Appendix H Potential Economic Costs and Benefits of Individual Fishing Quotas to the Nation

The charge to the committee in the Sustainable Fisheries Act mandates an evaluation of the "potential social and economic costs and benefits to the nation" of individual fishing quotas (IFQs) (Sec. 108[f]). Other chapters of this report have described and elaborated on the specific effects of these programs. The purpose of this appendix is to attempt to quantify some of the costs and benefits that may accrue to the nation as a whole from the implementation of IFQ programs. The committee found it impossible to conduct a true cost-benefit analysis of any U.S. IFQ fishery because of insufficient data. The committee presents the following data and analyses as order-of-magnitude estimates. Recommendations are also presented regarding data needed to improve such estimates.

In evaluating the potential economic costs and benefits to the nation from IFQ programs, several factors need to be examined. First, calculating the benefits and costs of IFQ programs would have to take into consideration the changes in value to consumers (in terms of both product mix and quality). These calculations would require an extensive analysis of the particular fishery and therefore would go well beyond the information in this appendix. Further, although revenues generated from taxes or fees associated with an IFQ program may offset some of the monetary costs associated with administering these programs, they are not the principal benefits of an IFQ program. The real net benefits of an IFQ program consist of increases in revenues over costs, including management and enforcement costs. Tax revenue are transfers from individual entities to the government and should not be confused with real changes in net benefits to the nation. Their fiscal effects are important, however, because they provide a funding base for management and enforcement costs that are currently paid almost



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--> Appendix H Potential Economic Costs and Benefits of Individual Fishing Quotas to the Nation The charge to the committee in the Sustainable Fisheries Act mandates an evaluation of the "potential social and economic costs and benefits to the nation" of individual fishing quotas (IFQs) (Sec. 108[f]). Other chapters of this report have described and elaborated on the specific effects of these programs. The purpose of this appendix is to attempt to quantify some of the costs and benefits that may accrue to the nation as a whole from the implementation of IFQ programs. The committee found it impossible to conduct a true cost-benefit analysis of any U.S. IFQ fishery because of insufficient data. The committee presents the following data and analyses as order-of-magnitude estimates. Recommendations are also presented regarding data needed to improve such estimates. In evaluating the potential economic costs and benefits to the nation from IFQ programs, several factors need to be examined. First, calculating the benefits and costs of IFQ programs would have to take into consideration the changes in value to consumers (in terms of both product mix and quality). These calculations would require an extensive analysis of the particular fishery and therefore would go well beyond the information in this appendix. Further, although revenues generated from taxes or fees associated with an IFQ program may offset some of the monetary costs associated with administering these programs, they are not the principal benefits of an IFQ program. The real net benefits of an IFQ program consist of increases in revenues over costs, including management and enforcement costs. Tax revenue are transfers from individual entities to the government and should not be confused with real changes in net benefits to the nation. Their fiscal effects are important, however, because they provide a funding base for management and enforcement costs that are currently paid almost

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--> exclusively from public revenue. The factors that must be assessed in order to ascertain the overall costs and benefits from the implementation of an IFQ program include the following:  Potential generation of revenue from fees or taxes from the IFQ program;  Potential changes in the cost of administration for the fishery;  Potential changes in the economic efficiency of fishing operations;  Potential changes in employment in the fishery and associated industries; and  Potential long-term effects on fishery-dependent communities. In many cases, it is difficult to distinguish between costs incurred by general fishery management practices and those incurred in IFQ management. As the following analysis will shows, there are not adequate data to perform a complete cost-benefit analysis for any U.S. IFQ fishery. Potential Revenue from Fees and Taxes Although open-access fishery management systems may require a permit, endorsement, license, or other form of certification, fees from these systems are usually insignificant compared to the other costs required to engage in fishing (e.g., labor, gear, fuel, equipment) and usually do not generate substantial tax revenue. Exceptions, however, include among others a 2% landings tax in Alaska that provides significant revenues to local and state governments. Several difficulties arise in assessing the potential revenues generated by IFQ management compared to other forms of fishery management. In many cases, it is difficult to obtain accurate estimates of quota price and therefore the value of the quota in the U.S. programs. The Alaskan halibut and sablefish IFQ programs have the best information available concerning variations in quota price, due in part to research conducted by the National Marine Fisheries Service (NMFS), the Alaska Commercial Fisheries Entry Commission (CFEC), and independent quota brokers, as well as the large volume of transactions. There are several ways in which revenue can be derived from IFQ fisheries. First, the potential increases in net revenue due to the improved efficiency of the IFQ fishery can provide increased revenues to the fishery (e.g., reduced variable costs through the use of less gear and cost efficient equipment). Second, revenue can increase due to changes in harvest patterns and product forms (e.g., increased exvessel prices due to handling and closer alignment of landings with market demand). Fiscal revenue (transfers of revenues from the fishery to government), can be generated through a combination of corporate and business taxes, capital gains taxes, landings taxes, and vessel fees. The Magnuson-Stevens Act provides several mechanisms for assessing fees on the operation of IFQ fisheries. The act

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--> specifically provides for the assessment of a fee of up to 3% of the exvessel value of the fish landed under an IFQ program (Sec. 304[d][2]). Further, up to 0.5% of the value of a limited access permit or IFQ can be collected upon registration and transfer of the title of a permit, for the operation of a limited access system administration fund, or for the general administration of the fishery from which the fee is collected (Sec. 305 [h]). Non-IFQ fisheries do not specifically provide for the assessment of additional exvessel fees, so the adoption of an IFQ program could generate significant tax revenue compared with other forms of fishery management. The following sections evaluate the potential revenues from capital gains taxes, the 3% exvessel fee, and the 0.5% registration and transfer fee. These revenue projections are limited by the terms of the Magnuson-Stevens Act. Thus, these projections do not reflect what could be possible with more liberal provisions in future amendments to the Magnuson-Stevens Act nor do these projections consider changes in state or federal corporate or other business tax receipts that could arise from increases in the profitability that are attributable to the implementation of IFQs. Potential Revenue from Capital Gains Taxes Capital gains taxes can be assessed on the increased value of commodities such as stocks, bonds, real estate, and other "capital assets," including IFQs. Capital gains are not subject to taxation until they are "realized," generally considered to occur when the appreciated asset is sold. To conduct an assessment of the potential revenue from capital gains taxes, it is important to have relatively accurate information on the amount of quota being traded, and the price at which the quota shares were purchased (if any), and the sale price. Unfortunately, not all IFQ fisheries have reliable transfer and price information to provide the baseline assessment of the value of quota shares. The surf clam/ocean quahog (SCOQ) IFQ program does not require that price information be reported and there are no independent brokerage firms. There has been very little trading in the wreckfish IFQ program, according to information available from the South Atlantic Fishery Management Council. Thus, capital gains are not likely to be significant. Independent brokers are active in the Alaskan halibut and sablefish programs, and can provide data on the range of quota prices. The quality of data available and the types of data collected vary among the independent broker firms. There have been significant variations in price, and precise determinations of potential capital gains revenue are not possible without access to proprietary data. Transfer price information for any new or existing IFQ programs would improve the ability to quantify the potential capital gains revenues. Data on the number of transfers, the number of pounds transferred, and the sale price per transfer in the Alaskan halibut and sablefish IFQ program are maintained by the

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--> TABLE H.1 Total Number and Pounds of Permanent (IFQ/QS) Transfers in the Alaskan Halibut and Sablefish IFQ Programs (1995-1997) Year Halibut Transfers Halibut Pounds Sablefish Transfers Sablefish Pounds 1995 1,198 4,515,771 351 2,565,832 1996 1,419 3,706,462 359 2,217,580 1997 1,395 4,546,431 440 1,913,780 NOTES: Transfers to surviving spouses are excluded. Permanent transfers include sweep-ups (even to the same person). Pound are the pounds actually transferred and may not necessarily equal the pounds of fish that the quota transferred will yield in a given year. SOURCE: NMFS RAM Division. NMFS Restricted Access Management (RAM) Division from information provided by NMFS, CFEC, and the Alaska Department of Fish and Game (Table H.1, Figures H.1-H.4). To determine the value of quota share (QS), data on the number of transfers, the amount of quota transferred, and the price of the transfer are required. Unfortunately, the data available from both NMFS and independent quota brokers are not sufficiently detailed to provide an accurate determination of the value of the quota. Data on the ranges of quota market prices were provided to the committee by the CFEC and one of the larger IFQ brokerage firms, Access Unlimited, Inc. (Tables H.2-H.4). The actual transaction prices vary depending on the negotiating positions of the buyer and seller and seasonal fluctuations in the market. Prices offered for quota may also vary depending on whether the quota offered is blocked or unblocked, and the relative size of the quota share being offered. Typically, unblocked quota shares sell for higher prices. Additionally, prices offered for quota shares for small-vessel classes (Class D) tend to be lower than for larger-vessel classes (Class C and B), although these trends seem to have been affected by regulations allowing Class C and B quota to be used, or "fished-down," on smaller vessels (Class D). Providing a range of the total value of the quota is necessary because it is not appropriate to assume that the average price of the quota is the mean of the minimum and maximum values reported. The information provided comes from a larger IFQ brokerage firm; however, trades also occur outside brokerage firms. The indication from testimony and information provided to the committee is that these trades may occur at a lower price than those conducted through a brokerage firm. Several general trends can be inferred from the market price of quota share in the Alaskan halibut and sablefish IFQ programs. As might be anticipated, the price of quota was lower during the first year of the program than in subsequent

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--> Figure H.1 Number of permanent (IFQ/QS) transfers per International Pacific Halibut Commission (IPHC) regulatory area in the Alaskan halibut IFQ program (1995-1997). NOTES: Transfers to surviving spouses are excluded. Permanent transfers include sweep-ups (even to the same person). Source: NMFS RAM Division.

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--> Figure H.2 Pounds of permanent (IFQ/QS) transfers per International Pacific Halibut Commission (IPHC) regulatory area in the Alaskan halibut IFQ program (1995-1997). NOTES: Transfers to surviving spouses are excluded. Permanent transfers include sweep-ups (even to the same person). Pounds are the pounds actually transferred and may not necessarily equal the pounds of landings that the quota transferred will yield in a given year. Source: NMFS RAM Division.

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--> Figure H.3 Number of permanent (IFQ/QS) transfers per sablefish regulatory area in the Alaskan sablefish IFQ program (1995-1997). NOTES: Transfers to surviving spouses are excluded. Permanent transfers include sweep-ups (even to the same person). Source: NMFS RAM Division.

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--> Figure H.4 Pounds of permanent (IFQ/QS) transfers per sablefish regulatory area in the Alaskan sablefish IFQ program (1995-1997). NOTES: Transfers to surviving spouses are excluded. Permanent transfers include sweep-ups (even to the same person). Pounds are the pounds actually transferred and may not necessarily equal the pounds of landings that the quota transferred will yield in a given year. Source: NMFS RAM Division.

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--> TABLE H.2 1995 Market Prices of Permanent (IFQ/QS) Transfers per International Pacific Halibut Commission (IPHC) and Sablefish Regulatory Area per Quarter in the Alaskan Halibut and Sablefish IFQ Programs     2nd Quarter (price/pound) 3rd Quarter (price/pound) 4th Quarter (price/pound) Species Area (vessel class) High Low High Low High Low Halibut 2C (D) $7.50 $6.00 $7.90 $6.00 $7.75 $5.00   2C (C) $9.25 $8.50 $9.25 $8.25 $9.00 $7.75   2C (B) $9.25 $8.50 $9.25 $8.25 $9.00 $7.75   3A (D) $8.00 $6.00 $7.25 $6.00 $7.00 $5.00   3A (C) $8.50 $7.75 $8.50 $7.25 $8.00 $7.00   3A (B) $8.00 $7.25 $8.50 $7.25 $7.75 $6.75   3B (D) $7.75 $6.00 $8.25 $6.00 $6.75 $5.50   3B (C) $7.75 $6.00 $8.25 $7.25 $7.25 $6.75   3B (B) $8.25 $7.75         Sablefish SE (C) $8.10 $5.50 $8.00 $5.50 $8.00 $5.50   SE (B) $8.00 $7.50 $7.50 $7.00 $7.50 $7.00   WY (C) $8.10 $5.50 $8.00 $5.50 $8.00 $5.50   WY (B) $8.00 $7.50 $7.50 $7.00 $7.50 $7.00   CG (C) $7.25 $5.50 $7.25 $5.50 $7.25 $5.50   CG (B) $7.25 $6.25 $7.25 $6.75 $7.25 $6.75   WG (C) $6.50 $5.50 $6.50 $5.50 $6.50 $5.50   WG (B) $6.50 $5.50 $6.50 $5.50 $6.50 $5.50 NOTES: 1. Refer to Appendix G for maps displaying the halibut and sablefish regulatory areas. 2. No trades were recorded in the first quarter since the program was not fully implemented until March 1995. 3. Market prices for halibut regulatory areas 4A-4D, sablefish regulatory areas Al (Aleutian Islands) and BS (Bering Sea), and vessel class A are not reported because data on market prices for quota for these vessels and regions are not sufficiently complete. Moreover, Class A transfers represent a small fraction of the total quota share transferred. 4. Market prices are derived from values reported by IFQ brokerage firms. The actual price of quota may vary from these ranges. The high and low designations are subjective definitions provided by the brokerage firms and do not correspond to the average price of quota shares transferred. Both blocked and unblocked quota are considered within the price ranges given. 5. Sablefish regulatory areas: SE (Southeast), WY (West Yakutat), CG (Central Gulf), WG (Western Gulf). 6. Halibut vessel Class B = catcher vessel greater than 60 feet in length; halibut vessel Class C = catcher vessel between 60 and 35 feet in length; halibut vessel Class D = catcher vessel less than 35 feet in length. 7. Sablefish vessel Class B = catcher vessel greater than 60 feet in length; sablefish vessel Class C = catcher vessel less than 60 feet in length. SOURCE: Access Unlimited, Inc.

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--> TABLE H.3 1996 Market Prices of Permanent (IFQ/QS) Transfers per International Pacific Halibut Commission (IPHC) and Sablefish Regulatory Area per Quarter in the Alaskan Halibut and Sablefish IFQ Programs     1st Quarter (price/pound) 2nd Quarter (price/pound) 3rd Quarter (price/pound) 4th Quarter (price/pound) Species Area (vessel class) High Low High Low High Low High Low Halibut 2C (D) $7.50 $5.00 $10.00 $6.50 $9.10 $8.25 $9.25 $8..25   2C (C) $8.50 $6.50 $10.75 $6.50 $10.00 $9.00 $10.00 $9.00   2C (B) $9.10 $8.75               3A (D) $7.50 $5.00 $8.00 $6.00 $8.00 $6.75 $8.50 $7.00   3A (C) $8.00 $7.00 $10.00 $6.50 $10.00 $6.75 $11.00 $7.50   3A (B) $8.00 $6.75 $10.00 $7.00 $10.00 $6.75 $11.00 $7.50   3B (D) $6.75 $5.25 $7.00 $5.75           3B (C) $8.00 $6.00 $7.50 $6.75 $9.50 $6.00 $12.00 $7.50   3B (B) $7.25 $6.50 $7.50 $6.00 $9.50 $6.00 $12.00 $7.50 Sablefish SE (C) $8.00 $5.00 $9.00 $6.50 $9.00 $7.25 $9.00 $7.25   SE (B) $9.00 $7.00 $7.75 $7.00 $9.00 $7.25 $9.00 $7.25   WY (C) $7.75 $5.00 $9.00 $7.25 $9.00 $7.25 $9.00 $7.25   WY (B) $9.00 $7.00 $7.75 $7.00 $9.00 $7.25 $9.00 $7.25   CG (C) $8.00 $5.50 $7.00 $5.75 $7.25 $5.75 $8.00 $5.75   CG (B) $8.00 $5.50 $7.25 $5.75 $7.25 $5.75 $8.00 $5.75   WG (C) $6.75 $5.25 $6.75 $5.25 $6.75 $5.25 $6.75 $6.50   WG (B) $6.75 $5.25 $6.75 $5.25 $6.75 $5.25 $6.75 $6.50 NOTES: See notes for Table H.2. SOURCE: Access Unlimited, Inc.

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--> TABLE H.4 1997 Market Prices of Permanent (IFQ/QS) Transfers per International Pacific Halibut Commission (IPHC) and Sablefish Regulatory Area per Quarter in the Alaskan Halibut and Sablefish IFQ Programs     1st Quarter (price/pound) 2nd Quarter (price/pound 3rd Quarter (price/pound 4th Quarter (price/pound) Species Area (vessel class) High Low High Low High Low High Low Halibut 2C (D) $9.50 $8.50 $9.50 $8.50 $12.00 $8.00 $12.50 $8.00   2C (C) $12.00 $9.00 $13.00 $9.00 $15.00 $10.00 $15.00 $10.00   2C (B) $12.00 $9.00     $15.00 $10.00 $15.00 $9.00   3A (D) $8.50 $7.50 $8.00 $6.50 $10.50 $6.50 $11.50 $6.50   3A (C) $11.50 $7.00 $12.25 $6.50 $12.00 $6.50 $13.00 $6.50   3A (B) $11.50 $7.00 $12.25 $7.00 $12.00 $6.50 $13.00 $6.50   3B (D) $8.25 $7.50 $8.00 $6.75 $10.00 $6.00 $9.50 $6.00   3B (C) $12.00 $7.50 $11.50 $7.50 $12.00 $6.00 $12.00 $6.00   3B (B) $12.00 $7.50 $12.00 $7.50 $12.00 $6.00 $12.00 $6.00 Sablefish SE (C) $10.00 $7.25 $10.50 $7.25 $13.50 $7.25 $15.00 $7.75   SE (B) $10.00 $7.25 $10.50 $7.25 $13.50 $7.25 $14.00 $7.75   WY (C) $9.00 $5.00 $10.00 $7.25 $11.50 $7.25 $14.00 $7.25   WY (B) $9.00 $7.00 $10.00 $7.25 $12.50 $7.25 $14.50 $7.25   CG (C) $10.00 $5.75 $10.00 $5.75 $9.00 $5.50 $12.00 $5.50   CG (B) $10.00 $5.75 $10.00 $5.75 $11.75 $5.75 $13.25 $5.50   WG (C) $6.75 $6.50 $6.75 $5.25 $8.50 $5.00 $8.50 $5.00   WG (B) $6.75 $6.50 $6.75 $5.25 $8.50 $5.00 $9.50 $6.50 NOTES: See notes for Table H.2. SOURCE: Access Unlimited, Inc.

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--> ings of sablefish quota significantly (Tables H.9 and H.11). All five communities seem to have fewer individual holders of quota now than at the beginning of the program (Tables H.8-H.12). The data from Homer indicate that there has been a substantial decrease in both the number of quota shareholders and the amount of quota held. The committee did not analyze where these quota shares were transferred, nor the employment status of individuals that had sold quota and left the fishery. These trends may not extend to other communities in the region or to a wider range of communities. Additionally, it is difficult to determine the number of individuals who had been active in these fisheries prior to implementation of the IFQ programs who may have chosen to purchase quota if they were not allocated quota during the initial allocation process. CFEC has produced a number of studies analyzing the trends in participation in the Alaskan halibut and sablefish fisheries prior to implementation of the IFQ programs. In some communities, the total amount of quota held in halibut and sablefish has increased by up to 20% above the initial quota allocations (e.g., sablefish IFQ in Kodiak, halibut IFQ in Petersburg; Tables H.9 and H.10). In the case of Homer, the total amount of quota held decreased by nearly 15% in both the halibut and the sablefish fisheries (Table H.8). These data suggest that in four of the five communities, substantial investments have been made in the IFQ programs, and following these trends will help provide further information about the ability of similar communities dependent on fishing to become actively involved in IFQ programs. The CFEC, in response to a request from the NMFS RAM Division, has also compiled data tracking the gross revenue in many of the Alaskan communities where IFQ is held. Data from the CFEC indicate that for all five of the communities analyzed in this section, the gross revenues of the IFQ holders in these communities for both the halibut and the sablefish IFQ fisheries have increased since the inception of the program (CFEC, 1998). Further, these data indicate that the gross revenue per individual quota holder has increased in both the halibut and the sablefish fisheries in all five of these communities since the inception of the program (CFEC, 1998). The CFEC also provides data on the amount of investment by crew members, and the changes in the allocation of quotas in these communities, in order to provide some perspective on the potential economic effects of the implementation of IFQ programs (Tables H.13-H.17). However, the results may not be representative of all communities, and a more thorough analysis may be necessary. Tables H.13-H.17 show that investment in the IFQ program is increasing in the five communities examined, and in some cases, crew members from specific communities now comprise a small, but apparently increasing, portion of the overall amount of quota held by the community in some areas (e.g., Kodiak crew members in Area 3B and 4A halibut, Petersburg crew members in Area 2C halibut; Tables H.14 and H.15). However, overall, these data indicate that, generally, crew members do not hold a large percentage of quota share in the

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--> TABLE H.13 Quota Share Holdings for Crew Members with a Homer Designated City Address in the Alaskan Halibut and Sablefish IFQ Programs as of December 31, 1997 Area Number of Crew 1997 IFQ Pounds Crew IFQ Pounds as a Percent of City Pounds Crew IFQ Pounds as a Percent of Area Pounds Halibut         2C 1 9 0.0 0.00 3A 34 289,080 13.7 1.16 3B 18 151,916 24.0 1.69 4A 17 97,772 28.3 3.33 4B 3 10,190 10.7 0.37 Total 43 548,965 17.1 1.07 Sablefish         CG 5 18,720 5.9 0.17 WG 1 5,717 3.7 0.17 WY 2 734 1.0 0.01 Total 6 25,171 3.0 0.08 Grand Total 45   14.2 0.71 NOTES: 1. The grand total represents unique crew members; if the grand total is less than the sum of crew holding halibut or sablefish quota this is due to some crew members holding quota for both species. 2. Halibut pounds are net (head off, gutted); sablefish pounds are round weight. 3. Percent of whole area data uses CFEC "1997 Pounds Equivalent of QS for Entire Area," which differs from the actual TAC. 4. Total percent of city (or area) pounds compares crew holdings to holdings for the entire city. SOURCES: CFEC, NMFS RAM Division

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--> TABLE H.14 Quota Share Holdings for Crew Members with a Kodiak Designated City Address in the Alaskan Halibut and Sablefish IFQ Programs as of December 31, 1997 Area Number of Crew 1997 IFQ Pounds Crew IFQ Pounds as a Percent of City Pounds Crew IFQ Pounds as a Percent of Area Pounds Halibut 2C 1 280 3.0 0.00 3A 37 519,310 9.5 2.08 3B 28 379,915 18.6 4.22 4A 12 119,795 19.7 4.07 4B 5 47,433 13.8 1.70 4C 1 3,178 4.0 0.55 4D 3 17,694 28.0 2.18 Total 59 1,087,605 12.6 2.13 Sablefish AI 1 137 0.6 0.01 CG 5 34,533 2.7 0.31 SE 1 16 0.0 0.00 WG 4 28,077 12.6 0.86 WY 4 17,054 5.7 0.34 Total 8 79,816 4.1 0.26 Grand Total 59 1,167,422 11.1 1.43 NOTES: See notes for Table H.13. SOURCES: CFEC, NMFS RAM Division.

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--> TABLE H.15 Quota Share Holdings for Crew Members with a Petersburg Designated City Address in the Alaskan Halibut and Sablefish IFQ Programs as of December 31, 1997 Area Number of Crew 1997 IFQ Pounds Crew IFQ Pounds as a Percent of City Pounds Crew IFQ Pounds as a Percent of Area Pounds Halibut 2C 50 367,216 15.49 3.64 3A 17 171,900 10.81 0.69 3B 1 2,324 1.24 0.03 4A 2 24,274 48.27 0.83 Total 60 565,715 13.18 1.87 Sablefish CG 3 63,154 4.67 0.56 SE 9 69,883 6.58 0.87 WY 6 34,534 7.16 0.69 Total 14 167,570 5.43 0.33 Grand Total 66 733,285 9.9 0.90 NOTES: See notes for Table H.13. SOURCES: CFEC, NMFS RAM Division. TABLE H.16 Quota Share Holdings for Crew Members with a Seward Designated City Address in the Alaskan Halibut and Sablefish IFQ Programs as of December 31, 1997 Area Number of Crew 1997 IFQ Pounds Crew IFQ Pounds as a Percent of City Pounds Crew IFQ Pounds as a Percent of Area Pounds Halibut 3A 8 31,701 7.8 0.13 3B 2 4,722 13.2 0.05 Total 8 36,423 7.9 0.07 Grand Total 8 36,423 4.1 0.04 NOTES: See notes for Table H.13. There were no crew sablefish IFQ held in the community of Seward. SOURCES: CFEC, NMFS RAM Division.

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--> TABLE H.17 Quota Share Holdings for Crew Members with a Sitka Designated City Address in the Alaskan Halibut and Sablefish IFQ Programs as of December 31, 1997 Area Number of Crew 1997 IFQ Pounds Crew IFQ Pounds as a Percent of City Pounds Crew IFQ Pounds as a Percent of Area Pounds Halibut 2C 53 202,425 11.7 2.01 3A 24 95,634 9.6 0.38 3B 5 42,622 17.5 0.47 4A 3 28,462 25.4 0.97 Total 69 369,143 11.6 0.72 Sablefish CG 6 25,347 3.5 0.22 SE 13 90,229 4.4 1.12 WY 6 15,210 3.7 0.30 Total 19 130,787 3.7 0.43 Grand Total 76 499,930 7.5 0.61 NOTES: See notes for Table H.13. SOURCES: CFEC, NMFS RAM Division. communities examined. Examining these trends in crew investment in the IFQ programs may help to improve the understanding of the incentives or effects of investment in these programs and could provide guidance for future IFQ programs or investment policies. Trends in crew holdings of quota share with the implementation of the North Pacific Loan Program should be monitored by NMFS, CFEC, or the North Pacific Council to provide more data on crew investment and the efficacy of loan programs in increasing the share of quotas held by crew members and smaller quota holders. Based on the information on the distribution of quota, it appears that in all of these communities, vessel owners, and to a limited extent, crew members have made substantial investments to participate in the Alaskan halibut and sablefish IFQ fisheries. Overall, crew members held 11.2% of the halibut TAC and 4.6% of the sablefish TAC in 1997, and these percentages appear to be increasing (NMFS, 1998). Even in those communities where the total quota share may not have increased, or has decreased (e.g., halibut in Kodiak, halibut and sablefish in Homer), there appear to be shifts in the areas where quota is held, possibly representing preferences in location, regional variations in exvessel price, or the

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--> TABLE H.18 Percentage of Landings in Weight for the Alaskan Halibut Fishery (1991-1996) Year Total Landings (pounds) % Catcher Vessels (Alaska) % Catcher-Processors % Catcher Vessels (other states) 1991 49,535,011 91.6 4.9 3.5 1992 51,829,522 92.6 5.1 2.2 1993 48,449,185 88.0 8.9 3.2 1994 44,449,185 87.2 9.1 3.7 1995 32,151,518 90.0 7.6 2.4 1996 35,386,715 89.2 8.3 2.6   SOURCE: CFEC. affordability of quota share in other areas. These data indicate that fewer vessel owners, and fewer participants overall, hold quota than at the implementation of the program. Based on testimony from other sources, it is likely that the reduction in quota shareholders represents a reduction in the number of individual fishing operations in these fisheries. Note, however, that even with these reductions, the current number of quota shareholders is greater that the maximum number of fishermen who participated in any given year of the derby fishery. Additionally, based on testimony received from these communities and other regions, it appears that the overall crew employment in the remaining fishing operations has probably decreased. However, the gross revenue per quota shareholder appears to have increased since the inception of the program (CFEC, 1998). What is much more difficult to determine is the overall effects of these shifts on the local economies. Investment in the IFQ programs has increased, the amount of product landed in Alaska has not changed significantly, and the general ranking of these communities in terms of landed product from these fisheries does not appear to have significantly changed since the implementation of the program (Tables H.18-H.21). However, there are certainly shifts within the landings of product, although it is not clear if these changes are due to factors other than the implementation of IFQ management and drawing conclusions on the long-term distributions of landings is difficult. Overall exvessel price for the product has increased, although prices have fallen recently due to substantial increases in the TAC and possibly other factors. Data for 1997 were not available at the time of the committee's analysis; however, additional years of harvest landings data will provide a more accurate indication of whether there are any changes in the relative rankings of ports in terms of landings. Some communities have also been affected by changes in other fisheries, such as low exvessel prices for salmon and herring, and it is not easy to separate the effects of changes in other fisheries from the potential effects of the IFQ

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--> TABLE H.19 Percentage and Relative Ranking of Landing (in Weight) for Alaskan Ports in the Alaskan Halibut Fishery (1991-1996)   Percentage (Relative Ranking) of Harvest Landed in Alaskan Ports Port Region 1991 1992 1993 1994 1995 1996 Kenai Peninsula-Anchorage 20.2%(2) 21.9%(2) 20.4%(2) 22.9%(1) 19.5%(2) 21.4%(1) Kodiak Island Borough 25.1%(1) 26.0%(1) 21.2%(1) 21.2%(2) 23.0%(1) 20.3%(2) Aleutians-Alaska Peninsula Bering Sea 16.8%(3) 15.1%(3) 14.4%(3) 13.6%(3) 12.6%(3) 12.2%(3) Wrangell-Petersburg area 6.1%(5) 7.7%(4) 8.5%(4) 7.0%(5) 10.1%(4) 11.0%(4) Sitka Borough 6.0%(6) 6.1%(6) 6.2%(6) 6.3%(6) 8.8%(5) 8.0%(5) Skagway-Yakutat-Angoon area 7.9%(4) 6.4%(5) 6.6%(5) 7.5%(4) 8.5%(6) 7.5%(6) Valdez-Cordova area 4.5%(6) 4.9%(7) 4.5%(8) 4.6%(7) 3.5%(7) 3.4%(7) Ketchican-Prince of Wales 3.9%(7) 3.3%(8) 4.8%(7) 3.3%(8) 2.6%(8) 2.7%(8) Juneau Borough 1.1%(8) 1.0%(9) 1.2%(9) 0.6%(9) 1.3%(9) 2.6%(9) Haines Borough 0.1%(10) 0.2%(10) 0.2%(10) 0.1%(10) 0.1%(10) 0.1%(10) NOTE: Some areas are aggregated in order to protect the confidentiality of individual processors. Typically, the areas aggregated represent similar types of processing facilities. SOURCE: CFEC.

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--> TABLE H.20 Percentage of Harvest Landings in Weight for the Alaskan Sablefish Fishery (1991-1996) Year Total Landings (pounds) % Catcher Vessels (Alaska) % Catcher-Processors % Catcher Vessels (other states) 1991 51,209,634 87.7 12.1 0.2 1992 48,400,987 85.3 13.6 1.1 1993 49,313,981 78.0 21.3 0.7 1994 44,827,268 81.1 16.7 2.2 1995 40,628,028 84.3 13.6 2.1 1996 33,143,809 82.4 15.8 1.8   SOURCE: CFEC. fisheries. Additionally, the change in processing operations with the shift to a larger percentage of the market sold as fresh product has probably reduced employment at processing plants that produced frozen product. However, other employment opportunities could have been created to market fresh product. The fact that these communities have increased their overall quota share seems to indicate a desire by some residents to make the investments necessary to continue in the halibut and sablefish fisheries. These data indicate that there are opportunities for members of these communities to invest in quota; however, the relative ease of access to capital and the possible constraints that this may have on the overall quota holdings in these communities could not be determined. Undoubtedly, some members of the communities have benefited from the initial allocation of quota shares whereas others, including crew, have lost employment in the fishery as a result of fewer fishing operations or the consolidation of fishing operations. The committee received testimony from these communities that some vessel owners and crew members who had not received quota had “bought into" the fishery and felt that fishing under IFQ management was preferable to the previous derby fisheries. Others, typically those who did not receive an initial allocation or a significant initial allocation, stated that price of the quota prohibited them from participating in the fisheries and expressed great dissatisfaction with the IFQ programs. Based on the testimony received and trends in the allocation of quota in these communities, and from testimony from other communities, it is difficult to determine precisely the economic effects of IFQ management on the overall economic conditions in these communities, and the net benefits and costs of IFQs to the nation. The fact that some members of these communities have purchased quota and that crew members appear to be increasing their share of quota seems to indicate that residents of these communities can continue to be involved in these fisheries. If quota share holdings in all or most of these communities decreased significantly, this would be a strong indication that these communities were

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--> TABLE H.21 Percentage and Relative Ranking of Harvest Landed (in Weight) for Alaskan Ports in the Alaskan Sablefish Fishery (1991-1996)   Percentage (Relative Ranking) of Harvest Landed in Alaskan Ports Port Region 1991 1992 1993 1994 1995 1996 Kenai Peninsula-Anchorage 26.0%(1) 21.4%(1) 20.6%(1) 18.4%(1) 24.8%(1) 26.8%(1) Sitka-Juneau-Haines 7.6%(5) 7.9%(5) 7.3%(4) 12.6%(3) 14.8%(2) 16.2%(2) Skagway-Yakutat-Angoon area 11.9%(3) 12.4%(3) 15.7%(2) 17.5%(2) 13.7%(3) 10.4%(3) Kodiak Island Borough 14.8%(2) 13.3%(2) 15.5%(3) 12.3%(4) 10.3%(4) 8.0%(4) Aleutians-Alaska Peninsula 11.3%(4) 10.2%(4) 4.0%(7) 2.6%(8) 8.9%(5) 7.9%(5) Wrangell-Petersburg area 4.3%(7) 6.0%(7) 6.6%(5) 9.0%(5) 5.0%(6) 5.3%(6) Valdez-Cordova area 6.4%(6) 5.3%(8) 4.5%(6) 4.4%(6) 4.2%(7) 3.9%(7) Ketchican-Prince of Wales 2.9%(8) 2.2%(9) 2.5%(8) 4.0%(7) 1.5%(8) 2.0%(8) Floating processor 2.5%(9) 6.7%(6) 1.2%(9) 0.4%(9) 1.1%(9) 1.8%(9) NOTE: Some areas are aggregated in order to protect the confidentiality of individual processors. Typically, the areas aggregated represent similar types of processing facilities. SOURCE: CFEC.

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--> unable to participate in the fisheries. The fact that gross revenues appear to have increased since the inception of the programs suggests that the implementation of IFQs has improved the profitability of fishing operations in these communities, based on the assumption that costs have not increased considerably. Implementation of the IFQ programs has altered the ways in which communities participate in these fisheries; however, it is not clear that this change has been detrimental to these communities as a whole from an economic perspective. Analysis of trends in quota share and crew participation could provide a clearer indication of the long-term effects of the halibut and sablefish IFQ programs on communities. However, the increasing quota share in four of the five communities reviewed indicates that the means for purchasing quota and participating in these fisheries exists and substantial investments are being made by some members of these communities. These data suggest that significant changes in the Alaskan halibut and sablefish IFQ programs could have profound economic effects on those members of the community that hold quota and participate in these fisheries, as well as on the overall economic stability of these communities. Overall Consideration of the Potential Economic Costs and Benefits to the Nation It appears that substantial savings have been realized by vessel operators due to improved harvesting conditions, but the amount of these savings cannot be precisely quantified. Overall, it appears that the economic efficiency of fishing operations has improved by allowing greater freedom for harvesters to time their harvests and select fishing techniques to minimize costs and increase the profitability of their operations. In the case of the Alaskan halibut IFQ program, it appears that fresh markets are expanding and exvessel prices are increasing. Expenditures for search and rescue operations have been significantly reduced. Nevertheless, expenditures for enforcement operations for the U.S. Coast Guard and NMFS appear to have increased. There appear to have been consolidation of quota and reduction in employment opportunities for some crew members. Some crew members have purchased quota, and in some regions the share of quota held by crew members may become significant if current trends continue. Gross revenue appears to have increased for quota shareholders. Processing operations have also been affected, although the economic benefits or costs of these changes are not clear. Improved monitoring and data collection regarding the effects of income distribution in the processing sector and among crew members could further clarify the relative impacts of IFQ management on these sectors. Assessment of the 3% exvessel fee and the 0.5% registration and transfer fee provided for in the Magnuson-Stevens Act will further increase the revenue transferred to the Treasury and available to fund IFQ management. As stated earlier, it is likely that if IFQ programs were implemented for larger fisheries with higher exvessel value, the assessment of

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--> capital gains taxes, the 3% exvessel fee, and the 0.5% registration and transfer fee could generate significant net revenues for the nation, or for individuals and communities disadvantaged by IFQs. In analyzing these potential benefits and costs, it is important to consider that there are continual changes in the structure of fishery management. In some cases, the long-term economic benefits of shifting management to IFQs may be significant. In other fisheries, these long-term benefits may not be as significant. It is important that no matter what the management regime used, the economic costs and benefits of this management system be considered in comparison to other management options and their potential costs and benefits. If IFQ programs are proposed for other fisheries, the committee recommends that improved socioeconomic data collection and analysis be conducted to provide a clearer indication as to both the national and the local costs and benefits of this and alternative management tools. Care must be taken in distinguishing between real benefits and costs on the one hand and fiscal effects, or transfers, on the other. The real net benefits of an IFQ program consist of increases in revenues over costs, including management and enforcement costs. Increased tax revenues are important, however, due to the fact that management and enforcement costs are currently being paid almost exclusively from public revenue and increased tax revenues from capital gains taxes. Other sources also transfer funds to pay for the administration of these programs. The economic benefits of an IFQ program will be reflected in the value of quota, which appears to have increased since the inception of the program. Economic benefits will also be reflected in better quality of product and higher demand for the product. In summary, this appendix provides some indication of the range of issues that must be considered when comparing IFQ management to other forms of management. A worthwhile exercise in the development of future IFQ programs is to identify the range of economic costs and benefits associated with IFQ management. The collection of data on the price of transfer, the value of the quota, and other economic factors will greatly improve the ability to assess the overall costs and benefits of IFQs on the regional and national levels. The only U.S. IFQ programs that could be analyzed in any depth are those for the Alaskan halibut and sablefish fisheries. The SCOQ and wreckfish IFQ programs collect very few of the data necessary for a thorough analysis of net economic benefits and costs. The committee recommends mandatory reporting of transfer price information for all existing and new IFQ programs.