Originally published in Flyfishing in Saltwaters

SUBSIDIZING BAD BEHAVIOR
How your tax dollars contribute to overfishing
By Capt. John McMurray

Paying taxes is certainly not something we take any pleasure in doing, but Franklin D. Roosevelt correctly noted “Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” The underlying assumption to Roosevelt’s comments were that such “dues” would be used to advance the public interest. In the case of our overstressed marine fisheries, that has not always been the case.

For at least the past 50 years, one of the problems that has bedeviled fishery managers is “overcapacity,” which can be described simply as “too many fishermen chasing too few fish.” Unfortunately, while one branch of government is trying to solve such problems, another perpetuates them through subsidies and incentive programs that defy market forces as well as the dictates of nature which would have otherwise rationalized in an economically unsustainable commercial fishing industry. As a result of such government intervention, the industry has continued to overfish many historically and biologically significant fish stocks. And, it is the public’s tax dollars that are supporting such destruction of public resources.

One example is the Fisheries Financing Program. Under this plan, the government guarantees loans made to fishing-vessel owners, fish processors and other fishing-related businesses. In return, banks work with the government to offer fishermen loans with longer amortization periods and very low interest rates. NOAA Fisheries play a major role, processing applications and finding lenders. Most such loans have financed the construction, replacement, and/or upgrading of commercial vessels thus helping to create a large fleet of increasingly advanced fishing vessels that continue to wreak havoc on fish and fish habitat.

While recent regulations prohibit any financing that could contribute to increasing harvesting capacity, such regulations can’t undo the harm that the program has caused by overcapitalizing the Gulf of Mexico shrimp fishery, the New England groundfish fishery and the U.S. Pacific tuna fishery, all of which are now suffering the effects of depleted stocks and increased regulation.

The Capital Construction Fund (CCF) may be an even more harmful incentive program, and one without safeguards against overcapitalization. CCF was conceived after the passage of the Magnuson Act in the late 1970s, when it was thought that U.S. fishermen would enjoy substantial increases in landings once foreign fishermen were excluded from US waters, and reflected a Federal policy of encouraging the expansion and modernizing of the U.S. fishing fleet.

CCF, which is jointly administered by NOAA Fisheries and the IRS, allows fishermen to defer income tax on profits from fishing by setting such money aside in a special account for the eventual construction, upgrading or acquisition of fishing vessels. The amount deferred is, in effect, an interest free vessel construction loan from the Government. Just like the Fisheries Financing Program, CCF has had the effect of increasing the number, size, range and efficiency of commercial fishing vessels.

Besides providing direct financial aid, the Federal Government has a long-standing record of providing free marketing, promotion, and development assistance to the nation’s fisheries, even those that are exploiting stocks in serious decline.

NOAA Fisheries has also advocated the development of fisheries for so-called “underutilized species”, providing incentives and subsidies for promotion, marketing and, in some cases vessel refitting. A number of instances exist in which government incentives to expand underutilized fisheries have led to quick overcapacity and overfishing of the target species. The tragic collapse of several Atlantic shark species provides what may be the best example.

Federal “Fishery Disaster Assistance” authorized under the Magnuson Act has also proven problematic. Such assistance might be appropriate in the case of natural disasters, such as hurricanes and other severe coastal storms. It also might be appropriate when fisheries collapse due to human activity unrelated to fishing, such as the sharp decline in Pacific salmon populations after the damming of rivers in the Pacific Northwest cut off the fish’s access to productive spawning habitat. Even in the case of natural and man-made “disasters”, it is not clear that using federal funding to restore the status quo is a better long-term policy than using the same funds to implement capacity reduction through buyouts or other means.

However, we witness a clear abuse of Fishery Disaster Assistance funding when federal money is used to bail out commercial fishing fleets that have brought the so-called “disaster” upon themselves through pure greed and lack of foresight, and fished stocks down to the point of collapse. In 1995, a thirty million dollar handout of that sort was provided to New England commercial fishermen to help them through the self-inflicted “crisis” caused by the depletion of cod and other groundfish. Today, cod and other groundfish stocks are still in bad shape and the fishing industry remains a basket case. It is very likely that both the fish and the fishing industry would have been far healthier if market forces had been allowed to rationalize the fleet and force the large number of marginally profitable operators out of the fishery.

Today, history seems poised to repeat itself. The Governor of Massachusetts has requested Federal Disaster Assistance for commercial fishermen in his state, claiming that recent regulations, intended to help recover groundfish stocks from decades of overfishing, have caused "a true economic disaster.” He is basically asking the public to insulate New England fishermen from the predictable consequences of their own actions, and to pick up the tab for years of avoidable overfishing. Some argue that the commercial fleets were only following federal rules when they plundered groundfish stocks, ignoring the fact that the commercial fishing industry lobbyists relentlessly and, until recently, successfully pushed for federal rules that allowed overfishing to continue. It is absurd to even consider using pubic tax money to again save the commercial fishing industry from its own folly, and naïve to believe that, should such bailout take place, the fishermen wouldn’t immediately seek regulations that would allow them to continue to overfish groundfish.

Not all federal subsidies are bad. Programs that buy back vessels, permits or quota shares provide an economic incentive for fishermen to leave the industry should receive a larger share of federal fisheries assistance funding. Such programs were not effective in the past, because they did not give adequate consideration to “latent capacity.” Vessels owners would sell back a vessel or particular permits, and then merely concentrate their fishing effort on other fisheries not included in the program. Other fishers, who, although permitted, were not active participants in a fishery, will take advantage of their previously unused permits to enter the fishery and fill the void left by those that are bought out. However, good buyout programs can be designed to minimize such occurrences and there are a few that are currently underway.

Subsidies for job retraining, which permits the economic diversification of previously fishing-dependent communities, are also a productive use of federal money. Programs for non-fishing economic development can assist displaced workers finding other jobs and identifying new economic enterprises in such communities. Finally, it is difficult to argue against using federal funding for research and development of bycatch reduction devices and habitat-friendly gear.

Thus, federal fisheries assistance funding is not inherently bad, but merely misdirected. The federal government should stop providing economic incentives for economically marginal businesses to remain active in a fishery, when market forces and a scarcity of fish dictate otherwise. Congress should end support for the construction and refitting of vessels, and permit banks to base their lending decisions on the viability of the borrower’s business. Dollars previously allocated to such programs should be redirected toward efforts that will end overcapitalization, reduce bycatch and improve gear selectivity. Using taxpayer dollars in an attempt to keep economically moribund businesses on life support is a breach of the public trust and the worst kind of pork barrel spending.