Legislature(1993 - 1994)
03/25/1994 09:00 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
CSSB 215(RES): An Act relating to oil and hazardous substances; redesignating the oil and hazardous substance release response fund and its uses; repealing the authority in law by which marine highway vessels may be designed and constructed to aid in oil and hazardous substance spill cleanup in state marine water using money in the oil and hazardous substance release response fund and the authority of the Department of Environmental Conservation to levy and collect fees for review of certain submissions related to oil; altering requirements applicable to liens for recovery of state expenditures related to oil or hazardous substances; terminating the nickel-per-barrel oil conservation surcharge; levying and collecting two new oil surcharges; and providing for the suspension and reimposition of one of the new surcharges; and providing for an effective date. Teleconference testimony was heard as listed above opposing SB 215. Russell Heath, Executive Director, Alaska Environmental Lobby, and Chip Thoma, private citizen, testified in opposition to the bill. SB 215 was HELD in committee. CS FOR SENATE BILL NO. 215(RES): An Act relating to oil and hazardous substances; redesignating the oil and hazardous substance release response fund and its uses; repealing the authority in law by which marine highway vessels may be designed and constructed to aid in oil and hazardous substance spill cleanup in state marine water using money in the oil and hazardous substance release response fund and the authority of the Department of Environmental Conservation to levy and collect fees for review of certain submissions related to oil; altering requirements applicable to liens for recovery of state expenditures related to oil or hazardous substances; terminating the nickel-per-barrel oil conservation surcharge; levying and collecting two new oil surcharges; and providing for the suspension and reimposition of one of the new surcharges; and providing for an effective date. Co-chair Pearce announced that SB 215 was before the committee and invited the Kenai/Soldotna location to begin the teleconference portion of the meeting. CHRIS GARCIA testified via teleconference form Kenai/Soldotna opposing SB 215. He felt this legislation was allowing the oil companies a tax break. He also objected that an administrative order was needed for responses smaller than 100,000 barrels. He had questions about the use of the contingency and abatement account for capital projects. Co-chair Pearce said that capital projects would be limited to catastrophic release of oil and hazardous substances. MARY FORBES testified via teleconference from Kodiak in opposition to SB 215. She felt that industry claims, and the attitude that the 470 Fund had been misspent, motivated this legislation. She cited a recent audit regarding the 470 Fund that said DEC had been handling the funds responsibly. She was willing to pay more at the pump to insure proper protection from oil spills. MIKE SIROFCHUCK testified via teleconference from Kodiak in opposition to SB 215. He pleaded with the committee not to pass the bill. He felt the response fund had been spent properly and was barely adequate to deal with the situations in the state. He lived in Kodiak during the oil spill and witnessed the catastrophic effects that continued to this day. He felt SB 215 would weaken efforts to prevent further oil spills and inhibit the state's ability to respond to them. He echoed Ms. Forbes' comments regarding the audit and the responsible use of the 470 Fund. He encouraged DEC's budget be increased so it could better handle oil spills and other situations. He stated oil companies did not need a tax break but he would also be willing to pay a little more at the pump to protect the environment, and the mental, financial and economic stability of the community and state. He again urged the committee to hold SB 215 in committee. WAYNE COLEMAN, member of the executive committee of the Prince William Sound Regional Citizens Advisory Council, testified, via teleconference from Anchorage, in opposition to SB 215. He had submitted written testimony on March 9, 1994, but he reiterated that RCAC was concerned with the effective and efficient manner the Fund was accessed in the event of a spill, and adequate funding for spill prevention and preparedness programs. He said the "I" work draft of the bill contained numerous problems and inconsistencies. He went on at length to detail those concerns. IVAN WIDOM, testified via teleconference from Anchorage, that he was attending a conference regarding the prevention, response and oversight, five years after the Valdez oil spill. There were about 75-100 people talking about issues around the spill and one of the most important was issues around complacency. He could not understand how SB 215 could pass and give oil companies a tax break. DAN STRICKLAND, fisherman and journalist, testified via teleconference from Anchorage, that his family had suffered first hand from the devastation of the oil spill, the effects of a poorly prepared spill response, and a unresponsive and dominant oil industry. He said progress had been made in the last five years but SB 215 was an example of backsliding. He urged the committee to defeat SB 215. GORDON SCOTT, fisherman in Prince William Sound and member of the Regional Advisory Council Committee on Oil Spill Prevention and Response, testified via teleconference from Anchorage. He said that the legislators needed to remind themselves that they represent Alaskan people and resources. The profit motive drove the oil industry to cut their costs where they could and cutting prevention and oversight programs and funds for response to actual spills was an example of dropping resource protection for the benefit of their shareholders, very few of which were Alaskans. He urged the committee to vote against SB 215. KELLY WEAVERLING, who during the oil spill organized and operated the wildlife rescue fleet, testified via teleconference from Anchorage. He said it was the largest wildlife rescue attempt ever mounted. He saw first hand the effects of poor response and preparedness. He had been elected the mayor of Cordova but was speaking now as a private citizen. He described a pattern that he recognized. During the Reagan administration, a promise of double hulls, and adequate holding facilities at marine terminals in the event of poor weather preventing ships from entering or leaving Port Valdez was made. Several administrations later, the PWS oil spill occurred and several ships had to pass through the oil spill since holding facilities were not available. This should have been a wake up call for the U.S. but it seemed that the snooze alarm had been pushed. Single hulled vessels still traversed PWS and only half of the holding facilities needed were available. This pattern repeated itself with such legislation as SB 215. He asked the committee to vaporize this bad bill. KRISTEN JOHNSON, member of RCAC for Prince William Sound, testified via teleconference from Anchorage, in opposition to SB 215. She felt that the legislation did not listen to the people of Alaska, especially the ones that had suffered from the spill. She did not want the 470 Fund weakened in any way. She felt the coordination and preparedness in case of another disaster needed strong support. She strongly opposed the passage of SB 215. STAN STEPHENS, testified via teleconference from Anchorage, in opposition to SB 215. He felt the legislature was being complacent and ignored its citizens. He strongly opposed SB 215. WALT PARKER, chairman of the Hazardous Spill Technology Review Council, testified via teleconference from Anchorage in opposition to SB 215. He said there was a lot of expectation that steps would be taken towards prevention and response. He felt SB 215 would take the impetus out of that effort. RANDY MCGOVERN, private citizen and former member of the Hazardous Substance Spill Technology Review Council, testified via teleconference from Fairbanks. He opposed SB 215. He also cited the audit regarding the funds spent since 1986. He felt 2.8 cents per barrel would not effect the oil companies. Cutting this revenue into the fund made no sense to him at all. He urged the legislature to not pass SB 215. HILLARY SCHAEFER testified, via teleconference from Fairbanks, in opposition to SB 215. She listed her reasons and reiterated that the fund was needed for adequate response. PATTY SAUNDERS, private citizen, fisherman, and attorney, testified via teleconference from Anchorage in opposition to SB 215. She said that there was still evidence and effects of the PWS oil spill. People's lives had been changed forever. She said lessons had been learned and it had made people more cautious and aware. Benefits from the oil companies needed to be balanced with awareness of potential problems. She also cited the audit that supported the rightful management of the 470 Fund. She did not feel that DEC's budget should be cut. She asked the legislature, as a whole, to look at the big picture and not cut the 470 Fund. MICHAEL COUMBE, native of Alaska, testified via teleconference from Anchorage in opposition to SB 215. He said Alaska was our home and we needed to take care of it. He likened the oil companies to tenants and the citizens of Alaska as the landlord. He said that the landlord needed to stand firm when the tenants made a mess and did not clean it up. He said if there was any question of where the money was going, maybe it was time to raise the rent. KEVIN HARUN, director of the Alaska (word inaudible on the tape) Environment, testified via teleconference from Anchorage, in opposition to SB 215. He said that 2.5 cents per barrel was not enough especially in light of the budget crisis that the state was facing. He understood that the industry was in search of tax relief but he told the legislature it was their job to ensure those taxes were not lowered. He did not approve of DM&VA being funded from the prevention pot for disaster relief. He urged the legislature to support public interest. JOHN BERNITZ, public citizen, testified via teleconference from Anchorage, in opposition to SB 215. He did not understand in an environment of budget shortfalls why the legislature was attempting to pass this legislation. JIM STUDLEY, public citizen with many hats, testified via teleconference from Haines, in opposition to SB 215. He said funding was needed at the local level. If funds were limited, the local communities would not be able to carry out their preparedness programs. RUSSELL HEATH, Executive Director, Alaska Environmental Lobby, a coalition of 20 Alaskan environmental groups, testified in person in Juneau in opposition to SB 215. He said the battle over the 470 Fund had been long and in the last year many people had voiced their concern that Alaska have a strong spill prevention response capability. No one had testified that it need not protect itself from oil and hazardous substance spills. He asked why SB 215 was before the legislature. Individuals testifying in support of SB 215 had said three things - the fund was broke, funds had been mismanaged or spent inappropriately, or the formula for determining the surcharge cap was broken or unfair. Over the course of debate, he felt none of those facts had been substantiated. The facts were that the fund was not broke, the audit report documented the funds had not been mismanaged, and slowly the cap would be reached but it seemed a very equitable calculation. End SFC-94 #51, Side 2 Begin SFC-94 #51, Side 2 Mr. Heath asked if most of the charges leveled against the fund were unfounded, what did SB 215 fix. He said that the bill fixed the calculation of the surcharge cap which was unfair to the public. It did not address any issues recommended by the audit to improve management of the fund nor did it strengthen the spill prevention programs. He was disappointed that none of the programs had been assessed. He said that the Alaska Environmental Lobby had strong concerns regarding SB 215 and Wayne Coleman had spoke to those same concerns. He did not wish to reiterate them but he would like to state a few general principles. First, prevention was key. Once the oil was on the water, all was lost. Industry and the state must be vigilant in looking for and finding ways to prevent oil spills. Prevention was also the most cost effective policy. Secondly, adequately trained personnel was very important. Thirdly, the Fund was established in 1986 to deal with problems involving petroleum and other hazardous substances including sites contaminated by hazardous materials. It was essential that non-petroleum hazards be addressed. Four, provision must be made for the future. Funding for the prevention and response programs must be available as long as Alaska was at risk. The Alaska Environmental Lobby did not believe that SB 215 provided for any of these four general principles, and therefore opposed the bill. CHIP THOMA, public citizen, testified in opposition to SB 215. He turned the committee's attention to a CS that was being drafted in House Resources, HB 238. That version incorporated the recommendations of the legislature budget audit on the 470 Fund. It made accounting clearer and placed the valid criticism on DM&VA and not on DEC. He felt the criticism of the Fund was false. He termed SB 215 diversionary and vengeance legislation by the oil industry, especially Exxon and British Petroleum. He felt the message of this bill was that oil companies carried a lot of weight in the legislature. He said the oil companies would take from Alaska between $3 and $6 billion. While we sat around arguing about nickels and pennies, the big bucks were going into net profits for the oil companies. TOM LAKOSH testified via teleconference from Anchorage in opposition to SB 215. He felt holding that money in reserve would stifle the efforts to see that proper response equipment was purchased in advance and would limit the state's ability to protect Prince William Sound as well as other areas which were threatened such as Cook Inlet. He said he had sent committee members faxes relating to several recent tanker collisions in the Middle East. He said the threat of a burning spill was one that was inadequately prepared for in the industry. If SB 215 passed, preparedness for that sort of emergency would be blocked. He strongly opposed passing SB 215. Co-chair Pearce closed the teleconference portion of the meeting. She said that SB 215 would be HELD in committee. Recess 10:15am Reconvene 10:25am Begin SFC-94 #53, Side 1 COMMONWEALTH NORTH - BUDGET RECOMMENDATIONS FOR ALASKA Co-chair Pearce announced that a fiscal gap presentation would be made by Commonwealth North which included a handout (see Attachment A, copy on file in the committee minute book). She introduced Lee Gorsuch, President; Pat Pourchot, Executive Director; Skip Bilhartz, Vide President (ARCO); Bill McHugh (Yukon Pacific); Mark Langland, Treasurer (Northrim Bank); and Richard Barnes (Enstar), to the committee. LEE GORSUCH said that Commonwealth North was a non-profit organization dedicated to the understanding of public policies that effected the long term interest of the state of Alaska. This organization invited distinguished speakers from around the world and the country to share insights and issues that might effect Alaska. It also engaged independent studies of issues that directly effected Alaska. One of those issues was the state's long term financial future. Commonwealth North was concerned about the absence of a long term strategy to finance the state's welfare through the 90s and into the next century. He said Commonwealth North followed the Governor's economic summit with a budget conference of their own. A series of recommendations came out of that meeting. The recommendations were similar when compared to those that came out of the Governor's economic summit, and Commonsense of Alaska. All agreed that it was more than time for Alaska to employ all the fiscal tools available to implement a long term financial plan beginning with immediate action. He said a budget committee was formed and some recommendations were suggested for adoption this year and over the next four years. Mr. Gorsuch said he would outline their general recommendations. For this year, spending must be reduced, revenue should be increased, and an urgent push made to outline a plan. Under reduced spending, the operating budget should be frozen at or below the current level, and reduce actual nominal dollars by $60M. Also, the capital budget should be reduced significantly below historic levels this year, perhaps by $100-150M, and look forward to a capital budget of $250M. Another recommendation was to cap the Permanent Fund at the same level as was paid out last year. The entire Alaskan public must understand that the dividend is a source of spending. Also, under increased revenues, it was suggested (as the Governor had) that some increases in taxes and user fees be raised to generate $60- 90M, and look at changing the statutory priority to inflation of the Permanent Fund first. Uniformly, it was felt the Permanent Fund was Alaska's ace in the hole and should be preserved. Inflation should be the first order of business before dividends were distributed. It was also felt that oil exploration and mineral development was essential to the long term interest of the state. The last immediate recommendation was to create an Alaska Finance Commission with administrative, legislative, and public members to produce a four-year financial plan. During the interim, a four-year plan could be created for consideration when the legislature reconvenes. Mr. Gorsuch went on to recommend an Income Tax Commission with a similar composition. Since the Department of Revenue had not read income tax data for over ten years, it was suggested that process should be thought through in regard to Alaska. In answer to Senator Kerttula, Mr. Gorsuch said Commonwealth North had not looked at statewide sales tax or a state income tax but it was felt the capacity to raise revenues needed to be undertaken fairly quickly because implementation would take at least 2 years. Mr. Gorsuch added that Commonwealth North also recommended a plan for consolidating and providing access to the reserves and non-recurring future revenues. He listed some other recommendations such as limiting the growth of formula and entitlement programs including the dividend, phase out unique programs not based on need, and restructure programs for efficiencies, privatization, and opportunities for possible local government responsibilities in service areas. He said that if those could be held at the level of a 5 percent reduction over the next five years, a savings could be realized of $400-500M. He asked the legislature to consider reducing but not eliminating the Permanent Fund dividend expenditure over time. Mr. Gorsuch said that Commonwealth North recommended that all cash reserves should be deposited into a consolidated fund. He said it was very confusing and complicated to have so many pots of money and a consolidation should be made with attached rules for the funds. He also emphasized that the legislature and the Permanent Fund Board pay attention to moving more of the investments into equities. The general sense was that inflation proofing could be embraced in the appreciated value of the equity holdings. He reiterated the importance of exploration and development of mineral and oil resources. He said the recommendations were not felt to be radical but there was a sense of urgency to employ the fiscal tools available. He then showed an overhead graph that illustrated revenues from the recommendations he had outlined. BILL MCHUGH added there was not one specific solution that would solve the financial problems Alaska faced. A diversity of support was recommended. In regard to the sales tax, some studies showed that it should be reserved for the municipalities. Senator Kerttula agreed that was historically the case. Mr. McHugh said the lead time needed to get some of the recommendations in place was the fact that caused the crisis. MARK LANGLAND said, once the plan was put together, a tremendous amount of education must be done for the general public so they could support legislature with such a disciplined approach. SKIP BILHARTZ said he would like to express his frustration and sense of urgency regarding the issues facing Alaska right now. A plan was needed. RICHARD BARNES also expressed the urgency he felt with 88,000 utility customers in south central Alaska. A drop in the economy in 1986 proved to be a real hardship for people. He saw the status quo of state budgets as pushing out the inevitability of a precipitous cliff in the economy of Alaska. The sooner the legislature could take the actions to smooth the impact or avoid any dislocations to his customers, the better it would be. He saw this as a crucial action that should be started this year. PAT POURCHOT said he would echo many of the comments made. From a political standpoint, Commonwealth North was there to help. One of the benefits as a citizens' group was helping to address some recommendations that were not popular such as an income tax or the capping of the Permanent Fund. One of their functions was to help in that public process. Senator Kerttula was heartened that Commonwealth North had recommended a five-year plan. However, he worried about statewide equity measures. He spoke to indirect subsidies for natural gas. He said his biggest concern was higher property taxes for providing schools, etc. that would effect a small number of people. He did not want the legislature to impact local governments without providing a tax base. Mr. Gorsuch agreed there was no one solution and that was the purpose of setting up a long term plan. One of the other Board members offered that the longer a state income tax was not implemented, the longer property owners would pay higher taxes. In comment to an earlier recommendation, Senator Kelly said that equities were risky and he would like some guarantee that it would not effect the Permanent Fund portfolio. Mr. Gorsuch answered that as a long term financial plan, there was more flexibility in equity holdings and it would protect it from year to year fluctuations. Equities in the long term were safe but if a certain cash flow needed to be guaranteed, there would be some risk. Mr. Langland agreed with that answer. In answer to Senator Kelly, Mr. Langland thought the equity percent in the Permanent Fund was approximately 25-30 percent. Mr. Langland said that a recommended percent had not been discussed. Senator Kelly said that it had been suggested that the Permanent Fund dividend should be dissolved before an income tax be instated. Mr. Gorsuch said that general targets had been considered but Alaska should begin to look at either option as part of the financial plan. In answer to Senator Kelly, Mr. Langland thought the Permanent Fund dividend would be around $900. Senator Kelly said that one opinion said that the Permanent Fund should be capped around $1000. Mr. Gorsuch said that as long as the state was sending out checks of $1000 to each citizen, there would be the feeling that the state was not in any great financial trouble. He wanted the people to get the real message about the state's financial situation. He felt the longer the state waited to take a stand on the Permanent Fund issues, the harder it would be to initiate change. Senator Phillips said there was a private study of investment policies of the Permanent Fund. He would like to make available to the members of the Board of Commonwealth North two pieces of pending legislation and asked one or two of them to stop by his office. Mr. Pourchot said that he was not aware of the pending legislation. Senator Sharp said that raising property taxes impacted fewer citizens but a cap on the Permanent Fund would effect everyone. He also felt it was the most equitable way to meet the budget. Senator Kerttula pointed out that the Permanent Fund kept some rural areas alive especially in the winter time when most businesses were shut down. Co-chair Frank applauded the Board's efforts to bring these ideas to the legislature, and asked for their plan to bring them to the general public. Mr. Gorsuch said that it was felt that the legislature should form a commission and call for a state plan so it would be on the table next session. It could be compared to the Governor's budget and public comment could be had. That would give some official sanction to the group rather than Commonwealth North just proposing its ideas. In answer to Senator Kelly, Mr. Pourchot said that Commonwealth North was not a lobbying organization and would not push certain legislation. However, there was pending legislation in the House by Representative Willis that modeled the organization's recommendations. Again, in answer to Senator Kelly, Mr. Langland said it was thought that the Commission would be headed by the Governor with the Board comprised of one individual from the legislature, and other members from the administration, and the business community. That group would deal with different subcommittees on a grassroots level. Mr. Gorsuch said that the group should be limited to 7-9 people with staff support, and then detailed some issues the commission would address for the incorporation of a plan. Senator Kelly suggested that Senate Finance take the initiative in drafting legislation along those recommendations. He said the time had come to make a plan happen. He felt it was too late for this year but thought it could be drafted for next session. He thought the commission should be taken out of the political and put into the financial arena, and no legislator should be a member. He said the former Permanent Fund task force was an example of such a commission. In answer to Co-chair Pearce, Mr. Gorsuch said that Commonwealth North had not taken a position on the Roger Cremo plan. He said it had been given serious consideration and the presentation had been made to them. He went on to illustrate the reservations that Commonwealth North felt toward this plan. The main concern was how the state was to close the gap. Also, oil and mineral exploration and development had not been addressed in the Cremo plan. He applauded the thought and efforts that had gone into it but felt it did not address the fundamental issues. End SFC-94 #53, Side 1 Begin SFC-94 #53, Side 2 Senator Kerttula mentioned a program put together by Brooking's Institute that compartmentalized the different issues and then came back together in a commission for support to implement those decisions politically. He said that it had worked well and would like to see a similar approach for this situation. Senator Kelly said that a one time appropriation could be made to fund this commission. Senator Kerttula reiterated his concern that not everyone would be involved and that a broader view was needed, not just businessmen making assessments. Co-chair Pearce noticed that one of Commonwealth's recommendations was to form an Income Tax Commission. She said she supported that. The former Attorney General Charlie Cole had suggested that it was time to come up with a simpler way of evaluating taxes so that this on-going problem of settling oil taxes, etc. could be resolved. She asked if Commonwealth North had discussed this issue. Mr. Gorsuch said they had not discussed that issue. What they recommended were targets of revenue, spending and reductions of dividends, and within that, the legislature would have to make priorities in these areas. He said the Income Tax Commission would have to act as a separate entity because of all the laws and applications involved. Co-chair Pearce felt that an Evaluation Commission might be a good idea for solving some of the state's financial problems. Mr. Langland agreed that Charlie Cole's comments be considered. He felt stabilization and simplification were key factors for lenders and investors in new projects. Co-chair Pearce felt this was an important issue to solve in light of the large amount of money that was pending in court decisions regarding the tax issues in the oil industry. One unidentified Board member said the solution for that issue had not been thought of as a separate group but was addressed in two ways. One was in the economic development piece as well as whatever funds would come in from that process, where they would go and the accessibility of those funds. Mr. Langland said they had talked a lot about the Permanent Fund and he did not want the committee to forget about the revenue enhancement ideas, not necessarily though taxation but through regulatory reform. He said the state needed to make business more attractive to the state. As a lender, it had gotten very difficult and risky to finance things in Alaska. These were areas that risk could not be quantified. Small and large businesses alike found it difficult to address that risk. Senator Phillips said that there might be the greatest concept in the world but getting it implemented was a difficult task. He went on to reiterate this. Mr. Gorsuch said it was a fact that the Board consisted of mostly businessmen but they were open to ideas on how they could effect their recommendations in regard to the political process. Discussion was had by Co-chair Pearce and Senator Kelly regarding a joint plan to cap the Permanent Fund and reinstate the state income tax. Co-chair Frank said that getting the common people to look at these issues was the next step that the legislature needed to address, and it was definitely a political challenge. Mr. Gorsuch said the political process was an issue that had been well thought out. One of the ideas was a model based on the base closure review used by the federal government regarding cutting back military bases. He felt it was difficult to get the public to support a plan that meant less services, etc. It was clear that everyone agreed that something must be done and as a whole, and the state must rise above individual interests to solve its financial problems. Senator Kelly observed that the plan should not surface until after the November election. He did not want it to become part of that political process. Senator Sharp hoped the plan would give specific direction on how to reduce the rapid escalating items such as education, corrections, and welfare issues. Co-chair Pearce thanked the gentlemen for coming before the committee. ADJOURNMENT The meeting was adjourned at approximately 11:40 a.m.
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