Individual Fishing Quotas: Management Costs Varied and Were Not  
Recovered as Required (11-MAR-05, GAO-05-241).			 
                                                                 
Overfishing may have significant environmental and economic	 
consequences. One tool used to maintain fisheries at sustainable 
levels is the individual fishing quota (IFQ), which sets	 
individual catch limits for eligible vessel owners or operators. 
This is GAO's third study on IFQ programs. For this study, GAO	 
determined (1) the costs of managing (i.e., administering,	 
monitoring, and enforcing) IFQ programs and how these costs	 
differ from pre-IFQ management costs; (2) what, if any, IFQ	 
management costs are currently being recovered by the National	 
Marine Fisheries Service (NMFS); and (3) ways to share the costs 
of IFQ programs between government and industry.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-241 					        
    ACCNO:   A19138						        
  TITLE:     Individual Fishing Quotas: Management Costs Varied and   
Were Not Recovered as Required					 
     DATE:   03/11/2005 
  SUBJECT:   Administrative costs				 
	     Cost analysis					 
	     Fishes						 
	     Fishing industry					 
	     Program evaluation 				 
	     Program management 				 
	     Marine resources conservation			 
	     Fishery legislation				 

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GAO-05-241

                 United States Government Accountability Office

                     GAO Report to Congressional Requesters

March 2005

INDIVIDUAL FISHING QUOTAS

           Management Costs Varied and Were Not Recovered as Required

                                       a

GAO-05-241

[IMG]

March 2005

INDIVIDUAL FISHING QUOTAS

Management Costs Varied and Were Not Recovered as Required

  What GAO Found

Fiscal year 2003 management costs varied considerably among IFQ programs.
According to fishery managers, halibut and sablefish program costs were
higher and surfclam/ocean quahog program costs were lower, when compared
with pre-IFQ management costs. Although complete cost information was not
available, GAO aggregated cost estimates from information provided by NMFS
and other organizations involved in IFQrelated activities and estimated
that fiscal year 2003 IFQ management costs were at least $3.2 million for
the Alaska halibut and sablefish program, $274,000 for the surfclam/ocean
quahog program, and $7,600 for the wreckfish program. While NMFS does not
systematically track the costs of managing IFQ programs and does not have
complete information on pre-IFQ management costs, fishery managers said
management costs were greater under the halibut and sablefish IFQ program
than under pre-IFQ management, in part, because of the IFQ program's
complex rules. In contrast, fishery managers said costs were less under
the surfclam/ocean quahog IFQ program than under pre-IFQ management, in
part, because the simplicity of the program's design made it easier to
monitor compliance. Moreover, according to fishery managers, NMFS incurred
additional costs for the development and initial implementation of both
programs.

NMFS is not recovering management costs as required by the
Magnuson-Stevens Act for two of the three IFQ programs. Under the act, as
amended by the 1996 Sustainable Fisheries Act, NMFS is required to recover
the "actual costs directly related to the management and enforcement" of
all IFQ programs. NMFS has implemented cost recovery for the halibut and
sablefish program, but it has not done so for the surfclam/ocean quahog or
wreckfish programs. NMFS officials said that cost recovery for the
surfclam/ocean quahog program has been a low priority and very few people
were fishing wreckfish. Also, the Magnuson-Stevens Act does not define
"actual costs directly related to the management and enforcement" of an
IFQ program. NMFS has interpreted the term to mean those costs that would
not have been incurred but for the IFQ program (i.e., the incremental
costs). However, another way to interpret the term "actual costs directly
related to" is full costs. Under a "full cost" approach, NMFS could have
recovered more costs of managing the IFQ program.

Several methods are used for sharing IFQ management costs between
government and industry. These methods principally fall into three
categories: user fees, quota set-asides, and devolution of services. Under
user fees, government recovers costs by collecting a fee from the quota
holder or fisherman. Under a quota set-aside, government can set aside
(i.e., not allocate) a certain amount of quota each year, lease the
set-aside quota to fishermen, and use the revenue to pay for program
management costs. Finally, under devolution of services, management
services previously performed by government, such as monitoring compliance
with individual catch limits, are transferred to industry.

United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
Depending upon the IFQ Program, Management Costs Were Higher

or Lower Than Pre-IFQ Costs NMFS Has Not Recovered IFQ Management Costs as
Required Several Methods Are Used for Sharing Costs between Government

and Industry Conclusions Matter for Congressional Consideration
Recommendations for Executive Action Agency Comments and Our Evaluation

1 3 5

7 15

18 21 22 22 22

Appendixes

Appendix I: Appendix II:

Appendix III:

Appendix IV: Appendix V: Objectives, Scope, and Methodology

Descriptions of Individual Fishing Quota Programs in the United States

Surfclam/Ocean Quahog IFQ Program (1990)
Wreckfish IFQ Program (1992)
Halibut and Sablefish IFQ Program (1995)

Descriptions of Individual Fishing Quota Cost-Sharing Programs in Selected
Countries

Australia
Canada
New Zealand

Comments from the Department of Commerce

GAO Comments

GAO Contact and Staff Acknowledgments

GAO Contact
Staff Acknowledgments

24

27 27 27 28

30 30 30 31

33 37

39 39 39

Tables Table 1: Estimates of IFQ Management Costs by Program and
Organization, Fiscal Year 2003 8 Table 2: IFQ Cost-Sharing Methods Used in
Selected Countries 18

Contents

Abbreviations

IFQ individual fishing quota
NMFS National Marine Fisheries Service
NOAA National Oceanic and Atmospheric Administration

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protection in the United States. It may be reproduced and distributed in
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separately.

A

United States Government Accountability Office Washington, D.C. 20548

March 11, 2005

The Honorable Olympia J. Snowe United States Senate

The Honorable John F. Kerry United States Senate

Overfishing is a problem with significant environmental and economic
consequences. When a fishery-one or more fish stocks within a geographic
area-cannot be sustained because of overfishing, the marine ecosystem in
which those stocks live can be harmed, and fishermen and their communities
can experience economic hardship. Yet, about one-third of the U.S. fish
stocks assessed by the National Marine Fisheries Service (NMFS), within
the Department of Commerce's National Oceanic and Atmospheric
Administration (NOAA), are overfished or approaching an overfished
condition. Greater competition for fewer fish increases the likelihood
that stocks will decline further and catches will decrease.

One of the causes of overfishing is the excessive investment in fishing
capacity, such as when there are more boats than the fishery can support.
An individual fishing quota (IFQ) is one of the management tools available
to help reduce overcapacity and promote conservation. Today, several
countries, including the United States, use IFQ programs to manage
fisheries within their 200-mile exclusive economic zone (see apps. II and
III). In the United States, IFQ programs are developed primarily by
regional fishery management councils established by the Magnuson-Stevens
Fishery Conservation and Management Act (Magnuson-Stevens Act) in 1976 and
implemented by NMFS. Under an IFQ program, fishery managers set a total
allowable catch in a particular fishery on the basis of fish stock
assessments and other indicators of biological productivity, and the
managers then allocate quota-the privilege to harvest a certain portion of
the catch-to eligible boats, fishermen, or other recipients. IFQ program
rules often allow a quota holder to transfer quota by sale, lease, or
other methods. Such transfers are expected to reduce the number of
fishermen and boats and consolidate the quota among the more efficient
fishermen. At the time of our review, NMFS had implemented three IFQ
programs: the Mid-Atlantic surfclam/ocean quahog program in 1990, the
South Atlantic wreckfish (snapper-grouper complex) program in 1992, and
the Alaskan halibut and sablefish (black cod) program in 1995. In
addition, at the time of our review, an IFQ program had been approved but
not yet implemented for the Bering Sea crab; an IFQ program was being
developed for the Gulf

of Mexico red snapper; and IFQ programs were being considered for other
commercial fisheries, such as the Gulf of Alaska groundfish (e.g.,
pollock, cod, and sole).

IFQ programs have achieved many of the desired conservation and management
benefits, such as helping to stabilize fisheries and reducing excessive
investment in fishing capacity. However, these programs have also raised
concerns, such as the costs of IFQ management and the equity of gifting a
public trust resource to a select group of beneficiaries.

This is the third in a series of reports you requested on IFQ programs as
Chairman and Ranking Minority Member of the former Subcommittee on Oceans,
Fisheries, and Coast Guard, Senate Committee on Commerce, Science, and
Transportation. In December 2002, we reported on the extent of
consolidation of quota holdings, the extent of foreign holdings of quota,
and the economic effect of IFQ programs on seafood processors.1 In
February 2004, we reported on methods available for protecting the
economic viability of fishing communities and facilitating new entry into
IFQ fisheries, key issues facing fishery managers in protecting
communities and facilitating new entry, and the comparative advantages and
disadvantages of the IFQ system and the fishery cooperative approach.2 For
this report, you asked us to (1) determine the costs of managing (i.e.,
administering, monitoring, and enforcing) IFQ programs and how these costs
differ from pre-IFQ management costs; (2) determine what, if any, IFQ
management costs are currently being recovered by NMFS; and (3) assess
ways to share the costs of IFQ programs between government and industry.

To conduct this review, we visited locations in Alaska, Florida,
Massachusetts, New Jersey, and South Carolina. We selected these sites to
obtain broad geographic coverage for the three domestic IFQ programs. In
these locations and elsewhere, we interviewed fishery participants;
officials at NMFS, the U.S. Coast Guard, and state enforcement agencies;
representatives of the International Pacific Halibut Commission; and
fishery council staff. In Alaska and New Jersey, we visited ports where we
observed offloads of IFQ fish. In addition, we obtained information from

1GAO, Individual Fishing Quotas: Better Information Could Improve Program
Management, GAO-03-159 (Washington, D.C.: Dec. 11, 2002).

2GAO, Individual Fishing Quotas: Methods for Community Protection and New
Entry Require Periodic Evaluation, GAO-04-277 (Washington, D.C.: Feb. 24,
2004).

government officials from Australia, Canada, and New Zealand because these
countries share fishery management costs with the fishing industry.
Because NMFS does not systematically track IFQ management costs, we
estimated these costs from information that we gathered for fiscal year
2003 from NMFS and other organizations involved in IFQ-related activities.
Since the data we received appeared reasonable, given differences among
the programs, and were consistent with explanations of program operations
and costs provided by agency officials, we concluded that these data were
sufficiently reliable for purposes of this report. See appendix I for
additional details on our scope and methodology. We conducted our review
from February through December 2004 in accordance with generally accepted
government auditing standards.

Results in Brief	IFQ management costs for fiscal year 2003 varied by
program and, according to fishery managers, when compared with pre-IFQ
management costs, were higher for the halibut and sablefish program and
lower for the surfclam/ocean quahog program. Although complete cost
information was not available, we aggregated cost estimates from
information provided by NMFS and other organizations involved in
IFQ-related activities and estimated that the fiscal year 2003 management
costs of (1) the Alaskan halibut and sablefish IFQ program amounted to at
least $3.2 million, or 1.4 percent of the dockside (known as ex-vessel)
value of the catch, and (2) the surfclam/ocean quahog program amounted to
at least $274,000, or less than 0.5 percent of the ex-vessel value.
Wreckfish program cost estimates amounted to $7,600, in part, because only
two boats were fishing wreckfish in 2003. Because NMFS does not
systematically track the costs of managing IFQ programs and does not have
complete information on pre-IFQ management costs, we could not evaluate
the difference between IFQ and pre-IFQ management costs. However, fishery
managers told us that halibut and sablefish management costs were greater
under the IFQ program than under pre-IFQ management, in part, because of
the program's complexity and longer fishing season. In contrast, fishery
managers said surfclam/ocean quahog management costs were less under the
IFQ program when compared with pre-IFQ management, in part, because the
simplicity of the program's design made it easier to monitor compliance.
Information on how wreckfish management costs changed with the
introduction of the IFQ program was not available. In addition to the
annual costs of managing IFQ programs, according to fishery managers, NMFS
and the fishery management councils incurred additional costs to develop
the halibut and sablefish and the surfclam/ocean quahog IFQ programs and
implement them during the initial years. For example,

according to Mid-Atlantic Fishery Management Council staff, during each
year of development of the surfclam/ocean quahog IFQ program, council
staff spent more than twice as much time as they spent during fiscal year
2003 to manage the IFQ program. According to a NMFS official, by the end
of the second year of the halibut and sablefish IFQ program, NMFS's Alaska
Region was dedicating the equivalent of five or six full-time staff to
manage the 170 appeals regarding halibut and sablefish quota allocations,
whereas the region currently receives only 1 or 2 appeals each year.

NMFS is not recovering management costs for two of the three IFQ programs
as required by the Magnuson-Stevens Act. Under the act, as amended by the
1996 Sustainable Fisheries Act, NMFS is required to collect a fee, not to
exceed 3 percent of the ex-vessel value of the fish harvested, to recover
the "actual costs directly related to the management and enforcement" of
all IFQ programs. While NMFS has implemented cost recovery for the halibut
and sablefish program, it has not implemented cost recovery for the
surfclam/ocean quahog or wreckfish programs. NMFS officials told us that
(1) they considered cost recovery for the surfclam/ocean quahog program to
be a low priority and (2) very few people were fishing wreckfish. We are
recommending that NMFS implement cost recovery for all programs as
required. Also, the Magnuson-Stevens Act does not define "actual costs
directly related to the management and enforcement" of an IFQ program.
NMFS has interpreted the term to mean those costs that would not have been
incurred but for the IFQ program (i.e., the incremental costs). Under this
interpretation, NMFS does not include, for example, the cost of performing
the sablefish stock assessments because these assessments would be done
regardless of whether or not the fishery was managed under an IFQ program.
Applying the "incremental costs" approach, NMFS identified and recovered
about $3.2 million in halibut and sablefish program costs for fiscal year
2003. However, another way to interpret the term "actual costs directly
related to" is full costs. Under a "full cost" approach, NMFS could have
recovered more costs of managing the IFQ program. If the Congress would
like NMFS to recover other than incremental costs, it may wish to clarify
the IFQ cost recovery fee provision of the act.

Several methods are used for sharing the costs of IFQ management between
government and industry, each of which has advantages and disadvantages.
These methods principally fall into three categories: user fees, quota
set-asides, and devolution of services. Under the user fee method,
government recovers costs by collecting a fee from the quota holder or
fisherman. While user fees distribute management costs to the

immediate beneficiaries of the program, they directly affect a fishing
firm's profitability. Several countries, including the United States,
recover IFQ management costs through user fees, but the features of each
user fee program vary. Under the quota set-aside method, government can
set aside (i.e., not allocate) a certain amount of quota each year and
lease the set-aside quota to fishermen, using the resulting revenue to pay
for program management costs. A set-aside program does not necessitate the
collection of fees from each quota holder. However, if the value of the
quota is too low, the government may not raise enough funds to cover the
IFQ management costs. Finally, under the devolution of services method,
management services previously performed by government, such as monitoring
compliance with individual quota limits, are transferred to industry.
Giving industry responsibility for such management services could reduce
concerns about potential government inefficiencies. However, by devolving
services to industry, government may be further removed from enforcement,
making it a greater challenge to ensure that industry is complying with
the program rules.

In commenting on a draft of this report, NOAA said that the report was
well researched and presented, and was responsive to the specific requests
made by the Congress. NOAA generally agreed with our findings and
recommendations. NOAA agreed to work with the Mid-Atlantic and South
Atlantic Fishery Management Councils to implement cost recovery for the
surfclam/ocean quahog and wreckfish IFQ programs. NOAA also agreed to
develop guidance regarding which costs are to be recovered, because it
will ensure the appropriate costs will be measured in a consistent manner
in all fisheries. NOAA's comments appear in appendix IV.

Background	The Magnuson-Stevens Fishery Conservation and Management Act
provides for the conservation and management of fishery resources in the
United States.3 Under the act, eight regional fishery management
councils-the New England, Mid-Atlantic, South Atlantic, Gulf of Mexico,
Caribbean, Pacific, North Pacific, and Western Pacific councils-are
responsible for developing plans for managing fisheries in federal
waters.4 To develop their plans, the councils each use a collaborative
process that

3Pub. L. No. 94-265 (1976) (codified as amended at 16 U.S.C. S: 1801 et
seq.).

4"Federal waters" refers to those fishing areas covered by the
Magnuson-Stevens Act in which the United States claims exclusive fishery
management authority.

involves advisory committees, public hearings, and other means to ensure
that interested parties have an opportunity to provide input. Council
staff then analyze the information for use in plan development. Once a
council adopts a plan, NMFS drafts regulations to implement the plan. The
council then submits the plan and regulations to the Secretary of Commerce
for approval. The Secretary reviews the plan and proposed regulations for
consistency with U.S. law and with each other. The plan and proposed
regulations may then be published for public comment. Plans may be fully
or partially approved, or disapproved and returned to the council for
revision. If approved, regulations must be issued for implementation.

Once a fishery management plan is approved, NMFS is responsible for
implementing it. In the case of an IFQ program, NMFS must set up the
systems for collecting annual permit, logbook, and fish dealer data;
obtain records of qualifying catches and other information to determine
eligibility to hold quota share; process initial requests for quota; and
issue the initial quota share. The quota share represents a percentage of
the total allowable catch for the fishery, which a fishery management
council sets-typically each year-subject to NMFS's confirmation. To set
the total allowable catch, the council relies on stock assessments
performed by one of the NMFS regional fisheries science centers. In the
case of the halibut fishery, the International Pacific Halibut Commission
performs the stock assessment and sets the total allowable catch.

Once a fishery management plan becomes operational, NMFS is responsible
for administering it. Administrative activities unique to an IFQ program
include, among others, calculating and distributing the annual quota
allocations, approving and processing quota transfers, and monitoring
compliance with program requirements. In addition, administrative
activities in early IFQ program years may include adjudicating appeals of
the initial allocation. Both NMFS and the councils have responsibility for
monitoring existing plans and proposing any changes for approval and
implementation by NMFS.

NMFS shares responsibility with the U.S. Coast Guard and state agencies
for enforcing the rules of a fishery management plan. For an IFQ program,
the Coast Guard generally conducts at-sea and aerial surveillance of
fishing activities, and NMFS contracts with state agencies to assist its
Office for Law Enforcement with inshore activities, such as monitoring the
landings for compliance with individual catch limits. NMFS also audits the
paper trail (consisting of logbook, landings, and buyer records) created
by the IFQ program.

The 1996 Sustainable Fisheries Act amended the Magnuson-Stevens Act to
require the Secretary of Commerce to recover "actual costs directly
related to the management and enforcement" of IFQ programs.5 The act
limits cost recovery fees to 3 percent of the ex-vessel value of fish
harvested under any IFQ program and further requires that the fees be
collected at the time of landing, at the time of filing a landing report,
at the time of sale during a fishing season, or during the final quarter
of the year when the fish is harvested. In addition, the Secretary is
authorized to reserve up to 25 percent of the fees collected for use in an
IFQ loan program to help finance the purchase of quota share by
entry-level fishermen and fishermen who fish from small boats.

Depending upon the IFQ Program, Management Costs Were Higher or Lower Than
Pre-IFQ Costs

Estimated IFQ management costs for fiscal year 2003 varied by program and,
according to fishery managers, when compared with pre-IFQ management
costs, were higher for the halibut and sablefish program and lower for the
surfclam/ocean quahog program. Whether management costs were higher or
lower than under the previous fishery management system depended, in part,
on the characteristics of the fishery, as well as program complexity.
Also, according to fishery managers, both the fishery management councils
and NMFS incurred additional costs associated with the development and
implementation of the halibut and sablefish and surfclam/ocean quahog IFQ
programs.

IFQ Management Costs Varied by Program

We aggregated cost estimates for each IFQ program on the basis of
information provided by various organizations and estimated that the
management costs for fiscal year 2003 ranged from a high of at least $3.2
million for the halibut and sablefish program to a low of $7,600 for the
wreckfish program. Since NMFS does not systematically track the costs of
IFQ programs or the time spent on IFQ activities, we requested cost
information from NMFS and other organizations that performed IFQ-related
activities during fiscal year 2003. However, these organizations did not
or could not provide cost information for all of their IFQ-related
activities. (See app. I for information on the organizations that provided
data.) The estimated management costs shown in table 1 varied
significantly by program, in part, because of differences in the number of
program participants and program design. For example, the halibut and

5Pub. L. No. 104-297, S: 109(c) (1996), 16 U.S.C. S: 1854(d).

sablefish program had the largest number of quota holders-about 4,300-and
a complex set of rules designed, in part, to protect the owner-operator
character of the fleet, such as limits on the amount of quota an
individual could hold and restrictions on who could receive quota
transfers. In contrast, the surfclam/ocean quahog program had no more than
120 quota holders and a simpler set of rules designed, in part, to
minimize government regulation.6

 Table 1: Estimates of IFQ Management Costs by Program and Organization, Fiscal
                             Year 2003 IFQ program

Halibut and sablefish (4,311 quota holders)a

Surfclam/ocean quahog (120 quota holders)

                          Wreckfish (25 quota holders)

        Organization         Amount   Percent  Amount  Percent Amount Percent 
NMFS administration and                                            
           review          $1,379,100  42.7   $196,000    71.5 $7,600   100.0 
         NOAA legal                 b       b  9,400       3.4      b       b 
      NMFS enforcement     1,665,700   51.6    14,400      5.3      b       b 

International Pacific Halibut

c cc

Commission 167,100 5.2

Fishery management
councilsd 19,100 0.6 54,400 19.8 b b

               Total $3,231,000 100.1 $274,200 100.0 $7,600 100.0

Source: GAO compilation of cost information provided by NMFS, NOAA, the
International Pacific Halibut Commission, and the North Pacific and
Mid-Atlantic Fishery Management Councils.

Note: Dollar amounts have been rounded to the nearest $100, and
percentages may not total 100 because of rounding.

aAccording to NMFS data, there were 3,435 halibut quota holders and 876
sablefish quota holders as of December 31, 2003. Persons holding both
halibut and sablefish quota are counted twice in the total.

bNo cost information was provided.

cThe International Pacific Halibut Commission conducts no activities
related to the surfclam/ocean quahog and wreckfish IFQ programs.

dCouncil costs for IFQ-related activities can vary by year. During fiscal
year 2003, for example, the North Pacific Council spent less time on the
halibut and sablefish IFQ program, so its IFQ costs were lower than usual,
whereas the Mid-Atlantic Council spent time setting multiyear catch limits
for the surfclam/ocean quahog fisheries, so its IFQ costs were higher than
usual.

6According to NMFS data, there were a total of 120 quota holders in the
two fisheries. However, we reported in 2002 that there were fewer quota
holders than NMFS data indicated, because different quota holders of
record are often part of a single corporation or family business that, in
effect, controlled many holdings. See GAO-03-159.

On the basis of information provided to us by NMFS and other organizations
involved in IFQ-related activities, we determined that the $3.2 million
spent in fiscal year 2003 to manage the halibut and sablefish program
represented about 1.4 percent of the $236.5 million ex-vessel value of the
halibut and sablefish catch. Of the total spent to manage the program,
about 51.6 percent, or $1.7 million, was spent on NMFS enforcement
activities, such as dockside monitoring, and 42.7 percent, or $1.4
million, was spent on NMFS administrative activities, such as managing IFQ
permits and quota share transfers. The remaining 5.8 percent, or $186,100,
was spent by the International Pacific Halibut Commission to conduct
halibut stock assessments, among other things, and the North Pacific
Fishery Management Council to perform IFQ-related management activities,
such as reviewing and revising the program.7

The reported fiscal year 2003 management costs for the surfclam/ocean
quahoq IFQ program totaled about $274,000 and represented about 0.45
percent of the $60 million ex-vessel value of the surfclam and ocean
quahog catch. NMFS administrative and review activities constituted about
71.5 percent, or $196,000, of the cost, whereas NMFS enforcement
activities amounted to about 5.3 percent, or $14,400. The remaining 23.2
percent, or $64,800, consisted of costs incurred by the Mid-Atlantic
Fishery Management Council to review and amend the program and by NOAA's
Northeast Regional Counsel to provide legal advice on measures considered
by NMFS and the Mid-Atlantic Council.8

The wreckfish IFQ program cost estimates totaled about $7,600 for fiscal
year 2003. Only two boats fished wreckfish during the 2003 fishing season.
However, since NMFS cannot disclose ex-vessel value for fewer than three
participants for confidentiality reasons, estimated wreckfish costs as a
percentage of ex-vessel value were not available. The estimated costs
comprised NMFS administrative activities associated with managing IFQ
permits and quota shares for the wreckfish IFQ program. According to

7The halibut and sablefish estimates exclude the cost of the sablefish
stock assessment performed by the NMFS Alaska Fisheries Science Center;
enforcement activities performed by the U.S. Coast Guard and by the Alaska
State Troopers under a joint enforcement agreement with NMFS; and legal
work performed by NOAA's Alaska Regional Counsel and General Counsel for
Enforcement and Litigation.

8The surfclam/ocean quahog estimates exclude the cost of the surfclam and
ocean quahog stock assessments performed by the NMFS Northeast Fisheries
Science Center and enforcement activities performed by the U.S. Coast
Guard and state agencies that have entered into joint enforcement
agreements with NMFS.

NMFS officials, NMFS incurred no other costs associated with the program's
management during fiscal year 2003, and cost information from the South
Atlantic Fishery Management Council was not available.

Whether IFQ Management Costs Were Higher or Lower Than Pre-IFQ Costs
Depended on Fishery and Program Characteristics

IFQ management costs were higher than pre-IFQ costs for the halibut and
sablefish program but lower for the surfclam/ocean quahog program,
according to fishery managers. Since information on how wreckfish
management costs changed with the introduction of the IFQ program was not
available, we did not include wreckfish in our analysis of comparative
costs. While NMFS does not systematically track IFQ management costs and
cost data on fishery management activities prior to the IFQ program are
incomplete, fishery managers said the overall costs of managing the
halibut and sablefish fisheries were higher under the IFQ program than
under the previous management system. Before implementation of the IFQ
program, both the halibut and sablefish fisheries were managed by setting
an annual catch limit for the entire fishery by fishing area, as well as
restricting the times when fishing could occur and the type of gear that
could be used-for example, hooks, pots, and nets. However, there were no
restrictions on the number of people that could fish. Over time, as more
boats entered the fishery and the catch limits were reached sooner, the
fishing seasons became shorter; in some areas, fishing was limited to less
than 48 hours a year, resulting in so-called fishing derbies-that is,
fishermen trying to catch as much fish as they could within the time
allotted. With the implementation of the IFQ program, the fisheries were
managed under a complex set of rules designed, in part, to protect the
owner-operator character of the fleet. For example, the rules limited the
amount of quota an individual could hold, restricted who could receive
quota transfers, and required that quota be issued by vessel categories
with quota transfers prohibited across vessel categories-for example,
larger boats could not buy quota from smaller boats. In addition, the IFQ
program allowed fishery managers to extend the fishing season to 8 months.

The IFQ program's complexity and longer fishing season required NMFS to
devote more staff time to administrative, monitoring, and enforcement
activities than previously needed. More specifically,

o 	NMFS created a Restricted Access Management division to handle the
administrative activities of the IFQ program, such as issuing annual quota
allocations, handling quota transfers, and maintaining the IFQ landings
database;

o 	NMFS created an Office of Administrative Appeals to handle appeals
related to the IFQ program, such as appeals of the initial quota
allocation determinations and subsequent decisions regarding quota
transfers;

o 	NMFS hired 20 additional staff (16 enforcement officers and 4 agents)
to monitor the individual catch limits of the more than 3,000 halibut
fishermen who now, with an 8-month fishing season, could land their catch
at any 1 of more than 35 ports along the coasts of Alaska, Oregon, and
Washington; and

o 	the International Pacific Halibut Commission, which conducts halibut
stock assessments and annually establishes halibut catch limits, by
geographic area, determined that the IFQ program's extended season
increased the resources needed for the U.S. portion of its halibut
sampling program.

In contrast to the halibut and sablefish program, fishery managers
reported that overall management costs for the surfclam and ocean quahog
fisheries were lower following the implementation of the IFQ program.
Fishery managers primarily attributed the lower costs to the simplicity of
the IFQ program as compared with the previous management system. Before
the IFQ program, the fisheries were managed through a combination of
tools, such as minimum size limits for harvested clams; annual and
quarterly quotas; and, in the case of surfclams, fishing time
restrictions. Fishery managers said that the pre-IFQ time management
system, which required NMFS to set and monitor an allowable fishing time
for each vessel in the fishery, was very labor-intensive for the
Mid-Atlantic Council and the following offices: NMFS Sustainable
Fisheries, NMFS Enforcement, NOAA Northeast Regional Counsel, and NOAA
Northeast General Counsel for Enforcement and Litigation. Further, as
overfishing continued, the length of time each vessel was allowed to fish
continued to be reduced until it had decreased to six 6-hour trips per
fishing quarter in the mid-1980s. According to NMFS officials, the
continual changes in policy required NMFS to spend significant staff time
monitoring the status of the fishery, as well as drafting revisions to
fishery regulations.

After implementation of the surfclam/ocean quahog IFQ program, fishery
managers reported that the amount of management time the council and NMFS
spent on the surfclam and ocean quahog fisheries decreased dramatically.
For example, council staff estimated that the IFQ program reduced the
amount of time they spent on surfclam/ocean quahog activities

from 3 or 4 staff-years annually to less than 1/2 a staff-year during
fiscal year 2003. This decrease occurred because the surfclam/ocean quahog
population had stabilized, and fishery managers no longer had to
micromanage the fisheries.

In addition, NMFS officials also reported that enforcement costs were
substantially lower after implementation of the surfclam/ocean quahog IFQ
program. Before IFQ implementation, enforcement under the time management
system required the use of Coast Guard boats and helicopters to monitor
boats for compliance with their fishing time restrictions. Enforcement
also required monitoring offloads to ensure that minimum clam sizes were
being met. With the implementation of the IFQ program and its reliance on
individual catch limits, NMFS changed its enforcement efforts from the
costly at-sea monitoring of boats to monitoring the amount of clams coming
ashore and making sure all landings were reported accurately. The council
and NMFS generally believe that the surfclam/ocean quahog fisheries are
ideally suited to dockside enforcement because the fisheries have a small
number of vessels that can offload their clam cages only at docks with
cranes and sell their product to one of a few processors with a canning
facility. For this reason, fishery managers said that the surfclam and
ocean quahog fisheries required substantially less enforcement effort than
before the IFQ program was implemented.

Fishery Councils and NMFS Incurred Additional Costs Associated with
Development and Implementation of Two IFQ Programs

IFQ Development Costs

According to fishery managers, the fishery councils and NMFS incurred
additional costs associated with developing and implementing the halibut
and sablefish and surfclam/ocean quahog IFQ programs. IFQ program
development, which includes developing the fishery management plan and the
regulations and infrastructure to implement it, was time-consuming and
costly for fishery management councils and NMFS because of the complexity
and controversy of designing a fishery program based on individual quota
shares and the need to develop infrastructures to manage the program. In
addition to development costs, NMFS reported that it also incurred
additional implementation costs during the initial years of the halibut
and sablefish and surfclam/ocean quahog IFQ programs, as fishery managers
and participants adjusted to a new management system.

Both the fishery management councils and NMFS incurred additional costs
during the development phase of the halibut and sablefish and
surfclam/ocean quahog IFQ programs, according to fishery managers. As
shown below, staff from the North Pacific and Mid-Atlantic Councils-the
councils responsible for the halibut and sablefish and surfclam/ocean

quahog fisheries, respectively-said that the costs the councils incurred
annually to develop the IFQ programs were much higher than the annual
costs they now incur to monitor and review the programs.

o 	North Pacific Council staff estimated that the council devoted 25
percent of its staff time and 20 percent of its budget to the development
of the halibut and sablefish IFQ program for 3 years until the program was
adopted in 1991. In contrast, they said the council spent less than 10
percent of 1 staff-year on management activities related to the halibut
and sablefish program during fiscal year 2003.

o 	Mid-Atlantic Council staff said that it took the equivalent of about
one full-time council staff between 2 and 3 years to develop the fishery
plan amendment that created the surfclam/ocean quahog IFQ program. In
contrast, they estimated that they spent about 40 percent of 1 staff-year
on the program during fiscal year 2003.

Similarly, NMFS reported incurring the following additional costs during
the development phase of both IFQ programs.

o 	NMFS Sustainable Fisheries staff estimated that it took the equivalent
of two and one-half staff almost 2 years to write the regulations for the
halibut and sablefish IFQ program, which is significantly higher in
comparison with the time it now spends annually to write program
regulations.

o 	A NOAA Northeast Regional Counsel attorney estimated that providing
legal input on the development of the surfclam/ocean quahog program
required 30 to 50 percent of one attorney's time, in contrast to the 5
percent of one attorney's time spent on the IFQ program during fiscal year
2003, because the surfclam/ocean quahog IFQ program raised legal issues
that NMFS had not previously addressed.

o 	NMFS Restricted Access Management officials estimated that over a
6-month period, they devoted the equivalent of four full-time staff, in
addition to supervisory and clerical staff, to the halibut and sablefish
quota application and allocation process.

o 	NMFS Restricted Access Management officials also said the Alaska Region
spent over $1.2 million on personnel, contractual services related to the
establishment of computer technology, and the

computerized transaction terminals used to record halibut and sablefish
IFQ landings.

o 	NMFS Law Enforcement officials estimated that NMFS spent about $2
million during fiscal year 1994 to hire and train 16 new enforcement
officers and four agents for the halibut and sablefish program and to
establish an enforcement presence in a variety of ports around the state
of Alaska and the Pacific Northwest.

IFQ Implementation Costs	In addition to development costs, NMFS also
reported incurring additional implementation costs during the initial
years of the halibut and sablefish and surfclam/ocean quahog IFQ programs.
According to fishery managers, management costs for the halibut and
sablefish IFQ program were higher during its first years as NMFS and
industry adjusted to the new program. For example, as shown below, NMFS
incurred additional costs in the area of adjudicating appeals, learning
and enforcing new program rules, and handling many minor legal issues
related to the halibut and sablefish IFQ program.

o 	A NMFS official from the Alaska Region's Office of Administrative
Appeals said the costs associated with appeals from industry related to
quota were much higher during the initial years of the halibut and
sablefish program than they are today. By the end of the program's second
year, for example, NMFS had received 170 appeals, requiring the equivalent
of five or six full-time staff, whereas the region currently receives just
1 or 2 appeals each year.

o 	According to NMFS enforcement data, staff in the Alaska Division of
NMFS's Office for Law Enforcement spent almost twice as much time on IFQ
activities during the first year of the IFQ program than during the
program's second year. NMFS officials said that in addition to their
customary enforcement activities, agents and officers spent a significant
amount of time learning new policies and procedures for enforcing IFQ
program rules. In addition, the number of written warnings and summary
settlements increased from 192 in 1994 to 404 in 1995, the first year of
the IFQ program, and then dropped to 260 in 1996 as industry adjusted to
the new program rules.

o 	Attorneys from NOAA's Alaska General Counsel for Enforcement and
Litigation reported that they received many minor cases resulting from
participant misunderstandings about program rules. Also, attorneys needed
time to develop their knowledge and familiarity with IFQ case

management. As the program matured, however, the number of violations
declined, and attorneys became more skilled at handling IFQ violations.
Over time, enforcement attorneys have also been able to reduce their
workload by handing over clear-cut violations to NMFS enforcement officers
for resolution by summary settlement. As a result, the amount of
enforcement attorney time spent on the IFQ program has decreased.

The surfclam/ocean quahog IFQ program incurred additional costs in several
management areas during implementation but also experienced some cost
reductions in others. For example, program managers reported that learning
to manage transfers and leases of quota shares was very time-consuming for
NMFS staff, particularly because the program was the first one with
transferable quotas in the country. In addition, management of quota
allocations and annual distribution of cage tags was time-consuming until
NMFS officials developed a more efficient procedure for producing and
distributing tags. A NMFS official estimated that during the program's
first years, these activities required the time of two Sustainable
Fisheries' staff during the first month of each year and 25 percent of
their time for the remainder of the year. While some offices incurred
additional costs during initial program implementation, NOAA Regional
Counsel staff said that they spent considerably less time on the
surfclam/ocean quahog fisheries once the IFQ program was implemented.
Also, in contrast to the halibut and sablefish IFQ program, there were
very few appeals of the initial quota allocation, because the allocation
was based on landings and vessel ownership data that already had been
recorded. For this reason, according to NOAA Northeast Regional Counsel,
it was difficult for fishermen to contest the validity of these data.

NMFS Has Not In 1996, the Magnuson-Stevens Act was amended by the
Sustainable

Fisheries Act, requiring NMFS to collect a fee to recover the "actual
costsRecovered IFQ directly related to the management and enforcement of
any individual Management Costs as fishing quota program" and limiting the
fee to 3 percent of the ex-vessel Required value of the fish harvested.9
Further, the amendment prohibited NMFS

from collecting such fees in the surfclam/ocean quahog and wreckfish
fisheries until after January 1, 2000.10 NMFS implemented cost recovery
for

916 U.S.C. S: 1854(d)(2)(A), (B).
10Pub. L. No. 104-297, S: 109(d) (1996), 16 U.S.C. S: 1854 note.

the halibut and sablefish program in 2000, 5 years after the IFQ program
became operational. However, at the time of our review, NMFS had not
implemented cost recovery for the surfclam/ocean quahog and wreckfish IFQ
programs. According to NMFS officials, they had not recovered
surfclam/ocean quahog or wreckfish management costs as required under the
act, because (1) cost recovery has not been a priority for the
surfclam/ocean quahog program and (2) very few people were fishing
wreckfish, and they believe that recovering program management costs would
be an economic burden for these fishermen.

Although NMFS is recovering some costs for the halibut and sablefish
program, it may not be recovering full costs associated with the program.
The Magnuson-Stevens Act does not define "actual costs directly related to
the management and enforcement" of an IFQ program, and the legislative
history is also silent as to the meaning of this term. However, NMFS has
interpreted the term to be limited to the costs that would not have been
incurred but for the IFQ program (i.e., the incremental costs). Under this
interpretation, at the end of each fiscal year, offices in NMFS's Alaska
Region, including Restricted Access Management, Sustainable Fisheries, and
Law Enforcement, as well as the International Pacific Halibut Commission,
submit their incremental cost estimates to the Restricted Access
Management office. The Restricted Access Management office uses these
estimates and the total ex-vessel value of the two fisheries to calculate
an annual fee to be levied on halibut and sablefish program participants.
NMFS relies on cost estimates provided by these various offices because it
does not systematically track the costs of IFQ programs or the time spent
on IFQ activities. NMFS officials told us that developing the cost
estimates is challenging because most staff work on more than one program
at a time, and it is difficult to isolate the costs attributable to the
IFQ program.

While NMFS requests cost estimates for nine budget categories-personnel
compensation, personnel benefits, travel, transportation, rent, printing,
other contractual services, supplies, and equipment-NMFS does not have a
standard procedure for estimating these costs. Instead, each organization

develops its cost estimates independently using its own methodology.11 For
example, the Restricted Access Management office prepares year-end
estimates of the amount of time each staff person spent on IFQ work, an
average percentage of all staff time spent on IFQ work, and a percentage
of its overhead costs to be charged to the IFQ program. In contrast, the
International Pacific Halibut Commission prepares its incremental cost
estimates by adjusting the U.S. portion of its pre-IFQ (1994) costs upward
by 5 percent per year and then subtracts that amount from the U.S. portion
of the commission's total annual costs. Nonetheless, NMFS officials
believe that their cost estimates represent the best available information
on the incremental costs of the IFQ program.

Applying the "incremental costs" definition and using the cost estimates
submitted by the various offices, NMFS reported recovering about $3.2
million in halibut and sablefish IFQ program costs for fiscal year 2003.
However, there is another way to interpret "actual costs directly related
to" an IFQ program, that is, full costs.12 Under a "full cost" approach,
NMFS could have recovered more than the $3.2 million recovered for fiscal
year 2003. For example, NMFS could have recovered the costs associated
with the sablefish stock assessment, which would be done regardless of
whether or not the fishery was managed under an IFQ program. It also could
have recovered the IFQ-related costs of the North Pacific Fishery
Management Council and the U.S. Coast Guard, which perform activities
needed to manage the halibut and sablefish IFQ program.

11The Federal Financial Management Improvement Act reflects a need for
agencies to have systems that can generate reliable, useful, and timely
information with which to make fully informed decisions and to ensure
accountability on an ongoing basis (GAO, Financial Management: Improved
Financial Systems Are Key to FFMIA Compliance, GAO-05-20 (Washington,
D.C.: Oct. 1, 2004)), and the Statement of Federal Financial Accounting
Standards No. 4, Managerial Cost Accounting Standards (SFFAS No. 4),
provides good guidance for capturing costs of activities.

12As described in SFFAS No. 4, full cost includes (1) the costs of
resources consumed directly or indirectly and (2) the costs of
identifiable supporting services provided by other components within the
entity and by other entities.

Several Methods Are Used for Sharing Costs between Government and Industry

Several methods are used for sharing IFQ management costs between
government and industry; each method has advantages and disadvantages.
These methods principally fall into three categories-user fees, quota
set-asides, and devolution of services from government to industry.13
Sharing costs between government and industry can help alleviate concerns
about fishery management costs and the equity of giving away a public
resource in the form of individual fishing quota to a select group of
beneficiaries.

Table 2 shows the types of cost-sharing methods used in selected countries
that manage fisheries under individual fishing quotas.

Table 2: IFQ Cost-Sharing Methods Used in Selected Countries

                                     Method

                 Country User fees  Quota set-asides   Devolution of services 
           United States        Yes                No                      No 
               Australia        Yes                No                      No 
                  Canada        Yes              Yesa                     Yes 
             New Zealand        Yes                No                     Yes 

Source: GAO analysis of information provided by NMFS and foreign
government agencies.

aCanada uses a type of quota set-aside, which it calls quota reallocation.
Under this method, the government allocates a portion of the annual quota
to industry associations, which, in turn, lease the quota to fishermen.

User Fees	Under the user fee method, government recovers costs by
collecting a fee from those who benefit from using the resource. In the
case of an IFQ program, the beneficiary is generally the quota holder or
fisherman. Among the advantages, user fees promote equity, because they
distribute management costs to those who benefit from having exclusive
access to a public resource. Further, government can select the method for
collecting fees that best reflects the extent to which program
participants have benefited. For example, in the Alaskan halibut and
sablefish IFQ program, fishermen pay their fees after the fishing season
closes on the basis of the

13In the United States, the sole approach provided in the Magnuson-Stevens
Act is user fees. According to NMFS, quota set-asides and devolution of
services are not authorized by existing law.

amount of fish caught. Fishermen who have not caught any fish do not pay a
fee. By collecting fees after the end of the season, government also has
better cost information for the program. Charging fees also creates an
incentive for users to evaluate which management services have benefits
that exceed their costs and communicate this information to government.

Among the disadvantages, user fees directly affect a fishing firm's
profitability and its ability to compete. In cases where participants pay
a flat fee regardless of the extent to which they benefit from using the
resource, user fees could be disproportionately borne by the smaller
fishing firms. Also, user fees have administrative costs to government for
determining the total amount of recoverable costs, as well as for billing,
tracking, collecting, and enforcing the fee payments of each individual
quota holder or fisherman. User fee programs that base their fees on
ex-vessel value may require additional recordkeeping. In the United
States, for example, NMFS must keep records on IFQ fish prices and IFQ
landings by species, month, and port in order to calculate the annual fee
charged for halibut and sablefish IFQ management costs.

Several countries recover IFQ management costs through user fees. However,
the features of each user fee program vary by which costs are recovered
and how fees are assessed. As previously discussed, in the United States,
NMFS collects fees to recover the incremental costs of the Alaskan halibut
and sablefish IFQ program, and it does not recover stock assessment costs.
In contrast, other countries, such as Australia and New Zealand, do not
limit recovery to incremental costs. Australia recovers all domestic
commercial fisheries' licensing, data management, and logbook management
costs; 50 percent of monitoring and enforcement costs; and 80 percent of
research and data collection costs, which include stock assessment
research. New Zealand recovers all research, compliance, and
administrative costs. Moreover, both Australia and New Zealand, unlike the
United States, base their fees on the amount of quota shares an individual
holds, with no limit on the amount of the fee charged.

Quota Set-Asides	Under the quota set-aside method, the government sets
aside (i.e., does not allocate) a certain amount of quota each year,
leases it to fishermen, and then uses the revenue to pay for IFQ program
management costs. An advantage of the quota set-aside method is that it
does not necessitate the collection of fees from each quota holder, thus
avoiding late or nonpayment concerns and reducing collection costs to
government. Another advantage of quota set-asides is that government
eliminates the possibility that those

who do not pay their fees might continue to benefit from the public
resource.

A disadvantage of the set-aside method is that if the value of the quota
is too low, the government may not raise enough funds to cover the IFQ
program's management costs. Therefore, government needs to accurately
estimate the value of the quota for the upcoming season and the cost of
managing the fishery when determining the amount of quota to withhold.

Canada uses a method similar to a quota set-aside (known as quota
reallocation) to collect costs of its halibut IFQ fishery. In that
fishery, a portion of each quota holder's annual quota-not to exceed 15
percent of the total allowable catch-is allocated to an industry
association for redistribution. The original quota holder has the right to
lease back his or her shares. If he or she declines, the industry
association makes the shares available for purchase by other quota
holders. In either case, the representative industry association uses the
revenue raised from the quota reallocation to defray the costs of the
halibut IFQ program.

Devolution of Services	Under the devolution of services method,
responsibility for providing selected fishery management services is
transferred to the fishing industry. Since government is no longer
responsible for providing some fisheries management services, industry
must obtain these services and pay for them itself. Even though
responsibility for making some fishery management decisions is devolved to
industry, government must ensure that industry acts in accordance with
government standards and specifications and complies with program rules.
This approach could also reduce concerns about potential government
inefficiencies in providing such services. Also, devolving services to
industry means that the government can avoid future investments in
fisheries management infrastructure, such as computer systems to track
individual catch amounts.

Regarding disadvantages of devolving services to industry, government may
be further removed from enforcement, making it a greater challenge to
ensure that industry is complying with the program rules. Also, devolving
services may raise legal concerns regarding who is ultimately responsible
should a service fail to be provided. Another disadvantage is that
government could face some resistance from industry when it wants to
change program rules.

Both New Zealand and Canada have devolved some of their IFQ management
responsibilities to industry. In New Zealand, the government has devolved
responsibility for certain services to industry, including maintaining the
quota share database, registering quota shares, monitoring landings data
for compliance with quota limits, and issuing permits, while retaining
responsibility for developing standards, specifications, and regulatory
proposals. In Canada, the government provides a baseline of fishery
management services, but it has devolved to industry the responsibility
for hiring and paying for government-certified at-sea and dockside
observers to monitor fishing activities. Canada also gives industry
associations the option to select and pay the government for additional
fishery management services through service contracts. Canada currently
has 15 service contracts with industry, including several involving IFQ
programs.

Conclusions	IFQ programs bring special benefits to quota holders, who
receive exclusive access to a public trust resource. With the enactment of
the Sustainable Fisheries Act, NMFS is required to recover actual costs
directly related to the management and enforcement of all IFQ programs.
While NMFS recovers some costs for the halibut and sablefish IFQ program,
it does not recover any management costs for the surfclam/ocean quahog and
wreckfish IFQ programs. Such a situation not only raises concerns
regarding noncompliance with the law, but it also raises concerns about
fairness because a select group of beneficiaries is receiving exclusive
access to a public resource without compensation to the public. Also,
quota holders in the halibut and sablefish fisheries are paying fees,
while quota holders in the surfclam/ocean quahog and wreckfish fisheries
are not.

Moreover, because NMFS does not provide guidance on how to estimate costs
for IFQ programs, each organizational unit with IFQ-related costs uses its
own methodology to estimate recoverable costs. Without a standard cost
estimation process, NMFS has no credible basis for knowing whether it is
charging the appropriate fees and whether it is recovering all required
costs. Finally, since the Magnuson-Stevens Act does not define "actual
costs directly related to the management and enforcement" of an IFQ
program and NMFS has interpreted the term to mean incremental costs, NMFS
may be recovering fewer costs than the Congress intended. Another
interpretation, that is, a "full cost" approach, could result in greater
cost recovery by NMFS.

Matter for If the Congress would like NMFS to recover other than
incremental costs, it

may wish to clarify the IFQ cost recovery fee provision of
theCongressional Magnuson-Stevens Act. Consideration

Recommendations for 	To comply with the cost recovery requirements of the
Magnuson-Stevens Act, we recommend that the Secretary of Commerce direct
the Director of

Executive Action NMFS to take the following two actions:

o  implement cost recovery for all IFQ programs and

o 	develop guidance regarding which costs are to be recovered and, when
actual cost information is unavailable, how to estimate these costs.

Agency Comments and Our Evaluation

We provided a draft copy of this report to the Department of Commerce for
review and comment. We received a written response from the Under
Secretary of Commerce for Oceans and Atmosphere that includes comments
from the National Oceanic and Atmospheric Administration (NOAA). Overall,
NOAA stated that our report was well researched and presented, and was
responsive to the specific request made by the Congress.

NOAA agreed with our recommendation to implement cost recovery for all IFQ
programs. NOAA agreed that the IFQ cost recovery provision of the
Magnuson-Stevens Act applies to all IFQ programs. NOAA said that it would
work with the Mid-Atlantic and South Atlantic Fishery Management Councils
on adding cost recovery to the surfclam/ocean quahog and wreckfish IFQ
plans. It also said that the costs of collecting these fees should be
taken into account when determining whether cost recovery is required in a
particular IFQ fishery. To that end, NOAA suggested that we may want to
recommend that the Congress consider adding a rule exempting IFQ programs
from the cost recovery requirement if those costs fall below some
reasonable threshold. Since the scope of our work did not include an
evaluation of the cost recovery provisions of the Magnuson-Stevens Act, we
believe that it would be premature to make a recommendation to the
Congress at this time.

NOAA also agreed with our recommendation to develop guidance regarding
which costs are to be recovered and, when actual cost information is
unavailable, how to estimate these costs. Specifically, it said that NOAA
will develop guidance on how to identify activities directly attributable
to an IFQ program and on how the costs associated with these activities
can be measured.

NOAA also raised some questions about specific issues covered in the
report. For example, NOAA suggested that we should have looked at the net
benefits of IFQ programs and the circumstances and general cost recovery
policies in selected foreign countries, but doing so was beyond the scope
of our work. Also, NOAA believes that the recovery of incremental costs is
more consistent with the requirements of the Magnuson-Stevens Act than an
interpretation requiring the recovery of full costs. Because the act does
not define "actual costs directly related to the management and
enforcement" of an IFQ program, which we believe can be interpreted in
more than one way, our report suggests that the Congress may wish to
clarify this provision if it would like NMFS to recover other than
incremental costs. NOAA's specific comments and our detailed responses are
presented in appendix IV of this report.

As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from
the report date. At that time, we will send copies of this report to
interested congressional committees, the Secretary of Commerce, and the
Director of the National Marine Fisheries Service. We will also provide
copies to others upon request. In addition, the report will be available
at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please call me
at (202) 512-3841 or Stephen Secrist at (415) 904-2236. Key contributors
to this report are listed in appendix V.

Anu K. Mittal Director, Natural Resources

and Environment

Appendix I

                       Objectives, Scope, and Methodology

This is the third in a series of reports on individual fishing quota (IFQ)
programs requested by the Chairman and Ranking Minority Member of the
former Subcommittee on Oceans, Fisheries, and Coast Guard, Senate
Committee on Commerce, Science, and Transportation. For this report, we
reviewed domestic quota programs to (1) determine the costs of managing
(i.e., administering, monitoring, and enforcing) IFQ programs and how
these costs differ from pre-IFQ management costs; (2) determine what, if
any, IFQ management costs are currently being recovered by the Department
of Commerce's National Marine Fisheries Service (NMFS); and (3) assess
ways to share the costs of IFQ programs between government and industry.
The term "individual fishing quota" as used in this appendix includes
individual transferable quota and individual vessel quota.

For all three objectives, we visited locations in Alaska, Florida,
Massachusetts, New Jersey, and South Carolina. We selected these sites to
obtain broad geographic coverage for the three domestic IFQ programs. In
these locations and elsewhere, we interviewed agency officials at the
headquarters office of NMFS as well as its Northeast, Southeast, and
Alaska regional offices; representatives of the Gulf of Mexico,
Mid-Atlantic, North Pacific, and South Atlantic Fishery Management
Councils; representatives of the International Pacific Halibut Commission;
officials at the headquarters office of the U.S. Coast Guard and the 1st,
7th, and 17th Districts; officers from the Alaska State Troopers and the
New Jersey Division of Fish and Wildlife; and others. We also visited
ports in Juneau, Homer, and Seward, Alaska, and Point Pleasant and
Wildwood, New Jersey, where we observed offloads of IFQ fish.

To determine the costs of managing IFQ programs, because NMFS does not
systematically track this information, we developed a data collection
instrument and asked organizations that perform IFQ-related activities to
provide information on their IFQ-related costs for fiscal year 2003. For
the halibut and sablefish IFQ program, the following organizations
provided cost information: the Restricted Access Management Program and
the Sustainable Fisheries Division of NMFS's Alaska Region, the Alaska
Division of NMFS's Office for Law Enforcement, the International Pacific
Halibut Commission, and the North Pacific Fishery Management Council. The
following organizations did not provide cost information although we
requested it: the National Oceanic and Atmospheric Administration's (NOAA)
Office of the Alaska Regional Counsel (information regarding IFQrelated
legal activities) and NMFS's Alaska Fisheries Science Center (information
regarding the sablefish stock assessment). Although NOAA's Office of
General Counsel for Enforcement and Litigation, Alaska Region,

Appendix I
Objectives, Scope, and Methodology

provided estimates of staff hours spent on IFQ work, it could not provide
the associated costs. For the surfclam/ocean quahog IFQ program, the
following organizations provided cost information: the Sustainable
Fisheries Division, the Fishery Statistics Office, and the Information
Resource Management of NMFS's Northeast Region; NOAA's Northeast Regional
Counsel; the Northeast Division of NMFS's Office for Law Enforcement; and
the Mid-Atlantic Fishery Management Council. NMFS's Northeast Fisheries
Science Center did not provide cost information regarding the surfclam and
ocean quahog stock assessments, although we asked it to do so. For the
wreckfish IFQ program, the Constituency Services Branch of the Management,
Budget and Operations Division of NMFS's Southeast Region provided cost
information, but the Southeast Division of NMFS's Office for Law
Enforcement (information regarding IFQ-related enforcement activities) and
the South Atlantic Fishery Management Council (information regarding
wreckfish management) did not. For all three IFQ programs, the U.S. Coast
Guard could not provide any cost information because it does not track the
costs associated with IFQrelated enforcement activities.

Using the cost information received, we prepared estimates of the
management costs incurred in fiscal year 2003 for each IFQ program. We
obtained the views of fishery managers on how halibut and sablefish and
surfclam and ocean quahog management costs changed after the two IFQ
programs were implemented. We also obtained views and supporting
information, where possible, on the costs incurred during the development
and implementation of each IFQ program. To assess the reliability of the
data we received, we interviewed officials most knowledgeable about each
IFQ program and its probable costs. On reviewing the data, they appeared
reasonable, given differences among the programs. Consequently, we
concluded that the reported data were sufficiently reliable for purposes
of this report.

To determine what costs, if any, are currently being recovered by NMFS, we
reviewed laws and regulations, including the Magnuson-Stevens Act and the
Sustainable Fisheries Act and their legislative histories, which set out
the cost recovery requirements for IFQ programs. We also interviewed NMFS
officials and fishery council representatives to determine which IFQ
programs are recovering management costs; what costs they are recovering;
and, if costs are not being recovered, the reasons why.

To assess ways to share the costs of IFQ programs between government and
industry, we identified domestic and foreign programs that share IFQ

Appendix I
Objectives, Scope, and Methodology

costs between government and the fishing industry. We interviewed and
obtained the views of government officials from the United States,
Australia, Canada, and New Zealand and academicians on cost-sharing
methods that are being used or could be used to share costs and their
advantages and disadvantages. We also reviewed studies related to existing
and potential cost-sharing methods. For purposes of this report, we did
not examine foreign laws and regulations, relying instead on foreign
fishery managers for the legal requirements of their programs and how they
operated.

We conducted our review from February through December 2004 in accordance
with generally accepted government auditing standards.

Appendix II

Descriptions of Individual Fishing Quota Programs in the United States

This appendix describes the three IFQ programs in the United States. The
term "individual fishing quota" as used in this appendix includes
individual transferable quota.

Surfclam/Ocean Quahog IFQ Program (1990)

Surfclams and ocean quahogs are mollusks found along the East Coast,
primarily from Maine to Virginia, with commercial concentrations off the
Mid-Atlantic Coast. While ocean quahogs are found farther offshore than
surfclams, the same vessels are largely used in each fishery. These
vessels tow hydraulic clam dredges that extract clams from the ocean
floor. The catch is emptied into metal cages holding roughly 32 bushels,
off-loaded at one of a small number of landing sites, and sold to
processing facilities. Surfclams are used in strip form for fried clams
and in chopped or ground form for soups and chowders. Ocean quahogs are
used in soups, chowders, and white sauces. The fishery consists of a few
large, vertically integrated firms, small processors, and independent
fishermen.

The surfclam fishery developed after World War II. When the surfclam
fishery declined in the mid-1970s, the ocean quahog fishery arose as a
substitute. Disease and industry overfishing led the Mid-Atlantic Fishery
Management Council to develop a management plan for surfclams and ocean
quahogs, the first such plan in the United States. Between 1977 and 1990,
the council and NMFS used a variety of effort controls to limit the
harvest to sustainable levels, such as restrictions on fishing times,
areas fished, clam sizes, gear, vessels, who fished, and how fishing
occurred.

IFQs were established for the surfclam/ocean quahog fishery in 1990-the
first IFQ program approved under the Magnuson-Stevens Act. The program was
designed to help stabilize the fishery, reduce excessive investment in
fishing capacity, and simplify the regulatory requirements of the fishery
to minimize the government and industry cost of administering and
complying with program requirements.

Wreckfish IFQ 	Wreckfish are found in the deep waters far off the South
Atlantic coast, primarily from Florida to South Carolina. They were first
discovered in the

Program (1992)	southern Atlantic in the 1980s by a fisherman recovering
lost gear. Wreckfish are fished by vessels over 50 feet in length using
specialized gear. These vessels are used primarily in other fisheries.

  Appendix II Descriptions of Individual Fishing Quota Programs in the United
                                     States

Within 3 years of the discovery of wreckfish, wreckfish landings increased
to more than 3 million pounds, and the number of vessels used for
wreckfish increased from 2 to 40. Because of concerns that the resource
could not support unlimited expansion, the South Atlantic Fishery
Management Council added wreckfish to the snapper-grouper fishery
management plan and set the catch limit at 2 million pounds per year. The
council developed an IFQ program for wreckfish in 1991. After the IFQ
program was implemented in 1992, wreckfish landings declined rapidly, in
part because of the difficulty and costs associated with fishing wreckfish
in relation to their market value, and quota holders started participating
in easier, less costly fisheries with higher market values. Today, the
wreckfish fishing fleet is small, with only 2 vessels reporting wreckfish
landings in 2003. Wreckfish are sold fresh or frozen as a market
substitute for snapper and grouper.

Halibut and Sablefish IFQ Program (1995)

Pacific halibut and sablefish (black cod) are found off the coast of
Alaska, among other areas. The fishing fleets are primarily owner-operated
vessels of various lengths that use hook-and-line gear for halibut and
hook-and-line or pot (fish trap) gear for sablefish. Some vessels catch
both halibut and sablefish.

The International Pacific Halibut Commission manages the halibut fishery
under a treaty between the United States and Canada. The Halibut
Commission adopts conservation regulations, such as seasons and area catch
limits, which it forwards to the United States and Canada for approval.
NMFS, in consultation with the North Pacific Fishery Management Council,
has the authority to develop other regulations that do not conflict with
the Halibut Commission's regulations.

Historically, there was no limit on the number of people who could
participate in the halibut and sablefish fisheries, and, starting in the
mid1970s, the number of boats in these fisheries began to increase
rapidly. By the late 1980s, overcapitalization of the halibut and
sablefish fleets led to seasons that lasted less than 2 days in some areas
and a race for fish that put boats and fishermen at risk and resulted in
gear loss, excessive bycatch of nontarget species, and poor product
quality, among other things. In response to these conditions, the North
Pacific Council developed an IFQ program that was implemented by NMFS in
1995. The program was designed, in part, to help improve safety for
fishermen, enhance efficiency, reduce excessive investment in fishing
capacity, and protect the owneroperator character of the fleet. The
program set caps on the amount of

Appendix II Descriptions of Individual Fishing Quota Programs in the
United States

quota that any one person may hold, limited transfers to bona fide
fishermen, issued quota in four vessel categories, and prohibited quota
transfers across vessel categories.

Appendix III

Descriptions of Individual Fishing Quota Cost-Sharing Programs in Selected
Countries

This appendix describes IFQ cost-sharing programs in Australia, Canada,
and New Zealand. The term "individual fishing quota" as used in this
appendix includes individual transferable quota and individual vessel
quota.

Australia	Australia's fishing zone,1 the third largest in the world,
supports many highvalue fisheries. The gross value of Australia's
commercial fisheries production was an estimated AU$2.3 billion in fiscal
year 2003. Australia introduced IFQs in the early 1980s and currently has
at least 20 federal and state fisheries under IFQ management. These
fisheries account for about 22 percent of the total value of Australia's
commercial fisheries.

Australia began recovering fishery management costs in the mid-1980s as
part of a governmentwide initiative to introduce user charges for
government services. The fishing industry (i.e., fishing permit holders)
pays for services that directly benefit fishermen, while the government
pays for management activities that may benefit the general public.
According to an Australian government official, in commercial fisheries
managed by the federal government, Australia recovers 50 percent of
compliance costs, 80 percent of research and data collection costs, and
100 percent of all other management costs. The recoverable costs are
collected through levies, license fees, and observer fees. The amount of
the levy for each quota holder is generally based on the amount of quota
held and the fishery's budgeted costs for the year, with an adjustment
made the following year if actual costs differ from the budgeted costs.

In fiscal year 2003, the Australia Fisheries Management Authority, the
government group that manages commercial fisheries, received AU$11.3
million from levies and license fees and AU$609,000 from observer and
other fees. These fees are paid to the general treasury but are then
transferred to the Australia Fisheries Management Authority to finance
fisheries management costs.

Canada	Canada, the fifth largest exporter of fish and seafood products in
the world, exported CA$4.7 billion worth of fish and seafood products in
2002. In the

1The Australian fishing zone stretches from the coast to 200 miles
offshore and includes both federal and state waters.

 Appendix III Descriptions of Individual Fishing Quota Cost-Sharing Programs in
                               Selected Countries

early 1990s, Canada started using IFQs to manage several of its commercial
fisheries, including western Canadian sablefish, Pacific halibut, and
groundfish.

In an effort to eliminate its budget deficit and promote government
efficiency, the Canadian government cut spending and made cost sharing
with industry a priority in 1994. Under Canada's system, as follows,
fishermen pay an access fee to the government, a cost-sharing fee to
industry associations, and observer fees to private companies.

o 	The access fee, paid to the Canadian government's general treasury, is
considered a form of rent to the government and Canadian people for the
right to use a public resource. Canada's Department of Fisheries and
Oceans does not receive funding to support program delivery from this fee.

o 	Canada provides a baseline level of fishery management services at no
cost to industry. However, if fishermen want additional services, they
must pay for them. Examples of additional services include adding
enforcement officers, adding stock assessment reports, and running an IFQ
program. Industry associations representing fishermen negotiate with the
Department of Fisheries and Oceans on the costs to be shared to provide
for the additional services. The associations then collect payments from
the fishermen through various methods. For example, in the groundfish
fishery, the association asks individual license holders to voluntarily
contribute funds. For the halibut fishery, the industry association raises
funds by setting aside a portion of the total commercial quota, not to
exceed 15 percent, and leases it back to individual fishermen. The
association then uses these funds to share IFQ program costs with the
government.

o 	In addition to user fees and cost-sharing fees, fishermen pay observer
fees. Canada requires fishermen to hire government-certified at-sea and
dockside observers from the private sector to monitor fishing activities.

New Zealand	Seafood is New Zealand's fourth largest export, after dairy,
meat, and forest products. In 2000, seafood exports were worth about
NZ$1.43 billion and accounted for 90 percent of industry revenue. New
Zealand introduced IFQs in 1986, and about 50 species are now managed
under the IFQ system. New Zealand's IFQ fish accounted for about 95
percent of the fishing industry's value in 2003.

Appendix III Descriptions of Individual Fishing Quota Cost-Sharing
Programs in Selected Countries

A provision for cost recovery for fisheries and conservation services was
added into fishing legislation in 1994 to enable the government to recover
costs associated with the commercial fishing industry. Recoverable costs
include conservation costs and costs that can be attributed to a
beneficiary of the resource. Costs of services that also benefit the
general public are not recoverable.

The 1996 Fisheries Act encouraged government to give industry a greater
role in the quota management system. As a result, since 2001, New Zealand
has transferred, or devolved, responsibility to industry for specified
services, while retaining responsibility for developing standards and
specifications for industry to follow. Currently, New Zealand has devolved
to industry responsibility for the quota registry system and collecting
fishing activity information.

Appendix IV

Comments from the Department of Commerce

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

Appendix IV
Comments from the Department of
Commerce

                                 See comment 1.

                                 See comment 2.

                                 See comment 3.

Appendix IV
Comments from the Department of
Commerce

                                 See comment 4.

                                 See comment 5.

                         See comment 6. See comment 7.

Appendix IV
Comments from the Department of
Commerce

                                 See comment 8.

                                  Appendix IV
                        Comments from the Department of
                                    Commerce

The following are GAO's comments on NOAA's written comments provided by
the Under Secretary of Commerce for Oceans and Atmosphere in a letter
dated February 11, 2005.

GAO Comments 1.

2.

3.

4.

As NOAA acknowledged, we were asked to report on the costs of IFQ
programs. An analysis of the net benefits of IFQ programs was beyond the
scope of our work.

We noted several times in the report that management costs changed with
IFQ implementation, in part, due to the characteristics of the fishery and
the complexity of the program. We believe that we have given this point
sufficient emphasis and, for this reason, we made no changes to the
report.

We disagree with NOAA's comments that the report exaggerates the problems
of NMFS's noncompliance with the cost recovery requirements of the
Magnuson-Stevens Act. NOAA does not believe that noncompliance is a
general problem because NMFS is recovering costs for the largest and
costliest IFQ program. However, the act requires NMFS to recover the costs
of all IFQ programs, regardless of their size and cost. Our report title
reflects our finding that NMFS is only recovering costs for one of the
three programs. Not only does such a situation raise concerns regarding
compliance with the law, it also raises concerns about fairness because
halibut and sablefish quota holders are paying fees, while surfclam/ocean
quahog and wreckfish quota holders are not. For these reasons, we made no
changes to the report.

We disagree with NOAA's comment that our report suggests that all IFQ
management and enforcement costs should be recovered. We said that the
Magnuson-Stevens Act does not define "actual costs directly related to the
management and enforcement" of an IFQ program. We also said that NMFS has
defined the term to mean incremental costs and noted that there is another
way to interpret costs, that is, full costs. We did not suggest that all
IFQ management and enforcement costs should be recovered. Rather, we said
that if the Congress would like NMFS to recover other than incremental
costs, it may wish to clarify the IFQ cost recovery fee provision of the
act. For this reason, we made no changes to the report.

Appendix IV
Comments from the Department of
Commerce

5.	Our report reviews different methods for sharing IFQ costs between
government and industry in the United States as well as in other
countries. We clarified that under U.S. law, the sole approach provided in
the Magnuson-Stevens Act is user fees.

6.	In our review of cost-sharing methods, we found that auctions were seen
as an option for distributing quota shares and for other uses; they were
not viewed as one of the principal methods for sharing IFQ costs. For this
reason, we did not include auctions in our discussion.

7.	The purpose of appendix III is to provide additional background
information about cost-sharing programs for fisheries management in
Australia, Canada, and New Zealand. We did not review the legal
circumstances and options available to each country because an audit of
each country's cost-sharing program was beyond the scope of this report.

8.	The scope of our work did not include an evaluation of the IFQ cost
recovery provision of the Magnuson-Stevens Act. Therefore, we think that
it would be premature to make a recommendation to Congress at this time.

Appendix V

                     GAO Contact and Staff Acknowledgments

GAO Contact Stephen D. Secrist, (415) 904-2236

Staff 	In addition to those named above, Allen T. Chan, Nancy L. Crothers,
Robert G. Crystal, Doreen S. Feldman, Curtis L. Groves, Julian P. Klazkin,
Susan J.

Acknowledgments	Malone, Keith W. Oleson, and Rebecca A. Sandulli made key
contributions to this report.

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