Legislature(1993 - 1994)
03/02/1994 08:15 AM House RES
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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.
| Document Name | Date/Time | Subjects |
|---|