He urged extension of the program. Number 380 ROBIN SAMUELSON, JR. spoke on behalf of the BRISTOL BAY ECONOMIC DEVELOPMENT CORPORATION (BBEDC). He said BBEDC's partner in the CDQ venture was Ocean Trawl. Regarding the program's successful December start-up, Mr. Samuelson said it was rare for government to work that fast. He anticipated approximately 60 people would be employed through BBEDC's participation in the CDQ program, including those participating in vocational education programs related to the fishery. He also reported the BBEDC was working with the Internal Revenue Service (IRS) to save limited entry permits in jeopardy of being seized by the IRS. Number 400 MR. SAMUELSON claimed the BBEDC expected to go into the bottom-fish fishery and use a percentage of profits for scholarships and further investments. He noted their participation in the CDQ program was structured to be carried into the 21st century. The December CDQ activities, he said, added two million dollars to the economy of Bristol Bay. Employment was the number one objective of the program, he concluded. Number 420 PERFINIA PLETNIKOFF, JR., PRESIDENT, CENTRAL BERING SEA FISHERMEN'S ASSOCIATION (CBSFA), said a result of the CDQ program had been to "Alaskanize" the fishery. He expressed hope that the program might be extended to fisheries in other species. Number 440 FRED PHILLIP from Kwigillingok, represented THE COASTAL VILLAGES FISHING COOPERATIVE (CVFC), comprised of 17 participating villages along the Yukon/Kuskokwim Delta. Of the 5,000 people in the area comprising the CVFC, he reported that 3,500 were of employment age. Over 50% of those employable were not in the work force, he reported. Through the CDQ program, 30 people were employed in 1992, and the plan for 1993 was to have at least 50 people employed. If a fish processing operation were started in the area, he anticipated even higher employment. The Cooperative became a profit-making company in order to enter fisheries as a fishing company and not as a granting agency. MR. PHILLIP referred to a planned training facility for local residents to become salmon roe technicians, which would allow local residents to replace Japanese technicians. They also were looking into internships and apprenticeship programs to increase employment in the villages, he added. Number 490 LAURENTIA MIKE spoke for the YUKON DELTA FISHERIES DEVELOPMENT ASSOCIATION (YDFDA). She reported on the success of the CDQ in employing residents in the area, and in training a number of individuals. She said the YDFDA was able to purchase three longline vessels, and upgrade facilities of the Yukon Delta Fish Marketing cooperative, which was the oldest Alaska Native-owned facility in the state. At least 20 new jobs had been created in the communities of the YDFDA because of the CDQ program, she concluded. Number 520 MR. JEMEWOUK resumed his testimony, referring to a hand-out on the Norton Sound Economic Development Corporation's (NSEDC's) programs. The NSEDC included 15 villages from Wales to Stebbins, he said, and was incorporated in 1989 by the Northwest Mayors Conference to be an economic development vehicle for the Norton Sound area. The organization's fishing partner is Glacier Fish Company, selected because of the company's structure and its success in the bottom fishery of the Bering Sea. A goal of the NSEDC is to develop a new market for salmon and herring. MR. JEMEWOUK said Norton Sound was not able to participate in the herring fishery last spring because of late ice pack. He said this was disastrous for the economy. He reported Norton Sound received 20% of the allocation of the CDQ pollack reserve, or 25 metric tons, and harvested just under the amount allocated. Among the programs of the NSEDC is a low-interest loan program to help fishermen start up. He said the NSEDC's CDQ program is set up to employ 80 residents of the region each year. They were also planning on-shore capabilities for handling salmon products in Norton Sound, and have set up a scholarship program, he noted. MR. JEMEWOUK said the NSEDC was trying to work with the state on developing a salmon incubation and hatchery program. An infrastructure for fish processing was anticipated to create more jobs for the local economy, he added, and long-term plans included the purchase of a vessel. He noted the December pollack fishery harvested 20,183 metric tons of product, generating approximately $4.5 million in the Norton Sound area, and 45 Bering Straits' residents had been trained in entry level fisheries jobs. The Board of Fisheries, he said, approved a super-exclusive red king crab fishery that allowed fishermen to use their boats for more than just the short herring opening. MR. JEMEWOUK advised that a loan program made gear available, and encouraged opening new markets for products. He remarked on an agreement with the ADF&G to conduct a salmon rehabilitation enhancement program, with matching funds requested from Western Alaska Salmon Restoration Initiative. Number 622 REPRESENTATIVE BILL HUDSON expressed concern over the IRS problem with the attachment of permits. He suggested the CDCDQ process be used to gain collective permits, maintained in each CDQ area. MR. JEMEWOUK responded that Norton Sound had established a loan program to give more access and flexibility in funding to obtain and retain permits. Educational programs to train participants in good business practices had also been a focus of the CDQ group, in order to avoid situations where taxes became delinquent. Number 656 MR. SAMUELSON said his group had contacted the IRS, and said the board was not in a position to loan money to bail out fishermen at risk of losing permits. They offered financial consulting, and devised payment schedules that the IRS would agree with, as well as matching people with jobs to generate income in the non-fishing season. He spoke of the need for more intervention to work out problems between fishermen and the IRS. Number 671 REPRESENTATIVE GAIL PHILLIPS asked about the owner of Glacier Fish Company. MR. JEMEWOUK answered that the company was owned by individuals who live in Seattle. REPRESENTATIVE PHILLIPS then asked about the potential for a halibut fishery in Norton Sound, and what products would come out of such a fishery. MR. JEMEWOUK responded that surveys were conducted in Norton Sound last summer and would be continued next spring, which found there was a lot of halibut. REPRESENTATIVE PHILLIPS mentioned Mr. Jemewouk's previous comments on salmon rehabilitation and enhancement programs, and asked whether the NSEDC was looking into putting in a hatchery. MR. JEMEWOUK answered that this was being studied to see what kind of methods would best serve enhancement goals. REPRESENTATIVE PHILLIPS commented that villages in her district were interested in finding out how they could get into the program, because of the success in the areas the program had been implemented. She then asked for figures on individuals being trained at the Seward vocational technical training facility. MS. MIKE answered that from the Yukon Delta region there would be six or seven who would be graduating. MR. JEMEWOUK estimated a total of 38-40 had been trained. TAPE 93-19, SIDE B Number 000 JOHN WALSH, DEPUTY DIRECTOR, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS, said he had been assisting with the efforts to get people trained. He estimated approximately 140-160 people were trained in 1992, through various programs associated with the CDQs. The target for 1993, he said, was to have 300 people trained. A requirement of the CDQ program was direct employment and training, he explained. Number 050 REPRESENTATIVE IRENE NICHOLIA noted the cooperative extension program was doing fisheries enhancement program training in the Interior, and that might be another opportunity for the CDQ applicant groups to look into. Regarding the potential extension of the CDQ program, she asked how long they had in mind. MR. JEMEWOUK responded that they would like to extend the program indefinitely. Number 063 CHAIRMAN MOSES noted Representative Joe Green had joined the meeting. Number 078 REPRESENTATIVE CON BUNDE commented his experience had shown that students with a personal commitment were more apt to succeed, and any training should encourage personal pride and commitment. Number 093 REPRESENTATIVE NICHOLIA asked whether the University of Alaska's rural education program had been contacted as an opportunity for training. MR. PHILLIP responded that the training efforts had not included that yet. REPRESENTATIVE NICHOLIA suggested the CDQ groups consider contacting the University of Alaska's rural education program. Number 113 REPRESENTATIVE HUDSON asked for a description of how the product flowed, from harvest to processing to market. MR. JEMEWOUK answered that the product was delivered to the offshore trawler partner and processed on the boats, then some of it was off-loaded at Dutch Harbor, with some shipped to Seattle for distribution to various food chains, restaurants, and other outlets. Some product was sent to Japan, he said, and much of it was processed into fillets. REPRESENTATIVE HUDSON asked whether some of the fish was processed into surimi. MR. JEMEWOUK said that within his company, they had not looked into surimi because of the depressed market. Instead they looked at fillets and roe. Number 150 MARK SPRINGER, a Hooper Bay resident and consultant to the YUKON DELTA FISHERIES DEVELOPMENT ASSOCIATION, said the majority of their product was processed into surimi paste for the Japanese market. Number 170 REPRESENTATIVE HUDSON commented that surimi was one of the highest value-added products in Alaska. He commented on modifying the tax laws to call for a landing tax, so when the product was landed Alaska would receive revenues as it did for salmon. Number 185 CLEM TILLION, ADVISER TO THE GOVERNOR'S OFFICE on the CDQ program, addressed the remarks regarding landing taxes. He said they were now looking into that issue, and the intent was to avoid ear-marked or designated funding, because that led to extra layers of bureaucracy. He noted places like Peter Pan Seafoods in King Cove was even doing "boil-in-the- bag" secondary processing for shipping to the Japanese household. Number 212 MR. TILLION continued his testimony, noting that the CDQ program varied among the applicant groups, and was just one step in the overall process to make the participating areas independent and self-supporting. The pollack fishery, for example, was seen as a way to get cash for some of the other efforts, and the halibut fishery saw 50% of the quota made available to people in the area. Another goal was to reinvest earnings so that the economic benefit was brought home to the villages as earnings. MR. TILLION stressed the CDQ program was not a welfare program, and its success depended entirely on the efforts of the participating applicant groups. Any groups that did not succeed would be cut and their portion parcelled out to the other participants. He said the program was flexible to fit the resources and needs of the different areas. Number 280 MR. TILLION explained the CDQ program had input from the Limited Entry Commission in setting up brokerages to help stem the outflow of limited entry permits. He said a fund was established for purchase or loan of Individual Transferrable Quotas (ITQ). Under the ITQ system, he said, the property right was forecloseable, so loans could be made safely. He said the CDQ administrators were also working on such issues as landing taxes. He said they were working with factory trawlers, and had not dodged the legislative appropriations system. Number 340 REPRESENTATIVE HUDSON asked Mr. Tillion to explain the flow of revenues generated by the CDQ program; specifically, how they were collected and accounted for. MR. TILLION described the process, and said the CDQ monies came directly to the organizations that were given an allocation by the Secretary of Commerce. All CDQ programs must be approved under criteria set out by the Governor. The money flowed directly to the village organizations from their contractors, and the state oversees the process. The money was regulated through the state's Banking and Securities Division, who audited the accounting records to assure that funds were used for purposes approved under regulations. An educational grant, for example, must be used for education purposes, he pointed out. Number 370 REPRESENTATIVE JOHN DAVIES asked Mr. Tillion if he could identify the main obstacles to the program's success from region to region. He also asked what the state could do to help assure success for the CDQ program. MR. TILLION told the committee the state could help assure success by making sure the criteria and the plan laid out by each group were adhered to. Number 395 REPRESENTATIVE BUNDE asked about the level of general fund support for the program. MR. TILLION said the program would have its own funding sources, and the only expense to the state would be for costs of enforcement by the ADF&G and the State Troopers, from programs already funded for general enforcement activities. Funds for those purposes could come from a raw fish tax or landing tax, so the funds came from the fishing industry. Number 415 REPRESENTATIVE BUNDE asked about former Governor Hammond's suggestion to have a fish excise tax. MR. TILLION noted when he was in the state senate, the legislature raised fish taxes 300%. Number 434 REPRESENTATIVE JOE GREEN asked Mr. Tillion to comment on the possibility of a situation arising where a CDQ participant might fail because of the restrictions and allotments of the program. Number 446 MR. TILLION noted the participants agreed to the criteria when they joined the program, and as long as they did not deviate from the plan, the program should run smoothly and avoid failure. He said avoiding litigation was a goal of the program. Number 455 REPRESENTATIVE GREEN asked about the effect of bad catch years for fishing on the CDQ participants. Number 470 MR. TILLION answered that the Board of Fish had tried to open up other fisheries and spread out the risk so there were options available. He said they could not cover natural obstacles such as the ice-block in Norton Sound last year. The yearly income would fluctuate, he noted. ADJOURNMENT Number 488 CHAIRMAN MOSES adjourned the joint meeting and said the Fisheries Committee would reconvene in Room 17. EO 86: TRANSFER OF FRED DIVISION FUNCTIONS TO THE ADF&G CHAIRMAN BILL WILLIAMS announced the Resources committee would take a brief break and then reconvene to hear EO 86. CHAIRMAN WILLIAMS reconvened the meeting of the House Resources Committee at 9:25 a.m., and noted a quorum was present. He announced the committee would take up EO 86, which was heard previously in committee, on January 29, 1993. At the previous hearing, he said, questions arose to which the committee had asked for a written response. The response had since been received, he noted. Number 520 GERON BRUCE, SPECIAL ASSISTANT, ADF&G, referred to the written responses to previous questions, and told the committee he would answer any questions they might have. He noted representatives of the divisions of Sport Fish, FRED and Commercial Fisheries were also in attendance at the meeting and would answer questions if required. Number 530 REPRESENTATIVE DAVIES commented that he previously had questions about the process of reorganization in the ADF&G. He asked how far the ADF&G was in the process. Number 540 MR. BRUCE said the ADF&G's Commissioner had appointed a planning team leader, Jeff Koenings, and a core planning group, who met to exchange ideas on an informal basis. That was as far into the process as the ADF&G had gone, he reported. He noted EO 86 became effective March 13, so the ADF&G needed to act quickly. Number 559 REPRESENTATIVE HUDSON called the members' attention to a February 4, 1993 letter from the ADF&G's Commissioner. He expressed the concern that any reorganizational flexibility not be at the expense of the forward progress of the enhancement of sports fisheries. He believed page two of the letter assured the functions and essential services of the FRED Division would be performed. After receiving the packet of information from the ADF&G, Representative Hudson said he felt comfortable with EO 86. Number 587 REPRESENTATIVE BUNDE asked Mr. Bruce to confirm that the reorganization of the ADF&G would not diminish the role of the Division of Sport Fish. MR. BRUCE replied in the affirmative. REPRESENTATIVE BUNDE then asked about the disposition of the remaining functions of the FRED Division. Number 601 MR. BRUCE said three facilities in the Anchorage area would be transferred to the Division of Sport Fish. Other facilities would remain with the combined Commercial Fisheries and Development and Management Division. Number 605 REPRESENTATIVE DAVIES still had questions on the nature of any savings that might be achieved through the reorganization. He asked what the ADF&G's highest priorities would be. Number 618 MR. BRUCE said he could not at that time report on the ADF&G's Commissioner's priorities, but said the Commissioner had stressed that one of the highest priorities was to protect the basic data gathering and stock assessment functions, and in-season management capabilities of the ADF&G. Other priorities would be identified more clearly as the reorganization plan moved further along, he said. One plan was to develop an enhancement program in the Arctic and Northwest areas of the state. Number 647 REPRESENTATIVE BUNDE asked whether the CDQ program might pick up where the ADF&G left off with the hatchery business. MR. BRUCE replied the ADF&G would maintain its technical support through research and development, but the private sector would take the lead. He added the ADF&G would be involved in planning and protection of wild stocks. He assured Representative Bunde the ADF&G would still work in partnership with the private sector. He also clarified that the ADF&G would not be involved in developing any new hatcheries. Number 675 JEFF KOENINGS, DIRECTOR, FRED DIVISION, ADF&G, addressed the question on the ADF&G's involvement in the hatchery business. Two out of every three hatcheries, he said, were operated by the private non-profit sector, who took advantage of the technology and planning developed by the state. He added that it was not now in the state's plans to build new facilities. Number 701 REPRESENTATIVE GREEN discussed the ADF&G's intent to avoid the reorganization having an adverse effect on the sportfishing industry. He asked whether decisions related to the reorganization would be irreversible, in case it did not work. TAPE 93-20, SIDE A Number 000 MR. KOENINGS commented on the controls on the private sector, which were getting tighter. The goal of the program has been to supplement, not supplant, wild stocks, he explained. In some cases, if the reorganization plan did not work out, the ADF&G might be able to go back. Number 038 REPRESENTATIVE GREEN was concerned that the changes might ruin the sport fishing, which was the reason many people moved to Alaska. Number 045 MR. KOENINGS responded that the basis for the program was to have oversight to be sure that did not happen. Number 048 CHAIRMAN WILLIAMS asked if anyone else was present to testify or had questions. No one came forward. Number 049 REPRESENTATIVE HUDSON MOVED to PASS EO 86 out of the committee with individual recommendations, and ADOPT the zero fiscal note, with unanimous consent. CHAIRMAN WILLIAMS asked members to indicate their approval of the motion. No members were opposed and the MOTION CARRIED. ANNOUNCEMENTS CHAIRMAN WILLIAMS announced the next meeting of the House Resources Committee would be on Friday, February 17, 1993, at 8 a.m., to hold confirmation hearings for Bruce Twomley's reappointment to the Commercial Fisheries Entry Commission. Also on Friday's agenda, he announced, would be HB 116, related to the state's share of federal gas lease royalties. ADJOURNMENT There being no further business to come before the House Resources Committee, Chairman Williams adjourned the meeting at 9:45 a.m.