Legislature(2019 - 2020)GRUENBERG 120
04/23/2019 10:00 AM FISHERIES
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HB 116-AQUATIC FARM/HATCHERY SITE LEASES 10:04:10 AM CHAIR STUTES announced that the first order of business would be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 116, "An Act relating to the renewal or extension of site leases for aquatic farming and aquatic plant and shellfish hatchery operations." 10:04:14 AM REPRESENTATIVE ANDI STORY, Alaska State Legislature, introduced SSHB 116 as the sponsor. She said SSHB 116 would simplify the Department of Natural Resources (DNR) renewal process for aquatic farms that grow such things as oysters, kelp, and other shellfish. If enacted, the bill would help small Alaska based aquaculture businesses succeed by reducing administrative burdens and expediting the lease renewal process. Aquaculture is an industry with a lot of promise and Alaska with more coastline than all the other states combined has bountiful potential as a site for aquatic farms of oysters, kelp, and other shellfish. The Alaska Mariculture Task Force set a goal of making this a $100 million industry in the next 20 years. REPRESENTATIVE STORY drew attention to the flow chart in the committee packet and noted that the requirements to permit and receive regulatory approval to operate an aquatic farm or related hatchery are complex. She said the most rigorous and time-consuming portion of the approval process is the DNR aquatic farming site lease for both the original lease and the lease renewal. Because of the recent increase in the number of aquaculture farm lease applications - one for a new aquatic farm in 2016, 17 in 2017, and 16 in 2018 coupled with recent cuts to agency staff, it now takes on average 18 months or more to approve an aquatic farm lease. Simplifying the renewal process for aquatic farm leases would reduce the burden on division staff, allowing them more time to focus on new lease applications. REPRESENTATIVE STORY pointed out that an aquatic farm lease renewal must undergo the same lengthy approval process similar to an original lease. This is not required of numerous other DNR lease types, and SSHB 116 would align the lease renewal process for aquatic farms to the lease renewal process for other DNR leases. This change would significantly shorten the first renewal process while still allowing appropriate regulatory oversight, public engagement, and appeal of any DNR lease decision. She emphasized that the bill does not affect leases for salmon hatcheries. REPRESENTATIVE STORY stated that as a new legislator she is pleased with how SSHB 116 began and how it was developed. Shortly after taking office she was contacted by a constituent who was in the process of transferring an aquatic farm lease, a process that would not be affected by SSHB 116. The constituent shared the experience of the lease transfer process and suggested a few possible changes that might help applicants. After subsequent conversations with DNR, DNR staff mentioned the streamlining of the aquatic farm renewal process to reduce regulatory burden on applicants while also reducing workload on an understaffed state agency. She said her staff person, Mr. Greg Smith, is available to explain the four proposed changes to the statute included in the bill. 10:08:20 AM CHAIR STUTES requested the sponsor to explain the changes between the root version of the bill and the sponsor substitute. REPRESENTATIVE STORY replied that the only change is in the title. She explained that after talking with people about the bill, she wanted to make it very clear what the bill affected and that it did not affect salmon hatcheries. REPRESENTATIVE VANCE observed that time for public comment and testimony is provided for an initial lease. She asked whether public comment would still be taken under the renewal process proposed by SSHB 116. REPRESENTATIVE STORY responded yes and deferred to Mr. Smith to elaborate. 10:09:21 AM GREG SMITH, Staff, Representative Andi Story, Alaska State Legislature, on behalf of Representative Story, sponsor, explained there would still be public notice and public appeal during the renewal process. He said someone who is personally affected would be able to reach out to the director and the commissioner to request a review or an appeal of the decision. REPRESENTATIVE KREISS-TOMKINS requested a review of the bill's mechanics. MR. SMITH explained Section 1 of SSHB 116, Version 31-LS0696\U, would add AS [38.05.083], the section of law specific to aquaculture farm and related hatchery leases, to AS [38.05.070(e)], which is the subsection empowering the director to renew a lease under this section. Section 2 would remove the words "or renew" from two places so that those sections would then focus on the requirements of only a new lease application. Section 3 would do the same thing of removing the renewal process from AS 38.05.083(b). Section 4 would [add a new subsection] that explicitly states the commissioner may, under AS 38.05.070(e)-(g), extend or renew a lease under AS 38.05.083, which is the aquaculture farm and related hatcheries section. REPRESENTATIVE KREISS-TOMKINS referenced a letter in support of the bill from the Alaska Fisheries Development Foundation (AFDF), dated 4/15/19. He observed that page 2, paragraph 2, of the letter states the bill would allow for one renewal of an aquatic farm site through a simpler internal process that does not require public comment [if the lease is in good standing/compliance]. He inquired whether that is basically what this bill does. MR. SMITH responded yes, it aligns the renewal process for an aquatic farm or related hatchery lease to a process that DNR follows for many other types of leases that the department does, such as hydroelectric facilities, fish processing docks, power lines, telecommunication sites, grazing, cabins, hunting and fishing lodges, and other uses. 10:13:12 AM REPRESENTATIVE KREISS-TOMKINS further observed that page 2, paragraph 2, of AFDF's letter of support goes on to state, "However, the second renewal would still be required to go through the extended process similar to a new application." He asked whether there is a section of law that would provide for that more exhaustive process with the second renewal that is not excerpted in SSHB 116. MR. SMITH answered that the language not being changed in AS 38.05.070(e) can be seen on page 1, lines 8-9, of the bill, which state that the lease may be renewed only once [for a term not longer than the initial term of the lease]. For the second attempt at a renewal the applicant would have to again go through the original lease application process. So, if the bill were to pass, the original lease for an aquatic farm would have a more exhaustive process, less so on the renewal, and then after a period of 20 years total there would again be a very exhaustive process for the third period. REPRESENTATIVE KREISS-TOMKINS said this information is helpful and he will read that section of law to become more familiar. He commented that he has heard from across Southeast Alaska that it is a royal headache getting these leases and trying to get a site up and running even when a person has the capital and energy to do it. He stated he is glad to see the bill coming forward and inquired whether there are other things that should be done to make this easier. REPRESENTATIVE STORY replied there have been other suggestions, but it was thought that this was a good place to start. REPRESENTATIVE KREISS-TOMKINS suggested to the committee that there might be a receptive audience to doing even more if there are other "cut and dry changes" that could be added. He said he has his differences with this governor, but he thinks there is probably alignment in streamlining things as much as possible. 10:16:21 AM REPRESENTATIVE VANCE said it seems like this is a regulatory issue that the department could do internally to reduce the regulation. But, she continued, it seems the bill would clear up a statutory obligation that would clean up the process a little to allow [aquaculture farm owners] to get that renewal quicker and easier. REPRESENTATIVE STORY responded yes and related that through conversation DNR suggested that simplifying the renewal process would be one thing that could be done for those exact reasons. 10:17:05 AM CHAIR STUTES asked what the length of time is between the inception of starting a shellfish farm and producing and generating revenue from that farm. REPRESENTATIVE STORY answered that the process has been taking 18 months, but there are people online who have been living and breathing this and could answer the question. She deferred to Mr. Smith to answer further. MR. SMITH suggested it might be better to have DNR clarify. CHAIR STUTES specified she is talking about the length of time between deciding to have an aquatic or shellfish farm and the time where that product is taken to market. She invited Ms. Julie Decker to respond. 10:18:43 AM JULIE DECKER, Chair, Alaska Mariculture Task Force; Executive Director, Alaska Fisheries Development Foundation, replied that as far as revenue production once a lease is issued it can take one year for seaweed, an annual crop; seven to eight years for a species like geoducks, a longer lived animal; and three to four years for oysters. That time span, she pointed out, is before the initial $1 is generated. There is much investment and it will take even longer before the farm operator is in the black. CHAIR STUTES opened invited testimony. 10:19:40 AM META MESDAG, Owner, Salty Lady Seafood Company; Board Member, Alaska Shellfish Growers Association, on behalf of herself and the association, provided invited testimony in support of SSHB 116. She said she has a farm site in Juneau with a lease for oysters, kelp, and geoduck, and for which she submitted a lease transfer last year. She currently has oysters and is getting ready to seed geoduck. The oysters will take about three years to grow before they are ready for the market and the geoduck will take seven. Unfortunately, she only has five years left on her lease so will not see any revenue from her geoduck sales before she must go through the renewal process all over again. The intention with her very small family farm in Juneau is to grow food for the community. Ms. Mesdag said SSHB 116 would allow DNR to renew a lease one time so people like her who are in good standing have an opportunity to actually earn revenue at the farm site. The bill means a lot to her and her family as well as to the other growers in the state. 10:21:25 AM REPRESENTATIVE KREISS-TOMKINS offered his belief that Ms. Mesdag's husband is the lobbyist, so to speak, that he previously spoke with. He thanked Ms. Mesdag for her testimony and for being in the vanguard of mariculture in Alaska. He inquired whether there are statutory changes on Ms. Mesdag's wish list beyond what is presently in the bill that are onerous or don't create value. MS. MESDAG responded that the bill is a great place to start. She said another change that has been talked about is regulatory and is about changing the lease terms. To get that done is a bit more tedious, so this approach was taken first as the place to start that would alleviate some of the burden on people looking to invest in the industry as well as the agencies that must regulate it. During that period new businesses are not being put to work. A lot of people are lined up waiting to start with capital in line and the gumption to do this, but it is going to take them up to two years before they see their lease and then they start the build-out process. It takes people with vision. She isn't exactly sure what other statutory changes could be made to help the process, but she knows there is room for improvement. There needs to be due process, she advised, when talking about tideland leases. She suggested looking to DNR for ways that would help the department. REPRESENTATIVE KREISS-TOMKINS said he realizes that regulatory changes are outside the scope but asked what those regulatory changes are. MS. MESDAG answered it would be the duration of the lease terms, changing it from a 10-year lease to match the other DNR leases, which are 20-25 years on average for a tideland lease or land leases. This congruence for mariculture is desirable because of the length of time that it takes to have a marketable product and before farmers start seeing any revenue, and this is not even talking about profit. 10:23:51 AM REPRESENTATIVE VANCE referenced the goal of the Alaska Mariculture Task Force to grow a $100 million industry in 20 years. She asked Ms. Mesdag to speak to how much capital it takes to start this type of venture and the amount of capital it takes each year. MS. MESDAG replied her small family farm has half an acre of oysters and half an acre of geoducks. She will be investing upwards of $150,000 with the hope of making an income of about $70,000 a year working full time with her kids. She and her husband want to provide their kids with an opportunity unique to Alaska where they can grow up as part of the family business working outside. As a micro-scale farm, she is not looking at making hundreds of thousands of dollars; rather, she is looking at making a livable wage that provides intrinsic value to her family. REPRESENTATIVE VANCE offered her understanding that it is labor intensive and that the $70,000 would not be just Ms. Mesdag's wage, but her entire family's wage. Given the contribution that aquaculture makes to Alaska, she said it makes sense to ease the regulatory and statutory burden and she sees SSHB 116 as necessary for all aquaculture farmers. 10:26:52 AM MS. DECKER on behalf of the Alaska Fisheries Development Foundation (AFDF) and the Alaska Mariculture Task Force (MTF) provided invited testimony in support of SSHB 116. She related that members of AFDF comprise a broad spectrum of the seafood industry and the board of directors is comprised of harvesters, processors, and support sector businesses from across Alaska. Founded in 1978, AFDF's mission is to identify opportunities common to the Alaska seafood industry and develop efficient, sustainable outcomes that provide benefits to the economy, environment, and communities. MS. DECKER stated that the mariculture initiative is spearheaded by AFDF and grew into the Alaska Mariculture Task Force. She drew attention to the 2018 Alaska Mariculture Development Plan included in the committee packet, which has a goal of growing a $100 million industry in 20 years. A result of MTF's work is increased interest by the private sector in aquatic farming in Alaska. This has led to a backlog of lease applications with DNR and SSHB 116 would help alleviate some of that backlog. MS. DECKER explained the bill was yet to be written at the time of MTF's last meeting, but attendees did conceptually discuss what is contained in SSHB 116 plus had thorough discussions with DNR. Conceptually MTF agrees with SSHB 116 as a piece of a broader solution to reduce the backlog and focus DNR's time on new permit applications so those folks can get up and running. MS. DECKER noted that another possible change discussed by MTF and DNR was potentially changing the lease term from 10 years to 20 years. She offered her understanding that this could be done via regulation but that it also has broader impacts, which is why [MTF] has not yet moved this forward. Going to a longer lease term automatically kicks in DNR's requirement for a site survey, but surveys on the water in some of these remote areas might be expensive and would also slow down the process. So, given the possible complications, the easiest and simplest solutions were started with first and this bill is that. MS. DECKER said SSHB 116 would reduce the workload for DNR staff; prioritize DNR staff time on the new farm lease applications, which would help grow the industry; and give more certainty to farmers who have invested in site infrastructure for those first 10 years. She pointed out that DNR has many other leases that are anywhere from 20 to 50 years in terms, so this would remain a very conservative leasing program. 10:31:41 AM CHAIR STUTES inquired whether Paula Cullenberg is still involved in the Alaska Mariculture Task Force. MS. DECKER replied no, Ms. Cullenberg has retired from Alaska Sea Grant and Heather Brandon is now the director and on the task force. CHAIR STUTES [closed invited testimony] on SSHB 116 and opened public testimony. 10:32:24 AM MARGO REVEIL, President, Alaska Shellfish Growers Association, testified in support of SSHB 116. She said it is a modest bill that would bring the aquaculture lease process more into line with other leases. Her farm is one of 13 in Kachemak Bay and is coming up for its second renewal because she bought an existing farm that had already been through the first renewal. Therefore, the bill would not directly impact her farm except in that it might free up the staff time and allow more effort to be put into the building of a stronger blue economy and achieving economic diversification of Alaska. As well, she would like to see DNR putting more effort into running the program. 10:33:42 AM TAMSEN PEEPLES, Alaska Mariculture Manager, Blue Evolution, testified in support of SSHB 116. She stated the bill would improve the permitting and leasing process. Blue Evolution, she related, has worked closely over the last four years with independent farmers across Alaska to pioneering and establishing commercial seaweed mariculture in a sustainable and responsible fashion. Over this time Blue Evolution has witnessed firsthand the challenges and frustration of this entire permitting process and has seen the direct impact that this glacial pace can have on individual farms and the entire industry. There is currently a large amount of interest in the industry. She has talked with several individuals who are prospective kelp farmers and the inability to bring farms online quickly is a huge issue and most likely will hamstring further development and growth of the industry. Changing and improving the entire lease process is paramount for this industry to grow, and the hope is that this amendment will lighten the load for DNR. MS. PEEPLES strongly urged the committee to consider that farm size is not accounted for in the bill. She reported that there have been multiple 100-plus acre farms applied for and approved, some of which are scheduled to begin operation this fall. The impacts of these farms are unknown, and it can only be assumed that larger farms will have larger impacts on the environment, the ecosystem, and communities, but to what degree is unknown. Currently there are no additional state regulations for these larger farms and Blue Evolution believes there is going to be a need for strong agency and public insight during the initial years of operation, including that initial renew process. Blue Evolution believes it is unfair and unwise to regulate farms the same regardless of their size. A single farmer with an acre or less is going to be underneath the exact same regulation, cost, and leasing process as a huge corporate entity with lots of personnel and money at its disposal. Blue Evolution believes this is especially true given the current regulations that allow large leases to be held but are only charged for the small percentage of the area of that farm that is currently being farmed; certain farmers across the state are already utilizing this. Blue Evolution believes this will lead to a land grab, which will inundate DNR even further with more applications. MS. PEEPLES said Blue Evolution is glad progress is being made and that these amendments are happening. However, she added, more needs to be done to continue to develop the industry. 10:36:48 AM NANCY HILLSTRAND, Pioneer Alaskan Fisheries, testified that her company is a processing business that helped start the oyster farms in Kachemak Bay by building an oyster cooler to assist them in getting started. She said she is concerned about the very large sized oyster farms. She wants to help the small, Alaska based businesses, but is also concerned for the affected stakeholders. Problems have been seen in Kachemak Bay when people want to expand, or new people come in, because people live in these remote areas and these are navigable waters. The April issue of National Fisherman included a full-page ad about the East Coast's problems between fishermen and these larger mariculture businesses. MS. HILLSTRAND inquired about a definition for "small" farms and suggested consideration be given as to how big it is wanted for these farms to get. She urged that the bill be for small businesses as indicated by the sponsor. Some of the proposed farms are 150 acres or more, which is a blanket over navigable waters. She suggested the committee look at a [size] cap or at densities within regions or bays. She advised that the notification system is archaic, so people don't even know permits have been applied for and suddenly an oyster farm appears in their area. Unforeseen issues arise and become evident after initial permits are required; therefore, a strong renewal process is needed so affected stakeholders can voice their concerns. MS. HILLSTRAND reiterated that it is important to define "small" Alaska based businesses because oyster farming can be noisy with a lot of added traffic. She said it is important to protect the common good, which is the waters of the state of Alaska. 10:39:48 AM REPRESENTATIVE TARR acknowledged the concerns expressed by the last two witnesses regarding farm size. She asked whether Ms. Hillstrand had in mind a specific size or density restriction. MS. HILLSTRAND replied that 34 percent of all the oysters from Alaska come out of Kachemak Bay, yet there is pressure to put more and more. When is enough and how large should they be? She advised that even farms of half an acre or an acre are a large size in the middle of navigable waters. She further advised that 10 acres is huge, and 150 acres is gigantic. One farm in Kachemak Bay wants to enlarge to 10 acres and she understands that about 50 comments were submitted requesting this not be done because it pretty much closes off that bay. The farm in the National Fisherman article that is causing controversy is 40 acres. She suggested this be addressed and figured out by the committee, the shareholders, the stakeholders, and DNR because the scale and magnitude of what is being done is often forgotten about and suddenly these farms located in the common waters of the state are causing controversy. Because this is still new, care must be taken to not make mistakes at the beginning to prevent problems and controversies. REPRESENTATIVE TARR offered her understanding that SSHB 116 relates to the step after the initial tideland lease has been issued by DNR; a renewal would be something on which the local community has already weighed in. She offered her understanding that the [initial] part of the process would not be changed and Ms. Hillstrand's concern would be addressed under that review and public comment, and so there wouldn't be a lease renewal that would be of the size or production level that became overwhelming of that particular area. 10:43:23 AM REPRESENTATIVE NEUMAN observed the aquatic farm application flow chart states that the leases go through a 10-year term and will then be looked at, and what is looked at is extensive. He surmised Ms. Hillstrand's concerns about farms growing too large would be addressed by this being checked every 10 years because the check would include how the operation is going and whether the waters are staying clean and such. He noted 20 years is being considered, but 10 years seems practical. He requested Ms. Hillstrand's opinion in this regard. MS. HILLSTRAND responded that that allows people to see what did happen during that time and voice their concerns. Things happen during the year; for example, power washers running all day long to clean gear. People who have spent a lot of money on their homes didn't realize there would be loud noise and lots of boat traffic created by the farm. She is concerned because she has dealt with many people and seen these problems arise. Ten years is a long time for the opportunity to address any problems, but at least it isn't a whole generation, which would be 20 years. In the past the magnitude of what is being done hasn't been looked at and suddenly it grows out of control. She expressed her hope that this can be kept for the small Alaskan businesses and local communities and not let it become huge international sales where the state receives little or no money. REPRESENTATIVE NEUMAN stated that a company needs at least 10 years to establish itself before being put under the microscope. He concluded that the proposal is accurate, practical, and addresses concerns. REPRESENTATIVE VANCE inquired whether a farm that wanted to expand in size after the 10 years would have to start with a new application or could do so through the renewal application. 10:46:47 AM CHRISTIANNA COLLES, Leasing Unit Manager, Southcentral Regional Land Office, Division of Mining, Land and Water, Department of Natural Resources (DNR), answered that a farm wanting to expand in size at any time during its operation would have to re-apply and the application would go back out for public notice. It is not automatic, she continued; for example, a farm in Kachemak Bay that wanted to expand in size is currently going through the public notice process. REPRESENTATIVE VANCE asked whether there is a limitation on the size and scope of a farm in the current permitting process. MS. COLLES replied yes, regulations require that a farm not take up more than one-third of a bight or bay, so DNR looks at the placement of where these leases are going to be located. She said DNR also works with the National Oceanic and Atmospheric Administration (NOAA) and the Alaska Department of Fish and Game (ADF&G) on where a site might be located to see whether complications might be caused for navigation or marine mammals. REPRESENTATIVE VANCE inquired whether Ms. Colles has any recommendations on how to ease or address the concerns about larger corporations coming in and taking up extensive acreage. MS. COLLES responded that new farms of this magnitude in size are new to Alaska, so there hasn't been much chance to think about how to address them. She said they are usually located in areas that are much larger and aren't in a bay or bight that might cause navigation issues. Regarding a size restriction that says if it is over a certain size it must go through the full process, she is unsure and doesn't have any clear answers to the question. 10:48:58 AM CHAIR STUTES surmised that there really isn't a size limitation because if it was a huge bay the farm could not take up more than one-third of that bay. MS. COLLES answered correct. 10:49:27 AM MARKOS SCHEER, CEO, Premium Aquatics, LLC, testified in support of SSHB 116. He said his farm is located south of Craig and has 127 acres for kelp and shellfish mariculture. He noted he sits on the board of the Alaska Fisheries Development Foundation (AFDF) and Southeast Conference but is testifying on behalf of Premium Aquatics. He supports SSHB 116 as a good step in the right direction, one reason being the kind of capital and grow- out time that are needed. Committing to that kind of capital on a 10-year lease materially increases the risk to potential investors. Longer lease terms provide more opportunity to get an operation up and running, particularly when farming longer- lived shellfish species like geoduck, which take 7-9 years to reach market size. The capital and labor cost must be carried until that product reaches market size. MR. SCHEER maintained it is incorrect that a lease fee is paid only for the area that is being used. He said a lease fee is paid for the whole area regardless of whether it is used. Under a revenue production requirement, the lease will be lost if, by year five, a farm is not producing the minimum amount of revenue on an annual basis. The regulation already provides an avenue that if something isn't being used the lease will be lost. MR. SCHEER further maintained that the idea that these sites are large is an inaccurate assessment. For example, he said, Taylor Shellfish Farms on the West Coast is 17,000 acres. His own operation has 25 acres allocated to shellfish, which is like other farms, and the rest is kelp production. Only so much kelp can be produced on a particular acreage. In a global marketplace where the world production of kelp is some 30 million tons, a farm must have some space to do that production to be relevant. Although this is a new transition for Alaska, the relative scale of what is being done here is modest at best. 10:53:49 AM CHAIR STUTES closed public testimony after ascertaining no one else wished to testify. REPRESENTATIVE NEUMAN observed the bill's original title stated, "aquatic farming and hatchery site leases", while the title of the sponsor substitute (SS) states "site leases for aquatic farming and aquatic plant and shellfish hatchery operations." He requested the sponsor to explain why the differences were included in the title. REPRESENTATIVE STORY replied to make more clarity. She related that with the original title there were questions about whether hatcheries included salmon hatcheries and she wanted to make it clear it was aquatic and not salmon. 10:55:05 AM REPRESENTATIVE TARR asked whether it is correct that an expansion would fall outside of this renewal process and would require another public process that would allow the opportunity for concerns to be raised. MR. SMITH responded that for granting of the initial lease DNR reaches out heavily, sends out postcards to neighbors, and must respond to every question and comment. Currently, as well as in the proposed renewal process, a renewal is publically noticed and there is a grievance process if someone is personally affected, but [the proposed process] is not as broad and time consuming and the notice is not as great. However, a proposed change in footprint or size would require a broader and involved public process. 10:57:22 AM CHAIR STUTES invited the sponsor to make closing comments. REPRESENTATIVE STORY said SSHB 116 would be an advantage to streamline the renewal process and help this business grow. CHAIR STUTES held over SSHB 116.