4. CDQ COMPENSATION SWAPS, TRANSFERS AND LEASES

4.1 Overview of the Chapter

4.2 CDQ Compensation QS Swaps Across Catcher Vessel Categories

Under the new halibut IFQ program, a portion of the TAC in halibut areas 4B, 4C, 4D, and 4E is set aside each year for Community Development Quotas (CDQs) under the Western Alaska Community Development Program. By regulation, 20% of the TAC is set aside in Area 4B, 50% in Area 4C, 30% in Area 4D, and 100% in Area 4E.1 These CDQ portions of the TAC are allocated among eligible western Alaskan communities in accordance with Community Development Program plans approved by the Governor of Alaska in consultation with the NPFMC and approved by the United States Secretary of Commerce.

In making these CDQ allocations, the NPFMC decided that they also wanted to "compensate" entities who received initial halibut QS allocations in Areas 4B, 4C, 4D, or 4E for the reduction in their annual IFQs due to the CDQ allocations. The NPFMC chose a one-time compensatory mechanism whereby initial QS recipients in these CDQ areas would be awarded "CDQ compensation QS" in the halibut non-CDQ areas. The non-CDQ halibut areas are 2C, 3A, 3B, and 4A.2

The complex formula utilized for doing this compensated initial QS recipients in CDQ areas for their losses and implicitly taxed QS recipients in non-CDQ areas. The addition of compensatory QS to the QS pool in non-CDQ areas reduced the IFQ value of a unit of QS in each of these areas.

The objective of the compensatory mechanism was to make all initial QS recipients share on an equal percentage basis the average loss in IFQ due to the CDQ allocations in Western Alaska areas. The formula for the CDQ compensation QS allocation was designed to serve that function.3

CDQ compensation QS in non-CDQ areas was often a form of compensation that many recipients could not fish readily. If someone received CDQ compensation QS, they would receive a portion of the compensatory QS in each of the halibut non-CDQ areas.4 Often the person had not fished previously in these non-CDQ areas and often the CDQ compensation QS was too small to be "fishable" by itself.

For these reasons, the NPFMC expected that the "compensation" would often occur with a sale of the CDQ compensation QS to another entity who could make better use of it. The NPFMC debated how to treat the CDQ compensation QS with respect to the other rules governing the IFQ program.

Under the rules for regular QS, if the amount initially allocated would be worth less than 20,000 pounds of hypothetical "IFQ" under the 1994 TAC, then the QS would be issued as a "block" and would have to be transferred as a block.5 It was anticipated that much of the CDQ compensation QS would be in small amounts that might well be hard to sell if they were placed into blocks.

The NPFMC eventually settled upon a rule that would combine CDQ compensation QS in a non-CDQ area with any regular QS initially issued to the entity for that area. If the recipient's regular QS was unblocked the additional CDQ compensation QS would also be unblocked.

If the recipient's regular QS was blocked then the CDQ compensation QS was to be rolled into the block, unless the addition of the CDQ compensation QS put the entity over the blocking limit for the area. When the addition of the CDQ compensation QS put the person over the blocking limit, then all of the person's QS for the area was to be combined and issued as unblocked.6

Alternatively, if a person was issued CDQ compensation QS in an area for which the person was not initially issued any other regular QS, then the CDQ compensation QS was left unblocked. During 1995, an additional rule was added for persons who had received catcher vessel CDQ compensation QS in an area when the person held no regular QS for that area. This rule made such catcher vessel CDQ compensation QS "fishable" across catcher vessel categories and tradeable across catcher vessel categories upon the first permanent transfer.

The ability to transfer this type of CDQ compensation QS between catcher vessel categories has been referred to as "swap-ability". The addition of this rule was meant to facilitate transfers so that "compensation" could occur. Persons with "swappable" CDQ compensation QS for a catcher vessel category can have it swapped to the catcher vessel category designated by the transfer recipient. The right to "swap" this type of CDQ compensation QS expires upon the first transfer or on February 24, 1997, whichever occurs first.7

4.2.2 Summary of 1995 Swaps of CDQ Compensation QS

As noted above, persons initially issued CDQ compensation QS in a catcher vessel category for an area where they received no regular QS have the right to swap the QS to another catcher vessel category upon permanent transfer. The "swap" converts the original CDQ compensation QS to the catcher vessel category designated by the transfer recipient. The NMFS-RAM division started allowing some swaps during 1995 after it became clear that the regulation would be approved.

The tables in this section provide details on swaps that occurred during 1995. The reader should be aware that there appear to be some errors on the NMFS-RAM initial allocation file and current file with respect to blocking factors and "swappable" CDQ compensation. NMFS has been notified of the errors but the problems remain unresolved as of this writing. It is possible that further editing will be done on the NMFS files before any updates of this report. As a result, some of the data herein may change in future reports.

The authors had to estimate which initially allocated CDQ compensation QS segments were "swappable" based upon the current IFQ program regulations. The amount of CDQ compensation QS that was swappable may also change as corrections are applied to the NMFS data. For these reasons, these data should be considered preliminary.8 Table 4.2.2-1 provides summary data by area and vessel category on the transactions involving "swappable" CDQ compensation QS during 1995. The catcher vessel categories in the table have the codes used under the IFQ program. Catcher vessel category B contains vessels "greater than 60 feet length overall (LOA)," catcher vessel category C contains vessels "greater than 35 feet LOA and less than or equal to 60 feet LOA," and vessel category D contains vessels "less than or equal to 35 feet LOA". Note that CDQ compensation QS and swappable CDQ compensation QS can only exist in non-CDQ Areas 2C, 3A, 3B, and 4A, and that only catcher vessel CDQ awards are swappable.

The table indicates the amount of "swappable" CDQ compensation QS that was initially issued by area and vessel category. Within each area, the table provides the amount of QS that was swapped out of each vessel category, swapped into each vessel category, and the net change in each vessel category due to swaps. These data include the number of swaps involved and the percentage of the initially issued swappable CDQ compensation QS that was swapped from each vessel category.

As can be seen, the number of swap transactions during 1995 were relatively small ranging from 25 transactions in Area 4A to 32 transactions in Area 2C. In Areas 3A, 3B, and 4A all of the swap transactions resulted in a net decrease in the QS from vessel category D and a net increase of QS in either vessel category B and/or vessel category C. Thus, in these areas all swaps resulted in QS moving from the smallest catcher vessel class to a larger vessel class. In Area 2C the swap transactions were more diverse resulting in a net increase in QS in vessel category C and a net decrease in QS in vessel category D and vessel category B.

While there were not a large number of swaps in each area, the swap transactions did involve over 21% of the initially issued swappable CDQ compensation QS for Vessel Category D (the smallest catcher vessel category) in all four non-CDQ Areas. This percentage was highest in Area 3A where 25.2% of the swappable CDQ compensation QS for vessel category D was swapped to larger catcher vessel categories.

Table 4.2.2-1 also provides information on the initially issued swappable CDQ compensation QS that was transferred without being swapped. By regulation, these QS also lose the right to be swapped upon the first transfer.

In addition, the table provides the amount of swappable CDQ compensation QS that still remained at the end of 1995 by area and vessel category and the percentage that this remaining amount represents of the initially issued swappable CDQ compensation QS for that area and vessel category. The percentage remaining varies from 55.6% for vessel category D in Area 3A to 100% for vessel category B in Area 3A and vessel categories B and C in Area 3B. By regulation, the rights to "swap" expire upon the first transfer or on February 24,1997, whichever comes first.9

The swap and subsequent transfer of swappable CDQ compensation QS or the transfer of such QS decreased the amount of available swappable CDQ compensation QS during 1995 than was initially allocated. These transactions also reduced the number of persons who still hold swappable CDQ compensation QS.

Table 4.2.2-2 provides a succinct summary by area of the changes in swappable CDQ compensation QS from initial issuance though year-end 1995. It also shows the number of persons who held swappable CDQ compensation QS at initial issuance and the number who still held it at year-end 1995. As can be seen, the percentage decline in swappable CDQ compensation QS during the year closely parallels the percentage decline in persons holding swappable CDQ compensation QS. Again, under the current regulations of the IFQ program, the privilege to "swap" this type of CDQ compensation QS will expire if not used by February 24, 1997.

TABLE 4.2.2-1. Amount of QS swapped and amount of swappable QS transferred during1995, by area and vessel category

TABLE 4.2.2-2. Net changes in swappable QS and number of persons during 1995, by area

4.3 QS Transfers

Table 4.3.1-1 shows the amount of QS in each area, the amount of QS permanently transferred in 1995 and the ratio of these permanent QS transfers to the QS outstanding expressed as a percent. This ratio will be called the "QS transfer rate" It also shows the amount of QS leased during 1995 and the ratio of the QS leased to the total QS outstanding. This ratio will be called the "QS lease rate".10

The QS transfer rate in the non-CDQ areas ranged from about 12.4% in Area 4A to 17.9% in Area 2C. The transfer rate in CDQ areas ranged from 0% in Area 4E to 4.5% in Area 4B.11

In contrast, the QS lease rate was relatively low in all areas. This rate varied from 0% in Areas 4C, 4D and 4E to 2.5% in Area 4B. The low QS lease rates relative to permanent transfer rates may be largely due to the restrictions on leasing under the IFQ program. Under program rules, only 10% of a person's catcher vessel QS for an area can be leased in a year, and QS in blocks cannot be separated for lease purposes.12 As shown in Section 4.4 in this analysis, a large percentage of the QS issued in some areas is blocked.

Table 4.3.1-2 provides similar information for QS holders. The table shows the original number of QS holders in an area, the number of holders who permanently transferred some amount of QS, and the percentage of original QS holders who permanently transferred some QS during 1995.13 This percentage will be called the "QS holder transfer rate". The table also provides the number of QS holders who leased out some of their QS during 1995 and the percentage of original QS holders who had leases during 1995. This percentage will be called the "QS holder lease rate". The QS holder transfer rate was relatively high in non-CDQ areas where the number of post- swap QS holders with transfers ranged from 14.4% in Area 3B to 18.8% in Area 2C. In the CDQ areas the QS holder transfer rate was much lower.

The number of QS holders involved in lease transactions was very low in all areas, ranging from 0 persons in Areas 4C, 4D and 4E to 11 persons in Area 3A. Again, the relative paucity of lease transactions is probably related to program rules.

Tables 4.3.1-3 and 4.3.1-4 show similar information by management area and vessel class. As these tables show, there were distinctly different patterns of permanent transfer and lease activity for freezer and catcher vessels during 1995.

Both tables show that most of the leasing activity that occurred during 1995 was in the freezer vessel category. This is to be expected because there is no regulatory restriction on the amount of freezer QS which can be leased. The percentage of freezer vessel QS leased ranged from 13.5% in Area 2C to 54.3% in Area 4B. Similarly, the percentage of QS entities who leased some of their freezer vessel QS ranged from 13.3% in Area 4A to 28.6% in Area 4B.

Again, most of the permanent transfer and lease activity occurred in the non-CDQ areas. The catcher vessel classes tended to have higher permanent QS transfer rates in the non-CDQ areas during 1995 than the freezer vessel class. The 200% transfer rate for Area 4C freezer vessel QS occurred because the QS holding in that fishery was transferred twice.

TABLE 4.3.1-1 Amount of QS transferred and leased, by area

TABLE 4.3.1-2 Number of unique transferors and lessors, by area

TABLE 4.3.1-3 Rate of transfer of QS by area and vessel category

TABLE 4.3.1-4. Rate at which persons transfer QS by IPHC management area and vesselcategory

4.3.2 Consolidation of QS Holdings Due to Transfers

The halibut IFQ program was implemented in a fishery that had not previously been placed under limited entry. As more fishing operations entered the fishery the season became shorter. Prior to the IFQ program, the fishery had become a "derby-style" fishery with a few short openings per year in most halibut management areas. As such, the fishery had a considerable annual turnover of participants, and many entities qualified for initial allocations of small amounts of QS.

At the beginning of the program, it was anticipated that there would be some consolidation of QS as small quota holdings would be transferred to more full-time operations. While the NPFMC felt that some consolidation was desirable, they added many features to the program to ensure that consolidation would not result in radical changes in the fleet. These features included limitations on the amount of QS an entity can use, constraints on the amount of IFQ that can be fished from a vessel, restrictions on the entities who are eligible to receive QS by transfer, restrictions on transfers across vessel categories, constraints on the leasing of QS, and "blocking" of QS worth less than 20,000 pounds of IFQ.14

The two tables in this section provide information on the consolidation of QS due to 1995 transfers. Table 4.3.2-1 provides summary data by halibut IFQ management area. The table shows the amount of QS initially issued in the area, the number of initial QS holders in the area, and the average QS per QS holder. The values of these variables are inclusive of 1995 "Swap" transactions.15

Table 4.3.2-1 also shows the number of transfer transactions, the number of QS transferors, the number of QS transfer recipients, the year-end number of QS holders, the average QS holdings at year-end 1995, and the percentage change in the number of QS holders due to transfers.

As can be seen, 1995 transfer transactions resulted in consolidation of QS holdings in Areas 2C through 4B. In each of these areas the number of QS holders declined and the average QS holdings increased as the net result of QS transfer activity. The percentage decrease in the number of QS holders in these areas due to 1995 transfer activity ranged from approximately -3% in Area 4B to -10% in Area 2C. In Areas 4C through 4E there was very little transfer activity and the number of QS holders and their average holdings of QS did not change from initial issuance through year-end 1995.

Table 4.3.2-2 provides similar information broken out by both halibut IFQ management area and vessel category. Here the counts of QS in a vessel category and the number of QS holders in a vessel category again reflect initial issuance plus any 1995 "swap" transactions across vessel categories within an area.16

Table 4.3.2-2 shows that in Areas 3A through 4A the number of QS holders in the freezer vessel category increased and the average QS per QS holder declined as the net result of 1995 transfer activity. This was more than offset by the decline in the number of catcher vessel QS holders and the increase in the average QS holdings per QS holder due to 1995 transfer activity in these areas.

Again, in CDQ areas 4C through 4E there was no decline in the number of QS holders or average QS holdings per holder due to 1995 transfer activity. There were very few QS transfers in these areas during 1995.

TABLE 4.3.2-1. Consolidation of QS due to transfer, by area

TABLE 4.3.2-2. Consolidation of QS due to transfer, by area and vessel category

4.3.3 Sweep-up Consolidations

This section examines the sweep-up provisions in the halibut IFQ program and examines the impacts of sweep-ups during 1995. The tables show that significant numbers of halibut QS blocks are "sweepable" but not many halibut sweep-up transactions occurred during 1995. Thus the provisions had little impact during 1995.

Under the IFQ program's QS "block" rules, no person can hold more than two blocks in an IFQ area, and persons who hold unblocked quota in an IFQ area can hold only one block of QS. Many blocks that were issued were very small, and in some cases they were probably too small to make a fishing trip worthwhile. While the blocking rules were added to try and make a portion of the QS unattractive to the full-time fleet, some of the blocks that were initially allocated were so small that they were not particularly attractive to the part- time fleet either. Proponents of the block proposal anticipated this problem, and the NPFMC included a sweep up provision for very small blocks in the program rules.

Under the sweep-up rules existing in 1995, blocks of QS that translated into less than 1,000 pounds of a hypothetical IFQ for halibut within a regulatory area and vessel category could be consolidated into a larger QS block of up to 1,000 pounds of the hypothetical IFQ.17 For example, a person with a 500 pound block and a person with a 400 pound block could, through transfer and consolidation, create a new 900 pound block.

RAM data suggest that there are a significant number of blocks of halibut QS that fall into a range that would make them sweepable under this provision. The data also show that the sweep-up provisions did not have large impacts during 1995.

Table 4.3.3-1 provides data on the number of persons who were initially issued sweepable blocks, the number of sweepable blocks initially issued and the QS units associated with those sweepable blocks. The table also provides year-end 1995 data for the number of persons who held sweepable blocks, the number of sweepable blocks, and the QS units associated with those sweepable blocks. The change from initial issuance to year-end 1995 in the number of persons with sweepable QS blocks, the change in the number of sweepable QS blocks, and the change in the amount of sweepable QS are also included in the table.18 These data are provided by management area.

The data indicate that there were lots of persons holding sweepable halibut QS blocks and a considerable amount of sweepable halibut QS both at initial issuance and at year-end 1995. This was particularly true in Areas 2C through 3B. The number of persons holding sweepable QS blocks and the number of sweepable blocks declined slightly during 1995. However, with the exception of the anomaly reported in Area 2C, the amount of sweepable QS did not decline since the sweep-ups that occurred resulted in new combined blocks that were still worth less than 1,000 pounds of the hypothetical IFQ as noted above.

Table 4.3.3-2 provides summary information on the sweep-up transactions by area. As can be seen, there were a total of only 31 sweep-up transactions and all of these transactions occurred in Areas 2C through Area 4A. The total amount of sweepable QS involved in these transactions was quite small relative to the amount of sweepable QS in each area, and the number of sweepable blocks involved was small relative to the number of sweepable QS blocks in each area. As can be seen the number of sellers and the number of buyers in these "sweep-up" transactions are the same in Areas 2C and 4A and only one different in Areas 3A and 3B.

This suggests that only a couple of QS blocks were combined in most sweep-up transactions. An oddity on the RAM database is that a person must first hold QS before they can execute a sweep-up transaction. Thus for a person who holds no QS but wants to purchase and sweep-up one or more blocks, the first transaction computerized for the person is entered as a "transfer" and not as a "sweep-up". Subsequent transactions associated with the entire sweep-up are entered individually as sweep-up transactions.

Thus for some persons, the data in Table 4.3.3-2 do not show the transfer of the first block involved in the sweep-up. If a person already held a block of sweepable QS then the purchase of additional blocks to combine in the sweep-up would be entered as sweep-up transactions in the database.

At their April 1996 meeting, the NPFMC voted to increase the size of the sweep-up limit to increase the number of economically fishable blocks. The new halibut sweep-up limit will be 3,000 pounds of halibut. This will be converted to QS equivalents using the 1995 TACs. If approved by the Secretary of Commerce, this new limit would take effect in 1997.19

Table 4.3.3-3 puts the sweepable QS into perspective with the total QS and the total blocked QS in an area as of the end of 1995. As can be seen, the percentage of QS that is blocked is relatively high in all IFQ areas, ranging from 35.4% in Area 3A to 100% in Area 4E.

In contrast, the percentage of blocked QS that is sweepable at the end of 1995 is relatively small ranging from .7% in Area 4D to 19.9% in Area 4E. However, the percentage of QS holders who hold sweepable QS is again relatively large ranging from 12.3% in Area 4D to 76.0% in Area 4E. This again demonstrates, as do other tables in the report, that a high percentage of halibut QS holders hold small amounts of QS.

Table 4.3.3-4 provides another look at sweepable QS as of the end of 1995. The data indicate that a large percentage of the persons who hold sweepable QS blocks in an area hold no other blocks for the area.

TABLE 4.3.3-1. Number of persons owning sweepable blocks, number of sweepable blocks, and total sweepable QS units, initial issuees and year-end 1995 holders, by area

TABLE 4.3.3-2. Number of sellers and buyers of sweep up transactions and mean QS of sweep-ups, by area, 1995

TABLE 4.3.3-3. 1995 Year-end total QS, blocked QS, and sweepable blocked QS by IFQ area

4.3.4 Changes in the Holdings of QS by Resident type Due to Transfers and Sweep-ups

The initial distribution of QS and the changes in that distribution are topics of interest for those who have been concerned about the potential consequences of the new IFQ program. Earlier sections examined this topic using Alaska census areas as resident categories. This section supplements the analysis in Section 3.5.3.

The tables in this section examine the initial and year-end 1995 distribution of halibut QS in each area by five resident types. The resident types in the table include nonresidents of Alaska (N) and four Alaska resident types. The four Alaska resident types include Alaska rural local (ARL), Alaska rural nonlocal (ARN), Alaska urban local (AUL), and Alaska urban nonlocal (AUN).

Alaska communities were classified as local or nonlocal to halibut areas using the following rules:

(1) If the place was a coastal community, it was classified as local to the halibut areas of that coastline.

(2) If a community was within 25 miles of the coast, and was connected to the coast by a navigable body of water or road, it was also classified as local to the halibut management areas of that coastline.

(3) If a coastal community was within 25 straight-line miles of an adjacent halibut management area boundary, it was also classified as local to the adjacent area.

Alaska communities were classified as rural or urban based largely on census data. All communities with more than 2,500 people, according to the 1990 U.S. population census, were classified as urban. Communities were also classified as urban if they were connected by highway to an urban center of 6,000 to 20,000 persons and were within 20 air miles of that urban center. In addition, communities were classified as urban if they were within 40 highway miles of an urban center greater than 20,000 persons.

Tables 4.3.4-1 and 4.3.4-2 provide summaries of net changes in QS holdings and persons with QS by IFQ area and resident type due to permanent transfer of the QS.20 These tables provide another perspective on the distribution of QS ownership and changes in QS ownership.

Table 4.3.4-1 provides data on net changes on QS holdings by management area and resident type. For each IFQ area and resident type, the table provides data on the amount of QS initially issued to the resident type, the year-end 1995 amount of QS held by the resident type, QS transferred away from the resident type, QS transferred to the resident type, and the net change in QS held by the resident type during 1995.

The table also provides data on the percentage of the area's QS initially issued to the resident type, the year-end 1995 percentage of the area's QS held by the resident type, the percentage of the area's "transferred QS" that was transferred away from the resident type, the percentage of the area's "transferred QS" that was transferred to the resident type, and the net percentage change in the amount of QS held by the resident type during 1995.

The table indicates that the resident type which received the highest percentage of the QS initially issued varied by IFQ area. AULs received the highest percentage of the QS in Areas 2C and 3A. ARLs received the highest percentage of the QS in Area 4E. Nonresidents received the highest percentage of the QS initially allocated in IFQ Areas 3B, 4A, 4B, 4C, and 4D. Transfers during 1995 did not change the relative rankings of the resident types in any area, and the resident type which received the highest percentage of QS in an area at initial issuance still held the highest percentage of the area's QS at year-end 1995.

Entities from Alaska with addresses in communities that were "local" to an IFQ area (both ARLs and AULs) were initially issued more the majority of the QS in IFQ Areas 2C, 3A, and 4E.21 "Locals" still held a majority of the QS in these areas at year-end 1995.

Nonresidents were initially issued the majority of the QS in IFQ Areas 4A, 4B, and 4D. Nonresidents still held the majority of the QS in these areas at year-end 1995.

The table also indicates that the QS transfer volume by resident type in an area roughly followed the same rank order as the distribution of QS by resident type. There were very few transfers in CDQ Areas 4C through 4E and the few transfers which occurred did not alter the distribution of QS by resident type in these areas. ARNs in Area 2C, 3A, and 4A experienced the greatest percentage decline of QS holdings by a resident type. Some of this may reflect sales of CDQ compensation QS by persons who could not use it.

Table 4.3.4-2 provides similar data on changes in the number of QS holders by resident type. For each IFQ area and resident type, the table provides data on the number of persons from the resident type who received an initial QS allocation, the year-end 1995 number of persons holding QS from the resident type, the number of QS transfer transactions from the resident type and the number of transferors involved, the number of QS transfer transactions to persons of the resident type and the number of transfer recipients involved, and the net change in the number of QS holders during 1995.

The table also provides data on the percentage of the area's QS holders classified in the resident type at initial issuance, the year-end 1995 percentage of the area's QS holders classified in the resident type, the percentage of the area's transferred QS that was transferred away from the resident type, the percentage of the area's QS transferors who were from the resident type, the percentage of the area's QS transfer recipients who were from the resident type, and the net percentage change in the number of QS holders by resident type during 1995.

The distribution of QS holders by resident type in Table 4.3.4-2 differs somewhat from the distribution of QS holdings by resident type in Table 4.3.4-2 due to differences in average QS holdings by resident type. For example, in Area 4B nonresidents held 65.4% of the QS at year-end 1995 but only represented 44.5% of the QS holders in that area. The discrepancies between these percentages indicate that the average QS holdings of nonresidents are higher than the overall average QS holdings.

Note that in the non-CDQ areas and Area 4B, the number of QS holders fell during 1995 due to consolidations of QS holdings through transfers. In these areas, the number of QS holders remained constant or declined in 1995 for all resident types except for AUN's in Area 4B. These declines were due to consolidations by transfer. Even if a resident type in one of these areas increased its QS holdings, the number of QS holders from the resident type were likely to fall.

The decline in the number of QS holders during 1995 did not alter the rank order of the percentage of QS holders by resident type within an area.

TABLE 4.3.4-1. Changes in 1995 QS by area and resident type due to transfer

TABLE 4.3.4-2. Changes in 1995 QS holders by area and resident type due to transfer

4.4 QS/IFQ Lease Transactions

As noted above, the halibut IFQ program rules allow for some leasing of QS. Holders of freezer vessel QS are free to lease all of their holdings during a year. Holders of catcher vessel QS may lease up to 10% of their QS for any management area and vessel class during a year. This QS could be leased to one or more persons. All leases expire on December 31 of the year in which they were made. The rules only provide that halibut catcher QS may be leased in the years 1995, 1996, and 1997. The regulations providing for leases expire at the start of 1998.22

Table 4.4-1 provides information on halibut QS leases during 1995 by IFQ area and vessel category. The table shows the amount of QS and the number of QS holders in each vessel category after 1995 QS swaps have been applied. It also shows the number of leases, the number of lessors, the number of lessees, the total amount of QS leased, the average amount of QS leased, and the percentage of total QS leased for each area and vessel category.

As noted earlier, very little catcher vessel QS was leased but substantial portions of the freezer vessel QS were leased. The percentages of freezer vessel QS leased in areas 2C through 4B ranged from 13.5% in Area 2C to 54.3% in Area 4B. There were a total of 31 lease transfers during 1995.

The rules of the IFQ program may help account for the small number of formal catcher vessel QS leases. First, as noted above, no one may lease more than 10% of their catcher vessel holdings in any given management area and vessel class. Second, the interaction of the blocking rules and the leasing restriction made it hard to lease catcher vessel QS blocks. As discussed in Chapter 3, the program rules prohibited the sale or lease of a part of a block. This meant that only QS holders with a block that represented less than 10% of their area holdings, could lease out that block.

Also, there may be ways to lease QS informally without the need of a formal lease transaction. For example, the hired skipper rules may have provided some operations an alternative means to lease their QS during 1995. Moreover, some fishermen may have sold their QS with the tacit understanding that they could repurchase it at the end of the season.23

Freezer vessels are not constrained as much by leasing restrictions. While they cannot break up a block of freezer vessels QS for leasing purposes they can lease the entire block since they face no 10% restriction on the amount of QS that they can lease. Table 4.4-2 shows the 1995 leases of blocked QS only. As can be seen, a surprisingly high amount of the leased freezer vessels QS was in blocks. There were thirteen leases of blocked freezer vessel QS. No catcher vessel blocks were leased.

The IFQ program rules which allow only limited leasing of catcher vessel QS represent a compromise designed to balance two program objectives. Opponents of leasing wanted to keep QS in the hands of active fishermen rather than absentee QS holders. They also thought that the ability to lease QS might dampen the volume of QS sales and make it more difficult for new persons to enter the fishery as QS owners. Proponents of QS leasing wanted to maintain operational flexibility for fishermen in a dynamic environment.24 The 10% rule sought to balance both sets of concerns.

The leasing limitation can interact with the rules governing blocking of QS to restrict the amount of blocked quota that may be leased. As noted earlier, blocked QS must be transferred on an all or nothing basis. Blocks may not be broken up to allow some of the QS to be leased. Thus, a person who only held one block of QS in an area could not lease that block or any part of it. A person with two blocks would not be allowed to hold any unblocked QS. This person would only be in a position to lease QS if one block was no more than 10% of the person's total QS holding.25

As noted above, there are ways to lease QS that would not result in a formal lease transaction. These methods might lead to a de facto lease transfer of more than 10% of person's QS for an area and catcher vessel category. Regulations provide that: "An individual who receives an initial allocation of catcher vessel QS does not have to be aboard and sign IFQ landing reports if that individual owns the vessel on which IFQ sablefish or halibut are harvested, and is represented on the vessel by a master employed by the individual who received the initial allocation of QS." This provision is not extended to persons who were initial issuees of QS in IPHC Area 2C.26

The regulation does not indicate a minimum percentage ownership to qualify as an owner under this regulation. There have been reports that some catcher vessel QS holders have purchased small shares in the vessel of another person, and have filed paperwork to allow the other person to fish as the QS holder's "employee."

As noted above, persons might also be able to circumvent this regulation by selling their QS with a tacit understanding that the QS would be transferred back to the individual QS holder at the end of a specific period of time. Examination of RAM computer records suggests that return transfers within 1995 were unusual and that no more than 215,200 QS statewide were transferred back to the original holder in five separate transactions.27 This is not a complete check on the extent of this type of activity, since some return transfers may take place in subsequent years.

Table 4.4-3 provides information on the extent to which lessees (persons who receive leased QS) were initial QS recipients or new QS holders. A large portion of the leased QS went to persons who were not initial QS recipients. New persons constituted 50% or more of the persons leasing QS in all management areas and vessel classes in which leases occurred, except for medium catcher vessels in Area 3A.

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