Net Loss

It’s been an unbelievable year for the state’s squid fleet, most of which has remained tied to its moorings this season after warm El Nino waters drove the catch and their profits away.

And now, as those fishermen frantically scramble for ways to hold on to a way of life, many of them say the federal agency charged with helping them has made it increasingly difficult to qualify for disaster loans.

“This isn’t working the way it’s supposed to,” said Oxnard resident David Starbuck, a 40-year veteran of the seas whose boat, The Miss Julie, is due to be foreclosed on next month.

“It’s not working for anybody, and now we’re out selling our cars and anything else that’s valuable just to pay a bill,” he said.

Since establishing the Economic Injury Disaster Loan program in April, the U.S. Small Business Administration has denied the low-interest loans to more than 72% of all fishermen who have applied, said Becky Brantley, a Washington, D.C.-based loan officer who oversees the West Coast region.

Most of the fishermen were denied, she said, because they failed to prove that they could repay the money.

Yet those fishermen, many of whom could lose their boats and homes, say the SBA is relying on flawed accounting formulas that inflate costs and underestimate the value of the state’s catch, making it impossible for them or the industry as a whole to show a profit.

In the wake of what virtually all involved in the industry are calling an unprecedented disaster, squid fishermen from San Francisco to San Diego have been unable to troll the waters for the schooling mollusk because there are simply none to be found.

According to industry and government estimates, the squid harvest has plummeted from more than 257 million pounds caught over last year’s six-month season to almost nothing this year as warm coastal temperatures have driven the squid population to colder waters farther out to sea.

In December alone, just 2,515 pounds of market squid were netted off the California coast, compared to the nearly 45 million pounds caught during the same month in 1996.

And in addition to keeping the 156-boat fleet idle, the barren seas have caused processing plants such as Suncoast Calamari in Oxnard to lay off workers until the squid population returns.

“What’s happened is truly incredible,” said Zeke Grader, executive director of the San Francisco-based Pacific Coast Federation of Commercial Fishermen’s Assns. “In every sense of the word, this is a disaster.”

Yet, Grader and many other fishermen said the federal government, and particularly the SBA, has yet to share that perception and begin giving the kind of assistance they say they will need to keep the most lucrative fishery alive.

33 Low-Interest Loans Approved

Since following through on Gov. Pete Wilson’s request to lend a hand to the fleet in April, SBA loan officers have approved 33 low-interest loans totaling a little more than $1 million, Brantley said. Another 89 applications were rejected.

The agency is currently reviewing an additional 134 applications, which will be completed within three weeks.

“Even though we are a liberal lending institution, we have to have a reasonable assurance that the loans will be repaid, and unfortunately many of these fishermen couldn’t prove that after a review of their income taxes and credit histories,” Brantley said. “I understand why many of them are angry, but we’ve given them the benefit of the doubt.”

But the fishermen said the formulas the SBA is using to assess not only the grave economic losses suffered this year, but also their ability to repay the loans, are wrong and incorrectly illustrate a fishery that doesn’t post a profit.

“They rode in here like they were going to be our white knights, but all they’ve done is stick us in the backs with their swords,” said Mike McLenaghan, a Seattle resident who fishes squid along the Ventura County coast and has had his application denied twice.

“I’m teetering on the brink, and I don’t know what I have to do to show them that I’m in trouble,” he said.

Starbuck agreed, adding that he’s lost faith in the federal government’s role to provide relief to citizens and industries that are in trouble.

“We’re getting a real raw deal here,” said Starbuck, whose loan application was rejected less than two weeks ago. “They set this up and it gave all of us a lot of hope, but now they’ve even taken that away.”

The 57-year-old Starbuck, who has fished squid for the past 13 years, has been trying to sell anything of value to keep the bank from foreclosing on his boat next month.

He has sold his cars, much of his fishing equipment and nets and has even gone as far as to pawn electronic equipment and family valuables just to pay the phone and electric bills.

“I don’t know what to do anymore. . . . I’m not asking [the SBA] for a million bucks,” he said. “All I need is $10,000 or $20,000 to get me through the next few months until the squid return. That’s all, and then by January I’ll be able to pay it all back.”

Neil Guglielmo, another longtime Ventura County squid fisherman, agreed, saying that the stories of travail he’s heard have kept him from applying for a loan.

“Things are really tight right now, and to be honest with you, I’m not sure what I’m going to do,” he said. “But I’d almost rather spend my time trying to put together some money in another way than waste it with the SBA.”

Fishing for a Fair Break

The 1996-97 squid harvest was the largest in state history, with 257 million pounds netted in waters off the California coast.

During that time, industry experts said the price of squid varied from $200 to $500 a ton depending on where the catch was sold.

In conducting their reviews, SBA loan officers have reviewed each application on a case-by-case basis, determining average sales prices with catch receipts submitted by the loan applicants.

But fishermen see several flaws with the SBA’s analysis.

First, the loan officers are judging industry performance on an annual basis despite the fact that it is a seasonal business that runs for a six-month period spanning two calendar years.

In addition, they contend that the SBA has incorrectly calculated the fixed costs associated with fishing, such as insurance and fuel. The loan officers are assuming that those costs increase with every additional squid packed into the hold, but fishermen say they do not.

“I think if they just understood that those costs don’t increase with bigger catches, I think we’d all be fine,” McLenaghan said. “But as long as they do it that way, we’re screwed.”

And others have lambasted loan officers for estimating that the 1997-98 squid season would have produced less than the previous year.

They, as well as experts, maintain that there is every reason to believe that without an El Nino event, this year’s harvest would have been comparable, if not larger, than past ones.

“The harvest over the last four years has been at an all-time high,” said Richard Klingbeil, program manager for the state Department of Fish and Game’s Southern California region. “I would expect that minus El Nino, the catch this year would have been right up there with the rest.”

One fisherman, for instance, said his calculations show he would have cleared $200,000 after expenses in a normal squid season. However, under the SBA’s formula, loan officers said he would have been $27,000 in debt, he said.

Despite these complaints, SBA officials maintain that most of the applicants have not been able to meet their loan requirements.

Specifically, when taking into account the fishermen’s existing debts and expenses, the loan officers determined that even without El Nino, most of the applicants would not have made a profit or would have made around $10,000 annually. Therefore, they would not have been able to repay the loans.

Other fishermen were declined loans because of poor credit history or failure to pay child support payments.

“We understand how hard this has been for some of them,” said Herb Johnston, spokesman for the SBA’s Sacramento office. “But this is not a giveaway program. These are loans, and we need to be sure that this money can be repaid, which unfortunately many of these fishermen can’t do.”

El Nino’s Toll

Mike McHenry is another squid fisherman whose loan application was denied. He said that SBA loan officers told him that he didn’t qualify because he still had equity in his Half Moon Bay home.

“I thought [the SBA] started this program so people like me wouldn’t have to sell their homes,” the 54-year-old fisherman and father of four said. “But it looks like all they were doing was just blowing smoke. . . . I get the feeling that this was all just some publicity stunt to make the government look like it cared.”

McHenry, who has fished squid for 15 years, said he’s been luckier than most because he had the foresight to obtain a crab-fishing license.

However, with that money gone, McHenry said he will now most likely have to refinance his home for a second time and begin selling or leasing equipment from his boat. He’s not sure that will bring him much money.

“Who’s going to want to buy fishing equipment when there’s no fish?” he asked. “No one.”

The problem has gotten so bad that some say it prompted one San Francisco fisherman to fish anchovy off Pillar Point, a sliver of land at the northern end of Half Moon Bay.

The point is known for huge surf as strong Pacific swells roll in and meet a shallow shelf where it can suddenly rise to heights of 20 and 30 feet before collapsing in a thundering wash.

One such wave broadsided a fishing boat, taking the lives of four fishermen.

The waters off California are home to the nation’s fourth-largest commercial fishing industry, worth more than $800 million, according to officials at the Santa Barbara-based California Seafood Council.

In less than a decade the squid fishery has become one of the largest single contributors to the industry’s overall success.

In the past 10 years, the growth of squid fishing has been explosive, increasing from just 19 million pounds in 1989 to the more than 257 million pounds hauled in last year.

Propelling that growth has been relaxed trade barriers between the United States and Asian countries such as China, which is the industry’s single largest importer of squid.

But that all came to an end with this year’s unprecedented shortfall that far exceeded the economic damage caused by the 1982-83 El Nino.

With three to four months before the beginning of the next season, most fishermen are hoping they can find a way to keep their boats and equipment until they can again venture into the ocean.

That is if waters cool off enough for the squid to return.

“Everyone’s just crossing their fingers right now, hoping that they can find a way to make this work until next season,” McLenaghan, a father of two young girls, said. “But it’s not going to be easy for me or anyone else, and that’s what makes this whole situation so unbearable. . . . If the SBA just listened to us and tried to understand us, this fishery could be saved. But until that happens, we’re sunk.”