Editor’s note: This is part three in a series of stories examining the Cook Inlet Aquaculture Association. Part one was on a disease outbreak at Trail Lakes Hatchery. Part two looked at the history of CIAA. This week’s story examines the myriad challenges confronting the organization. Past stories can be read on the Redoubt Reporter’s website, http://www.redoubtreporter.wordpress.com.
By Jenny Neyman
Redoubt Reporter
Given the conditions within which the Cook Inlet Aquaculture Association operates, it’s small wonder the organization has found itself on the brink of a financial crisis, with a $900,000 deficit, increasing loan payments looming on the horizon, cost-recovery fisheries that have not produced revenue as expected and a lack of capital to start up new projects that might be successful.
The very nature of how the association functions involves a mixture of factors outside its control that create a recipe for financial instability, at best, and, at worst, a level of surprise that the whole thing hasn’t already gone belly up — revenues based largely on variable fish prices and the strength of salmon runs, being subject to state and federal authority that limits CIAA’s scope of operations, and the dispassionate and sometimes disastrous effects science and biology can have on fish production.
Higher authority: Board of Fish, Mother Nature
Fish may be slippery. The rules that govern their hatching, rearing, releasing and harvesting are not. CIAA is subject to Alaska Department of Fish and Game and Board of Fish authority over its operations. It must obtain permits and approval for all major aspects of its operations — what stocks it can take eggs from, where and when it can release salmon fry and smolt, and how many it can release.
Those decisions don’t always go the way CIAA would like, or happen as quickly as it would prefer. For instance, CIAA is having a problem with its lower Cook Inlet lake-stocking project. The sockeye used for brood stock come from Hidden Lake, but they spawn late in the summer, which doesn’t allow enough time for the resulting smolt to get big enough to thrive upon their release into the lakes the next spring. CIAA wants to find a different stock to use, but Fish and Game turned down a request to use Bear Lake broodstock, so CIAA is still searching for another alternative.
CIAA operates two cost-recovery fisheries, in Resurrection Bay and Kachemak Bay, which CIAA hopes will generate a sizeable — it budgeted for $1.4 million this year — and consistant source of revenue. Those fisheries must be approved, and CIAA’s emergency allowance for harvest priority — it gets to fish until it reaches its goal before the commercial fishermen get a crack at the runs — expires this year and must go back before the Board of Fish for re-approval.
“Our goal in putting this whole thing together was to have more than one cost-recovery harvest site, but it’s taken us from 1992 to 2009 to really get that established in Resurrection Bay,” said Gary Fandrei, executive director. “… We would like to expand the project we’ve got in Tutka Bay and maybe change that to early run fish because they’re more valuable. We’ve been working with the Department of Fish and Game about a year on that.”
CIAA also has run afoul of federal oversight. It was operating a sockeye-stocking program in Tustumena Lake that was popular with commercial fishermen, and supplemented the personal-use fisheries at the mouth of the Kasilof River and sportfishing in the river.
“That Tustumena project, people more than got their money’s worth. It was a fabulous project,” said Brent Johnson, president of the CIAA
Photos by Joseph Robertia, Redoubt Reporter. The Cook Inlet Aquaculture Association has conducted a smolt study on the Kasilof River for the past 30 years, although it is no longer permitted to stock sockeye in Tustumena Lake. Above, sockeye smolt soak in an anesthetic solution as part of the mark-recapture study.
board of directors and a Cook Inlet set-netter. His site is in Clam Gulch, where he fished the Tustumena stocks. “I don’t know of anyone that’s arguing it wasn’t a benefit to commercial fishermen and, for that matter, to sportfishermen and dip-netters too. This was about sockeye, so people who want sockeye, this was about them.”
Tustumena Lake is in the Kenai National Wildlife Refuge — a designated wilderness area covered under the federal Wilderness Act. The Wilderness Society sued to prevent CIAA’s sockeye enhancement project in Tustumena Lake, on the grounds that commercial enterprise isn’t allowed in a wilderness area. In 2003 the 9th Circuit Court of Appeals agreed and CIAA’s Tustumena enhancement permit was revoked.
Legal courts and human rules aren’t the only restrictions on CIAA’s operations. Projects are also subject to the laws of nature. The Trail Lakes Hatchery battles recurring outbreaks of the infectious hematopoietic necrosis virus, which results in losses of sockeye fry and smolt, because IHN is naturally occurring in the broodstocks CIAA uses for egg takes.
And there are natural limitations on enhancement projects. Lakes can only support so many fish. Stocking too many can overtax food sources and rearing capability, harming natural stocks and even causing runs to crash.
Tustumena Lake, for example, is rearing limited. In the 1980s the state (before it divested itself of its hatchery operations to organizations like CIAA) wanted to stock 20 million sockeye fry in the lake. In 1985, more than 500,000 sockeye escaped to Tustumena Lake to spawn and the return from that brood year did not replace itself, said Ken Tarbox, a CIAA board member and retired biologist with Fish and Game who was a researcher in a study of the Tustumena Lake system.
“That combined with our results strongly supported the idea that the lake was rearing limited and could not support the hatchery program as planned,” Tarbox said.
A compromise of 6 million fry was reached, but even at that reduced level Tarbox said the study couldn’t conclude if the stocking program was actually adding fish to the runs or just displacing native fish.
“The system is very limited in food and thus putting more fish in may cause more harm than good. It is a complex question,” he said.
Those complexities exist throughout the enhancement programs. Though hatchery knowledge, experience and success have come a long way since the 1980s, there still is no magic-bullet guarantee to produce strong, consistent fish runs.
“Overall the management, the husbandry of raising salmon has gotten better. There’s been a few technological improvements, but mostly our managers are just doing a good job, being real thorough,” Johnson said.
“The truth is that the association has struggled ever since I can remember,” he said. “We’ve had high hopes and that sort of thing. There’s no difference between our aquaculture association’s ability and others, it’s that we’ve been stymied by government and a series of bad luck.”
Budgeting blindfolded
As the association faces decisions on how to establish firmer financial footing and fulfill its mission to protect and enhance salmon stocks and habitat in the Cook Inlet region, it’s not just between a rock and a hard place so much as attempting to navigate a boulder field of challenging circumstances.
Chief among them is CIAA’s finances. Salmon enhancement work is not cheap and does not offer many opportunities for cost cutting.
“Lots of times we’re cutting corners with costs so much that we don’t have enough personnel, we’ve got old equipment,” Johnson said. “There’s these various homestead fishermen kind of bale-wire-the-program-together-and-make-it-work approaches. And we’re trying to get past that to put together real good programs that are actually going to work.”
When projects fail, there’s no way to recoup those expenses. The potential revenue dies or disappears with the fish, as happened this summer when an IHN outbreak led to over 2 million sockeye fry having to be destroyed at Trail Lakes Hatchery, and sockeye from a 2008 net pen release in Resurrection Bay and a 2007 smolt outmigration from Bear Lake inexplicably did not return. Given the life cycle of salmon, any changes made to the rearing and releasing programs in an attempt to prevent a similar fate can take five years to tell whether they helped or hurt.
Personnel and operational expenses can be trimmed, but CIAA already runs a tight budget and there isn’t much left to cut, Fandrei said. At
Photo courtesy of Cathy Cline, field assistant at the Bear Creek Weir. CIAA salmon smolt raised from egg stage at Trail Lakes Hatchery are transported to Bear Creek Weir raceway for imprinting in fresh water before being released to begin their journey to the ocean.
this point, the only way to significantly lower CIAA’s expenses is to eliminate projects, up to shutting down Trail Lakes Hatchery. The CIAA board of directors met Sept. 7 to consider doing just that, but decided to keep the hatchery in operation at least another year while it evaluates its current stocking programs.
Shutting down would save money, but at the same time, producing fish produces revenue for CIAA, creating a case of cutting off one’s nose to spite the face. CIAA operates a cost-recovery fishery in Resurrection Bay and another in Kachemak Bay. If those operate as expected, they would generate a sizeable chunk of income. Cost-recovery was expected to produce $1.4 million for CIAA this year. Instead, with the run return failures in Resurrection Bay, CIAA only netted about $500,000. Scaling back fish production also moves away from a big part of the organization’s mission to enhance and protect salmon stocks. The fish CIAA produces are utilized by sport, personal-use and commercial fisheries.
On the other side of the budget, revenue is a fickle, fluctuating target. Though CIAA has attempted to diversify its income streams with cost recovery and in pursuing grants, the majority of its funding has been and still is money generated from a 2 percent salmon enhancement tax levied on the catches of commercial fishermen in area H — Cook Inlet stretching around the peninsula to Resurrection Bay. As the Cook Inlet commercial fishing industry wallowed in the late 1990s to 2000s from declining prices, reduced harvests and allocation of fish to other user groups, CIAA’s revenue was drug down with it.
All this creates a challenging budgetary balancing act. Given the way CIAA currently operates, it has to spend money on stocking programs that can be utilized for cost recovery, in order to make more than just the salmon enhancement tax money. Plus, enhancing runs is a benefit to common-property commercial fisheries, and the better the commercial fleet does, the more tax revenue CIAA gets.
No room to grow
Starting new projects without eliminating others means adding to the budget, and CIAA does not have an ample stash of working capital to fund new endeavors. It’s more often a struggle just to get through the year in the black. At a CIAA board meeting Sept. 7, board members were told the organization was facing a $900,000 deficit, due to the missing Resurrection Bay sockeye returns resulting in less cost-recovery revenue than expected.
The organization has not traditionally been on firm enough financial footing to withstand sizeable hits to its budget.
“We’ve been in this kind of a position before because, as a nonprofit organization that tries to provide as much of its resources to the users as we can, we’ve always kind of worked on the edge all along. We’d like to be more comfortable than where we’re at,” Fandrei said.
CIAA does have a reserve account of $850,000 to cushion the budgetary blow when problems like run failures and disease outbreaks occur, as they have done periodically throughout the history of the organization. But this year’s crop of bad luck has the potential to be a recurring problem. The IHN outbreak at Trail Lakes Hatchery this summer means the Resurrection Bay net pens won’t be stocked next spring, so those fish won’t return for the cost-recovery fishery in 2013 and 2014.
Even if those fry had survived to be stocked, they might not have returned anyway. Mangers don’t know why the net pen-released sockeye and Bear Lake outmigration sockeye didn’t return this year. If whatever went wrong with this year’s missing run is an endemic problem, then future runs may not return, either. The reserve account could mitigate one hit to the budget, but it can’t cover the fallout from an IHN outbreak and net pen failures together.
At the same time, CIAA has need of operational capital to fulfill other obligations, including grant projects. CIAA applies for grants to do
Photo courtesy of Cathy Cline, field assistant at the Bear Creek Weir. A CIAA sockeye salmon returns to Bear Lake Weir.
research work, conduct habitat restoration projects and the like, but must do the work the grant is awarded for before money is allocated.
“Most people don’t realize. They think you get a grant, somebody walks through the door with a packet of money and you just have a great time with it. It doesn’t work that way. You enter into a contract to do certain types of work and once you complete that work they will reimburse you for that,” Fandrei said. “As you rely more and more on grants, cash flow becomes more and more of a critical situation. The issue is, do you run out at the end of the fiscal year before your income comes in from next year’s cost-recovery harvest and salmon enhancement tax?”
Without money in the budget to finance new projects on top of existing ones, especially with uncertainty of the viability of Resurrection Bay sockeye runs adding a question mark to all budgetary considerations, that just leaves loans as a source of capital.
The state of Alaska operates a revolving loan fund for private nonprofit hatchery operations, and the CIAA board has decided to seek loan funding to cover its current shortfall and keep Trail Lakes Hatchery in operation for another year.
CIAA was able to whittle this year’s budget shortfall down to about $120,000 while preserving the reserve account. Though the disease outbreak at the hatchery meant over 2 million fry had to be destroyed, that also eliminated the cost of feeding and rearing those fish. CIAA had budgeted for roof repairs and other maintenance at Trail Lakes Hatchery, but the Legislature came through with a $1 million grant to cover deferred maintenance costs at the facility, which is owned by the state and operated by CIAA. A $200,000 contribution to the reserve account also was cut from the budget.
“We’ve got a really tight budget. We don’t have a lot of fluff in there, but we’re not in a position where there’s any threat of closing the doors. And if we do have to secure an additional loan, it’s going to be on the order of probably $200,000 to $300,000,” Fandrei said.
If the board decides to go ahead with a Tutka Bay pink salmon stocking project, that will necessitate another $300,000 to get up and running, he said.
But part of CIAA’s current financial crunch is $3.3 million in loan debt. The organization already has seven loans on which it is paying. The current payment is $190,000 but will increase to $230,000 next year and $296,508 from 2015 to 2019.
“We’re not excited about taking loans,” Fandrei said.
Some commercial fishermen are even less excited by that prospect. If CIAA becomes insolvent, as it could if cost-recovery revenue doesn’t turn around and IHN outbreaks and net pen failures continue, fishermen will be on the hook to pay back CIAA’s current level of debt and any additional loans the board decides to pursue. That has some wondering if CIAA is worth the 2 percent salmon enhancement tax and continued state loan funding.
“They’re questioning the value of it, and they should. If they didn’t, I would wonder where they were,” Fandrei said. “I think, rightfully so, they should be questioning it, and we need to be answering those very hard questions.”
Next week’s story will focus on debate over the value of CIAA and concerns with its continued operation.
The Mouth of The Kenai 
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