[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
    WESTERN ALASKA AND WESTERN PACIFIC COMMUNITY DEVELOPMENT QUOTA 
PROGRAMS, AND H.R. 553, THE WESTERN ALASKA COMMUNITY DEVELOPMENT QUOTA 
            PROGRAM IMPLEMENTATION IMPROVEMENT ACT OF 2001
=======================================================================



                                HEARING

                               before the

      SUBCOMMITTEE ON FISHERIES CONSERVATION, WILDLIFE AND OCEANS

                                 of the

                         COMMITTEE ON RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION
                               __________

                             July 19, 2001
                               __________

                           Serial No. 107-50
                               __________

           Printed for the use of the Committee on Resources





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                         COMMITTEE ON RESOURCES

                    JAMES V. HANSEN, Utah, Chairman
       NICK J. RAHALL II, West Virginia, Ranking Democrat Member

Don Young, Alaska,                   George Miller, California
  Vice Chairman                      Edward J. Markey, Massachusetts
W.J. ``Billy'' Tauzin, Louisiana     Dale E. Kildee, Michigan
Jim Saxton, New Jersey               Peter A. DeFazio, Oregon
Elton Gallegly, California           Eni F.H. Faleomavaega, American 
John J. Duncan, Jr., Tennessee           Samoa
Joel Hefley, Colorado                Neil Abercrombie, Hawaii
Wayne T. Gilchrest, Maryland         Solomon P. Ortiz, Texas
Ken Calvert, California              Frank Pallone, Jr., New Jersey
Scott McInnis, Colorado              Calvin M. Dooley, California
Richard W. Pombo, California         Robert A. Underwood, Guam
Barbara Cubin, Wyoming               Adam Smith, Washington
George Radanovich, California        Donna M. Christensen, Virgin 
Walter B. Jones, Jr., North              Islands
    Carolina                         Ron Kind, Wisconsin
Mac Thornberry, Texas                Jay Inslee, Washington
Chris Cannon, Utah                   Grace F. Napolitano, California
John E. Peterson, Pennsylvania       Tom Udall, New Mexico
Bob Schaffer, Colorado               Mark Udall, Colorado
Jim Gibbons, Nevada                  Rush D. Holt, New Jersey
Mark E. Souder, Indiana              James P. McGovern, Massachusetts
Greg Walden, Oregon                  Anibal Acevedo-Vila, Puerto Rico
Michael K. Simpson, Idaho            Hilda L. Solis, California
Thomas G. Tancredo, Colorado         Brad Carson, Oklahoma
J.D. Hayworth, Arizona               Betty McCollum, Minnesota
C.L. ``Butch'' Otter, Idaho
Tom Osborne, Nebraska
Jeff Flake, Arizona
Dennis R. Rehberg, Montana

                   Allen D. Freemyer, Chief of Staff
                      Lisa Pittman, Chief Counsel
                    Michael S. Twinchek, Chief Clerk
                 James H. Zoia, Democrat Staff Director
                  Jeff Petrich, Democrat Chief Counsel
                                 ------                                

       SUBCOMMITTE ON FISHERIES CONSERVATION, WILDLIFE AND OCEANS

                 WAYNE T. GILCHREST, Maryland, Chairman
           ROBERT A. UNDERWOOD, Guam, Ranking Democrat Member

Don Young, Alaska                    Eni F.H. Faleomavaega, American 
W.J. ``Billy'' Tauzin, Louisiana         Samoa
Jim Saxton, New Jersey,              Neil Abercrombie, Hawaii
  Vice Chairman                      Solomon P. Ortiz, Texas
Richard W. Pombo, California         Frank Pallone, Jr., New Jersey
Walter B. Jones, Jr., North 
    Carolina
                                 ------                                






                          C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on July 19, 2001....................................     1

Statement of Members:
    Young, Hon. Don, a Representative in Congress from the State 
      of Alaska..................................................     1
        Prepared statement of....................................     3
    Underwood, Hon. Robert A., a Delegate in Congress from Guam..     4
        Prepared statement of....................................     5

Statement of Witnesses:
    Alstrom, Ragnar, Executive Director, Yukon Delta Fisheries 
      Development Association....................................   118
        Prepared statement of....................................   119
    Asicksik, Eugene, President and Director, Norton Sound 
      Economic Development Corporation...........................    91
        Prepared statement of....................................    93
    Balsiger, Dr. James W., Administrator, Alaska Region, 
      National Marine Fisheries Service, U.S. Department of 
      Commerce...................................................     6
        Prepared statement of....................................     9
    Bush, Jeffrey, Deputy Commissioner, Department of Community 
      and Economic Development, State of Alaska..................    28
        Prepared statement of....................................    30
    Cotter, Larry, Chief Executive Officer, Aleutian Pribilof 
      Island Community Development Association...................    50
        Prepared statement of....................................    53
    Crow, Morgen, Executive Director, Coastal Villages Region 
      Fund.......................................................    85
        Prepared statement of....................................    87
    Elfring, Chris, Study Director, Committee to Review the 
      Community Development Quota Program, National Research 
      Council, and Director, Polar Research Board, National 
      Academy of Science.........................................    20
        Prepared statement of....................................    22
    Merculief, Patience, Administrative Director and CDQ Quota 
      Manager, Central Bering Sea Fishermen's Association........    78
        Prepared statement of....................................    79
    Samuelsen, H. Robin, Jr., President and CEO, Bristol Bay 
      Economic Development Corporation...........................    61
        Prepared statement of....................................    63

Additional materials supplied:
    Benton, David, Chairman, North Pacific Fishery Management 
      Council, Letter submitted for the record...................    46
    Guthertz, Judith, Chair, Western Pacific Fishery Management 
      Council, Statement submitted for the record................    40








     OVERSIGHT OF THE WESTERN ALASKA AND WESTERN PACIFIC COMMUNITY 
DEVELOPMENT QUOTA PROGRAMS, AND H.R. 553, THE WESTERN ALASKA COMMUNITY 
    DEVELOPMENT QUOTA PROGRAM IMPLEMENTATION IMPROVEMENT ACT OF 2001

                             ----------                              


                        Thursday, July 19, 2001

                     U.S. House of Representatives

      Subcommittee on Fisheries Conservation, Wildlife and Oceans

                         Committee on Resources

                             Washington, DC

                              ----------                              

    The Subcommittee met, pursuant to other business, at 11:06 
a.m., in Room 1324, Longworth House Office Building, Hon. Don 
Young, presiding.

 STATEMENT OF THE HON. DON YOUNG, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF ALASKA

    Mr. Young. The Subcommittee will come to order. Because I 
have a lengthy opening statement, I will go ahead and read that 
statement, and then by that time we hope to have a minority 
member here.
    I would like to welcome the witnesses for today's hearing, 
and especially thank our guests who have traveled from Alaska 
for the hearing.
    This hearing will focus on three important issues. First, 
the Subcommittee will review the success of Western Alaska 
Company Development Quota Program. Secondly, we will look at 
the progress that has been made in developing a Western Pacific 
Community Development Program. And, thirdly, we will hear 
testimony on H.R. 553, the Western Alaska Community Development 
Quota Program Improvement Act of 2001.
    As most of you know, the Western Alaska CDQ Program was 
created by the North Pacific Fishery Management Council as part 
of the pollock Fishery Management Plan (FMP), which was 
implement in 1992. This was done as a means of bringing 
economic development to the resource-poor areas of western 
Alaska. Other than fisheries resources, the people of this 
region did not have access to any other renewable resources. 
They could only watch as large factory fleets were able to 
harvest the fishery resources because entry into these 
fisheries required large amounts of capital.
    In 1996, with the passage of the Sustainable Fisheries Act, 
the Western Alaska CDQ Program was authorized into law. And I 
am pleased to take a certain amount of credit with that, along 
with Harold Sparck and his vision a long, long time ago, to try 
to bring some type of resource development into these 
impoverished areas.
    As the CDQ Program grew and proved a success, the North 
Pacific Council and the Congress recognized the program's value 
and added more fisheries to the CDQ program.
    As the program has matured, I have carefully watched the 
progress of the CDQ communities as many have become 
increasingly integrated into the commercial fisheries of the 
Bering Sea. As this integration has occurred, it has become 
apparent that if the communities are to continue to invest in 
fishing opportunities in the Bering Sea, constraints on their 
ability to make timely business decisions must be removed. This 
is a growing process, and we must recognize it.
    I am concerned that the constraints placed on the program 
by the State of Alaska, to ensure compliance with the original 
intent of the program, have not kept pace with the program's 
growth.
    Two issues in particular have constrained the communities' 
ability to exercise control over their own financial futures. 
The first is the frequency of the review and allocation of 
fishing quotas among the six CDQ groups. The uncertainty 
surrounding an annual or biennial allocation to each CDQ group 
prevents them from making long-term business decisions and is 
counterproductive to the goals and intent of the original 
program--economic stability for the communities.
    The second constraint on the CDQ groups' future success is 
the review and required concurrence by the State of Alaska for 
any investment, regardless of how small or how large, even the 
investment of profits earned through already-approved CDQ 
projects. I am unclear where the State of Alaska believes this 
authority is granted to the State. I have reviewed this. It is 
originally my proposal. Never a thought that was to come to 
mind, and in addition, question whether this makes sense for 
the future of this program.
    And for those reasons, the 106th Congress introduced H.R. 
5567 to deal with the problems with the oversight of the 
program. While that legislation was introduced too late in the 
session to see action, I reintroduced this legislation in the 
107th Congress. It had been approximately 1 year and 2 months.
    This legislation is not perfect, and I will admit that, but 
I believe the need for intensive oversight is here. The program 
has matured to the point that neither the State of Alaska, nor 
the National Marine Fisheries Service should have the ability 
to approve or disapprove everything that the CDQ groups do. It 
is time consuming, and allows the approval process to be 
controlled by political whims and by individuals who might not 
have any interest nor thought, in fact, use their little bully 
pulpit for being God and deciding how things shall be done.
    The Sustainable Fisheries Act also asked the National 
Academy of Sciences to review the current program and to make 
recommendations for the future program. I am pleased that a 
representative of that review committee is here today, who will 
present those recommendations. I am a little concerned that 
these recommendations were made in 1999, and very frankly, 
little attention has been paid to them by the agencies of the 
State, which claim oversight authority for the program.
    I think everyone here today understands I feel very 
strongly about this program, and understand it has matured to 
the point that intrusive oversight by any agency, Federal or 
State, is unnecessary and should be eliminated.
    This CDQ program has been incredibly successful in giving 
the people of this region access to the fisheries off their 
shores, in Federal waters, and has provided economic 
development and educational opportunities. While the program is 
beginning to show success, we are a long way from providing 
long-term stable economic development for this region. This 
program can get us there if allowed to continue and to mature. 
I want to work with everyone here to make sure it happens.
    I look forward to hearing the testimony. You can be sure I 
will have questions to get this discussion moving forward, to 
continue the greatness of this program.
    [The prepared statement of Mr. Young follows:]

Statement of The Honorable Don Young, a Representative in Congress from 
                          the State of Alaska

    I would like to welcome our witnesses for today's hearing and 
especially thank our guests who have traveled from Alaska for the 
hearing.
    This hearing will focus on three important issues. First, the 
Subcommittee will review the successes of the Western Alaska Community 
Development Quota Program.
    Secondly, we will look at the progress that has been made in 
developing a Western Pacific Community Development Program.
    Thirdly, we will hear testimony on H.R. 553, the Western Alaska 
Community Development Quota Program Implementation Improvement Act of 
2001.
    As most of you know, the Western Alaska CDQ program was created by 
the North Pacific Fishery Management Council as part of the pollock 
Fishery Management Plan (FMP), which was implemented in 1992. This was 
done as a means of bringing economic development to the resource-poor 
areas of western Alaska. Other than fishery resources, the people of 
this region did not have access to other renewable resources. They 
could only watch as the large factory fleets were able to harvest the 
fishery resources because entry into these fisheries required large 
amounts of capital.
    In 1996, with the passage of the Sustainable Fisheries Act, the 
Western Alaska CDQ program became authorized in law. I am pleased to 
take a certain amount of credit for that action.
    As the CDQ program grew and proved its success, the North Pacific 
Council and Congress recognized the program's value and added more 
fisheries to the CDQ program.
    As the program has matured, I have carefully watched the progress 
of the CDQ communities as many have become increasingly integrated into 
the commercial fisheries of the Bering Sea. As this integration has 
occurred, it has become apparent that if the communities are to 
continue to invest in fishing opportunities in the Bering Sea, 
constraints on their ability to make timely business decisions must be 
removed.
    I am concerned that the constraints placed on the program by the 
State of Alaska, to ensure compliance with the original intent of the 
program, have not kept pace with the program's growth.
    Two issues in particular have constrained the communities' ability 
to exercise control over their own financial futures. The first is the 
frequency of the review and allocation of fishing quotas among the six 
CDQ groups. The uncertainty surrounding an annual or biennial 
allocation to each CDQ group prevents them from making long-term 
business decisions and is counter productive to the goals and intent of 
the original program - economic stability for the communities.
    The second constraint on the CDQ groups' future success is the 
review and required concurrence by the State of Alaska for any 
investment, even the investment of profits earned through already 
approved CDQ projects. I am unclear where the State of Alaska believes 
this authority is granted to the State, and in addition, question 
whether this makes sense for the future of the CDQ program.
    For these reasons, in the 106' Congress, I introduced H.R. 5565, to 
deal with some of the problems with the oversight of the CDQ program. 
While that legislation was introduced too late in the Congress to see 
action, I reintroduced the legislation in the 107` Congress - H.R. 553.
    This legislation may not be perfect, but I believe the need for 
intensive oversight is gone. The program has matured to the point that 
neither the State of Alaska nor the National Marine Fisheries Service 
should have the ability to approve or disapprove everything that the 
CDQ groups do. It is time consuming, it allows the approval process to 
be controlled by political whims, and is unnecessary.
    The Sustainable Fisheries Act also asked the National Academy of 
Sciences to review the current program and to make recommendations for 
the future of the program. I am pleased that a representative of that 
review committee is here today and will present these recommendations. 
I am a little concerned that these recommendations were made in 1999 
and little attention has been paid to them by the agencies which claim 
oversight authority over the program.
    I think everyone here today understands that I feel the CDQ program 
has matured to the point that intrusive oversight by any agency - 
Federal or State - is unnecessary and should be eliminated.
    This CDQ program has been incredibly successful in giving the 
people of this region access to the fisheries off their shores, and has 
provided economic development and educational opportunities. While the 
program is beginning to show success, we are a long way from providing 
long-term, stable economic development for this region. This program 
can get us there if allowed to continue and to mature. I want to work 
with everyone here to make sure that happens.
    I look forward to hearing, the testimony and you can be sure I will 
have questions to get this discussion moving forward for the good of 
the CDQ program.
                                 ______
                                 
    Mr. Young. I will now recognize the ranking member, Mr. 
Underwood, to make a statement, and then I will welcome the 
first panel.
    Mr. Underwood.

   STATEMENT OF THE HON. ROBERT A. UNDERWOOD, A DELEGATE IN 
                       CONGRESS FROM GUAM

    Mr. Underwood. Thank you, Mr. Chairman.
    It is no secret that I am a firm supporter of local rights 
and capabilities when it comes to resources management and 
uses. When the Sustainable Fisheries Act was passed in 1996, 
the creation of the Alaska and Western Pacific Community 
Development Programs gave us all hope that native people would 
be able to benefit from, and gain access to, natural resources, 
access that has been slowly denied to them, for a variety of 
reasons, over time.
    The North Pacific Fishery Management Council took the 
mandate given to it and began a program bringing new access and 
rights to the native people in the region. The State of Alaska 
took an interest and also became involved in the program. A 
study by the National Academy of Sciences, which has been 
commissioned by Congress, has been completed, and finds the 
Alaska program to be, in general, working successfully to 
achieve the goals set for it, except for Mr. Young's comment, 
which I accept. Money is being brought into the native 
communities, reinvestment is taking place in the fishing 
industry, and education and prospects are increasing for the 
young people.
    But what about the Western Pacific Program? This was 
authorized as well in the Sustainable Fisheries Act, but no 
program has been created, no money has been brought into the 
native communities, no reinvestment in fishing capability has 
taken place. What is this about? I hope that NMFS is prepared, 
in testifying today, to talk not only about the success and the 
problems associated with the Alaska program, but also about the 
lack of a program in the Western Pacific.
    Western Pacific fisheries are important. The native 
communities of the Western Pacific are important as well. A 
program should be created which utilizes the knowledge of the 
local communities, while allowing them access to traditional 
resources and the ability to utilize these resources in a way 
that is beneficial to their communities. Any program in Alaska 
or the Western Pacific must have a mechanism for community 
input and for adapting to new situations and to new needs, both 
within and outside the program.
    Thank you, Mr. Chairman, and I look forward to hearing from 
these witnesses.
    [The prepared statement of Mr. Underwood follows:]

  Statement of The Honorable Robert Underwood, a Delegate in Congress 
                               from Guam

    Thank you, Chairman Gilchrest. It is no secret that I am a firm 
supporter of local rights and capabilities when it comes to resources 
management and uses. When the Sustainable Fisheries Act was passed in 
1996, the creation of the Alaska and Western Pacific Community 
Development Programs gave us all hope that native people would be able 
to benefit from, and gain access to, natural resources. Access that had 
been slowly denied to them, for a variety of reasons, over time.
    The North Pacific Fishery Management Council took the mandate given 
to it and began a program, bringing new access and rights to the native 
people in the region. The State of Alaska took an interest and also 
became involved in the Program in a positive way. The Study by the 
National Academy of Sciences, which had been commissioned by Congress, 
has been completed and finds the Alaska program to be, in general, 
working successfully to achieve the goals set out for it. Money is 
being brought into the native communities, reinvestment is taking place 
in the fishing industry, and education and prospects are increasing for 
the young people.
    But what about the Western Pacific Program? This was authorized as 
well in the Sustainable Fisheries Act. But no program has been created, 
no money has been brought into the native communities, no reinvestment 
in fishing capability has taken place. Why is this? I hope that NMFS is 
prepared, in testifying today, to talk not only about the success of 
the Alaskan program, but also about the lack of a program in the 
Western Pacific.
    Western Pacific fisheries are important. The native communities of 
the Western Pacific are important. A Program should be created which 
utilizes the knowledge of the local communities while allowing them 
access to traditional resources and the ability to utilize these 
resources as they see fit. Any program in Alaska or the Western Pacific 
must have a mechanism for community input and for adapting to new 
situations and to new needs both within and outside the Program. Thank 
you, Mr. Chairman, and I look forward to hearing from these witnesses.
                                 ______
                                 
    Mr. Young. I thank the gentleman. Thanks to Bob for being 
here too. I appreciate it very much. And by the way, you have a 
good point, and we will see if we can, as we review this, maybe 
crank them up a little bit on the Western Pacific.
    Mr. Underwood. Appreciate it.
    Mr. Young. All right, thank you.
    We will now call Panel Number 1. Dr. Jim Balsiger, Ms. 
Chris Elfring, and Mr. Jeffrey Bush. And I bet you, Mr. Bush, 
is that Jeb Bush? Is that--I think we had better leave at 
Jeffrey, all right? That would be good enough. And we will 
start out in the order which I announced them. Doctor, you are 
first.

   STATEMENT OF JIM BALSIGER, ALASKA REGIONAL ADMINISTRATOR, 
               NATIONAL MARINE FISHERIES SERVICE

    Mr. Balsiger. Mr. Chairman and members of the Subcommittee, 
thank you for inviting the National Marine Fisheries Service to 
this hearing on the amendment of the Magnuson-Stevens Fishery 
Conservation and Management Act regarding the community 
development programs.
    I am Jim Balsiger, Alaska Regional Administrator for the 
National Marine Fisheries Service and the National Oceanic and 
Atmospheric Administration in the Department of Commerce.
    The Western Alaska Community Development Quota Program was 
created in 1992 to provide fishermen, who resided in Western 
Alaska an opportunity to participate on more favorable terms in 
the Bering Sea and Aleutian Island fisheries, and to diversify 
their local economies.
    Currently, 65 communities with 27,000 inhabitants located 
near the Bering Sea coast or on islands in the Bering Sea, are 
eligible to participate in the CDQ program. These 65 
communities have formed six nonprofit corporations called CDQ 
groups.
    In the last decade CDQ operations have increased 
significantly. Several species other than pollock are now 
managed under CDQs. Specific allocations of Bering Sea and 
Aleutian Islands groundfish and crab have been assigned to the 
CDQ Program. And in 1998, pollock CDQ allocation was increased 
from 7-1/2 percent to 10 percent. As a result, by 2000, the 
year 2000, about 180,000 tons of groundfish, halibut and crab 
were allocated to the CDQ program, and the six CDQ groups had 
total revenues of about $63 million. CDQ groups have 
accumulated assets worth approximately $187 million, including 
ownership of small processing plants, catcher vessels, and 
catcher processors that participate in the groundfish, crab, 
salmon and halibut fisheries.
    The CDQ groups have used their CDQ allocations to develop 
local fisheries, invest in a wide range of fishing businesses 
outside the communities, and to provide residents with 
education, training and jobs in the fishing industry.
    Thus the CDQ Program has grown and matured. But for 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, and in its 
1999 report, the Natural Resource Council concluded that the 
CDQ Program appears on track to accomplishing the goals set out 
in the authorizing legislation. The NRC report made a number of 
recommendations, the most important of which deal with the role 
and the extent of government oversight in the CDQ Program, the 
CDQ allocation process, and the ability to invest in non-
fisheries related projects.
    More recently, the North Pacific Council recognized the 
need to evaluate the CDQ Program and appointed a CDQ Policy 
Committee early in 2001. The committee will prepare an analysis 
of a number of issues, including many of the same issues 
addressed in the NRC report and in H.R. 553.
    The CDQ Program is jointly managed by the State of Alaska 
and NMFS, with the State primarily responsible for the day-to-
day administration and oversight of the economic development 
aspects of the program, and for recommending CDQ allocations. 
NMFS and the Council, on the other hand, are primarily 
responsible for management of the groundfish and halibut CDQ 
fisheries, and for general oversight of allocations and 
economic development issues.
    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 for determining harvest shares, and would reduce the 
authority and responsibility of the State.
    The CDQ allocation process is the subject of debate in a 
number of forums, including here in Congress with H.R. 553. In 
addition, the CDQ allocation process will be addressed in 
Federal Court, possibly sometime later this fall or winter. In 
this case, NMFS is being sued by APICDA, one of the CDQ groups, 
who contend that NMFS cannot defer authority for CDQ 
allocations to the State, that the evaluation criteria used for 
CDQ allocations must be published in NMFS regulations, and that 
NMFS much make an independent judgment about how to apply 
specific evaluation factors to make CDQ allocations.
    H.R. 553 would limit government oversight to investments 
funded by revenues received as royalties from CDQ allocations. 
However, current regulations require government oversight over 
all CDQ investments made, regardless of the source of funds. 
NMFS regulations currently require that CDQ groups invest in 
fisheries-related projects. In addition, H.R. 553 would specify 
that the purpose of the CDQ Program is to afford eligible 
communities a fair and equitable opportunity to participate in 
Bering Sea fisheries, and to assist eligible communities to 
achieve sustainable long-term, diversified local economic 
development.
    H.R. 553 would amend the community eligibility criteria to 
remove the requirement that a community meet criteria developed 
by the Governor of Alaska, approved by the Secretary, and 
published in the Federal Register. In addition, the bill would 
limit CDQ Program eligibility in 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.
    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 needed 
that economic opportunity. We can work with the existing 
program, or if in its wisdom, Congress change 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--the North Pacific Fishery 
Management 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 it goals.
    We will work with the Council in every was 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, that concludes my testimony. Again, I want to 
thank you for the opportunity to talk to you today and discuss 
this issue. The administration looks forward to working with 
you and other members of the Committee on this and other 
fisheries-related issues in the 107th Congress. Prepared to 
respond to any questions you might have.
    [The prepared statement of Mr. Balsiger follows:]
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    Mr. Young. Thank you, Doctor. And when the panel is 
finished, we do have some questions, but thank you very much.
    Chris, you are up. Thanks for appearing today too.

 STATEMENT OF CHRIS ELFRING, STUDY DIRECTOR, NATIONAL RESEARCH 
 COUNCIL'S COMMITTEE TO REVIEW THE COMMUNITY DEVELOPMENT QUOTA 
                            PROGRAM

    Ms. Elfring. Good morning, Mr. Chairman and members of the 
Subcommittee. I would also like to thank you for the 
opportunity to speak about the Community Development Quota 
Program.
    My name is Chris Elfring. I am both the Director of the 
Polar Research Board, and a Study Director with the Ocean 
Studies Board at the National Academy of Sciences.
    In the Magnuson-Stevens Fishery Conservation and Management 
Act of 1996, Congress mandated that the academies review the 
CDQ Program. I served as the staff person supporting the 
Committee that was put together to accomplish the task. The 
Committee consisted of 10 volunteers with expertise in fields 
ranging from marine ecology to fisheries economics. The 
Committee's members spent about 18 months in 1998 and '99, 
talking with people, gathering data, and deliberating on the 
strengths and weaknesses of the program. They released their 
report, as you noted, in 1999. My testimony today is an 
overview of the main findings of that study. My written 
testimony provides more detail, and I have also given staff a 
number of additional copies of the full report.
    When the CDQ Program was implemented in late 1992, it 
allocated a portion of the annual harvest of certain commercial 
fish species directly to coalitions or villages, which because 
of geographic isolation and dependence on subsistence 
lifestyles, it had limited economic opportunities. Our 
Committee's task was to judge whether the program was making 
progress in accomplishing its goals.
    Based on our study, the Committee concluded that the CDQ 
Program is an innovative attempt to encourage community 
development in Western Alaska's coastal communities. although 
the program is not perfect, the Committee believes that most of 
the problems can be attributed to the newness of the program 
and the inexperience of participants. We came away optimistic 
that overall the program was on the right track.
    Because the program was still relatively new at the time of 
our evaluation, we didn't have the data necessary to do any 
kind of long-term trend analysis, and thus our evaluation was 
more of a snapshot of the status of the program.
    We found the six CDQ groups to be of varying sizes and 
philosophies, and they took fairly different approaches to 
harvesting their quota and allocating the returns. Although the 
six groups were not equally successful, the Committee found 
significant examples of benefits accruing to the communities. 
Benefits included direct revenues from the fishery, as well as 
employment and the development of fishing infrastructure such 
as docks.
    All six CDQ groups incorporated some education and training 
component for residents, although to differing degrees and with 
different emphases.
    The State of Alaska also has played its part relatively 
effectively. It was efficient in reviewing the community 
development plans, monitoring how the communities progressed in 
responding to problems. Some of these responses, like 
reallocating quota share among communities, have been 
controversial, as might be expected.
    Perhaps the greatest weakness of the CDQ Program was a lack 
of open consistent communication between the CDQ groups and the 
communities they represent, particularly a lack of mechanisms 
for substantial input from the communities into the governance 
structures. There has also been a lack of outreach by the State 
to the communities to help ensure that the communities and 
residents were aware of the program and how to participate.
    Some debate centered on uncertainty about intended 
beneficiaries of the program. It is unclear whether the program 
is intended primarily for the native Alaskan residents of the 
participating communities, or if not, whether the governance 
structure should be modified to ensure that non-native 
participation is possible. Similarly, there is some 
dissatisfaction among people within the fishing industry who 
are not involved, either directly or as partners of CDQ groups, 
and who believe that the program unfairly targets a particular 
population for benefits.
    The Committee also commented on the requirement that all 
reinvestment of profits be only in fishery-related activities. 
Although this is a logical initial requirement, since the 
objective is to help the communities establish a viable 
presence in a capital-intensive industry, the Committee 
concluded that over time there could be more flexibility in the 
rules governing allocation of benefit.
    The main goal of the CDQ Program, community development, is 
by definition a long-term goal. Thus, there is a need for a set 
and dependable program duration and the certainty that this 
brings to oversight and management. This would allow CDQ groups 
to develop sound business plans and reduce pressures to seek 
only short-term results.
    Another long-term issue is environmental stewardship. The 
CDQ Program is in large part about economic development, but 
economic sustainability is dependent on long-term assurance of 
a sound resource base. To be successful over the long term, the 
program will need to give more emphasis to conservation issues.
    Finally, while our report reviewed the CDQ Program in a 
broad way, there is a need for periodic detailed review of the 
program, perhaps every 5 years. This could be done by the State 
of Alaska. Such a review would look in depth at what each group 
had been doing, the nature and extent of the benefits, and how 
funds were used. Care must be taken not to use strictly 
financial measures of success. Profits gained from harvest and 
numbers of local people trained are valuable measures, but they 
must be seen within the full context of the program.
    In summary, the CDQ Program, like any new program with 
complex goals, had some problems in its start-up period. The 
Committee's review found a need for continued attention to 
establishing clear goals, defining eligible participants, and 
intended benefits, setting an appropriate duration and 
establishing rules for participation. But overall, the 
Committee's evaluation of the program was positive. For a 
relatively new program, it appears to be en route to 
accomplishing the goals set out in the authorizing legislation, 
development of increased commercial fishing activities in the 
participating communities, creation of job opportunities, and 
improvement of the local fishing infrastructure.
    Thank you for your attention.
    [The prepared statement of Ms. Elfring follows:]

Statement of Chris Elfring, Polar Research Board, Ocean Studies Board, 
    Division on Earth and Life Studies, National Academy of Sciences

    Good morning Mr. Chairman and members of the Subcommittee. Thank 
you for this opportunity to speak to you about the Community 
Development Quota program. My name is Chris Elfring and I am Director 
of the Polar Research Board at the National Academies. In addition to 
my role as director of the PRB, I served as the study director (lead 
staff person) for the National Research Council's Committee to Review 
the Community Development Quota Program, which was conducted in under 
the oversight of the NRC's Oceans Studies Board. As you know, the 
National Research Council is the operating arm of the National Academy 
of Sciences, National Academy of Engineering, and Institute of 
Medicine, and was chartered by Congress in 1863 to advice the 
government on matters of science and technology.
    In the Magnuson-Stevens Fishery Conservation and Management Act of 
1996, Congress mandated that the National Academy of Sciences review 
the CDQ program in Alaska and evaluate its applicability in the western 
Pacific. In response, we put together a committee of 10 volunteer 
experts who spent about 18 months talking with people, gathering data, 
and deliberating on the strengths and weaknesses of what was then a 
relatively new program. The committee produced its final report, 
complete with conclusions and recommendations, in 1999. My testimony 
today provides an overview of the findings of that study. My written 
testimony provides additional detail and I've also provided staff with 
copies of the full final report.
              STRENGTHS AND WEAKNESSES OF THE CDQ PROGRAM
    The Community Development Quota (CDQ) program was implemented in 
December 1992 by the North Pacific Fishery Management Council. The CDQ 
program allocates a portion of the annual fish harvest of certain 
commercial species directly to coalitions of villages, which because of 
geographic isolation and dependence on subsistence lifestyles have had 
limited economic opportunities. The program is an innovative attempt to 
accomplish community development in rural coastal communities in 
western Alaska, and in many ways it appears to be succeeding. The CDQ 
program has fostered greater involvement of the residents of western 
Alaska in the fishing industry and has brought both economic and social 
benefits. The program is not without its problems, but most can be 
attributed to the newness of the program and the inexperience of 
participants. Overall the program appears on track to accomplishing the 
goals set out in the authorizing legislation: to provide the 
participating communities with the means to develop ongoing commercial 
fishing activities, create employment opportunities, attract capital, 
develop infrastructure, and generally promote positive social and 
economic conditions.
    Because the program was still relatively new at the time of our 
evaluation (1998-1999), the data necessary for detailed evaluation were 
limited and it was not yet possible to detect long-term trends. The six 
CDQ groups, organized from the 56 eligible communities (later expanded 
to 57), were of varying sizes and took varying approaches to harvesting 
their quota and allocating the returns generated. Although not all 
groups have been equally successful, there were significant examples of 
real benefits accruing to the communities. All six groups saw creation 
of jobs as an important goal and stressed employment of local residents 
on the catcher-processor vessels and shoreside processing plants. All 
incorporated some kind of education and training component for 
residents, although to different degrees and with different emphases. 
Another benefit of the program is that the periodic nature of 
employment in the fishing industry preserves options for the local 
people to continue some elements of their subsistence lifestyles. The 
CDQ program generates resources that give local communities greater 
control of their futures. The State of Alaska also has played its part 
relatively effectively it was efficient in reviewing the Community 
Development Plans, monitoring how the communities progressed, and 
responding to problems. Some of these responses, like reallocating 
quota share among communities, have been controversial, as might be 
expected.
    Perhaps the greatest weakness of the CDQ program as implemented is 
a lack of open, consistent communication between the CDQ groups and the 
communities they represent, particularly a lack of mechanisms for 
substantial input from the communities into the governance structures. 
There has also been a lack of outreach by the state to the communities 
to help ensure that the communities and their residents are aware of 
the program and how to participate. For the CDQ program to be effective 
there must be a clear, well-established governance structure that 
fosters exchange of information among the groups' decisionmakers, the 
communities they represent, and the state and federal personnel 
involved in program oversight.
    Some debate has centered on uncertainty about the intended 
beneficiaries of the program. It is unclear whether the program is 
intended primarily for the Native Alaskan residents of the 
participating communities or, if not, whether the governance structures 
should be modified to ensure that non-Native participation is possible. 
Similarly, there has been dissatisfaction among segments of the fishing 
industry that are not involved, either directly or as partners of CDQ 
groups, who believe that the program unfairly targets a particular 
population for benefits. This conflict is inevitable, given that the 
CDQ program is designed to provide opportunities for economic and 
social growth specifically to rural western Alaska. This policy choice 
specifically defines those to be included and cannot help but exclude 
others.
    Although it is logical to require initially that all reinvestment 
of profits be in fishery-related activities because the initial 
objective of the CDQ program is to help the participating communities 
to establish a viable presence in this capital intensive industry, over 
time there should be more flexibility in the rules governing allocation 
of benefits perhaps still requiring most benefits to be reinvested in 
fishing and fisheries-related activities but allowing some portion to 
go to other community development activities. This will better suit the 
long-term goal of the program, which is development of opportunities 
for communities in western Alaska.
    The main goal of the CDQ program community development is by 
definition a long-term goal. Thus there is a need for a set and 
dependable program duration and the certainty that brings to oversight 
and management. This will allow CDQ group decisionmakers to develop 
sound business plans and will reduce pressures to seek only short-term 
results. However, calling for the program to be long-term does not mean 
it must go on indefinitely nor that it must never change. Periodic 
reviews should be conducted, and changes made to adapt rules and 
procedures as necessary. There can be a balance between certainty and 
flexibility if the program is assured to exist for some reasonable time 
(e.g., ten years) and if major changes in requirements are announced in 
advance with adequate time to phase in new approaches (e.g., five 
years). The appropriate time scales will of course vary with the nature 
of the change, with minor changes requiring little notice and major 
changes requiring enough time for decisionmakers and communities to 
plan and adjust.
    Another long-term issue is environmental stewardship. The CDQ 
program as currently structured is, in large part, about economic 
development, but economic sustainability is dependent upon long-term 
assurance of a sound resource base the fisheries. Thus, to be 
successful over the long-term the CDQ program will need to give more 
emphasis to environmental considerations. While this report reviews the 
CDQ program in a broad way, there remains a need for periodic, detailed 
review of the program over the long term (perhaps every five years), 
most likely conducted by the State of Alaska. Such a review should look 
in detail at what each group has accomplished the nature and extent of 
the benefits and how all funds were used. For a program like this, care 
must be taken not to use strictly financial evaluations of success. 
Annual profits gained from harvest and numbers of local people trained 
are valuable measures, but they must be seen within the full context of 
the program. It is a program that addresses far less tangible elements 
of ``sustainability,'' including a sense of place and optimism for the 
future.
                       LESSONS FOR OTHER REGIONS
    What emerges from a review of the western Alaska CDQ program is an 
appreciation that this program is an example of a broad concept adapted 
to very particular circumstances. In Alaska, where there were clearly 
definable communities, the fishery was already managed by quota with a 
portion of the quota held in reserve, and the communities had previous 
experience working within corporate-like structures. Others interested 
in the application of CDQ-style programs are likely to have different 
aspirations and different contexts. Wholesale importation of the Alaska 
CDQ program to other locales is likely to be unsuccessful unless the 
local context and goals are similar.
    One region where the expansion of the CDQ concept has been 
considered is in the western Pacific, but such an expansion would need 
to be approached cautiously because the setting and communities are 
very different.
    The major differences between the fisheries and communities of the 
two regions are: the general lack of management by quota or total 
allowable catch (TAC) in the western Pacific; the pelagic nature of the 
valuable fisheries in the region; and the lack of clear, geographically 
definable ``native'' communities in most parts of the region. 
Application of the CDQ program to the western Pacific would require the 
Western Pacific Regional Fishery Management Council to define realistic 
goals that fit within council purposes and plans. Definitions of 
eligible communities would need to be crafted carefully so the 
potential benefits accrue in an equitable fashion to native fishermen.
    Any new program, especially one with the complex goal of community 
development, should be expected to have a start-up period marked by 
some problems. During this early phase, special attention should be 
given to working out clear goals, defining eligible participants and 
intended benefits, setting appropriate duration, and establishing rules 
for participation. There should be real efforts to communicate the 
nature and scope of the program to the residents of any participating 
communities, and to bring state and national managers to the villages 
to facilitate a two-way flow of information. In addition to these 
operational concerns, those involved the residents and their 
representatives must develop a long-term vision and coherent sense of 
purpose to guide their activities.
                    CONCLUSIONS AND RECOMMENDATIONS
    Here are the detailed conclusions and recommendations as presented 
in the committee's final report, ``The Community Development Quota 
Program in Alaska'' (National Research Council, 1999).
Conclusion 1: Community Development Strategies
    Although the Community Development Plans developed by the different 
CDQ groups are similar in some important respects, the specific 
elements included vary considerably. Each CDQ group derives income from 
the large-scale pollock fishery through royalties and employment, and 
each seeks to develop nearshore fisheries using smaller vessels. The 
diversity of infrastructural investments, training programs, and 
financial strategies adopted by the CDQ group does, in our judgment, 
appropriately reflect varying circumstances and reasoned approaches to 
diverse problems. To some extent the development plans were shaped by 
uncertainty about the duration of the CDQ program and by the 
restriction that the CDQ plans must focus on fishery development. For 
example, the uncertainty may have encouraged at least one CDQ group to 
seek a quick financial gain through sale of their processing quota 
rights in perpetuity. We found this permanent conveyance to be 
inconsistent with the philosophy and intent of the CDQ program. 
Finally, the economic and cultural development of these communities may 
at times be advanced through non-fishery employment or investments. 
Hence, we found no strong reason to require communities to use funds 
generated from their CDQs to invest only in fisheries.
Recommendations
     LWe recommend that the State of Alaska prohibit permanent 
conveyance of community development quotas into the hands of commercial 
enterprises outside the communities. An important aspect of the 
community development sought in western Alaska is the continuing and 
direct involvement of local people in fisheries of the Bering Sea. Sale 
of the CDQs to commercial interests outside the communities will create 
an inappropriate separation of the people from the regional resources.
     LWe recommend that the restriction that CDQ revenues to be 
invested only in fishery-related activities should be removed, at least 
for some portion of the revenues. Many of the communities will find 
that fishery investments are still the ones they wish to undertake. 
However, since community development is broader than fishery 
development, funds should also be available for other activities that 
will enhance community infrastructure or land-based economic activity. 
This broadening of the allowed investments would also remove 
uncertainty about whether particular investments are indeed ``fishery 
related'' and thus allowable under current rules.
Conclusion 2: Participation and Benefits
    The CDQ program has had an important positive economic impact on 
western Alaskan communities. Significant revenues have been generated 
and employment has been enhanced, especially for the mobile members of 
the community. In addition, the general educational and training 
programs have been as beneficial as specific fisheries employment.
Recommendations
     LThe Community Development Plans (CDPs) should be careful 
to balance the mix of local fishing with wage-earning opportunities 
with fishing partners. This is important because local fishery 
development can occupy less mobile village residents, while wage-
earning opportunities in the industrial fleet are especially important 
for younger adults. A focus on local fisheries opportunities, where 
they exist, for permanent village residents will more closely tie the 
CDQ program to the village economics.
     LTo improve the effectiveness of developing a well-trained 
workforce, the CDQ groups need a strategic plan for education and 
training programs. This would include internships and technical 
training for direct employment with the industrial fishing partners of 
the CDQ groups, formal university education in fields pertinent to the 
development goals of native residents, and training of administrators 
and board members of CDQ organizations. The ultimate objectives would 
be to develop both the business acumen and labor productivity of 
village residents.
Conclusion 3: Governance and Decision-Making
    The CDQ groups were given a unique governance structure that 
includes elements of both State and federal oversight, which is 
appropriate given the goals of the program. But the extensive and 
variable criteria used by the State and federal governments in 
allocating quota among the groups causes decisionmaking to be 
inconsistent and difficult to evaluate. That the lists of evaluation 
criteria are not entirely consistent with one another in either content 
or order of listing presents additional opportunity for confusion among 
the CDQ groups and the public in evaluating the logic and fairness of 
the decisions made by the governor and ratified by the Secretary of 
Commerce.
Recommendations
     LState and federal criteria for the allocation of quota 
based on performance and plans should be less complicated than they are 
and should also be consistent with one another. We recommend that 
changes be made to simplify the criteria, in consultation with the CDQ 
groups.
     LThe committee notes that the criteria currently are used 
for two purposes: to allocate quota equitably and to encourage good 
management. One way to clarify some of the confusion created by using 
the criteria in this way would be to separate these two purposes into 
two allocations of quota. A ``foundation quota'' would address issues 
of equity and a ``performance quota'' would address issues of 
performance. The foundation quota (likely more than half of the 
allocation) would be allocated on measures of population, income, 
employment, and proximity to the fishery being allocated. The 
performance quota (the remainder) would be allocated based on clearly 
defined performance measures such as accomplishments of the CDP goals, 
compliance with fishing regulations (e.g., regarding bycatch), quality 
of community development plans, and so forth.
     LOne way to improve responsiveness of the CDQ groups' 
managers to the communities would be to improve communication. Although 
the idea of locating the headquarters of the CDQ groups near potential 
business partners and the State government may have made sense in the 
early years of the program, as it matures and the management proves its 
business capability, relocation of the headquarters to the communities 
may have significant benefits in terms of responsiveness to the desires 
of the community members.
     LCommunication would be further improved if the 
confidentiality rules and the rules for making information available to 
constituents were improved. NMFS and the state needs to collaborate to 
resolve any potential conflicts between state laws regarding the 
confidentiality of financial data and the evaluation of the CDQ program 
objectives. Information on the number of people employed by the program 
and the earnings in each of the communities should be provided.
     LAlthough some of the CDQ groups have created newsletters, 
a requirement that newsletters to communicate with constituents, town 
meetings, or other forms of communication appropriate to reach 
community members might be a helpful step in improving communication in 
the communities.
Conclusion 4: Development of Human Resources
    Education, training, and other activities to develop human 
resources in the participating communities are an explicit part of the 
CDQ program mandate and a key element in ensuring the program's success 
because stable, healthy communities depend as much on people as on 
economics.
Recommendations
     LTo be truly effective, the CDQ groups must have education 
and training elements. These elements should not be haphazard, but 
carefully planned and coordinated so they meet community needs. Both 
vocational training and support for higher education will help members 
of the community acquire the skills and knowledge needed for more 
advanced technical and managerial positions. The number of people 
receiving education and training should be provided.
     LCDQ groups need to do a better job disseminating 
information that describes the educational and training opportunities 
open to the use of program funds. They also need to improve their 
recordkeeping of education and training initiatives so the results can 
be monitored over time. A common framework for recording and reporting 
their efforts would be useful.
Conclusion 5: Program Duration
    The CDQ program must be a long-term program because it deals with a 
long-term issue: development of healthy, sustainable communities in 
coastal Alaska. Long-term economic development requires stability in 
the underlying policy base so decision-makers can make choices that 
balance current and future needs.
Recommendations
     LThe original CDQ program was a three-year trial. It was 
subsequently extended and then made a more permanent part of the 
fishery management system with the passage of the Magnuson-Stevens 
Fishery Conservation Act reauthorization in 1996. This program has been 
successful in bolstering community development in western Alaska. It 
has passed a crucial point in its evolution and we should expect the 
allocation of harvests to the CDQ groups to become a long-standing, if 
not permanent, feature of the federal fishery management system in the 
North Pacific.
     LThe committee recommends that the CDQ program should be 
reviewed on a periodic basis to determine if the preliminary trends 
observed by the committee continue in the future. Reviewing the CDQ 
program in another five years may provide important additional 
information on the effects of the program and provide valuable 
suggestions for its management.
Conclusion 6: Economic Sustainability and Environmental Stewardship
    Economic sustainability implies programs and policies that offer 
the greatest assurance of economic options over the long-term to a 
population that chooses to remain in specific locations. That is, given 
alternative economic futures for a people (or for a community), 
economic sustainability would entail choosing that future with the 
lowest probability of inducing economic decline as measured by a range 
of indicators. Economic sustainability is but one part of the larger 
problem of ecological and socio-cultural sustainability. Clearly, 
communities that squander their local environmental resources (or that 
fail to maintain cultural and social processes and structures) will be 
incapable of economic sustainability. Large-scale commercial fishing 
activities can have negative impacts on ecosystems, either 
independently or through interaction with natural fluctuations. Because 
the CDQ program is designed specifically to increase participation in 
fisheries activities and at the same time improve the long-term 
economic conditions of the participating communities, greater emphasis 
should be given to environmental stewardship.
Recommendations
     LConcern for the long-term health of the Bering Sea 
ecosystem needs to feature more prominently in the CDQ program. Local 
concerns about environmental stewardship need to be able to be 
expressed in a meaningful way throughout the program's management 
structure, beginning with effective communication of local concerns to 
the CDQ group management and continuing on up through the Council 
process. The quota allocation process can be used to increase the 
emphasis on environmental stewardship.
     LEconomic sustainability is dependent upon sound 
environmental stewardship. In order for the CDQ program to help build a 
sustainable economy in the region, it is imperative that the underlying 
resource base-the fisheries-be used in ways that are sustainable over 
the long-term. This will require explicit, in-depth, continuing 
analysis of the condition or health of the fishery resource and 
management that can respond and adapt to changes in this condition.
Conclusion 7: Relevance of the CDQ Experience to the Western Pacific
    The CDQ program was designed specifically to address the issues and 
environment of western Alaska and thus is not appropriate, in its 
current form, for the Western Pacific Region. If similar goals such as 
inclusion of native communities in fisheries are desired in the region, 
a program could be tailored to the conditions of the western Pacific, 
although fisheries in the region are not now generally managed by 
quota. There should be real efforts to communicate the nature and scope 
of the program to the residents of the participating villages to 
facilitate a two-way flow of information. In addition, geographic 
criteria for eligibility would be difficult to apply because the 
communities are widely dispersed. As the Western Pacific Regional 
Fishery Management Council considers the Alaskan CDQ experience and the 
differential performance of the CDQ groups, it should recognize that 
CDQs constitute only one possible model for community-development in 
fisheries. But if CDQ-type programs are seriously considered for the 
western Pacific the committee recommends:
     LCDQ-type programs in the western Pacific would need to 
define realistic goals that fit within Council purposes and plans, and 
definitions of eligible communities would need to be crafted carefully.
     LTo assist in the design of such programs, lessons can be 
learned from detailed study of the Alaskan experience related to 
program structure, costs, oversight, performance evaluation, and other 
administration issues.
                             FINAL THOUGHTS
    What emerges from a review of the western Alaska CDQ program is an 
appreciation that the program is an example of a broad concept adapted 
to very particular circumstances. Other interested in the application 
of CDQ-style programs are likely to have different aspirations and 
different contexts. Wholesale importation of the Alaskan CDQ program to 
other locales is likely to be unsuccessful unless the local context and 
goals are similar.
    Any new program, especially one with the complex goal of community 
development, should be expected to have a start-up period marked by 
some problems. During this early phase, special attention needs to be 
given to work out clear goals, define eligible participants and 
intended benefits, set appropriate duration, and establish rules for 
participation. In addition to these operational concerns, those 
involved--the residents and their representatives--must develop a long-
term vision and coherent sense of purpose to guide their activities.
    For the CDQ program to be effective there must be a clear, well-
established governance structure that fosters exchange of information 
among the groups' decision-makers, the communities they represent, and 
the state and federal personnel involved in program oversight. Greater 
openness of information is critical, as is regular detailed review.
    Although it is logical to require initially that all reinvestment 
of profits be only in fishery-related activities because the initial 
objective of the CDQ program is to help the participating communities 
establish a viable presence in this capital-intensive industry, over 
time there should be more flexibility in the rules governing allocation 
of benefits--perhaps still requiring most benefits to be reinvested in 
fishing and fisheries-related activities but allowing some portion to 
go to other community development activities. This will better suit the 
long-term goal of the program, which is development of opportunities 
for communities in western Alaska.
    The main goal of the CDQ program--community development--is by 
definition a long-term goal. Thus, there is a need for a set and 
dependable program duration and the certainty that it brings to 
oversight and management. This will allow CDQ group decision-makers to 
develop sound business plans and reduce pressures to seek only short-
term results. However, calling for the program to be long-term does not 
mean it must go on indefinitely nor that it must never change. Periodic 
reviews should be conducted, and changes made to adapt rules and 
procedures as necessary. There can be a balance between certainty and 
flexibility if the program is assured to exist for some reasonable time 
and if major changes in requirements are announced in advance with 
adequate time to phase in new approaches. The appropriate time scales 
will of course vary with the nature of the change, with minor changes 
requiring little notice and major changes requiring enough time for 
decision-makers and communities to plan and adjust.
                                 ______
                                 
    Mr. Young. Thank you very much.
    Mr. Bush.

 STATEMENT OF JEFFREY BUSH, DEPUTY COMMISSIONER, DEPARTMENT OF 
      COMMUNITY AND ECONOMIC DEVELOPMENT, STATE OF ALASKA

    Mr. Bush. Thank you, Mr. Chairman, and members of the 
Subcommittee. My name is Jeffrey Bush, and I am the Deputy 
Commissioner of the Alaska Department of Community and Economic 
Development.
    First of all, I wish to thank you for holding this hearing 
on the status of the Western Alaska Community Development Quota 
or CDQ Program. As I hope will become apparent from my remarks 
today, and those of others, this is an exciting and very 
successful program, bringing many benefits to the people and 
communities of Western Alaska.
    I have served since 1995 as a member of the State's CDQ 
Team, which implements the CDQ Program on the State's behalf. 
Because oversight and administration of the CDQ Program is 
within the Alaska Department of Community and Economic 
Development, Governor Knowles asked me to prepare testimony and 
appear before this Subcommittee.
    I will limit my current comments to significant policy 
issues facing the CDQ Program that are potentially impacted by 
H.R. 553. The bulk of my testimony, which contains a history of 
the program, and more detailed State comments on H.R. 553, I 
have submitted in writing for inclusion in the record.
    Allocation of CDQ quota is a harvest privilege that expires 
upon the expiration of each allocation period. Although pollock 
remains the mainstay of the program, representing over 80 
percent of the royalties received by the groups, a total of 25 
species with an annual royalty value of approximately $40 
million are allocated to the groups under the program. As shown 
in the graphs submitted with my written testimony, pollock 
royalties have grown from $20 million in 1998 to $33 million in 
the year 2000. And the growth in the total net worth for the 
groups is even more impressive, having doubled in the last 2 
years, with total assets for the groups now in excess of $150 
million.
    The State and the North Pacific Fishery Management Council 
recognize that there must be changes in the government's 
oversight role as the CDQ Program evolves. In response to the 
issues raised in H.R. 553, the Council formed a CDQ Policy 
Committee in March 2001 to review the appropriate role of 
government oversight of the CDQ Program, including criteria 
used in the allocation process. The Committee, consisting of 
representatives from all CDQ groups, from private industry, and 
from the State and Federal oversight agencies, met for four 
full days in April and May of this year, and reported its 
findings to the Council at the June 2001 Council meeting.
    Issues addressed by the CDQ Policy Committee, and now 
subject to Council staff analysis, include whether CDQ 
allocations should continue to be periodic or become permanent, 
and the frequency of those allocation periods; whether some 
portion of the CDQ quota should be a fixed foundation quota 
based on each group's demographic characteristics, such as 
population; whether to adopt revised criteria for the State to 
use in analyzing applications and whether to require the State 
to score each group on each defined criteria before making 
allocation recommendation; whether to adopt an administrative 
appeal process for any group dissatisfied with an allocation; 
the extent of government oversight over various group 
activities, including investments by subsidiary corporations; 
and whether to expand allowable activities of CDQ groups to 
include non-fisheries related investments.
    The Council is scheduled to review this analysis and adopt 
any appropriate changes to the program at a December 2001 
meeting.
    The State believes that the Council remains the best forum 
to address, in the first instance, issues regarding the 
operation and management of the CDQ Program. The Council 
process will ensure that all interested parties are able to 
voice their positions, and will result in a product that will 
be best for the program and the people it serves.
    The quota given to the six CDQ groups constitutes a grant 
of a public resource to achieve a government-sanctioned goal of 
fostering economic development in Western Alaska. The net 
effect of H.R. 553 would be to shift the focus of the program 
away from a community-centered program to a more profit-making 
regime. In its 1999 report on the CDQ Program, the National 
Research Council stated, quote: ``The Committee warned that for 
a program like this, care must be taken not to use strictly 
financial evaluations of success.'' Unquote. The challenge for 
all of us is to strike the right balance between profit 
motivation and fostering local economic development.
    I would briefly like to comment on three specific 
provisions proposed in H.R. 553.
    H.R. 553 would remove the current program requirement that 
group investments be fisheries related. This issue has garnered 
much debate in recent years among program participants. 
Recognizing that the opportunities for fisheries-related 
investments in the region are limited, the State has long 
supported some loosening of the current limitations.
    However, although it is important that some allowance now 
be made for investing in non-fisheries-related activities, it 
is equally important that this allowance be done in a manner 
that maintains the program's integrity. Each group is under 
pressure from its member communities to provide other benefits 
to their residents who have many serious and very worthwhile 
needs. But we must ensure that this program is not used as a 
replacement for education or other state-funded 
responsibilities in this region.
    The majority of the CDQ groups and the CDQ Policy Committee 
have recommended that the Council allow each group to invest up 
to $500,000 annually in non-fisheries-related economic 
development projects. This appears to be a rational approach to 
the issue, and the State is supportive of the Committee's 
recommendation.
    H.R. 553 would remove from government oversight projects 
undertaken by subsidiaries of CDQ groups. The State feels the 
need for accountability to the program and to the region's 
residents does not end with a group's initial investment in a 
subsidiary, many of whom are wholly owned and virtually 
indistinguishable from their parent group. We understand that 
some of the CDQ groups support increased flexibility in their 
investments at the subsidiary level. However, it is critically 
important that we continue to meet the public policy goal that 
the benefits derived from the program continue to flow to the 
region's residents.
    In addition, concerns have been raised in the past by some 
CDQ groups and fishing industry representatives, that 
constraints placed upon the CDQ groups under the current 
program might cost the groups business investment 
opportunities. Although the State is unaware of any such lost 
investment opportunities, we are committed to minimizing even 
the potential for them.
    We welcome the current efforts of the Council to address 
this issue and identify those situations where State oversight 
it appropriate and those where it is not. The Council's CDQ 
Policy Committee has identified this as a significant issue for 
analysis, and we anticipate the Council will review this issue 
carefully when it considers recommendations to the program.
    H.R. 553 proposes to give primary allocation responsibility 
to the National Marine Fisheries Service. By implication, the 
role of the State in making allocation recommendations would be 
reduced or eliminated. The State believes that it is in the 
best position to work with the CDQ groups to identify the needs 
and opportunities in Western Alaska, as well as maximize 
benefits to the residents of the region. The Alaska Department 
of Community and Economic Development has several local 
government and community development people on staff who work 
directly with the communities throughout the State, including 
those in this program, on a regular basis. Department experts 
in fisheries development and marketing work directly with 
industry players to promote Alaska's fisheries economy. Other 
State departments handle State fisheries management, local 
transportation infrastructure development, and water and sewer 
projects. In short, we believe that State Government personnel 
are better able to respond to the issues that affect our 
residents than Federal agency representatives, most of whom are 
located at a great distance from the State.
    In conclusion, I wish to again thank you, Mr. Chairman, for 
the opportunity to address this Subcommittee regarding this 
exciting and very successful program. Congress, the North 
Pacific Fishery Management Council, the State, and the people 
of Western Alaska, can all be proud of the benefits realized as 
a result of the CDQ Program. Thank you.
    [The prepared statement of Mr. Bush follows:]

 Statement of Jeffrey Bush, Deputy Commissioner, Alaska Department of 
                   Community and Economic Development

    Mister Chairman and members of this Subcommittee:
    Thank you for the opportunity to comment on the current status of 
the Western Alaska Community Development (CDQ) program and the proposed 
federal legislation, H.R. 553, regarding that program. My name is 
Jeffrey Bush, and I am the Deputy Commissioner of the Alaska Department 
of Community and Economic Development. In that capacity, I have served 
since 1995 as a member of the State of Alaska's ``CDQ Team'', which 
implements the CDQ program on the state's behalf. Because oversight and 
administration of the CDQ program is within the Alaska Department of 
Community and Economic Development, Governor Knowles asked me to 
prepare testimony and appear before this subcommittee.
    I will limit my oral comments to policy issues currently facing the 
CDQ program that would be impacted by H.R. 553, including program 
purpose and accountability and the role of state and federal 
governments in oversight of the program. The bulk of my testimony, 
which contains a history of the program and more detailed State 
comments on H.R. 553, is hereby submitted in writing for the record.
History of program
    Under the CDQ program, a portion of the annual fish harvest in the 
Bering Sea/Aleutian Island (BS/AI) groundfisheries is allocated to six 
coalitions of western Alaska villages, known as ``CDQ groups''. 
Allocation of CDQ quota is a harvest privilege that expires upon the 
expiration of each allocation period.
    The CDQ program is an innovative attempt to accomplish community 
development in western coastal Alaska, which is in one of the more 
impoverished regions in the United States. In many ways the program is 
succeeding. During its short tenure, the CDQ program has created 
significant employment opportunities in the BS/AI groundfisheries for 
residents of Western Alaska, and CDQ groups are steadily increasing 
their equity ownership in Seattle and foreign-based harvesting 
companies. However, the challenge of creating contemporary economic 
stability in remote villages, whose residents have been reliant on 
subsistence lifestyles for centuries, is a long-term undertaking.
    With the passage of the Magnuson Act in 1976 the groundwork was 
laid for domestic participation in the fisheries. The concept of 
allocating part of the total allowable catch directly to disadvantaged 
western Alaskan communities was discussed by the North Pacific Fishery 
Management Council (NPFMC) beginning in the mid-nineteen eighties. 
Based on recommendations from the NPFMC, the Secretary of Commerce 
first approved CDQ pollock allocations in early 1992. 1 The 
allocation to CDQ groups was set at 7.5% of the overall pollock Total 
Allowable Catch (TAC) for the Bering Sea and Aleutian Islands 
management areas. The allocations were for the two-year period of 1994-
95.
---------------------------------------------------------------------------
    \1\ The final regulations implementing the program actually were 
not published until December 1992.
---------------------------------------------------------------------------
    During the last half of 1992, communities and fishermen's groups 
along the Bering Sea coast began to organize in response to the pending 
CDQ regulations.
    The program began with 55 communities that were determined eligible 
by criteria developed by the NPFMC in conjunction with the State of 
Alaska and NMFS. By 1999, the total number of eligible communities had 
grown to 65. 50 C.F.R. 679.30 lists the eligibility criteria:
     LThe community is located within 50 nautical miles of the 
Bering Sea, provided it is not located on the Gulf of Alaska coast.
     LThe community is certified by the Secretary of the 
Interior pursuant to the Alaska Native Claims Settlement Act to be a 
native village.
     LThe Community's residents conduct more than half of their 
current commercial or subsistence fishing effort in the waters of the 
BS/AI.
     LThe community has not previously developed harvesting or 
processing capability sufficient to support substantial groundfish 
fisheries participation in the BS/AI, unless the community can show 
that benefits from an approved CDP would be the only way to realize a 
return from previous investments. The community of Unalaska is excluded 
under this provision.
    According to the 2000 U.S. Census, there are approximately 27,000 
people residing in the 65 CDQ communities. The boundaries of the 
program extend from the northernmost community of Little Diomede in the 
Norton Sound Region to the southwest community of Atka in the Aleutians 
Islands. The CDQ quota is divided among six community organizations, 
which were self-determined and were based primarily on geographical 
proximity and cultural boundaries. All six of the organizations are 
non-profit corporations organized under Alaska law.
    The CDQ groups are:
     LAleutian Pribilof Island Community Development 
Association (6 communities)
     LBristol Bay Economic Development Association (17 
communities)
     LCentral Bering Sea Fishermen's Association (1 community)
     LCoastal Villages Region Fund (20 communities)
     LNorton Sound Economic Development Corporation (15 
communities)
     LYukon Delta Fisheries Development Association (6 
communities)
    In June of 1995, the NPFMC approved a three-year extension of the 
pollock CDQ program as part of the inshore-offshore debate. In 1996, 
the CDQ program gained permanency when it was placed into law during 
the reauthorization of the Magnuson Act. Senator Stevens was 
instrumental in the reauthorization of the Act and the establishment of 
the CDQ program in perpetuity. He was recognized for his work by the 
renaming of the Act, which became the Magnuson-Stevens Act.
    In 1998, Congress passed the American Fisheries Act (AFA), which 
included provisions to permanently extend the allocations of pollock to 
the CDQ program and increase the CDQ pollock allocation to 10 percent 
of the TAC through December 31, 2004. 2 Another major impact 
of AFA was the requirement that virtually all vessel-owning entities in 
the BS/AI fisheries be at least 75 percent owned and controlled by U.S. 
citizens by October 1, 2001. This meant that foreign-owned companies 
needed to divest their majority ownership interests in vessels engaged 
in Bering Sea fisheries. This opened the door for CDQ groups to acquire 
equity interests in top performing seafood companies that otherwise 
would not have been available. The groups became sought after business 
partners for the Seattle and foreign dominated owners, not only because 
of their quota but also because of the political capital the groups 
brought as Alaskan partners. By the end of 2000, all CDQ groups had 
acquired ownership interests in the offshore pollock processing sector.
---------------------------------------------------------------------------
    \2\ If no action is taken by the end of 2004 to extend the 10 
percent allocation, the CDQ pollock allocation will revert to 7.5 
percent.
---------------------------------------------------------------------------
    Although pollock remains the mainstay of the program, representing 
over 80 percent of the royalties received by the groups, other BS/AI 
groundfisheries have been added to the program since its inception and 
are allocated out to the groups. Halibut and sablefish were first 
allocated for the 1995 fishing season, and crab and the so-called 
multi-species fisheries, including pacific cod, Atka mackerel and 
others, began in 1998. At present, 25 species, with an annual royalty 
value of approximately $40 million, are allocated to the groups under 
the program. Pollock royalties alone totaled nearly $33 million in 
2000.

[GRAPHIC] [TIFF OMITTED] T3962.001


    The groups continue to grow in net worth, with current total assets 
in excess of $152 million.

[GRAPHIC] [TIFF OMITTED] T3962.002

Government Oversight
    The U.S. Secretary of Commerce approved the CDQ program regulations 
in 1992. Under those regulations, the day-to-day oversight of the CDQ 
program was delegated to the State of Alaska, which was charged with 
full review of CDQ proposals and making allocation recommendations to 
the Secretary. NMFS is tasked with implementing federal regulations and 
providing final allocation recommendations to the Secretary, who 
retains overall authority over the allocation process.
    The federal and state governments have each added staff to respond 
to monitoring needs. Approximately five federal and three state 
positions are dedicated to CDQ program administration. Federal 
responsibilities include daily monitoring of catch, debriefing of 
fishery observers, writing regulations, and review of the overall 
program. As in the open-access fishery, federal funds support the 
fishery management and allocation decision-making process.
    The State is responsible for the ongoing monitoring of each CDQ 
group's performance, ensuring compliance with CDQ plans and 
regulations, providing professional assistance, reviewing quarterly and 
annual reports, and participating in the allocation process. Beyond 
requiring quarterly reports, the state also conducts regular meetings 
with each group, requires annual audit and compliance reports, and 
retains the right to conduct an internal or management audit of any CDQ 
group. With this unique combination of federal and state agency 
oversight, a thorough regulatory environment has been developed.
    As part of the CDQ program allocation process, the state CDQ Team, 
comprised of the governor's designees, establishes a schedule for the 
receipt of applications, initial application evaluation, public 
hearings and final application review. Each group must decide which 
activities are best suited for its region and constituents and submit a 
Community Development Plan (CDP) application. The CDP must include the 
allocation requested for each species, a description of the goals and 
objectives of the CDP, the length of time necessary to achieve these 
goals, the number of individuals expected to be employed through the 
program, and a description of vocational and educational training 
programs the CDP will generate. The CDP details the fishery-related 
infrastructure in the applicant's region and describes how the CDQ 
group plans to enhance existing harvesting and processing capabilities.
    After taking the CDP applications and public testimony into 
consideration, and applying the criteria set out in state regulation, 
the state develops the recommended allocations. The state must then 
consult with the NPFMC before the recommendations can be submitted to 
NMFS, who conducts a separate review to ensure that the state complied 
with applicable federal procedural requirements in making its 
allocation recommendations. NMFS then provides their recommendations to 
the Secretary of Commerce for final approval and implementation.
Current Review of Government Oversight
    The state recognizes that there must be changes in the state's 
oversight role as the CDQ program evolves. As the program has grown, 
state CDQ regulations have been revised on several occasions. The last 
revision took place in August of 1999. More recently, in response to a 
few of the CDQ groups' concerns, the state began working with the CDQ 
groups in early 2000 to recommend program changes to further streamline 
and simplify the CDP amendment process. After review and approval of 
the state's conceptual changes by the NPFMC, NMFS drafted proposed 
federal regulatory changes to provide the groups more discretionary 
authority in their business transactions. These proposed changes were 
presented to the NPFMC in October 2000. During this period, Congressman 
Young introduced H.R. 5565, proposing to make substantial changes to 
governments' oversight roles regarding the program; that bill was 
subsequently reintroduced this session as H.R. 553.
    In response to the issues raised in H.R. 553, the NPFMC formed a 
CDQ Policy Committee in March 2001 to review the appropriate role of 
government oversight of the CDQ program, including criteria used in the 
allocation process. The committee, consisting of representatives from 
all CDQ groups, private industry, and the state and federal oversight 
agencies, met for four full days in April and May, and reported its 
findings and recommendations to the Council during the June 2001 
meeting. The Council accepted the report and has now tasked its staff 
with preparing a comprehensive analysis of the various options 
identified by the committee. Issues addressed by the CDQ Policy 
Committee and now subject to NPFMC staff analysis include:
     LWhether CDQ allocations should continue to be done 
periodically, or made permanent
     LWhether some portion of the CDQ quota should be a fixed 
``foundation'' quota based on each group's demographic characteristics, 
such as population
     LWhether to adopt revised criteria for the state to use in 
analyzing applications, and whether to require the state to ``score'' 
each group on each defined criteria before making allocation 
recommendations
     LWhether to adopt an administrative appeal process, either 
within the state allocation process or through NMFS or the NPFMC, 
whereby any group dissatisfied with an allocation could appeal
     LThe extent of government oversight over various group 
activities, including investments by subsidiary corporations
     LWhether to expand the allowable activities of CDQ groups 
to include non-fisheries related investments
    The NPFMC is scheduled to review this analysis and adopt any 
appropriate changes to the program at its December 2001 meeting.
    The NPFMC has repeatedly expressed support for the CDQ program. The 
Council is the best forum to address, in the first instance, issues 
regarding the operation and management of the CDQ program. The Council 
process will ensure that all interested parties are able to voice their 
positions and will result in a product that will be best for the 
program and the people it serves.
Specific Comments Regarding H.R. 553
    The quota given to the six CDQ groups constitutes a grant of a 
public resource to achieve a government-sanctioned goal of fostering 
economic development in western Alaska. As such, the CDQ program was 
not designed as a direct allocation of quota to businesses, but rather 
was set up with government oversight to ensure accountability that the 
public resources were being used to achieve certain social and economic 
goals. This legislation would shift the focus of the program from a 
community-centered program to a profit-making regime. The state 
endorses individual initiative, however we do not want to lose sight of 
the original purpose of the CDQ program. As you know, the 1999 report 
from the National Research Council, The Community Development Quota 
Program in Alaska, stated, ``The committee warns that for a program 
like this, care must be taken not to use strictly financial evaluations 
of success.'' NRC Report, page 3. The challenge for all of us is to 
find the right balance between the profit motive and fostering local 
economic development in these regions.
    I would like to briefly comment on three specific provisions 
proposed in H.R. 553.
    H.R. 553 would remove the current program requirement that group 
investments be ``fisheries related.'' H.R. 553 sec. 2, Proposed M-S Act 
sec. 305(6)(j)(1)(B) and sec. 305(6)(j)(8)(B)(ii).
    This issue has garnered much debate in recent years among program 
participants. The goal of the CDQ program, as set out by the NPFMC at 
the program's formation and codified in federal regulations, is to 
provide fishery related economic opportunities for western Alaska 
residents. The National Research Council stated, ``We recommend that 
the restriction that CDQ revenues [are] to be invested only in fishery-
related activities should be removed, at least for some portion of the 
revenues.'' NRC Report, page 76. Recognizing that the opportunities for 
fisheries-related investments in the region are limited, the state has 
long supported some loosening of the current limitations. 3
---------------------------------------------------------------------------
    \3\ On January 18, 2000, before the U.S. Senate Subcommittee on 
Oceans and Fisheries, I testified that the state would support an 
expansion of allowable investments to include some non-fisheries 
related activities, provided the expansion was done carefully and 
within well-defined regulatory parameters.
---------------------------------------------------------------------------
    However, although it is important that some allowance now be made 
for investing in non-fisheries related activities, it is equally 
important that this allowance be done in a manner that maintains the 
program's integrity. Each group is under pressure from its member 
communities to provide other benefits to their residents, who have many 
serious and very worthwhile needs. But we need to ensure that current 
government program funding levels are maintained and that this program 
is not used as a replacement for education or other state-funded 
responsibilities in these regions.
    The majority of the CDQ groups and the CDQ Policy Committee have 
recommended that the Council allow each group to invest up to $500,000 
annually in non-fisheries related, economic development projects. This 
appears to be a rational approach to the issue and the state is 
supportive of the committee's recommendation.
    H.R. 553 would remove from government oversight projects undertaken 
by subsidiaries of CDQ groups. H.R. 553 sec. 2, Proposed M-S Act sec. 
305(6)(j)(8)(C)(ii).
    The state feels the need for accountability to the program and to 
the region's residents does not end with a group's initial investment 
in a subsidiary. Thus, whether the CDQ group acts through its CDQ 
royalties or through its investment returns, and whether it acts 
directly or through one or more of its subsidiaries (many of whom are 
wholly owned and virtually indistinguishable from their parent group), 
the group needs to remain accountable to its communities. We understand 
that some of the CDQ groups support increased flexibility in their 
investments at the subsidiary level. However, it is critically 
important that the public policy goal that the benefits derived from 
the program continue to flow to the region's residents continues to be 
met.
    In addition, concerns have been raised in the past by some CDQ 
groups and fishing industry representatives that constraints placed 
upon the CDQ groups under the current program might cost the groups 
business investment opportunities. Although the state is unaware of any 
CDQ business investment opportunity that has been lost as a result of 
federal or state regulatory constraints, we agree that there is a need 
for quick review of all CDP amendments, and we are committed to 
minimizing even the potential for lost business opportunities. 
Beginning with the consolidation of all state CDQ staff in a central 
location in the Department of Community and Economic Development in 
1999, the state has placed a high priority on the expeditious 
processing of CDP amendments. Our success in these efforts is clear: 
for example, when Coastal Villages Region Fund sought state approval of 
its multi-million dollar investment in American Seafoods Company, the 
state CDQ Team was able to review and approve the amendment in just 
three working days.
    In addition, we welcome the current efforts of the NPFMC to address 
this issue and identify those situations where state oversight is 
appropriate and those where it is not. The Council's CDQ Policy 
Committee has identified this as a significant issue for analysis, and 
we anticipate the Council will review this issue carefully when it 
considers recommendations to change the program.
    H.R. 553 proposes to give primary allocation responsibility to 
NMFS. By implication, the role of the state in making allocation 
recommendations would be reduced or eliminated. H.R. 553 sec. 2, 
Proposed M-S Act sec. 305(6)(j)(6).
    The state believes that it is in the best position to work with the 
CDQ groups to identify the needs and opportunities in Western Alaska, 
as well as maximize benefits to the residents of the region. The Alaska 
Department of Community and Economic Development has several local 
government and community development people on staff who work directly 
with communities throughout the state, including those in this program, 
on a regular basis. Department experts in fisheries development and 
marketing work directly with industry players to promote Alaska's 
fisheries economy. Other state departments handle state fisheries 
management, local transportation infrastructure development, and water 
and sewer projects. In short, we believe that state government 
personnel are better able to respond to the issues that affect our 
residents than federal agency representatives, most of whom are locate 
at a great distance from the state.
    In conclusion, I wish to again thank you, Mister Chairman, for the 
opportunity to address this committee regarding this exciting and very 
successful program. Congress, the NPFMC, the state of Alaska, and the 
people of Western Alaska can all be proud of the benefits realized as a 
result of the CDQ program.
                                 ______
                                 
    Mr. Young. I thank you, Mr. Bush. I only have--I have a 
series of questions for you and the other members, but I always 
get sort of tickled, because I am reading one of your comments 
in your presentation. It says: in June 1995 the NPFMC approved 
a 3-year extension of pollock CDQ Program as part of the 
inshore debate. In 1996, the CDQ Program gained permanency and 
was placed in law during the reauthorization of the Magnuson 
Act. Quote: ``Senator Stevens was instrumental in reauthorizing 
of the Act and the establishment of the'' program.
    You just made a very bad error. I don't know who wrote this 
for you, but it passed out of this Committee a year and a half 
before Senator Stevens ever got his hands on it. I made this 
permanent. And whoever wrote this for you, if you wrote it, 
shame on you. If you didn't write it, shame on the person who 
wrote it for you. Because there is a little bit of--well, we 
take pride in authorship. This whole idea came right from 
Harold Sparck. And I took it and ran with it with the help of a 
lot of people, and that is why I am so intensely passionate 
about the program, and why I want to make it succeed. So after 
that little slight chastisement, I will ask you some more 
questions.
    Mr. Bush, the National Academy of Sciences' report 
recommends that groups be allowed to invest earnings in 
businesses outside of the fishing industry. This is 1999. In 
some cases because of poor returns, there are no local 
fisheries for the groups to invest in. What other options are 
available under the current rules, and why hasn't the State 
been willing to discuss expanding the use of the monies for 
other community economic developments outside the fisheries? 
That is the second question.
    And how can they create a diverse economy, which you state 
in your testimony, when you only allow investment in fisheries?
    Mr. Bush. Mr. Chairman, if I may, first of all, with 
respect to the current rules relating to fisheries-related 
investments, those rules were placed in the Act or--excuse me--
in the regulations at the time that the Council created this 
program or created the details of the program through the 
regulatory process. Those restrictions are in Federal 
regulations. The State, and actually, myself personally, have 
argued actually for several years that those restrictions need 
to be loosened up, that other economic development activities 
in the region need to be supported through this program 
particularly because, as you state, there are limited 
investment opportunities in fisheries in some of the areas and 
communities of this region. Therefore, the State has long 
supported it, and I think that it is safe to say that--Mr. 
Balsiger may be better equipped than I am to answer the rest of 
the question regarding the Council's approach--but I think the 
Council is becoming more open to the possibility of allowing 
non-fisheries-related activities now than they have in the 
past, and therefore--and I am very happy about that and 
supportive of that--the CDQ Policy Committee that the Council 
created has recommended that loosening up of investment 
opportunity or the investment restrictions, and we are 
supportive of that as well.
    Mr. Young. Have you ever recommended that to the Council?
    Mr. Bush. Yes, Mr. Chairman. I first recommended it--I am 
going to say it was 1998. It may have been 1999 was the first 
time I recommended it to the Council.
    Mr. Young. Well, my concern, I don't think there would be 
any action by the State or the Council if I hadn't introduced 
this bill, because I saw total stagnation and rejection in the 
idea that these actual groups have grown. Some of them have 
not, some of them have. And this is really my driving force 
behind this because I don't believe that we ought to be the 
parental fathers of these groups, as the BIA has been, as the 
Government has been with both my native groups. They say, ``Oh, 
you can't do it because you don't have the capability of doing 
it. We know what is best for you. Don't question our wisdom 
because you are really a child.'' That is really where I am 
coming from, I want you to know that. And so I am going to be 
watching that, you know, as we go through this process, how we 
will be following the actions of the State.
    And one of my criticisms of State oversight has been that 
the annual allocations do not allow the groups any long-term 
certainty--I think I heard that in your testimony--for making 
business decisions. I can't understand how, if I had 14 percent 
this year and then I might only have 10 percent next year 
because of a shift in population or some other reason, how can 
they make any long-term recommendation? In fact, I do believe 
the State wouldn't be responding to this right now if I hadn't 
introduced this bill. How can they make a long-term economic 
decision with the uncertainty which is placed upon them by the 
State?
    Mr. Bush. Mr. Chairman, if I might respond. I think that 
part of the problem, at least during my tenure with this 
program, in terms of the allocation periods, has been that we 
have had several different species added to the program over 
the years, and those came online in different allocation 
cycles. We have most recently reached the point--and I think it 
was in the year 2000--where the allocation cycles finally came 
together, and we allocated for a 2-year cycle.
    Mr. Young. Is that consistent now, you are on a 2-year 
cycle?
    Mr. Bush. We are on a 2-year cycle, Mr. Chairman, yes. In 
fact, if we were not, right now we would be in the midst of an 
allocation cycle, but we are not. We are on a 2-year cycle.
    Mr. Young. Has there been any thought about extending that, 
say, to a 5 or 10-year, the length of the Magnuson Act?
    Mr. Bush. Mr. Chairman, that has been discussed. The 
Council's Policy Committee is recommending a 3-year allocation 
cycle set, a fixed 3-year allocation cycle. The State is 
supportive of that. The issue, of course, with longer 
allocation cycles--it is a tradeoff--the longer the allocation 
cycle, the argument becomes the less accountable the group 
becomes in terms of its potential successes or failures. And so 
you have to--and the other problem that I believe exists with 
longer allocation cycles, is adjustments that may become 
necessary based upon changing conditions.
    And I will use as an example what happened with opillio 
crab in the Bering Sea when the crab stocks collapsed a couple 
of years ago. The State had, at that point, allocated a great 
deal of opillio crab to one of the CDQ groups because it was 
located where most of the opillio crab was caught. And that was 
a significant percentage of its allocation returns on an annual 
basis. When those crab stocks collapsed, it was, I think, to 
everyone's advantage, for the State to be able to take another 
allocation look, and in fact, we adjusted other species to that 
group in order to make up for the fact that its crab allocation 
had collapsed.
    But I think that that is the only significant issue that I 
see with longer allocations, and I believe that is something 
that can be dealt with, and that is why the State is supportive 
of a 3-year allocation cycle at this time.
    Mr. Young. The other thing--and then I will let the 
gentleman from Guam ask some question in a moment, and then I 
will come back to you, back to the rest of the panel.
    Has there been any thought about--because I notice you 
mentioned in your testimony about the quotas being set because 
of population, which is very controversial by certain groups 
and very accepted by other groups. Has there been any other 
criteria such as location, proximity, and a total equation of 
the end results; has that been thought of at all?
    Mr. Bush. Yes, Mr. Chairman. The State regulations have, I 
believe the last count was 21 different criteria. The first--
there is no question--the first criteria on the list is 
demographic criteria, which includes population.
    Mr. Young. But is that the dominant factor?
    Mr. Bush. No, not at all, Mr. Chairman. Locale is a 
significant one, and essentially proximity to the resource. And 
the crab example I just gave you is a perfect example. Halibut 
is another one.
    Mr. Young. And sections of Pribilof would be another one?
    Mr. Bush. Yes. The Pribilof Islands, for example, we have 
always given crab allocations and significant halibut 
allocations to those, irrespective of their size, because of 
their locale in the region or nearness to the resource.
    Mr. Young. Okay. My time is up. I do apologize. Mr. 
Underwood?
    Mr. Underwood. Thank you very much, Mr. Chairman.
    Perhaps as I have indicated, and this is a very fortuitous 
opportunity for those of us from the Western Pacific, to learn 
a little bit more about the implementation of the program as it 
occurs in Alaska.
    Maybe unbeknownst to you, but certainly as we are looking 
at this report, you know, it has been retitled here in the 
inside page, The Community Development Quote Program in Alaska 
and Lessons for the Western Pacific. And so--
    [Laughter.]
    Mr. Underwood. So at least all the members have that up 
here.
    Perhaps, Ms. Elfring, if you could, tell us a little--I 
know this is a little bit perhaps outside the scope of your 
study, but if you could give us a couple of suggestions about 
how this program would work better in the Western Pacific, or 
highlight some of the issues which you thought were 
particularly difficult in implementing the program in Alaska.
    Ms. Elfring. Well, we did actually try--and by the way, I 
will blame that on our press. They like covers to be nice and 
neat and clean. If we give them too many words, they stick them 
on the inside.
    But basically we did try, and after looking at it in 
Alaska, say, ``Well, how would this work in the Western Pacific 
or how would it not work?'' And the Committee's main conclusion 
there was a big caution, that essentially the CDQ Program was 
very specifically designed to meet conditions in Alaska, and 
not all of those same conditions apply in the Western Pacific. 
And the were careful not to say you couldn't design something 
that would work, but you can't pick this program up and apply 
it.
    The two main things that they were worried about were--one 
was your current fisheries management is not by quota. Alaska 
already managed by quota, and there was a way of working within 
that to make this program work. Similarly, Alaska already had 
sort of a natural geographic way of breaking people into 
groups, and that is more difficult in your setting as well. And 
the third one may have to do with fisheries technology in terms 
of the scale. There is already a lot of industrial-sized 
fisheries going on in Western Alaska. Smaller scale in much of 
the Western Pacific.
    So I think their main recommendation on that is if you 
choose to go that route, go very, very carefully, and decide 
what the goals are there and set the program up to those goals.
    Mr. Underwood. Well, thank you very much for those 
insights.
    Dr. Balsiger, in my earlier statement I drew attention to 
the fact that NMFS has not facilitated the process for the 
Western Pacific. Do you have any knowledge as to why that is 
the case?
    Mr. Balsiger. Mr. Congressman, I know that the rules and 
regulations have been slow in development, but I understand 
that there are, either published this week or very close to it. 
I can certainly get back to you with the specifics on the 
status of the regulations that we are waiting for.
    The agency is supportive of CDQ programs. We are anxious to 
make it work in the Western Pacific as well as it has in 
Alaska, but for specific details, I will get back if I can.
    Mr. Underwood. Well, apparently it is more anxious in 
Alaska than it is in the Western Pacific because the 
regulations have taken some time.
    And, Mr. Bush, I would just like to ratify the comments 
made earlier by the Chairman, because it was one of the pieces 
of legislation that I was trying to work some amendments on, 
and I know that early on, that the Western Pacific part of 
this, the establishment of the program for offshore territories 
as well, was another element of that legislation as we were 
working to it. You know, in the interest of, for all of you who 
may testify in front of Committees, be mindful of who you are 
testifying in front of, because it will always be perhaps to 
your benefit or to your detriment.
    What is the--if you could encapsulate just in a few words, 
what is the problem with the communities making a decision 
about the resources that they obtained from these activities to 
go beyond fisheries? After all, the whole idea of engaging in 
these activities is to provide economic benefit to the 
communities, and this is a resource issue for them. This is 
meant to diversify. But what is the issue at stake there?
    Mr. Bush. Mr. Congressman, the issue with respect to non-
fisheries-related investments, as I understand it, is that the 
resources at stake in this program, when the program initially 
began, were given to the communities with the understanding 
that they would be used for fisheries-related development only.
    Mr. Young. Will the gentleman yield?
    Mr. Underwood. Sure.
    Mr. Young. The CDQ means for what?
    Mr. Bush. It stands for Community Development Quota.
    Mr. Young. It does not say anything about Community 
Development Fisheries. It says ``quota'' and means development. 
And that is my contention that the State has misinterpreted 
what was the intent, that you have to use, if it is possible, 
to bring back development of that community, if they use the 
resources from the--money from the resources which they have 
harvested. And that is my difference with the state. Thank you.
    Mr. Underwood. Please continue.
    Mr. Bush. And, Mr. Chairman, if I might respond very 
briefly to what you just said. I mean, the State is only 
implementing the program as it has been presented to us by the 
Council and the Federal regulations, which have that 
restriction in it. As I said, the State is very supportive of 
expanding it to other community economic development 
activities. But as I understand it, that was part of the, sort 
of the political equation when the program initially began, 
because there were some very strong opponents to essentially 
taking the resource away from their private interests and 
giving it to the communities, and there were some people who, 
from a political perspective, felt that that should be used 
only for fisheries development. I am not saying that that 
decision, from a policy perspective, was correct, and in fact, 
I think I agree with the Chairman, that in fact it was not.
    Mr. Underwood. All right. Thank you for that. And I ask 
unanimous consent to submit a statement for the record from the 
Chair of the Western Pacific Fishery Management.
    Mr. Young. Without objection, so ordered.
    [The statement of Ms. Guthertz follows:]

Statement of Judith Guthertz, Chair, Western Pacific Fishery Management 
                          Council, on H.R. 553

    Chairman Gilchrest and Members of the Subcommittee, I begin my 
testimony by greeting you and the Members of the Subcommittee on 
Fisheries Conservation, Wildlife and Oceans, with a heartfelt aloha, 
hafa adai, talofa. I am Dr. Judith Guthertz, Chair of the Western 
Pacific Fishery Management Council and Council member representing the 
Territory of Guam.
    The Council supports H.R. 553. Although the bill makes no 
substantial changes to the Western Pacific Community Development 
Program, it gives separate recognition to native Alaskans in the 
development of Community Development Programs. There are, however, 
technical changes that are contained in an addendum to this testimony.
    Managing the resources of Pacific Islands communities has always 
been based on consensus building, an approach given recognition by 
Congress when it reauthorized the Magnuson-Stevens Act in 1996. Section 
305 of the Act which supports the Council's community-based approach to 
fishery management in the Western Pacific serves as a perfect 
illustration.
    However, forces beyond the control of the Council have effected 
major changes in this region's fisheries, most of which have not 
suffered the same overfishing as on the mainland. Nevertheless, our 
fishermen and the Council have continued to pursue every opportunity to 
adapt to new fishing and management opportunities during a period of 
great uncertainty. The Western Pacific Community Development Program 
and Demonstration Project are ways in which the Council can help 
fishermen respond, adapt to and ensure their survival through 
community-based management.
    While we have no problems with the Western Pacific Community 
Development Program, we are very concerned and frustrated by the 
failure of the National Marine Fisheries Service to implement this 
program in a timely manner. Since 1996, the Council has worked 
diligently with the Fisheries Service, our advisory bodies and leaders 
within the indigenous communities on the eligibility criteria for 
participation in the Development Program and Demonstration Projects. 
These criteria, however, have not been implemented to date. We are 
deeply disappointed. In a letter received by the Council in April, the 
Fisheries Service is only now willing to publish the eligibility 
criteria in the Federal Register. These criteria were transmitted to 
the agency in June 1998, the same year Demonstration Project funding 
became available.
    Over the past five years, indigenous U.S. Pacific Islanders could 
have benefitted from several fishery opportunities had the Development 
Program and Demonstration Projects been operational. For example, in 
August 1998, the Council completed an amendment to the Bottomfish 
Fishery Management Plan to reserve twenty percent of the limited entry 
permits for part of the Northwestern Hawaiian Islands for use by 
eligible indigenous communities. Delays in the approval of the 
eligibility criteria for the Development Program have prevented the 
awarding of these permits. This program and other related initiatives, 
such as a Native Observer Program, could be of immense value in 
establishing greater participation of Pacific islanders in fishing and 
fishery management in the region.
    The Council is also working with American Samoa, Guam and the 
Northern Mariana Islands to include similar programs for the U.S. EEZs 
surrounding these islands. For example, in 1997 the Council recommended 
the establishment of a 50 nautical mile area closure around the 
American Samoa archipelago in which only pelagic fishing vessels 
smaller than 50 feet could operate. These closed areas were designed to 
protect an emerging small-vessel longline fishery in American Samoa 
from competition by large longline and purse seine vessels. 
Unfortunately, the National Marine Fisheries Service disapproved this 
management measure in 1999, citing the lack of need for the closed 
areas.
    With almost predictable inevitability, however, there has been 
significant expansion in the number of large vessel longliners 
operating in American Samoa, from 3 in 1997 to 20 as of July 2001, and 
more are expected by the end of 2001. The continuing expansion and 
evolution of the fishery has now prompted the Council to begin working 
on a limited entry program for longline fishing in American Samoa. Both 
the limited entry program and area closures would be ideal candidates 
for consideration under the aegis of the Community Development Programs 
and Demonstration Projects. However, these opportunities are being lost 
through bureaucratic negligence, resulting in a loss of faith by 
American Samoan fishermen in the management process and frustrating the 
Council in developing measures to protect and foster the emerging 
American Samoa longline fishery.
    The situation in Guam and the Northern Mariana Islands is likewise 
stifled by the National Marine Fisheries Service disregard of the needs 
and unique situation of U.S. Pacific Islanders. When the Fisheries 
Service closed the Hawaii swordfish fishery, by banning shallow set 
longline fishing in the entire North Pacific, an unreasonable 
constraint was placed on fishery development in Guam and the Northern 
Mariana Islands. This gear type is used throughout the tropical Pacific 
to catch yellowfin tuna. This method of fishing is now denied to U.S. 
Pacific islanders in Guam and the Northern Mariana Islands. There is no 
site-specific data to support such a ban in these waters. Further, 
these U.S. Pacific Islanders cannot avail themselves of the Development 
Programs and Demonstration Projects which might provide assistance in 
developing new fishing opportunities.
    Similarly, the Council and the U.S. Pacific Islands have not been 
able to make use of parallel provisions under the Magnuson-Stevens Act 
that permit foreign fishing nations to negotiate access to U.S. EEZs in 
this region. It was expected that revenues from these Pacific Insular 
Area Fishing Agreements (PIAFAs) would support research to develop and 
implement the Development Programs and the Demonstration Projects. This 
research is outlined in Marine Conservation Plans for each of the 
island areas, which were transmitted to the Fisheries Service in 1998-
2000. The MCPs were approved by the Southwest Regional Administrator 
and forwarded to NMFS HQ where they currently languish. It is ironic 
that this very same Regional Administrator is now the Acting Assistant 
Administrator, with whom the final approval authority lies.
    The Western Pacific Region covers a vast area of the Pacific and a 
political composition unique in the United States with its melange of 
territories, uninhabited and military controlled islands, a state and 
commonwealth. Unlike the mainland U.S. and Hawaii, our people in the 
territories cannot vote for a President, have no voting representation 
in the House of Representatives, and have no representation at all in 
the U.S. Senate. The Council process allows all our people direct 
participation in federal fishery management. The uniqueness of our area 
was addressed in the 1996 reauthorization in several key areas. To 
quote from the Act itself: ``the Pacific Insular Areas contain unique 
historical, cultural, legal, political, and geographical circumstances 
which makes fisheries resources important in sustaining their economic 
growth.'' Despite these important and potentially beneficial 
provisions, we remain frustrated at the indecision of a disinterested 
bureaucracy stemming, in part, to the political uncertainties of who 
will be appointed as the new Assistant Administrator, but primarily the 
result of poor leadership and lack of management accountability. Mr. 
Chairman, although the Magnuson-Stevens Act is up for reauthorization, 
due to the intransigence of the Fisheries Service the people of the 
Pacific island community have no experience by which to evaluate the 
performance of these provisions. We hope that during the upcoming 
hearings, we will be able to provide reports of some activity.
    Thank you for this opportunity to speak candidly with you and the 
Committee on our attempts to achieve the goals and intent of the 
Magnuson-Stevens Fishery Conservation and Management Act, particularly 
those sections which refer to the U.S. Pacific Islands.
Addendum: Technical changes to Magnuson Act and H.R. 553:
    In H.R. 553, the new subsection (k), paragraph (2) makes reference 
to ``a community development quota program that is not in compliance 
with this subsection'' which refers to substantive conditions under the 
original subsection 305 (i). The reference ``this subsection'' should 
be revised to read ``subsections (i) through (k) of this section.''
    In the note section of 305 establishing Western Pacific 
Demonstration Projects (Section 111(b) of the Sustainable Fisheries 
Act, Public Law 104-297), the statutory reference in paragraph (6) 
might be revised to read ``section 305(i)(1)(B)(i) through (iv)''.
Attachments:
September 30, 1997 Letter to OHA trustees from Simonds
March 17, 1998 Memorandum from Simonds to interested parties
June 18, 1998 Letter to Mr. Rolland Schmitten from Kitty Simonds
December 9, 1998 Memorandum from Simonds to C. Karnella
December 29, 1998 Letter to A. Stayman from Governor P. Tenorio
January 6, 1999 Letter to K. Simonds from C. van Bergeijk
June 22, 1999 Letter to R. McInnis from Simonds
August 12, 1999 Letter to G. Matlock from K. Simonds
August 20, 1999 Letter to K. Simonds from G. Matlock
October 1, 1999 Letter to P. Dalton from K. Simonds
August 28, 2000 Letter to R. Ziobro from K. Simonds
April 20, 2001 Letter to Kitty Simonds from R. Lent
May 18, 2001 Letter to W. Hogarth from J. Guthertz
May 18, 2001 Letter to W. Hogarth from R. Shiroma
June 7, Letter from W. Hogarth to R. Shiroma

    [NOTE: The attachments have been retained in the Committee's 
official files.]
                                 ______
                                 
    Mr. Underwood. I certainly would like the opportunity to 
talk with you, Ms. Elfring, about some of the issues attached 
to implementation in the Western Pacific.
    Mr. Young. Doctor, you mentioned the purpose of the program 
is to diversify their local economies. How can the communities 
do that in areas where the fisheries have been closed? I asked 
the same question of Mr. Bush. What is your answer to that?
    Mr. Balsiger. Mr. Chairman, I agree with Mr. Bush on this 
issue, and I think he is correct that the policy was developed 
through the Council, where there was a lot of public testimony, 
which was summed up in the Council's recommendation and NMFS 
regulations, initially restricting investments to fishery-
related programs, but we have no problem or difficulty with 
seeing that expansion and diversification. I agree it is an 
appropriate time to consider that now.
    Mr. Young. Secondly, Doctor, the National Academy of 
Sciences report has been out for 2 years, and yet was not 
looked at until my bill was introduced in Congress, by the 
State or by the Council. They did not look at the 
recommendations. And while I understand the Council has been 
busy with other things like stellar sea lions, and you have 
been that busy too, what is your estimate of why the State 
ignored that?
    Mr. Balsiger. Well, Mr. Chairman, thank you. I don't 
believe that the report was ignored. We actually--I know that 
the State, as well as the National Marine Fisheries Service, 
spent some time reviewing that, and it took us a couple of 
years, I guess, perhaps a year and a half, to get the Council 
CDQ Policy Committee together, but it is a relatively, very 
public process, and that would be the reason I think. The 
process now is fully engaged. They have a lot of--
    Mr. Young. Do you think it would be engaged if I had not 
introduced this bill?
    Mr. Balsiger. The bill was certainly very inspirational in 
terms of accelerating it.
    Mr. Young. Thank you.
    [Laughter.]
    Mr. Young. Why I say that, neither the State nor the 
Council had the time to review it. You know, why should the 
Congress, why should I be comfortable in leaving all the 
oversight authority and all the decisions being made, why 
should I be comfortable leaving it with the Council or with the 
State? Two years is a long time, especially when it affects 
decisions on how certain groups want to advance the development 
of their communities.
    I heard testimony yesterday about need for water and 
sewer--I heard Mr. Bush say this--things in the community. That 
is what it is all about. That is community development, you 
know. So, again, I am hoping that you understand--and I am not 
picking on you, Doctor, at all, or you, Mr. Bush--that report 
that Chris put out was a good report, and it sat on the shelf 
and there was very little attention paid to it until we got 
interested in introducing this legislation, because we are up 
for renewal, as you know. The Magnuson Act will be renewed this 
year, if not this year, next year, but this term. And this is a 
crucial part of the Magnuson Act, a CDQ Program. And we will 
have testimony from other witnesses later on, and difference of 
opinion. I understand that. Again, I feel very passionately 
about this program, and I want it to succeed.
    Mr. Underwood, I am going to do things I get in trouble 
with, but would you chair this meeting, and if you have any 
other questions, which I believe you will have, because I had 
some written here that I haven't asked, and if you will ask 
some of those question. And if I am not back immediately, you 
will bring up the next panel and I will be back as soon as I 
can. But unfortunately, or fortunately, I have to go vote, and 
you don't have the opportunity to vote. So if you would do 
that, I deeply appreciate it.
    Mr. Underwood. Okay. I will let you go if you vote no on 
this.
    Mr. Young. Well, I don't know. This is the Commerce report. 
I don't think you want me to vote no.
    [Laughter.]
    Mr. Young. All right, see you later.
    Mr. Underwood. [Presiding] All right. Thank you very much.
    Just to finish off this panel, go back to Dr. Chris 
Elfring. In your report, the study results led your team to the 
conclusion that there is a gap in communication between the CDQ 
groups and the communities they represent, that is part of 
that. How can that be if these groups are made up of people 
from the communities? Perhaps you could explain some of that. I 
mean, it is a natural human phenomena, I know, to have 
disagreements, but--
    Ms. Elfring. I was going to say, that is how people work 
when they form groups. Sometimes people feel excluded from 
those groups.
    Some of the Committee's members would be better able and 
could go into this more depth with you than I can, but 
essentially, as you talk to local people, there is always a 
filtering down of knowledge, and what gets to residents and 
local people is always less than the people who were in the key 
decision-making circles, and I think the Committee was feeling 
some sense that--and maybe again, it could be attributed to 
newness of the program, word wasn't out yet--but that there 
really needed to be more effect, that there weren't just a 
select group of decision makers making what were really 
community decisions. And again, that is probably not 
insurmountable, and it may already have changed somewhat in the 
2 years since our report has come out.
    Mr. Underwood. Well, how were the groups selected? Did they 
vary from community to community?
    Ms. Elfring. I actually think some of the other folks here 
might be better able to answer that than I am, because I am 
not--
    Mr. Underwood. Mr. Bush?
    Mr. Bush. Mr. Chairman, I am not an expert on this, but I 
understand that there are a variety of methods. They range from 
elections to appointments by the communities, but they do come 
from the communities directly. I should also point out that, as 
a response I think in part to the report, the communication 
issue was placed within State regulations that were adopted in 
1999 after the report came out, specifically putting in as a 
criteria the groups' communications--an allocation criteria, 
the groups' communication efforts with their communities. And 
so we do look at how the communications go to the communities 
by the groups when we make allocation decisions. And I can say 
that in response to this report, there have been changes made, 
and you could hear directly from the groups, but the groups are 
making an effort, I believe, to try to communicate with the 
residents of the communities, not just with the single members, 
in many cases, from each community, who sit on their board.
    Mr. Underwood. Dr. Elfring, you are appropriately placed 
between the Federal and the State representative, so perhaps 
you could--although the report didn't go into any commentary on 
this, do you have any suggestions or comments on the problems 
and the differences associated between State regulation and 
Federal regulation?
    Ms. Elfring. Yes. The main Committee conclusion related to 
that really was that we had no problem with there being both 
State and Federal oversight, but the Committee was concerned 
about inconsistency. There was inconsistency in the evaluation 
criteria. There was some inconsistency in other issues. And 
that that made business planning really difficult, and that was 
probably the main issue that the Committee had with those 
different oversight roles.
    Mr. Underwood. Was there any specific issue in the 
evaluation criteria or--
    Ms. Elfring. At the time--and again, I think some of this 
has evolved--in the book is two tables, and one is the State 
criteria, one is the Federal criteria. And one had a list of, I 
think, it is 20 or so items, and the other had summarized them 
down to 7. And it is just that different. If you are trying to 
plan, who do you plan for? Which of these two oversight layers 
do you pay the most attention to?
    Mr. Underwood. Well, I guess that is also an important 
question to ask the community groups themselves.
    Dr. Balsiger, Mr. Bush has indicated a couple of times in 
his response to the question about the use of the revenue or 
the income, to be free to use for purposes beyond fisheries. 
Mr. Bush has stated that this was pursuant to Federal 
regulations. It that consistent with your understanding?
    Mr. Balsiger. Mr. Congressman, yes, sir, it is. Of course, 
that Federal regulation was designed to implement the program 
that the North Pacific Fishery Management Council had derived, 
and there was--that was the result of a lot of public 
testimony, and as it filters through that semi-political 
process, the Council, at that time, wanted those investments to 
be in fisheries-related industries, and that is why the 
regulations were so written.
    As I mentioned earlier, the Fishery Service has no policy 
against expanding or diversifying those kinds of investments, 
and of course, as one of the things that the Council analysis, 
which is ongoing right now, is looking at, and the Council 
would address in the near future--
    Mr. Underwood. Well, since you work with the Council a 
great deal--I assume you work with the Council a great deal--is 
there a shift in thinking on this particular issue over time?
    Mr. Balsiger. Mr. Chairman, we did have public testimony on 
this issue in Kodiak in June, and there was public testimony on 
both sides of the issue. And so I think that we are giving it 
the fullest analysis we could. I can't predict what the Council 
decision would be when it makes its final decision, but there 
certainly is a lot of interest in that particular issue.
    Mr. Underwood. So would it be fair to say that what--in Mr. 
Young's proposed legislation here, he specifically authorizes 
that it could go beyond fisheries. I just want to make sure I 
understand this entirely. You indicated that Mr. Bush was 
correct in saying that the restrictions were pursuant to 
regulations. The regulations in turn were based on a period of 
commentary on the regulations made earlier. Is it your 
assumption that that is not specifically restricted in existing 
legislation? In other words, is there really a need for this 
particular part of the proposed legislation?
    Mr. Balsiger. Mr. Congressman, if the Council process, 
which I have suggested is one way to proceed or to go through, 
there is no guarantee that the Council recommendation would 
ultimately change its opinion on how the investments of CDQ 
monies ought to be made. And so, if your ultimate goal is to 
ensure with 100 percent certainty that investments are not 
restricted to fisheries, that probably is important to get in 
the bill, because the Council is going to consider that in its 
political process and may reach a slightly different 
conclusion.
    Mr. Underwood. Well, I understand the Council is free to 
make a different conclusion, but I am saying that if they 
concluded, for example, today without this legislation, that 
diversification is entirely supportable, can they do that and 
still be consistent with the law as it is written today? That 
is what I am asking.
    Mr. Balsiger. I am sorry. I understand your question. I 
believe that the current legislation would allow the Council to 
recommend a broad diversification of investments, and if they 
did that, the agency would write regulations to that respect.
    Mr. Underwood. In your statement you mention funded fishway 
demonstration project proposals. Could you please describe what 
these are and what their purposes are?
    Mr. Balsiger. I am sorry, Mr. Chairman. My parochial hat 
doesn't have that information with me. I certainly would be 
happy to get back to you with those.
    Mr. Underwood. Okay. I have also three other questions. I 
know that it is a little bit out of your scope, but pertaining 
to the development of the Western Pacific Community Development 
Group, just lastly, Dr. Elfring, you mentioned that there were 
the--when I asked you about the implementation of this in the 
Western Pacific--and correct me if I am wrong--I am 
understanding that there are problems associated with this that 
would be different from Alaska because I suppose the 
communities that are being assisted by this activity are less 
diverse than they are in the Western Pacific. I mean, I am 
trying to understand exactly what that particular concern is. 
Maybe you could elaborate on that.
    Ms. Elfring. Yes. I think the Committee's concern there 
wasn't so much about the diversity of the communities, but the 
broad geographic extent. I mean, there is a sort of natural 
grouping to the Alaska communities and how they were put 
together. And again, I think the Committee didn't believe that 
was insurmountable, but it made it a different scenario, and 
some of the procedures that you go through to form these groups 
would need to suit your geography basically.
    Mr. Underwood. And what the other concern you mentioned?
    Ms. Elfring. The first concern was how fisheries are 
allocated in general. I mean, Alaska was at an advantage, if 
you want to call it that, in how the program was initially set 
up because it already managed by quota. And so thus you could 
say, well, we are going to take a part of this quota, and it 
won't be individual, it will be community. You know, there was 
already a reserve portion, so instead of having to eat into 
someone else's part of that quota, you had a part that was 
unclaimed--put quotes around that--so there was already an 
existing management scheme that this fit very well into.
    Mr. Underwood. Very good. Okay, thank you. This panel is 
excused. Thank you very much for your testimony.
    I ask unanimous consent that the testimony from the North 
Pacific Fishery Management Council be inserted into the record 
at this point.
    [The information referred to follows:]

July 13, 2001

Honorable Wayne Gilchrest, Chairman
Subcommittee on Fisheries Conservation, Wildlife, and Oceans
U.S. House of Representatives
Room H-2-187 Ford House Office Building
Washington, D.C. 20515

Dear Chairman Gilchrest:

    Thank you for your invitation to Mr. Rick Lauber, Chair of our 
Council's CDQ Policy Committee. Unfortunately, he is unable to attend 
the CDQ hearing on July 19. In lieu of his participation I would like 
to briefly describe the recent activities of our Council regarding CDQ 
issues, and highlight some of the specific issues raised through our 
CDQ Policy Committee process. A full copy of that Committee's report to 
the Council at our recent June meeting is attached.
    First of all, I would like to take this opportunity to assure you 
and the Resources Committee that this Council fully supports the CDQ 
program, noting the myriad social and economic benefits the program has 
created for rural, Western Alaska coastal communities. The Council 
originated this program in 1992 through the pollock allocations 
associated with our inshore/offshore amendments and the allocations 
which were created as part of the halibut and sablefish IFQ program. In 
1995 the Council extended the program to all BSAI groundfish and crab 
species, as part of our license limitation program (LLP). The 
Sustainable Fisheries Act of 1996 institutionalized that program as 
part of the BSAI Fishery Management Plans. We recognize its permanence 
in statute and vigorously support its continuation. The Council has 
consistently supported this program and its limitation to the BSAI 
fisheries and communities. Of recent interest to the Council are 
certain administrative and policy issues associated with the CDQ 
program. These are seen as a fine-tuning of the program and in no way 
detract from our overall support.
    The Council formed the CDQ Policy Committee in December 2000 to 
address issues related to CDQ oversight responsibilities of the State 
of Alaska and National Marine Fisheries Service (NMFS). The committee 
is comprised of representatives from each of the six CDQ groups, two 
CDQ industry partners, one member each from the State and NMFS, and is 
chaired by former Council Chairman Rick Lauber. The committee was 
tasked with providing policy recommendations to the Council on changes 
that may be needed to regulations governing the role of NMFS and the 
State in program oversight, the CDQ allocation process, and the 
administration of the program. The Council requested a report from the 
committee no later than June 2001. The committee met on April 26-27 and 
May 24 - 25 of this year and identified nine priority policy issues and 
several alternatives and options under each issue which the committee 
felt warranted analysis. This list was eventually narrowed to eight 
issues within the committee process. The committee also made specific 
recommendations to the Council on each of these issues, in an effort to 
provide the Council with more information on the committee's priorities 
and preferences for future modifications to the CDQ Program. The 
attached report lists each of the issues as identified and addressed by 
the committee, as well as the relevant committee discussion, motion, 
and final vote on each of the recommendations.
    The Council received the committee's report in June 2001 and 
adopted the committee's recommended suite of alternatives and options 
for analysis, with a few additional alternatives provided by NMFS. The 
Council is scheduled to review the draft analysis, prepared 
cooperatively by Council staff and NMFS, in December 2001, with a final 
decision scheduled for February 2002. The Council would receive public 
testimony on the draft analysis at both the December 2001 and February 
2002 meetings, prior to making a final decision.
    While the committee did not reach consensus on several issues, the 
majority/minority opinions are represented in the attached committee 
report. Several of the issues and recommendations are related to 
government oversight responsibilities and stem from issues raised in 
Congressman Young's proposed legislation (H.R. 553, the Western Alaska 
CDQ Program Implementation Improvement Act of 2001). Please note again 
that while the committee has provided specific recommendations to the 
Council on some of these issues, the full suite of alternatives and 
options identified by the committee and NMFS will be analyzed and 
reviewed before the Council makes its formal recommendations. The 
comprehensive list of alternatives and options under consideration is 
attached. A summary of the key issues, and the CDQ Policy Committee's 
initial recommendations to the Council, are listed below.
 LIssue 1: Periodic or Permanent CDQ Allocations
      LThe State currently makes periodic, competitive allocations 
among the CDQ groups. This issue addresses whether to continue this 
practice, establish a fixed allocation cycle in regulation, or make 
permanent allocations to the CDQ groups. The committee recommended 
establishing a fixed allocation cycle of 3 years, with a clause 
provided for mid-cycle changes in extraordinary circumstances.
 LIssue 2: Define the Role of Government in Oversight of the 
        CDQ Program
      LThe current BSAI FMP references that the CDQ Program is a joint 
program between NMFS and the State of Alaska, and NMFS regulations 
specify requirements for the State in overseeing the CDQ allocation 
process, contents of the CDPs, the process for amending the CDPs, and 
periodic reports. The committee noted that significant confusion exists 
regarding the oversight roles of NMFS and the State because there is 
not explicit language in the current regulations outlining those 
responsibilities. Given that concern, the committee recommended 
specifically identifying and limiting government oversight to the 
following purposes in regulation:
        1. LEnsure community involvement in decision-making;
        2. LDetect and prevent misuse of assets through fraud, 
        dishonesty, or conflict of interest by verifying CDP milestone 
        compliance and financial performance;
        3. LEnsure that internal investment criteria and policies are 
        established and followed;
        4. LEnsure that significant investments are the result of 
        reasonable business decision, i.e., made after due diligence 
        and with sufficient information to make an informed investment 
        decision; and
        5. LEnsure compliance with legal program requirements.
    Please note the Council's addition of the general, overarching 
issue of further defining the respective oversight roles of NMFS and 
the State of Alaska (described in the attached list of Council issues 
and alternatives for analysis). While the committee identified Issue 2 
to limit the specific roles of government in the oversight of the CDQ 
Program, the Council added a fundamental issue which pertains to the 
respective roles of the Federal and State agencies that jointly oversee 
the program. Issue 2 and the general issue are thus related; the 
committee recommended government oversight duties in Issue 2, and the 
general issue addresses which government agency should be responsible 
for these duties and ultimately approving the CDPs and the final 
allocations to the CDQ groups. In addition to status quo, the following 
alternatives will be analyzed: modifying the current responsibilities 
of NMFS and the State to include NMFS regulations to guide the State's 
process in making allocation decisions; eliminating NMFS'' role in the 
allocations and allocating the CDQ reserve to the State for direct 
allocation to the CDQ groups; and revising the FMP and regulations so 
that NMFS has primary responsibility for the CDQ allocations.
Issue 3: CDQ Allocation Process - Type of Quotas
      LCurrently the CDQ and prohibited species quota (PSQ) are 
specified by species, area, and gear type, and each CDQ group is 
eligible to receive a percentage allocation of each CDQ or PSQ reserve 
as recommended by the State of Alaska and approved by the Secretary of 
Commerce. The committee recommended continuing this competitive 
process, as opposed to making some portion of the CDQ allocations fixed 
or based on demographic characteristics.
Issue 4: CDQ Allocation Process - Evaluation Criteria
      LThe State has published a list of evaluation criteria in 
regulation (6 AAC 93, included in the committee report) and decides how 
to apply that criteria in making CDQ allocations. The State explains 
its application of the criteria in its written allocation 
recommendations to the Council and NMFS. No specific criteria are 
published in NMFS regulations. The committee recommended a specific 
list of nine evaluation criteria to use in determining the CDQ 
allocations, several of which mirror the current State criteria. These 
criteria are included in the attached committee report. Because the 
committee is comprised of representatives from all six CDQ groups, the 
process by which the committee developed and agreed to these criteria 
(noting two objections) is similar to the process proposed in H. R. 
553, whereby the CDQ groups would be tasked to develop and agree on the 
evaluation criteria, which must then be used by the State and NMFS.
Issue 5: Public Comment on Allocation Recommendations: Appeals Process
      LThe State currently issues its CDQ allocation recommendations a 
few days before the Council meeting at which the State consults with 
the Council. The CDQ groups may testify to the Council about the 
State's allocation recommendations, and the Council must take comments 
into consideration in deciding whether to support the State's 
recommendations. If the State's allocation recommendations change as a 
result of these comments, they must re-consult with the Council. NMFS 
issues a final agency decision if it approves the State's allocation 
recommendations. NMFS regulations do not require a public comment 
period on the State's allocation recommendations after they are 
submitted to NMFS; they also do not require publishing the agency 
decision in the Federal Register. Noting concerns with the lack of an 
appeals process, the committee recommended developing a comment period 
for the State's allocation recommendations such that the State is 
required to, among other things: 1) upon issuing the initial 
recommendations, provide an explanation of changes from the previous 
year's allocations; 2) accept pubic comments on the initial 
recommendations; and 3) issue final recommendations and provide a 
written response to public comments, including any changes from the 
initial allocation recommendations.
Issue 6: Extent of Government Oversight (definition of a CDQ project)
      LThe current NMFS regulations are not explicit on the extent of 
government oversight authorized by the definition of a CDQ project. 
This issue primarily addresses whether government oversight extends 
only to the activities of the CDQ group, or whether it also extends to 
businesses that the CDQ groups own. H.R. 553 also addresses this issue, 
and proposes that oversight would only apply to the activities of the 
CDQ group itself.
      LThe committee recommended a proposal by the State of Alaska to 
reduce the requirements for expenditures that require review and prior 
approval by the State and NMFS and to clarify that oversight of the CDQ 
Program includes the activities of businesses that the CDQ groups own. 
The committee also recommended including a rebuttable presumption in 
regulation, such that if a CDQ group owns 50% or more of a subsidiary 
company, the burden is on the CDQ group to prove that it does not 
exercise effective management control over that subsidiary (as defined 
by control of the daily operations and management of the company). If 
it is determined that they do not exercise effective management 
control, then any activity of that entity is treated as a standard 
investment (not as a CDQ-owned business) and thus subject to lower 
oversight and reporting requirements.
Issue 7: Allowable Investments by CDQ Groups (fisheries-related 
        projects)
      LNMFS regulations (50 CFR 679.1(e)) implement what NMFS 
understands as the Council's intent - that the revenue generated by the 
CDQ allocations is to be spent only on ``fisheries-related'' projects 
to benefit the communities in the CDQ groups. Current regulations do 
not include specific investment guidelines or a list of allowable 
investments, and some decisions about acceptable investments have been 
based on policy or practical considerations (scholarships, stocks, 
etc.). H. R. 553 also addresses this issue and would expand the type of 
investments that could be made with CDQ royalties and assets.
      LThe committee recommended modifying the regulations to 
incorporate some flexibility in the type of project in which the CDQ 
group can invest. The committee recommended that CDQ groups be allowed 
to invest up to 20% or a maximum of $500,000 of their pollock royalties 
in non-fisheries related projects, and that those projects must be 
economic development projects in the region of Alaska represented by 
the CDQ group. To date the Council has supported the concept of 
fisheries-related projects only, but will be considering possible 
adjustments when they take final action on these issues.
Issue 8: Other CDQ Administrative Issues
      LThe committee noted that the State has proposed several minor 
administrative changes, primarily related to streamlining the reporting 
and CDP amendment process. The committee supported incorporating these 
changes in the analysis.
    The committee was initially created on the basis that it would be 
disbanded upon completion of its task to address the priority policy 
issues and provide recommended changes to the Council. Upon receiving 
the committee report, however, the Council decided to keep the 
committee intact for a minimum of one year, in order to address on-
going and upcoming CDQ policy issues on an as-needed basis. One 
potential responsibility of that committee may be to review the draft 
analysis before it is submitted to the Council in December 2001, and 
make final recommendations to the Council on these issues.
    The Council recognizes the importance of this program to the rural 
communities of western Alaska, and continues to support its 
implementation. Given the rapid growth and evolving nature of the 
program since its inception in 1992, the Council also supports moving 
ahead with an analysis of the policy issues surrounding the program. A 
review of these issues will help ensure that the program is 
appropriately structured to adapt to changes in the fisheries, and will 
continue to benefit these communities to the fullest extent possible. 
Thank you for considering these comments relative to your upcoming 
hearings.

Sincerely,

David Benton
Chairman

cc: LDave Whaley, Legislative staff
 LRobin Samuelsen, Council member

Attachments:

Report and Recommendations of the NPFMC CDQ Policy Committee (June 
2001)

Draft Issues and Alternatives for CDQ Policy Analysis (June 2001)

    [NOTE: The attachments have been retained in the Committee's 
official files.]
                                 ______
                                 
    Mr. Underwood. We can have the second panel come up. The 
second panel: Mr. Larry Cotter, Mr. Robin Samuelsen, Ms. 
Merculief, Mr. Crow, Mr. Asicksik and Mr. Alstrom.
    Good afternoon, and welcome to the Committee, and we will 
start off with Mr. Cotter.

 STATEMENT OF LARRY COTTER, CHIEF EXECUTIVE OFFICER, ALEUTIAN 
       PRIBILOF ISLAND COMMUNITY DEVELOPMENT ASSOCIATION

    Mr. Cotter. Good afternoon, Mr. Chairman. I would like to 
thank you for inviting me to testify today.
    I have been involved in the CDQ Program since its 
inception. In fact, I was a voting member of the North Pacific 
Fishery Management Council when the program was initiated and 
development and adopted.
    I currently serve as the Chief Executive Officer for the 
Aleutian Pribilof Island Community Development Association, 
otherwise known as APICDA.
    The CDQ Program is arguably the most important economic 
development program ever implemented in Western Alaska. APICDA 
is proud of its accomplishments since its formation some 8-1/2 
years ago in December 1992. On an annual basis APICDA provides 
in excess of 170 jobs to local residents from our member 
communities, generating a local resident payroll of 
approximately $2.5 million a year. In addition, APICDA has 
provided nearly $1 million in training and education 
scholarships for over 200 residents. APICDA's focus has been on 
shore-side economic development in our member communities. We 
have invested in excess of $20 million in infrastructure and 
business development in our communities during the last years. 
We have also invested in several large Bering Sea class 
harvesting and processing vessels that operate as profit 
centers and generate revenue that we use in support of our 
shore-side operations.
    None of this would have been possible without the CDQ 
Program. The CDQ Program, however, is not without its problems, 
although most of them can be attributed simply to growing 
pains. Federal CDQ regulations delegate substantial 
responsibility to the State of Alaska as part of the CDQ 
allocation process. The State develops a recommended allocation 
for each of the groups, and the Secretary of Commerce 
ultimately approves or disapproves the allocation. The intent 
of the regulations are to insure that a fair and equitable 
allocation process is used by the State when making its 
recommendations.
    In our opinion, there is no credibility to the current 
State decision-making process on allocations. Decisions made by 
the State are made behind closed doors. Although there is 20 
some criteria, there is no ranking or relative weight 
associated to those that we are aware of, and the groups 
ultimately, simply have no idea how allocations are made or 
what thinking process is used in making them.
    Unfortunately, the Secretary of Commerce appears to have 
delegated his or her responsibility in the allocation process, 
to the State. National Marine Fishery Service and NOAA, acting 
on behalf of the Secretary, maintain that the Federal 
Government's role is essentially ministerial, that is, the 
State will make the decisions, and the Secretary will simply 
determine whether or not the State followed the process 
outlined in the regulations.
    As a result, the Secretary has abrogated its responsibility 
to determine whether or not the State is making fair and 
equitable allocation recommendations. At the very least, since 
this is a Federal program, we would expect that NMFS would 
ensure that the process used by the State is fair and equitable 
and not arbitrary and capricious.
    The position adopted by NMFS and NOAA results in a denial 
of due process to any CDQ group who wishes to object to or 
challenge allocation recommendations developed by the State. 
Since the State of Alaska CDQ regulations do not provide for an 
appeal of its recommendations, and NMFS has withdrawn from the 
process, there is no one to appeal to except the courts.
    We believe that it is now in the best interest of the CDQ 
groups, their members, their partners and the public, for each 
group to receive a fixed CDQ allocation that extends for the 
life of the program. The CDQ Program, in each of the six 
groups, has matured sufficiently that it is no longer necessary 
or in the best interest of the program itself, in our opinion, 
for the groups to compete against each other for CDQ 
allocations.
    Individually and collectively the groups need financial 
stability. Fixed allocations will eliminate politics from the 
allocation process, reduce costs for both the Government and 
the CDQ groups, allow each of the groups to better utilize 
their personnel, and increase financial stability for each of 
the groups since we will know in advance what our allocation 
will be for the future.
    Rules and regulations exist for the purpose of outlining 
the boundaries of acceptable behavior. The concept of oversight 
as a simple mechanism to ensure that rules and regulations are 
adhered to is an appropriate and acceptable tool in our 
opinion. However, when oversight results in micro management or 
unnecessarily burdens those being overseen, it creates an 
unnecessary bureaucracy which increases costs and reduces the 
efficiency of the corporation.
    In APICDA's opinion, it is inappropriate to continue 
requiring the different groups to receive approval from the 
State of Alaska and the Secretary of Commerce before a group 
can make an investment or make adjustments in its budgets or 
operating plans. Why should the State of Alaska or the 
Secretary of Commerce be able to substitute their decision in 
place of the decision made by a group of board of directors 
from a CDQ organization? If the decision is within the scope of 
the program and adheres to the rules and regulations regarding 
investments, the current oversight requirements are 
unnecessary, costly, inefficient and inhibiting.
    Our proposal on oversight is very simple. The CDQ groups 
should be required to operate within the law and live within 
the rules and regulations of the program, to amend their 
community development plans when appropriate, to provide timely 
copies of the amendment to the State and to the National Marine 
Fishery Service, and to provide reasonable advance notification 
to the State of Alaska and/or NMFS when new investments are to 
be made. Nothing else is really necessary. The State and/or 
NMFS can do an annual audit to ensure that the groups have 
operated with the law.
    Another issue of significance is the extent of allowable 
investments by CDQ groups. When establishing the CDQ Program, 
the North Pacific Council limited the scope of investments to 
those that are directly or indirectly related to the fishing 
industry. There are increasing calls by different CDQ groups 
for this policy to be modified to allow limited or unlimited 
investments in non-fishery-related projects investments. APICDA 
and one other CDQ group, Central Bering Sea, are unique among 
the six CDQ groups, in that our communities are located 
immediately adjacent to the groundfish and shellfish fishing 
grounds, and the other four CDQ groups are not. As a result, we 
are in a position to use our CDQ allocations to develop local 
economies in our member villages that are based upon and rely 
upon those fisheries. That is the focus of our program. By 
virtue of our location, APICDA is required to expend 
substantial sums on infrastructure. Anyone familiar with the 
Bering Sea realizes that development is expensive and risky. 
The intent of the CDQ program is to provide a mechanism to 
support that. We could support providing the necessary 
flexibility for the other CDQ groups to develop non-fishery-
related resources adjacent to their communities, and to develop 
outside investments using CDQ funds, if sufficient CDQ 
allocations are set aside for those CDQ groups who have the 
capability to reasonably complete the development of 
sustainable local economies.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Cotter follows:]
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    Mr. Underwood. Thank you for your testimony.
    Mr. Samuelsen. I am going to have to try to insist that we 
try to stick within the 5 minutes, although Mr. Cotter squeezed 
an addition of 2-1/2 minutes out of this. Go ahead, Mr. 
Samuelsen.

   STATEMENT OF H. ROBIN SAMUELSEN, JR., CHAIRMAN, BOARD OF 
    DIRECTORS, BRISTOL BAY ECONOMIC DEVELOPMENT ASSOCIATION

    Mr. Samuelsen. Thank you, Mr. Chairman. That is the nature 
of Mr. Cotter.
    For the record, my name is Robin Samuelsen. I am from the 
Bristol Bay Economic Development Corporation. Behind me I have 
Hazel Nelson, who is our vice president.
    Mr. Chairman, I make up--BBEDC makes up 17 villages within 
the Bristol Bay Region. I am also a tribal chief, Mr. Chairman, 
and I want to make one clarification. The CDQ Program is not a 
Alaska Native program. We represent everybody that lives within 
our communities, regardless of ethnic background.
    The CDQ Program is entering its tenth year, and I can 
honestly say that no one thought this program would survive, 
let alone thrive. We were against adversity like never seen 
before in the Alaska fishing community. Outside interests were 
united in destroying the community development program.
    We are from isolated villages. The lowest prices I could 
find in the Bristol Bay Region for gasoline was $3.00 a gallon 
just before I came down. Heating fuel was 2.45, and the lowest 
price I could find for a gallon of milk was $6.18. In 1997 and 
1998 the Federal and State Government declared my region an 
economic disaster. Our salmon did not return. This year we are 
missing 12 million salmon to ocean fish. We are facing another 
disaster in the year 2001, not only from a biological 
standpoint, but also from the farm-raised Chilean salmon that 
is flooding our marketplace.
    Our people live in cash plus subsistence economy. They have 
done that for thousands of years in Bristol Bay.
    Ten years ago not one person from my region was employed in 
the Bering Sea. Today we have over 350 people working from our 
communities. These are not slime-line positions. These are 
upward mobility positions. People are in upper management and 
are working their way up.
    We have invested in pollock, crab, cod, halibut with 
partners from Alaska to Washington. These investments have 
proven themselves very valuable. BBEDC's primary focus has been 
in-region development, increasing the skills of our residents. 
We have teamed up with the University of Alaska, Fairbanks, and 
many of our people do not have high school diplomas. In order 
to enter into a slime-line position, they need a GED. We have 
gotten many people their GEDs. Our dropout rate in our high 
schools is reversing, and things are finally looking up.
    We haven't forgotten about our elementary kids. You need to 
teach them young. So we have introduced our kids to the 9 to 5 
work world, and we have got all four school districts signed 
on.
    Bristol Bay used to be the salmon capital of the world, but 
then again, our salmon prices have plummeted. Our internships 
are very important. We employ these young people both inside 
the region and outside the region. There has never been a 
program like the CDQ Program. Combined, it has helped my people 
like no other program has, and I believe that if it were not 
for the competitive nature of this program, between us, the CDQ 
groups, and the need to live up to our community development 
plans, coupled with strong Federal and State oversight, we in 
the CDQ Program will not have come as far as we have.
    This leads me to the oversight issues. State, Federal and 
the North Pacific Fishery Management Council have all done a 
good job of ensuring that this use of a public resource is 
doing what it is supposed to do. The Council and NMFS 
specifically put the State of Alaska into lead oversight day-
to-day management role, and they are the most qualified for the 
job. Neither NMFS nor the Council wants to take on this 
responsibility.
    The CDQ groups have a lengthy process to go through before 
any allocations of resources are made to them. We must submit a 
CDP, provide quarterly and annual reports, participate in 
public hearings.
    I won't read through all my testimony because I don't have 
the time, but, yes, Chairman Young has been successful. If it 
wasn't for Chairman Young introducing H.R. 553, I don't think 
the Council would have taken this issue, I don't think the 
State would have looked at this issue, and the CDQ groups have 
been crying out, but because of other issues such as stellar 
seal lions, the American Fisheries Act, a whole host of 
lawsuits and putting the North Pacific Fishery Management 
Council, as well as NMFS, under a regulatory lawsuit siege, the 
priorities were set forth by the courts. And if it wasn't for 
you, Mr. Young, and introduction of this bill, I don't think 
the Council would have looked at the problems of the CDQ 
community that they are having in oversight, but thanks to you 
and the introduction of this bill, I think that the Council is 
moving forward. We are going to look at--the Council formed a 
Committee that has brought forth recommendations. The Council 
will take the recommendations in October, and ship them out for 
final analysis, and hopefully will act on them in December.
    I just got lectured about time. Mr. Chairman, thank you.
    [The prepared statement of Mr. Samuelsen follows:]
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    Mr. Young. [Presiding] Thank you, and thanks for--you 
stayed right in time. In fact, you had 15 seconds left. That is 
all right.
    Ms. Merculief, you are up next.

 STATEMENT OF PATIENCE MERCULIEF, ADMINISTRATIVE DIRECTOR AND 
 CDQ QUOTA MANAGER, CENTRAL BERING SEA FISHERMEN'S ASSOCIATION

    Ms. Merculief. Thank you, Mr. Chairman, for the opportunity 
to be here today. It is an honor to be here on behalf of the 
members of the CBSFA community. I apologize for the fact that 
Mr. Phillip Lestenkof, President of CBSFA, is not here today 
because he is in fact in the middle of our halibut fishery.
    I first ask that our written testimony be included in the 
record in its entirely, and second, we have provided you with a 
portfolio of the CBSFA halibut fishery in action, and I hope 
that the members of the Committee and the staff can improve 
their understanding by looking at pictures of our halibut fleet 
and harbor in action. A picture is often worth a thousand 
words.
    It is the CDQ Program and almost 1-1/2 million pounds of 
CDQ and IFQ halibut that has allowed the St. Paul fleet to 
develop. It allows access to the fish, provides the resources 
to finance individual CBSFA fishermen, to purchase boats and 
also purchase additional IFQ halibut in Area 4C, the area 
surrounding St. Paul. Without the CDQ Program, this would be 
another situation where the residents of St. Paul would have 
sat by in poverty, and watched people from Seattle, Anchorage, 
Kodiak, or Dutch Harbor, benefit from the halibut resource in 
the waters around St. Paul. Whatever improvements are 
necessary, the bottom line is that this program is a success.
    In the community of St. Paul, a community of about 600 
people, 120 people are making at least a portion of their 
living fishing. There are 20 boats fishing and at least 10 
captains are netting more than $30,000. Five of those are 
netting over 50,000 a year from the halibut fishery. The total 
gross revenue to the community of St. Paul from the halibut CDQ 
fishery is approximately $3 million. All of this has happened 
in the last decade because of the CDQ Program. 55 percent of 
the United States commercial fishing industry catches their 
fish within 65 miles of St. Paul Island. Yet there would not be 
an economically viable in-shore fishing fleet in the community 
without the CDQ Program.
    The future depends on the CDQ Program too. If CBSFA 
receives adequate allocations and is not burdened with 
excessive regulation by the State, there is potential for:
    No. 1. Icicle Seafoods moving a processor to the harbor to 
process cod, pollock and other flat fish. CBSFA, Icicle and the 
City of St. Paul have signed an MOU to allow this to happen; 
and
    No. 2. With the eventual return of crab, the continued 
harvest and processing of crab for the benefit of the CDQ 
groups that are not located near the resource. CDQ crab 
harvesting and processing on St. Paul benefits all of the CDQ 
groups;
    No. 3. The ability of the community to develop the 
necessary infrastructure, such as construction of the local 
authorized small-boat harbor, so that CBSFA can upgrade its 
boats and other groups can take advantage of the immense 
resource surrounding St. Paul;
    No. 4 The revenues to finance individual fisherman's 
acquisition of larger vessels and additional fish quotas so 
that fishermen can expand and diversity into other fisheries; 
and
    No. 5. The training, internship and other educational 
programs to allow the local residents to participate 
successfully in these programs.
    There are two impediments, first the State's focus on 
population in allocating quotas, rather than commercial fishery 
development potential; and secondly, the over regulation that 
diverts revenues and focus of the CDQ groups from the market in 
commercial fishery to bureaucratic administrative activities.
    Allocation is always a tough issue. CBSFA admits that there 
is justification for the State concentrating to some extent on 
population as the criteria. However, there are other equally 
important criteria. These are: (1) proximity of the community 
to the resource, (2) the commercial fishing development 
potential in a community, (3) the need of a communities' 
fishermen to have access to a portion of the resource, and (4) 
the infrastructure required to allowed participation in the 
commercial fisheries in the waters around the community. These 
are all legitimate policy criteria, and are, CBSFA contends, 
the purposes for the program, they should be considered on an 
equal basis as population.
    As the St. Paul developing halibut fleet demonstrates, 
access to the resources, financing and education, and 
infrastructure and markets are all important benefits that 
allow Alaskans in Western Alaska to participate in the private 
sector economy. It is time to follow the Alaskan Native Claims 
Settlement Act, rather than the old BIA model. ANCSA started 
with Government oversight, but succeeded by allowing the 
corporations to become successful in the market like other non-
native corporations. The initial CDQ oversight may be 
justified, but now it is time to move toward the ANCSA model.
    In conclusion, the CDQ Program is one of the most 
innovative and successful economic development programs that 
creates economic opportunities in rural areas in those 
communities adjacent to our fishery resources. As the National 
Resource Council and this hearing demonstrate, there are areas 
which needed improvement, and we urge the community to pass 
H.R. 553 with changes, and make the improvements needed. The 
improvements, however, only make a great program even better.
    Chairman Young, CBSFA thanks you for your leadership in 
creating the program and your continued leadership in 
introducing legislation to make some mid-course corrections. We 
also thank you for conducting this hearing. With your 
consistent involvement, the CDQ Program will reach its 
potential. It will continue to be the model program we all 
want. On behalf of all the people on St. Paul Island in the 
Pribilofs, thank you.
    [The prepared statement of Ms. Merculief follows:]

Statement of Patience Merculief and Tony Smith on behalf of the Central 
               Bering Sea Fishermen's Association (CBSFA)

    Good morning. My name is Patience Merculief and with me is Tony 
Smith, CBSFA's legal representative, who has been involved with the CDQ 
program since its inception on St. Paul's behalf and who will assist me 
with this testimony. I was born and raised on St. Paul Island and 
currently work for the Central Bering Sea Fishermen's Association 
(CBSFA). It is an honor for me to be present today on this issue of 
critical importance to my community.
    First, Mr. Chairman, I would like to apologize for the fact that 
Mr. Phillip Lestenkof, President of the Central Bering Sea Fishermen's 
Association, is unable to be here in person to present the views of 
CBSFA. As my testimony will demonstrate, the CDQ Program has given the 
fishermen on St. Paul Island, Alaska, an opportunity to be very 
successful commercial fishermen. Without the CDQ Program, it is 
doubtful that the Aleut Natives on St. Paul Island would be anywhere 
near as successful as they are, but this hearing is in the middle of 
the most important commercial fishing season (the halibut season) for 
Mr. Lestenkof and the members of CBSFA. As we speak, Mr. Lestenkof is, 
weather permitting, on the waters of the Bering Sea fishing for halibut 
in a very small vessel as a day boat commercial fisherman. He is able 
to do this because of the CDQ Program. Mr. Lestenkof has a record of 
being one of the successful fishermen on St. Paul Island, and it is 
commercial fishing, not his position as CBSFA President, that is his 
past and future livelihood.
    While I ask that Mr. Smith discuss CBSFA's main concerns before 
this body, I wanted to state that the CDQ program is critical to the 
livelihoods of many residents on St. Paul Island and has played a key 
role in our community's development. While recognizing the positive 
impacts of the CDQ program, CBSFA also acknowledges that the program, 
its needs, and the needs of its beneficiaries have evolved, and 
therefore, adjustments are required to reflect the new realities.
    The fact is that because of the CDQ Program, I will become an 
intern at a major seafood company this fall, my brother is able to 
support himself and his family as one of the top halibut fishermen in 
the fleet and my father, as City Manager of St. Paul Island, is 
constantly working with the CDQ Program to develop the commercial and 
public infrastructure that benefits the Aleuts in the community and all 
the commercial fishermen fishing in the Bering Sea. I can assure the 
Subcommittee, the Congress, the Administration and anyone interested 
that the CDQ Program works and has made a difference in our lives. For 
this, I personally want to thank Chairman Young and the others who have 
developed this program.
    I will now turn this over to Tony Smith for more detailed comments 
on the program and what CBSFA views as its future. Thank you.
    Thank you. Good morning. My name is Tony Smith. I have attached a 
current resume summarizing my experience as it pertains to the subject 
matter of the hearings. Suffice it to say that I have been involved in 
the development of the CDQ Program since it first was conceived both as 
a government official and as counsel to communities, CDQ organizations 
and associations of CDQ groups. In the course of my testimony, I will 
point out some areas where we believe the program needs improvement, 
but in terms of sound public policy benefiting the ecosystem of the 
Bering Sea and the coastal communities in Western Alaska, this program 
is a winner. It is a program that, in my view, should be a model for 
coastal communities worldwide, and especially on the Russian side of 
the Bering Sea.
    As this testimony will demonstrate, the CDQ Program has given the 
fishermen on St. Paul Island, Alaska, an opportunity to become 
successful commercial fishermen. Without the CDQ Program, the Aleut 
Natives on St. Paul Island would not have had this opportunity as the 
fisheries were fully utilized by others. The program has also allowed 
this remote coastal village located in the middle of one of the world's 
richest fisheries, to participate in the fishery off its shores. While 
55% of the United States' commercial fisheries is within 65 miles of 
St. Paul Island, without the CDQ Program, the residents could not have 
commercially participated or been able to develop the necessary 
infrastructure. CBSFA and St. Paul demonstrate the benefits of the 
program noted by the National Research Council.
    The idea of giving the local residents an opportunity and a stake 
in the sustainability of the commercial resources in their coastal 
areas is also one of the most effective ways to assure that the 
resource is well-managed. Unlike the distant water commercial fleet, 
which can move to other fishing grounds around the world if the 
resource is over fished, the residents of St. Paul Island, Alaska, and 
the other Western Alaska coastal communities, are not able to pick up 
their communities and move to distant grounds when a fishery declines 
as a result of mismanagement, or otherwise.
    This alone is an important benefit of the CDQ Program.
The CBSFA Success Story.
    The community of St. Paul Island, Alaska, consists of approximately 
800 Aleut Natives. It is the largest Aleut community in the world and 
97 percent of the residents are Aleut Natives. In the short period of 
time that the CDQ Program has been in existence, the community has been 
given the opportunity by the program to develop an inshore day boat 
commercial halibut fishery. The result is a fleet of locally-owned 
vessels that is a major source of employment and is the major 
livelihood of a substantial number of the residents of St. Paul.
    CBSFA, with the implementation of the CDQ Program, began training 
and financing CBSFA members in acquiring commercial fishing boats. 
Eventually, when the opportunity presented itself with the 1995 
allocations of halibut in area 4C around the Island, this program was 
expanded to include acquiring IFQ halibut allocations when the halibut 
IFQ program began. CDQ funds were used to finance CBSFA members in 
buying IFQ halibut allocations from other commercial fishermen for the 
surrounding waters, on the open market. This program is ongoing, but 
the results are remarkable and Aleut fishermen have been able to buy 
IFQ allocations on the open market so that they can benefit from the 
resource around their home.
    On St. Paul Island, one hundred eighty Aleuts now earn all, or a 
portion, of their living from the halibut fishery. CBSFA and its 
members have received over 900,000 pounds of CDQ allocations in Area 4C 
and approximately 600,000 pounds of IFQ allocations. Thus, St. Paul 
residents have access to catch approximately 1.5 million pounds of 
halibut off their shores. At the recent ex-vessel price of $1.50 a 
pound, this is $3.00 million dollars of revenue for a community of 600 
from a fishery off their shore that use to go to fishermen from all 
over the world. It is also a three month fishery, that can be harvested 
by small boats fishing during the day when the weather is acceptable.
    There are twenty captains of commercial day fishing vessels on St. 
Paul. Five of those captains are earning over $50,000 per year after 
expenses and a number of others are earning more than $30,000 per year 
from the halibut fishery. The halibut fishery is a day fishery where 
the CBSFA fishermen fish on 20 to 36-foot boats. Some of the most 
successful captains are now trying to upgrade their boats to larger 
vessels in order to participate in other commercial fisheries for 
additional species where the fishermen have to venture further from 
port.
    As a result of the CDQ Program, St. Paul has been able to attract 
commercial processors and fish buyers to the Island to process the 
approximately 2.0 million pounds of halibut available in Area 4C. For 
example, CBSFA and the City of St. Paul presently have entered into an 
MOU with Icicle Seafoods, another processor, to move one of their 
processors to St. Paul in order to process cod, pollock and other 
species, if certain improvements to the harbor are made. The CDQ funds 
will be critical to allow their small Native community to make those 
improvements. When it happens, all of the catcher vessels in the Bering 
Sea will benefit.
    Congress has authorized a small boat harbor as part of the St. Paul 
Harbor Improvement Project. Right now, there is no mooring area in the 
harbor. As a major portion of the small boat harbor facilities are non-
navigation facilities which the Corps of Engineers will not construct, 
the CDQ Program provides the funds so these facilities can be built. 
When completed, St. Paul will be a dynamic small boat commercial 
fishery in the middle of America's most productive commercial fishery. 
The local Native people will be a part of this--all because of the CDQ 
Program.
    Not only this, but for the first time in its history, the CDQ 
Program has given the Aleut residents of St. Paul an opportunity to 
earn their livelihood, and take care of their families, in the private 
sector based on their skill, determination and ability as commercial 
fishermen. Prior to the CDQ Program, the residents of St. Paul depended 
on the fur seal harvest, government employment, and employment with 
various non-governmental organizations (NGOs) that are active in the 
Pribilofs because of the importance of the wildlife located there. The 
CDQ program has offered the alternative opportunity of real 
participation in the private sector. The transformation of the economy 
from politics to individual initiative and market forces is another 
substantial benefit of the CDQ Program.
The Establishment of the CDQ Program.
    The CDQ Program was initially established by the North Pacific 
Fishery Management Council (NPFMC) in 1991 to allow fishermen residing 
in Western Alaska communities an opportunity to participate in the 
Bering Sea/Aleutian Islands ground fisheries and other near-shore 
fisheries as part of the Council's Pollock Fishery Management Plan. The 
reason given was to provide a means to initiate or support commercial 
fisheries activities which will result in sustainable, regionally based 
commercial fisheries economies. The National Research Council notes the 
``... program was designed to improve social and economic conditions 
... by helping communities build their capacity to engage in commercial 
fishing.''
    When the NPFMC program was statutorily incorporated into the 
Sustainable Fisheries Act (Magnuson-Stevens) in 1996, the purpose was 
expressed as creating an opportunity for the residents of the coastal 
communities to participate commercially in the Bering Sea fisheries. 
The regulations implementing Magnuson-Stevens state that the goal is:
        ''... to allocate CDQ (Community Development Quota in certain 
        species) to eligible Western Alaska communities to provide the 
        means for starting or supporting commercial fisheries business 
        activities that will result in an ongoing, regionally based, 
        fisheries related economy.'' 50 C.F.R. 679.1(e)(N).
    The regulations are consistent with the initial intent of the NPFMC 
in establishing the CDQ Program.
    Thus, Magnuson-Stevens codified the NPFMC's CDQ Program for the 
Bering Sea. In the House Committee Report, accompanying the House-
passed version of Magnuson-Stevens in October 1995, the Committee 
recommended the continuation of the NPFMC's program pointing out that 
Western Alaska is one of the poorest, most underdeveloped areas in the 
United States. Located on the Bering Sea coast, the residents of the 
area, predominantly Native, have historically watched valuable marine 
resources exploited by both foreign and American distant water fleets. 
The CDQ Program provides a means to develop the local economies and to 
give the Native people an opportunity to participate in the commercial 
fisheries for each species.
    While begun in 1991 as part of the NPFMC pollock management plan, 
in 1992 the NPFMC, in conjunction with a limited access plan for 
halibut and cod, expanded the CDQ Program. Eligible communities were 
authorized to expand their participation by allowing them to harvest 20 
percent of the total allowable catch of Bering Sea cod and 
approximately 20 percent of the Bering Sea halibut. The plan was 
implemented in 1995 and has been the basis for developing the halibut 
and cod fishery at St. Paul Island.
    The 1996 Magnuson-Stevens Act reauthorization codified the 
additional pollock, cod and halibut fisheries and expanded the program 
to include a percentage of each species of the Bering Sea fishery. To 
accomplish this objective, the Act amended Section 313 of the Magnuson-
Act to require the NPFMC to establish, and the Secretary of Commerce to 
adopt, regulations implementing the Western Alaska CDQ Program as a 
permanent, independent program.
The House Committee Report specifically states that:
        ``The Committee expects that, for each Bering Sea fishery, the 
        NPFMC, with the final approval of the Secretary, will allocate 
        to the communities participating in the program a percentage 
        that is adequate to ensure their significant and sustainable 
        economic participation in the fishery.''
    The CDQ Program was considered, by both houses of Congress, to be 
very important for the coastal communities in order to provide the 
opportunity for their commercial and subsistence fishermen to ensure 
healthy coastal communities. The program is essential for providing 
access to the resources in order to develop self-sustaining fisheries-
based economies and infrastructures to support continued development. 
In addition, by becoming stakeholders in the nearby commercial fishery 
resource, the program creates the incentive among coastal community 
residents to work for the protection and sustainable management of the 
resources on which they, their families, and their communities depend 
for economic and cultural survival. 1
---------------------------------------------------------------------------
    \1\ As the 1999 National Academy of Sciences suggests, because a 
portion of the fishery resources are now local profits, these coastal 
communities are positioned to be the natural protectors of the 
environment particularly of the Bering Sea and the sustainability of 
the underlying resource base--the fishery.
---------------------------------------------------------------------------
    In implementing the federal regulations contained in 50 C.F.R. 
679.30, the State promulgated regulations in 6 AAC 93. State 
regulations have been issued and the State has been managing the 
program, but there are clearly areas of the program administration that 
need to be reviewed and, from the CBSFA perspective, improved.
Administration of the Program.
    In the State regulation of the CDQ Program, the State of Alaska has 
followed the path of constant and intense oversight. Budgets need to be 
reviewed in detail and constantly updated. Business plans are subject 
to revision by the State and must be followed, and formats are often 
more important than results. While standards may be ambiguous, the 
evaluation process is bureaucratic, intrusive, and extremely detailed. 
Government officials, through their oversight, decide what companies, 
vessels or infrastructure should be purchased, operated or sold by CDQ 
organizations. The intrusive, bureaucratic program requires substantial 
amounts of administrative time and burdens.
    In addition, quota allocations to CDQ groups are awarded mostly on 
a calculation of the population in a region and the number of jobs that 
are provided, rather than on the issue of whether a sustainable, 
profitable, long-term commercial fisheries business is being developed. 
The result is that consideration of population and the pressure for 
low-end jobs ends up as a higher priority than (1) long-term investment 
in a sustainable business enterprise, (2) infrastructure that creates 
opportunities for the coastal communities to participate in a 
sustainable fishery, or (3) in St. Paul's case, the development of a 
new fleet of commercial fishermen succeeding in a day boat halibut and 
cod fishery because they have access to the fish and the capital.
Criteria for Administration.
    Generally CBSFA agrees with the 1999 National Academy of Sciences 
study on the CDQ Program in Alaska that by making a long-term 
commitment to the CDQ Program, simplifying the criteria used in the 
allocation of quotas and reducing the high administrative expenses, the 
CDQ Program will run much more effective.
    CBSFA does not contend that there should be no oversight by the 
State of Alaska, nor that it is inappropriate to consider employment/
jobs as one of the factors in allocating CDQ quotas. What CBSFA 
contends, and urges Congress to consider as you look at the CDQ Program 
and at the Young bill, H.R. 533, are revisions that will ensure that 
the initial purposes of the CDQ Program are followed, that the CDQ 
organizations be allowed to make long-term financial commitments and 
that access to fish and development of enterprises and infrastructure 
are placed on an equal footing as are the creation of low end jobs and 
subsidies.
    We should learn from the Alaska Native Claims Settlement Act 
(ANCSA). At the beginning of ANCSA there was government budget and 
programmatic oversight. However, after the Native corporations were up 
and running, the oversight was reduced to a minimum. Governmental 
oversight of the CDQ Program should follow the highly successful ANCSA 
model, which allowed the Native village and regional corporations to 
make their decisions and carry out their goals.
    CDQ groups should be allowed to submit business records maintained 
in the ordinary course with a minimum of supporting reference the same 
as non-native businesses, so that they can devote their time to 
management of CDQ Programs. For example, the required submittal of 
Community Development Plan amendments for bureaucratic review becomes 
more important than adjusting a CDQ group's program to market forces.
Allocations.
    The administration of the CDQ Program by short-term periodic, 
competitive allocations among the CDQ groups, particularly when the 
principal requirement is creation of jobs (of whatever nature), 
undermines the program. The competition process does not further the 
original intent of the CDQ Program and should be reconsidered. CBSFA, 
for example, has suffered significant losses under the competitive 
allocation process (CBSFA lost 60% of their original allocation) 
despite the fact that CBSFA is one of the CDQ groups that is and has 
excellent prospects for continuing to develop the infrastructure and 
the processing capacity to allow all Alaska and Northwest residents and 
its member fishermen to process species close to the resource.
    CBSFA believes that if the Federal Government, through the National 
Marine Fisheries Service, were involved in the allocation decisions, 
this would improve the administration of the program. The CDQ Program 
is, since 1996 and the passage of the Magnuson-Stevens Act, a creature 
of federal legislation and deals with the federal fisheries resource. 
NMFS'' responsibility as a commercial fishery manager is to manage and 
supervise the commercial fishery in the Bering Sea and this 
responsibility should not be wholly delegated to the State of Alaska. 
The sustainable development of the commercial fishery in the Bering Sea 
is a federal responsibility.
    The State of Alaska, as a government entity, however, has different 
responsibilities. Part of those responsibilities is spreading benefits 
throughout the State. Sometimes this responsibility conflicts with the 
intent of the CDQ Program which is supposed to develop sustainable 
commercial fisheries in local coastal communities. NMFS therefore 
should try to strike a balance in the management of this federal 
program with the political goals of the State. For example, the tension 
between allocating CDQ to be used for access to the fishery with the 
CDQ as a source of cash to meet State responsibilities and create jobs 
must be managed.
    At least a portion of the commercial fisheries resource should be 
allocated to the coastal communities that are next to the fishery. This 
is good public policy. It ensures local interest in the management of 
coastal resources. It ensures that residents of Alaska and the Bering 
Sea are not condemned to poverty as they watch a distant water fleet 
harvest and process the resource. The opportunity for coastal 
communities to be stakeholders is important and needs to have a 
priority role. The need to continue to develop the commercial fishery 
should be a priority. A CDQ group that has profits and only needs 
subsidization should lose quota to one that is building commercial 
fishing infrastructure.
    CBSFA does not contend CDQ allocations may not be used to subsidize 
jobs in some rural villages, even if the commercial fishery has 
declined or has never been significant in that village. This also may 
be good public policy. However, both should be balanced and 
administered to make long-term commercial fisheries development the 
most important criteria.
    Part of this can be accommodated by changing the length of the 
allocation cycle. At present, a CDQ group receives an allocation for a 
two-year period, which is then subject to competition at the end of the 
cycle. The size of the allocation depends on bureaucratic discretion 
and whether the CDQ group has done what the State wants, coupled with 
the group's population and number of jobs created, irrespective of what 
those jobs are. This is not consistent with the intent of the program 
and ignores the long-term need to have the allocation available so that 
the communities can compete in the commercial fisheries. A minimum wage 
job on the processing line is not the same as the captain of a small 
day boat that successfully catches and sells halibut.
    The CDQ allocation is also more than just dollars. It is access to 
the resource. It is the opportunity of the coastal communities to 
participate in the Bering Sea commercial fishery. At the outset, the 
allocation may be converted to dollars in order to develop and maintain 
the infrastructure, or capitalize the business. However, the allocation 
ultimately is worth more. It is critical to the coastal communities' 
ability to participate in the commercial fisheries, just as the 
allocations that are currently given to harvesters or processors allow 
them to participate in the commercial fishery.
    A portion of the CDQ resources awarded to a CDQ Program should be 
available to be used to develop and maintain public infrastructure in 
coastal communities on the Bering Sea. If public infrastructure is not 
supported in these communities, eventually the entire industry will be 
off-shore, a negative development for the State and for conservation. 
In furtherance of community development, the National Academy of 
Sciences study on the CDQ Program in Alaska recommends the need for 
education and training. The study suggests that educational and 
training monies should be spent two-fold: scholarship money to send 
young adults to universities and training programs to enable the 
communities to become more self-sufficient. Education and training 
reinforces the infrastructure and furthers the investment in these 
communities. It has helped CBSFA build its fleet.
    The commercial fisheries outside of three miles is a federal 
resource, but the harbors, the small boat facilities, the outfalls, and 
other infrastructure that a community needs to participate in a 
fishery, requires a substantial investment of local resources. The 
federal resource should support access to the federal commercial 
fishery.
Conclusion.
    On behalf of CBSFA, we stand ready and willing to assist the 
Subcommittee, the Congress, the National Marine Fisheries Service, and 
the State of Alaska in revising the CDQ Program to carry out its 
intent. This program is a winner and has been crucial to the 
development of St. Paul Island's halibut and cod fishery. It clearly 
has worked on St. Paul, but there is much to be done.
    For example, on St. Paul the Corps of Engineers' Federal Project, 
including a small boat harbor for fifty vessels, requires Local Share 
and the CDQ resource allocation should be available for this. The 
expansion of processing capabilities so that the local fishermen, and 
the Northwest fleet can process at St. Paul Island is beneficial to the 
United States, the State of Alaska, and the entire Northwest and should 
be a priority of the program. It requires a viable CDQ partnership in 
order for this to happen.
    In the longer term, the CDQ Program is critical to the development 
of waste facilities, outfalls, and other infrastructure necessary to 
allow the most important ecosystem in the Northern Hemisphere to 
develop in a sustainable, environmentally friendly manner.
    The Pribilof Islands are known as the ``Galapagos of the North'' 
because of their environmental diversity and importance. In the 
Galapagos in Ecuador, there is no CDQ Program and the rampant expansion 
of the tourism and fish economy to satisfy large groups of Ecuadoreans 
who moved there from other parts of the country and the activities of 
distant water fleets stand in stark contrast to St. Paul and the other 
Western Alaska communities who have the CDQ Program. By giving the 
coastal communities an allocation of resource, the same as we do to 
harvesters and processors, the community has a stake in the management 
of that resource. This ensures that we will have an environmentally 
sensitive, sustainable program supported by the people of the coastal 
communities. The CDQ program works, it only needs an adjustment in its 
administration.
    Thank you for the opportunity to testify.
                                 ______
                                 
    Mr. Young. Thank you for the testimony. And where did you 
go to school?
    Ms. Merculief. I went to school at Mount Edgecumbe High 
School and the University of Alaska Fairbanks, and also a year 
I studied in Japan.
    Mr. Young. I appreciate that, and one of the reasons I say 
that, is that Mount Edgecumbe is--you know, they closed it, and 
I was instrumental in getting it reopened. Probably one of the 
better things we did. I mean, I think you have done well. Good 
job.
    Ms. Merculief. Thank you.
    Mr. Young. Mr. Morgen Crow.
    Mr. Crow. Thank you, Mr. Chairman. Patience is a hard act 
to follow.
    Mr. Young. You will do well, believe me.

STATEMENT OF MORGEN CROW, EXECUTIVE DIRECTOR, COASTAL VILLAGES 
                          REGION FUND

    Mr. Crow. First of all, let me thank our congressman from 
Alaska, the Honorable Don Young, and his staff, for initiating 
a review of how Federal legislation might improve the Western 
Alaska Community Development Program. I hope that my comments 
will help to develop this trusting relationship between the CDQ 
groups and the oversight agencies to improve the governance of 
this wonderfully successful program.
    My name is Morgen Crow. I am the Executive Director of 
Coastal Villages Region Fund, the organization managing the CDQ 
on behalf of 20 communities in our region. Our communities 
represent 30 percent of the total population eligible to 
participate in the CDQ Program.
    With me are Simeon John of Toksook Bay, our President, and 
Howard Amos of Mekoryuk, CVRF's Vice-President. These 
gentlemen, in addition to their service on the board of CVRF, 
first fished commercially for salmon, herring and halibut.
    Our region is a land of limited resources. Operating 
dollars for health, education, and our Government programs 
amount to tens of millions each year, yet our region remains at 
the top of the list for unemployment, addiction, suicide and 
other social problems that are typical of third-world 
environment, imprisoned and in poverty, because there are no 
opportunities.
    I believe this program, the CDQ Program, can make a 
difference because of its access to the resources of the Bering 
Sea. In our region, where social programs are well funded, 
societal problems still abound. A key part of the answer is the 
CDQ Program with an appropriate level of oversight that will 
accommodate the changes in the industry, region, and the 
program.
    We want to be a successful group in a successful program so 
that we can continue to provide hope for those in our region 
that want to exercise their right to work and be rewarded for 
their efforts. We want to set out to accomplish this by looking 
in the mirror to assess our strengths and our weaknesses to 
determine how we can fit in. It is from this experience that we 
ask for modifications in the CDQ regulations through the 
Council process.
    In regard to our salmon business, minimal infrastructure 
and small communities, poor marketing conditions arising from 
competition from farmed salmon, limit the extent to which it is 
prudent to invest further in fisheries. As a result, CVRF is 
seeking to expand the category of economic development projects 
in which it can participate. For the CVRF region, it is 
critical to explore each and every feasible project as the 
locally available resources simply do not contain enough value 
by themselves to meet the major goal of the CDQ Program, which 
is to create a self-sustaining economy in the 60 plus eligible 
communities.
    Many agencies and companies have attempted this goal. To 
date, none have been successful. The CDQ Program provides the 
best opportunity because it provides a continuous source of 
revenue, and when properly managed, will achieve this goal.
    Since the ultimate authority for management rests with the 
Congress, we appreciate your interest in holding this hearing, 
making your determination as the proper role and level for 
Government oversight. Based on our experience in the program 
over the past 10 years, we have determined that it is time for 
changes in the regulations governing CDQ oversight. The changes 
we propose are intended to maintain a balance between the 
Federal Government's need to protect the public interest in the 
fishery resources of the Bering Sea, and to allow the 
beneficiaries of the program to determine their own future. We 
believe this balance can be best achieved with continued 
participation of the State of Alaska as the primary oversight 
entity, subject to the limitations that have been agreed to by 
the North Pacific Council.
    The CDQ Committee of the North Pacific Council has made 
recommendations to the Council to change the level of oversight 
by the State and by NMFS. CVRF participated in these 
recommendations, and has come up with three additions to those 
recommendations, which I would like to go through at this time.
    The first recommendation is to allow up to a million 
dollars per year in non-fisheries-related in-region economic 
development, an increase from the $500,000 limit proposed by 
the CDQ Policy Committee. While one group consists of a single 
community, and a second of six communities, CVRF has 20 
communities spread along a coastline of nearly 300 miles. Up-
front costs for a single project alone may cost $500,000 in the 
first year. With 20 communities and a limited number of 
sensible fisheries-related investments available, CVRF believes 
that the limit for non-fisheries-related investments be a 
minimum of $1 million annually.
    We have also asked that we be allowed to invest $200,000 
per year for community grants, grants to support village 
activities, from sobriety conferences to bladder festivals, are 
important to the social welfare in our communities. The CDQ 
Program should be able to contribute to these efforts. For 
Coastal Villages, a program of $200,000 annually equals an 
average of only $10,000 per community per year. Certainly the 
CDQ Program can participate to this extent without losing focus 
on economic development. Coastal Villages wants to be a good 
corporate citizen in our own community via this mechanism.
    With respect to H.R. 553, I think all the CDQ groups agree 
on the issue of by-catch. This proposal is currently before the 
Council. We will be advocating for its adoption in time for the 
2002 season. We do not support the proposal of having the 
Secretary of Commerce in charge of CDQ allocations rather than 
the State of Alaska. While we have seen the ups and downs of 
allocation, we believe the state has done a relatively good job 
weighing various criteria in coming up with rational decisions 
that have been endorsed by NMFS and the Council. Consequently, 
we do not endorse locking in allocations at any certain levels.
    Much of our experience is based on the current management 
process. We respectfully request that the Subcommittee not make 
any dramatic changes at this time.
    Mr. Chairman, I want to thank you and the Subcommittee for 
this opportunity to provide our testimony on this very 
important topic.
    [The prepared statement of Mr. Crow follows:]

 Statement of Morgen Crow, Executive Director, Coastal Villages Region 
                                  Fund

    Mr. Chairman and members of the Subcommittee:
    First, let me thank our Congressman from Alaska, the Honorable Don 
Young and his staff for initiating a review of how federal legislation 
might improve the Western Alaska Community Development (``CDQ'') 
Program. I hope that my comments will help to develop a trusting 
relationship between the CDQ groups and the oversight agencies to 
improve the governance of this wonderfully successful program.
    My name is Morgen Crow. I am the Executive Director of the Coastal 
Villages Region Fund (``CVRF''), a not-for-profit organization managing 
the CDQ program on behalf of the twenty communities in our region. I 
have held this position for just over a year and a half. Our 
communities represent 30% of the total population eligible to 
participate in the CDQ program. With me are Simeon John of Toksook Bay, 
CVRF President, and Howard Amos of Mekoryuk, CVRF's Vice-President. 
These gentlemen, in addition to their service on the Board of CVRF, 
fish commercially for salmon, herring, and halibut. Additionally, each 
of us is a shareholder in our regional native corporation as well as 
shareholders in our respective village corporations.
History of Coastal Villages
    Of the six groups in the western Alaska CDQ program, Coastal 
Villages has had the most tumultuous past. Our group began in 1992 as 
Coastal Villages Fishing Cooperative (``CVFC'') a for-profit 
cooperative, which, as an investor in the Imarpiquamiut Partnership, 
owned the factory trawler, the F/V Brown's Point. The partnership 
arrangement, even though approved by CDQ oversight, turned out to be 
unprofitable. The State of Alaska recommended to the National Marine 
Fisheries Service (``NMFS'') that it terminate the CDQ pollock 
allocation if CVFC did not, among other things, dissolve the 
partnership. CVRF was formed to supercede CVFC and to manage the CDQ 
allocation for the twenty-village region. CVRF contributed enough money 
to wrap up the affairs of CVFC. As an attachment, I have included an 
excerpt from the report on the CDQ program by the National Research 
Council completed near the end of 1998.
    Between 1996 and 1998, the State oversight body cut our CDQ pollock 
allocation by nearly 20%. After CVFC was dissolved by the efforts of 
the new company in 1998, CVRF signed royalty agreements licensing its 
rights to harvest Bering Sea and Aleutian Islands pollock with several 
large processors from both the in shore and the off shore sectors, 
ultimately buying into the largest of the at-sea catcher/processors, 
American Seafoods. Ironically, that company, now owned in part by 
Coastal Villages scrapped the F/V Brown's Point. That action 
symbolically represents the turning point at Coastal Villages.
Economic Condition of the CVRF Region
    Our region is a land of limited resources. This limitation and its 
effect on commerce of the area can be seen in the performance of our 
regional for-profit Native Corporation. All of the 13 regional 
corporations created by the Alaska Native Claims Settlement Act 
(``ANCSA'') have experienced growing pains in the form of operating 
losses as Alaska's first people learned the fundamentals of business 
and capitalism. Most have overcome these initial losses and become 
successful corporations due in part to the strength of their natural 
resources. One that has not is the regional native corporation that 
overlaps our CDQ region. Over the last 30 years of ANCSA, most of the 
approximately 80 million dollars of the original contributed capital to 
this regional entity has been lost, and the corporation lacks the 
resources to overcome its history. Recently, its board faced a recall 
by shareholders.
Social Condition of the CVRF Region
    Operating dollars for health, education, and other government 
programs amount to tens of millions each year. Yet our region remains 
at the top of the list for unemployment, addiction, suicide, and other 
social problems that are typical of a third world environment 
imprisoned in poverty because there are no opportunities. I believe 
this program, the CDQ program, can make a difference because of its 
access to the resources of the Bering Sea. Indeed our region, our 
company, and our CDQ program, have undergone dramatic changes. In our 
region, where social programs are well funded, societal problems still 
abound. A key part of the answer is the CDQ program with an appropriate 
level of oversight that will accommodate changes in the industry, 
region, and the program. We want to be a successful group in a 
successful program so that we can continue to provide hope for those in 
our region that want to exercise their right to work and be rewarded 
for their efforts. We want to learn from our mistakes. We have set out 
to accomplish this by looking in the mirror to assess our strengths and 
weaknesses to determine how we can fit into this program. It is from 
this experience that we ask for the modifications in the CDQ 
regulations.
CDQ Program in the CVRF Region
    We view the CDQ program as a unique opportunity to bring the 
benefits from the offshore fisheries directly into the communities, by 
taking a systems approach to economic development that effectively 
addresses the unique social, cultural, environmental, and political 
complexities of our region. For us, the CDQ program represents an 
enormous opportunity for those willing and able to better themselves. 
Locally, residents can choose to fish and sell their catches to the 
only remaining salmon buyer in the entire region owned and operated by 
Coastal Villages Seafoods, a subsidiary of CVRF in conjunction with one 
of our member communities - Quinhagak. Residents from Quinhagak can 
choose to work in this village's processing plant and sleep in their 
own beds at the end of their workday. Similar opportunities are 
available in Toksook Bay, Tununak, Mekoryuk, and Chefornak, where CVS 
operates halibut plants in cooperation with these communities. Region 
residents can work at these plants within our region or in the Bering 
Sea fishing industry if they choose to work outside the region.
    While the CDQ program has provided the means for CVRF and the other 
CDQ groups to invest in the Bering Sea fisheries and to return the 
proceeds of the investments into the member communities, this limited 
focus cannot address all of the economic development challenges that we 
face. There is a limit to the amount of investment that makes sense in 
our region's fisheries. For example, in regard to our salmon business, 
minimal infrastructure in small communities and poor market conditions 
arising from competition from farmed salmon limit the extent to which 
it is prudent to invest further. As a result, CVRF is seeking to expand 
the category of economic development projects in which it can 
participate. For the CVRF region, it is critical to explore each and 
every feasible project as the locally available resources simply do not 
contain enough value by themselves to meet the major goal of the CDQ 
Program--to create a self-sustaining economy in the 60-plus eligible 
communities.
    Many agencies and companies have attempted this goal. To date, none 
have been successful. The CDQ Program provides the best opportunity 
because it provides a continuous source of revenue, that when properly 
managed, will achieve this goal.
CDQ Oversight
    As described above, the first critical piece of the puzzle is the 
CDQ Program itself. The second is having a properly managed 
organization that is in a position to obtain the available benefits and 
to make sure that they are used to benefit the communities and their 
residents. The third piece is the management of the program by the 
State of Alaska, NMFS, and the North Pacific Fishery Management Council 
(``North Pacific Council''). Since the ultimate authority for 
management rests with the Congress, we appreciate your interest in 
holding this hearing and making your determination as to the proper 
role and level for government oversight.
    Based upon our experience in the program over the past ten years, 
we have determined that it is time for changes to the regulations 
governing CDQ oversight. The changes we propose are intended to 
maintain a balance between the Federal Government's need to protect the 
public interest in the fishery resources of the Bering Sea and the need 
to allow the beneficiaries of the program to determine their own 
future. The goal of governance should be to provide enough scrutiny to 
ensure that the groups are acting in accordance with established 
procedures without impeding the internal governing bodies' ability to 
decide on paths of actions and set policy that reflect their view of 
the regions' needs.
    We believe that this balance can be best achieved with the 
continued participation of the State of Alaska as the primary oversight 
entity, subject to the limitations that have been agreed to by the 
North Pacific Council, as well as those others that we have proposed 
and are discussed later in my testimony.
Current Course of CDQ Oversight
    The CDQ Policy Committee of the North Pacific Council has made 
recommendations to the Council to change the level of oversight by the 
State and NMFS, the allocation process and criteria, and allowable uses 
of funds received by CDQ groups through the CDQ program. In summary, 
the recommendations include the following:
     LEstablish a 3 year CDQ allocation cycle
     LLimit government oversight
     LClarify allocation criterion
     LProvide for an appeals process for CDQ allocations to the 
Council
     LMake other changes that will simplify the administration 
of the program's reporting requirement.
    CVRF participated in the development of these recommendations and 
continues to support their adoption at the earliest possible time. 
Additionally, as I have described previously, CVRF sees the need for 
additional flexibility in the program in order to develop a 
comprehensive program for economic development that better fits our 
region. Consequently, CVRF makes the following three recommendations:
     LAllow $1,000,000 per year in non-fisheries related, in-
region economic development, an increase from the $500,000 limit 
proposed by the CDQ Policy Committee. While one CDQ group consists of a 
single community and a second of six communities, CVRF has twenty 
member communities spread along a coastline of nearly 300 miles. Up 
front costs for a single project alone may cost $500,000 in the first 
year. With twenty communities and a limited number of sensible 
fisheries-related investments available, CVRF believes that the limit 
for allowable non-fisheries related investments be a minimum of $1 
million annually.
     LAllow $200,000 per year for community grants. Another 
method of providing direct benefits to communities is through a 
community grant program. Grants to support village activities, from 
sobriety conferences to bladder festivals, are important to the social 
welfare of the communities. The CDQ Program should be able to 
contribute to these efforts. For CVRF, a program of $200,000 annually 
equals an average of only $10,000 per community per year. Certainly, 
the CDQ Program can participate to this extent without losing its focus 
of economic development.
     LRequest an exemption from amendment approval for 
investments by fishing industry companies that are partially owned or 
wholly owned by a CDQ group, as long as the investments are fishing 
industry-related by the partners and do not require any new CDQ money. 
This recommendation is not related directly to the effect of the 
program on individual communities, but is important in regard to 
relationships between industry and the CDQ groups. This relationship 
must be a mutually beneficial one if the program is to be able to 
generate the benefits that are in turn provided to the communities. 
CVRF believes that its industry partners should be able to conduct 
their businesses with little interference from government entities. The 
real test is whether the CDQ groups are providing benefits back to 
their communities not having the government mettle in actions of our 
industry partners.
    To date, these requests have not been adopted for analysis by the 
North Pacific Council, but I am certain that there is enough time for 
the Council to adopt all these improvements as part of their review of 
the CDQ program so that they can be implemented in time for the 2003-
2005 allocation process that will be completed in the fall of 2002.
Proposed Course of CDQ Oversight--H.R. 553
    As I stated at the beginning of my testimony, CVRF greatly 
appreciates the interest that the Subcommittee is taking in the 
governance of the CDQ Program. There are several parts of H.R. 553 that 
we wholeheartedly support. However, a considerable amount of 
disagreement remains to some elements of the current language in H.R. 
553 among the CDQ groups.
     LOne issue that does need attention is that of bycatch. 
The CDQ Program has been at the forefront of fisheries conservation. 
Regulations requiring two observers on the large vessels, 
accountability for each species harvested, scales to weigh the catch, 
are all measures that the CDQ groups have not only accepted, but, in 
many cases, have promoted. However, except for certain aspects of the 
CDQ pollock fishery, the CDQ fisheries are extremely vulnerable to 
disruption because of the requirement that a CDQ group not exceed any 
of its small quotas for individual bycatch species. For example, CVRF 
has an allocation of 33,000 metric tons of pollock with an allowance of 
1.6 metric tons of other red rockfish. One tow could use the entire 
quota of other red rockfish resulting in the shut down of the CDQ 
pollock fishery. The remainder of the fleet does not have these 
constraints. I believe that I can say with certainty that most groups 
agree that this is a problem and that the solution is to allocate a 
specified amount of quota to the target species (e.g., Pacific cod, 
sablefish, turbot, Atka mackerel, rock sole, yellowfin sole, etc.) and 
treat the other bycatch species similar to how they are dealt with by 
the regulations governing the remainder of industry. This proposal 
currently is before the North Pacific Council and we will be advocating 
for its adoption in time for the 2002 season.
     LWe do not support the proposal of having the Secretary of 
Commerce in charge of CDQ allocations rather than the State of Alaska. 
While we have seen the ups and downs of allocations, we believe that 
the State has done a good job of weighing the various criteria and 
coming up with rational decisions that have then been endorsed by NMFS 
and the North Pacific Council. Consequently, we also do not endorse 
locking in allocations at any certain levels.
     LAs to agreement on allocations among the CDQ groups, we 
find it difficult to envision a situation where this might occur. Each 
group has different experiences, geography, poverty levels, history, 
and probably most of all--expectations.
     LAs I have discussed above, work is in progress on 
addressing the fisheries-related, non-fisheries-related economic 
development issues.
     LFinally, in regard to the ``CDQ project'' definition, all 
parties have learned that the fast moving pace of business must be part 
of the reality of CDQ oversight. In our recent experience, programs and 
investments that either directly benefit and meet the needs of 
residents of our region or maximize the economic value of the CDQ 
allocations have been fast-tracked and approved without exception. We 
have made huge in-roads into this industry with the cooperation of the 
oversight entities and the Council. Still, we do support removing 
fisheries-related investments by our industry partners from the 
definition of a ``CDQ project'' for the reasons outlined previously.
Recommendation / Conclusion
    Coastal Villages Region Fund has come a long way over the past 
decade. Changes to the CDQ governance regulations are needed to 
accommodate the new position of our company, our investments, and the 
program. The CDQ Program will continue to evolve, which in turn will 
require additional refinements to the program. The rate in which these 
changes take place is probably the largest of all questions. While 
there is still a lot of work to be done to implement the first round of 
improvements, there is progress being made.
    I believe that the current process of governance and management has 
led to the best managed fishery on earth and created a unique program 
that can bring needed economic benefits back to our region. We should 
continue to make the changes necessary to respond to the results of the 
past decade and protect the dynamic nature of this program. Through the 
efforts of the CDQ groups, in cooperation with the North Pacific 
Council, the State of Alaska, and NMFS, this program has achieved far 
beyond what was envisioned at its inception. For us, it is a unique 
opportunity to bring a special kind of benefit to our region: the 
chance to move ahead in the process of creating economic benefit from 
the resources in the Bering Sea. I believe that we have the knowledge, 
experience, vision, and passion to compete on behalf of this company in 
the evolving world of the fishing industry. I believe that we have 
these same qualities when it comes to creating the economic future of 
our communities. I do not believe that we will be the next big idea to 
fail the people of our region if we are allowed to utilize the 
abilities that we bring to the table. Knowing that much of our 
experience is based on the current management process, we respectfully 
request that the Subcommittee not make dramatic changes at this time.
    Mr. Chairman, I want to thank you and the Subcommittee for this 
opportunity to provide our testimony on this important topic.
                                 ______
                                 
    Mr. Young. Thank you, Morgen. And you did well.
    Mr. Gene.

 STATEMENT OF EUGENE ASICKSIK, CEO AND PRESIDENT, NORTON SOUND 
                ECONOMIC DEVELOPMENT CORPORATION

    Mr. Asicksik. Mr. Chairman and members of the Subcommittee, 
I am Eugene Asicksik, President and Chief Executive Officer of 
Norton Sound Economic Development Corporation. I also have 
Janis Ivanoff, my Vice-President, with me here today.
    NSEDC represents 15 Western Alaskan villages located on 
Seward Peninsula and the Norton Sound Region, and on St. 
Lawrence Island. NSEDC has participated in the program since 
1992, and is very familiar with, and in some cases has been at 
the forefront of the issues that have come up as the program 
has grown.
    On behalf of NSEDC's board of directors, I would like to 
thank Congressman Young for introducing H.R. 553. The bill's 
enactment will resolve a number of important policy issues that 
relate to the administration and implementation of the CDQ 
Program. Resolutions of these issues are provided in H.R. 553, 
will help the program fulfill its potential for the residents 
of NSEDC, its members, and its communities.
    Before moving to specific measures in the bill, let me 
briefly explain NSEDC's approach to long-term sustainable 
economic development. NSEDC has pursued a mixture of 
activities, some of which are oriented toward immediate 
benefits for our residents such as fishery development 
projects, vocational training and academic scholarships. 
Another group of activities are oriented toward developing a 
sustainable income stream for the organization that will help 
support its programs. The needs of NSEDC's communities are 
immense since our communities have a high percentage of 
residents living below the poverty level and a high incidence 
of substance abuse and suicide. This mix of immediate programs 
and long-term investments is very significant to our 
communities. We are developing external financial strength, and 
we are developing internal strength in our communities as our 
workforce benefits from vocational and academic education, and 
the community's economic infrastructure benefits from in-region 
projects, whether they are business projects or not.
    H.R. 553 will enhance our ability to make long-term income-
producing investments, and it will enhance the range of ways in 
which we can benefit our communities. I believe a fundamental 
difference reflected in H.R. 553 compared to the regime the CDQ 
Program has operated under during the first 9 years of its 
existence is philosophy. H.R. 553 reflects a willingness to let 
communities decide for themselves, internally, what is best for 
their community, in contrast to the requirement in current 
regulations for advance external review and approval: 
essentially, any major activity that a CDQ group wishes to 
undertake reflects a premise of superiority to or mistrust of 
the ability of these communities. The State and North Pacific 
Fishery Management Council wants to decide, for us, what the 
proper mix of fishery-related and non-fishery-related projects 
will be. For anything significant, the State wants the CDQ 
groups to come to them for advance review and approval before 
the group purchases it, builds it or changes the operation of 
it. Further, for companies into which the CDQ groups have 
invested, the State wants advance review and approval before 
those companies make any purchase over $1 million.
    The reforms in H.R. 553 will allow NSEDC to optimize its 
development programs for its residents by allowing a more 
broad-based set of possibilities, and will allow NSEDC to 
develop a more diverse and therefore more sustainable source of 
funds to support those programs. Further, the reforms will 
place more responsibility in the hands of the communities 
themselves and the board of directors and the communities 
represented by a CDQ managing organization.
    With the reforms in H.R. 553, NSEDC still will be very 
willing to comply with reasonable safeguards regarding the 
award of CDQ allocations, such as ensuring that management 
capabilities are in place to harvest the allocation in an 
environmentally appropriate manner, and that a proper 
governance structure is in place to ensure that the use of the 
allocation or the royalty money derived from it is controlled 
by the community participating in the program. Also, NSEDC is 
willing to subject itself to after-the-fact audit, just as it 
does now, regarding its performance and results.
    I need to say something about allocation. The NRC confirms 
what most or all CDQ groups will tell you: that the allocation 
process is a significant source of instability in the program. 
The possibility of change in allocation is never far from any 
group's mind as they decide what program to undertake or what 
position to take on questions regarding oversight. Because it 
is a zero sum game, achieving consensus on allocation is very 
difficult.
    H.R. 553 describes a process for getting to a long-term 
resolution on allocation by first encouraging the groups to 
work it out amongst themselves, and if that fails, describing a 
process to come to more transparent and less subjective 
allocations. We support the process described in H.R. 553.
    In closing, let me reemphasize how much I believe in the 
potential of the CDQ Program. With the reform presented in H.R. 
553, the program will be set to realize its full potential. 
Already my organization is a real participant in the Bering Sea 
Fisheries, owning 50 percent of the company with two pollock 
factory trawlers, one factory long-liner, and other harvesting/
processing/marketing capabilities. The second-generation 
revenues from our investment, which supplement our CDQ 
royalties, are becoming material even within the first decade 
of the existence of the program. We are proud of what we have 
accomplished. While NSEDC has far to go to fill its potential 
to meet the chronic needs in our communities, over the next 
decade we look forward to reporting steady and substantial 
progress.
    In my written testimony I explain in more detail the 
effects of H.R. 553 and the reasons for our support. Thank you 
very much for the opportunity to testify.
    [The prepared statement of Mr. Asicksik follows:] 
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    Mr. Young. Thank you, Eugene.
    Mr. Alstrom.

 STATEMENT OF RAGNAR ALSTROM, EXECUTIVE DIRECTOR, YUKON DELTA 
               FISHERIES DEVELOPMENT ASSOCIATION

    Mr. Alstrom. Mr. Chairman, my name is Ragnar Alstrom. I 
serve as Executive Director of the Yukon Delta Fisheries 
Development Association. With me in the audience is John 
Lamont, who is the President of Yukon Delta. We are the 
community development quota group representing the villages of 
Alakanuk, Emmonak, Grayling, Kotlik, Mountain Village and Numan 
Iqua at the mouth of the Yukon River. I am here to offer 
comments on proposed legislation, H.R. 553, the Western Alaska 
Community Development Quota Program Implementation Improvement 
Act of 2001.
    I would like to begin by emphasizing the importance of the 
community development quote program to the people I represent. 
The population of the delta, which according to the U.S. Census 
Bureau, is the youngest in the United States, consists of 
approximately 95 percent Yupik Eskimo or Athabascan Indian. The 
residents live largely a subsistence hunting lifestyle. For the 
last 85 years the people of this region have relied on a small 
commercial salmon fishery to supplement this subsistence 
lifestyle. Beginning in 1998, and continuing to the present 
day, the salmon returns to the Yukon River have collapsed. This 
has resulted in the complete closure of the commercial fishery 
in 2001 and severe restrictions being placed on the subsistence 
fishery.
    The Federal and State Governments have worked to alleviate 
hardships caused by the loss of this small salmon based cash 
economy. Public works projects such as airport improvements, 
water and sewer projects, school renovations and other such 
public projects have been undertaken in this region. Although 
these projects are much needed and appreciated, there are only 
so many health clinics, head-start schools and post offices 
that can be built in a village. We now see these Government 
projects winding down and very few projects slated for the 
future. Residents have very few opportunities available to them 
in which to generate an income. Our local, regional and village 
native corporations generate very few jobs in region.
    The CDQ Program, through Yukon Delta Fisheries Development 
Association, has become the largest private resource for 
providing jobs and training to the residents of its member 
villages. There is no other nongovernmental entity out there 
that can provide the access to jobs and training that is being 
provided through the CDQ Program.
    In regard to H.R. 553, Yukon Delta Fisheries Development 
Association offers the following comments.
    We are in support of primary oversight of the CDQ Program 
to continue to be the State of Alaska's responsibility, 
including making the primary allocation recommendations, 
oversight of a group's ongoing CDQ projects, and approval of 
proposed CDQ projects.
    Yukon Delta Fisheries Development Association believes that 
when changes are to be made as to oversight and regulation of 
the CDQ Program, those changes should be analyzed and approved 
by the North Pacific Fisheries Management Council. 
Specifically, those changes should first be debated and 
formulated within the North Pacific Fisheries Management 
Council's CDQ Policy Committee prior to submitting to the 
Council. To ensure input from all parties involved, the 
Committee is made up of a representative from each CDQ group 
along with members from the State of Alaska and Federal 
Government. The concerned parties are at the present time 
successfully working toward democratic resolution of the 
issues.
    Yukon Delta Fisheries Development Association believes that 
the CDQ regulation requiring that all of a group's investments 
be fisheries related, be amended to allow for some investment 
in non-fisheries-related projects in region. Yukon Delta 
Fisheries Development Association is in support of the North 
Pacific Council's CDQ Policy Committee recommendation of 
allowing up to $500,000 annually to be spent on in-region non-
fisheries-related projects. For Yukon Delta, this is a very 
important amendment that is needed in this regulation. With the 
collapse and closure of the salmon fishery on the lower Yukon 
River, there are no fisheries-related projects in-region we can 
invest in properly. If we are to bring jobs to this region we 
need a regulation amended to allow for other types of 
profitable in-region investments.
    Yukon Delta Fisheries Development Association would once 
again like to emphasize the importance of this program to 
Western Alaska, and recommend that any proposed changes as to 
regulation be done at a local level through the North Pacific 
Fisheries Management Council.
    Mr. Chairman, if I could continue for another 20 seconds. I 
come from a village where the population's--half the 
population's below the age of 19. There is nothing else out 
there for us to do. We are willing to--we think this program is 
so important that we are willing to suffer some discomfort in 
oversight to keep the program in place. We don't want to see 
the program disappear. That is how important that is to us. You 
know, what is left out there, for this young population, what 
else do we have? We don't want to stay on welfare for the rest 
of our lives. It is just a very, very important program. I just 
wanted to emphasize that. Thank you.
    [The prepared statement of Mr. Alstrom follows:]

Statement of Ragnar Alstrom, Executive Director, Yukon Delta Fisheries 
                        Development Association

    Mr. Chairman:
    My name is Ragnar Alstrom, I serve as Executive Director of the 
Yukon Delta Fisheries Development Association. The Community 
Development Quota (CDQ) Group representing the villages of Alakanuk, 
Emmonak, Grayling, Kotlik, Mountain Village and Nunam Iqua at the mouth 
of the Yukon River. I am here to offer comments on proposed legislation 
H.R. 553, the--Western Alaska Community Development Quota Program 
Implementation Improvement Act of 2001''.
    I would like to begin by emphasizing the importance of the 
Community Development Quota program to the people I represent. The 
population of the Delta, which according to the U.S. Census Bureau is 
the youngest in the United States, consists of approximately 95% Yupik 
Eskimo or Athabascan Indian. The residents live largely a subsistence 
hunting lifestyle. For the last 85 years the people of this region have 
relied on a small commercial salmon fishery to supplement this 
subsistence lifestyle. Beginning in 1998, and continuing to the present 
day, the salmon returns to the Yukon River have collapsed. This has 
resulted in the complete closure of the commercial fishery in 2001 and 
severe restrictions being placed on the subsistence fishery.
    The Federal and State governments have worked to alleviate 
hardships caused by the loss of this small salmon based cash economy. 
Public works projects such as airport improvements, water and sewer 
projects, school renovations and other such public projects have been 
undertaken in the region. Although these projects are much needed and 
appreciated, there are only so many health clinics, headstart schools 
and post offices that can be built in a village. We now see these 
government projects winding down and very few projects slated for the 
future. Residents have very few opportunities available to them in 
which to generate an income. The local regional and village native 
corporations generate very few jobs in region.
    The CDQ program through Yukon Delta Fisheries Development 
Association has become the largest private resource for providing jobs 
and training to the residents of its member villages. There is no other 
non governmental entity out there that can provide the access to jobs 
and training that is being provided through the CDQ program.
    In regard to H.R. 553 Yukon Delta Fisheries Development Association 
offers the following comments:
    We are in support of primary oversight of the CDQ program to 
continue to be the State of Alaska's responsibility, including making 
the primary allocation recommendations, oversight of a group's ongoing 
CDQ projects and approval of proposed CDQ projects.
    Yukon Delta Fisheries Development Association believes that when 
changes are to be made as to oversight and regulation of the CDQ 
program, those changes should be analyzed and approved by the North 
Pacific Fisheries Management Council. Specifically, those changes 
should first be debated and formulated within the North Pacific 
Fisheries Management Council's CDQ Policy Committee prior to submitting 
to the Council.. To ensure input from all parties involved, the 
Committee is made up of a representative from each CDQ group along with 
members from the State of Alaska and Federal Government.. The concerned 
parties are at the present time successfully working toward democratic 
resolution of the issues. Introduction of H.R. 553 at this time would 
overrule the current process and be counterproductive.
    Yukon Delta Fisheries Development Association believes that the CDQ 
regulations requiring that all of a group's investments be ``fisheries 
related'' be amended to allow for some investment in ``non fisheries 
related'' projects in region. Yukon Delta Fisheries Development 
Association is in support of the North Pacific Council's CDQ Policy 
Committee recommendation of allowing up to $500,000 annually to be 
spent on in region ``non fisheries'' related projects. For Yukon Delta 
Fisheries Development Association this is a very important amendment 
that is needed in this regulation. With the collapse and closure of the 
salmon fishery on the Lower Yukon River there are no ``fisheries 
related'' projects in region we can invest in profitably. If we are to 
bring jobs to this region we need the regulation amended to allow for 
other types of profitable in region investments.
    In conclusion, Yukon Delta Fisheries Development Association would 
once again like to emphasize the importance of this program to Western 
Alaska and recommend that any proposed changes as to regulation be done 
at a local level through the North Pacific Fisheries Management 
Council.
                                 ______
                                 
    Mr. Young. Thank you. And I thank the panel.
    Patience, you brought up something that is interesting. You 
mentioned the fact that maybe it is time we pattern this after 
the Alaska Native Land Claims Act and the corporations. And 
this if for the whole panel. And it goes back to the oversight. 
What if we set up it up where there is--under that act itself, 
the nonprofits, the profits and the regional all are audited at 
least once a year by an independent auditing group. You know, 
that is the way it works. And then that is reported, and if we 
find out something wrong, well, then the oversight takes place. 
Would that work? And go back to the oversight problem. And by 
the way, I don't object to the State oversight. I object to how 
they have overseen. That is my objection. I want you to know 
that. I am not necessarily happy about giving it to the Federal 
Government. You know how I feel about that.
    But I think all of you--and I mentioned this yesterday to 
you in my office--that you ought to sit down and make some 
recommendations what the State can be allowed to do and what 
you don't want it to do if it is not done by the Council's 
Committee. And if the Council doesn't accept what the Committee 
recommends, then I need those recommendations. As I told you 
yesterday, we are going to proceed in a very nice steady pace, 
parallel to what occurs by the Council and the Subcommittee and 
what agreements you can come to, so that we don't all of a 
sudden wake up 2 years from now and say nothing has changed.
    So I want to know, what would be wrong with the idea of 
just an audit, period, and let you go about as most all the 
village corporations have done? And although some have failed, 
some have been quite successful. And the regional corporations, 
some have been very successful, some some successful, and very 
frankly, only one or two are really in bad shape right now. 
What would be wrong with a system like that?
    Ms. Merculief. Nothing that I can see. I think that is what 
we would prefer, just to be on a system where we have limited 
oversight and an annual audit. So we are in support of a system 
like that.
    Mr. Young. It was just handed to me by my staff, that ANCSA 
says that they can pay dividends. I am not asking you to pay 
dividends. I think that part of the program is to reinvest and 
to build for infrastructure and that type thing.
    Robin, go ahead.
    Mr. Samuelsen. Thank you, Mr. Chairman. I think the CDQ 
Program is a performance-based program versus ANCSA. In my 
region, I think we have surpassed the employment of the ANCSA 
corporations, and we have only been in existence 9 years. 
Because the program says it has go to be community based, you 
need to employ people, both in-region and outside the region. 
You need to train people. And, you know, although we had grand 
conjures that that is what ANCSA was going to do, by and large 
it didn't do it.
    Mr. Young. With all due respect, Robin, it has done it in 
some areas. It may not have been in other areas, but that is 
the fault of the corporation itself, I mean, as you know. I 
mean, you can change that I believe. Yes.
    Mr. Samuelsen. The difference is, is that CDQ groups 
represent six geographical areas, and because of the oversight, 
because it is performance based, you are having, in all areas 
you are having employment, you are having upward mobility 
training, and economic development in all communities that are 
represented by the CDQ Program.
    Mr. Young. All right. Ragnar, I go back to a comment you 
made. $500,000 invested outside fisheries, again I ask you and 
the rest of the panel, why should one shoe fit all? Because 
Morgen has said that is not enough, and I hope you understand, 
he is right. If you have got 20 villages, and you--how many 
villages do you have?
    Mr. Alstrom. Mr. Chairman, I have six villages representing 
3,500 people.
    Mr. Young. But if you take the recommendation of $500,000 
outside investment other than fisheries, $500,000 and six 
villages, amounts to about $125,000. In his area it would 
amount to--how much is that? $20,000 approximately.
    Mr. Alstrom. Mr. Chairman?
    Mr. Young. Yes?
    Mr. Alstrom. It was a political decision. We actually, 
Yukon had supported a larger amount. This is the amount--we 
wanted to--the point was we wanted--I don't think we want it 
fully blown open, but we wanted an amount to invest in 
profitable non-fisheries-related projects in region.
    Mr. Young. Now, again, we had this discussion yesterday. 
What is wrong with eliminating the cap at all, having no cap at 
all? Gene?
    Mr. Asicksik. I have no problem with removing the cap. In 
fact, I proposed it at the CDQ Policy Committee, and made a 
motion, and I lost on a 4-4 split or 6-6 split decision made by 
the Chairman to go the other way.
    So I believe that it should be up to the CDQ groups and 
their board of directors to determine and submit it. You know, 
I wouldn't mind submitting it to the state that this is what we 
would like to do on a non-fisheries-related project. I am not 
asking for a free-for-all, but if we at NSEDC and the board of 
directors feel that they need to do something in a community, 
they should not be hampered by a $500,000 cap. We might want to 
develop a new fishery in one of our communities that might 
require more than 500,000. As you well know, processing fish 
costs--I mean, you are going to incur safe water and other 
issues. We are under construction of a brand new plant in Nome, 
Alaska right now, and we have been approached by Nome Joint 
Utilities that maybe the amount of crab shells that will be 
discharging into their sewer system might be too much for the 
system that Nome has. So we are faced with putting in a line 
with a grinder. That is going to have to--or shuttling crab 
waste and halibut waste out to the ocean. If we had known 
earlier that--although we do have copies that they were going 
to allow it, but now it might be too much--that is something we 
are going to have to look at. And then with that, we have to 
probably go back with some substantial amendment to construct 
this line or to purchase the grinder.
    Mr. Young. Would anyone else like to comment on that? 
Because to me, this is one of the crucial points. You are not 
all the same. One has six groups. One has 20 groups. One is a 
larger percentage, a different flow. And what bothers me, when 
there is no sort of flexibility in the State on oversight, on 
taking the differences, I don't think they can properly oversee 
your groups, because I don't think they have the perspective of 
what you are trying to do. I was hoping to ask Mr. Bush, and 
later on I may ask him, how large a turnover you have in the 
oversight group of the CDQs. But I will get to him later. I 
will send that question to him.
    Go ahead, Larry.
    Mr. Cotter. Mr. Chairman, in the beginning it was the North 
Pacific Council that limited CDQ investments to fishery-related 
projects.
    Mr. Young. That was a regulation from the Council, correct?
    Mr. Cotter. Yes, sir. And the reason for that, the program 
was controversial as it was being adopted. You know, we had to 
force it through. There was concern from the industry, that 
they were saying, ``We are giving up fish, so we want to make 
sure that the revenues derived from this program are going to 
be used to help these communities and these residents 
participate in the fishing industry.'' And that is how that 
happened.
    And I do not dispute at all that the world has changed, and 
it is appropriate now for the communities to be able to invest 
outside of the fishing industry. Realistically, there is no 
other opportunity in many locations for communities in Western 
Alaska to develop if they don't find something other than 
fisheries.
    The only concern that we have from our group is that if the 
program is modified so non-fishery-related investments are 
allowed, what happens to those of us who still have substantial 
fishery development activity to fund and develop? Under the 
current allocation formula, we could continue to lose 
allocations, and those revenues, those royalties, would flow to 
other communities and other regions to develop non-fishery-
related projects. And so we end up sacrificing our fishery 
development opportunities for those who have non-fishery-
development opportunities. And that would be fine for us if we 
have a fair and equitable allocation that allows us to move 
forward in the future and realistically develop our 
communities.
    In the absence of that, it is very difficult for us to be 
able to support it.
    Mr. Young. What if we based it--and I want you all--what if 
we based the amount of money on the revenue generated from the 
fisheries activities, base it on a percentage as far as outside 
investment? Anybody got a comment on it? Robin?
    Mr. Samuelsen. Thank you, Mr. Chairman. I believe the 
Council, Mr. Chairman, is looking at allowing a percentage of 
the allocation, of your pollock allocation, or up to $500,000, 
is one of the options. There was proposals and recommendations 
by the Committee for that. There was support for that. There 
was also dissension within the Committee, the CDQ Policy 
Committee, that wanted it at a million. I think we have got to 
be very careful here, Mr. Chairman, that we are not opening 
Pandora's Box. As you well know, that the legislature funding 
in Alaska, I think would like to have the CDQ groups pay for 
everything, roads, airports, you-name-it.
    The State has a responsibility in our communities to 
provide certain services, and you know, the CDQ Program came 
along, and we are filling a niche that has been always void in 
our villages. And I want to caution you, Mr. Chairman, that we 
don't create a quasi-social welfare program aiding the State of 
Alaska and alleviating duties that the State of Alaska should 
be providing to our communities.
    Mr. Young. Well, Robin, along those lines, what if we write 
in this legislation that that can't occur? I don't believe they 
can do that anyway, although the legislature is going to try to 
do it, but that is one of my running battles is 
reapportionment. Unfortunately, the villages in this group are 
going to be less represented than you were in the past, as you 
know. That is because of the population growth. But we might 
want to look at whether we can--I will have to have staff 
look--whether that is a possibility, that none of these monies 
are to replace any State requirement and the responsibility of 
the State to take service for the good of the communities. And 
I don't think--I absolutely agree with you, I don't think that 
should be the--you should not be the funder of something the 
State should be doing, as they are doing in Anchorage, 
Fairbanks, and Juneau and Petersburg and wherever it may be.
    But I understand your concern, and I would have the same 
concern, but I think if we do something, we possibly can 
address that issue. I believe we appreciate it.
    Patience?
    Ms. Merculief. On the issue we were talking about, our 
concern, our communities' concern is our ability--we are still 
developing our fisheries infrastructure, and our allocation was 
cut from 10 percent to 4 percent, and it really limits our 
ability to continue to develop our fishing infrastructure. We 
have Icicle Seafoods, who wants to come into the harbor, but we 
need to dredge so we can have them there, so they can do the 
processing of pollock and cod and other flatfish. And although 
our halibut fishery is a success, the people can't launch their 
boats without the use of a crane, and if those cranes break 
down, they have no way to get their boats in and out of the 
water, because we don't have a launching ramp that is adequate.
    So while we recognize that other groups need and want to 
expand into other areas, we are--boy, we would like some of 
that extra money around to develop non-fisheries-related 
activities, but we are not there yet. We are still working on 
developing our fisheries-related infrastructure.
    Mr. Young. When did you go from 10 to 4, or was that a slow 
process?
    Ms. Merculief. It went from, I believe 10 to 7, down to 4, 
and then back up to 5 last year, and then back down to 4 this 
year.
    Mr. Young. And this is the reason I asked Mr. Bush, how can 
you invest with that bouncing up and down of the quotas? And I 
know we have got two big quota holders here or three big quota 
holders, but what happens to the rest of you if it goes up and 
down? I don't know how--even you guy have got to be worried 
about this. I mean, what do they base the cut on?
    Ms. Merculief. That is an area of great confusion to us, 
because we haven't been able to identify specific criteria for 
the reasons we were cut so drastically. I mean, over 50 percent 
of our revenue was cut, you know, 10 percent to 4 percent on 
pollock.
    Mr. Young. Okay. This is all pollock, right?
    Ms. Merculief. Yes.
    Mr. Young. All pollock. Now, again, what if we wrote into 
this legislation a criteria for cutting and increasing instead 
of leaving it to the discretion of the State?
    Ms. Merculief. I think that is needed. I think we would all 
support that.
    Mr. Young. Anybody else have a comment on that, anybody? Go 
ahead. I know you were looking there. I can always tell when 
you have something to say.
    Mr. Samuelsen. Thank you, Mr. Chairman. I have a comment on 
everything.
    [Laughter.]
    Mr. Young. We know. Go ahead.
    Mr. Samuelsen. I think, Mr. Chairman, that, you know, we 
have all seen our allocations fluctuate, and as Chairman, I 
think it is your prerogative that you--I don't know the rules 
down here, but you may be always to call the State NMFS back 
up. There is reasons why that happened. And I don't want to get 
into that arena because that isn't my area of expertise.
    Mr. Young. I won't have them up for the Committee again, 
but I am going to have the questions answered. That is part of 
this program. You know, I am deeply concerned because I, as a 
person that used to try to run a business, I just don't know 
how any of you can sit down and plan an investment, increase 
your fishing capability. How you can do that when you are at 
the will and the whim of two government agencies that can cut 
your quota.
    See, again, I am rambling. I will go on with my questions. 
This still smacks to me as the BIA, the big father, and I just 
really have great respect for what has been done in the State 
of Alaska by the Alaskan Native people. We have some horror 
stories. But that National Native Lands Act is also a success 
story. And it was my intent, when we introduced this 
legislation, when we work with this legislation with Harold 
Sparck, that we would have an economic base in the villages. 
And I want to stress ``economic base'' derived from a renewable 
resource, not an expendable resource, a renewable resource. Of 
course, there is a lot of salmon price dropped, as you know. 
Lord help us, I don't know what we are ever going to do with 
that again. Maybe we all ought to go in the sport fishing 
business and make some money. But we didn't know that was going 
to happen.
    If I had my way--and I will say this publicly--if I had my 
way, I would like to see this group at this table own all the 
Bering Sea fisheries. I have never understood why it has to 
come out of another state. I think it would be extremely 
important to give that area of Alaska, which is impoverished, a 
tremendous economic boost and development, because you would 
have money to develop it.
    Larry, you had something to say there. I am sorry. I get to 
rambling on this issue.
    Mr. Cotter. Well, Mr. Chairman, I was going to comment on 
the allocation issue. And the problem is that it is so 
complicated and so murky, that I don't think any of us really 
understand what takes place. There are criteria, but we don't 
know how those criteria are applied. We don't know whether 
there is special weight given to one criteria over another. We 
don't have annual meetings with the State where they give us a 
report card and tell us, ``You are doing good'' or ``You are 
doing bad,'' or ``We think you ought to improve here or 
there.'' We move forward with our projects. We have an hour and 
a half meeting with the State, mostly where we say what we are 
doing during the allocation process, and then the State goes 
and makes a recommendation.
    When the State publishes its findings, justifying its 
recommendation, the information provided is so subjective that 
it is impossible to determine whether or not apples to apples 
are being compared or it is apples to oranges.
    So under the existing process, I think it is virtually 
impossible for any group to move forward from one allocation 
cycle to the next with any sense of certainty that they are 
going to be able to maintain their allocation. And that just 
simply is not going to work for the future. We have got to get 
a better system where there is some certainty and some 
reliability. Otherwise, groups are going to experience some 
very significant problems with their investments and with the 
banks, and with their program overall.
    Mr. Young. Let me follow that, Larry. Why should the State 
be involved in at all; why not let the Council do it?
    Mr. Cotter. Well, Mr. Chairman, I think in the beginning--
again, in the beginning, the Council didn't want to be involved 
in the process, because I think it--
    Mr. Young. Chicken Little.
    Mr. Cotter. --that it was going to be very political.
    I am not sure that they want to be involved in it now. And 
my contention is that, really, nobody should be involved in it. 
Some type of formula should be developed and applied to the six 
groups, and that should be put into law, that says each group 
gets this amount, and that is it. And we move forward into the 
future knowing what we are going to have.
    Now, the argument against that is that the program 
allocation should be based on performance. And that is well and 
good, but that was more important before than it is important 
now. Each of the groups have different investments. Some of 
them are working out, some of them aren't working out. 
Resources go up and down. A crab investment 3 years ago may 
have made a lot of sense. Today it is losing money. Let us just 
get the allocations--
    Mr. Young. Let me interrupt you. Is there a criteria? 
Robin, is there a criteria?
    Mr. Samuelsen. Thank you, Mr. Chairman. In the record there 
is a draft issues and alternatives for CDQ policy analysis.
    Mr. Young. That is coming out of the Committee. There is no 
criteria now by the State. They issue quotas based upon the 
will and the whim of how they feel that day.
    Mr. Samuelsen. No, Mr. Chairman. There is allocation 
criteria.
    Ms. Merculief. Like the lady mentioned earlier, in the 
Natural Resources study, the State has 21 different listed 
criteria, but we don't know how they are weighted, or which 
criteria--
    Mr. Young. There is nothing--what I am going to get to from 
the State--and that is one of the question I am going to submit 
to them--is why they based the increase or decrease of quotas 
for different groups, and what criteria did they use, and was 
it uniform? See, because I--this to me looks like somebody 
possibly could be playing, as I mentioned before, God, and that 
affects your lives, and I think it affects the integrity of 
this organization. And what I am looking for is a way to keep 
somebody from playing that role. If anybody wants to play it, I 
do. And I will guarantee it, it is not going to be, it will be 
the devil. But I am just saying, somewhere there has to be, 
Larry, Gene, Morgen, Patience, Robin, everybody has to be 
treated equal as far as the criteria goes. It cannot be 
different. In fact, I am surprised that someone hasn't raised 
this question in court before, because there has to be some 
difference somewhere.
    Gene? By the way, I have got another question to ask you, 
Gene. Go ahead.
    Mr. Asicksik. Yes. I think what is being missed here is the 
other allocations. You know, when you see a decrease in your 
allocation, or an increase--in my case, I got an increase, but 
I seen a decrease in all other species--the decrease that we 
seen, it became harder or sometimes, in some cases, not 
feasible for us to go after a targeted species. So there is 
other allocations that have affected us, and I think everybody 
is just mainly looking at the pollock allocations, and yes, 
pollock is 80 percent of all six groups' revenues. And crab was 
mentioned earlier, that crab was a big issue sometime ago, but 
now it is not. I mean it was a revenue generator, but now it is 
not. And in some groups can be a money loser. This year, 
hopefully, it will rebound and they can start making money 
again.
    So there are other allocations. Sometimes there is no 
rationale or no explanation of why you have got increased in 
rock sole or yellowfin sole, but you don't have enough skates 
to go after it, you know.
    Mr. Young. Now, along those lines again--I don't want to 
get in the allocation program, but it always intrigues me. We 
are fighting over a 10 percent of halibut allocation, right?
    Mr. Cotter. Pollock.
    Mr. Young. Pollock, excuse me, pollock. And the rest are 7-
1/2 for halibut, and 7-1/2 for yellowfin?
    Mr. Cotter. All other groundfish.
    Mr. Young. All other groundfish.
    Mr. Asicksik. Yes.
    Mr. Young. I am just running this through my mind now. What 
would happen--you know, I think we ought to concentrate on 
another effort to raise that 10 percent to 15 percent and the 
7-1/2 to 10. And then--and spread it around a little bit, guys. 
That is something I think because we even--my goal is really to 
have the controlling force in the Bering Sea, but that is 
something we can talk about later.
    Eugene, has your group ever had a project or investment 
rejected by the State?
    Mr. Asicksik. Well, early on we had submitted a proposal to 
purchase a long liner back in 1993 or '94. And we were told 
that we could not invest into it 100 percent, that we had to go 
to our harvesting partner, which is Glacier Fish Company, and 
see if they would be interested, and that Glacier would have to 
own 51 percent and NSEDC--
    Mr. Young. What was the reason for that? What reason did 
they give you?
    Mr. Asicksik. That we didn't have the expertise and the 
knowledge of owning a vessel, and that we didn't have the 
skippers or, just the expertise.
    Mr. Young. But see, that was a decision made by an outside 
force about a business community that is really operated by 
board members within your organization. Now, that is the thing 
I object to. I mean, what right do they have to tell you to do 
that? Do you think they had that right to do that?
    Mr. Asicksik. Well, they are the oversight, and they are 
still currently the oversight, so we did go back to Glacier 
Fish Company, and Glacier did agree and meet with the State, 
that they would participate in purchasing.
    Mr. Young. But they are mini managing your group.
    Mr. Asicksik. Yes, or--
    Mr. Young. And this is something that I am very, very 
frustrated about.
    The State's criteria, Larry, that is used to allocate six 
groups has been characterized as inconsistent and difficult to 
evaluate when the allocations are made every year or every 2 
years. Doesn't that leave you, as I said, vulnerable again to 
the whims of the State?
    Mr. Cotter. Absolutely, Mr. Chairman. It is no secret that 
APICDA has the smallest population of all of the CDQ groups. 
Quite frankly, we are between 2 and 3 percent of the total 
population. So from a perspective of a lot of groups, our 
population should mean that we should get a very low 
allocation. What that has to do with the allocation process, we 
initially received 18 percent of the pollock CDQ allocation. 
The State reduced us to 16 percent a few years later, and 
explained to the North Pacific Council that the reason they 
made the reduction was because of population. They then came 
back last year, and they reduced us by another 2 percent, down 
to 14 percent. They told us in private that that was based on 
population. We then challenged the process, and then the State 
changed its opinion and said that it was based on performance.
    In their letter to NMFS, describing performance, they made 
statements such as we have--APICDA has--the fifth highest 
administrative cost, for example, of any of the six groups. 
Well, they didn't say whether we were too high or too low. They 
didn't provide any information about whether or not that was 
justifiable or not. In fact, we have 17 subsidiary 
corporations, and probably have far more hands-on costs 
incurred in managing personnel, et cetera, then the other 
groups, so that might be good.
    They had a bunch of criteria like that, or statements, that 
allows--makes it impossible for you to know how you compare 
against other groups.
    We are very concerned that next year when we go through 
this allocation process again, that we are going to get cut 
primarily because of population or other factors, and that is 
why, Mr. Chairman, we filed suit against the State and National 
Marine Fisheries Service, over the allocation process.
    Mr. Young. Have you had any indication they are going to be 
punishing you for that suit?
    Mr. Cotter. I don't believe that is going to happen, Mr. 
Chairman.
    Mr. Young. Well, what about 150 pounds of fish, over 
fishing.
    Mr. Cotter. Well, it was 1,400 pounds, Mr. Chairman, of 
crab and--
    Mr. Young. That is about as many fish as Robin lost 
yesterday and didn't get shipped down to me.
    [Laughter.]
    Mr. Cotter. Mr. Chairman, you know, Mr. Bush responded to 
me very rapidly after our press release on those charges, and 
assured me that the State, the CDQ team was not involved in 
that, and I believed him.
    Mr. Young. Is there any other comments, Eugene?
    Mr. Asicksik. Yes. I would like to go back to that non-
fisheries-related investments. I think that NSEDC's position 
was that we just don't want to go out there and invest in 
something that, you know, a vocal board member wants, you know. 
What we would like is the flexibility--in our region, you know, 
we would probably be competing against individuals in a 
community for teacher housing, but we do have communities that 
have a very--varying needs of teacher housing, and I look at 
that as an investment. I look at it as when I was living in 
Shaktoolik, personally, I considered building a 4-plex and 
leasing it to the school district. The State will not build 
housing for its teachers or for the troopers or for doctors. 
But the State will provide funds for renting. And they are--I 
think it was Robin mentioned it earlier, that, you know, we CDQ 
groups have suppressed some of our village corporations, and we 
do have revenues that we can invest into a 4-plex or a duplex, 
triplex or 6-plex, and provide housing and, you know, create, 
or get a agreement with the school district, to where 
teachers--yes, we might compete with private individuals, but I 
believe if you provide housing and if you have got adequate 
housing, you are going to entice more teachers and better 
teachers to come into the region, so you are going to have a 
longer longevity and eventually you will have a better-educated 
youth and a better community overall. There are communities 
that the school district would have to try and renovate a 
house. You know, in some communities I heard that there is no 
floor, so they have to build a floor in there. So you would 
save your school district some funds.
    Another personal thing that I look at is why does Unakleet 
have a airport--I mean a facility that when you land there, you 
could actually come out of the weather? You could build 
something at these airports. If you want to call them hangars, 
Shaktoolik has--I am just using Shaktoolik, my home town--we 
have five different airlines coming in every day. Surely these 
airlines can get together and lease a facility to where someone 
can make some money, and you would have less produce frozen, 
you would have a place for people to warm up. You know, the new 
airport that is under construction is a mile further than the 
old one, and we are known for our winds. But I see that as a 
business opportunity that NSEDC could get involved in and 
build, not just in my community, but there are 14 other 
communities--well, if you exclude Nome and Unakleet, there is 
no other community in our region that has a facility where 
people can come into that community to get out of the weather, 
especially during the--
    Mr. Young. Well, Gene, I happen to agree with all of you in 
the sense that--the big dish--I never thought this program was 
for just fisheries related, because it says community 
development, and development has got a broad spectrum, and I 
think that should be up to the board and the group to decide 
what they are going to do to develop that community, and if 
they have the money derived from a renewable resource, there 
ought to be some latitude, and I hope we will get to that.
    I have one last question. How does the performance for a 
CDQ group invested in fisheries, that employs a large number of 
people, but loses money? How does that--does anybody know how 
your performance can be determined? Is that good or bad? You 
are losing money, but you are employing people. Robin?
    Mr. Samuelsen. Thank you, Mr. Chairman. I think that--I 
will use BBEDC as an example. Our salmon runs are crashing. Our 
markets are drying up.
    Mr. Young. But this has nothing to do with CDQs.
    Mr. Samuelsen. Yes. Last year BBEDC made a substantial 
investment in the salmon industry, and we lost a substantial 
amount of money on that investment last year because of 
probably 25 percent management and 70 percent market 
conditions, with the advent of farmed salmon flooding the 
market.
    Mr. Chairman, there is nothing in our regions to invest in 
but salmon. So we fail last year. Is the State going to 
penalize us? Are the councils going to penalize us? No, they 
are not.
    Mr. Young. Are you sure of that?
    Mr. Samuelsen. I am positive of that.
    Mr. Young. I want you to remember that if they cut your 
quota by about 4 percent.
    Mr. Samuelsen. That is right. They are not going to let us 
continue losing that kind of money. They are going to make us 
redesign a program and take another look at it, and that is 
what my board is going through in September of this year. We 
are going to take another look at it and try to figure it out, 
how to develop a niche market. But we haven't been threatened 
since the advent of the CDQ Program, about if you lose money, 
we are going to cut your quota.
    Mr. Cotter. Mr. Chairman?
    Mr. Young. Yes, sir.
    Mr. Cotter. Just the opposite side of that coin was we also 
invested in a salmon processing facility last year, and opened 
it in False Pass, and we lost a substantial amount of money. 
And part of the justification that the State used in their 
findings for reducing our allocation, was that we had poor 
economic performance in that operation, whereas two other 
groups had good--had successful operations in salmon, without, 
of course, describing what successful means. Did they lose less 
money or make money? But, yes, the State does apply that 
criteria at least differently between groups.
    Mr. Young. Well, see, this is what I am going to get at, 
and Mr. Bush is going to get these questions. If he is in the 
audience, I want him to understand, I want a set rule of 
criteria applied equally to everyone. It is not correct to 
penalize one person for doing one thing and reward the other 
one for the other thing. And that is what causes dissension 
amongst this group. A uniform set of rules that you can follow 
and know where you are going to go is crucially important if 
you have a future in planning your investment and how you are 
going to handle it.
    And like I say, I am amazed that you have been able to have 
the success you have had with that type of oversight conduct, 
and how you have been able to plan anything. You know, it 
amazes me immensely.
    I have another meeting. This has been going on from 11 to 
1:30. And I want to thank all of you, and as I mentioned to you 
yesterday, this is not a hostile position on my part, and I 
hope not on your part. I am trying to make sure this program 
continues to grow, and I hope it grows, and I will work to try 
to get further allotments if possible, further amounts of fish 
in every arena so you can grow.
    Again, as you leave this meeting room and you go back to 
your hotels or you fly to Alaska--and God bless you when you go 
back; I will see you there in August--try to think about what 
can we do together collectively, because you are small in 
number, remember that. There is three of us down here, only one 
Chairman left, and we have an opportunity this next year--this 
year or next year, to renew the Magnuson Act, and this is going 
to be one of linchpins of the Magnuson Act, is how the CDQ 
Program works and where we are going to go in the future.
    I want to thank each one of you for being in the room and 
for the audience in participating. This meeting is adjourned.
    [Whereupon, at 1:27 p.m., the Subcommittee meeting was 
adjourned.]

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