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Fisheries in the Western Pacific; Compensation to Federal Commercial Bottomfish and Lobster Fishermen Due to Fishery Closures in the Papahanaumokuakea Marine National Monument, Northwestern Hawaiian Islands

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Information about this document as published in the Federal Register.

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National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.


Final rule.


This final rule describes how NMFS will compensate eligible and interested Northwestern Hawaiian Islands (NWHI) commercial lobster permit holders who were, and commercial bottomfish permit holders who will be, displaced by fishery closures with the establishment of the Papahanaumokuakea Marine National Monument (Monument). Congress mandated that the compensation be based on the economic values of fishing permits. NMFS estimated the net present value of permits using a proxy based on a multiple of annual gross revenues. Permit holders who voluntarily accept compensation must immediately surrender their permits and leave the fisheries.


This final rule is effective October 15, 2009.


Eligible participants in the permit compensation program may contact William L. Robinson, Regional Administrator, NMFS, Pacific Islands Region (PIR), 1601 Kapiolani Blvd., Suite 1110, Honolulu, HI 96814-4700.

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Toby Wood, Sustainable Fisheries Division, NMFS PIR, 808-944-2234.

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This final rule is also available at​fr.

Public Law 110-161, the Consolidated Appropriations Act of 2008, authorized the Secretary of Commerce (Secretary), through NMFS, to compensate commercial lobster permit holders who were, and commercial bottomfish permit holders who will be, impacted with establishment of the Monument on June 15, 2006 (Proclamation 8031, 71 FR 3644, June 26, 2006, as amended by Proclamation 8112, 72 FR 10031, March 6, 2007). Regulations governing the Monument require that any commercial lobster fishing permit be subject to a zero annual harvest limit, permanently closing the NWHI lobster fishery. The NWHI commercial bottomfish fishery is allowed to operate until June 15, 2011, when it will be closed permanently (see 71 FR 51134, August 29, 2006, and 50 CFR 404.10).

Congress authorized funding for the compensation in the amount of $6,697,500, and directed the Secretary to initiate rulemaking for a voluntary capacity-reduction program. This final rule establishes a process to implement the Act.

A future voluntary vessel and gear buyout may be developed once the permit compensation is complete, but only if funds authorized by the Act are available. NMFS would publish a separate proposed rule to describe and seek public comment on any future vessel and gear buyout program, as appropriate.

Eligible Participants

The Act defines “eligible participants” as individuals holding commercial Federal fishing permits for Start Printed Page 47120lobster or bottomfish within the Monument at the time the Monument was established. NMFS is not authorized to compensate anyone not meeting the definition of “eligible participant.” NMFS determined eligible participants to be holders of eight valid commercial Federal permits for bottomfish, and holders of 15 valid commercial Federal permits for lobster. As a condition of voluntarily receiving compensation, fishermen must immediately surrender their NWHI fishing permit to NMFS and agree to relinquish any claim associated with each permit.

Compensation Methodology

In the absence of a documented market for the permits, NMFS determined the economic value of NWHI lobster and bottomfish Federal commercial fishing permits by using a proxy for the net present value (NPV) of the permits that uses imputed (estimated) values. The proxy for NPV is a multiple of annual gross revenues, based on a variety of separate investigations of these relationships. NMFS determined the permit values using reported revenues for the three consecutive years in which each fishery operated immediately prior to the designation of the Monument.

Bottomfish. NMFS determined the economic value of each of the eight Federal bottomfish permits individually using the base value time period of 2003-05. The NPV of each individual permit reflects the average ex-vessel revenue, calculated as the ex-vessel gross revenue proxy, times a multiplier of approximately 2.5 that considered the discount rate. The economic value of each permit, and the compensation offer, will be different for each of the eight permit holders, based on the 2003-05 official fishing records associated with each permit. All imputed values will be updated to current dollar figures based on Consumer Price Indices.

Lobster. NMFS determined the economic value of each of the 15 Federal lobster permits, collectively, using the base value time period of 1997-99. The NPV of each permit used a similar ex-vessel gross revenue proxy to reflect the average ex-vessel net revenue for the fleet as a whole during 1997-99, times a multiplier of approximately 2.5 that considered the discount rate. The economic value of each permit, and the compensation offer, will be identical for all 15 permit holders. Imputed values will be updated to current dollar figures based on Consumer Price Indices.


After the effective date of this final rule, eligible permit holders will be notified in writing of their individual permit compensation offer, as determined by the compensation methodology described above. Within 30 days of receipt of notification (verified by NMFS), each permit holder must review the permit compensation offer and notify NMFS in writing of either their voluntary acceptance or non-acceptance of the compensation offer. Failure to inform NMFS of a decision (i.e., acceptance or non-acceptance decision) by the prescribed deadline date is deemed a non-acceptance by the permit holder. This determination by NMFS of non-acceptance for compensation is final and is not subject to agency appeal. If the combined total value of all permits is greater than the authorized amount, minus NOAA's administrative costs, then the amount of monetary compensation disbursed to all participants will be prorated.

At the conclusion of the 30-day response period, NMFS or its authorized contractor will review responses from permit holders, identify those who have accepted the offer of permit compensation, and disburse funds to the permit holders who have accepted. A permit holder's receipt of compensation funds will immediately invalidate the holder's Federal permit in the NWHI bottomfish and/or lobster fishery, as appropriate, and such permit will be immediately surrendered to NMFS. NMFS will notify the permit holder, at the time that funds are disbursed, that his or her permit is no longer valid, and the vessel is no longer registered to participate in the fishery for which compensation has been received.

Vessel owners who do not accept the offer of permit compensation are authorized to continue fishing in accordance with the terms and conditions of their respective permits, and to the extent otherwise permitted by law. Permit holders should note that commercial fishing for lobster in waters of the Monument is prohibited, and that fishing for commercial bottomfish and associated pelagic species will be prohibited in waters of the Monument after June 15, 2011.

Transferability of Compensation

The NWHI lobster fishery was closed permanently as a result of the designation of the Monument, so permit compensation will be offered to the holder of the permit that was valid on the date of the Monument's designation, i.e., June 15, 2006.

The NWHI bottomfish fishery remains open until June 15, 2011. Bottomfish permits are not transferrable, so the bottomfish permit compensation is available only to the holder of the permit at the time compensation funds are disbursed. Any claim to permit compensation is both non-transferable and non-assignable. Accordingly, only the NWHI bottomfish permit holder of record is eligible to receive permit compensation under this program.

Additional background information on this final rule may be found in the preamble to the proposed rule, and is not repeated here.

Comments and Responses

On April 7, 2009, NMFS published a proposed rule and request for public comment (74 FR 15685). The public comment period ended on May 4, 2009. In addition to one comment that supported the methodology for determining permit values, NMFS received additional public comments, and responds as follows:

Comment 1: For the lobster permit valuation, NMFS should have used more recent price data, such as that for 2006, to calculate NPV, rather than using data based on an average of gross receipts accumulated in the 1997-99 NWHI lobster fishery.

Response: The NPV model requires identification of annual, or average annual, gross receipts upon which to set a baseline. Prices depend on a set of unique parameters including same-period quantities, income, prices of substitute and compliment goods. Thus, there is no economic rationale to assign a 2006 price to a quantity of production from 1997-99.

Comment 2: The model should have used an average of 14 years of landings data (1983-97), as advocated in a 2007 report by the Association of NWHI Lobster Permit Holders.

Response: The prices of lobster noted in the report were estimated using an interpolation of the Urner Barry Market Report for frozen lobster tails, most likely delivered prices, i.e., including shipping costs, from Australia, Brazil, and the Caribbean. Therefore, to apply those 2006 processed product prices, i.e., $23.50 and $13.00 dollars, respectively, for spiny and slipper lobster to quantities harvested would cause a significantly large overestimation of gross receipts. NMFS data indicate that the real price (in 1996 dollars) of slipper lobster had been relatively stable at $3.20 and $4.00 per pound in every year between 1988 and 2000. The real price (in 1996 dollars) for spiny lobster had been between $5.00 Start Printed Page 47121and $7.00 per pound between 1989 and 2000. The spiny lobster price had been more variable and showed no real trend. In addition, the quantity used in the report (average landings from 1983-97) potentially reflected a fishing-down stage of the fishery, which in conjunction with an oceanographic regime change in the late 1980s, led to the yields that were utilized in the analysis. Using this quantity would lead to an overestimation of the imputed value of the permits.

Comment 3: NMFS should use a 15-year period instead of a 30-year period to calculate NPV.

Response: The 30-year NPV calculation presupposes that vessels (capital) used in the NWHI fisheries will be utilized over that period. The NPV using a 30-year period would yield a higher permit value than over 15 years. Thus, NMFS used the 30-year analysis period.

Comment 4: $6.3 million is not enough to buy out the combined lobster and bottomfish fisheries.

Response: The Act directs the Secretary, through NMFS, to provide compensation “not to exceed the economic value of the permit.” The total amount was appropriated by Congress, and NMFS has no discretion to increase the amount.

Comment 5: The ex-vessel revenue data regarding lobster prices cited in the Regulatory Impact Review (RIR) for the proposed rulemaking was not accurate.

Response: Prices for lobsters were obtained from the NMFS Administrative Report “Study of Northwestern Hawaiian Islands Lobster Fishery Discards (AR-SWR-00-01).” No information was offered to address any possible inaccuracies, so the prices cited in the report represent the agency's best available official information on the fishery.

Comment 6: The same formula and variables should not be used to determine the economic value of lobster and bottomfish permits.

Response: The methodology to determine the imputed value of permits is a standard capital budgeting approach (e.g., F.M. Wilkes, Capital Budgeting Techniques, 1977). In this approach, the NPV methodology is based on underlying principles of economic theory in valuing assets over time. To properly estimate NPV, the same formula and variables are required, including baseline, time period, and discount rate. The difference is in the actual values used to estimate NPV for the two fisheries, which depend on their context. While there are clear differences in the two fisheries from an operational point of view, the permits in both cases represent assets with an investment value.

Comment 7: The assumption is incorrect in the RIR that the profit margins are similar for both fisheries.

Response: The RIR correctly notes that profit margins are assumed to be similar within each fishery, not between them, and would not affect relative permit compensations.

Comment 8: The proposed rule improperly assesses different economic values for individual bottomfish permits based on each fisherman's catch history from 2003-05. Because the bottomfish fishery does not use individual quotas, a permit holder's catch history is not relevant to determine the market value of a permit. The only rationale for distinguishing between bottomfish sectors would be to recognize that vessels fish on either of two zones, the Mau and Ho'omalu Zones.

Response: An approach similar to the lobster fishery analysis could have been taken for bottomfish, including separation into the two management zones. Given the ongoing activity in the bottomfish fishery, however, NMFS determined that it was not appropriate to treat all permit holders the same. Bottomfish permit holders' future prospects, absent the Monument, were determined by their individual investments in vessel and gear, and in their own skills and experience, particularly since bottomfish fishing permits were not transferable. An established catch history is a reliable predictor of future performance, and there is no basis to believe that individual fishermen would alter their behavior over time, aside from overall changes in the fishery.

Comment 9: Because of bad weather, vessel repairs, etc., NMFS should use time periods other than 2003-05, which would result in a higher value for all bottomfish permits. Alternatives include the three years of highest catch from 2003-08, or an average of the two best years out of the years 2003-05.

Response: Using three consecutive years to determine imputed permit value, and keeping the approach similar between the lobster and bottomfish compensation schemes, strives to maintain equity in computing permit values between the two fisheries. Basing permit values on alternative time periods for the bottomfish permit holders would not be equitable to the lobster permit holders, who faced the same constraints prior to closure of their fishery in 2000. Hence, for reason of fairness, NMFS will use the three-year period 2003-05 to calculate the average individual ex-vessel gross revenue to determine permit values for bottomfish permits.

Comment 10: The proposed permit values do not accurately reflect the value that fishermen put on their way of life.

Response: Congress intended the compensation be for no more than the economic value of the permit. Accordingly, NMFS did not consider using other forms of valuation, such as intrinsic value of fishing lifestyles, to implement the compensation program.

Comment 11: NMFS has recently estimated bottomfish stock biomass in the NWHI to be at 150% of maximum sustainable yield, thus promising high abundance for the future.

Response: NMFS interprets this comment to mean that the potential value of bottomfish permits would be higher than using the catches from 2003-05. Stock assessments are good gauges of present status of a stock, but have been proven to be accurate predictors of stock levels only in the very near term and certainly not over a 30-year period. The NPV model used here is not a predictive model, nor does it attempt to optimize future returns; it is used simply to calculate a lump sum payment based on the present value of future returns given a specific baseline in the form of average gross receipts, discount rate, and time line. Stochastic net benefit models are frequently utilized for public policy decisions; however, these are usually applied to specific physical projects of a much shorter duration where probabilities of future economic events are measurable with an acceptable level of confidence.

Comment 12: To address equity and fairness, the compensation amount should be divided equally among eligible permit holders in the bottomfish fishery.

Response: NMFS determined that the most equitable method to establish a baseline for the NPV model was to use actual gross receipts earned by individual vessels. This process is inherently most fair because each producer is compensated based on individual fishing behavior and documented earnings.

Comment 13: NMFS should clarify the principles of equity and efficiency as they relate to the bottomfish permit valuations.

Response: As described in the RIR, addressing efficiency is the norm for capacity-reducing buyouts where the buyout is conducted as an auction in which participants have a choice of whether to accept a government offer to buy or retire their permits and/or vessels for a particular price. This is termed “willingness to accept” Start Printed Page 47122compensation for giving up their fishing rights. The participant may also reject the government's offer and choose to continue fishing. Efficiency solutions, on the other hand, require a market (in this case, for permits) or a survey of the values of willingness-to-accept. The NWHI situation has neither option; exit from the bottomfish fishery is involuntary. Accordingly, the permit compensation program addresses equity, rather than efficiency. Imputing the values is the most equitable method of compensation for early fishery closures (although the bottomfish fishery will officially remain open until June 2011). Thus, NMFS relied on historical data that reflect gross receipts and historical cost-earnings relationships for bottomfish as being most equitable to the different levels of investment and history of the participants in the fishery.

Individual valuations could not be developed for the lobster fishery because management constraints, such as area-specific quotas and industry cooperatives, changed individual fishing behavior dramatically in the final years of the fishery. For example, some vessels fished only intermittently, and all were constrained by annual harvest guidelines. Thus, gross receipts did not present a reliable baseline for individual vessels in the lobster fishery.

Comment 14: NMFS should clarify where it will spend the $336,029 it removed from the amount available to compensate fishermen.

Response: NOAA expended $197,500 for internal indirect costs and $138,529 to contract the Pacific States Marine Fisheries Commission for coordinating and administering the disbursement of compensation funds to eligible participants.

Comment 15: NMFS should not require eligible bottomfish participants who accept permit compensation to exit the NWHI fishery prior to June 15, 2011.

Response: Allowing fishing to continue is not consistent with the intent of the Act, which provided compensation for a voluntary capacity-reduction program. In addition, if a vessel owner decides to accept compensation, that owner would, in effect, receive compensation for that remaining portion of the 2009 fishery, the entire 2010 fishery, and the 2011 fishery until June 15, because compensation is part of the stream of benefits comprising the NPV of a vessel's landings from 2007 to 2036

Comment 16: The government should not compensate fishermen using public funds; just stop the fishing pressure on public resources.

Response: NMFS is mandated by Congress to compensate eligible bottomfish and lobster fishermen who were, or will be, forced out of their respective fishery with the establishment of the Monument.

Changes From the Proposed Rule

No changes were made from the proposed rule.


The NMFS Assistant Administrator has determined that this final rule is consistent with the Consolidated Appropriations Act of 2008 and other applicable laws.

This final rule has been determined to be significant for purposes of Executive Order 12866.

A final regulatory flexibility analysis (FRFA) was prepared. The FRFA incorporates the IRFA, and a summary of the significant issues raised by the public comments in response to the IRFA. The analysis follows:

NMFS prepared this FRFA for the rule to provide compensation to Federal NWHI commercial bottomfish and lobster fishermen due to fishery closures in the Papahanaumokuakea Marine National Monument. This FRFA incorporates the initial regulatory flexibility analysis (IRFA) prepared for the proposed rule (74 FR 15685; April 7, 2009). The analysis provided in the IRFA is not repeated here in its entirety.

The need for, reasons why action by the agency is being considered, and the objectives of the action are explained in the preambles to the proposed and final rules and are not repeated here. This rule does not duplicate, overlap, or conflict with any other Federal rules. There are no disproportionate economic impacts from this action based on vessel size or home port. There are no recordkeeping, reporting, or other compliance requirements associated with this rule. The action is taken under authority of the Consolidated Appropriations Act, 2008 (Act).

Description of Small Entities to Which the Rule Would Apply

This action will impact the vessel owners who held 15 NWHI lobster permits and eight NWHI bottomfish permits at the time the Monument was designated. These permit holders were determined by NMFS to be eligible for compensation under the Act. The Small Business Administration's accepted definition of a small fish harvester is a vessel that produces no more than $4.0 million in gross revenue annually. Using this definition, all permit holders who are eligible for compensation are defined as small entities.

Economic Impact to Small Entities

There will be no adverse economic impact to any of the eligible permit holders resulting from this rule. For bottomfish permit holders, the amount of monetary compensation available will be the NPV of each individual's average net revenue for the years 2003-05 using a discount rate equal to the real interest rate on 30-year treasury notes and bonds, discounted over a 30-year period. The lobster permit holders will receive compensation in the form of equal payments derived from NPV of the fleet-wide average net revenue for 1997-99. The NPV for the lobster fishery would use the same discount rate and time period as the value imputed for bottomfish permit holders. The real interest rate for 30-year treasury notes and bonds as prescribed by Office of Management and Budget, Circular A-4, Appendix A, is 2.7 percent.

In the event that costs are unavailable or unreliable for a net revenue calculation, NMFS will use a proxy for net revenue based on total or gross revenue. Since profit margins within each fishery are assumed to be similar, this would not affect relative amounts of compensation. In addition, with a relatively low real discount rate (2.7 percent) and long time frame (30 years), the differences between net and total revenues will be mitigated.

Comments and Responses

NMFS received one comment on the IRFA and responds, as follows.

Comment 1: The IRFA appears to be incomplete in that it does not fully contain the required elements and analyses. Among other things it does not describe a range of alternatives but instead only describes the impacts of the proposed rule. In addition, the IRFA fails to consider measures to minimize adverse impacts on fishery participants such as waiving the requirement that participants in the compensation program exit the NWHI fishery prior to June 15, 2011. This is especially appropriate as there is no requirement for this in the Act and there are no overfishing or other environmental issues that would necessitate these early departures. If the immediate exit provision is to be retained, the compensation packages should be directly increased to fully include the additional two years of foregone revenues.

Response: The IRFA is consistent with § 603 of the Regulatory Flexibility Act and Agency guidelines for regulatory analysis. The required elements of a IRFA include, verbatim, a description of the reasons why action by the agency is being considered, a succinct statement of the objectives of, and legal basis for, the proposed rule, a description and, where feasible, an estimate of the number of small entities to which the proposed rule will apply, a description of the projected reporting, recordkeeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities which will be subject to the requirements of the report or record, an identification, to the extent practicable, of all relevant Federal rules, which may duplicate, overlap, or conflict with the proposed rule. Each IRFA shall also contain a description of any significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any significant economic impact of the proposed rule on small entities.

For purposes of this rulemaking, there are no significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize Start Printed Page 47123any significant economic impact of the proposed rule on small entities. The no-action alternative would not accomplish the stated objectives of the Act and, therefore, is not a significant alternative.

Allowing fishing to continue is not consistent with the intent of the Act, which provided compensation for a voluntary capacity-reduction program. Furthermore, there will be no adverse economic impacts to be minimized here because all recipients of compensation will benefit. If a vessel owner decides to accept compensation as described in the proposed rule, that owner would, in effect, receive compensation for that portion of the 2009 fishery, the entire 2010 fishery, and the 2011 fishery until June 15, 2011, as part of the stream of benefits comprising the NPV of a vessel's landings from 2007 to 2036. Therefore, allowing a vessel to continue to fish until June 2011 would be an additional de facto compensation not discussed or described in the Act.

Additional comments on the validity of the NPV model and other economic concerns are addressed in the preamble to this rule and are not repeated here.

Small Entity Compliance Guide

Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996 requires, for each rule or group of related rules for which an agency is required to prepare a FRFA, that the agency publish one or more guides to assist small entities in complying with the rule, and designate such publications as “small entity compliance guides.” The agency must explain the actions a small entity is required to take to comply with a rule or group of rules. As part of this rulemaking process, a small entity compliance guide was prepared and will be sent to all eligible participants. In addition, copies of this final rule and small entity compliance guide are available from NMFS(see ADDRESSES) and are also available at​SFD/​SFD_​regs_​2.html.

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Authority: Pub. L. 110-161

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Dated: September 9, 2009.

Samuel D. Rauch III,

Deputy Assistant Administrator for Regulatory Programs, National Marine Fisheries Service.

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[FR Doc. E9-22181 Filed 9-14-09; 8:45 am]