Community-based Sectors for the New England Groundfish Fishery

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loans involving boats and permits. Only recently have they begun to put separate values on the hull and the permit. They have been making some loans on permits alone, but generally with customers with whom they already have a relationship and other loans. They noted that there is a lack of case law that clarifies whether they can take and sell a permit in the case of a loan default. This makes it difficult to use the permit as collateral. We talked about the possibility of loan guarantees through the Finance Authority of Maine (FAME). They said that FAME has not wanted to deal with the fishing industry for a while. They would need direction from the legislature to do so. If FAME could provide loan guarantees, it would enable the lenders to classify the assets in a preferred risk category. This might not affect the rate much but would make it easier for them to make the loans and would increase the percent of the value that could be financed. Generally with the FAME guarantee this would be 90% but could be even higher. However a loan guarantee through FAME can actually add 1% to the interest rate on the loan because there is need to cover insurance on the loan. The officers of Farm Credit of Maine were negative about the idea of setting up a new federal loan guarantee program saying there are too many already and it would take a long time. They said it would make more sense to use an existing facility such as the USDA’s FSA to provide loan guarantees if that could be arranged. The officers of Farm Credit of Maine noted that changes in fishery management that make permits more of a commodity will make them more valuable and easier to loan against since there is a thicker market for resale. With only permit leasing the market is thin because you have to match up the permit’s vessel baseline to a similar boat. If the catch history can be used by anyone in the sector regardless of boat size, it becomes easier. ITQ would be even better from that point of view. I spoke with Ellen Sanborn, Assistant Director of Finance in the Portland City Manager’s Office about financing of a permit bank. She noted that there are two different types of bonds that could potentially be used. The first and less costly is a government obligation (GO) that puts the name of the city behind paying back the bond. The city would not support this unless it was very clear that the money would be paid back, and it is probably not feasible to provide this level of certainty. The cost of capital for a GO is currently around 4.5-5%.The alternative is a revenue bond. In this case the permit bank would have to convince the buyers of the bonds that the permit bank will be able to repay the loan. It could potentially buy its way into a revenue bond by getting insurance but this would add about a percentage point to the financing costs. To get the insurance the insurance company has to be convinced that the probability of default is low. Revenue bonds might work for a few million but probably not a larger sum. Estimated financing cost with insurance would be more like 5.5-6.5%. Ms. Sanborn said that this would be a lot easier and the city would be a lot more likely to participate if their investment was leveraged by federal or state money. State money seems unlikely, so looking for federal money might be a better bet. It would also have to be clear that the permit bank, through a sector, could pay back the loan required to purchase permits. The city would need some assurances that the management rules for use of the permits in the sector would not change for the period that it would require to pay back the loan. If there is little assurance that the rules won’t change in a way that could undercut the value of the permits, then it would be difficult to get support for a bond. Direct loans from the Federal government would be another and potentially superior alternative for financing creation of community-based permit banks. This would of course require new legislation, but a program could be modeled on the current legislation for industry financed buybacks. That program allows a fishery as a whole to apply for a long term, low interest loan to reduce capacity in the fishery and to pay that loan back through a landings tax. While the program 42
is ostensibly to reduce excess capacity in fisheries, in practice it is a means for consolidation of the fishery to a reduced number of permit holders. A financing mechanism for community permit banks would achieve the same end while also addressing objectives of National Standard 8 of the Magnuson-Stevens Act. 3.3.2 Economic Feasibility of a Permit Bank To explore the economic feasibility of this concept, I constructed a strawman permit bank based on vessels that were publicly listed for sale during the summer of 2006. The vessels listed in Table 13 were chosen from a larger set of offered vessels based on the ratio of the value of their groundfish revenue history to the sale price and the percentage of their groundfish catch from GOM stocks. Vessels with a large percentage of their catch history from GB or SNE stocks were excluded on the assumption that the Maine community-based sector vessels would mainly be fishing GOM stocks. A total of 10 vessels were selected with a combined asking price of $3.8 million. The vessels range in size from 46 to 74 feet with prices ranging from $150 thousand to $575 thousand. The ratios of asking price to the average annual groundfish revenue (FY2001 – FY2005) range from 0.85 to 2.49. Table 13: Vessels included in the strawman permit bank with associated list prices, DAS allocations, and vessel characteristics and percent of FY01-05 GOM groundfish landings Permit Moratorium Right ID Vessel Name List_price Regulation Length NEMS A DAS % Landed Pounds from GOM Stocks 250305 370 DOLORES LOUISE $150,000 46 49 99% 320541 572 LYDIA & MAYA $435,000 71 53 92% 250483 401 BETHANY JEAN $395,000 48 89 100% 320695 669 MARY AND JOSEPHINE $500,000 67 53 82% 250728 432 ANNA LENA IV $335,000 56 80 100% 310554 1530 ERIKA LYNN $299,000 50 53 100% 320885 684 TARA LYNN II $575,000 54 88 99% 230320 1696 IRENE ALTON $270,000 58 63 100% 320233 490 JANAYA & JOSEPH $395,000 74 53 98% 310331 505 TARA LYNN $525,000 54 66 100% 43
Page 1 and 2: Community-based Sectors for the New
Page 3 and 4: Table of Contents Executive Summary
Page 5 and 6: Community leaders in Portland and P
Page 7 and 8: of community-based permit banks. Th
Page 9 and 10: 1.0 Introduction The groundfish fis
Page 11 and 12: Although Amendment 13 effectively e
Page 13 and 14: somewhat vague on how the allocatio
Page 15 and 16: 2.2 Experience with Existing Sector
Page 17 and 18: me to explore the idea further and
Page 19 and 20: period is that which was used to de
Page 21 and 22: shown above in Table 2. Revenue pro
Page 23 and 24: Table 3a: Port Clyde Sector Revenue
Page 25 and 26: ecruitment and could be either high
Page 27 and 28: increased. They also have caught a
Page 29 and 30: 3.2.1 Strawman Sector Structure and
Page 31 and 32: Table 8: Portland Sectors A and B V
Page 33 and 34: discussed earlier these price proje
Page 35 and 36: Table 9b: Portland Sector A Revenue
Page 37 and 38: Table 9d: Portland Sector B Revenue
Page 39 and 40: Table 10b: Portland Sector A Revenu
Page 41 and 42: Table 11b: Portland Sector B Specie
Page 43: vessels would be leased to sector v
Page 47 and 48: Table 15: Projected Total Revenue,
Page 49 and 50: later. However, rolling baselines c
Page 51 and 52: 4.4 Communities without Catch Histo
Page 53 and 54: opportunities for consolidation of
Page 55 and 56: References Alexander, Yvette 2006.M
Page 57 and 58: Appendix A: Landings and revenue pr
Page 59 and 60: Appendix B: Groundfish Price Model
Page 61 and 62: Appendix C: Sector Proposals Submit
Page 63 and 64: Port Clyde Community Sector Glen Li
Page 65 and 66: Full Retention All fish caught 1. e
Page 67 and 68: Reasons for Existence: 1. end overf
Page 69 and 70: Gloucester Fixed Gear Sector Peter
Page 71 and 72: New Bedford Channel Trawl Sector Ri
Page 73 and 74: Point Judith / Southern New England
Page 75: Pier 6 Initiative Michael Walsh Req

Community-based Sectors for the New England Groundfish Fishery

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