Legislature(2009 - 2010)BUTROVICH 205

03/29/2010 03:30 PM Senate RESOURCES

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Heard & Held
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           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                                                                                                                    

Document Name Date/Time Subjects
SB 245 - Bill Packet.pdf SRES 3/29/2010 3:30:00 PM
SB 245
SB 255 - Bill Packet.pdf SRES 3/29/2010 3:30:00 PM
SB 255
HB 162 - Bill Packet.pdf SRES 3/29/2010 3:30:00 PM
HB 162
GRETC - Joint Utility Task Force.pdf SRES 3/29/2010 3:30:00 PM