Community-based Sectors for the New England Groundfish Fishery

of community-based permit banks. This would require new legislation, but a program could be
modeled on the current legislation for industry financed buybacks.
To explore the economic feasibility of this concept, I constructed a strawman permit bank based
on vessels that were listed for sale during the summer of 2006. 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 for those vessels (FY2001 – FY2005) range from 0.85 to 2.49.
ACE allocations based on the use of FY2001-FY2005 catch history of the permit bank vessels are
calculated and revenues associated with utilization of those allocations are projected based on the
same target TAC and prices projections used for the economic feasibility analysis of the sectors.
The ACE leasing fee as a percentage of revenues that would pay back a $3.8 million loan for
vessel acquisition is calculated to be 16.3% of ex-vessel price from the catch associated with the
leased ACE. Assuming variable operating costs equal to 38% of gross revenues (the same
assumption used in the sector analyses), the permit bank yields close to $2 million annually in net
revenues to sector vessels after payment of the lease fees necessary for loan repayment. The
permit bank then quickly builds a substantial asset base which it could use to purchase additional
permits.
Operational and Regulatory Issues for Community-based Sectors
Perhaps the most important constraint on sector development (community-based or otherwise) is
the difficulties and cost involved with formation of a sector. There is a need for provision of
extension services for prospective sectors (particularly for preparation of environmental
assessments) and/or for a financial facility whereby sectors can apply for a loans or grants to
defray the costs of sector development.
Currently, approval of a new sector can only be done though a framework or an amendment. This
creates considerable uncertainty as to whether the sector will ultimately be approved and when. A
process could be set up allowing NMFS to authorized new sectors, but the Council would
sacrifice some control over sector development in the fishery. Alternatively, the councils could
initiate some region wide ruling allowing for sectors in every fishery with the final approval
resting with the Councils and NMFS.
Current regulations create a rolling period of catch history to be used for allocations. Sectors lock
into a catch allocation as a percentage of the TAC based on the ratio of their catches during the
five years relative to total commercial catches. However, the years used for allocation to future
sectors continue to change. Rolling baselines have the advantage of creating sector allocations
that more closely match recent catch composition of the sector vessels but create a number of
potential problems as well. Perhaps most problematic is the fact that permit holders within a
sector that make their catch history available to other sector members will see their potential
future allocations eroded. This presents a particular problem for sectors that might want to form
permit banks to make additional catch history available to its members since the value of these
permits would quickly erode. The Council recently passed motions recommending that sector
regulations be changed to create fixed and consistent baselines for all sector allocations for a
given fishery. This would eliminate much of the ambiguity and perverse incentives created by
current rolling baseline allocations. It creates more security for individuals who make their ACE
available to other members of the sector thereby facilitating consolidation within the sector and
reduction of fixed costs. It also provides more security for permit banks that its permits will not
be devalued over time if the ACE is made available to other vessels.
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