HOUSE SPECIAL COMMITTEE ON FISHERIES March 16, 1994 8:30 a.m. MEMBERS PRESENT Representative Carl E. Moses, Chair Representative Cliff Davidson Representative Harley Olberg, Vice Chair MEMBERS ABSENT Representative Gail Phillips Representative Irene Nicholia OTHER LEGISLATORS PRESENT Representative Ben Grussendorf COMMITTEE CALENDAR HJR 61: Relating to the Western Alaska Community Development Quota Program and the North Pacific Fishery Management Council Comprehensive Rationalization Program. DOCUMENT OVERVIEW PRESENTATION: Pacific Seafood Processors Association "The Economic Impact of the Shoreside Processing Industry Upon Alaska During 1992." WITNESS REGISTER RICK LAUBER Pacific Seafood Processors Association 321 Highland Drive Juneau, Alaska 99801 POSITION STATEMENT: Gave a presentation relating to, "The Economic Impact of the Shoreside Processing Industry Upon Alaska During 1992." LARRY COTTER Pacific Associates 116 Gold Street Juneau, Alaska 99801 POSITION STATEMENT: Gave a presentation relating to, "The Economic Impact of the Shoreside Processing Industry Upon Alaska During 1992." PREVIOUS ACTION BILL: HJR 61 SHORT TITLE: COMMUNITY DEVELOPMENT FISHING QUOTAS TASK FORCE JRN-DATE JRN-PG ACTION 03/09/94 2682 (H) READ THE FIRST TIME/REFERRAL(S) 03/09/94 2682 (H) FSH, RESOURCES 03/16/94 (H) FSH AT 08:30 AM CAPITOL 17 ACTION NARRATIVE TAPE 94-14, SIDE A Number 001 CHAIRMAN CARL MOSES called the House Special Committee on Fisheries meeting to order at 8:38 a.m. He noted members in attendance. HJR 61 - COMMUNITY DEVELOPMENT FISHING QUOTAS CHAIRMAN MOSES announced that the committee would be hearing HJR 61, "Relating to the Western Alaska Community Development Quota Program and the North Pacific Fishery Management Council Comprehensive Rationalization Program." He informed the committee that HJR 61 was introduced by House Rules by request of the House Economic Task Force. It addresses the allocation of groundfish and crab to the Community Development Quota Groups by the North Pacific Management Council (NPMC). He noted there is a sponsor statement in the committee packets. (A copy is on file). Number 048 There being no testimony, REPRESENTATIVE CLIFF DAVIDSON moved and asked unanimous consent that HJR 61 be passed out of the House Special Committee on Fisheries with individual recommendations. Hearing no objection, the motion carried. Number 068 CHAIRMAN MOSES announced the next order of business would be a presentation by Rick Lauber of the Pacific Seafood Processors Association (PSPA) relating to, "The Economic Impact of the Shoreside Processing Industry Upon Alaska During 1992." RICK LAUBER, Pacific Seafood Processors Association, came before the committee members. He introduced Larry Cotter of Pacific Associates and explained they did most of the work on the preparation of the document the committee members had before them. MR. LAUBER explained that several years ago there was a tremendous battle regarding the allocation of seafood/groundfish to fishermen who fish for plants located onshore versus the factory trawl fleet that operates offshore of Alaska. Mr. Lauber said that resulted in an allocation of pollack in the Bering Sea to the shoreside portion of the industry of 35 percent of the pollack resource. In the Gulf of Alaska, it was substantially higher. MR. LAUBER explained the North Pacific Fishery Management Council (NPFMC) is currently studying what is termed "comprehensive rationalization." The council is looking at several potential options, mainly a license limitation system relating to vessel licensing, similar to the current Alaska Salmon Limited Entry Program. The council is also looking at an individual transferable quota system. MR. LAUBER said the Pacific seafood processors felt the potential impacts of an Individual Transferrable Quota (ITQ) on Alaska and on the shoreside processing and fishing component of that industry would be significant. He said his organization thought they needed to know, and needed to be able to tell people what was at risk as far as the down side of an ITQ system. Mr. Lauber noted that they anticipated there would be significant impacts. He explained that Dr. Scott Matlich of the University of Washington State did a study and was the author of a concept called "Two Pie System." If it was implemented it would grant quota shares. There would be a "Catcher Pie System" which would be of equal size. The people with processor shares would have to go buy product harvested by people owning catcher shares. Mr. Lauber said that Dr. Matlich testified before the council that if this didn't take place, the shoreside industry and the fishermen fishing for the shoreside industry would be significantly impacted and the industry would go into a death spiral that would last between five and seven years before the total collapse of the shoreside industry. Most of the product would go offshore. MR. LAUBER said it became evident that a lot of information was solely in the possession of the processors because they are the ones that are aware of exactly how much money they spend on purchases of supplies, payroll, benefits, etc. He said his organization asked Capitol Associates and Pacific Associates to help with the document before the committee members entitled "The Economic Impact of the Shoreside Processing Industry Upon Alaska During 1992." He explained the document is in no way an effort to compare the seafood industry with any other industry or component in the state. It is solely a study of the shoreside processing sector. He explained in 1992, the shoreside portion of the industry purchased 2.26 billion pounds of fish for which they paid approximately $1 billion to the harvesters of that fish. During that year, the average employment was 11,233 employees in the shoreside portion of the industry. Salary and benefits totaled $371 million. He pointed out the figure doesn't include the fishing vessels, vessel owners, captains, or crew wages. It is only the shoreside portion of the industry. Mr. Lauber said the total economic impact of all factors on the state of Alaska was almost $4 billion for 1992. MR. LAUBER explained that the shoreside portion of the industry paid approximately $57 million in state and local raw fish taxes. In some areas of the state, that impact is more significant than others. He noted that 80 percent of the Aleutian East Borough's revenue comes from fish taxes generated by the shoreside industry. Number 250 MR. LAUBER explained that several years ago, there was a tremendous battle of what is called inshore/offshore allocation. It became evident that the factory trawl fleet had the capability of harvesting up to three times the amount of fish available. They were preempting the fishermen or delivering to shoreside plants. They were gobbling up the resource at such a rate that it was evident that there wasn't going to be any fish available and the impacts to the coastal communities and fishermen who delivered to processors was going to be significant. The NPFMC adopted an inshore allocation of 35 percent that was approved by the secretary of Commerce. MR. LAUBER referred to 1991 when the pollack allocation wasn't in place for the Bering Sea and said the shore plants received 681 million pounds. In 1992, when the allocation was in place, the shore plants received 996 million pounds. In the Gulf of Alaska, for 1991 the shore plants received 128 million pounds of pacific cod. In 1992, that figure jumped to 166 million. The impacts of regulation is significant on the industry as far as inshore fisheries and as far as budgets for the Department of Fish and Game and Department of Environmental Conservation, etc. Mr. Lauber said we must keep in mind that we need seafood sanitation inspection in order to put a good product on the market. He said we also need rational reasonable management of our fisheries inshore as well as offshore. Number 296 MR. LAUBER referred to a speech that was given by the president of the American Factory Trawlers Association to the Unalaska/Dutch Harbor Chamber of Commerce and said he announced the factory trawlers had a significant impact on that area because they had spent $62 million. Mr. Lauber said he suspects that a vast majority of that $62 million was for fuel for their vessels. He explained that the shoreside industry in that same area spent $384 million and the fuel wasn't counted in that amount. MR. LAUBER pointed out the council has included an option in vessel licensing and in any type of an ITQ program that would continue the CDQ (Community Development Quota) Program. In the CDQ Program, the decision as to which partners the groups would select is made by the individual CDQ groups with oversight by the Governor's Office and state agencies. Mr. Lauber said two of the major processors that are members of PSPA are CDQ partners. He said the mix and match of product is such that they try to put the product in a form where they get the most value. At this time, because the most value of the product is that which is being produced by the shoreside processors, much of the CDQ impacts of some of the CDQ groups is going onshore. He said they would like to have more product come on shore and in the future, maybe that will be the case. Number 351 REPRESENTATIVE DAVIDSON asked if the group that owns the CDQ could designate that a portion, or whatever percentage they wish, would come ashore. MR. LAUBER said he would assume that if the CDQ groups wanted to do so, they could do it by the selection of who their CDQ partners are or they could set a policy. He noted it would probably be with the oversight and approval of the governor. Mr. Lauber said he believes that a majority of the CDQ groups found that they got the best offer from people operating off shore. There were at least two that opted for a combination. Number 372 LARRY COTTER, Pacific Associates, was next to address the committee. He informed committee members that a lengthy questionnaire was developed which was distributed to all the members of PSPA. He said there was an excellent response. A variety of questions were asked relating to the species they harvested by quarter, by plant, by area, number of employees employed by month, amount of payroll, number of employees they flew to and from various locations, amount of money spent on transportation, amount of money spent on consumables, services, utilities, etc. Mr. Cotter explained that they then contacted the Department of Fish and Game, Commercial Fishery Entry Commission, and the National Marine Fisheries Service and obtained harvest and processing information. He noted the Department of Fish and Game does not have adequate personnel to be able to handle the data they receive. Mr. Cotter explained they then went to the Department of Labor and obtained employment and earnings information by region. It was interesting that each department seems to have a different definition as to regions. He said they looked at the direct expenditures and realized there was more to the impact of the industry then what is spent directly. MR. COTTER said his organization had to try and identify an appropriate multiplier to accurately describe the real financial impact upon the communities in the regions. There has been little work done in Alaska on developing a multiplier to describe the impact to the seafood industry. Mr. Cotter said there was a study done a few years ago where it stated that for every dollar spent, an additional seventy-three cents was generated in the seafood industry. He said they contacted a variety of economists and in some places in the lower forty-eight they ascribed multipliers of up to $5 for every $1 spent. Mr. Cotter said what Pacific Associates chose to use in Alaska was for every $1 spent an additional $1.50 is generated. He noted that is probably a conservative figure. MR. COTTER explained that in 1992 in the region encompassing Kodiak, the Alaska Peninsula, the Aleutians, the Bering Sea, and Bristol Bay, 56 percent of the total jobs available were seafood processing jobs, 20 percent were other private sector jobs, and the remaining were distributed between federal and local government. He pointed out that those numbers do not include employment on harvesting vessels. He noted crew and skipper jobs aren't counted by the Department of Labor as part of the state employment numbers in the fish industry. MR. COTTER referred to inshore/offshore and said there was a significant increase in the amount of pollack processed onshore in the Gulf of Alaska during 1993 compared to 1991. He explained that the Alaska Peninsula showed a substantial increase in the amount of economic activity in 1992. A lot of that is directly related to inshore/offshore because there was pollack processing activity at Sand Point and Chignik when there hasn't been in the preceding years. Mr. Cotter said in 1991, Southeast Alaska had the second largest economic impact in the state, second to the Bering Sea - Aleutian Islands. In 1992, Southeast Alaska fell to third place but still maintained about the same level of activity. He noted there are a lot of species being harvested in Southeast Alaska. MR. COTTER referred to Prince William Sound and said in 1991 pink salmon dominated. In 1992, herring was the largest harvest. He noted if it wasn't good for sockeye prices in 1992, Prince William Sound would have suffered an incredible disaster. Number 531 CHAIRMAN MOSES said he would like to volunteer Mr. Cotter to talk to the Anchorage Chamber of Commerce, Fairbanks Chamber of Commerce and the Dutch Harbor/Unalaska Chamber of Commerce. He said there are a lot of people in Unalaska who don't realize what the shore-based operations mean. There is a certain segment that supports the offshore facilities. MR. LAUBER said he thinks the shore-based facilities are old, familiar and are taken for granted. He said a few years ago we thought we had the control over salmon prices, etc. With the infusion of farm raised salmon and the access to Russia's salmon, it is obviously having a significant impact. That portion of the industry is substantially stressed and fishermen are going broke. He discussed testimony given by economists, the Scientific and Statistical Committee of the North Pacific Management Council relating to the ITQ Program. CHAIRMAN MOSES referred to the Aleutians East Borough and said he thinks they have been very modest in their taxing powers. REPRESENTATIVE DAVIDSON referred to the information before him and said it sounds like coastal Alaska is in serious trouble. He asked if the reality of the situation is that whoever gets the product to the consumer in the best quality and at the cheapest price, that is where the future is. He said if that is true, does it mean that the operations on shoreside Alaska can't compete because the factory trawlers are producing a quality product and are getting it to the consumer cheaper than what we can from coastal Alaska. MR. LAUBER said if one was to assume what Representative Davidson said is correct, the answer would be "yes," but that is not correct. The shore-based operations can compete and can turn out a quality product. He said he isn't going to say that some of the shore-based industry is not impacted and they may well be losing money but the only bankruptcies and failures in that segment of the industry has been in the factory trawler operation. Mr. Lauber said a substantial percentage of factory trawlers are being propped up by Christiana Bank. The bank is holding their papers and there are not any payments being made on their loans except interest payments. The collapse in that industry would be substantial. MR. LAUBER explained that a disadvantage of the shore-based industry is that they are tied to the shore and the operational areas of their fishing vessels. Number 582 REPRESENTATIVE DAVIDSON asked what the legislature can do to ensure the long term viability of the shore-based industry. MR. LAUBER said to support the concept of the long term viability of the industry in Alaska. He said there is the feeling that if we go to an ITQ system, it should be given to the factory trawlers and the catcher boats. The shore industries would then take care of themselves. Mr. Lauber explained that one problem is that if they are freely transferrable, the factory trawlers will buy out the quota of the catcher boats and transfer it to their vessels. He said there are a lot of options, but if we don't do the right thing we will loose the industry. Number 623 MR. COTTER explained his organization represents a CDQ group, APITKA. Their partner is Trident Seafoods and Starbound which is a factory trawler. He said as they went through the process in selecting a partner, they received a lot of RFP responses. It became obvious that the shoreside industry was at a clear disadvantage in bidding for CDQs, as the shoreside plants have to pay their fishermen to catch the fish and the factory trawl industry does not. MR. COTTER referred to Mr. Lauber's discussion about the Bank of Christiana and said the Government of Norway owns 98 percent of the bank. TAPE 94-14, SIDE B Number 001 There was general discussion regarding the report before the committee members. MR. LAUBER explained that the report doesn't attempt to make a case beyond what is contained in it. He said they are trying to indicate the economic impact of the shore-based processing on the state of Alaska. The implications that one could read into that would depend on where you're coming from. He said the report is to inform the committee of the impacts of what may happen. There was discussion regarding the contents of the Executive Summary, graphs, economic impacts by region, etc. Number 120 CHAIRMAN MOSES said we are at a point where the fishermen and processors are going to have to get together and work on some common goals. REPRESENTATIVE DAVIDSON said there should be something given to each legislator, every week in writing, that gives people "cause for pause" to think about the future of the state. He said the first thing he would like to see is exactly how much money does the shoreside seafood processing industry impact the economy of Anchorage in a week. Representative Davidson said he would like to know how many PSPA members are involved in offshore operations. CHAIRMAN MOSES said he doesn't know of any. CHAIRMAN MOSES thanked Mr. Cotter and Mr. Lauber for coming before the committee. Number 184 There being no further business to come before the House Special Committee on Fisheries, Chairman Moses adjourned the meeting at 9:35 a.m.