Legislature(1993 - 1994)
02/24/1994 09:20 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
February 24, 1994
9:20 a.m.
TAPES
SFC-94, #18, Side 1 (000-end)
SFC-94, #18, Side 2 (575-end)
SFC-94, #20, Side 1 (000-028)
CALL TO ORDER
Co-chair Drue Pearce convened the meeting at approximately
9:20 a.m.
PRESENT
In addition to Co-chairs Pearce and Frank, Senators Rieger
and Jacko were present. Senators Sharp and Kerttula arrived
as the meeting was in progress. Senator Kelly did not
attend.
ALSO ATTENDING: Senator Mike Miller; Former Representative
Walt Furnace, General Manager, Alaska Support Industry
Alliance; Harry A. Noah, Commissioner, Dept. of Natural
Resources; Paul Fuhs, Commissioner, Dept. of Commerce and
Economic Development; James Eason, Director, Division of Oil
and Gas, Dept. of Natural Resources; Russell Heath, Alaska
Environmental Lobby; Mike Greany, Director, Legislative
Finance Division; and aides to committee members and other
members of the legislature.
ALSO PARTICIPATING VIA TELECONFERENCE:
Barbara Fullmer, Assistant Attorney General -
Anchorage
Douglas Yates, P.O. Box 221, Ester, Alaska -
Fairbanks
Tom Lohman, North Slope Borough - Barrow
Larry Smith, Research Institute - Homer
Alice Ruby, Chair, Bristol Bay CRSA Bd. -
Dillingham
Theo Matthews, United Cook Inlet Drift Assoc.- Kenai
Loren Flagg, Kenai Peninsula Fishermen - Soldotna
Gary Hinkle - Soldotna
Anthony Whitworth -
Fairbanks
Tom Armour, City Administrator - Pelican
SUMMARY INFORMATION
SB 240 - MUNICIPAL TAX CREDIT/HABITAT PROTECTION
Brief testimony was presented by Theo
Matthews and Gary Hinkle. Amendment No. 1
was proposed by Senator Rieger and adopted.
It was then incorporated into CSSB 240 (Fin)
which was REPORTED OUT of committee with a
"do pass" recommendation and zero fiscal
notes from the Dept. of Natural Resources and
Dept. of Fish and Game.
SB 308 - ADMIN ACTION RE LAND/RESOURCES/PROPERTY
Testimony was presented by Jim Eason and
individuals at the above-listed teleconference
sites. The bill was subsequently
HELD in committee for further
hearing, Monday, February 28, 1994.
SB 322 - DELAYS OF OIL AND GAS LEASE SALES
Testimony was presented in conjunction with
SB 308 (see above.)
SB 240 - MUNICIPAL TAX CREDIT/HABITAT PROTECTION
Co-chair Pearce directed that SB 240 be brought on for
discussion. She explained that it would provide for an
optional municipal tax credit for certain river habitat
protection improvements. It pertains to the Kenai River and
will allow local governments to provide a habitat protection
credit that could offset a portion of property taxes if an
improvement has been constructed that aids in fish habitat
along the river. The Co-chair pointed to the Senate
Resources Committee Substitute for the bill, accompanying
zero fiscal notes, Dept. of Fish and Game position paper in
support, Kenai Borough statement in support, a resolution
from the Kenai River Special Management Area Advisory Board,
and correspondence from the Alaska Sportfishing Association
in support of the bill.
Senator Rieger directed attention to page 1, line 5, of CSSB
240 (Res) and asked if Co-chair Pearce would object to
addition of Unless prohibited by municipal charter, before
language in subsection (a). Co-chair Pearce noted that the
legislation is limited to local governments on the Kenai.
She added that, to her knowledge, none of the local charters
would prohibit the credit. Senator Rieger stressed that, as
a general rule, the legislature should not pass state laws
that override local charters. Co-chair Pearce said she had
no objection to the amendment. Senator Rieger then MOVED
for adoption of the new language. No objection having been
raised, the language was ADOPTED for incorporation within a
draft Senate Finance Committee Substitute for the bill.
Co-chair Pearce called for additional testimony on the bill.
None was forthcoming. Senator Jacko MOVED that CSSB 240
(Fin) pass from committee with individual recommendations.
(At this point in the meeting the teleconference monitor
advised of an individual in Soldotna who wished to testify.)
Senator Jacko WITHDREW his motion for passage of CSSB 240
(Fin).
THEO MATTHEWS, administrative assistant, United Cook Inlet
Drift Association, testified via teleconference from Kenai.
He said that the Association supports habitat protection in
all state rivers. He expressed concern, however, that the
proposed bill does not provide a tax credit for those "who
do the best for habitat protection, and that is to not
develop their land and stay off of it." The Kenai Borough
recently formed a task force to discuss these issues. Many
land owners are requesting consideration for doing the best
thing and not developing their land. Those issues will be
discussed on the Kenai at the local level. Mr. Matthews
acknowledged that he did not know whether this issue would
fit within the proposed legislation.
In his closing remarks, Mr. Matthews applauded the effort to
improve habitat on the Kenai. Co-chair Pearce referenced
the "no development option" and explained that under present
statutes, conservation easements are allowed to local
municipalities. She then voiced her understanding that the
task force would examine whether opportunity for the
easements should be provided at the local level. For that
reason, the option was not added to the current bill.
Senator Jacko again MOVED for passage of CSSB 240 (Fin) and
requested unanimous consent. No objection having been
raised, CSSB 240 (Fin) was REPORTED OUT of committee with
zero fiscal notes from the Dept. of Natural Resources and
the Dept. of Fish and Game. All members present signed the
committee report with a "do pass" recommendation. Senators
Kerttula and Kelly were not in attendance and did not sign
the report.
Later in the meeting, GARY HINKLE testified in support of
the bill via teleconference from Kenai. He noted that there
would be no cost to the state. Granting of the credit is at
the discretion of the borough and cities involved. Net gain
to habitat through this effort will far exceed any risk of
the bill being pro development.
SB 308 - ADMIN ACTION RE LAND/RESOURCES/PROPERTY
Co-chair Pearce directed that SB 308 be brought on for
discussion and noted that it was introduced by the Senate
Resources Committee at the request of the administration.
JIM EASON, Director, Oil and Gas Division, Dept. of Natural
Resources, came before committee and provided an overview of
CSSB 308 (Res). He explained that changes are intended to
respond to concerns raised by public and agency review of
the original bill.
As background information, Mr. Eason said that the
legislation is intended to respond to "a string of court
cases." He pointed to the recent supreme court order which
declined to accept review of the state's appeal of the "sale
78 injunction." The injunction thus stands and sale 78 will
not proceed. Based on sale 50 and 55 litigation, it will be
four to six years before the state knows whether it can
lease sale 78 tracts in Cook Inlet. Every sale on the
schedule today is in similar jeopardy.
The proposed bill is designed to attempt to accomplish
something the court has been unwilling to allow. It would
apply common sense to standards to which the department will
be held in making best- interest findings for disposals or
lease sales. The courts, through a sequence of decisions,
have told the department that in order to have a best-
interest finding in a coastal zone consistency determination
upheld for a lease sale, the department must be able to
demonstrate what events are going to happen following the
sale. That is impossible. Events may range from no
activity to multiple activities resulting in discovery of
many oil fields. The department does not know where
conflict may occur until a proposal with a specific location
is made.
The department has, in the past, in best-interest findings
and consistency determinations, attempted to recognize
common sense human limitations but also provide protections
so that future activities are properly conditioned. The
only known at the time of issue of a lease is that nothing
will happen until a permit is issued. And a permit will not
be issued until agencies and the public have an opportunity
to review the permit proposal. The department also has the
ability to further condition the permit to make it
consistent with the Coastal Zone Management Act. That is
the only way the state lease program can work. The proposed
legislation is designed to achieve that end.
Mr. Eason next advised of the following, significant
provisions of the legislation:
Page 2 amendments to AS 38.05.035(e) require that
written
findings be subject to certain conditions. The
department, in making a written finding, will have the
discretion to establish the scope of the administrative
review on which the determination is to be based.
Courts have indicated that the department must consider
all future events. The subject amendments require
consideration only of what can reasonably be foreseen.
Review and best interest findings must address "only
the reasonably foreseeable, significant and direct
effects of the sale . . . ." Use of "reasonably
foreseeable, significant and direct" is a change from
the original bill in reaction to prior use of "non-
speculative." The new language is lifted from federal
regulations dealing with Coastal Zone Management Act
consistency determinations.
Amending language also allows the department discretion
in sorting through all matters brought forward, in
order to focus on facts that are material to decision
making.
(Senator Sharp arrived at this time.)
Further, the department should only be held responsible
for "those things we know" or issues that are "made
known to us." The department should consider
everything that is raised and address it in writing as
long as it is raised during the period when it is
timely to do so.
Paragraph (C) contains explicit acknowledgment of
legislative intent that the department have the ability
to approve lease sales as parts of phased projects in
the future.
Page 3 contains housekeeping changes as a result of the
preceding substantive amendments.
Page 4 incorporates substantive amendments of AS
38.05.035(g). That statute provides for additional
considerations that must be thought through and
rationalized in a written best-interest finding for an
oil and gas lease sale, that are not required of other
disposals and findings. Amending language would tie
these considerations to facts known to the department
at the time of preparation and material issues raised
during the period of public comment. Inclusion of
these material facts places a higher burden on the
department in that it must comply with the existing
statutory check list as well as these additional
material issues.
Replacement of the word "in" with "within" at page 4,
line 21, is in response to statutory language requiring
consideration of fiscal impacts "in and adjacent" to
the area. That indicates a broader consideration of
habitat impacts. Mr. Eason further elaborated on
challenges surrounding lease of sales 55 and 57.
The last amendment relates to Title 46 provisions of
the Coastal Zone Management Act. It is designed to
parallel best-interest amendments in Title 38. Mr.
Eason pointed specifically to subsection (a) language
relating to phased development. He stressed that the
department will not allow actual development to occur
without appropriate permits that are requested,
reviewed, conditioned and approved.
Senator Rieger directed attention to page 2, subparagraph
(C), and requested an explanation. Mr. Eason said that the
intent is to ensure that the department may "consider and do
findings on phased projects" for which the first action is
the lease sale conditioned by proper stipulations and terms
making clear that the successful bidder has no right to
proceed with any action without first obtaining a permit for
that specific activity. That is intended to ensure that
each activity is in compliance with the Coastal Zone
Management Act. Mr. Eason briefly spoke to what he
described as the ultimate condition of a lease--the state's
ability to disallow all activity following a lease sale if
an extraordinary environmental conflict arises.
(Senator Kerttula arrived at this time.)
Senator Rieger next asked that Mr. Eason reconcile language
at page 4, lines 11 through 16, with new language at page 2,
line 9. Mr. Eason said that at the time the final finding
is made in writing, the department will consider and discuss
facts that are material to issues raised during the public
comment period. In most cases that will include periods up
to four years. There are numerous opportunities for people
to comment during that process. The most heavily focused
upon are comment periods following issuance of preliminary
findings and consistency determinations. The department
will consider comments as long as they are within the scope
of the administrative review established in the written
finding. The scope of that review will follow statutory
requirements plus other relevant issues that are reasonably
foreseeable and direct and significant. The intent is that
all public comments be addressed.
Further discussion followed between Senator Rieger and Mr.
Eason regarding the scope of written findings. Mr. Eason
stressed that under the proposed bill, the department will
have to acknowledge "any suggested indirect effects or any
that are brought to our attention." The focus, however,
will be upon reasonably foreseeable, direct and significant
effects. The department is not attempting to avoid
consideration of issues. It is attempting to avoid
litigation over issues regarding direct and indirect
effects.
Discussion followed between Senator Rieger and Mr. Eason
concerning the difference between a direct and indirect
effect. Mr. Eason stressed that his authority is "much
greater to provide protections." He acknowledged that the
line between direct and indirect effects may often be
blurred.
Additional discussion followed concerning division review of
its policies in light of court decisions.
End, SFC-94, #18, Side 1
Begin, SFC-94, #18, Side 2
Senator Jacko attested to concern from constituents that the
propose bill might circumvent the Coastal Zone Management
process. Mr. Eason said it would not. Projects proposed
after a lease sale would generally require two or more
permits prior to proceeding. The division of governmental
coordination would be the coordinator on the permitting
process and the decision maker on the consistency
determination. The input process for permits would continue
as it exists today. The intent is not to diminish public
participation. The bill focuses on the lease sale stage.
Senator Jacko voiced his understanding that Coastal Zone
Management laws result from federal guidelines. He then
asked if the proposed bill would usurp that authority. Mr.
Eason expressed his belief that the legislation would not.
Senator Rieger asked if a material effect includes a
material risk. Mr. Eason responded that a material risk
would be different from a material effect.
Teleconference discussion followed between Senator Kerttula
and BARBARA FULLMER, Assistant Attorney General, Dept. of
Law, concerning the total number of lease sales and the
number challenged in court. Ms. Fullmer noted that the
courts have never invalidated a lease sale. They have found
fault with DNR best interest findings. The current risk is
the stay presently in place regarding lease sale 78. The
supreme court has declined to review the state's petition to
lift the stay. Mr. Eason added that for sale 78, the court
found that the best-interest finding was likely to prevail a
challenge but that the Coastal Zone consistency
determination was inadequate. That was not DNR's
determination alone. While DNR is the agency that issues
the documentation, the documentation is reviewed and
concurred in by the division of governmental coordination,
Dept. of Fish, and Dept. of Environmental Conservation. It
is also compared with the local plan and passed by all
review entities for compliance with laws and regulations.
Responding to a question from Senator Kerttula, Mr. Eason
advised of six sales that were the subject of litigation
since the 1979 joint state-federal sale.
In answer to a question by Senator Sharp, Mr. Eason said
that the consistency report was available for review for
substantial periods of time in both preliminary and final
form. Issuance of the final consistency determination
starts a 30-day time period during which appeal may be made.
Litigants did not appeal the determination for more than two
months. While appeal was made more than 30 days after the
time limit had run, the courts nonetheless allowed
plaintiffs to raise issues.
Co-chair Pearce called for public testimony on the bill.
TELECONFERENCE -
FAIRBANKS:
DOUGLAS YATES spoke in opposition to the bill. He termed
amendments to Title 38 a "nasty assault on the future of
Alaska's public interest and disposition of its natural
resources." He suggested that alteration of Title 38 will
cost Alaska time, money, and loss of faith in its leaders.
It will not resolve competency problems at DNR. It will
push development policy from the legislature and place more
of Alaska's future in the hands of attorneys and the courts.
The bill is moving too quickly. It should be returned to
Senate Resources and adequately addressed.
BARROW:
TOM LOHMAN, North Slope Borough, spoke in opposition to the
bill, saying that the state would be more rather than less
likely to end up in court under the proposed legislation.
Litigation is filed when citizens become frustrated, feel
uninformed, or become distrustful of the process. DNR
failed to consult the state's coastal management program
working group prior to introduction of the bill. And,
following introduction, it failed to notify working group
members, the coastal districts, or state policy council
members in order to allow them to participate in the
process. Many individuals in the districts, state agencies,
and industry have a good working knowledge of ACMP
implementations. Mr. Lohman attested to need for better
coordination of efforts. He referenced the federal offshore
leasing agency and advised that it has taken a different
approach in engaging in consensus building.
Mr. Lohman next directed attention to mischaracterization of
concerns expressed in sale 50, specifically in terms of
impact on caribou and bowhead whales. Bill provisions at
page 4, lines 20 through 21, would prevent citizens and
organizations from raising those kinds of issues.
Mr. Lohman questioned the urgency of moving the proposed
bill at this time. He urged that it be held in committee
and suggested that DNR be encouraged to become more involved
in the working group and to communicate with those in the
districts who will be implementing the program.
HOMER
LARRY SMITH, Kachemak Resource Institute, next spoke via
teleconference from Homer. He explained that he and others
on the Kenai worked together for ten years to establish a
coastal district. Implementation has occurred only in the
last several years. He suggested that the issue is likely
to be moved from state to federal court and become an
inherent problem with all the intricacies of subsistence.
He voiced his belief that offshore development, in some
places, is incompatible with the economic activities upon
which residents depend.
DILLINGHAM
ALICE RUBY, Chairperson, Bristol Bay CRSA Board,
Councilperson, City of Dillingham, and alternate
representative, Alaska Coastal Policy Council, next
testified. She explained that the City of Dillingham has
developed a good relationship with DNR over the years and
hopes to foster that relationship by continuing to work with
the state to help develop policy and support for legislation
that solves real problems. Speaking directly to SB 308, Ms.
Ruby acknowledged need for certainty in the oil and gas
leasing process. Having the courts make decisions for the
state is a major problem. Amendments in CSSB 308 (Res)
appear to address some of the concerns raised at early
hearings. They are, however, confusing since the basis for
some substitute language is unclear. As a result, the
fiscal implications of the bill could be great. CSSB 308
(Res) limits the scope of review under Title 38 and the ACMP
to reasonably foreseeable significant direct effects. The
substitution of "significant" for "non-speculative" is a
step in the right direction and appears to be an attempt to
meet the congressional mandate under the federal Coastal
Management Act. The mandate is likewise reflected in
definitions for direct and significant impact in the Alaska
Coastal Management Program. It is, however, unclear whether
the term "significant" encompasses the broader intent and
whether it will meet federal guidelines. Part of the
problem is that there is no sectional analysis for SB 308 to
clarify the intent of changes. Unless the intent of
proposed changes is made explicit in the bill and through a
detailed sectional analysis, the state will find itself once
again facing lawsuits over interpretation of statutory
changes. The bill is moving at a "lightening fast pace."
In the interest of addressing problems with the leasing
process and public concerns regarding the bill, immediate
action should be delayed to allow time for better resolution
of problems.
KENAI
THEO MATTHEWS, United Cook Inlet Drift Association, next
testified from Kenai, voicing opposition to CSSB 308 (Res).
Changes therein do not address public concerns. Of primary
concern is the attempt to insulate DNR from any and all
public comment and concern at the lease sale stage. That
turns the process into a paper transaction that does not
address or attempt to resolve even the most obvious
potential conflicts. That will place the state in
financially untenable buy-back situations regarding these
leases. CSSB 308 (Res) turns the public interest finding
into an "industry interest finding." Leases will proceed
without resolution of potential conflicts. The bill
contains a radical change in public policy. Under its
provisions, the public may voice all the comments it cares
to at the lease sale stage, but they will not be germane to
the leasing decision.
Mr. Matthews voiced his belief that the bill is "totally
fiscally irresponsible" since it essentially
institutionalizes buy-backs for leases similar to those in
Kachemak Bay.
Mr. Matthews said that nothing could fine-tune the
legislation. He reiterated that the public would be allowed
to express concerns, but those concerns would not be
considered at the lease sale stage. The sale will become
the paper transaction DNR desires.
Mr. Matthews next quoted from Judge Cranston's decision on
the Cook Inlet lease sale and noted that once a lease is
issued, the state is under tremendous pressure to let the
lease proceed to exploration and extraction. Directing
attention to statements on the DNR public relations sheet,
Mr. Matthews reiterated that the proposed bill will lead to
need for partial or full buy-backs at major costs. He
voiced his objection to the zero fiscal note accompanying
the bill. Buy-back was the issue of concern expressed by
commercial fishermen in Cook Inlet regarding lease sale 78.
Mr. Matthews next attested to six recommendations for
improvement of the bill and advised that he would fax the
material to committee.
Senator Kerttula asked why the drift association opposed the
lease sale. Mr. Matthews said that the association did not
oppose the sale. It asked that a mitigation term be
included in the sale document disallowing permanent
production platforms in front of tanker docks and in
intensively used waters south of Kasilof. Concerns covered
approximately 25% of the tracts in the lease. Senator
Kerttula asked that the foregoing statement be provided in
writing.
LOREN FLAGG, Executive Director, Kenai Peninsula Fishermen's
Association, voiced opposition to CSSB 308 (Res), terming it
"bad legislation, from a state planning and public policy
standpoint." At a time when the Coast Zone Management
Council and Senator Little are working toward improved
public notification and involvement in coastal planning, the
administration has introduced legislation that would limit
public and local government input. State planning for oil
lease sales should be conducted up front. At the time of
lease, the state must address potential problems and impact
of activities that could result from the lease. Failure to
do so will invite more court action rather than less. The
general public and the industry need to know and understand
the rules at the lease sale stage.
Mr. Flagg pointed to property rights gained by the
successful lessee and costs to the state associated with
mitigation or buy-back of those rights.
There are substantial legal issues inherent in SB 308. Full
review by the Dept. of Law should be undertaken before the
bill is advanced.
Mr. Flagg took exception to earlier comments by Mr. Eason
and said that issues and conflicts in the most heavily used
commercial fishing ground and recreational area were timely
raised. They are not spurious issues. Obvious conflicts
must be addressed. They were totally ignored by DNR. There
was no detail in the final findings that addressed those
issues. That is the reason the sale is in court. DNR did
not do an adequate job of preparing the sale. The
department ignored the advice of the Dept. of Fish and Game,
commercial fishermen, native groups, and recreational
fishermen. The problem is not with the law but with the
department.
JUNEAU
WALT FURNACE, General Manager, Alaska Support Industry
Alliance, came before committee in support of the bill. He
explained that the Alliance has a membership of 320
individuals and companies throughout the state. The Kenai
chapter has been extremely active in supporting the state
oil and gas lease program and provided positive testimony on
past lease sales.
Mr. Furnace stressed need to maximize return on natural
resources for state citizens. The legislature thus enacted
statutes and regulations supporting positive resource
development. The oil and gas lease program on the Kenai and
in Cook Inlet has progressed well. Although the state has
followed applicable statutes and regulations, the courts, in
some cases, have indicated that is not enough. The
administration thus developed legislation to clarify the
responsibility of the commissioner of the Dept. of Natural
Resources.
Mr. Furnace acknowledged that problems surrounding lease
sale 78 relate to the fact that many fishermen were out
fishing when notices were issued. He further acknowledged
conflicts between industry and fishermen on the Kenai, but
he stressed that Mr. Eason and Commissioner Noah have made
every effort to duly record concerns of the fishing
community. Mr. Furnace voiced need to "look at the
consistency determination" and "tighten up the public
interest findings" to put the program back on target.
Mr. Furnace next referenced timber industry impact on local
economies in Sitka and Ketchikan. He cautioned that delay
in bringing new oil and gas leases on line would seriously
impact the economy on the Kenai since developed oil and gas
resources are 50% depleted. Delay will also impact state
revenues from the petroleum industry. He urged passage of
the bill to address concerns identified by recent court
decisions.
FAIRBANKS
ANTHONY WHITWORTH, spoke in opposition to CSSB 308 (Res).
He attested to poor quality, almost unreadable faxed copies
of the bill available in LIOs and suggested that it has
progressed too fast. Mr. Whitworth said that the present
version of the bill goes too far in placing "all of the
cards" in DNR directors while leaving nothing to state
voters. Division directors should not be placed in
positions where they determine which issues and criteria are
important to the public. Public input is one of the checks
and balances that makes the system work. Successful
resource allocations must be arrived at through
collaborative effort of all stakeholders. Contrary to
recent supreme court decisions that DNR must consider the
probable cumulative impact of all activities, the bill
unreasonably narrows the scope of the best interest finding.
Mr. Whitworth urged that the bill not progress.
PELICAN
TOM ARMOUR, City Administrator, Pelican, Alaska, voiced
concern over the rapid progress of the bill. He expressed a
preference for CSSB 308 (Res) over the original bill but
concurred with earlier comments regarding need for thorough
review by the Dept. of Law.
End, SFC-94, #18, Side 2
Begin, SFC-94, #20, Side 1
Co-chair Pearce announced that teleconference discussion of
SB 308 would continue at the February 28, 1994, meeting.
She encouraged those participating or wishing to participate
by teleconference to fax written testimony and proposed
amendments to committee for inclusion in members' files.
Senator Jacko requested a detailed sectional analysis of
CSSB 308 (Res).
ADJOURNMENT
The meeting was adjourned at approximately 11:00 a.m.
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