Legislature(2007 - 2008)SENATE FINANCE 532
05/10/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB229 | |
| SB144 | |
| HB238 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 229 | TELECONFERENCED | |
| + | SB 144 | TELECONFERENCED | |
| + | HB 238 | TELECONFERENCED | |
| + | HB 162 | TELECONFERENCED | |
| + | TELECONFERENCED |
10:33:38 AM CS FOR HOUSE BILL NO. 238(FIN) "An Act relating to the response account of the oil and hazardous substance release prevention and response fund; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. 10:33:53 AM MICHAEL PAWLOWSKI, Staff to Representative Kevin Meyer, testified that Section 3 of the bill would create a subaccount within the State's oil and hazardous substance release prevention and response account. The response account contained $50 million and was established in reaction to the Exxon Valdez oil spill to provide for emergency clean-up in the event of an oil or other hazardous substance spill. Section 3 of the bill would add language similar to that used for the Constitutional Budget Reserve subaccount to create a response account subaccount by transferring $40 million into the subaccount. Section 2 of the bill would allow realized earnings from the subaccount to be deposited into the prevention account. The subaccount would be managed more aggressively than the prevention account, and earnings from the subaccount would provide operating funds to the Department. Mr. Pawlowski continued that Section 1 addressed concerns of market fluctuations, providing for a one cent per barrel surcharge on oil in the event that the balance of the oil and hazardous substance release prevention and response fund was calculated to be less than $50 million. The surcharge would be triggered by expenditures from the account in relation to prevention or response activities, but would not be employed to compensate for losses from the subaccount. Mr. Pawlowski identified a decline in the balance of the prevention and response account due to a decline in oil production. This bill was an attempt to provide "extra operating income" to the fund in the future by investing the fund's "underutilized resource". 10:37:02 AM Co-Chair Hoffman informed that he served in the legislature when the prevention and response account was initially created. He asked the amount of funds expended from the account since its inception, and how that figure would compare to the anticipated revenue generated from the subaccount. 10:37:57 AM Mr. Pawlowski referred to a table titled "Department of Environmental Conservation, Division of Spill Prevention and Response, Response Account Expenditure History Since Inception (10/2/1994 to Present)" [copy on file]. He pointed out that the largest disbursement of funds was $2.1 million, and concluded that "not that much has been spent." Co-Chair Hoffman asked if the legislation contained a mechanism to enable the State to access the $40 million in the investment account in the event of a major spill incident. Mr. Pawlowski deferred to the Department of Revenue to respond to questions regarding access to the funds in the subaccount. 10:39:21 AM BRIAN ANDREWS, Deputy Commissioner, Department of Revenue, responded that the $40 million would be invested in a portfolio of stocks and bonds, and would be fully accessible within three days. 10:39:55 AM Senator Thomas asked if the bill contained a provision to ensure that the $50 million balance of the account would be maintained, regardless of whether the money was in the regular fund or the subaccount. 10:40:38 AM Mr. Pawlowski replied that the bill would not provide for the reinstatement of a surcharge in the event of investment loss. The surcharge would be triggered only by expenditures from the account. The management of realized earnings in excess of the $50 million balance of the account would be "left up to regulation and discussion." 10:41:18 AM Senator Thomas asked if the earnings of the subaccount would be used to replenish the original response and prevention account. Mr. Pawlowski explained that the earnings of the investment account in excess of $50 million would be deposited into the prevention account and utilized to respond to oil spills or other emergency scenarios. 10:41:45 AM Senator Thomas clarified that his question related to earnings above the original fund balance of $50 million. Mr. Pawlowski was unsure. He estimated that the realized earnings would "probably be deposited into the prevention account." The prevention account would not lapse and the earnings would create a positive balance in the prevention account. He directed the Committee's attention to four pages of graphs relating to the response fund [copy on file] prepared by Representative Meyer's office. 10:43:11 AM Senator Huggins asked the activities the response funds were allocated to, and how the State "recouped" those costs from the parties responsible for the spill. Mr. Pawlowski informed that existing statutes were "very clear", and provided that all expenditures from the response account were "cost recoverable". The State would pursue repayment from the responsible party for the full amount of the response costs. 10:43:58 AM LARRY DIETRICK, Director, Division of Spill Prevention and Response, Department of Environmental Conservation, informed that the full amount of expenditures related to spill response would be recovered by the State. He exampled a spill incident involving the M/V Selendang Ayu, and shared that the State was currently in settlement discussions to recover the funds spent in response to the accident involving that vessel. Approximately 80 percent of expenses associated with that response had been recovered thus far. 10:44:50 AM Senator Huggins deduced that expended funds would not be available for investment, and asked if there was a provision to compensate the State for lost investment opportunities while awaiting settlement. 10:45:21 AM Mr. Pawlowski answered that the sponsor had considered the issue, but decided not to pursue lost "opportunity costs". The statutory fines, penalties, and damage costs were deemed "sufficient" by the sponsor. 10:46:01 AM Co-Chair Hoffman asked if the industry would be liable to replenish the response fund if poor investment returns led to a balance lower than the required $50 million. He reminded that the industry would benefit from good investment returns by not paying the surcharge, and asked if it would contribute to the fund during times of poor returns. Mr. Pawlowski responded in the negative. He pointed out that the industry currently was not required to compensate the State in times of extra earnings. 10:47:06 AM Co-Chair Hoffman remarked that the State was assuming a risk by passing this legislation. If the investment account suffered losses, the State would be liable for the decrease, and the oil companies would not be charged. If however the investment account had realized earnings, the industry would benefit as the surcharge would not be triggered by the balance of the account. He opined that realized earnings from the investment subaccount should be deposited into the general fund. 10:47:59 AM Co-Chair Stedman asked Mr. Pawlowski to speak to the "risk shift". Mr. Pawlowski agreed that the State would assume financial risk in the establishment of an investment subaccount. If the State was required to access funds in the investment account during a time of poor market conditions, the State could be forced to "buy in at a loss". As currently in statute and specified in the proposed legislation, the only recoverable dollars would be actual expenditures. The current spill prevention and response account assumed very little risk, but had earned only $1.25 million the previous year. 10:49:02 AM Co-Chair Hoffman articulated that the original legislation provided a mechanism that would require the oil industry to replenish the account as funds were expended through prevention and response activities. Under the proposed legislation, the State would assume the responsibility to maintain the balance of the fund. If the investments did not return profits, the State would be liable for the full fund balance without contribution from the industry. If the investments proved successful, industry would not be required to contribute in that situation either, thus relieving it of participation in the funding of the spill prevention and response account. Co-Chair Hoffman concluded that if the legislature sought to ensure that the $50 million balance was always available to abate spills, it would not pass this bill. Mr. Pawlowski granted that Co-Chair Hoffman's logic was correct. He characterized the issue as a "policy call", balancing potential earnings with potential losses. He pointed out that the funding for the Division had been consistently declining, and this bill would provide a mechanism for continued funding. He elaborated that industry would be financially liable for clean-up if a spill occurred via direct cost recovery and the imposition of the surcharge. 10:51:02 AM Co-Chair Stedman asked the Department of Revenue to speak to the fiscal note. Co-Chair Hoffman asked Mr. Dietrick if the Department of Environmental Conservation supported the legislation. Mr. Dietrick deferred to the Department of Revenue. 10:51:32 AM Mr. Andrews informed that the entire $50 million balance of the account was currently invested in a "short term money market" portfolio, and would be reinvested into a moderate risk portfolio comprised of stocks and bonds. The costs reflected on the fiscal note would be investment management, custodial and accounting expenses. The costs associated with the investment account would represent approximately 10 basis points of the entire investment, which he considered reasonable. 10:52:46 AM Senator Elton asked why the bill would invest a "hard dollar amount". He exampled the Permanent Fund, which was invested based on percentages. He asked if the "hard dollar amount" was problematic for the Department of Revenue. Mr. Pawlowski replied that the investment figure was selected as a "beginning point". The figure was "relatively arbitrary" and was selected to allow the Division of Spill and Prevention Response to continue to function as distinct investment policies were established. 10:53:51 AM Senator Elton asked if funds would be moved from the investment account when the balance exceeded $40 million. Mr. Andrews responded that the existing account had never been drawn below $40 million, therefore the Department was "comfortable" with that figure as the initial investment amount. He explained that realized earnings which would fund the operating expenses of the Division were generated through transactions. The unrealized earnings were "market appreciation", which could vary year to year depending of the condition of the market. 10:55:03 AM Senator Elton suggested that an investment account based on a percentage of the total balance of the spill response fund would simplify the calculation and include consideration of market fluctuations. Mr. Pawlowski responded that a "percentage approach" would require the Department to engage in continuous accounting and monitoring activities, and would be unduly burdensome. The $40 million figure was a "transitional investment", and would not be the required balance of the subaccount. 10:56:08 AM Senator Thomas agreed with the underlying philosophy of increasing the return on the spill response and prevention account, but recommended that the oil industry maintain its responsibility to contribute to the fund through the surcharge. 10:57:22 AM Co-Chair Stedman ordered the bill HELD in Committee. AT EASE 10:57:42 AM/11:06:03 AM
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