Legislature(2007 - 2008)SENATE FINANCE 532
05/10/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB229 | |
| SB144 | |
| HB238 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 229 | TELECONFERENCED | |
| + | SB 144 | TELECONFERENCED | |
| + | HB 238 | TELECONFERENCED | |
| + | HB 162 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
May 10, 2007
9:41 a.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
9:41:26 AM.
PRESENT
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Kim Elton
Senator Joe Thomas
Senator Donny Olson
Senator Fred Dyson
Also Attending: MARIT CARLSON-VON DORT, Staff to Senator Lesil
McGuire; CHIP THOMA; MICHAEL PAWLOWSKI, Staff to Representative
Kevin Meyer; BRIAN ANDREWS, Deputy Commissioner, Department of
Revenue; LARRY DIETRICK, Director, Division of Spill Prevention
and Response, Department of Environmental Conservation;
Attending via Teleconference: From an Offnet location: PAT
GAMBLE, President and Chief Executive Officer, Alaska Railroad
Corporation; LISA PARKER, Manager, Government Relations, Agrium
Inc.; JOHN DUFFY, Borough Manager, Matanuska Susitna Borough;
PATTI MACKEY, Executive Director, Ketchikan Visitors Bureau, and
Chair of the Board of Directors, ATIA.
SUMMARY INFORMATION
9:41:33 AM
HB 229-KENAI GASIFICATION PROJECT; RAILROAD BOND
The Committee heard from the Alaska Railroad, Agrium, and the
Matanuska Susitna Borough. The Committee adopted one amendment
and the bill reported from Committee.
SB 144-TOURISM CONTRACT MATCHING FUNDS
The Committee heard from the bill's sponsor, a tourism industry
representative, and a member of the public. The bill was held in
Committee.
HB 238-OIL & HAZARD SUBSTANCE RESPONSE ACCOUNT
The Committee heard from the bill's sponsor, the Department of
Revenue and the Department of Environmental Conservation. The
bill was held in Committee.
HB 162-MORTGAGE LENDING
This bill was scheduled but not heard.
9:41:38 AM
HOUSE BILL NO. 229 am
"An Act authorizing the Alaska Railroad Corporation to
participate in a project consisting of the acquisition,
construction, improvement, maintenance, equipping, or
operation of real and personal property, including
facilities and equipment, for the Kenai gasification
project and Port MacKenzie rail link, authorizing the
corporation to issue bonds to finance all or a portion of
the project, and identifying these as bonds for an
essential public and governmental purpose; and providing
for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
9:42:30 AM
PAT GAMBLE, President and Chief Executive Officer, Alaska
Railroad Corporation, testified that this bill would allow the
Railroad to utilize its tax-free bonding authority to issue up
to $2.9 billion in bonds to enable the construction of the
Agrium Gasification Plant in Kenai. He identified the three
components of the bond proposition as funding for the plant, the
ability to purchase assets necessary to facilitate the movement
of coal for the plant, and the authorization of the Railroad to
use its bonding authority to support a potential rail extension
from Willow to Port MacKenzie.
9:44:39 AM
Mr. Gamble reminded that tax free bonds would carry no recourse
to State. The bonds would carry no recourse to the Alaska
Railroad for the Agrium or the portions of the bonds dedicated
to the rail extension. The Railroad would finance the costs of
two trains to be used to transport materials to the plant.
9:45:18 AM
Co-Chair Stedman asked if these would be considered "conduit
bonds".
Mr. Gamble affirmed that the bill called for conduit financing
for the rail extension and the gasification plant.
9:45:26 AM
Co-Chair Stedman asked the expected length of time that the
Railroad would retain authorization for this type of financing.
Mr. Gamble understood the question to relate to the term of the
bonds.
Co-Chair Stedman clarified that he wanted to know how long the
Railroad would continue to hold the authorization for the
issuance of the bonds.
9:46:01 AM
Mr. Gamble replied that, for accounting purposes, the
authorization would not be "carried on the company's balance
sheet." The period of authorization was not specified and would
carry no commitment, but would remain in perpetuity unless
exercised or amended within the bill.
9:46:52 AM
Co-Chair Stedman proposed that the authorization be accompanied
by a termination date to stipulate that if the project did not
reach fruition, the authorization would expire.
Mr. Gamble replied that he would not expect a termination date
on the bond authorization to affect the Railroad's financing,
and deferred to Agrium to respond independently.
9:47:44 AM
LISA PARKER, Manager, Government Relations, Agrium Inc.,
informed that Agrium had experienced difficulties operating its
plants at capacity due to declining resources. Agrium currently
operated its plant at 50 percent capacity, yet intended to
operate permanently at full capacity as soon as possible. Agrium
would potentially be prepared to bring the project "online" by
late 2011 or early 2012.
9:49:25 AM
Co-Chair Stedman asked regarding a "reasonable" timeframe for
the authorization of the $300 million for the Mat-Su rail
extension.
Mr. Gamble responded that the Environmental Impact Statement
(EIS) would take a minimum of two years to complete. Due to the
fact that construction would be possible only seasonally, he
estimated project completion at a minimum of five years, but
deferred to the Mat-Su Borough for verification of his
calculation.
9:50:53 AM
Senator Elton understood the definition of a "mega project" to
be a project exceeding one or two billion dollars. According to
that definition, this proposal would be considered a mega
project. He asked the types of preparation and diligence
performed by the Railroad's board of directors in relation to a
mega project.
9:51:41 AM
Mr. Gamble informed that the board of directors was a management
board rather than an oversight board. The board delegated the
authority to run the day to day operations of the Railroad. The
bonds would not be issued all at once and the board would
approve each issuance of bonds separately, based on an
evaluation of the risks related to each phase of the project.
9:53:11 AM
Senator Elton inquired as to the diligence exercised by the
board with regard to financial matters.
9:53:35 AM
Mr. Gamble told of the debt management office managed by the
Chief Financial Officer of the Railroad which was dedicated to
that work. Additionally, the market itself would determine the
risk and the interest rates, allowing the buyers to participate
in the diligence process.
9:54:41 AM
Ms. Parker added that Agrium had been a publicly traded company
on the New York and Toronto stock exchanges for the past 12
years. The company would conduct internal due diligence before
the project was initiated.
9:55:26 AM
Senator Thomas was unsure of the source of the aforementioned
$300 million figure.
Mr. Gamble answered that that amount would be "rolled into" the
general bonding authorization.
Senator Thomas understood that those funds would specifically be
Railroad bonding and not associated with State liability.
Mr. Gamble confirmed that the funds would be conduit financing,
akin to the Agrium project financing.
9:56:09 AM
Senator Thomas observed that when an extension of exportation of
natural gas from Cook Inlet seemed likely, the expected reserves
increased. He asked if this trend would impact the proposed
project.
9:57:07 AM
Ms. Parker reiterated that Agrium would prefer to continue to
utilize natural gas, which would save the company $2 billion on
this project. However, natural gas reserves were diminishing,
and the plant was currently operating for only half of the year,
at 50 percent capacity. The North Slope would not be a supplier
of gas for at least ten years. Agrium's intent was to purchase
gas from Cook Inlet producers to operate the plant at 50 percent
capacity until its conversion to coal, and then to remain using
coal.
9:58:51 AM
Senator Olson asked if a market for the plant's product would
develop if it were operating at 100 percent capacity.
Ms. Parker affirmed.
Senator Olson identified a five year difference between the
estimated completion dates of the gasification plant and the
natural gas pipeline from the North Slope. He asked how Agrium
planned to repay the bond debt in that five year time frame.
9:59:41 AM
Ms. Parker explained that if Agrium converted the plant to a
coal gasification facility, it would continue to employ coal and
would not return to natural gas. The bond repayment would be
negotiated with the bond market and the Alaska Railroad
Corporation.
Senator Olson commented that the public was "very satisfied"
with the impacts of natural gas usage, and asked the reaction of
residents of the Kenai Peninsula to the proposed coal burning
facility.
Ms. Parker shared that Agrium had received positive comments
from people in the community. New technologies would make a coal
project much cleaner than in the past. Extensive permitting
would be required, including air and water quality permits and
an environmental assessment.
10:01:16 AM
Senator Huggins stated that Agrium was one of the few industrial
production bases in Alaska. The rail spur would serve
approximately 50 percent of the State's population in the
Anchorage and Kenai areas, as well as provide alternate
transportation for hauling construction materials to the North
Slope for the erection of a natural gas pipeline. The State
built very little new infrastructure, and the rail spur would
decrease the wear on area roads, thus decreasing the needed
maintenance and upkeep of the existing infrastructure. He
relayed that the communities he had contacted supported the
proposal.
10:04:25 AM
Senator Elton asked for clarification that the only asset that
the Railroad would commit to the project was the "rolling
stock".
Mr. Gamble affirmed.
10:04:49 AM
Senator Thomas asked if Agrium intended to sell electrical
surplus energy back into "the grid".
Ms. Parker affirmed. She elaborated that the arrangement was
currently to produce 190 megawatts of power, of which the plant
would use 120 megawatts and sell 70 megawatts to the grid. The
Homer Electric Association had been involved in those
discussions.
10:05:27 AM
Senator Dyson asked if the project would require a new intertie
line to transport the power produced.
Ms. Parker responded that the project would not require a new
intertie line.
10:06:00 AM
Senator Dyson had received contradictory information.
10:06:08 AM
JOHN DUFFY, Borough Manager, Matanuska Susitna Borough,
testified via teleconference from an offnet location in support
of the project and the bill as amended. He referenced three
studies that examined the impact of the proposed rail spur, and
informed that the studies supported the project, as it would
allow for increased efficiency and mining development. He set
forth that Alaska currently imported cement, but could produce
its own cement and transport that product to market with the
construction of the rail spur. The railroad would also provide
savings for the transportation of materials to the North Slope
when construction of the gasline began. The Borough would assist
in the attainment of an EIS.
10:08:25 AM
Co-Chair Stedman shared that the Committee was considering the
inclusion of a termination date of five years for the
authorization of the Mat-Su rail extension, and asked Mr.
Duffy's reaction.
10:09:01 AM
Mr. Duffy agreed with Mr. Gamble that a five year termination
date was "appropriate".
10:09:09 AM
Co-Chair Stedman proposed an eight year time frame for
authorization of Agrium's bonding portion of the project, after
which time Agrium could request reauthorization if necessary.
10:09:39 AM
Mr. Gamble voiced that Railroad's support of that proposal, and
deferred to Agrium.
Ms. Parker concurred.
10:09:58 AM
Amendment #1: This conceptual amendment reads as follows.
Place a five year sunset date on the portion of
authorization ($300 million) in the bill allocated to the
Mat-Su Rail extension to Pt. Mackenzie.
Place an eight year sunset date on the balance of the
authorization ($2.6 billion) to finance the facilities and
equipment associated with the Agrium Kenai Gasification
Project.
Co-Chair Stedman moved for adoption.
There was no objection and the amendment was ADOPTED.
10:10:40 AM
Co-Chair Hoffman offered a motion to report the bill from
Committee as amended with individual recommendations and
accompanying fiscal note.
There was no objection and SCS HB 229 (FIN) was MOVED from
Committee with previous zero fiscal note #1 from the Department
of Commerce, Community and Economic Development, Alaska Railroad
Corporation.
10:11:32 AM
CS FOR SENATE BILL NO. 144(STA)
"An Act relating to matching funds in state tourism
marketing contracts with trade associations; establishing
the Alaska Tourism Marketing Funding Task Force; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
10:11:51 AM
MARIT CARLSON-VON DORT, Staff to Senator Lesil McGuire, read
portions of the sponsor statement [copy on file] into the record
as follows.
In 2001 the State of Alaska privatized the functions of the
tourism marketing program by contracting with the Alaska
Travel Industry Association. Prior to the current
structure, Alaska's travel industry was promoted by a
membership organization which was comprised of both private
sector and State officials. Since that time the Department
of Commerce, Community and Economic Development has
contracted with the Alaska Travel Industry Association to
design and implement Alaska's tourism marketing program.
State statute currently requires 50/50 matching funds;
State general funds matched by private industry dollars.
The recent passage of the travel industry taxes has had the
dual effect of generating significant revenues to the
State's general funds, and also the potential of
eliminating the viability of voluntarily raising private
sector dollars required to meet that 50 percent match.
Without the commitment of the cruise industry funding the
Alaska Travel Industry Association's ability to
successfully market Alaska and compete with travelers in
the national and worldwide marketplace is greatly
compromised, particularly with respect to those independent
travelers, those people that are coming to Alaska on their
own via the Alcan highway or flying into our airports, and
this is a particular area of visitors that has remained
relatively stagnant and even declined in the last several
years.
10:13:40 AM
Ms. Carlson-Von Dort continued her testimony as follows.
Senate Bill 144 will allow Alaska's travel industry to
continue to receive State funds by temporarily changing the
statutory match required in AS 44.33.125 from 50/50 to
70/30.This change will be repealed on July 1 of 2008.
Additionally, Senate Bill 144 will create a nine member
task force operating from September through December of
2007 to investigate long term marketing funding solutions.
This task force would be made up of one House member
appointed by the Speaker [of the House of Representatives],
one Senate member, appointed by the Senate President, two
members of the Alaska Travel Industry Association, two
members of the cruise industry, which would both be
appointed by their respective organizations, one member,
which would be the Governor's Special Assistant to
Commerce, one member of the Department of Commerce,
Community and Economic Development, to be appointed by the
Governor, as well as one member to be appointed at the
Governor's discretion. This task force shall submit its
findings and recommendations to the Governor and the
legislature by the 30th day of the second regular session
of the 25th Alaska State Legislature.
The purpose of this temporary statutory change would be to
insure the maintenance of the Alaska Travel Industry
Association's marketing budget, therefore maintaining and
stabilizing visitor numbers while allowing the State and
the industry to better evaluate how the cruise industry is
going to participate, will or will not participate, in
additional funding. Tourism, as I'm sure you all know, Mr.
Chairman, has proven to be a tremendous economic engine for
the State. It is one of Alaska's largest industries with an
estimated $2.4 billion annual economic impact, as well as
being one of Alaska's leading generators of employment. It
is essential for the State's economic well-being to support
this renewable resource industry and foster its growth. I
think that Senate Bill 144 strikes a very good balance by
helping the industry continue to market itself through its
time of financial uncertainty, i.e. this year, without
mandating increased State expenditure. Really, what we're
concerned about is whether or not the Alaska Travel
Industry is going to be able to take advantage of all the
dollars that are currently, the $5 million that are
currently in the core program budget. I mean, it would be
certainly a shame to not be able to, to essentially leave
those dollars on the table and not be able to utilize them
to market Alaska.
10:16:28 AM
Senator Olson understood the task force would "expire" on
December 31 of 2007.
Ms. Carlson-Von Dort affirmed.
Senator Olson observed a zero fiscal note, and asked if the task
force would be able to produce a meaningful report without
funding and in such a short amount of time.
Ms. Carlson-Von Dort affirmed, responding that the Department of
Commerce, Community and Economic Development had reviewed the
fiscal impact.
10:17:21 AM
Senator Thomas identified two task force appointees from the
Alaska Travel Industry Association (ATIA) and two from the
cruise industry. He pointed out that the cruise lines were
members of ATIA, and asked if there was a mechanism to ensure
that the cruise industry would not be represented by four of the
task force members.
Ms. Carlson-Von Dort understood that the cruise industry
representatives would not embody the interests of ATIA, thus
representation would be equally allocated.
10:18:06 AM
PATTI MACKEY, Executive Director, Ketchikan Visitors Bureau, and
Chair of the Board of Directors, ATIA, testified via
teleconference from an offnet location in Ketchikan in support
of the bill. The proposed 70/30 match with a one year
termination provision was the most reasonable proposal to
address the current tourism marketing needs. She added that the
composition of the task force should be as diverse as possible
in order to best represent tourism in Alaska, and urged support
of the bill.
10:20:46 AM
CHIP THOMA, Juneau Resident, testified in opposition to the
bill. He provided written testimony [copy on file] and read his
testimony as follows.
The state funding request by the Alaska Travel Industry
Association (ATIA) is a dramatic change from past
agreements in Alaska tourism promotion. Going from a 50/50
percent share to a 70/30 percent state-industry split is a
fiscal departure that should be based both on demonstrated
need and a logical advertising strategy for the future. Yet
neither situation has occurred; it's all speculative. It's
speculative that the cruise industry is going to drop its
support, it's speculative whether ATIA is going to be able
to raise the money. They should be able to.
The ATIA has failed to make the case that in the past state
appropriations were well spent, or that increased 70/30
funding is the simple answer. Instead, ATIA blames the
cruise ship initiative as the 'probable' cause of its
funding woes, while ignoring the obvious fact that private
advertising for cruises in Alaska now tops $70 million a
year. Market forces appear to be working naturally to make
the ATIA irrelevant in the big picture of advertising for a
$2.5 billion a year Alaska tourism industry. ASMI [Alaska
Seafood Marketing Institute] and other private Alaska ads
may total $20 million more, bringing the total 'other'
spending on Alaska tourism to $90 million. That's a lot of
money, and I don't think the ATIA is going to have one dent
in that. All the advertising I see in the magazines I read,
it's all Holland America, Princess, these are all fold-out
ads. These people are doing a lot of advertising. All the
glaciers, the water, the kayaks, the whales, that's all
cruise ship type advertising, and the ATIA should not be
involved in that and yet they are.
Governor Jay Hammond determined the participation rate for
state funding for new industry over three decades ago: no
subsidies. ATIA should wake up, use its considerable
marketing skills to raise monies for the 50 percent share
agreement they now enjoy, before it all dissolves in the
wake of a wealthy cruise ship industry. I know a lot of
organizations that hire fund raisers and they have fund
raisers on commission, and I think the ATIA would be very,
very wise to bring somebody on board who really knows what
they are doing, can raise some money for this group, give
them 10 percent of what they're going to raise and let them
try to match that 50/50. If they think they have to go
above $10 million, then they should raise $5 million or $6
million and try to match with that.
Finally, I hope you set an appropriate funding level and
participation rate by the state and the tourism industry.
Please reject SB 144 as an inappropriate level of state
tourism funding, and return to the 50/50 share and
participation rate.
10:24:09 AM
Senator Huggins asked Mr. Thoma's affiliation with ATIA or other
involved parties.
Mr. Thoma declared that he represented only himself. He
explained that his interest in this issue was due to the fact
that ATIA received State funding to advertise tourism, while
other industries did not enjoy similar support. He opined that
the healthy tourism industry did not require State support.
Senator Huggins repeated his query as to Mr. Thoma's involvement
in this issue.
10:25:34 AM
Mr. Thoma replied that he was Juneau resident and was
"inundated" with ATIA advertisements on television. These
advertisements urged viewers in Alaska to "go out and enjoy the
outdoors," and he considered them an inappropriate use of State
funds.
10:25:58 AM
Senator Olson informed that ATIA and the tourism industry had
positive effects in his community, and asked if Mr. Thoma
supported the establishment of a task force to determine the
proper use of tourism funding.
10:26:53 AM
Mr. Thoma had no comment or opposition to the creation of a task
force, but reiterated his opposition to the proposed 70/30
funding ratio.
10:27:07 AM
Senator Olson asked how long Ms. Mackey had been involved with
the tourism industry, and if she recalled any information
regarding a tourism task force created 10 to 15 years prior.
10:28:05 AM
Ms. Mackey replied that she had been employed in the tourism
industry for approximately 12 years, and had an extensive
marketing background. She shared that the previous task force
presented the "millennium plan" to the legislature seven to
eight years ago. That plan recommended a change in the trends in
the industry to consolidate all entities involved in tourism
marketing. The State had been operating under that model since
it was proposed by the task force.
10:29:13 AM
Co-Chair Stedman asked for a brief synopsis of Ms. Mackey's work
history.
Ms. Mackey shared that her background was in marketing,
specifically communications, which included broadcasting and
journalism. She was also the former chair of the marketing
committee utilized by ATIA to create its statewide budget.
Co-Chair Stedman asked if any recent studies were available to
demonstrate the fiscal return for the State's investment in
tourism advertising.
Ms. Mackey responded that studies were conducted with the
cooperation of the Department of Commerce, Community and
Economic Development, and return on investment information had
been provided.
10:30:58 AM
Co-Chair Stedman requested the aforementioned "return on
investment" information.
10:31:03 AM
Senator Thomas asked the composition of the ATIA board.
10:31:22 AM
Ms. Mackey answered that board members were elected by the ATIA
membership, and those positions were based on regional
representation. Seats on the board were also designated for
members of the cruise industry to ensure its inclusion. The
board was currently comprised of 23 members, and was
representative of many facets of the tourism industry in Alaska.
10:32:13 AM
Senator Thomas asked if seats on the board were designated for
each region of the state.
Ms. Mackey affirmed. Seats were designated by region, in
addition to some "at large" seats.
10:32:53 AM
Ms. Carlson-Von Dort informed of a table distributed to each
member titled "The Net Return to the State of Alaska from:
Timber, Tourism, Minerals, Commercial Fisheries" [copy on file]
dated March 21, 2006.
10:33:33 AM
Co-Chair Stedman ordered the bill HELD in Committee.
10:33:38 AM
CS FOR HOUSE BILL NO. 238(FIN)
"An Act relating to the response account of the oil and
hazardous substance release prevention and response fund;
and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
10:33:53 AM
MICHAEL PAWLOWSKI, Staff to Representative Kevin Meyer,
testified that Section 3 of the bill would create a subaccount
within the State's oil and hazardous substance release
prevention and response account. The response account contained
$50 million and was established in reaction to the Exxon Valdez
oil spill to provide for emergency clean-up in the event of an
oil or other hazardous substance spill. Section 3 of the bill
would add language similar to that used for the Constitutional
Budget Reserve subaccount to create a response account
subaccount by transferring $40 million into the subaccount.
Section 2 of the bill would allow realized earnings from the
subaccount to be deposited into the prevention account. The
subaccount would be managed more aggressively than the
prevention account, and earnings from the subaccount would
provide operating funds to the Department.
Mr. Pawlowski continued that Section 1 addressed concerns of
market fluctuations, providing for a one cent per barrel
surcharge on oil in the event that the balance of the oil and
hazardous substance release prevention and response fund was
calculated to be less than $50 million. The surcharge would be
triggered by expenditures from the account in relation to
prevention or response activities, but would not be employed to
compensate for losses from the subaccount.
Mr. Pawlowski identified a decline in the balance of the
prevention and response account due to a decline in oil
production. This bill was an attempt to provide "extra operating
income" to the fund in the future by investing the fund's
"underutilized resource".
10:37:02 AM
Co-Chair Hoffman informed that he served in the legislature when
the prevention and response account was initially created. He
asked the amount of funds expended from the account since its
inception, and how that figure would compare to the anticipated
revenue generated from the subaccount.
10:37:57 AM
Mr. Pawlowski referred to a table titled "Department of
Environmental Conservation, Division of Spill Prevention and
Response, Response Account Expenditure History Since Inception
(10/2/1994 to Present)" [copy on file]. He pointed out that the
largest disbursement of funds was $2.1 million, and concluded
that "not that much has been spent."
Co-Chair Hoffman asked if the legislation contained a mechanism
to enable the State to access the $40 million in the investment
account in the event of a major spill incident.
Mr. Pawlowski deferred to the Department of Revenue to respond
to questions regarding access to the funds in the subaccount.
10:39:21 AM
BRIAN ANDREWS, Deputy Commissioner, Department of Revenue,
responded that the $40 million would be invested in a portfolio
of stocks and bonds, and would be fully accessible within three
days.
10:39:55 AM
Senator Thomas asked if the bill contained a provision to ensure
that the $50 million balance of the account would be maintained,
regardless of whether the money was in the regular fund or the
subaccount.
10:40:38 AM
Mr. Pawlowski replied that the bill would not provide for the
reinstatement of a surcharge in the event of investment loss.
The surcharge would be triggered only by expenditures from the
account. The management of realized earnings in excess of the
$50 million balance of the account would be "left up to
regulation and discussion."
10:41:18 AM
Senator Thomas asked if the earnings of the subaccount would be
used to replenish the original response and prevention account.
Mr. Pawlowski explained that the earnings of the investment
account in excess of $50 million would be deposited into the
prevention account and utilized to respond to oil spills or
other emergency scenarios.
10:41:45 AM
Senator Thomas clarified that his question related to earnings
above the original fund balance of $50 million.
Mr. Pawlowski was unsure. He estimated that the realized
earnings would "probably be deposited into the prevention
account." The prevention account would not lapse and the
earnings would create a positive balance in the prevention
account. He directed the Committee's attention to four pages of
graphs relating to the response fund [copy on file] prepared by
Representative Meyer's office.
10:43:11 AM
Senator Huggins asked the activities the response funds were
allocated to, and how the State "recouped" those costs from the
parties responsible for the spill.
Mr. Pawlowski informed that existing statutes were "very clear",
and provided that all expenditures from the response account
were "cost recoverable". The State would pursue repayment from
the responsible party for the full amount of the response costs.
10:43:58 AM
LARRY DIETRICK, Director, Division of Spill Prevention and
Response, Department of Environmental Conservation, informed
that the full amount of expenditures related to spill response
would be recovered by the State. He exampled a spill incident
involving the M/V Selendang Ayu, and shared that the State was
currently in settlement discussions to recover the funds spent
in response to the accident involving that vessel. Approximately
80 percent of expenses associated with that response had been
recovered thus far.
10:44:50 AM
Senator Huggins deduced that expended funds would not be
available for investment, and asked if there was a provision to
compensate the State for lost investment opportunities while
awaiting settlement.
10:45:21 AM
Mr. Pawlowski answered that the sponsor had considered the
issue, but decided not to pursue lost "opportunity costs". The
statutory fines, penalties, and damage costs were deemed
"sufficient" by the sponsor.
10:46:01 AM
Co-Chair Hoffman asked if the industry would be liable to
replenish the response fund if poor investment returns led to a
balance lower than the required $50 million. He reminded that
the industry would benefit from good investment returns by not
paying the surcharge, and asked if it would contribute to the
fund during times of poor returns.
Mr. Pawlowski responded in the negative. He pointed out that the
industry currently was not required to compensate the State in
times of extra earnings.
10:47:06 AM
Co-Chair Hoffman remarked that the State was assuming a risk by
passing this legislation. If the investment account suffered
losses, the State would be liable for the decrease, and the oil
companies would not be charged. If however the investment
account had realized earnings, the industry would benefit as the
surcharge would not be triggered by the balance of the account.
He opined that realized earnings from the investment subaccount
should be deposited into the general fund.
10:47:59 AM
Co-Chair Stedman asked Mr. Pawlowski to speak to the "risk
shift".
Mr. Pawlowski agreed that the State would assume financial risk
in the establishment of an investment subaccount. If the State
was required to access funds in the investment account during a
time of poor market conditions, the State could be forced to
"buy in at a loss". As currently in statute and specified in the
proposed legislation, the only recoverable dollars would be
actual expenditures. The current spill prevention and response
account assumed very little risk, but had earned only $1.25
million the previous year.
10:49:02 AM
Co-Chair Hoffman articulated that the original legislation
provided a mechanism that would require the oil industry to
replenish the account as funds were expended through prevention
and response activities. Under the proposed legislation, the
State would assume the responsibility to maintain the balance of
the fund. If the investments did not return profits, the State
would be liable for the full fund balance without contribution
from the industry. If the investments proved successful,
industry would not be required to contribute in that situation
either, thus relieving it of participation in the funding of the
spill prevention and response account. Co-Chair Hoffman
concluded that if the legislature sought to ensure that the $50
million balance was always available to abate spills, it would
not pass this bill.
Mr. Pawlowski granted that Co-Chair Hoffman's logic was correct.
He characterized the issue as a "policy call", balancing
potential earnings with potential losses. He pointed out that
the funding for the Division had been consistently declining,
and this bill would provide a mechanism for continued funding.
He elaborated that industry would be financially liable for
clean-up if a spill occurred via direct cost recovery and the
imposition of the surcharge.
10:51:02 AM
Co-Chair Stedman asked the Department of Revenue to speak to the
fiscal note.
Co-Chair Hoffman asked Mr. Dietrick if the Department of
Environmental Conservation supported the legislation.
Mr. Dietrick deferred to the Department of Revenue.
10:51:32 AM
Mr. Andrews informed that the entire $50 million balance of the
account was currently invested in a "short term money market"
portfolio, and would be reinvested into a moderate risk
portfolio comprised of stocks and bonds. The costs reflected on
the fiscal note would be investment management, custodial and
accounting expenses. The costs associated with the investment
account would represent approximately 10 basis points of the
entire investment, which he considered reasonable.
10:52:46 AM
Senator Elton asked why the bill would invest a "hard dollar
amount". He exampled the Permanent Fund, which was invested
based on percentages. He asked if the "hard dollar amount" was
problematic for the Department of Revenue.
Mr. Pawlowski replied that the investment figure was selected as
a "beginning point". The figure was "relatively arbitrary" and
was selected to allow the Division of Spill and Prevention
Response to continue to function as distinct investment policies
were established.
10:53:51 AM
Senator Elton asked if funds would be moved from the investment
account when the balance exceeded $40 million.
Mr. Andrews responded that the existing account had never been
drawn below $40 million, therefore the Department was
"comfortable" with that figure as the initial investment amount.
He explained that realized earnings which would fund the
operating expenses of the Division were generated through
transactions. The unrealized earnings were "market
appreciation", which could vary year to year depending of the
condition of the market.
10:55:03 AM
Senator Elton suggested that an investment account based on a
percentage of the total balance of the spill response fund would
simplify the calculation and include consideration of market
fluctuations.
Mr. Pawlowski responded that a "percentage approach" would
require the Department to engage in continuous accounting and
monitoring activities, and would be unduly burdensome. The $40
million figure was a "transitional investment", and would not be
the required balance of the subaccount.
10:56:08 AM
Senator Thomas agreed with the underlying philosophy of
increasing the return on the spill response and prevention
account, but recommended that the oil industry maintain its
responsibility to contribute to the fund through the surcharge.
10:57:22 AM
Co-Chair Stedman ordered the bill HELD in Committee.
AT EASE 10:57:42 AM/11:06:03 AM
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 11:06:16 AM
| Document Name | Date/Time | Subjects |
|---|