Legislature(1993 - 1994)
02/15/1993 05:00 PM House O&G
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL & GAS
February 15, 1993
5:00 p.m.
MEMBERS PRESENT
Representative Joe Green, Chairman
Representative Harley Olberg
Representative Gary Davis
Representative Jerry Sanders
MEMBERS ABSENT
Representative Pete Kott, Vice-Chairman
Representative Joe Sitton
Representative Jerry Mackie
OTHER MEMBERS PRESENT
Representative Bill Hudson
COMMITTEE CALENDAR
*HB 95 "An Act relating to the liability of certain
security interest holders arising out of an
unpermitted release of a hazardous substance or
the substantial threat of an unpermitted release
of a hazardous substance, and to liens on the
property of certain security interest holders
resulting from an oil or hazardous substance spill
or the substantial threat of a release of oil or a
hazardous substance."
HELD IN COMMITTEE FUR FURTHER CONSIDERATION
(* first public hearing)
WITNESS REGISTER
Representative Bill Hudson
Capitol Building, Room 108
Juneau, Alaska 99801-1182
465-3744
POSITION STATEMENT: Prime Sponsor of HB 95
Jerry Weaver, Senior Vice-President
Manager, Commercial Marketing
National Bank of Alaska, Anchorage
P. O. Box 100600
Anchorage, Alaska 99510-0600
POSITION STATEMENT: Supported HB 95
Al Strawn, Chairman
Governmental Affairs Committee
Alaska Credit Union League
4000 Credit Union Drive, Suite 650
Anchorage, Alaska 99503-6647
POSITION STATEMENT: Supported HB 95
Janice Adair, Assistant Commissioner
Alaska Department of Environmental Conservation
410 Willoughby, Suite 105
Juneau, Alaska 99801-1182
465-5010
POSITION STATEMENT: Supported HB 95
Russell Heath, Director
Alaska Environmental Lobby
P. O. Box 22151
Juneau, Alaska 99801
POSITION STATEMENT: Voiced concerns related to HB 95
PREVIOUS ACTION
BILL: HB 95
SHORT TITLE: LIABILITY FOR ENVIRONMENTAL DAMAGE/LIENS
BILL VERSION:
SPONSOR(S): LABOR & COMMERCE
TITLE: "An Act relating to the liability of certain security
interest holders arising out of an unpermitted release of a
hazardous substance or the substantial threat of an
unpermitted release of a hazardous substance, and to liens
on the property of certain security interest holders
resulting from an oil or hazardous substance spill or the
substantial threat of a release of oil or a hazardous
substance."
JRN-DATE JRN-PG ACTION
01/29/93 177 (H) READ THE FIRST TIME/REFERRAL(S)
01/29/93 177 (H) OIL & GAS, LABOR & COMMERCE,
JUDICIARY
02/15/93 (H) O&G AT 05:00 PM CAPITOL 124
ACTION NARRATIVE
Tape 93-6, Side A
Number 000
HB 95: LIABILITY FOR ENVIRONMENTAL DAMAGE/LIENS
CHAIRMAN JOE GREEN called the meeting to order at 5:05 p.m.,
noted there was a quorum, and that the meeting was being
teleconferenced to Anchorage, Fairbanks, and Mat-Su. He
said HB 95, which deals with certain security interest
holders, would be reviewed. He then introduced
Representative Bill Hudson, who is Chairman of the House
Labor and Commerce Committee, the Prime Sponsor of HB 95.
Number 033
REPRESENTATIVE BILL HUDSON stated that as Chairman of the
House Labor and Commerce Committee he was instrumental in
bringing HB 95 before that committee. He advised that HB 95
addressed the needs of both commercial and individual
lenders, including those who chose to self-finance. He said
the intent of HB 95 was to limit the liability of security
interest holders in certain hazardous contamination cleanup
situations. He explained these situations as when lenders,
as innocent third parties who did not initiate or contribute
to a contamination were held liable beyond their borrowers
for any or all costs of containment or cleanup under the
state's strict liability laws. Such lender liability could
exceed the value of the loan or its collateral and, in some
cases, place other companies or personal assets at risk, he
added.
REPRESENTATIVE HUDSON explained that through HB 95 lender
liability would be limited, but not eliminated in certain
cases. The basic reasons for HB 95 were to provide lenders
with a clearer picture of potential liability so they could
more realistically assess loan risk and collateral value to
ensure reasonable and consistent credit availability for
Alaska businesses, especially small and mid-size businesses,
perhaps even more so in rural Alaska, he said. The need for
the provisions in HB 95 were not unique to Alaska, he added.
REPRESENTATIVE HUDSON claimed the impact of strict liability
laws had been reviewed nationally, and several other states
have passed legislation similar to HB 95. He provided
backup listing other states that have adopted such
legislation, and invited the committee to pass the bill. He
stated HB 95 was crafted to limit but not eliminate
liability, and noted the handout contained a detailed
sectional analysis from legislative legal services, and
backup letters from credit unions and banks in various parts
of the state. He further noted some of the backup
information came from SB 154, which was almost passed in the
17th Alaska Legislature.
Number 125
CHAIRMAN GREEN asked that testimony be taken first and
questions answered at the end of all the testimony. He
noted for the record that Representatives Sitton and Kott
had joined the meeting.
Number 136
JERRY WEAVER, SENIOR VICE PRESIDENT/MANAGER, COMMERCIAL
MARKETING, NATIONAL BANK OF ALASKA, ANCHORAGE, and
SECRETARY/TREASURER, ALASKA BANKERS ASSOCIATION, testified
via teleconference from Anchorage. He stated that after the
Exxon Valdez accident, when HB 68 became law, it basically
added strict liability provisions to the Federal Surety Act
and extended greatly any liability the security holder could
have, both in real estate or polluted personal property.
Since then, there has been a turndown of loan activity
related to this risk. He believed that was carrying over
into renewed and extended loans with some operating lines
and other intermediate term credits that basically had
partial real estate collateral.
MR. WEAVER believed this was beginning to dampen lending
and, in general, was having an effect on some of the senior
credit approval and certainly on the board of directors of
some local and statewide banks. If a lender or security
interest holder was forced into a cleanup of some polluted
property, the magnitude of the loss would be so significant
that it would mean some other type of investment or lending
activity would be the way to go, he said.
MR. WEAVER alleged the Environmental Protection Agency (EPA)
has introduced regulations that would reduce some of the
liability of innocent third party members. He wanted to
have the state law no more restrictive than the federal law
or the various federal regulations, and believed HB 95 would
certainly do that.
Number 182
CHAIRMAN GREEN asked Mr. Weaver to stay on-line for
questions, and introduced Al Strawn from the Mat-Su area.
Number 197
AL STRAWN, CHAIRMAN, GOVERNMENTAL AFFAIRS COMMITTEE, ALASKA
CREDIT UNION LEAGUE (ACUL), and GENERAL MANAGER, MATANUSKA
VALLEY CREDIT UNION, testified via teleconference from Mat-
Su, on behalf of the ACUL in support of HB 95. He said,
"Credit unions have felt the impact of this as well, and
even though they are primarily consumer lenders, they do
make loans on residential real estate and there is liability
under the present law dealing with residential property."
He alleged some of the credit unions in the state have
curtailed their real estate lending because of the present
liability, the largest example being the Alaska USA Federal
Credit Union who discontinued granting real estate loans in
October, 1989, primarily because of lender liability. He
encouraged the committee to act on HB 95 in a positive way.
Number 234
JANICE ADAIR, ASSISTANT COMMISSIONER, DEPARTMENT OF
ENVIRONMENTAL CONSERVATION (DEC), stated she worked
extensively on HB 95 and that in theory, the DEC supported
the general thrust of the bill, but some issues had come to
light over the interim since she had worked on the language
from Senate Bill 154, on which HB 95 was based. She offered
to either go over some of those issues or work directly with
the sponsor.
Number 240
CHAIRMAN GREEN asked if the issues could be worked on with
the sponsor.
Number 244
MS. ADAIR felt the issues could be worked on with the
sponsor.
Number 243
REPRESENTATIVE HUDSON requested Ms. Adair give some of the
general problem areas.
Number 256
MS. ADAIR stated the definitions in HB 95 were an
abbreviated version of the federal EPA definitions. In the
abbreviations, she felt some important aspects had been
lost. On the federal level it was very important that
lenders not foreclose on property and then be able to hold
the property for an investment purpose and still have the
benefit of limitation of their liability. On the federal
level, lenders were required to take certain steps to try to
rid themselves of the property if it was foreclosed upon.
Neither of these provisions were contained in HB 95, she
said, and explained that every 90 days property must go up
for sale, a legitimate offer could not be turned down, and
there were a variety of steps that the EPA have lined out
that, in their mind, indicated an attempt was being made to
get rid of the property and not hold it for two or three
years as an investment.
Number 278
REPRESENTATIVE HARLEY OLBERG asked what purpose that would
serve.
MS. ADAIR stated the purpose for limitation was to protect
the security interest in property. She said, "If you loan
someone money and you take the property back to protect the
money that you have invested in it as a lender only, under
current law you would become an owner of that property, but
what this would say is if you foreclose on a property, to
protect that security interest, you are not an owner in the
strict sense of the word. At some point in time you do
become an owner. If you do not divest yourself of that
property you probably are not trying to protect the money
that you lent, your security interest, you might be holding
it as a real owner in the true sense of the word."
MS. ADAIR believed the EPA tried to make a distinction
between holding the property as an investor and holding it
only to protect one's security interest. She said, "If you
are going to be an owner you are an owner. It is a fine
line, which is why it is somewhat complicated."
MS. ADAIR also brought up the issue under existing statute,
where if the state uses the response fund to cleanup a piece
of property, a lien could be attached on that property or
any other property owned by the person responsible for the
contamination. Under HB 95, a lender would not be an owner,
and she contended the Attorney General's office was afraid
that the state would be unable to protect its liens and
collect monies spent on cleanup. She noted an attempt had
been made to address that in Section 2 of the bill.
MS. ADAIR added, "We feel this is a provision that needs
some work so we do not loose our ability to collect response
funds when the state has in fact paid for the cleanup."
Number 324
REPRESENTATIVE GARY DAVIS stated there would probably be
quite a few instances where tracking the responsible party
to recoup cleanup costs would not be possible.
Number 328
MS. ADAIR acknowledged that was currently the case, and
stated the DEC did not want to loose the ability of
recouping cleanup costs due to foreclosures.
Number 343
REPRESENTATIVE DAVIS asked if the lender, or the new owner
sold the property and was also trying to recoup their costs,
the difference might not be enough to cover the DEC's cost.
Number 349
MS. ADAIR said, "That could be, but if they have no lien
they would not get anything."
Number 352
CHAIRMAN GREEN introduced Russell Heath and stated after Mr.
Heath's testimony he would open the floor to general
questions.
Number 357
RUSSELL HEATH, DIRECTOR, ALASKA ENVIRONMENTAL LOBBY (AEL), a
coalition of 19 Alaska environmental groups, stated HB 95
was a complicated bill and he did not understand all the
various facets of it. The AEL did not want to remove too
much liability from the banks because the strict liability
under HB 68 provided a great incentive to prevent and
cleanup hazardous waste. The central issue in the
environmental community was to prevent hazardous waste
spills and clean them up if they occurred and, ideally, have
the responsible party pay for them, he said, but recognized
lenders have a legitimate concern about an open-end
liability, which should be addressed fairly.
MR. HEATH stated the AEL was also concerned that if banks
did not have a liability and the responsible party was not
to be found or was bankrupt, then the taxpayers would
ultimately be responsible. The AEL wanted to ensure all
these issues were addressed one way or another, and
suggested two possible mechanisms to ensure a lender
retained or had an incentive to check for pre-existing
environmental damage, ensure the borrower was
environmentally responsible, and that the ongoing operation
was not causing environmental damage: An environmental
assessment prior to the lender making his investment; and,
specifying that the lender's liability be limited to either
the amount of his investment or a larger sum, so the lender
is aware he would be at risk if he did not adequately
monitor his investment.
Number 414
CHAIRMAN GREEN thanked Mr. Heath and opened the floor to
questions from the Committee.
Number 418
REPRESENTATIVE JOE SITTON recognized what was driving the
introduction of HB 95, but wondered if there was more than
one approach to the problem. He questioned the
constitutionality of the DEC operating the way they did and
asked if this had ever been tested in court. He agreed
there was a responsibility when money was loaned to someone
on a piece of property. He noted the public, banks, and the
borrower all had responsibilities and would like to see that
they all receive those responsibilities.
Number 432
REPRESENTATIVE HUDSON felt all the testimony had been very
useful and promised to look at all the issues brought
forward by Ms. Adair, Mr. Heath, and Representative Sitton.
He noted the state and the federal government have taken
great strides in trying to prevent the leaking of
underground storage tanks from occurring in the future, and
pointed out that in one report in the state of Alaska there
was an assessment that went up to $100 million worth of
underground leaking, in addition to other pollution.
REPRESENTATIVE HUDSON believed it was not in Alaska's best
interest to become so tight that future loans in Alaska, to
small and medium size businesses were obliterated. He
promised to get together with the EPA and others and propose
some recommendations, which he would then bring back to the
committee.
Number 463
REPRESENTATIVE OLBERG did not have a problem with HB 95, and
felt if it needed work the place to do it would be in the
Labor and Commerce Committee, which Representative Hudson
chaired.
Number 469
REPRESENTATIVE DAVIS stated research could be done in either
committee. He felt it was the work of any committee to do
what they could to improve a bill before it was passed on.
Number 477
REPRESENTATIVE SITTON stated he was new and did not know all
the history on this, but thought surely some of this had
been challenged in court. He mentioned the Kelly Tire
Company in Fairbanks, a little family store that the DEC had
given an $800,000 bill to. He thought there might have been
some court action in that instance.
Number 483
REPRESENTATIVE HUDSON advised that the origin of the whole
subject matter came about in the aftermath of the Exxon
Valdez oil spill, with the passage of more stringent federal
laws. Following this, the State of Alaska passed
legislation which dealt with the leaking underground storage
tank, commonly referred to as the LUST program. He was
unsure if the courts have tried to address whether the
authority rests with the DEC or the EPA, but presumed it
must rest at least with the federal law. He suggested
getting a response from the attorney general's office.
Number 500
REPRESENTATIVE SITTON questioned what was prompting HB 95.
He said, "Bankers are having problems, property owners are
having problems, I cited as an example, Kelly Tire Company
in Fairbanks, which DEC handed an $800,000 bill to and if
that property had a lender involved there would be no way
that lender could ever sell the property and pay DEC's fine
and still do business. He would essentially be prohibited
from doing business. Something prompted this, surely
someone has challenged this in court, like the Kellys."
Number 510
MS. ADAIR disclosed that in 1989, HB 68 was passed, which
created strict liability for hazardous substance spills.
This bill followed a federal model, but in Alaska, oil is
considered a hazardous substance and in the federal model it
is not, which makes Alaska's strict liability statute much
broader than the federal statute, she noted.
MS. ADAIR reported, "There was a provision in that law that
followed the federal model called the innocent landowner
that was supposed to have exempted lenders. There was a
First Circuit Court decision in 1991, which people commonly
referred to as fleet factors, where the court held that the
lender associated with fleet factors was liable for
contamination because they have the capacity to participate
in the management of the company. This is what got it going
on a national level. The lending communities said if you
are going to say I can be responsible for simply having the
capacity to manage, whether or not I actually do it, that
was a very big jump from the circumstances under which they
thought they were operating."
MS. ADAIR stated congress had been introducing bills to try
to fix this situation, which was why the EPA went ahead with
their regulations, because the bills in congress tended to
get bogged down. The EPA tried to define the terms in an
attempt to clarify for lenders when they might or might not
be held accountable or responsible for pollution, she said.
MS. ADAIR, on the issue with Mr. Kelly in Fairbanks, said,
"He got stuck at the beginning of this underground storage
tank problem, and probably was one of the deciding factors
in getting that legislation with a grant program through
this legislature. I know Mr. Kelly was fined by the EPA and
there has been some amount of cleanup that has been
undertaken, but I do not think our department has gone out
and tried to cost recover. That whole area is contaminated
and we are trying to get the railroad involved. This is a
great example of where something can go wrong and it did go
wrong."
Number 555
REPRESENTATIVE SITTON asked if a bill for $800,000 had been
presented to Mr. Kelly by the EPA.
Number 557
MS. ADAIR honestly did not know the dollar amount, but said,
"I was in a meeting with Bud and he had a letter from the
EPA saying it is going to be $10,000 a day and every day
you're in violation is another $10,000. Whether they ever
assessed a total amount, I do not know."
Number 563
REPRESENTATIVE DAVIS stated he did not want to hold HB 95 up
anymore than anybody else and said, as Representative Olberg
discussed, it might be more proper to continue work on the
bill in the House Labor and Commerce Committee.
Number 570
CHAIRMAN GREEN stated this was a complex situation that had
probably gone past the realm of the House Special Committee
on Oil and Gas. He said, "It seems we have three different
ways to go right now, either take a motion to table this and
get some return from the Department of Law; we could
entertain a motion to pass it on with individual
recommendation; or, we could have a motion to pass it on
with a recommendation from this committee for Labor and
Commerce to look at. Does anybody have a particular
interest or a fourth motion?"
Number 587
REPRESENTATIVE SITTON did not particularly care which
procedure was adopted, but suggested the attorney general's
office be invited to give a more thorough explanation of
HB 95.
Number 591
REPRESENTATIVE OLBERG suggested moving HB 95 to the House
Labor and Commerce Committee would do all three of those
things.
REPRESENTATIVE HUDSON said his staff had just advised him
that HB 95 did not yet have a fiscal note and, therefore,
could not be moved out. He appreciated the comments of the
committee and said his staff would be happy to work with the
committee, Ms. Adair, and others and see if they could not
help the committee come up with some amendments to HB 95 and
then move it on over to the House Labor and Commerce
Committee. "By the time we get the fiscal note back to you,
we can deal with it expeditiously at that time," he said.
Number 606
CHAIRMAN GREEN stated HB 95 could be rescheduled after
receipt of the fiscal note and an attorney general's
opinion. He also appreciated Representative Olberg's
comments.
ADJOURNMENT
There being no further comments or questions, CHAIRMAN GREEN
adjourned the meeting at 5:41 p.m.
| Document Name | Date/Time | Subjects |
|---|