GAO-05-241, Individual Fishing Quotas: Management Costs Varied and Were Not Recovered as Required


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Report to Congressional Requesters: 

March 2005: 

Individual Fishing Quotas: 

Management Costs Varied and Were Not Recovered as Required: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-241]: 

GAO Highlights: 

Highlights of GAO-05-241, a report to congressional requesters: 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

What GAO Recommends: 

To comply with the cost recovery requirements of the Magnuson-Stevens 
Act, GAO recommends that the Secretary of Commerce direct the Director 
of NMFS to (1) implement cost recovery for all IFQ programs and (2) 
develop guidance as to which costs are to be recovered and, when actual 
cost information is unavailable, how to estimate these costs. 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. 

NOAA reviewed a draft of this report and generally agreed with the 
findings and recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-05-241. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Anu Mittal at (202) 512-
3841 or mittala@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Depending upon the IFQ Program, Management Costs Were Higher or Lower 
Than Pre-IFQ Costs: 

NMFS Has Not Recovered IFQ Management Costs as Required: 

Several Methods Are Used for Sharing Costs between Government and 
Industry: 

Conclusions: 

Matter for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Descriptions of Individual Fishing Quota Programs in the 
United States: 

Surfclam/Ocean Quahog IFQ Program (1990): 

Wreckfish IFQ Program (1992): 

Halibut and Sablefish IFQ Program (1995): 

Appendix III: Descriptions of Individual Fishing Quota Cost-Sharing 
Programs in Selected Countries: 

Australia: 

Canada: 

New Zealand: 

Appendix IV: Comments from the Department of Commerce: 

GAO Comments: 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Staff Acknowledgments: 

Tables: 

Table 1: Estimates of IFQ Management Costs by Program and Organization, 
Fiscal Year 2003: 

Table 2: IFQ Cost-Sharing Methods Used in Selected Countries: 

Abbreviations: 

IFQ: individual fishing quota: 

NMFS: National Marine Fisheries Service: 

NOAA: National Oceanic and Atmospheric Administration: 

Letter March 11, 2005: 

The Honorable Olympia J. Snowe: 
United States Senate: 

The Honorable John F. Kerry: 
United States Senate: 

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.[Footnote 1] 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.[Footnote 2] 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. 

Results in Brief: 

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. Although complete cost information 
was not available, we aggregated cost estimates from information 
provided by NMFS and other organizations involved in IFQ-related 
activities and estimated that the fiscal year 2003 management costs of 
(1) the Alaskan halibut and sablefish IFQ program amounted to at least 
$3.2 million, or 1.4 percent of the dockside (known as ex-vessel) value 
of the catch, and (2) the surfclam/ocean quahog program amounted to at 
least $274,000, or less than 0.5 percent of the ex-vessel value. 
Wreckfish program cost estimates amounted to $7,600, in part, because 
only two boats were fishing wreckfish in 2003. Because NMFS does not 
systematically track the costs of managing IFQ programs and does not 
have complete information on pre-IFQ management costs, we could not 
evaluate the difference between IFQ and pre-IFQ management costs. 
However, fishery managers told us that halibut and sablefish management 
costs were greater under the IFQ program than under pre-IFQ management, 
in part, because of the program's complexity and longer fishing season. 
In contrast, fishery managers said surfclam/ocean quahog management 
costs were less under the IFQ program when compared with pre-IFQ 
management, in part, because the simplicity of the program's design 
made it easier to monitor compliance. Information on how wreckfish 
management costs changed with the introduction of the IFQ program was 
not available. In addition to the annual costs of managing IFQ 
programs, according to fishery managers, NMFS and the fishery 
management councils incurred additional costs to develop the halibut 
and sablefish and the surfclam/ocean quahog IFQ programs and implement 
them during the initial years. For example, according to Mid-Atlantic 
Fishery Management Council staff, during each year of development of 
the surfclam/ocean quahog IFQ program, council staff spent more than 
twice as much time as they spent during fiscal year 2003 to manage the 
IFQ program. According to a NMFS official, by the end of the second 
year of the halibut and sablefish IFQ program, NMFS's Alaska Region was 
dedicating the equivalent of five or six full-time staff to manage the 
170 appeals regarding halibut and sablefish quota allocations, whereas 
the region currently receives only 1 or 2 appeals each year. 

NMFS is not recovering management costs for two of the three IFQ 
programs as required by the Magnuson-Stevens Act. Under the act, as 
amended by the 1996 Sustainable Fisheries Act, NMFS is required to 
collect a fee, not to exceed 3 percent of the ex-vessel value of the 
fish harvested, to recover the "actual costs directly related to the 
management and enforcement" of all IFQ programs. While NMFS has 
implemented cost recovery for the halibut and sablefish program, it has 
not implemented cost recovery for the surfclam/ocean quahog or 
wreckfish programs. NMFS officials told us that (1) they considered 
cost recovery for the surfclam/ocean quahog program to be a low 
priority and (2) very few people were fishing wreckfish. We are 
recommending that NMFS implement cost recovery for all programs as 
required. 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). 
Under this interpretation, NMFS does not include, for example, the cost 
of performing the sablefish stock assessments because these assessments 
would be done regardless of whether or not the fishery was managed 
under an IFQ program. Applying the "incremental costs" approach, NMFS 
identified and recovered about $3.2 million in halibut and sablefish 
program costs for fiscal year 2003. 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. 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. 

Several methods are used for sharing the costs of IFQ management 
between government and industry, each of which has advantages and 
disadvantages. These methods principally fall into three categories: 
user fees, quota set-asides, and devolution of services. Under the user 
fee method, government recovers costs by collecting a fee from the 
quota holder or fisherman. While user fees distribute management costs 
to the immediate beneficiaries of the program, they directly affect a 
fishing firm's profitability. Several countries, including the United 
States, recover IFQ management costs through user fees, but the 
features of each user fee program vary. Under the quota set-aside 
method, government can set aside (i.e., not allocate) a certain amount 
of quota each year and lease the set-aside quota to fishermen, using 
the resulting revenue to pay for program management costs. A set-aside 
program does not necessitate the collection of fees from each quota 
holder. However, if the value of the quota is too low, the government 
may not raise enough funds to cover the IFQ management costs. Finally, 
under the devolution of services method, management services previously 
performed by government, such as monitoring compliance with individual 
quota limits, are transferred to industry. Giving industry 
responsibility for such management services could reduce concerns about 
potential government inefficiencies. However, by 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. 

In commenting on a draft of this report, NOAA said that the report was 
well researched and presented, and was responsive to the specific 
requests made by the Congress. NOAA generally agreed with our findings 
and recommendations. NOAA agreed to work with the Mid-Atlantic and 
South Atlantic Fishery Management Councils to implement cost recovery 
for the surfclam/ocean quahog and wreckfish IFQ programs. NOAA also 
agreed to develop guidance regarding which costs are to be recovered, 
because it will ensure the appropriate costs will be measured in a 
consistent manner in all fisheries. NOAA's comments appear in appendix 
IV. 

Background: 

The Magnuson-Stevens Fishery Conservation and Management Act provides 
for the conservation and management of fishery resources in the United 
States.[Footnote 3] 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.[Footnote 4] 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.[Footnote 5] 
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. 

Depending upon the IFQ Program, Management Costs Were Higher or Lower 
Than Pre-IFQ Costs: 

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. 

IFQ Management Costs Varied by Program: 

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.[Footnote 6]

Table 1: Estimates of IFQ Management Costs by Program and Organization, 
Fiscal Year 2003: 

Organization: NMFS administration and review; 
IFQ program: Halibut and sablefish: (4,311 quota holders)[A]: Amount: 
$1,379,100; 
IFQ program: Halibut and sablefish: Percent: 42.7%; 
IFQ program: Surfclam/ocean quahog: (120 quota holders): Amount: 
$196,000; 
IFQ program: Surfclam/ocean quahog: Percent: 71.5%; 
IFQ program: Wreckfish: (25 quota holders): Amount: $7,600; 
IFQ program: Wreckfish: Percent: 100.0. 

Organization: NOAA legal; 
IFQ program: Halibut and sablefish: (4,311 quota holders)[A]: Amount: 
[B]; 
IFQ program: Halibut and sablefish: Percent: [B]%; 
IFQ program: Surfclam/ocean quahog: (120 quota holders): Amount: 
$9,400; 
IFQ program: Surfclam/ocean quahog: Percent: 3.4%; 
IFQ program: Wreckfish: (25 quota holders): Amount: [B]; 
IFQ program: Wreckfish: Percent: [B]. 

Organization: NMFS enforcement; 
IFQ program: Halibut and sablefish: (4,311 quota holders)[A]: Amount: 
$1,665,700; 
IFQ program: Halibut and sablefish: Percent: 51.6; 
IFQ program: Surfclam/ocean quahog: (120 quota holders): Amount: 
$14,400; 
IFQ program: Surfclam/ocean quahog: Percent: 5.3%; 
IFQ program: Wreckfish: (25 quota holders): Amount: [B]; 
IFQ program: Wreckfish: Percent: [B]. 

Organization: International Pacific Halibut Commission; 
IFQ program: Halibut and sablefish: (4,311 quota holders)[A]: Amount: 
$167,100; 
IFQ program: Halibut and sablefish: Percent: 5.2%; 
IFQ program: Surfclam/ocean quahog: (120 quota holders): Amount: [C]; 
IFQ program: Surfclam/ocean quahog: Percent: [C]%; 
IFQ program: Wreckfish: (25 quota holders): Amount: [C]; 
IFQ program: Wreckfish: Percent: [C]. 

Organization: Fishery management councils[D]; 
IFQ program: Halibut and sablefish: (4,311 quota holders)[A]: Amount: 
$19,100; 
IFQ program: Halibut and sablefish: Percent: 0.6%; 
IFQ program: Surfclam/ocean quahog: (120 quota holders): Amount: 
$54,400; 
IFQ program: Surfclam/ocean quahog: Percent: 19.8%; 
IFQ program: Wreckfish: (25 quota holders): Amount: [B]; 
IFQ program: Wreckfish: Percent: [B]. 

Organization: Total; 
IFQ program: Halibut and sablefish: (4,311 quota holders)[A]: Amount: 
$3,231,000; 
IFQ program: Halibut and sablefish: Percent: 100.1%; 
IFQ program: Surfclam/ocean quahog: (120 quota holders): Amount: 
$274,200; 
IFQ program: Surfclam/ocean quahog: Percent: 100.0%; 
IFQ program: Wreckfish: (25 quota holders): Amount: $7,600; 
IFQ program: Wreckfish: Percent: 100.0%. 

Source: GAO compilation of cost information provided by NMFS, NOAA, the 
International Pacific Halibut Commission, and the North Pacific and Mid-
Atlantic Fishery Management Councils. 

Note: Dollar amounts have been rounded to the nearest $100, and 
percentages may not total 100 because of rounding. 

[A] According to NMFS data, there were 3,435 halibut quota holders and 
876 sablefish quota holders as of December 31, 2003. Persons holding 
both halibut and sablefish quota are counted twice in the total. 

[B] No cost information was provided. 

[C] The International Pacific Halibut Commission conducts no activities 
related to the surfclam/ocean quahog and wreckfish IFQ programs. 

[D] Council costs for IFQ-related activities can vary by year. During 
fiscal year 2003, for example, the North Pacific Council spent less 
time on the halibut and sablefish IFQ program, so its IFQ costs were 
lower than usual, whereas the Mid-Atlantic Council spent time setting 
multiyear catch limits for the surfclam/ocean quahog fisheries, so its 
IFQ costs were higher than usual. 

[End of table]

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.[Footnote 7]

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.[Footnote 8]

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. 

Whether IFQ Management Costs Were Higher or Lower Than Pre-IFQ Costs 
Depended on Fishery and Program Characteristics: 

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. 

Fishery Councils and NMFS Incurred Additional Costs Associated with 
Development and Implementation of Two IFQ Programs: 

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. 

IFQ Development Costs: 

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. 

IFQ Implementation Costs: 

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. 

NMFS Has Not Recovered IFQ Management Costs as Required: 

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.[Footnote 9] Further, the 
amendment prohibited NMFS from collecting such fees in the 
surfclam/ocean quahog and wreckfish fisheries until after January 1, 
2000.[Footnote 10] 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.[Footnote 11] 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.[Footnote 12] 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. 

Several Methods Are Used for Sharing Costs between Government and 
Industry: 

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.[Footnote 13] 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. 

Table 2: IFQ Cost-Sharing Methods Used in Selected Countries: 

Country: United States; 
Method: User fees: Yes; 
Method: Quota set-asides: No; 
Method: Devolution of services: No. 

Country: Australia; 
Method: User fees: Yes; 
Method: Quota set-asides: No; 
Method: Devolution of services: No. 

Country: Canada; 
Method: User fees: Yes; 
Method: Quota set-asides: Yes[A]; 
Method: Devolution of services: Yes. 

Country: New Zealand; 
Method: User fees: Yes; 
Method: Quota set-asides: No; 
Method: Devolution of services: Yes. 

Source: GAO analysis of information provided by NMFS and foreign 
government agencies. 

[A] Canada uses a type of quota set-aside, which it calls quota 
reallocation. Under this method, the government allocates a portion of 
the annual quota to industry associations, which, in turn, lease the 
quota to fishermen. 

[End of table]

User Fees: 

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. 

Quota Set-Asides: 

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. 

Devolution of Services: 

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. 

Conclusions: 

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. 

Matter for Congressional Consideration: 

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. 

Recommendations for Executive Action: 

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. 

Agency Comments and Our Evaluation: 

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 [Hyperlink, 
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. 

Sincerely, 

Anu K. Mittal: 
Director, Natural Resources and Environment: 

[End of section]

Appendixes: 

[End of section]

Appendix I: Objectives, Scope, and Methodology: 

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. 

[End of section]

Appendix II: Descriptions of Individual Fishing Quota Programs in the 
United States: 

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. 

Surfclam/Ocean Quahog IFQ Program (1990): 

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. 

Wreckfish IFQ Program (1992): 

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. 

Halibut and Sablefish IFQ Program (1995): 

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. 

[End of section]

Appendix III: Descriptions of Individual Fishing Quota Cost-Sharing 
Programs in Selected Countries: 

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. 

Australia: 

Australia's fishing zone,[Footnote 14] 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. 

Canada: 

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. 

New Zealand: 

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. 

[End of section]

Appendix IV: Comments from the Department of Commerce: 

UNITED STATES DEPARTMENT OF COMMERCE: 
The Under Secretary of Commerce for Oceans and Atmosphere: 
Washington, D.C. 20230:

FEB 11 2005:

Ms. Anu K. Mittal: 
Director, Natural Resources and Environment:
United States Government Accountability Office:
Washington, D.C. 20548:

Dear Ms. Mittal:

Thank you for the opportunity to review and comment on the Government 
Accountability Office's draft report entitled Individual Fishing 
Quotas: Management Costs Varied and Were Not Recovered As Required (GAO-
05-241). Enclosed is the National Oceanic and Atmospheric 
Administration's comments to this draft report.

Sincerely,

Signed by: 

Conrad C. Lautenbacher, Jr.: 
Vice Admiral, U.S. Navy (Ret.): 
Under Secretary of Commerce for Oceans and Atmosphere:

Enclosure:

NOAA Comments on the Draft GAO Report Entitled "Individual Fishing 
Quotas: Management Costs Varied and Were Not Recovered As Required" 
(GAO-05-241/March 2005):

General Comments:

NOAA finds the draft GAO report was well researched and presented, and 
responsive to the specific requests made by the Congress. However, we 
also believe these issues could have been placed in a more meaningful 
context of "net benefits," making it an even more useful report. While 
NOAA understands GAO was asked to do a report on "costs" of individual 
fishing quota (IFQ) programs, the analysis would have been strengthened 
if GAO looked at benefits as well as costs. Such a net benefits 
approach would have provided a more accurate and comprehensive picture 
of the full economic effects of IFQ programs. This broader analytical 
framework could have been proposed and explained even in the absence of 
adequate economic data.

This study responds to three questions relating to the costs of IFQ 
programs. First, it provides infonnation on the FY 2003 costs 
associated with managing current IFQ programs and how they compared 
with pre-IFQ management costs. Second, it determines what IFQ 
management costs are recovered by NOAA's National Marine Fisheries 
Service (NMFS). Finally, it reviews various ways of sharing the costs 
of IFQ programs between government and industry.

The first question (costs before and after IFQ programs) is designed to 
provide additional information to fishery management councils 
considering the adoption of an IFQ program. NOAA's view is that the 
critical issue is how management costs will change. For example, the 
GAO report repeatedly notes costs in the halibut/sablefish program 
increased, but decreased in the surf clam/ocean quahog program. This 
point would be more meaningful if the GAO report had placed more 
emphasis on the differences between the two fisheries and in the degree 
of complexity of the two IFQ programs.

The purpose of the second question (recovery of management and 
enforcement costs) is to determine how the mandated cost recovery 
program is being implemented. While NOAH agrees compliance with this 
provision has presented challenges, we also believe the report tends to 
exaggerate the problems. First, GAO notes NMFS does not systematically 
track IFQ costs, but these costs are in fact compiled annually by the 
NMFS Alaska Regional Office for the halibut and sablefish IFQ program. 
This annual exercise may not qualify as "systematic tracking," but it 
does account for the majority of total recoverable costs in all IFQ 
programs. Second, the title of the report Management Costs ... Were Not 
Recovered As Required may suggest to some readers non-compliance is a 
general problem, while the facts do not support that conclusion. In 
fact, with cost recovery in place in the halibut and sablefish IFQ 
program (which is the largest IFQ program), cost recovery applies 
effectively to over 95 percent of all IFQ permit holders, and 90 
percent of all management and enforcement costs. Third, in the case of 
wreckhsh, management and enforcement costs only amounted to $7,600, a 
negligible amount, and it would cost more to collect these fees. In 
fact, the non-compliance problem centers on one IFQ program (surf clam 
and ocean quahogs), with recoverable costs of only $274,000 in FY 2003.

Another point NOAA believes could have been treated more equitably is 
what IFQ costs are recoverable under the law. NOAA's interpretation is 
recoverable costs are those directly attributable to the IFQ program. 
Although it is true the Magnuson-Stevens Act is not explicit in 
defining what costs are recoverable, NOAA maintains its interpretation 
is more consistent with the Magnuson-Stevens Act than GAO's suggestion 
that all IFQ management and enforcement costs should be recovered. 
NOAA's view that Congress intended to limit recoverable costs in IFQ 
programs as opposed to recovering all these costs is supported by 
several other provisions dealing with fees, including the following:

* a provision generally limiting fishing fees to the administrative 
costs in issuing the permits,

* a cap of three percent of ex-vessel revenue applying to IFQ fees, and:

* a provision setting aside up to 25 percent of IFQ fees to fund a loan 
program for small-boat and entry-level fishermen resulting in only 75 
percent of fees recovered, because the remainder is ploughed back into 
the IFQ fishery.

This question could be clarified if Congress, when it reauthorizes the 
Magnuson-Stevens Act, adds a definition or a more explicit explanation 
of recoverable costs in IFQ programs.

In summary, NOAA stresses the distinction between (1) changes in pre- 
and post-IFQ costs and (2) recoverable costs, and points to the surf 
clam and ocean quahog program as an excellent example. As GAO reports, 
management costs in this fishery have decreased after 1990, and NOAA 
believes this reduction in costs should be an important consideration 
when fishery management councils are debating the adoption of an IFQ 
program. At the same time, the attributable costs of the surf clam and 
ocean quahog program, that under law must be recovered, are positive 
($274,000 in FY 2003).

The third question addressed in this report is how to improve the 
recovery of IFQ costs. GAO provides an interesting discussion of 
various means, including user fees, quota set-asides, and devolution of 
services. NOAA notes, however, "user fees" is the sole approach 
currently mandated in the Magnuson-Stevens Act and believes "quota set- 
asides" and "devolution of services," while interesting in theory, are 
not available instruments under existing law. In addition, NOAA 
suggests GAO should also have considered "auctions" as a means of 
recovering IFQ costs. Finally, NOAA also finds some of the material in 
Appendix III on foreign IFQ cost sharing programs is of limited value 
and potentially misleading since the GAO report did not explain the 
different circumstances and general cost recovery policies in these 
other countries. NOAA would be interested in an exchange of views with 
Congress on these other means of recovering costs in federally managed 
fisheries.

Recommended Changes for Factual/Technical Information:

NOAH suggests no factual/technical changes to the draft report.

Editorial Comments:

NOAA offers no editorial comments to the draft report.

NOAA Response to GAO Recommendations:

The draft GAO report states, "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:"

Recommendation 1: "Implement cost recovery for all IFQ programs."

NOAA Response: NOAA agrees with this recommendation. The IFQ cost 
recovery provisions in section 304(d)(2) of the 1996 Sustainable 
Fisheries Act amendments to the Magnuson-Stevens Act apply to all IFQ 
programs, even though Congress delayed its application to the surf 
clam/ocean quahog and wreckfish IFQ programs until after January 1, 
2000. Further, in its Magnuson-Stevens Act reauthorization proposals 
the Administration transmitted to Congress in June 2003, cost recovery 
for all IFQ programs is specifically provided. NOAA and the 
Administration agree all future IFQ programs should include the 
recovery of directly attributable costs. With respect to the two 
existing East Coast IFQ programs not implementing this provision thus 
far, NOAA will work with the Mid-Atlantic and South Atlantic Fishery 
Management Councils on adding cost recovery to the surf clam/ocean 
quahog and wreckfish IFQ plans, respectively. At the same time, as 
noted in the GAO report, the costs associated with the two East Coast 
programs are modest, totaling just over $280,000 in FY 2003, and NOAA 
notes the costs of collecting these fees should be taken into account, 
especially in the wreckfish program in which management and enforcement 
costs amounted to only $7,600. With this in mind, NOAA is willing to 
consider a recommendation to Congress to add a de minimis rule 
exempting IFQ programs from the cost recovery requirement if those 
costs fall below some reasonable threshold. To that end, NOAA suggests 
GAO may want to introduce this issue as a "Matter for Congressional 
Consideration" so Congress, NMFS, and fishery management councils can 
explore it in the context of a broader discussion of cost recovery in 
federally managed fisheries.

Recommendation 2: "Develop guidance as to which costs are to be 
recovered and, when actual cost information is unavailable, how to 
estimate these costs."

NOAA Response: NOAA agrees with this recommendation, because it will 
ensure the appropriate costs will be measured in a consistent manner in 
all fisheries. However, NOAA believes the current general methodology 
of defining recoverable costs as those that are directly attributable 
to the implementation of an IFQ program to be a correct interpretation 
of the Magnuson-Stevens Act. NOAA will develop guidance on how to 
identify activities directly attributable to an IFQ program. The 
guidelines will discuss how the costs associated with these activities 
can be measured using the product/service computation schedule in OMB 
Circular A-25 and Department of Commerce and NOAA Finance Handbooks. 

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. 

GAO Comments: 

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. 

[End of section]

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Stephen D. Secrist, (415) 904-2236: 

Staff Acknowledgments: 

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. 

(360440): 

FOOTNOTES

[1] GAO, Individual Fishing Quotas: Better Information Could Improve 
Program Management, GAO-03-159 (Washington, D.C.: Dec. 11, 2002). 

[2] GAO, Individual Fishing Quotas: Methods for Community Protection 
and New Entry Require Periodic Evaluation, GAO-04-277 (Washington, 
D.C.: Feb. 24, 2004). 

[3] Pub. L. No. 94-265 (1976) (codified as amended at 16 U.S.C. � 1801 
et seq.)

[4] "Federal waters" refers to those fishing areas covered by the 
Magnuson-Stevens Act in which the United States claims exclusive 
fishery management authority. 

[5] Pub. L. No. 104-297, � 109(c) (1996), 16 U.S.C. � 1854(d). 

[6] According to NMFS data, there were a total of 120 quota holders in 
the two fisheries. However, we reported in 2002 that there were fewer 
quota holders than NMFS data indicated, because different quota holders 
of record are often part of a single corporation or family business 
that, in effect, controlled many holdings. See GAO-03-159. 

[7] The halibut and sablefish estimates exclude the cost of the 
sablefish stock assessment performed by the NMFS Alaska Fisheries 
Science Center; enforcement activities performed by the U.S. Coast 
Guard and by the Alaska State Troopers under a joint enforcement 
agreement with NMFS; and legal work performed by NOAA's Alaska Regional 
Counsel and General Counsel for Enforcement and Litigation. 

[8] The surfclam/ocean quahog estimates exclude the cost of the 
surfclam and ocean quahog stock assessments performed by the NMFS 
Northeast Fisheries Science Center and enforcement activities performed 
by the U.S. Coast Guard and state agencies that have entered into joint 
enforcement agreements with NMFS. 

[9] 16 U.S.C. � 1854(d)(2)(A), (B). 

[10] Pub. L. No. 104-297, � 109(d) (1996), 16 U.S.C. � 1854 note. 

[11] The Federal Financial Management Improvement Act reflects a need 
for agencies to have systems that can generate reliable, useful, and 
timely information with which to make fully informed decisions and to 
ensure accountability on an ongoing basis (GAO, Financial Management: 
Improved Financial Systems Are Key to FFMIA Compliance, GAO-05-20 
(Washington, D.C.: Oct. 1, 2004)), and the Statement of Federal 
Financial Accounting Standards No. 4, Managerial Cost Accounting 
Standards (SFFAS No. 4), provides good guidance for capturing costs of 
activities. 

[12] As described in SFFAS No. 4, full cost includes (1) the costs of 
resources consumed directly or indirectly and (2) the costs of 
identifiable supporting services provided by other components within 
the entity and by other entities. 

[13] In the United States, the sole approach provided in the Magnuson- 
Stevens Act is user fees. According to NMFS, quota set-asides and 
devolution of services are not authorized by existing law. 

[14] The Australian fishing zone stretches from the coast to 200 miles 
offshore and includes both federal and state waters. 

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