The Valdez Fisheries Development Association hatchery/VFDA photo

After listening to a pitch from hatchery advocates on Tuesday, Alaska House Rep. Louise Stutes, R-Alaska, the chair of the Special Committee on Fisheries, came up with a new idea how to solve the state’s billion dollar budget problem.

“Let’s open more hatcheries and balance the budget,” she said.

The suggestion came after the McDowell Group, a consultancy working for the Alaska Salmon Hatchery Alliance, reported the state’s 25 private, non-profit (PNP) hatcheries generate about $600 million per year in economic output.

The committee seemed much impressed with the big number. McDowell’s Dan Lesh, however, offered no information as to what that $600 million might mean in terms of state revenue.

And committee members never asked.

Rep. Jonathon Kreiss-Tompkins, D-Sitka, thanked Lesh for a  “great presentation” and offered the opinion that “the commercial fishing industry sort of pays it’s own way in raw fish tax and CFEC (limited entry) license fees and the cost of Comm (Commercial) Fish Division in ADF&G” and then helps average Alaskans by “paying out millions of dollars in foregone revenue…that sort of benefits Alaska directly.”

The latter was a bow to hatcheries set up to benefit commercial fishermen that then allow non-commercial fishermen to catch some of the fish in a state where by Constitutional mandate all wild resources are considered “common property.”

“It’s sort of paying all Alaskans in the same sense by underwriting this sort of common benefit….I’d love to see that, I don’t know, maybe further elaborated in the future,” Kreiss-Tompkins said.

“I don’t have a great answer except to agree with you,” Lesh answered. “It is an impressive thing to produce such large economic benefits with no cost to the state. That’s not that common and quite impressive.”

Benefits no cost study

Alaska last year collected somewhere close $100 million in fishery or fishery related taxes, according to the Annual Report from the Tax Division of the Department of Revenue. 

About $19 million of that went directly back to the fishing industry – approximately $9.9 million to the Alaska Seafood Marketing Institute (ASMI) to promote Alaska seafood and $9.1 million to the private, non-profit hatcheries to pay for the production of more fish.

Individual commercial fishermen pay an assessment for the hatcheries in those areas of the state where they have organized regional aquaculture associations. Processors pay a fee to fund the marketing.

Of the revenue collected by the state, another approximately $25 million goes to fishing communities in the form of revenue sharing, although not all fishing communities benefit. To qualify for the funding, the communities must be home to major fish processing plants.

Homer – the self-proclaimed Halibut Capital of the World – does not qualify for any funding because the commercial halibut landed there is headed, gutted and then shipped to Canada for processing rather than being processed locally.

Gov. Mike Dunleavy has proposed eliminating the revenue sharing and using it to help fund state services. The idea has not gone over well in coastal communities.

Stutes told Anchorage television station KTUU that the loss of funding would have a “devastating effect” on her hometown of Kodiak.

“It’s a huge deal,” she said. “I will be fighting like a bulldog on a pant leg not to allow that to happen. We need to maintain our rural communities and our coastal communities so not only do they want to fish here, but they want to raise their families here and live here.”

Barring an end to revenue sharing or elimination of the other direct paybacks to the fishing industry, the state stands to collect $70 to $75 million from the fishing industry this year from taxes and various fees for licenses, Commercial Fisheries Entry Commission (limited entry) permits, fuel and more.

The Revenue Department does not provide a detailed breakdown of the costs of running the commercial fishing business in Alaska, but the Institute of Social Economic Research (ISER) at the University of Alaska Anchorage undertook a detailed examination 2015.

At that time, the state was averaging about $70 million per year in fishery revenue after the pay-outs to industry associations and municipalities.

Losing money

“…State expenditures for commercial fishing are greater than the state revenue,” ISER concluded. “State operating budget expenditures are $8.7 million higher than state revenue; operating plus capital budget expenditures are $27.2 million more than state revenue.”

The commercial fishing industry argued the ISER look at the revenue picture was unfair in that the accounting ignored the overall, positive effect of fisheries revenue.

The same can be said today. But in a state bleeding money, the numbers are the numbers.

And the revenue picture appears to have improved since the ISER report was written given a state decision to end general fund contributions to ASMI in addition to the marketing fee. Minus that expenditure, the state now appears close to breaking even on commercial fisheries expensive to manage and police.

Dunleavy has proposed a $69 million budget for management of the state’s commercial fisheries. Alaska Wildlife Troopers have been spending about $7 million per year on enforcement with management costs for the CFEC and Revenue Department estimated at another $6 million or so.

If the commercial fisheries were to go from “sort of” paying their way, as Kreiss-Tompkins observed, to actually paying their way, the state would still probably need to take back some of the municipal revenue sharing, but likely not all.

No one has ever broken out the direct costs to the state of managing fisheries linked to hatcheries, but there are costs. In Prince William Sound, the intermingling of wild and hatchery fish complicates management, which requires more monitoring, and there are policing needs in all fisheries.

Likewise, there is no specific breakdown on how much of the revenue collected by the state comes from hatchery fish and how much from wild fish.

But if one simply takes the existing, fisheries-related state revenue of about $100 million and attributes to it the average 22 percent of fisheries value that now comes from hatchery fish, according to the McDowell report, the contribution to the state budget would be about $22 million.

Using this hypothetical, each hatchery on average is good for about $1 million per year in state revenue.

Alaska is facing a budget shortfall of approximately $1.6 billion per year.

At this rate, closing that gap would require the construction of approximately 1,600 new hatcheries. Alaska is already a world leader in hatchery salmon production, and there are growing concerns about existing levels of hatchery fishing interacting with wild fish to the detriment of the latter.

The last hatchery built in the state was the William Jack Hernandez Sport Fish Hatchery in Anchorage. It was completed in 2011 at a cost of close to $100 million.

Hatcheries are costly to build and to operate. Many of those now run by the PNPs were built as state facilities and then turned over to the PNPs to run when the state found them too expensive to operate.

Many of the aquaculture associations are still trying to pay back state loans, but those with productive hatcheries got a big boost in 2006 when the state passed a law allowing them to operate “cost-recovery” fisheries to catch salmon to sell to cover hatchery operating costs. 

And with farmed fish increasingly taking over the global salmon market, hatcheries might indeed be the future bright spot for commercial fishermen despite the fears of some non-commercial fishermen that the lower-value pink and chum salmon produced by hatcheries are having deleterious effects on higher-value sockeye, Chinook (king) and coho salmon.

Be that as it may, the ability of hatcheries to produce significant volumes of pinks and chums means a bounty of salmon roe, and that is one product the fish farmers raising salmon in pens cannot produce.

Roe is by far the most valuable salmon speciality product these days with an average annual wholesale value of $400 million per year, according to a 2017 McDowell report, but the market is tenuous.

“…Roe remains a critical, high value product for Alaska seafood producers,” the reports says. “(But) Alaska faces difficult challenges in roe markets.”

Mentioned specifically among the challenges are competition from Russian salmon producers, who have been flooded with pink salmon on that nation’s Pacific Coast; variability in supply and quality in Alaska; and maybe most threatening, “a rise in Western eating habits in core Asian markets that results in less roe consumption per capita.”

Lovefest

Future markets are always hard to predict. About all that can be predicted for sure is what is already known: salmon markets have become increasingly competitive with the rise of the salmon farmers, and that will not end anytime.

That makes it easy for some to love hatcheries with their seemingly quick and easy fix to at least some of the environmental shifts that make salmon returns annually hard to predict.

Then, too, Alaska’s commercial hatcheries have found far more success than those along the rest of the U.S. West Coast, and they do have a rich history.

Testifying to the fisheries committee, Steve Reifenstahl from the Northern Southeast Regional Aquaculture Association (NSRAA) invoked the name of late and iconic Gov. Jay Hammond as one of the early backers of hatcheries.

NRSAA is based in Sitka, and Kreiss-Tompkins gushed about his hometown organization.

“NRSAA may be one of the best administered, non-profit organizations I know in Alaska,” Kreiss-Tompkins said.  “I know from personal experience and from a lot of folks I know who work for the organization, there is basically no tolerance for anything less than excellent execution and administration…..I’m proud to see Sitka the nexus of all this excellent hatchery work in Alaska.” 

Stutes then jumped in to gently reproach her younger colleague.

“I would say that they’re all right up there, including Southcentral,” said Stutes, who also hails from a community with a sizable aquaculture association.

“I’m glad to see that there’s partisan bickering here,” Reifenstuhl said, and everyone chuckled.

CORRECTION: The original version of this story put misstated the location of the Jack Hernandez Fish Hatchery.