Individual Fishing Quotas: Management Costs Varied and Were Not Recovered as Required
Published: 2005-03-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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 IFQ-related 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.

section_title: Letter
paragraphs: 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. 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. 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  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.
subsections: section_title: Background
paragraphs: The Magnuson-Stevens Fishery Conservation and Management Act  provides for the conservation and management of fishery resources in the  United States. 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.  To develop their plans, the councils each use a collaborative process that  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. 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.
section_title: Depending upon the IFQ Program, Management Costs Were Higher or Lower Than Pre-IFQ Costs
paragraphs: 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.
subsections: section_title: IFQ Management Costs Varied by Program
paragraphs: 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  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.
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.
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.
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  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.
section_title: Whether IFQ Management Costs Were Higher or Lower Than Pre-IFQ Costs Depended on Fishery and Program Characteristics
paragraphs: 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,  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;  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;  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   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.
section_title: Fishery Councils and NMFS Incurred Additional Costs Associated with Development and Implementation of Two IFQ Programs
paragraphs: 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.
subsections: section_title: IFQ Development Costs
paragraphs: 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.
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.
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.
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.
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.
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.
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.
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.
section_title: IFQ Implementation Costs
paragraphs: 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.
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.
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.
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.
section_title: NMFS Has Not Recovered IFQ Management Costs as Required
paragraphs: In 1996, the Magnuson-Stevens Act was amended by the Sustainable  Fisheries Act, requiring NMFS to collect a fee to recover the “actual costs  directly related to the management and enforcement of any individual  fishing quota program” and limiting the fee to 3 percent of the ex-vessel  value of the fish harvested. Further, the amendment prohibited NMFS  from collecting such fees in the surfclam/ocean quahog and wreckfish  fisheries until after January 1, 2000. NMFS implemented cost recovery for  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. 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. 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.
section_title: Several Methods Are Used for Sharing Costs between Government and Industry
paragraphs: 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.  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.
subsections: section_title: User Fees
paragraphs: 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  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.
section_title: Quota Set-Asides
paragraphs: 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.
section_title: Devolution of Services
paragraphs: 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.
section_title: Conclusions
paragraphs: 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.
section_title: Matter for Congressional Consideration
paragraphs: 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  Magnuson-Stevens Act.
section_title: Recommendations for Executive Action
paragraphs: To comply with the cost recovery requirements of the Magnuson-Stevens  Act, we recommend that the Secretary of Commerce direct the Director of  NMFS to take the following two actions:  implement cost recovery for all IFQ programs and  develop guidance regarding which costs are to be recovered and, when  actual cost information is unavailable, how to estimate these costs.
section_title: Agency Comments and Our Evaluation
paragraphs: 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.
section_title: Objectives, Scope, and Methodology
paragraphs: 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 IFQ- related 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,  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 IFQ- related 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  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.
section_title: Descriptions of Individual Fishing Quota Programs in the United States
paragraphs: 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.
subsections: section_title: Surfclam/Ocean Quahog IFQ Program (1990)
paragraphs: 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.
section_title: Wreckfish IFQ Program (1992)
paragraphs: 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  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.
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.
section_title: Halibut and Sablefish IFQ Program (1995)
paragraphs: 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 mid- 1970s, 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 owner- operator character of the fleet. The program set caps on the amount of  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.
section_title: Descriptions of Individual Fishing Quota Cost- Sharing Programs in Selected Countries
paragraphs: 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.
subsections: section_title: Australia
paragraphs: Australia’s fishing zone, the third largest in the world, supports many high- value 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.
section_title: Canada
paragraphs: 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  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.
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.
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.
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.
section_title: New Zealand
paragraphs: 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.
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.
section_title: Comments from the Department of Commerce
paragraphs: 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.
subsections: section_title: GAO Comments
paragraphs: 1. 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.  2. 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.  3. 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. 4. 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. 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.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: 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.  Malone, Keith W. Oleson, and Rebecca A. Sandulli made key contributions  to this report.