Legislature(1993 - 1994)

03/02/1994 08:15 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
               HOUSE RESOURCES STANDING COMMITTEE                              
                          March 2, 1994                                        
                            8:15 a.m.                                          
                                                                               
  MEMBERS PRESENT                                                              
                                                                               
  Representative Bill Williams, Chairman                                       
  Representative Bill Hudson, Vice Chairman                                    
  Representative Con Bunde                                                     
  Representative Pat Carney                                                    
  Representative John Davies                                                   
  Representative David Finkelstein                                             
  Representative Joe Green                                                     
  Representative Jeannette James                                               
  Representative Eldon Mulder                                                  
                                                                               
  MEMBERS ABSENT                                                               
                                                                               
  None                                                                         
                                                                               
  OTHER LEGISLATORS PRESENT                                                    
                                                                               
  Senator Mike Miller                                                          
  Representative Mike Navarre                                                  
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
  HB 238:  "An Act relating to the oil and hazardous                           
            substance release response fund, repealing                         
            the oil and hazardous substance municipal impact                   
            assistance program and 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, amending requirements relating to                   
            the revision of state and regional master                          
            prevention and contingency plans, altering                         
            requirements applicable to liens for recovery of                   
            state expenditures related to oil or hazardous                     
            substances, relating to a restoration standard in                  
            certain state environmental laws, modifying                        
            definitions of related terms, amending the manner                  
            of computing the amounts required for the                          
            suspension and reimposition of the oil                             
            conservation surcharge, relating to fees to be                     
            charged and collected by the Department of                         
            Environmental Conservation, and annulling a                        
            regulation related to costs for certain site                       
            restorations."                                                     
                                                                               
            HEARD AND HELD                                                     
                                                                               
  WITNESS REGISTER                                                             
                                                                               
  JOHN SANDOR, Commissioner                                                    
  Department of Environmental Conservation                                     
  410 Willoughby Avenue, Ste. 105                                              
  Juneau, Alaska  99801-1795                                                   
  Phone:  465-5050                                                             
  POSITION STATEMENT:  Supported HB 238, 2 cent/3 cent                         
                       proposal                                                
                                                                               
  BOB POE, Director                                                            
  Division of Information and Administrative Services                          
  Department of Environmental Conservation                                     
  410 Willoughby Avenue, Ste. 105                                              
  Juneau, Alaska   99801-1795                                                  
  Phone:  465-5010                                                             
  POSITION STATEMENT:  Gave briefing on different proposed                     
                       versions of HB 238                                      
                                                                               
  VIRGINIA STONKUS, Fiscal Analyst                                             
  Legislative Finance Division                                                 
  P.O. Box 113200                                                              
  Juneau, Alaska   99811-3200                                                  
  Phone:  465-3795                                                             
  POSITION STATEMENT:  Answered a question                                     
                                                                               
  MIKE CONWAY, Director                                                        
  Division of Spill Prevention and Response                                    
  Department of Environmental Conservation                                     
  410 Willoughby Avenue, Ste. 105                                              
  Juneau, Alaska   99801-1795                                                  
  Phone:  465-5250                                                             
  POSITION STATEMENT:  Answered questions                                      
                                                                               
  JAMES CARLTON, Mayor                                                         
  Ketchikan Gateway Borough                                                    
  1043 Woodland                                                                
  Ketchikan, Alaska   99901                                                    
  Phone:  225-4261                                                             
  POSITION STATEMENT:  Supported HB 238, Version Y                             
                                                                               
  DENNIS LODGE, Representative                                                 
  Prince William Sound Regional Citizens'                                      
    Advisory Council                                                           
  P.O. Box 1975                                                                
  Seward, Alaska   99664                                                       
  Phone:  224-8933                                                             
  POSITION STATEMENT:  Supported HB 238, Version Y                             
                                                                               
  LARRY SMITH, Representative                                                  
  Kachemak Resource Institute                                                  
  1520 Lakeshore Drive                                                         
  Homer, Alaska   99603                                                        
  Phone:  235-3855                                                             
  POSITION STATEMENT:  Supported progress made in HB 238,                      
                       version Y; felt more work is needed                     
                                                                               
  WAYNE COLEMAN, Member                                                        
  Executive Committee                                                          
  Prince William Sound Regional                                                
    Citizens' Advisory Council                                                 
  P.O. Box 1913                                                                
  Kodiak, Alaska   99615                                                       
  Phone:  486-3916                                                             
  POSITION STATEMENT:  Supported HB 238, version Y                             
                                                                               
  PATTI SAUNDERS, Representative                                               
  Alaska Center For The Environment                                            
  1233 W. 11th                                                                 
  Anchorage, Alaska   99501                                                    
  Phone:  278-9308                                                             
  POSITION STATEMENT:  Supported HB 238, Version Y                             
                                                                               
  RICHARD BREWER, Assistant Director                                           
  Oil and Gas Audit Division                                                   
  Department of Revenue                                                        
  550 W. 7th, Suite 570                                                        
  Anchorage, Alaska   99501-3557                                               
  Phone:  276-1363                                                             
  POSITION STATEMENT:  Commented on HB 238, Version Y                          
                                                                               
  ARDIE GRAY, Public Affairs Manager                                           
  Alaska Oil and Gas Association                                               
  121 W. Fireweed, Suite 207                                                   
  Anchorage, Alaska   99503                                                    
  Phone:  272-1481                                                             
  POSITION STATEMENT:  Supported HB 238, split nickel version                  
                                                                               
  BECKY GAY, Executive Director                                                
  Resource Development Council                                                 
  121 W. Fireweed, Suite 250                                                   
  Anchorage, Alaska   99503                                                    
  Phone:  276-0700                                                             
  POSITION STATEMENT:  Supported HB 238, split nickel version                  
                                                                               
  WALT FURNACE, General Manager                                                
  Alaska Industry Support Alliance                                             
  4220 B Street                                                                
  Anchorage, Alaska   99503                                                    
  Phone:  563-2226                                                             
  POSITION STATEMENT:  Supported SB 215                                        
                                                                               
  JOHN BERNITZ                                                                 
  1229 I Street                                                                
  Anchorage, Alaska   99501                                                    
  Phone:  277-8805                                                             
  POSITION STATEMENT:  Opposed HB 238, split nickel version                    
                                                                               
  PREVIOUS ACTION                                                              
                                                                               
  BILL:  HB 238                                                                
  SHORT TITLE: OIL/HAZARDOUS SUBS. FUND,TAX,PLANS                              
  SPONSOR(S): SPECIAL COMMITTEE ON OIL AND GAS                                 
                                                                               
  JRN-DATE     JRN-PG               ACTION                                     
  03/19/93       707    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  03/19/93       708    (H)   RESOURCES, STATE AFFAIRS                         
  03/24/93              (H)   RES AT 08:00 AM CAPITOL 124                      
  03/24/93              (H)   MINUTE(RES)                                      
  04/07/93              (H)   MINUTE(RES)                                      
  04/07/93              (H)   MINUTE(JUD)                                      
  04/14/93              (H)   MINUTE(RES)                                      
  04/16/93              (H)   MINUTE(RES)                                      
  04/17/93              (H)   RES AT 10:00 AM CAPITOL 124                      
  04/17/93              (H)   MINUTE(RES)                                      
  11/12/93              (H)   MINUTE(RES)                                      
  02/23/94              (H)   MINUTE(RES)                                      
  03/02/94              (H)   RES AT 08:15 AM CAPITOL 124                      
                                                                               
                                                                               
  ACTION NARRATIVE                                                             
                                                                               
  TAPE 94-23, SIDE A                                                           
  Number 000                                                                   
                                                                               
  The House Resources Committee was called to order by                         
  Chairman Bill Williams at 8:24 a.m.  Members present at the                  
  call to order were Representatives Williams, Hudson, Bunde,                  
  Carney, Davies, Finkelstein, Green, James and Mulder.  No                    
  members were absent.                                                         
                                                                               
  CHAIRMAN BILL WILLIAMS stated there is a quorum present.  He                 
  announced the committee is on teleconference with Anchorage,                 
  Cordova, Fairbanks, Homer, Ketchikan, Kodiak, Seward, and                    
  Valdez.                                                                      
  HB 238 - OIL/HAZARDOUS SUBS. FUND,TAX,PLANS                                  
                                                                               
  CHAIRMAN WILLIAMS advised the committee will hear HB 238,                    
  which the committee had heard twice last session and once                    
  during the interim.  He stated no action will be taken on                    
  the bill.  He said the Senate has introduced and held a                      
  number of hearings on a similar measure, SB 215, which is                    
  also aimed at revisions to the 470 fund and added that many                  
  draft versions of both bills have been proposed.  Throughout                 
  the process, the public has expressed concerns about many of                 
  the provisions of the various versions.  He stressed many                    
  hours of testimony has been heard from municipal officials,                  
  fishermen, business people, the oil industry, and other                      
  Alaskans.                                                                    
                                                                               
  CHAIRMAN WILLIAMS said as Chairman of the committee which                    
  currently has possession of HB 238, he has followed the                      
  various mutations of this legislation and has thought how                    
  the committee might best proceed with it.  He believed there                 
  are problems with the 470 fund which deserve legislative                     
  action.  He expressed concern that the changes which should                  
  be made, have become entangled with many other proposed                      
  changes which go beyond fixing what is broken.                               
                                                                               
  Number 032                                                                   
                                                                               
  CHAIRMAN WILLIAMS said in seeking an approach, he tried to                   
  focus on the question of what is not working well and then                   
  on finding the simplest and fairest way to fix those things.                 
  The product of that effort is draft version Y.  He stressed                  
  version Y is before the committee.  He stated draft version                  
  Y recognizes that the accounting mechanisms for the 470 fund                 
  need revision.                                                               
                                                                               
  CHAIRMAN WILLIAMS stressed the need for the $50 million                      
  response fund to fill up quickly, and stay full.  That                       
  savings account enables response to many small spills which                  
  occur every year in the state, and enables response if the                   
  state is faced with another big spill in the future.  He                     
  stated the bill also recognizes that prevention and                          
  preparedness programs are at least as important to the well                  
  being of the state, as the ability to respond and clean up                   
  if a spill does occur.  Version Y acknowledges that the                      
  legislature, as the entity empowered by state laws and the                   
  Constitution to write the state's budget and make                            
  appropriations of state revenue, is the appropriate entity                   
  to decide what programs should be funded and at what levels.                 
                                                                               
  CHAIRMAN WILLIAMS explained version Y does not provide for                   
  the constant starting and stopping of the nickel surcharge                   
  when the balance of the fund alternately reaches, and then                   
  drops below, the $50 million level.  He stated what is                       
  proposed in draft version Y includes the following:  The                     
  nickel surcharge continues to be collected.  At the end of                   
  each tax year, a calculation will be made to determine what                  
  percentage of the total nickels collected were actually                      
  needed to accomplish two main goals:  1) Keeping the                         
  response fund at the full $50 million level; and 2) funding                  
  the prevention and preparedness programs at the                              
  legislatively appropriated level.                                            
                                                                               
  CHAIRMAN WILLIAMS said the amount of nickels collected above                 
  and beyond the amount required to cover those expenses will                  
  then be returned to the oil industry in the form of a tax                    
  credit, proportional to the amount of surcharge paid by each                 
  company.  He stated several other fine-tuning provisions are                 
  also included in the bill.  Among those are several items                    
  which were modeled after the statutory changes recommended                   
  in a draft legislative audit of the 470 fund.                                
                                                                               
  Number 068                                                                   
                                                                               
  CHAIRMAN WILLIAMS felt the approach in draft version Y is a                  
  sound one, is fair, uniform, and predictable for industry.                   
  He stressed while passage of the bill will save the oil                      
  industry substantial amounts of money, it also leaves state                  
  revenue spending decisions where they belong, in the hands                   
  of the legislative and administrative branches of                            
  government.  That enables government to fulfill their                        
  responsibility to provide for the things which are basic to                  
  any oil producing state:  Adequate programs for spill                        
  prevention, preparedness, and response.  He said version Y                   
  provides a win-win approach, for the state and the oil                       
  industry.                                                                    
                                                                               
  CHAIRMAN WILLIAMS advised committee members that there is                    
  further information in their folders, including a financial                  
  analysis of the bill, as well as a sectional analysis.  He                   
  added there are also two draft amendments, Y-1 and Y-2,                      
  which address concerns raised by the oil industry.  He noted                 
  that he had asked representatives from several agencies who                  
  are knowledgeable about the 470 fund laws and programs, and                  
  who have reviewed the draft version Y to speak at the                        
  meeting, describing how the provisions of the draft will                     
  work and to be available for questions.                                      
                                                                               
  Number 101                                                                   
                                                                               
  JOHN SANDOR, COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL                       
  CONSERVATION (DEC), expressed appreciation for efforts made                  
  in examining the Oil and Hazardous Substance Release                         
  Response Fund and determining what opportunities there are                   
  to amend and improve the process by which the fund is                        
  managed and administered.  He also expressed appreciation                    
  for efforts made to develop a consensus approach which is                    
  fair to industry, yet also assures a strong prevention                       
  program and a strong response program.                                       
                                                                               
  MR. SANDOR emphasized the Administration's positive record                   
  of improved management of the response fund.  In 1991, an                    
  internal audit of the fund was ordered and over the past                     
  three years, a number of improvements in its management and                  
  administration have been implemented.  As a result, the fund                 
  balance has increased from $6 million in 1991 to $12 million                 
  in 1992, $24 million in 1993 and a projected balance of $37                  
  million at the end of 1994.  He felt DEC is well on the way                  
  to achieving the objective of a $50 million fund balance.                    
                                                                               
  MR. SANDOR also emphasized the Administration's strong                       
  commitment to environmental protection.  He said when                        
  Governor Hickel was Secretary of Interior, and the Santa                     
  Barbara offshore spill occurred, he instituted dramatic                      
  changes in governmental oversight to not only clean up the                   
  spill, but to put in place, prevention and response                          
  requirements which were tough, but reasonable.  His                          
  liability and financial responsibility requirements prompted                 
  some from the oil industry to seek his dismissal, but he did                 
  not waiver.                                                                  
                                                                               
  Number 132                                                                   
                                                                               
  MR. SANDOR stressed the state cannot afford to be less                       
  vigilant or forget the lessons of the Exxon Valdez Oil                       
  Spill.  The state cannot afford to make further reductions                   
  in oversight, prevention and response capabilities.  The                     
  state cannot afford to be satisfied with half-time                           
  environmental coverage on the North Slope.  DEC cannot                       
  afford to diminish its technical staff even as it is                         
  currently reviewing the audits of an aging pipeline.  He                     
  added, at the same time, DEC does want to continue to                        
  improve the management of the response fund, and is                          
  analyzing various options to achieving that objective.                       
                                                                               
  MR. SANDOR stated DEC continues to support the proposed                      
  improvements in the operation and management of the response                 
  fund which was presented to the Senate and House Resources                   
  Committees.  He advised that although several amendments                     
  were adopted at the February 16, 1994, Senate Resources                      
  Committee hearing which improved the proposed legislation,                   
  the Administration's proposal that the nickel be split on a                  
  3 cent prevention/operations and 2 cent response split was                   
  not adopted.                                                                 
                                                                               
  MR. SANDOR said the 2 1/2 cent prevention/operations split                   
  is unwise from several standpoints.  First, this level of                    
  470 funding would not support the existing                                   
  prevention/operations program in the  future, and would                      
  require authorization of appropriated General Funds or new                   
  fee programs of $550,000 in fiscal year 1995, and greater                    
  amounts in later years.  Second, DEC has had a series of                     
  spills and incidents in the last 60 days which clearly show                  
  weaknesses in the state's and industry's spill prevention                    
  and response programs.  Third, this level of funding would                   
  not assure adequate support for the combined Department of                   
  Military and Veterans Affairs (DMVA), Division of Emergency                  
  Services and DEC's emergency programs stemming from natural                  
  disasters.                                                                   
                                                                               
  Number 159                                                                   
                                                                               
  MR. SANDOR stated for those and other reasons, the                           
  Administration does not support a 2 1/2 cent split of the                    
  nickel.  The Administration is clearly on record favoring a                  
  3 cent prevention/operations; 2 cent catastrophic fund                       
  split.  If that is not acceptable, the Administration would                  
  favor utilizing a whole nickel approach to make further                      
  improvements in the fund.                                                    
                                                                               
  MR. SANDOR mentioned he had made reference to a number of                    
  wake-up calls in the last sixty days which should remind                     
  everyone of the state's vulnerability to accidents and                       
  natural disasters which will lead to oil and hazardous                       
  substance spills.  He cited a few incidents.  On December                    
  27-28, 1993, over 15,000 gallons of crude oil were spilled                   
  from a storage tank into secondary containment at the Drift                  
  River Terminal; on the morning of December 30, 1993, a break                 
  in a 6" pipeline in ARCO's North Slope operations was                        
  discovered by a workman who also discovered the automatic                    
  alarm and shut-off valve systems had been deactivated; on                    
  January 2, 1994, the Overseas Ohio tanker vessel hit an                      
  iceberg in Prince William Sound just 25 miles south of                       
  Valdez; and on February 17, 1994, the Overseas Washington                    
  tanker lost full power during its approach to the berth in                   
  Cook Inlet.  He added that the recent Los Angeles earthquake                 
  which resulted in a major crude oil pipeline spill, as well                  
  as hazardous substance releases, reminds everyone that the                   
  state must also be prepared for natural disasters.  He said                  
  over the past weekend, February 26, 1994, a 500 gallon oil                   
  spill was reported at Pump Station 10 on the Trans Alaska                    
  Pipeline System, when a residual oil tank overflowed--                       
  apparently as a result of an alarm system failure.  He added                 
  the spill estimate had been increased from 2,500 gallons to                  
  3,000 gallons.                                                               
                                                                               
  Number 191                                                                   
                                                                               
  MR. SANDOR stressed that DEC believes improved prevention                    
  and preparedness programs will reduce the number of oil and                  
  hazardous substance spills.  Because DEC believes that the                   
  state and industry can and should work together in this                      
  effort, he has written to the presidents of ARCO Alaska,                     
  Inc., BP Exploration (Alaska) Inc. and the Alyeska Pipeline                  
  Service Company suggesting that they, along with DEC,                        
  jointly evaluate and strengthen the prevention and response                  
  programs and develop a strategy which will result in                         
  improvements in the programs.                                                
                                                                               
  MR. SANDOR said the state of Alaska must have strong and                     
  well-coordinated prevention, response, cleanup and                           
  restoration programs to deal with such incidents.  The DMVA,                 
  DEC and other units of state government are working together                 
  to achieve that objective.  He stated the Administration is                  
  prepared to work in partnership with the legislature and the                 
  industry to not only improve the management of the response                  
  fund, but to also strengthen the state's prevention and                      
  response capability.                                                         
                                                                               
  (CHAIRMAN WILLIAMS noted for the record that Senator Mike                    
  Miller and Representative Mike Navarre had joined the                        
  committee.)                                                                  
                                                                               
  Number 223                                                                   
                                                                               
  BOB POE, RESPONSE FUND MANAGER, DIRECTOR, DIVISION OF                        
  INFORMATION AND ADMINISTRATIVE SERVICES, DEC, stated there                   
  are two sets of financial information he will review.                        
  Referring to several bar charts (on file), he said there are                 
  four summary graphs on the front and summary detail graphs                   
  behind which show how the numbers were developed.  He                        
  pointed out there are six possibilities shown in the graph,                  
  ranging from the option of not passing any bill at all this                  
  session to the original proposal of the 2 cent/3 cent split,                 
  the current version in the Senate, version Y in front of the                 
  committee, the Administration's 3 cent/2 cent split                          
  proposal, and one comparative example of a 50/50 split which                 
  answers questions about the current version in front of the                  
  Senate.                                                                      
                                                                               
  MR. POE stated if the accounting system is not changed, the                  
  industry will pay an additional $122.5 million over the next                 
  five years and at that time, the surcharge suspension                        
  calculation will equal $28.8 million.  He stressed the $50                   
  million will still not have been reached and the response                    
  fund will have an actual balance of $104,500,000.  Those                     
  numbers illustrate the problem with the current accounting                   
  system.  He said all of the versions to the right of "no                     
  change," correct the accounting problem the same way; the                    
  calculation is improved.  The reason there is such a                         
  divergence is that under current law, the calculation                        
  compares total expenditures from the response fund to total                  
  nickels or surcharge arriving into the fund.                                 
                                                                               
  MR. POE pointed out that in the history of the response                      
  fund, $74.5 million of General Funds and program receipts                    
  have also gone into the fund, so expenditures from the fund                  
  have exceeded the nickels.  The current balance of the                       
  response fund is $37.4 million, yet the calculation to                       
  determine the surcharge suspension yields a negative $15                     
  million.  That is the problem from the financial standpoint.                 
                                                                               
  MR. POE said the first chart speaks to the initial financial                 
  benefit to the surcharge payer.  This calculation is based                   
  on possible advantages on July 1 if any of the versions are                  
  passed.  Without changes, the industry will pay $122 million                 
  over five years and still not reach the $50 million cap.  If                 
  any of the versions are passed, there is a balance at the                    
  start which will immediately go into the suspension                          
  calculation.  That balance is called the initial benefit.                    
  He stated version Y has the highest initial benefit.                         
                                                                               
  Number 301                                                                   
                                                                               
  REPRESENTATIVE JOE GREEN asked Mr. Poe if the initial                        
  financial benefit chart is actually a five year forecast.                    
                                                                               
  MR. POE responded no, it is an initial benefit.  Under the                   
  current surcharge calculation, there is a minus $15 million                  
  and if that continues through the end of fiscal year 1994,                   
  the initial benefit will be minus $1.5 million.  If version                  
  Y goes into effect, the next day that surcharge calculation                  
  is considering a $63.2 million balance representing the $37                  
  million which is in the fund currently, plus all of the                      
  nickels collected in fiscal year 1994.                                       
                                                                               
  REPRESENTATIVE CON BUNDE stated if version Y goes into                       
  effect, $63 million will be put in the response fund.  Since                 
  there is a $50 million cap, does that mean there will be no                  
  further contributions.                                                       
                                                                               
  MR. POE replied it has to be looked at relative to the tax                   
  which is on the books presently.  On June 30, 1994, there is                 
  a debt or a minus figure in the fund, but if the statute                     
  changes, it will result in $63.2 million in the fund.                        
                                                                               
  REPRESENTATIVE BUNDE asked if the nickel surcharge would                     
  stop.                                                                        
                                                                               
  MR. POE responded the nickel surcharge does not stop under                   
  version Y because a tax refund is included.  Under other                     
  proposals, the nickel does stop.  In the first year under                    
  version Y, the surcharge payer receives an $11.9 million tax                 
  credit.  If there was a device in version Y to stop the                      
  nickel surcharge by using a quarterly calculation, then yes                  
  the nickel would shut off in the first year.  In version Y,                  
  a quarterly calculation is done and a tax credit is                          
  generated.  The net result is an $11.9 million tax credit                    
  given in the first year, meaning if nickels amount to $26.2                  
  million in that year, a large portion is shut off.                           
  Therefore, it does result in a tax reduction in the                          
  surcharge in the first year.                                                 
                                                                               
  Number 353                                                                   
                                                                               
  REPRESENTATIVE GREEN clarified dollars are paid in and then                  
  the overage turns into a tax credit, proportionately                         
  available to  companies in the future.  He felt that process                 
  will create more accounting problems.  He added that                         
  expenditures from the fund have been higher than income, but                 
  because the state General Fund has contributed monies a                      
  surplus exists.                                                              
                                                                               
  MR. POE replied almost $75 million has been put into the                     
  fund by the state.                                                           
                                                                               
  REPRESENTATIVE GREEN asked how can there be less in the                      
  response fund than what the General Fund has contributed if                  
  no overspending has occurred.                                                
                                                                               
  MR. POE stated there have been other sources of revenue in                   
  the response fund other than the nickels paid into the fund.                 
  Expenditures reflect that total balance; a contribution of                   
  General Fund contributions, program receipts and nickels.                    
  Expenditures have exceeded the amount of nickels going into                  
  the fund.  He explained the calculation in current law                       
  provides that nickels are only compared to total                             
  expenditures and pointed out that as long as there are more                  
  federal funds or other fund sources going into the fund,                     
  expenditures can always exceed nickels.                                      
                                                                               
  REPRESENTATIVE GREEN stated if he is understanding                           
  correctly, under either plan, the nickel has not been                        
  adequate to fund the expenditures.                                           
                                                                               
  Number 393                                                                   
                                                                               
  MR. POE replied he did not believe one could make that                       
  extrapolation.  One could say that in the past, the total                    
  expenditures from the fund have been greater than the                        
  nickels.  Both the 3 cent/2 cent split and version Y                         
  proposals generate sufficient revenues to cap the fund and                   
  to provide sufficient revenues to pay for spill response and                 
  prevention programs.                                                         
                                                                               
  REPRESENTATIVE GREEN asked if the difference in the way the                  
  funds are spent make the bar graphs different.  He also                      
  asked if less is spent under one proposal as opposed to                      
  another.                                                                     
                                                                               
  MR. POE stated spending does not change.  It is how the flow                 
  of revenue is factored into the suspension calculation.  He                  
  said all split nickel versions assume that only a portion of                 
  the nickel will go into building the spill reserve ($50                      
  million) and the other side never shuts off.  Depending on                   
  how the nickel is split, financial results can differ.  He                   
  added version Y has a good starting point, because it                        
  applies all of the fund balance and all of the nickels to                    
  the suspension calculation.  Under a split nickel version                    
  such as the 3 cent/2 cent split, only 2 cents of that                        
  surcharge or 40 percent will be applied toward the $50                       
  million cap. Therefore, the initial benefit will only                        
  recognize 40 percent of the existing fund balance and 40                     
  percent of the nickels paid in 1994.                                         
                                                                               
  Number 428                                                                   
                                                                               
  REPRESENTATIVE GREEN clarified there is a difference in                      
  spending between the different versions.                                     
                                                                               
  MR. POE stated spending remains constant.                                    
                                                                               
  REPRESENTATIVE GREEN said what he heard is that under the                    
  total nickel version, the overage not spent comes back as a                  
  tax credit and in the split version, there is a dedicated                    
  fund to the $50 million balance and nickel surcharge                         
  continues.                                                                   
                                                                               
  MR. POE stressed no more money is spent under any of the                     
  scenarios.  He said the assumption is that DEC will spend                    
  $13.5 million as requested the current year, and noted that                  
  figure will go up three percent each year due to inflation.                  
                                                                               
  REPRESENTATIVE GREEN said if it is 3 cents versus 2 1/2                      
  cents, there is more money from the industry being committed                 
  to either what is spent or to the General Fund, and the                      
  difference between the versions is the amount of money over                  
  expenditures for a five year period.                                         
                                                                               
  MR. POE said that was incorrect and asked to meet with                       
  Representative Green at a later date to explain it further.                  
                                                                               
  Number 482                                                                   
                                                                               
  MR. POE stated the second chart refers to the net cost to                    
  the surcharge payers over five years.  He said if there is                   
  no change, the industry can expect to pay $122.5 million,                    
  not reach the $50 million cap and $104 million will have                     
  accumulated in the response fund.  With version Y, there is                  
  a very low cost to industry because at the start, there is                   
  an initial benefit of $63.2 million being applied to the                     
  suspension calculation.  In addition, there are tax credits                  
  which occur each year throughout the five years.                             
                                                                               
  MR. POE pointed out that $46.4 million will be generated in                  
  tax credits over five years.  If $46.4 million is subtracted                 
  from $122 million and the initial benefit is subtracted, the                 
  result is a very low net cost of $10.3 million to the                        
  surcharge payer.  He stressed that does not mean that only                   
  $10.3 million is paid over five years.  The important thing                  
  to remember is under the current legal scenario, there is an                 
  inequitable situation meaning a substantial improvement can                  
  be made.  Again referring to the chart, he stated the net                    
  costs can vary.  He stated there is $37.4 million in the                     
  fund currently and under all of the other versions, with the                 
  exception of the Senate version, if the nickel is split, the                 
  $37.4 million is also split in the same manner.  The logic                   
  behind that is a large portion came from General Funds and                   
  program receipts, and therefore should not all be allocated                  
  to turning off the surcharge.                                                
                                                                               
  MR. POE explained all split nickel versions set up one side                  
  for the prevention programs and the other side is for                        
  responding to spills.  Under the Senate version, the nickel                  
  is split 50/50, but all of the $37.4 million is put into the                 
  spill response account.  The result is the starting point on                 
  July 1, 1994, is $50.3 million in the spill account, the                     
  side which is applied toward suspending the surcharge.  That                 
  means the nickel surcharge is shut off immediately.                          
                                                                               
  Number 596                                                                   
                                                                               
  REPRESENTATIVE ELDON MULDER asked if the money is split and                  
  half goes into the response fund, does the other half revert                 
  back to the General Fund.                                                    
                                                                               
  MR. POE responded it goes to the abatement account, which is                 
  the prevention account.                                                      
                                                                               
  REPRESENTATIVE MULDER asked where the abatement account came                 
  from.                                                                        
                                                                               
  MR. POE replied that is what is called the prevention side.                  
  He said if the nickel is split, a portion will go to the                     
  prevention account and a portion will go to the spill                        
  account.                                                                     
                                                                               
  Number 625                                                                   
                                                                               
  REPRESENTATIVE MULDER said therefore the prevention account                  
  will contain a large sum of money and asked what it will be                  
  used for.                                                                    
                                                                               
  MR. POE said under some of the versions, normal spending for                 
  prevention is underfunded.  He stated money in the                           
  prevention account will pay for some of the underfunding and                 
  added that a fiscal note would not be needed.                                
                                                                               
  REPRESENTATIVE MULDER clarified that a full 3 cents is                       
  required to cover the operating costs associated with                        
  prevention and the only reason to establish an abatement                     
  account is in case of underfunding.                                          
                                                                               
  MR. POE stated the 3 cent/2 cent version provides sufficient                 
  revenue to ensure that a prevention program will be funded.                  
                                                                               
  REPRESENTATIVE MULDER felt the result is a prevention slush                  
  fund.                                                                        
                                                                               
  Number 650                                                                   
                                                                               
  MR. POE said the important point to remember is that the                     
  legislature has to appropriate money from the response fund.                 
  He explained of the $127 million which has been spent from                   
  the response fund to date, all but $1.14 million has been                    
  appropriated by the present and previous legislatures.  The                  
  only money DEC is authorized to use without an appropriation                 
  is to respond to an emergency situation.  He added that if                   
  it is the decision of the legislature to reduce the                          
  prevention account through appropriations, that is their                     
  decision.                                                                    
                                                                               
  REPRESENTATIVE MULDER felt that if there is an extra                         
  account, it discourages prudent financial management.                        
                                                                               
  MR. SANDOR assured committee members that is not the case.                   
  The only money that DEC can use is if there is an emergency                  
  situation.                                                                   
                                                                               
  TAPE 94-23, SIDE B                                                           
  Number 000                                                                   
                                                                               
  REPRESENTATIVE JEANNETTE JAMES expressed concern with the                    
  numbers presented.  She asked if other deposits, besides the                 
  nickel, going into the fund will continue and if so, are                     
  those amounts contained in the chart.                                        
                                                                               
  MR. POE responded those figures are not included in the                      
  chart.  He assumes that no additional General Funds will be                  
  forthcoming, unless a fiscal note is required.                               
                                                                               
  Number 025                                                                   
                                                                               
  REPRESENTATIVE JAMES expressed concern about the prevention                  
  account growing to a large amount, in connection with                        
  version Y, because there is no consideration for other funds                 
  going into the account which do not come from the nickel                     
  surcharge.                                                                   
                                                                               
  MR. POE replied under version Y, there is only one account.                  
  In all of the calculation wording, there is an account                       
  called the mitigation account and going into that account                    
  are a variety of things:  Fines, penalties, cost recovery,                   
  other kinds of payments, etc.  Under the current law, if an                  
  oil company has a spill, the state responds and does                         
  oversight, which costs a certain amount of money.  The state                 
  bills the company for the costs and the companies pay the                    
  state, but in the calculation currently, those companies get                 
  no credit for paying those costs.  He explained in the                       
  calculation as it has been corrected in all of the proposed                  
  versions, cost recovery coming from nickels goes back into                   
  the calculation testing for the suspension of the surcharge.                 
                                                                               
                                                                               
  MR. POE stated companies do not get credit for fines and                     
  penalties, but added the legislature can give them credit                    
  through an appropriation.  The feeling is that the nickel                    
  should not be turned off because of a punitive settlement,                   
  but if the legislature decides to take the balance of the                    
  mitigation account and appropriate it, it becomes a part of                  
  the response fund balance and therefore, factors into the                    
  equation.                                                                    
                                                                               
  REPRESENTATIVE GREEN asked if the Department of Revenue has                  
  been included in developing version Y.                                       
                                                                               
  CHAIRMAN WILLIAMS responded yes, and said the department is                  
  present to make comments.                                                    
                                                                               
  MR. POE referring to chart three, called total tax savings,                  
  stated the chart compares what the surcharge payers will pay                 
  if there is no change, and what they will pay over the next                  
  five years if there is a change made on July 1, 1994.  If                    
  there is no change, there will be no tax savings and the                     
  payer will still pay $122.5 million, not reach the $50                       
  million cap at the end of five years, and will have                          
  accumulated $104 million in the response fund.  Under all of                 
  the other versions, there is some net tax benefit which                      
  accrues to the surcharge payer.                                              
                                                                               
  REPRESENTATIVE JAMES expressed concern that with no changes,                 
  after five years the companies will have paid a lot of money                 
  and the $50 million cap will still not have been reached.                    
  She did not understand how the $50 million can be reached if                 
  changes are made, since the cap cannot be reached under                      
  current law.  She asked if spending is going to be cut.                      
                                                                               
  MR. POE referred to another chart called Response Fund                       
  Summary as of November 5, 1993.  He said the first column                    
  refers to the calculation in current law.  As of November 5,                 
  1993, there is $112,085,145 in nickels, and total                            
  expenditures from the fund have been $127,190,873 with the                   
  difference being -$15,105,728.  That is what is looked at,                   
  under current law, to test whether or not to suspend the                     
  nickel surcharge.  However, DEC is saying there is $37                       
  million in the response fund.                                                
                                                                               
  MR. POE pointed out the column on the right shows the fund                   
  accounting.  It shows there is only $109,200,000 in nickels                  
  and he explained that is because the legislature has not                     
  appropriated the nickels collected in 1994 to the fund.                      
  Then, there is $127,190,873 in expenditures resulting in a                   
  difference of $17,990,873.  Shown below are the other                        
  deposits:  $44,447,000 in General Funds; $30,000,000 in                      
  program receipts; $5,007,800 in the mitigation account; and                  
  $3,049,952 in miscellaneous/accounts receivable.                             
  Encumbrances and other commitments of the fund are                           
  subtracted out with a result of $37,229,669.                                 
                                                                               
  MR. POE stressed in all of the versions, the calculation                     
  corrects things so the current balance of the response fund                  
  is really reflected, not looking at just that portion of the                 
  fund which is only the nickels.                                              
                                                                               
  Number 136                                                                   
                                                                               
  REPRESENTATIVE JAMES expressed concern that all of the                       
  expenditures are coming from the nickel surcharge.  She said                 
  the money coming into the account from other sources, which                  
  is then spent, is taken away from the nickel to determine                    
  whether or not the $50 million cap is reached.                               
                                                                               
  Number 150                                                                   
                                                                               
  MR. POE said under the current calculation, that is correct.                 
  If the law said right now that the full balance or some                      
  portion of the fund is to be considered in calculating the                   
  suspension, a much more accurate accounting will exist.                      
                                                                               
  CHAIRMAN WILLIAMS asked if the draft audit is reflected in                   
  the summary.                                                                 
                                                                               
  MR. POE said it is.                                                          
                                                                               
  Number 172                                                                   
                                                                               
  REPRESENTATIVE PAT CARNEY referring to the summary, asked                    
  what percentage of the mitigation account is fines.                          
                                                                               
  MR. POE said he did not know.                                                
                                                                               
  Number 175                                                                   
                                                                               
  REPRESENTATIVE CARNEY questioned what is included in the                     
  mitigation account.                                                          
  MR. POE responded fines, penalties, cost recovery, etc.                      
                                                                               
  REPRESENTATIVE CARNEY asked what is included in program                      
  receipts.                                                                    
                                                                               
  MR. POE stated program receipts include receipts received                    
  relative to the Exxon Valdez spill before the nickel                         
  surcharge was in place.                                                      
                                                                               
  REPRESENTATIVE MULDER asked when the legislature                             
  appropriated the $44,447,000 in General Funds                                
                                                                               
  VIRGINIA STONKUS, FISCAL ANALYST, LEGISLATIVE FINANCE                        
  DIVISION, responded the appropriation occurred between                       
  fiscal 1987 and 1989.                                                        
                                                                               
  Number 188                                                                   
                                                                               
  MR. POE referring to the final chart, said the chart shows                   
  the tax reduction to industry, and then factors in fiscal                    
  notes which would be required.  The current Senate version                   
  and the 2 cent/3 cent split will require a fiscal note if it                 
  is assumed that the prevention and response programs stay at                 
  their current funding level.  He said three percent                          
  inflation is also assumed.                                                   
                                                                               
  REPRESENTATIVE BUNDE said under the Senate version, there is                 
  a General Fund portion which continues spending at its                       
  current level and under version Y, the spending level is                     
  reduced resulting in no General Fund contribution.                           
                                                                               
  MR. POE stated since there is one fund under version Y,                      
  there is no fixed shortage in the program.  There will be                    
  enough money under the single fund approach to pay for the                   
  entire $13.5 million in the first year, plus provide a $11.9                 
  million tax credit.  He said under the 2 cent/3 cent split,                  
  in the first year, approximately $2.5 million is underfunded                 
  because of the 2 cent limit.  Under a 2 cent/3 cent split,                   
  there is an artificial cap of 2 cents.  Therefore, less                      
  revenue is produced than the current program costs.  There                   
  are other fund sources such as the General Fund.  If the                     
  legislature does go to the General Fund to pay for the short                 
  funding, something else did not get done.                                    
                                                                               
  REPRESENTATIVE GREEN asked if the chart includes the                         
  earnings which the fund generates.                                           
                                                                               
  MR. POE replied it does not.                                                 
                                                                               
  REPRESENTATIVE GREEN asked if earnings would eliminate the                   
  need to go to the General Fund.                                              
                                                                               
  MR. POE said the problem with using earnings is that those                   
  monies go to the General Fund.                                               
                                                                               
  REPRESENTATIVE GREEN said by keeping the nickel whole, the                   
  balance goes into the General Fund and is appropriated back                  
  as a tax credit and could be designated.                                     
                                                                               
  MR. POE said it cannot, because that would be a dedicated                    
  fund which is unconstitutional.                                              
                                                                               
  MR. POE referring to another chart, said the chart shows how                 
  version Y would work.  In terms of overall complexity, the                   
  single nickel is simpler.  He stated the Administration                      
  does, however, support the 3 cent/2 cent split nickel.  He                   
  said at the bottom of the chart, the version Y calculation                   
  is explained.                                                                
                                                                               
  Number 390                                                                   
                                                                               
  REPRESENTATIVE CARNEY said under some of the proposals, the                  
  fines, cost recoveries, etc., go into the mitigation                         
  account.  He wondered what dollar amount represents just                     
  cost recovery.                                                               
                                                                               
  MR. POE replied current analysis uses the assumption of                      
  $300,000 a year in cost recovery coming from nickels.                        
                                                                               
  REPRESENTATIVE CARNEY pointed out that taking the balance of                 
  the response fund, which is partly General Funds, and                        
  applying it to the $50 million could be a point for or                       
  against justification.                                                       
                                                                               
  MR. POE stated in the calculation there is a clause which                    
  provides an incentive to do certain things, including the                    
  provision that cost recoveries coming from nickels or from                   
  the spill side account must be appropriated back into the                    
  spill account under peril of losing the surcharge for an                     
  entire year.                                                                 
                                                                               
  REPRESENTATIVE JOHN DAVIES commented another way of looking                  
  at splitting the apportionment of the existing balance would                 
  be to look at the total amount coming in from nickels and                    
  the total amount coming from the General Fund and prorate on                 
  that basis.                                                                  
                                                                               
  MR. POE stated it is a little greater than 40 percent from                   
  the General Fund and a little less than 60 percent on the                    
  nickel side.                                                                 
                                                                               
  Number 330                                                                   
                                                                               
  MR. POE referring to a final chart, said the chart shows the                 
  history of spending.  He reminded committee members that the                 
  470 fund legislation has been changed 17 times.  He stated                   
  the chart shows why expenditures are at the current level.                   
                                                                               
  Number 345                                                                   
                                                                               
  REPRESENTATIVE GREEN stated the chart shows just under $4                    
  million a year for depots and asked how many depots there                    
  are.                                                                         
                                                                               
  MR. SANDOR replied DEC has no depots.  He said the local                     
  emergency planning committees, the State Emergency Response                  
  Commission, DMVA and DEC are working together to get the                     
  depots in place.                                                             
                                                                               
  Number 375                                                                   
                                                                               
  REPRESENTATIVE GREEN asked what the $20 million was used                     
  for.                                                                         
                                                                               
  MIKE CONWAY, DIRECTOR, DIVISION OF SPILL PREVENTION AND                      
  RESPONSE, DEC, replied depots and corps is a program and                     
  includes the spill response office, the staff at DMVA, etc.                  
  He said expenditures include $800,000 for communications                     
  equipment, $300,000 for training, $300,000 for part of the                   
  hazardous analysis project, etc.                                             
                                                                               
  REPRESENTATIVE GREEN stated the spills cited previously are                  
  small spills which might be in difficult places to access,                   
  yet the establishment of equipment, which could be used to                   
  prevent continued damage or clean up the spills, has not                     
  been done.                                                                   
                                                                               
  MR. CONWAY stated there was no plan on depots and corps, no                  
  definition, and no identification on where they were to go.                  
  He stressed that when DMVA got their staff and sat down with                 
  the DEC staff, it was agreed to do a hazards analysis to                     
  identify the definition of depots.  The state cannot afford                  
  to pay the kind of money that the industry has paid to have                  
  the capability.  Therefore, DEC is looking at scaling it to                  
  the point where it meets communities' needs.  He felt the                    
  wisest use of the money is to go out and give people in                      
  remote communities the ability to protect their interests,                   
  health, resources, etc., until the responsible party can                     
  take over.                                                                   
                                                                               
  Number 462                                                                   
                                                                               
  REPRESENTATIVE MULDER asked how much money has gone to DMVA                  
  from the 470 fund.                                                           
                                                                               
  MR. CONWAY replied this year's budget request is $221,000,                   
  but added there is a historical amount of funding DMVA has                   
  received including $2 million in fiscal year 1992.                           
                                                                               
  REPRESENTATIVE MULDER said it has been stressed that money                   
  is going to various agencies, but he felt in fact it is not.                 
  He stated he serves on the DMVA subcommittee and DMVA is                     
  almost being cut out of the 470 fund allocation this year.                   
  He felt that cut was inappropriate because they are the                      
  people going out in the field.  He would like to see a                       
  corresponding reduction in the budget of DEC as opposed to                   
  DMVA.                                                                        
                                                                               
  Number 495                                                                   
                                                                               
  REPRESENTATIVE BILL HUDSON felt part of the problem goes                     
  back to the fact that there has been comingling of funds.                    
  He requested an analysis of before the oil spill and the                     
  nickel a barrel surcharge, what the appropriations were and                  
  what the expenditure levels were as they relate to the                       
  purpose at hand, and then starting at the beginning of the                   
  nickel a barrel surcharge, show the amount of money                          
  collected versus the amount of money spent, and wherever                     
  possible, target in some of the major expenditures and major                 
  mitigation receipts which came in.                                           
                                                                               
  REPRESENTATIVE HUDSON said there has to be serious                           
  consideration of the best use of the $12 million.  He stated                 
  he was involved when the depot language was created and the                  
  goal was to have spill response equipment stored in various                  
  locations, with trained people in isolated areas, not only                   
  in the Prince William Sound area.  He stressed the analysis                  
  he requested is absolutely necessary if a determination on                   
  how to modify the law is going to be made.                                   
                                                                               
  REPRESENTATIVE HUDSON stated he has never believed that DEC                  
  is the proper agency to respond to a catastrophic oil spill.                 
  He felt it should be DMVA with DEC behind them.  He thought                  
  DEC should be the proper response agency for the small                       
  spills.                                                                      
                                                                               
  Number 562                                                                   
                                                                               
  MR. POE apologized for how convoluted the accounting is and                  
  said he is not positive he can give Representative Hudson                    
  what he is asking for.  He said when talking about a more                    
  simplistic approach, he pointed out that version Y does make                 
  it simpler.                                                                  
                                                                               
  REPRESENTATIVE DAVID FINKELSTEIN stated he serves on the DEC                 
  subcommittee and stressed each budget item is scrutinized                    
  and debated.  He agreed there are accounting problems.  He                   
  felt there is a need to also look at what is not being done,                 
  instead of always looking at what is being done.                             
                                                                               
  TAPE 94-24, SIDE A                                                           
  Number 000                                                                   
                                                                               
  JIM CARLTON, MAYOR, KETCHIKAN GATEWAY BOROUGH, testified via                 
  teleconference, and expressed support of HB 238, version Y.                  
  He said there seems to be a general understanding among                      
  those knowledgeable of the 470 fund, that the accounting                     
  mechanism is broken.  The original intent of the 470 fund                    
  was to provide a fund of $50 million to pay for spill                        
  response, preparedness, and prevention programs.  He                         
  stressed that version Y attempts to fix those accounting                     
  problems and leave the other working provisions of the fund                  
  in place.  Version Y takes into consideration concerns that                  
  coastal communities had expressed last year regarding the                    
  loss of community impact grants and funding for local                        
  emergency planning committees.  That funding remains intact                  
  in version Y.  Also intact are provisions which require the                  
  annual review of the state master plan, including public and                 
  legislative review.  In addition, the legislature's ability                  
  to set funding levels for spill prevention programs within                   
  DEC is maintained.                                                           
                                                                               
  MR. CARLTON said he was pleased that the language pertaining                 
  to the funding of the oil spill response ferry remained                      
  intact in version Y.  He agreed with comments made by                        
  Commissioner Sandor that other versions of HB 238 may leave                  
  the state's spill prevention and response programs                           
  underfunded.  As the mayor of a coastal community, he would                  
  rather see the programs funded to the fullest extent                         
  possible.  There is a need to be proactive and prepared in                   
  communities response to spills, not reactive, as was the                     
  case in the Exxon Valdez disaster.                                           
                                                                               
  MR. CARLTON stated version Y still allows the funds to be                    
  used to respond to smaller spills which do occur more often                  
  than the spill of the magnitude experienced in the Prince                    
  William Sound.  He said it was his understanding that                        
  although version Y does not go as far as the oil industry                    
  would like, large savings would still be realized by those                   
  companies.  In addition, any amount over what is needed to                   
  maintain the spill reserve fund and fund the prevention and                  
  preparedness programs would be refunded to the oil industry.                 
  He felt HB 238, version Y, is a fair compromise between all                  
  of the draft bills which attempt to address the 470 fund.                    
  He told committee members that the main thing to keep in                     
  mind when reviewing version Y is whether it fulfills the                     
  original intent of the legislation which states, "Funds for                  
  the abatement of a release of oil or a hazardous substance                   
  will always be available."                                                   
                                                                               
  Number 066                                                                   
                                                                               
  DENNIS LODGE, REPRESENTATIVE, PRINCE WILLIAM SOUND REGIONAL                  
  CITIZENS' ADVISORY COUNCIL, testified via teleconference,                    
  and expressed support of HB 238, version Y.  He said the                     
  headquarters of the Kenai Fjords National Park is located in                 
  Seward and thousands of people visit the area every year.                    
  He stressed there is a lot of interest in spill prevention.                  
  If a spill occurred, many communities would lose their                       
  livelihood.  Therefore, he fully supports any efforts to                     
  keep prevention as a major effort.                                           
                                                                               
  LARRY SMITH, REPRESENTATIVE, KACHEMAK RESOURCE INSTITUTE,                    
  testified via teleconference, and stated he served as the                    
  Chairman of the Prevention, Response and Operations                          
  Committee for the first two years of existence of the Cook                   
  Inlet Regional Citizens' Advisory Council.  In that role, he                 
  was responsible for tracking the 470 fund.  He said his                      
  conclusion is that dividing the responsibilities between                     
  DMVA and DEC was an error.  Just as there is a need to know                  
  who is in charge of spill response, the same is true for                     
  prevention and preparation.  It only takes a few visits with                 
  DMVA and DEC to determine that the Spill Prevention and                      
  Response Division at DEC is preferable to the Division of                    
  Emergency Services (DES).                                                    
                                                                               
  MR. SMITH stressed that DES is good at logistics and                         
  responding to other kinds of emergencies, but catastrophes                   
  are being talked about.  He felt HB 238, version Y,                          
  represents a quantum leap forward from previous versions                     
  which are ignorant to program needs.  He felt there is a                     
  need to go even further.  There has been foot dragging by                    
  state agencies on implementation.  He said there is a need                   
  to look at the California model.  The implementation of                      
  their parallel act in 1990 was put in an agency with an                      
  appetite for it and explained that state's situation.                        
                                                                               
  Number 135                                                                   
                                                                               
  WAYNE COLEMAN, MEMBER, EXECUTIVE COMMITTEE, PRINCE WILLIAM                   
  SOUND REGIONAL CITIZENS' ADVISORY COUNCIL (RCAC), testified                  
  via teleconference, and stated version Y is a significant                    
  improvement over the previously proposed drafts of HB 238                    
  and CSSB 215(RES), now in the Senate Finance Committee.  He                  
  said RCAC supports the basic tenet of version Y which is to                  
  fix what is agreed to be broken - the mechanism for                          
  calculating the balance of the Oil and Hazardous Substance                   
  Release Response Fund, reduce some expenditures from the                     
  fund, and provide for improvements in the administration of                  
  the fund.                                                                    
                                                                               
  MR. COLEMAN stated RCAC is opposed to splitting the nickel                   
  and dividing the response fund into two accounts.                            
  Opposition to splitting the nickel is based on the chronic                   
  insufficient funding directed toward spill preparedness and                  
  prevention programs, and the problems imposed by limiting                    
  response to subcatastrophic spills which account for most of                 
  spills in Alaska.  He said despite rhetoric to the contrary                  
  by proponents of the split nickel legislation, CSSB 215(RES)                 
  and other HB 238 proposals do little, if anything, to                        
  improve how the response fund functions.  He felt they are                   
  special interests legislation which provide at least a                       
  $74 million tax break to North Slope producers.                              
                                                                               
  Number 150                                                                   
                                                                               
  MR. COLEMAN commented that one factor which seems to be lost                 
  in the debate is that North Slope oil is a public resource                   
  which belongs to Alaskans.  If Alaskans choose to assess a                   
  nickel-per-barrel surcharge on this resource to ensure                       
  adequate spill prevention and response programs, it is their                 
  prerogative.  He said as this debate continues, it is                        
  beginning to be at best, insulting to have representatives                   
  of the Exxon Corporation tell the public and elected                         
  officials of Alaska what is an adequate level of funding for                 
  these programs - what they are willing to pay.                               
                                                                               
  MR. COLEMAN said, put in perspective, the Y draft proposal                   
  is still generous to the industry, but not a complete                        
  industry giveaway.  He asked members to consider the                         
  following:  1) Version Y would also save North Slope oil                     
  producers at least $52 million in surcharge payments through                 
  a new method for calculating the fund balance;  2)  This                     
  proposal differs from previous versions of HB 238 and CSSB
  215(RES) in that it does not give surcharge payers an                        
  automatic additional $25 million to $30 million tax break                    
  through the underfunding of state preparedness, prevention                   
  and response programs.  He stated the ability of the                         
  legislature to set funding levels for these programs is                      
  maintained, rather than being determined by splitting the                    
  nickel and declining North Slope production levels.                          
                                                                               
  MR. COLEMAN remarked that surcharge payments will probably                   
  decline by the same $30 million through the additional                       
  response fund revenue sources in version Y.  The ultimate                    
  impact on surcharge payers will be the same, but without the                 
  spill risks to the public and tying of the hands of the                      
  legislators.  He stated version Y also allows additional                     
  revenue sources to be included in the calculation of the                     
  fund cap.  These include program receipts and mitigation                     
  account money received to the extent that the funds                          
  originated from the response fund.  He stressed version Y                    
  does differ from other versions in that it does not                          
  jeopardize the state's ability to respond to all but the                     
  largest spills, and the response fund continues to be                        
  accessible for response to all spills regardless of size.                    
  He said this takes into consideration timing and location                    
  that are equally important as spill size.                                    
                                                                               
  PATTI SAUNDERS, REPRESENTATIVE, ALASKA CENTER FOR THE                        
  ENVIRONMENT, testified via teleconference, and expressed                     
  support to previous speakers.                                                
                                                                               
  RICHARD BREWER, ASSISTANT DIRECTOR, OIL AND GAS AUDIT                        
  DIVISION, DEPARTMENT OF REVENUE, testified via                               
  teleconference, and stated the conditions in version Y to                    
  obligating the Department of Revenue to calculate refunds or                 
  credits for the producers are quite workable.                                
                                                                               
  Number 222                                                                   
                                                                               
  ARDIE GRAY, PUBLIC AFFAIRS MANAGER, ALASKA OIL AND GAS                       
  ASSOCIATION (AOGA), testified via teleconference, and stated                 
  that AOGA supports the proposal to split the current nickel                  
  per barrel surcharge on oil production into two accounts; a                  
  2 cents-per-barrel oil spill preparedness account, to be                     
  funded through a permanent 2 cents-per-barrel tax, and a 3                   
  cents-per-barrel catastrophic oil discharge account.  She                    
  said that AOGA believes the split proposal will ensure there                 
  is a separate and secure independent source of $50 million                   
  available to the state and local communities in case of an                   
  emergency.                                                                   
                                                                               
  MS. GRAY stressed that AOGA believes the 2 cents-per-barrel                  
  tax will ensure a permanent and secure source of funding for                 
  state prevention and preparedness programs as long as oil is                 
  being produced in Alaska.  The permanent 2 cents-per-barrel                  
  tax would provide over $10 million per year for state                        
  prevention and preparedness programs, more than the $6.5                     
  million projected in the original fiscal notes from the 1989                 
  and 1990 sessions.                                                           
                                                                               
  MS. GRAY said AOGA supports continuing the policy of using                   
  mitigation account reimbursement money to fund the state's                   
  share of the underground storage tank cleanup assistance                     
  program.  Future Exxon Valdez settlement reimbursement                       
  payments should provide ample funding for the underground                    
  storage tank program.  She stated AOGA supports the 2 cent/3                 
  cent split as proposed by Representative Green.                              
                                                                               
  BECKY GAY, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT COUNCIL                  
  (RDC), testified via teleconference, and said RDC supports a                 
  strong emergency fund as intended in the original                            
  legislation.  RDC commends Representative Green and the Oil                  
  and Gas Committee for their work on HB 238.  She said RDC                    
  believes it is imperative that the 470 fund be allowed to                    
  accumulate to the $50 million to assure an independent spill                 
  containment and cleanup capability.  RDC feels people in                     
  opposition to HB 238 are the people who would scream the                     
  loudest if there was not a $50 million fund available and a                  
  catastrophic spill occurs.                                                   
                                                                               
  MS. GAY stated there are definitely accounting and spending                  
  problems.  She said it sounds like progress is being made on                 
  fixing the accounting program.  RDC supports the two cents                   
  to DEC and three cents to the fund split and believes the                    
  split gives clear direction, as well as an appropriate ratio                 
  to prevention, response and cleanup.  RDC also believes                      
  there is an appropriate incentive in the bill to make DEC                    
  allow the fund to get to $50 million.  She commented that in                 
  regard to testimony committee members will hear about                        
  cannibalizing the fund, leaving it alone, see how it works,                  
  etc., RDC believes HB 238 will help the fund to accumulate.                  
                                                                               
  Number 270                                                                   
                                                                               
  WALT FURNACE, GENERAL MANAGER, ALASKA SUPPORT INDUSTRY                       
  ALLIANCE, testified via teleconference, and stated the                       
  Alliance board of directors reviewed the content of HB 238                   
  and opposes the bill in its present form.  The Alliance does                 
  commend the sponsor of the legislation in bringing forth an                  
  alternative means of solving the dilemma of the 470 fund.                    
  However, the Alliance believes that a better vehicle is                      
  currently under consideration by this legislature.                           
                                                                               
  MR. FURNACE said the concerns with HB 238 are as follows.                    
  The tax (indiscernible) of the state demands certainty.                      
  This certainty is important not only to the proponents of                    
  industry paying the tax, but to the general public as well.                  
  HB 238 proposes a blending of the nickel into one fund.                      
  This blending has created the present problem facing the                     
  fund in that it does not properly identify the original                      
  purpose of the fund, which is to fund the $50 million                        
  response fund.  Under the split nickel version, a certain                    
  assurance is needed.  This assurance needs to be of concern                  
  not only to the taxpayer, but by the public as well.                         
                                                                               
  MR. FURNACE stated the concept of a tax credit back to the                   
  taxpayer is a novel approach.  However, the Alliance views                   
  it as too little, too late.  The tax credit represents a big                 
  stick with an offsetting small carrot.  The big stick says,                  
  industry you deposit the nickel into the fund and we promise                 
  to provide some accounting on a quarterly basis.  The small                  
  carrot says, if and only if there is a surplus, we will                      
  grant a tax credit.  He questioned the committee when in the                 
  history of the state of Alaska can they remember any tax                     
  dollars being returned back to the taxpayer.  The Alliance                   
  does not see that changing under the proposed legislation.                   
                                                                               
  MR. FURNACE said a third point of concern is this bill does                  
  not provide the assurance the department will spend the                      
  money wisely, nor that grants and other allocations from the                 
  fund will be kept under control.  Everyone has seen the                      
  wanderlust of projected budgeted expenditures out of the                     
  fund.  HB 238 does not provide the public comfort level that                 
  a close eye will be kept on those expenditures.  He said                     
  under the split nickel approach, a certain budget amount can                 
  be identified and that budget amount can be closely watched,                 
  not only by the industry, but by the general public who                      
  demands to have a better eye and understanding as to how the                 
  state is spending its money.                                                 
                                                                               
  MR. FURNACE stated the Alliance believes HB 238 does not                     
  meet the need to identify means of stability, accountability                 
  and (indiscernible) taxation and the public deserves a clear                 
  and complete view of the public expenditure of those                         
  dollars.  The Alliance believes that the split nickel                        
  approach is a better solution to the problem.                                
                                                                               
  Number 326                                                                   
                                                                               
  REPRESENTATIVE HUDSON asked which version the Alliance                       
  supports.                                                                    
                                                                               
  MR. FURNACE said the Alliance support SB 215.                                
                                                                               
  JOHN BERNITZ, ANCHORAGE, testified via teleconference, and                   
  expressed opposition to the split nickel version of HB 238                   
  which would reduce the amount available for abatement and                    
  preparedness.  He said he supports Representative Williams                   
  in his efforts on version Y, although he does not understand                 
  the motivation for reducing the tax burden to oil producing                  
  companies in this time of declining revenues.  He felt the                   
  470 fund should be left as is.                                               
                                                                               
  ANNOUNCEMENTS                                                                
                                                                               
  CHAIRMAN WILLIAMS announced the committee will meet on                       
  Friday, March 4 at 8:15 a.m. to hear HCR 12, SB 238, and SB
  151.                                                                         
  There being no further business to come before the House                     
  Resources Committee, Chairman Williams adjourned the meeting                 
  at 10:12 a.m.                                                                

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