NATIONAL MARINE FISHERIES SERVICE
H.R. 553
THE WESTERN ALASKA COMMUNITY DEVELOPMENT QUOTA
PROGRAM IMPLEMENTATION IMPROVEMENT ACT OF 2001
BEFORE THE
COMMITTEE ON RESOURCES
U.S. HOUSE OF REPRESENTATIVES
WASHINGTON, D.C.
July 19, 2001
Mr. Chairman and Members of the Subcommittee, thank you for inviting me to this hearing on H.R. 553, the Western Alaska Community Development Quota Program Implementation Improvement Act of 2001. I am William T. Hogarth, the Acting Assistant Administrator for Fisheries in the National Oceanic and Atmospheric Administration/Department of Commerce.
The CDQ Program
The Western Alaska Community Development Quota (CDQ) Program was created by the North Pacific Fishery Management Council (Council) in 1992 as part of the inshore/offshore allocation of pollock in the Bering Sea and Aleutian Islands. The Council established the CDQ Program to provide fishermen who resided in western Alaska an opportunity to participate in the Bering Sea and Aleutian Islands fisheries that had been foreclosed to them because of the high capital investment needed to enter the fishery. The purpose of the CDQ Program is to help western Alaska communities diversify their local economies and to provide new opportunities for stable, long-term employment. The Program focuses on using CDQ allocations to develop a self-sustaining fisheries economy.
Currently, 65 communities are eligible to participate in the CDQ Program. The CDQ communities are located within 50 nautical miles of the Bering Sea coast or on an island in the Bering Sea. Approximately 27,000 people live in the CDQ communities, which are small villages populated predominantly by Alaska Native people. These 65 communities have formed six non-profit corporations called "CDQ groups" to manage and administer their CDQ allocations, investments, and economic development projects. One CDQ group represents a single community (St. Paul, Pribilof Island) and the remaining CDQ groups represent between six and 20 communities.
Since 1992, the CDQ Program has expanded several times to include allocations of halibut, crab, all of the remaining groundfish species (such as cod, Atka mackerel, flatfish, and rockfish), and the prohibited species (salmon, halibut, and crab). In 1996, Congress amended the Magnuson-Stevens Fishery Conservation and Management Act (MSA) to require CDQ allocations of Bering Sea and Aleutian Islands groundfish and crab to the CDQ Program. In 1998, Congress increased the pollock CDQ allocation from 7.5 percent to 10 percent under the American Fisheries Act. In 2000, approximately 180,000 metric tons of groundfish, three million pounds of halibut, and three million pounds of crab were allocated to the CDQ Program. The six CDQ groups had total revenues in 2000 of approximately $63 million, most of this from pollock CDQ royalties. Since 1992, the CDQ groups have accumulated assets worth approximately $187 million, including ownership of small local processing plants, catcher vessels, and catcher/processors that participate in the groundfish, crab, salmon, and halibut fisheries. The CDQ Program has surpassed the expectations of many people in accomplishing the goals set out for it. The CDQ groups have used their CDQ allocations to develop local fisheries, invest in a wide range of fishing businesses outside the communities, and provide residents with education, training, and job opportunities in the fishing industry. In addition to the direct economic benefits of the CDQ Program, another important accomplishment is that CDQ allocations and partnerships with the established fishing companies have provided western Alaskans increased influence in Alaska fisheries policy issues through their participation in the Council process and in other local, regional, and state-wide forums.
Issues Facing the CDQ Program
The CDQ Program has grown and matured over the last eight years. The CDQ groups have gained valuable experience managing their fisheries quotas and their investments. Their assets and revenues are growing steadily and they are becoming increasingly influential in Alaska's fisheries and economic development policy issues. For at least some of the CDQ groups, this maturity also has brought the desire for increased autonomy and reduced government oversight.
Congress recognized the need to evaluate the CDQ Program in its 1996 amendments to the MSA. It requested that the National Research Council (NRC) prepare a comprehensive report on the performance and effectiveness of the CDQ Program. In its 1999 report, the NRC concluded that the CDQ Program "appears on track to accomplishing the goals set out in the authorizing legislation." However, it made a number of recommendations for improvement of the CDQ Program, many of which are the same issues identified by the CDQ groups, the Council, and in H.R. 553. The most important of these common issues are (1) the role and extent of government oversight in the CDQ Program; (2) the CDQ allocation process; and (3) the ability to invest in non-fisheries related projects.
The Council also recognized the need to evaluate the CDQ Program and to identify issues of concern and alternatives to address these issues. To assist them in this process, the Council appointed a CDQ Policy Committee in early 2001. The committee met twice this spring and submitted initial recommendations to the Council at the June meeting. Based on these recommendations, the Council requested that staff prepare an analysis of a number of issues including the respective roles of the National Marine Fisheries Service (NMFS) and the state of Alaska in allocations and oversight; whether CDQ allocations should be permanent or made on a fixed schedule; the evaluation criteria used for CDQ allocations; the addition of an appeals process; whether government oversight extends to all businesses owned by a CDQ group; and whether to allow investments in non-fisheries related projects. Many of these issues also are addressed in H.R. 553. Therefore, at the suggestion of NMFS, the Council included the elements of H.R. 553 in its alternatives for analysis. The Council has scheduled initial review of the analysis at its December 2001 meeting, with final action scheduled for February, 2002.
Role of government oversight
The CDQ Program is jointly managed by the state of Alaska and NMFS based on a program design developed by the Council and implemented by NMFS in 1992. Under these regulations, the State is primarily responsible for the day-to-day administration and oversight of the economic development aspects of the Program and for recommending CDQ allocations. The State works with the CDQ groups to develop a Community Development Plan (CDP) that describes how the CDQ allocations will be used to benefit the eligible communities and to modify this plan as new projects develop. The specific criteria used to evaluate the CDP and to make CDQ allocation recommendations are implemented in State regulations.
NMFS and the Council are primarily responsible for managing the groundfish and halibut CDQ fisheries, and for general oversight of the allocations and economic development aspects of the Program. The CDQ Program was designed to address the needs of western Alaska residents, and the State was considered best suited to evaluate the needs of its residents and communities, as well as to make the difficult decisions about how to allocate the CDQ reserve among competing users. The role of NMFS in the allocation of quota to the eligible communities under the Program has been to review the record provided by the State for its recommendations and determine whether the State considered relevant factors and provided a satisfactory explanation for its action. If NMFS finds that the State followed the process requirements described in the regulations and provided a reasonable explanation for its allocation recommendations, it approves the State's recommendations .
H.R. 553 would change the relationship between the State and NMFS in making CDQ allocation decisions, and in the management of the economic development portion of the CDQ Program. Specifically, it would give more direct responsibility to NMFS, on behalf of the Secretary of Commerce, for determining "harvest shares," or the percentage allocation of the CDQ reserve for each species or species group to each CDQ group, and would reduce the authority and responsibility of the State. In addition, H.R. 553 also would require that the criteria for evaluating the CDPs and making CDQ allocations be implemented through NMFS regulations, and NMFS would be responsible for evaluating the CDPs and allocations against this criteria. These additional oversight responsibilities for NMFS will require additional staff and budget resources to be devoted to the CDQ Program.
Currently, the MSA requires that the Council and NMFS establish the CDQ Program, and allocate a portion of the quotas from Bering Sea fisheries to the Program. However, the MSA does not specifically instruct the Secretary to allocate CDQ to eligible communities or to CDQ groups, nor does it contain requirements about how allocations of quota to the eligible communities should be made. As a result, these activities have been delegated to the State.
The CDQ Allocation Process
The CDQ allocation process is the subject of debate in a number of different forums, including here in Congress with H.R. 553. The NRC considered the CDQ allocation process and noted that the "extensive and variable criteria" used by the State for CDQ allocations caused decisionmaking to be inconsistent and difficult to evaluate. It recommended that the criteria be simplified. However, the NRC also acknowledged the difficulty of accomplishing this recommendation and avoiding a situation where one criteria appears to take precedence or decisionmaking appears to be inconsistent.
The CDQ allocation process also will be addressed in Federal court, possibly sometime late this fall or winter. NMFS is being sued by the Aleutian Pribilof Island Community Development Association (APICDA) over the 2001-2002 CDQ allocation process, which was completed in January 2001. Among other things, APICDA contends that NMFS cannot defer authority and responsibility for CDQ allocations to the State, that the evaluation criteria used for CDQ allocations must be published in NMFS regulations, and that NMFS must make an independent judgment about how to apply specific evaluation factors to make CDQ allocations. Of particular concern to APICDA is that the State used population as a major factor in making the CDQ allocations recommendations. APICDA believes that the Council never intended population to be a basis for CDQ allocations and that NMFS regulations do not allow the State to use population as a factor.
Fisheries-Related Investments
H.R. 553 would limit government oversight to investments funded by revenues received as royalties from CDQ allocations, and would remove the authority of the government to review and approve any expenditure of revenue from sources other than royalties. Our current
regulations require government oversight over all investments made by the CDQ group itself, regardless of the source of income used for the investment. Based on 1999 financial statements, approximately 73 percent of the CDQ groups' $54 million in annual revenue was from
CDQ royalties. This is the portion of annual revenue that would be subject to oversight under H.R. 553. The remaining 27 percent of revenues was from income from partnerships, interest income, sale of property, leases, loan repayment, and other income. In addition, H.R. 553 would prohibit government oversight of businesses owned by the CDQ group.
NMFS regulations currently require that the CDQ groups invest in fisheries-related projects. However, the Council's CDQ Policy Committee has developed a number of alternatives to allow investment in non-fisheries related projects, including continuing to require all investments in fisheries-related projects, as well as alternatives that range from no restrictions at all to specific limits on the amount of revenues that may be invested in non-fisheries related projects. The NRC also addressed this issue in its 1999 report and recommended relaxing the requirement that all CDQ revenues be spent on fisheries-related investments for at least some portion of the revenues.
H.R. 553 would specify that the purpose of the CDQ Program is "(A) to afford eligible communities a fair and equitable opportunity to participate in Bering Sea fisheries; and (B) to assist eligible communities to achieve sustainable long-term diversified local economic development." This statement of purpose is very similar to the current wording of the Bering Sea and Aleutian Islands Fishery Management Plan (FMP) with respect to the CDQ Program. In the FMP, the Council expressed the purpose of the CDQ Program to provide a fair and reasonable opportunity to participate in BSAI groundfish fisheries and to help western Alaska communities diversify their local economies. However, when creating the CDQ Program, the Council also expressed its intent that the CDQ allocations be used to develop a "self-sustaining fisheries economy." Therefore, the current CDQ regulations require the groups to invest only in fisheries-related projects. The intent of the statement of purpose in H.R. 553 appears to support a diversification of investments to include non-fisheries projects.
Community Eligibility Criteria
The MSA requires that communities eligible for the CDQ Program meet criteria related to location, status under the Alaska Native Claims Settlement Act, and fishing and processing activity. H.R. 553 would amend the community eligibility criteria to remove the requirement at ยง305(i)(1)(B)(iii) that a community "meet criteria developed by the Governor of Alaska, approved by the Secretary, and published in the Federal Register."
H.R. 553 also would require a community to be a member of a CDQ group to be eligible to participate in the CDQ Program. Currently, the only way that a community can be a member of a CDQ group is if the State and NMFS determined that the community met all of the eligibility criteria in the MSA and NMFS regulations. H.R. 553 could be read as limiting CDQ Program eligibility to communities that meet all of the current MSA eligibility criteria and were members of a CDQ group at the time that H.R. 553 is signed into law.
In addition to our activities on the Western Alaska CDQ Program, we are working with the Western Pacific Fisheries Management Council to establish Western Pacific community development programs. NMFS recently published the Council's eligibility criteria that Western Pacific communities of indigenous peoples must meet to participate in development programs. Western Pacific Communities of indigenous peoples also must satisfy these eligibility requirements in order to submit proposals for grants to fund fishery demonstration projects. Both Community Development Programs and funded fishway demonstration project proposals are designed to encourage participation of indigenous peoples in Federally mandated Western Pacific fisheries and to foster traditional indigenous fishing practices in the Western Pacific region.
Conclusion
NMFS supports the CDQ Program. Through this Program, economic opportunities available to residents of western Alaska have been improved in an area of Alaska that desperately needs more economic opportunity. We can work with the existing program or if in its wisdom Congress changes the program, we can work with that. However, this Program has significant implications to western Alaska communities, and we believe it is well worth the time and effort to carefully consider all aspects of the Program.
The Council is currently engaged in an ongoing review process, which we support. A full analysis of all the issues regarding implementing and managing the Program will serve to identify major problems and alternative solutions to ensure that the Program meets its goals. We will work with the Council in every way possible to ensure that their analysis and recommendations comply with legal requirements, and can be effectively implemented by NMFS and the State. The Council is considering all major aspects or questions about the Program, such as appropriate roles for NMFS and the State, criteria for allocations, the number and content of evaluation criteria, CDQ group generated criteria, and investment in non-fisheries related projects.
Mr. Chairman, this concludes my testimony. Again, I want to thank you for the opportunity to testify today and discuss this important issue. The Administration looks forward to working with you and other Members on the Committee on this and other fisheries-related issues in the 107th Congress. I am prepared to respond to any questions you and other Members of the Committee may have.