Legislature(1993 - 1994)

03/16/1994 08:15 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
               HOUSE RESOURCES STANDING COMMITTEE                              
                         March 16, 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                                                               
  OTHER LEGISLATORS PRESENT                                                    
  Representative Al Vezey                                                      
  Senator Mike Miller                                                          
  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                       
            HEARD AND HELD IN COMMITTEE                                        
  WITNESS REGISTER                                                             
  DAVE PARISH                                                                  
  Exxon Company, U.S.A.                                                        
  P.O. Box 196601                                                              
  Anchorage, Alaska   99519                                                    
  Phone:  561-5331                                                             
  POSITION STATEMENT:  Commented on various versions of HB 238                 
  KEN REITHER                                                                  
  Exxon Company, U.S.A.                                                        
  P.O. Box 196601                                                              
  Anchorage, Alaska   99519                                                    
  Phone:  561-5331                                                             
  POSITION STATEMENT:  Commented on various versions of HB 238                 
  BOB POE, Director                                                            
  Division of Information and Administrative Services                          
  Department of Environmental Conservation                                     
  410 Willoughby Avenue, Suite 105                                             
  Juneau, Alaska   99801-1795                                                  
  Phone:  465-5010                                                             
  POSITION STATEMENT:  Commented on Mr. Reither's overview                     
                       and the various versions of HB 238                      
  JIM GRIFFIN, Manager                                                         
  Legislative Audit Division                                                   
  P.O. Box 113300                                                              
  Juneau, Alaska   99811-3300                                                  
  Phone:  465-3830                                                             
  POSITION STATEMENT:  Commented on the Oil and Hazardous                      
                       Substance Release Response Fund Audit                   
  MEAD TREADWELL, Deputy Commissioner                                          
  Department of Environmental Conservation                                     
  410 Willoughby Avenue, Suite 105                                             
  Juneau, Alaska   99801-1795                                                  
  Phone:  465-5050                                                             
  POSITION STATEMENT:  Answered questions                                      
  MIKE CONWAY, Director                                                        
  Division of Spill Prevention and Response                                    
  Department of Environmental Conservation                                     
  410 Willoughby Avenue, Suite 105                                             
  Juneau, Alaska   99801-1795                                                  
  Phone:  465-5250                                                             
  POSITION STATEMENT:  Answered questions                                      
  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                      
  03/02/94              (H)   MINUTE(RES)                                      
  03/09/94              (H)   RES AT 08:15 AM CAPITOL 124                      
  03/09/94              (H)   MINUTE(RES)                                      
  03/16/94              (H)   RES AT 08:15 AM CAPITOL 124                      
  ACTION NARRATIVE                                                             
  TAPE 94-33, SIDE A                                                           
  Number 000                                                                   
  HB 238 - OIL/HAZARDOUS SUBS. FUND,TAX,PLANS                                  
  The House Resources Committee was called to order by                         
  Chairman Bill Williams at 8:27 a.m.  Members present at the                  
  call to order were Representatives Williams, Bunde, Carney,                  
  Davies, Finkelstein, Green, James, and Mulder.                               
  Representative Hudson was absent.                                            
  CHAIRMAN WILLIAMS announced there is a quorum present.  The                  
  meeting is on listen only teleconference with Anchorage,                     
  Cordova, Homer, Soldotna and Valdez.  He stated HB 404 was                   
  taken off the schedule at the request of the sponsor.                        
  DAVE PARISH, EXXON COMPANY, U.S.A., stated Ken Reither will                  
  be giving a presentation on how Exxon understands the                        
  different versions of the bills.  He commented Exxon has not                 
  yet seen a copy of the Department of Environmental                           
  Conservation (DEC) Oil and Hazardous Substance Release                       
  Response Fund audit and understood there are several                         
  sections in HB 238, version Y that attempt to incorporate                    
  the key findings of the audit.  He said Exxon has seen those                 
  sections, they seem reasonable and Exxon would support them.                 
  From Exxon's perspective, there have been problems with the                  
  470 fund, but not particularly with the management of the                    
  fund by the current Administration.  The industry agrees                     
  that this Administration has been responsible in their                       
  efforts to build up the fund balance, which has grown                        
  significantly under their stewardship.                                       
  Number 053                                                                   
  KEN REITHER, EXXON COMPANY, U.S.A., stated he will discuss                   
  the tax suspension mechanism, what the industry is seeking                   
  in this matter, some charts showing the immediate benefit of                 
  the various proposals, the concept of splitting the nickel,                  
  and version Y.  He said despite testimony last week to the                   
  contrary, the tax suspension mechanism in the current 470                    
  fund law does not work.  The last calculation made to                        
  determine whether or not the $50 million cap had been                        
  reached was on January 24, 1994.  At that time, the                          
  commissioner of Administration calculated as follows:  oil                   
  surcharge cumulative revenue-$115 million; cumulative                        
  expenditures-$128 million; with a difference of negative $13                 
  MR. REITHER stated there is $37.4 million in the spill                       
  reserve and any mechanism which calculates whether or not                    
  the $50 million is reached ought to reach a result close to                  
  the $37.4 million.  He said the negative $13 million is                      
  wrong, it does not work and it ought to be fixed.                            
  MR. REITHER recalled that a lot of testimony characterized                   
  the industry as seeking a tax break.  The industry would                     
  like to see a mechanism which provides a stable source of                    
  revenue to DEC for ongoing spill prevention and response                     
  programs, and a fix to the tax suspension mechanism so that                  
  funds available for spill response build to $50 million as                   
  intended, but then part of the tax suspends unless and until                 
  there is a draw down below the $50 million target level.  He                 
  said the law in 1989 was intended to build up a $50 million                  
  fund and the tax was supposed to shut off.                                   
  MR. REITHER remarked there have been charts developed by DEC                 
  which show an immediate benefit from the various proposals                   
  ranging from $26.8 million to $64.7 million.  These amounts                  
  were derived by comparing the negative $13 million against                   
  what the result would be if the formula was fixed, which has                 
  nothing to do with tax liability, but rather only has to do                  
  with when the tax turns on and shuts off in the future.                      
  Exxon feels the comparison is invalid.  The proper way to                    
  calculate any benefit to the industry is to compute the                      
  difference between the tax the industry pays under present                   
  law versus the tax it would pay under the new law.  He                       
  pointed out there is no immediate benefit to industry from                   
  any of the proposals.  What happens under a couple of the                    
  proposals is there is a partial suspension of some of the                    
  tax beginning in mid fiscal year 1995.  That benefit is no                   
  where close to $26.8 to $64.7 million.                                       
  Number 106                                                                   
  MR. REITHER commented on the concept of splitting the                        
  nickel.  One of the reasons why splitting the nickel makes                   
  sense is that the 470 fund has in reality become a dual                      
  purpose fund, trying to serve two purposes.  First, it is                    
  used to fund ongoing spill preparation and prevention                        
  programs which are done by DEC.  Second, it is used as a                     
  storehouse of moneys available to respond to catastrophic                    
  and other spills.  He stressed there are two separate and                    
  distinct, but really unrelated purposes trying to be served                  
  by a single fund.                                                            
  MR. REITHER stated splitting the nickel into two separate                    
  surcharges - one to take care of the ongoing needs of DEC                    
  and the other to build the fund, and make one of them a                      
  permanent tax and the other a suspending tax, seems to be a                  
  sensible and workable approach.  He said Exhibit A shows how                 
  a split of 2 cents for ongoing programs and 3 cents for the                  
  suspending tax will work. (Exhibit A is on file.)  He                        
  explained the concept is simple.  There is $37.4 million in                  
  the spill reserve and approximately $26 million has been                     
  collected from the nickel during fiscal year 1994.  The                      
  proposals basically divide the $26 million into two piles of                 
  money; one going to fund the ongoing DEC programs in the                     
  coming fiscal year and the other going in the spill reserve.                 
  Adding the one part from the $26 million for the spill                       
  reserve, to the $37.4 million already there, results in                      
  approximately $50 million.  Mr. Reither explained depending                  
  how the nickel is split, he determined a $49.9 million fund.                 
  The tax would suspend under that scenario as of January 1,                   
  Number 144                                                                   
  MR. REITHER stated Exhibit B illustrates a split of 2 1/2                    
  cents and 2 1/2 cents.  The differences shown in Exhibit B                   
  are:  1) more dollars are available for appropriation to DEC                 
  for ongoing programs in future years; $16.1 million or more                  
  versus DEC's projected need of $13.5 million, and 2) the                     
  buildup of the $50 million fund is not quite as fast as                      
  under the 2 cents/3 cents proposal.  He stressed both                        
  proposals raise the fund above $50 million, but how fast                     
  that point is reached is different between the proposals.                    
  MR. REITHER stated DEC has come forward with a 3 cents/2                     
  cents proposal with 3 cents going to ongoing programs and 2                  
  cents for the spill reserve fund and taking 60 percent of                    
  the $37.4 million spill reserve and appropriating that                       
  amount to DEC in a nonlapsing appropriation to be spent for                  
  ongoing programs (illustrated in Exhibit C, on file.)  The                   
  result is $38 million appropriated to DEC for ongoing                        
  programs, compared to DEC's projected need of $13.5 million.                 
  In addition, that proposal would reduce the spill reserve to                 
  $25.4 million and it would take 2 1/2 years for the fund to                  
  build to $50 million as compared to the 2 cents/3 cents                      
  split, or the 2.5 cents/2.5 cents split where the fund will                  
  exceed $50 million by the middle of the coming fiscal year.                  
  He added that under the 2 cents/3 cents and 2.5 cents/2.5                    
  cents proposals, the fund actually grows higher than the $50                 
  Number 191                                                                   
  MR. REITHER stated the fourth proposal, HB 238, version Y is                 
  illustrated in Exhibit D.  Under version Y, the nickel                       
  surcharge would remain in place and a tax credit would be                    
  given when the spill response fund got to $50 million.  He                   
  said he tried to prepare a detailed analysis of how version                  
  Y would work, but did not get very far before he ran into                    
  problems due to ambiguities as to how it would work.  He                     
  noted he had examined the work draft and the amendments and                  
  determined the following problems.  In the work draft by                     
  itself, the accounting problem is not fixed and none of the                  
  amendments fix the accounting problem.  In section 4 of the                  
  bill, which contains the calculation whether the $50 million                 
  target is reached, the bill subtracts reserves for                           
  outstanding appropriations and then subtracts total                          
  appropriations.  He said he remembered a comment by members                  
  of the Administration that it seemed like double accounting.                 
  He stated in some of the earlier versions of the Senate Bill                 
  and most recent versions of the Senate and House bills, that                 
  problem had been taken care of.                                              
  MR. REITHER stated in the version Y work draft, a taxpayer                   
  is entitled to a credit against the tax imposed by AS                        
  43.55.011-150.  He said that range of tax laws covers two                    
  taxes, an oil production tax and a gas production tax, which                 
  are two separate taxes.  Presumably the credit would be                      
  against the oil production tax, but the bill should be more                  
  precise in this area.  If passed as drafted, he thought the                  
  Department of Revenue (DOR) would have to pass a regulation                  
  attempting to clarify this point.                                            
  Number 230                                                                   
  MR. REITHER said the second problem is the credit may be                     
  taken only during a tax year in which the credit is                          
  calculated and reported, but under neither tax is there a                    
  tax year.  He stressed both the oil production tax and the                   
  gas production tax are calculated and paid monthly, not                      
  MR. REITHER stated the third problem under version Y is the                  
  surcharge would be segregated into a separate account in the                 
  general fund.  At the end of the year, the legislature would                 
  appropriate the nickels collected into the 470 fund, but                     
  since the credit is allowed against production taxes, which                  
  are paid into the general fund, that credit effectively                      
  comes out of the general fund, not the 470 fund.  Thus the                   
  470 fund would continue to grow, funded indirectly by the                    
  general fund, and not by the surcharge itself.                               
  MR. REITHER said the Y.4 amendment does solve that problem                   
  in that it changes the credit to be against the surcharge                    
  itself.  He pointed out it also solves the problem of                        
  clarifying exactly which tax the credit is applied against.                  
  He stated the Y.4 amendment presents another problem in that                 
  it only allows the credit during the state fiscal year in                    
  which the credit is calculated and reported.  He outlined                    
  the fourth quarter of the fiscal year.  By April 30, the                     
  commissioner of Administration must make the calculation and                 
  by May 14 must report that to DOR.  DOR, within no specified                 
  time limit, calculates the amount of credit by taxpayer and                  
  notifies each taxpayer the exact amount of credit which is                   
  allowed.  He stressed the problem is the next tax return                     
  before the end of the quarter is due June 20 and delinquent                  
  June 30.  That leaves only 45 days for DOR to make the                       
  calculation, notify taxpayers of the amount of credit, and                   
  the taxpayers to fold the credit into their return;                          
  otherwise the credit is apparently lost.                                     
  MR. REITHER stated another problem with the tax credit                       
  mechanism is if there is an amended return filed later in                    
  which the volumes change.  He said Exxon has had volume                      
  changes which occurred during the audit process.  He pointed                 
  out that taxes are not calculated on a close enough basis,                   
  they have to be calculated exactly to the penny.  Otherwise,                 
  the company is not complying with the law.  He another                       
  concern is the issue of whether natural gas liquids are gas                  
  or oil.  Should the DOR prevail in it's claim that natural                   
  gas liquids are oil, then amended returns will be required                   
  which change the number of barrels reported and accordingly,                 
  the surcharge due.  Depending on when the issue is resolved,                 
  and it could be five to ten years from now, DOR will have to                 
  go back and calculate what the tax credit would have been in                 
  a certain year.                                                              
  MR. REITHER emphasized that while the tax credit looks like                  
  a good idea in theory, in practice it puts a large burden on                 
  DOR and the taxpayers.  He added that no taxpayer can verify                 
  the accuracy of the amount of credit calculated by DOR                       
  without knowing the total amount of surcharge collected from                 
  the other taxpayers, which is confidential, as adjusted                      
  after audits are closed, ten or more years later.   He                       
  stated there is no doubt that DOR can write regulations and                  
  make any calculation required under just about any law which                 
  is passed.  However, he felt the tax credit mechanism is                     
  burdensome, creates a tax compliance problem, and it seems                   
  that splitting the nickel is simpler.  If the nickel is                      
  split and there is a tax suspension mechanism which really                   
  works, when the $50 million cap is reached, all DOR would                    
  have to do is send a form letter to the producers, notifying                 
  them of the suspension or reinstatement of the surcharge.                    
  DOR would have nothing to calculate.                                         
  MR. REITHER stated in summary, Exxon does not support the                    
  tax credit solution.  Although some of the problems he                       
  described could be resolved through amendments, the result                   
  is still one fund trying to do two jobs; the effort required                 
  by DOR and the taxpayers to make and keep up with the                        
  calculations seems out of line with the objectives that are                  
  being sought.  He stressed the far simpler approach is to                    
  split the tax into two parts:  One to fund ongoing programs                  
  and the other to build the $50 million fund.  Under the                      
  split nickel approach which Exxon has supported, only part                   
  of the nickel tax suspends, and only after full funding of                   
  DEC's ongoing programs, and only after the full $50 million                  
  fund is built up for response to catastrophic and other                      
  spills to be addressed out of that fund.                                     
  (CHAIRMAN WILLIAMS noted for the record that Senator Mike                    
  Miller had joined the committee.)                                            
  REPRESENTATIVE DAVID FINKELSTEIN stated the complexities of                  
  what is being discussed are significant but many of them can                 
  be solved.  He asked if the surcharge is shut off when the                   
  $50 million cap is reached, will there be a situation                        
  created where the surcharge will shut off and turned on over                 
  and over during a quarter since spending is erratic.                         
  MR. REITHER stated what Exxon contemplates and what is being                 
  proposed under one of the proposals is splitting the tax.                    
  The funding for ongoing programs is in place and the                         
  suspension only works quarterly.  The suspension would not                   
  be on a daily or weekly basis.  The result is a stable                       
  source of money for the amounts appropriated for ongoing                     
  programs and a $50 million fund.                                             
  REPRESENTATIVE FINKELSTEIN asked in a situation where there                  
  was a big drain on the fund within a quarter due to a                        
  significant spill, would the restarting of the nickel                        
  surcharge not start until the next quarter.                                  
  MR. REITHER responded the surcharge would begin again the                    
  next quarter.                                                                
  REPRESENTATIVE FINKELSTEIN expressed concern.  He said it is                 
  possible that the state could have two catastrophic spills                   
  within one quarter.  He stated he cannot support a system                    
  where the fund drops below $50 million and there is no                       
  restarting of the surcharge for a whole quarter, regardless                  
  of what happens.                                                             
  MR. REITHER stated that is the way it works in present law.                  
  REPRESENTATIVE FINKELSTEIN agreed but said the $50 million                   
  cap has never been reached, so it is not an issue.  If the                   
  nickel tax is going to shut off, there needs to be a basis                   
  for what the spending needs are.                                             
  MR. REITHER said the present law has a shut off mechanism.                   
  It was put in place to shut off at $50 million but it does                   
  not work.  He stated he is advocating that be fixed.  He                     
  noted the shut off mechanism would not work differently                      
  under any of the proposals, including the tax credit                         
  Number 466                                                                   
  REPRESENTATIVE FINKELSTEIN stated the $50 million is a                       
  theoretical number which has not been reached and was put                    
  into law as an estimate.  He said the state's final Exxon                    
  Valdez spill report which came out in June 1993 concluded                    
  that out-of-pocket costs to the state for cleaning up the                    
  spill exceeded $50 million.  He asked if Exxon would support                 
  a proposal with the fund at a higher level, so if a                          
  situation like the Exxon Valdez happens again, the state                     
  would have enough money in the fund to pay for the cleanup.                  
  MR. REITHER replied probably not, because the $50 million                    
  fund is there to fund a cleanup of a spill caused by an                      
  elusive, foreign tanker; someone with low capitalization and                 
  no funds available to respond to a spill and someone likely                  
  to spill oil and disappear.  That is not the case in respect                 
  to the major producers.  There are Jones Act considerations                  
  and other funds available which give comfort.  He believed                   
  that if another spill occurred similar to the Exxon Valdez,                  
  the company involved will be just as responsive as Exxon                     
  was.  He felt $50 million is adequate.                                       
  REPRESENTATIVE JEANNETTE JAMES felt the $50 million is to be                 
  used as an emergency response fund so that when a spill                      
  occurs, there is an immediate response and there is not a                    
  question of who pays.  It allows the response to a spill,                    
  with an understanding that most likely the funds will be                     
  returned when the responsible party pays for the cleanup.                    
  Number 527                                                                   
  CHAIRMAN WILLIAMS recalled that Mr. Reither had said the                     
  present law says the fund will build to $50 million and then                 
  shut off.  He asked if the 470 fund law does, in fact, say                   
  MR. REITHER stated the fund would temporarily shut off                       
  unless and until the fund drops below $50 million, provided                  
  the tax suspension mechanism is worded properly in the law.                  
  CHAIRMAN WILLIAMS clarified the present law says when the                    
  fund reaches $50 million, the tax shuts off.                                 
  Number 540                                                                   
  MR. PARISH responded it shuts off on a temporary basis until                 
  it is drawn down below $50 million and then it begins again.                 
  REPRESENTATIVE ELDON MULDER recalled that Mr. Reither had                    
  said the fund could go higher than the $50 million before                    
  the tax shuts off and asked how that could happen.                           
  MR. REITHER replied that could happen because of the delay                   
  in how the shut off mechanism works.  A full quarter has to                  
  elapse before any collections for that quarter are counted                   
  and there is a need to wait until recoveries come in.                        
  During the middle of the second quarter, the calculation is                  
  made and the effect of that calculation does not take place                  
  until the beginning of the next quarter.  He said you                        
  effectively have two quarters of collections.                                
  REPRESENTATIVE JOHN DAVIES stated there is a need to be                      
  careful about what fund is being discussed when talking                      
  about current law because of the way the calculation is                      
  done.  What has been talked about is a response fund and the                 
  other ongoing expenses are mixed. Therefore, the fund is an                  
  overall pot of money which consists of both the day-to-day                   
  expenditures and contingency funds for a major spill.                        
  Number 586                                                                   
  REPRESENTATIVE JOE GREEN stated that is why the split nickel                 
  version was introduced.  The split nickel is to stabilize                    
  the fund so it would not be constantly vacillating.                          
  REPRESENTATIVE FINKELSTEIN felt the state's analysis of the                  
  Exxon Valdez spill costs were such that if one were to apply                 
  those costs to the kind of situation mentioned earlier where                 
  an irresponsible party caused a spill and disappeared, the                   
  state could easily be at a point where $50 million was not                   
  enough.  He stated the $50 million is inadequate for the                     
  types of spills being discussed.  He said the issues at hand                 
  are difficult because of the accounting.  He asked if Exxon                  
  feels the nickel surcharge tax is excessive or feels the                     
  legislature is inappropriately appropriating the funds.                      
  MR. PARISH stated there is a systematic problem with the                     
  current law.  He said last week DEC presented a chart to the                 
  committee which illustrated how costs had gone up because                    
  the legislature kept passing changes in the law with                         
  mandates to spend more money.  He expressed concern with the                 
  pattern of "if the fund is there, it is going to be spent."                  
  He said that is particularly true when one looks back at the                 
  original fiscal notes where the expenditure estimates were                   
  $5 million a year and every year, the actual appropriations                  
  have exceeded that amount.                                                   
  Number 680                                                                   
  REPRESENTATIVE GREEN stated there has been concern expressed                 
  about the adequacy of the $50 million.  He reiterated that                   
  the fund is for emergency response.  He felt the state is                    
  currently in a completely different situation than when the                  
  Exxon Valdez oil spill occurred plus there is a $1 million                   
  federal government back up.  He said funding is not the                      
  issue.  It is the immediacy and the capability to go to a                    
  spill at a moments notice, and that is why there is a need                   
  to reach $50 million so there is money to accomplish that.                   
  He stressed what is happening currently is an attempt to                     
  revoke the law on its original purpose.  The law was passed                  
  several years ago and currently there is a diffusion of                      
  attitude as to what the purpose of the 470 fund is.  He felt                 
  the ongoing prevention programs, oversights, etc., are                       
  legitimate charges but he stressed in some instances,                        
  expenditures have exceeded the original purpose and that is                  
  why there is a need to refocus through this bill.                            
  TAPE 94-33, SIDE B                                                           
  Number 000                                                                   
  REPRESENTATIVE DAVIES stated Mr. Reither had commented it                    
  was inappropriate to consider a division of the $37.4                        
  million currently in the fund balance.  In light of the fact                 
  that the industry has pumped $112 million into the fund and                  
  the state has contributed approximately $75 million through                  
  general fund appropriations, he asked if those two numbers                   
  should be taken into account in allocating the $37.4 million                 
  if the decision is made to split the fund.                                   
  MR. REITHER responded as he understands it, an amount                        
  remains in the spill reserve after DEC has been fully funded                 
  for prior expenditures and what occurs is money left over                    
  from the nickels.  Since it is there, he felt it was                         
  appropriate for the money to remain there.                                   
  REPRESENTATIVE DAVIES disagreed.  He stressed the money                      
  remaining is from the combination of nickels and state                       
  appropriations.  He said people have argued that because the                 
  $37.4 million was created from both nickels and state                        
  appropriations, that fact should be taken into account.                      
  MR. PARISH stated Exxon had discussions with DEC last year                   
  in regard to the question of general fund money flowing                      
  through the fund and ending up in the reserve, and at that                   
  time, DEC could not track exactly what was nickels and what                  
  was general fund money in the fund.  He said one of the                      
  primary original purposes of the nickel tax when it was                      
  enacted and revamped in 1989 was to build up an emergency                    
  fund.  The discussion being heard from all parties is there                  
  is a desire to have a strong emergency response fund.  For                   
  that reason, Exxon supports taking the existing emergency                    
  fund and keeping it whole.                                                   
  Number 044                                                                   
  REPRESENTATIVE CON BUNDE stated many people are saying that                  
  stopping the nickel when the $50 million is reached is a tax                 
  break for oil companies.  He asked how Exxon would respond                   
  to that comment.                                                             
  MR. REITHER stated when the nickel-a-barrel surcharge was                    
  first enacted, it was supposed to stop at $50 million.  If                   
  the stoppage mechanism does not work and there is a desire                   
  to fix it, he did not see how that translates into a tax                     
  break.  He said the tax is not like a deduction where some                   
  particular aspect of the oil industry's function is being                    
  targeted for a deduction, to induce them to act in a certain                 
  way.  He felt characterizing the shutting off of the nickel                  
  as a tax break is improper.                                                  
  REPRESENTATIVE BUNDE asked if the nickel continues, will it                  
  affect Exxon's operation in any way.                                         
  MR. REITHER responded it would not make a foot note in the                   
  annual report.  He said just because oil companies are                       
  profitable does not mean they do not face the same problems                  
  as what the legislature is facing today.  The price of oil                   
  is hurting the industry just as bad as it is hurting the                     
  legislature.  He said Exxon is doing everything possible to                  
  reduce costs.  He stressed profits of the oil companies do                   
  not relate to the issue at hand.                                             
  CHAIRMAN WILLIAMS stated he appreciates what the oil                         
  companies are confronted with.  He said his initial                          
  discussion about the nickel-a-barrel tax was that all of the                 
  nickel should go right to the catastrophic fund.  Then he                    
  was told the oil companies want to pay for preparedness                      
  programs and that is why the nickel should be split.  He                     
  expressed concern with the split nickel because with the                     
  volume of oil leaving the state, there are questions as to                   
  where the nickel is going to come from and how the state can                 
  be assured that the programs are fully funded, and will                      
  continue.  Today he has people talking to him about cutting                  
  welfare and education programs, etc., and he wonders how                     
  anyone can be assured that ten years from now the spill                      
  response and prevention programs will exist or if they are                   
  even needed.                                                                 
  Number 110                                                                   
  MR. REITHER stated in regard to the volume of oil going                      
  down, there are other sources of funds in the various                        
  proposals such as using the interest off of the $50 million.                 
  The projections he made earlier under the 2 cent/3 cents or                  
  the 2 1/2 cents/2 1/2 cents proposals, show a result of more                 
  money available to fund ongoing programs over the next five                  
  years.  He stressed it is very difficult to predict where                    
  industry will be five years from now.  If a projection of                    
  oil production volumes made five years ago was looked at,                    
  now it would be determined that the projection was based on                  
  what could be seen at the moment.  Many fields which have                    
  come on line, were not in the projections made.  Therefore,                  
  what is happening is a projection which follows volumes of                   
  production is constantly being revised.  He felt that five                   
  years from now, the volume will probably not be as low as                    
  projected because of past experience of improving production                 
  MR. REITHER stated it is very difficult in the oil business                  
  to predict where anyone is going to be five years from now.                  
  He said it appears the mechanisms Exxon has been advocating                  
  takes care of the problem at least for five years and if at                  
  the end of five years if it is not working, take another                     
  Number 148                                                                   
  BOB POE, DIRECTOR, DIVISION OF INFORMATION AND                               
  ADMINISTRATIVE SERVICES, DEC, stated there has been a lot of                 
  discussion regarding the $50 million shut off, what it was                   
  intended for, etc.  He advised that representatives from                     
  legislative audit are present and if there is a desire to                    
  review what the original intent of the law was, how it                       
  changed, etc., the audit is a good source to refer to.  He                   
  pointed out present law says the nickel should shut off when                 
  total expenditures from the fund subtracted from the nickels                 
  which have gone into the fund equals $50 million.  It does                   
  not say anywhere in the law that the nickel surcharge will                   
  stop when the spill reserve balance equals $50 million.                      
  Therein lies the problem.                                                    
  MR. POE said in regard to the question of what is in the                     
  $37.4 million spill reserve fund presently, DEC cannot go                    
  back and determine what came from nickels and what came from                 
  general fund dollars.  Referring to a chart he distributed,                  
  he said a snapshot was taken for each year; the money which                  
  went into the fund each year and the money that went out                     
  each year. (The referenced chart is on file).   He then                      
  applied that ratio of money coming in and money going out to                 
  determine how much of the money going out was general funds                  
  and how much was nickels.  In the early years, up to fiscal                  
  year 1990, 100 percent of the money going out was general                    
  funds.  When the same ratio is used and 1987-1994 is looked                  
  at, 41.29 percent of the funds expended or funds remaining                   
  are general funds and 58.71 percent is from surcharge                        
  Number 204                                                                   
  MR. POE in response to Mr. Reither's testimony, felt the                     
  comparisons made were apples and oranges.  In Mr. Reither's                  
  comparison of the 2 cents/3 cents split and the 2.5                          
  cents/2.5 cents split, he takes all of the $37.4 million and                 
  puts it into the spill account.  Therefore, those two                        
  versions come up with good immediate results in the first                    
  year in regard to suspending the nickel surcharge and                        
  reaching $50 million in the fund.  On the 3 cents/2 cents                    
  version, Mr. Reither does follow the version, which DEC                      
  submitted to the Senate Resources Committee, that takes the                  
  $37.4 million and splits it 60/40 with the logic being the                   
  fund would split the way the nickel did giving DEC an                        
  MR. POE stated when the 3 cents/2 cents version results are                  
  compared under Mr. Reither's analysis to the 2 cents/3 cents                 
  or 2.5 cents/2.5 cents version, the reason the other two                     
  versions look so good is that he takes $37.4 million and                     
  puts it into the calculation to suspend the nickel and in                    
  the spill reserve, so the spill reserve reaches $50 million                  
  rather quickly.  The other comment which Mr. Reither made                    
  which Mr. Poe takes exception with is there is no positive                   
  tax break other than the savings in the nickel paid in the                   
  first year upon changing the law.  Mr. Poe pointed out that                  
  Mr. Reither starts out at the end of 1995 with a spill                       
  reserve of $57.7 million; he has only paid $7.8 million in                   
  surcharge that year; so somebody got $49.9 million under the                 
  2 cents/3 cents version in one year, where before on June 30                 
  of the same year, he was looking at a negative number.                       
  Number 259                                                                   
  MR. POE said if one takes the same scenario on the 2.5                       
  cents/2.5 cents version, the industry gets $56.4 million,                    
  spends $6.5 million, with a $49.5 million benefit.  He                       
  stated just because everyone feels the calculation is a                      
  problem now, does not mean there is no benefit from changing                 
  it.  If everyone thinks the calculation is wrong today, it                   
  may have been very well thought out at that time.  He                        
  stressed there is a benefit from changing the calculation                    
  because the law presently does not say when the spill                        
  reserve equals $50 million, the nickel turns off.  The law                   
  says when the result of the calculation of subtracting all                   
  the expenditures from the nickels that went into the fund                    
  equal $50 million, the nickel will shut off.  He pointed out                 
  those are two very different points.                                         
  MR. POE stated currently the state is attempting to do two                   
  jobs with the same fund.  He is not convinced that because                   
  the state has two jobs to do necessarily argues that there                   
  is a need to draw a partition around the two sources of                      
  money.  Perhaps next year, it may be determined there are                    
  three jobs to do.  The problem does limit DEC's ability to                   
  respond to the jobs faced.  He said in regard to simplicity,                 
  he pointed out that version W contains 23 pages and version                  
  Y is 11 pages.  He noted in version W, the number of                         
  accounts tracked is doubled and a lot of complexity has been                 
  MR. POE said many of the concerns Mr. Reither raised about                   
  the tax refund aspect seemed to be what is normally done in                  
  the departments of revenue.  He did not know if the refund                   
  aspect necessarily says that a single nickel version is                      
  inherently flawed.  Mr. Poe stated perhaps the refund aspect                 
  has a problem, but Mr. Reither's argument did not seem to be                 
  effective against version Y.                                                 
  Number 324                                                                   
  REPRESENTATIVE GREEN noted on the chart which Mr. Poe had                    
  distributed that mitigation account transfers in are coupled                 
  with the total general fund and asked if that was due to                     
  money paid in first goes through the general fund, then                      
  comes back and therefore it is considered a general fund.                    
  MR. POE responded that mitigation amounts are general fund                   
  money.  He pointed out there is nothing in present law or in                 
  past practice which indicates the money is necessarily going                 
  into the response fund.  Many of those funds come from                       
  fines, penalties, etc., which probably should not be going                   
  toward the spending of the nickels.  Technically,                            
  accounting-wise and in practice, the amounts are general                     
  REPRESENTATIVE FINKELSTEIN wondered if someone could answer                  
  the question of what the intent of the original law was.  He                 
  recalled the issue which Mr. Parish raised, which was the                    
  comparison between the expectations of expenditures and the                  
  actual expenditures.  He noted there is a chart in committee                 
  member folders which Stan Stephens mentioned at the hearing                  
  last week.  The chart has a straight line across                             
  representing approximately $5 million for what the fiscal                    
  notes were supposed to be for oil and hazardous substance                    
  release response fund expenditures.  Then there is a line at                 
  a higher level which goes up to $25 million for actual                       
  appropriations.  He said items such as the one time                          
  expenditure on the ferry are not included in the                             
  expenditures and there is no inclusion of the fiscal notes.                  
  He noted what is being compared is a list which is not all                   
  inclusive and asked if the fiscal notes were included, would                 
  the two lines be closer.                                                     
  MR. POE responded they would be very close.  He said DEC                     
  prepared a response to that chart, in committee member                       
  folders (copy on file) which shows the different changes in                  
  law and how the line was reached.  The chart which                           
  Representative Finkelstein was showing started with a fiscal                 
  note that related to the starting point and then extended                    
  the fiscal note across the years.  He noted there have been                  
  17 legislative changes since the fund got started and those                  
  changes have resulted in additional fiscal notes or the                      
  enabling of the fund to be spent for other reasons, which                    
  were then later appropriated and raised the level of                         
  appropriations up.  Referring to the chart, he said DEC has                  
  illustrated how those are composed through time and what                     
  made up that growth in the number.                                           
  Number 393                                                                   
  REPRESENTATIVE JAMES felt the prime design of the original                   
  law was to have a $50 million pot of money to be available                   
  for an emergency response.  She said the $50 million goal                    
  has not been reached and asked if that should be the primary                 
  MR. POE responded yes and pointed out that even in the                       
  earlier split nickel versions, the equation was not fixed                    
  and the $50 million still would not have been reached.  He                   
  said DEC showed how the equation should be structured to get                 
  research indicates the intent of the original legislation                    
  passed two years prior to the Exxon Valdez incident was the                  
  cleanup of contaminated sites.  When legislation was passed                  
  in 1989, another intent was put into the original intent                     
  which discussed future discharges of oil and it also set up                  
  the response fund.  The legislation in 1989 took a mechanism                 
  already in place that had one type of intent, and put the                    
  nickel-a-barrel surcharge and the future discharge language                  
  on top of the original legislation, which resulted in a very                 
  broad intent.                                                                
  REPRESENTATIVE GREEN asked if the nickel surcharge was                       
  separated to handle crude oil and the 470 fund as it was                     
  envisioned prior to the nickel, would the accounting be                      
  MR. GRIFFIN responded administratively speaking there is an                  
  appeal to separate them.                                                     
  REPRESENTATIVE GREEN said the DEC commissioner is charged                    
  with supplying a review of what has happened each year by                    
  the tenth day after the legislature convenes.  He asked if                   
  that report is available.                                                    
  MR. POE responded the report is late but will be available                   
  by the end of the week.  He discussed why the report is                      
  REPRESENTATIVE GREEN clarified that DEC's proposal would                     
  split the amount of money in the fund similar to the way the                 
  nickel income is split.  He asked if the amount of money to                  
  be split needs only to be big enough to cover DEC's                          
  expenses, why would DEC need the amount of money in the fund                 
  and what would DEC do with that money.                                       
  MR. POE replied for the purpose of analysis, DEC made one                    
  basic assumption and that was the fund got split the same                    
  way as the nickel, because at that time DEC had not done the                 
  proof which shows the fund is 41 percent/58 percent.  He                     
  said the numbers which Mr. Reither presented show there is                   
  no problem with the state's spill prevention and response                    
  program because there are other sources of money such as                     
  interest on the fund, Exxon payments to come in the future,                  
  etc.  Mr. Poe agreed the interest is and always has been in                  
  the general fund, but it is being used for something else.                   
  To say now that the interest is going to be committed to                     
  this program is a general fund appropriation.  On future                     
  Exxon payments, there is no guarantee when those payments                    
  will be received or in what amounts, so it is a very                         
  unpredictable revenue source.  In addition, new possible oil                 
  sources are not predictable, so if there is a desire to have                 
  a fund available to respond to spills and another to fund a                  
  spill prevention program, there needs to be an assured                       
  funding source.  DEC believes if the fund is split, general                  
  fund and nickels, there would be money to supplement the                     
  shortage occurring in the out years from a split nickel                      
  Number 548                                                                   
  REPRESENTATIVE GREEN pointed out that if the 3 cents tax                     
  went to fund ongoing programs it would generate                              
  approximately $16 million without the interest, mitigation,                  
  etc., and that is $3 million in excess of DEC's annual                       
  REPRESENTATIVE MULDER stated that Mr. Poe had indicated a                    
  large amount of funds have gone into the response fund as                    
  general funds and asked if the general fund has received any                 
  reimbursements since 1988.                                                   
  MEAD TREADWELL, DEPUTY COMMISSIONER, DEC, answered the                       
  general fund made direct appropriations for the Exxon Valdez                 
  response, such as to the Department of Law and also                          
  appropriations to the response fund.  The appropriations to                  
  the response fund have not reimbursed the general fund                       
  directly.  He said it could be argued that some of the                       
  mitigation account expenditures which came from the Exxon                    
  reimbursements that might have come from general fund being                  
  put in the response fund were reimbursed (indiscernible)                     
  general fund but they were not called that.  He stated some                  
  of the things which were appropriated out of the mitigation                  
  account were clearly response fund eligible, but they were                   
  taken from the mitigation account.                                           
  Number 624                                                                   
  REPRESENTATIVE MULDER said he understands why DEC is                         
  advocating the 3 cents/2 cents proposal.  He asked what the                  
  projected revenue is for the 3 cents split for the next five                 
  MR. POE replied $15.7 million, $15.2 million, $14.9 million,                 
  $14.3 million, and $13.4 million.                                            
  REPRESENTATIVE MULDER clarified there is a steadily                          
  diminishing supply of funds coming in from the 3 cents, but                  
  when adjustments are made for inflation, the $13.5 million                   
  is going to go up to $14.4 million, so to be somewhat                        
  responsible for a five year plan, DEC is saying the 3 cents                  
  is necessary.                                                                
  MR. POE said that is correct.  He pointed out that DEC does                  
  fiscal notes in a five year plan, but expects oil                            
  development to be ongoing for a long time so there is a need                 
  to think even further out.  He stated DEC does not currently                 
  have any indications that the rate of dissent is going to                    
  decrease in terms of production.                                             
  TAPE 94-34, SIDE A                                                           
  Number 000                                                                   
  REPRESENTATIVE DAVIES asked if existing DEC budgets                          
  adequately fund prevention programs.                                         
  Number 024                                                                   
  RESPONSE, DEC, stated the division based their budget on                     
  requirements in statute to be able to continue programs on                   
  the current level.  He added there are many issues which the                 
  legislature can choose to take on in the future not being                    
  addressed currently.  He said as long as there is a stable                   
  climate in responsibilities for the next several years, the                  
  budget is adequate.  He commented there is a philosophical                   
  debate which goes on amongst members of the legislature to                   
  figure out what the funding level should be for each                         
  program.  The State Emergency Response Commission had a task                 
  force put together to look at a strategic plan for local                     
  emergency planning committees (LEPC) and there is an                         
  indication there will be about 20 plans submitted during                     
  fiscal year 1995.  Once the plans are submitted, the                         
  substantial up-front costs of getting them going has already                 
  occurred and the debate is how much do the communities kick                  
  in to keep the plan going since they have the responsibility                 
  to do the response.                                                          
  REPRESENTATIVE JAMES asked if there is a written plan                        
  showing when and where the depots and corps will occur.                      
  MR. CONWAY responded the Department of Military and Veteran                  
  Affairs (DMVA) has the current responsibility for depots and                 
  corps.  He said DMVA would have to answer the question.  He                  
  stated in working with DMVA, he knows when DMVA first got                    
  that responsibility, their plan included $20 million to                      
  start up depots and corps with approximately $5 million a                    
  year needed after that.  He added that the legislature                       
  funded the program at about the $2 million level in the                      
  MR. POE commented that when the legislature funded the                       
  program at that level, there was legislative intent which                    
  said the funding was to be used for allowing DMVA to be in a                 
  ready status to respond to spills, so that money basically                   
  goes to personal services.                                                   
  MR. CONWAY stated DEC has been working on the near shore                     
  demonstration projects to be able to have an equivalent to                   
  depots and corps, based upon current statutes.  DEC can                      
  enter into an agreement with local communities and                           
  contractors to provide the capability to respond to the day-                 
  in, day-out spills which are 99 percent of the spills.  By                   
  using those existing authorities, DEC is looking at the near                 
  shore demonstration projects to come up with a package for                   
  coastal communities on what kinds of things could be the                     
  equivalent of depots and corps.  He described several                        
  upcoming demonstrations.                                                     
  MR. CONWAY said when DEC finishes evaluating the projects,                   
  they will have packages with a price tag which will come                     
  before the legislature in the future.  He added that DEC has                 
  response vessels under construction to be part of the                        
  demonstration projects.  He stated DEC will have two kinds                   
  of packages showing what they need for noncrude areas and                    
  what is needed for crude.  He pointed out the demonstration                  
  projects have been an independent activity because in fiscal                 
  year 1993, the legislature made a decision to give DEC                       
  funding for the near shore demonstration projects and did                    
  not give any funding, other than for staff, to DMVA for                      
  depots and corps.                                                            
  REPRESENTATIVE FINKELSTEIN asked in regard to the audit, how                 
  many laws contributed to the legislative intent on the 470                   
  MR. GRIFFIN responded there is a chart on pages 8 and 9 in                   
  the audit which indicates there have been sixteen.                           
  REPRESENTATIVE FINKELSTEIN clarified the determinations on                   
  intent all promulgates from either language from the law or                  
  fiscal notes, and does not include committee minutes, etc.                   
  MR. GRIFFIN replied the division does read committee minutes                 
  in the course of the audit, but the determination of the                     
  intent comes straight from the law.                                          
  REPRESENTATIVE FINKELSTEIN said there has been a debate over                 
  and over again indicating the intent of the 470 fund is for                  
  responding to catastrophic spills, but the audit shows the                   
  purpose is both prevention and dealing with hazardous waste,                 
  as well as dealing with catastrophic spills.                                 
  MR. GRIFFIN stated the preamble to the 1989 legislation                      
  which established the nickel-a-barrel surcharge talked                       
  specifically about future events and catastrophic spills.                    
  He said the division also asked the question of Mr.                          
  Chenoweth at legislative counsel as to how that affects                      
  everything which came before and after, and he said it does                  
  not have much effect.                                                        
  REPRESENTATIVE FINKELSTEIN clarified that the final                          
  conclusion in the audit is that the 470 fund is for both                     
  prevention and dealing with hazardous waste and dealing with                 
  catastrophic spills.                                                         
  MR. GRIFFIN replied that was correct.                                        
  CHAIRMAN WILLIAMS announced the committee will hear HB 446,                  
  HB 462, and HB 352 on Friday, March 18 at 8:15 a.m.                          
  There being no further business to come before the House                     
  Resources Committee, Chairman Williams adjourned the meeting                 
  at 10:10 a.m.                                                                

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