Legislature(1993 - 1994)
03/22/1994 09:07 AM Senate FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 22, 1994
9:07 a.m.
TAPES
SFC-94, #34, Side 1 (325-end)
SFC-94, #34, Side 2 (575-end)
SFC-94, #36, Side 1 (000-430)
CALL TO ORDER
Co-chair Drue Pearce convened the meeting at approximately
9:07 a.m.
PRESENT
In addition to Co-chair Pearce, Senators Kerttula, Rieger,
and Sharp were present. Co-chair Steve Frank and Senator
Kelly arrived soon after the meeting began. Senator Jacko
arrived as it was in progress.
ALSO ATTENDING: Senator Leman; Senator Salo; David Rogers,
Attorney At Law, Counsel to the Senate Finance Committee;
Jack Chenoweth, Legal Services, Legislative Affairs Agency;
Bob Poe, Director, Division of Information and
Administrative Services, Dept. of Environmental
Conservation; Mike Conway, Director, Division of Spill
Prevention and Response, Dept. of Environmental
Conservation; Kyle Parker, Office of the Governor; Mike
Greany, Director, Legislative Finance Division; and aides to
committee members and other members of the legislature.
ALSO PARTICIPATING VIA TELECONFERENCE FROM ANCHORAGE:
Barbara Fullmer, Division of Oil and Gas, Dept. of Natural
Resources; Mary Ann Lundquist, Assistant Attorney General,
Dept. of Law; and James Eason, Director, Division of Oil and
Gas, Dept. of Natural Resources.
SUMMARY INFORMATION
SB 215 - OIL/HAZARDOUS SUBS. RELEASE RESPONSE FUND
A draft CSSB 215 (Finance), "I" version was
distributed for committee review. David Rogers
and Jack Chenoweth spoke to changes incorporated
within the new draft. Senator Sharp moved for
adoption as a working document. Senator Kerttula
objected. Additional testimony relating to the
draft was presented by Bob Poe. The bill was
subsequently HELD in committee for additional
public testimony.
SB 308 - ADMIN ACTION RE LAND/RESOURCES/PROPERTY
Background information on litigation regarding
past state oil and gas lease sales was presented
by Kyle Parker. The bill was assigned to a
working group under the direction of David Rogers
to work throughout the week on problem language.
SENATE BILL NO. 215
An Act relating to and redesignating the oil and
hazardous substance release response fund and to its
use in the event of a disaster emergency; repealing 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; amending the authority to
contract to provide personnel to respond to a release
or threatened release of oil or a hazardous substance
and to contract to conduct spill related research;
reassigning responsibility for the oil and hazardous
substance response corps and for the emergency response
depots to the Department of Environmental Conservation,
and for the operation of the state emergency response
commission and its attendant responsibilities for the
local emergency planning commissions to the Department
of Military and Veterans' Affairs; and modifying
definitions of terms relating to the preceding
provisions; terminating the nickel-per-barrel oil
conservation surcharge; levying and collecting two new
oil surcharges; and providing for the suspension and
reimposition of one of the new surcharges; and
providing for an effective date.
Co-chair Pearce directed that SB 215 be brought on for
discussion and referenced a draft committee substitute (8-
LS1107\I, Chenoweth, 3/21/94). She explained that the draft
was received by committee last evening and was not
distributed for members' review until shortly before the
meeting. The intent is to conduct section-by-section review
by drafters, Mr. Chenoweth and Mr. Rogers. The bill will
then be held for subsequent public testimony later in the
week. Senator Sharp MOVED for adoption of CSSB 215 (version
"I") for discussion purposes. Senator Kerttula OBJECTED.
JACK CHENOWETH, Attorney, Legal Services, Legislative
Affairs Agency, and DAVID ROGERS, Contract Attorney to the
Senate Finance Committee, came forward to speak to changes
incorporated within the new draft.
Mr. Rogers first directed attention to Secs. 1 and 5, and
explained that amending provisions, proposed by Senator
Miller, resolve a problem identified by Senator Frank. New
language authorizes appropriation of a portion of
reimbursements for expenditures, related to the EXXON VALDEZ
oil spill and contained in the release contingency and
abatement mitigation account, to the underground storage
tank assistance fund. (Sec. 1 contains findings, and Sec. 5
contains specific provisions.) The portion to be
appropriated is within the discretion of the legislature.
In response to a question from Co-chair Pearce, Mr.
Chrenoweth explained that provisions within Sec. 5 apply to
"money either already placed there or money that will be
placed there in the course of the fiscal year." Responding
to a question from Senator Rieger, Mr. Chenoweth noted that
the legislature typically appropriates both on the basis of
present amounts and amounts estimated to be received during
the fiscal year.
The second change, requested by Senator Leman, revises and
corrects an amendment adopted by the Senate Resources
Committee which attempted to establish an inflation-proofing
mechanism for the response account. The mechanism allows
part of the interest earned on the response account to be
appropriated back into the account to maintain the $50
million balance. Remaining interest could be appropriated
to the Dept. of Environmental Conservation for oil and
hazardous substance operations. Mr. Chenoweth referenced
page 6, line 2, and explained that the $50,000,000 figure
was restored to inflation-proofing language. Page 11, lines
17 through 20, contains language relating to use of a
portion of the interest for inflation-proofing of the
response account. Sections relating to use of interest
earnings for the contingency abatement account for DEC
operations are set forth at page 10, lines 5 through 11.
In response to a question from Senator Kerttula, Mr.
Chenoweth referenced page 11, lines 19 and 20, and noted
that language ties inflation proofing to rates in AS
37.13.145(c)(1) and (2) which are "cross-referenced to the
rates that are used to inflation proof the permanent fund."
That portion is made available to the response account.
Earnings in excess of that are available to the contingency
and abatement account--the source of support for operations
in DEC.
SENATOR LEMAN explained that his intent was to inflation
proof the response account. The amendment offered in Senate
Resources accomplished that but also triggered some
unintended consequences. The intent of the current
amendment is to inflation proof the account while keeping
other things in place.
[Co-chair Frank arrived at the meeting at this time.]
Further discussion followed between Senator Rieger and Mr.
Chenoweth regarding inflation proofing and the triggering of
the surcharge. Mr. Chenoweth stressed that changes at pages
10 and 11 direct that interest earned on investment of 470
fund moneys be first used to inflation proof the response
fund. Remaining interest amounts will then be credited to
the contingency and abatement mitigation account. There is
no direct relationship between page 6 provisions relating to
operation of the surcharge and language providing for use of
interest earnings set forth at pages 10 and 11.
Mr. Rogers explained that the third change, requested by Co-
chair Pearce, is incorporated at page 9, Sec. 15, and page
14, lines 2 through 6 (subparagraph v.).
[Senator Kelly arrived at this time.]
Co-chair Pearce explained that because of problems with
statutory language relating to the 470 fund, use of capital
moneys provided by the legislature last year for the Dept.
of Military and Veterans Affairs' emergency center was
disallowed by the Office of Management and Budget. New
language would allow the legislature to use 470 funds for
"acquisition, repair, and improvement of assets or disaster
emergency preparedness." Language is narrowly defined to
preclude use of 470 moneys for new ferries, buildings, etc.
Mr. Rogers next directed attention to page 16, lines 21 and
22, where the phrase "and the response under way by the
department" was added to Sec. 22. The report, required as a
precondition to obtaining an administrative order to use
money from the response fund, previously related to release
or threatened release of hazardous substances. New language
requires that the report also discuss response efforts
underway at the time. Co-chair Pearce explained that she
proposed the change because she could see "absolutely no way
a governor could make a decision whether to stop action if
he doesn't have any idea what action is being taken."
Mr. Rogers next referenced a series of technical amendments
proposed by Mr. Chenoweth. Mr. Chenoweth directed attention
to new Sec. 2 and explained that it relates to response at
the municipal level. It was deemed wise to revise AS
29.60.510(a) to take into account changes in the manner in
which moneys may be removed from the response account and
the 120-hour report requirement. Other changes relate to
shortened references by referring to the "response account"
and "the contingency and abatement account."
Directing attention to page 2, line 11, Senator Rieger
inquired concerning the reference to "commissioner." Mr.
Chenoweth explained that under AS 29.60.510, the reference
is to the Commissioner of Community and Regional Affairs.
In response to further questions, Mr. Chenoweth informed
members that the Dept. of Environmental Conservation has
principal responsibility. Sec. 2 provisions stem from 1989
legislative action which authorized use of a portion of the
proceeds of the fund for grants. The grant-making
responsibility for municipalities and villages was assigned
to the Dept. of Community and Regional Affairs.
Responding to questions regarding access to the fund by the
Dept. of Environmental Conservation, Dept. of Community and
Regional Affairs, and Dept. of Military and Veterans
Affairs, Mr. Chenoweth reiterated that the Dept. of
Environmental Conservation continues to have principal
responsibility for the fund. The Dept. of Military and
Veterans Affairs will have "money out of the abatement side
. . . , based upon appropriations made by the legislature
for things that Senator Pearce described: the response
center in Anchorage . . . ." The Dept. of Community and
Regional Affairs, in agreement with DEC, could, in a
response situation, provide grants to municipalities and
villages. Grants relating to spills subject to the 120-
hour report are drawn from the response account. Other
grants, for smaller spills, would flow from the contingency
and abatement account. Mr. Chenoweth added, "What is done
in the contingency and abatement account is subject to
specific legislative appropriation." Large spills are
responded to from the response fund, and smaller spills are
responded to from the contingency and abatement account.
For large spills, general appropriation language in the
front section of the budget moving moneys from the 470 fund
into the response account is sufficient. Specific
appropriation by the legislature is required for everything
else.
Senator Rieger asked if reimbursement collections for
cleanup costs would automatically return to the fund and be
subject to appropriation. Mr. Chenoweth explained that
division of the fund into two accounts attempts to reassign
recovered moneys to the respective sources. He directed
attention to page 9, lines 19 through 28, and page 11, lines
6 through 12.
End: SFC-94, #34, Side 1
Begin: SFC-94, #34, Side 2
Discussion followed regarding claims and liens by the state.
Mr. Chenoweth pointed to language at page 18, Sec. 25, and
noted that the law already provides that the state has a
lien for expenditures from the fund. The fact that the fund
is renamed and split into two accounts does not change that
situation. Provisions further broaden application to allow
for liens not only for expenditures for releases/spills but
for threatened releases as well.
BOB POE, Director, Administrative Services, Dept. of
Environmental Conservation, came before committee, presented
a packet of information, and described the flow of the
nickel surcharge through three accounts: the surcharge
account, the mitigation account, and the response fund. Mr.
Poe specifically noted incentive provisions within version
"I" of CSSB 215 which shut off the surcharge for one year if
the legislature does not appropriate all of the 2.5 cent
surcharge on the catastrophic spill side of the split and
all cost recovery related to use of the spill response fund.
That language is set forth at Sec. 9, page 6, line 20.
Discussion followed regarding past use of mitigation account
funding for underground storage tanks. Mr. Poe advised that
language added to the bill, at the request of Co-chair
Frank, does not change the situation. The only change is
that cost recovery must be identified and appropriated to
the response fund (the catastrophic spill reserve) in order
for the surcharge to continue. In response to a question
from Co-chair Pearce, asking if cost recovery could be
appropriated to the storage tank assistance fund, Mr. Poe
indicated that cost recovery must flow to the response fund,
or the surcharge will shut off for a year. However, moneys
from fines, penalties, and settlements may be appropriated
to the storage tank fund. Further discussion followed
between Co-chair Pearce and Mr. Poe regarding annual $5
million expenditures from the fund. Mr. Poe advised that
cost recovery up to this time has not been great enough to
reimburse a large portion of the expenditure. Cost recovery
has typically reimbursed $300.0 to $400.0 of the $5 million.
That amount is expected to grow.
Referencing a flow chart (appended to these minutes as
Attachment A), Mr. Poe explained that moneys would flow
through surcharge accounts, to mitigation accounts, and then
into reserves accounts within the oil and hazardous
substance release prevention and response fund. One reserve
is the catastrophic oil release response account and the
other is the oil and hazardous substance release contingency
and abatement account. The catastrophic oil release
response account is the account that will accumulate the $50
million. Past limitations on the fund have been changed
within the proposed bill so that the 100,000 barrel
threshold is no longer required. The contingency and
abatement account will accumulate revenues to cover state
programs for spill prevention response as well as other
department (DMVA, DNR, DF&G) efforts relating thereto.
Grants to communities for smaller spills would also flow
from this account.
Mr. Poe next directed attention to a tabulation (Attachment
B) and explained that it presents dollar amounts and revenue
flows under five different scenarios. He specifically noted
that under Sec. 34 of the draft bill, moneys presently in
the spill reserve account would be moved to the catastrophic
account. Incentives within the bill encourage that
appropriation. That has an important impact in that since
the spill reserve would then total more than $50 million, no
further surcharge would be paid during FY 95. The surcharge
is effectively turned off immediately. The third column
reflects the financial situation if both the nickel
surcharge and the response fund are split equally between
the catastrophic account and the abatement account. There
is a valid argument for appropriating in this manner because
$74.5 million of the response fund came from general funds
appropriated to the fund before the nickel surcharge was
enacted. It is thus appropriate that those funds be split
for dual purposes: preventing spills as well as cleaning up
spills. An additional argument for the divided
appropriation rests in the fact that provisions added to
version "I" will be difficult to finance on 2.5 cents.
Other revenue sources will be needed. Mr. Poe noted that
under the third scenario, the surcharge would shut off at
the end of the second year.
Mr. Poe next spoke to the 3-cent/2-cent spilt proposed by
the administration and explained that scenario four
represents a split of both the surcharge and the reserve
fund balance. Scenario five splits the surcharge but
deposits the balance of the fund into the catastrophic spill
account. He noted specifically that scenario five would
also shut off the surcharge in the first year.
Discussion followed between Mr. Poe and Senator Rieger
concerning funding shown for existing statutes.
Speaking again to the proposed bill, Mr. Poe voiced concern
that it underfunds existing programs for all departments.
If spill prevention activities are expanded, the
underfunding is even greater. Funding would be short $600.0
the first year, $800.0 the second, $1.7 the third, $2.4
million the fourth, and $3.3 million in the fifth year.
Total underfunding over five years would equal $8.7 million.
Underfunding would not occur if the response fund is split
between catastrophic and abatement accounts.
Mr. Poe next directed attention to a chart showing
historical spending from the response fund. The proposed
bill would provide less than the bare minimum to support a
spill prevention and response program. He further pointed
to a recent legislative audit which indicated that the spill
prevention and response program, at existing levels, is
marginal, at best.
Co-chair Pearce raised questions regarding deposit of
interest earnings on the two funds and advised of her
understanding that interest of $2.5 million would flow to
the spill account on an annual basis. Mr. Poe observed that
that would occur only if the legislature chose to
appropriate the funds. There is no legislative history
supporting that appropriation. Up to this time, interest
has been placed in the general fund. Mr. Poe referenced a
graph evidencing the seventeen changes made to existing law
since imposition of the surcharge and "how the legislature
has changed spending from the fund."
Directing attention to a chart demonstrating the history of
revenues and expenditures for the fund, Mr. Poe noted that
moneys from the surcharge were first collected in 1990 and
appropriated to the fund in 1991. Prior to that, all
revenue to the fund flowed from general funds or program
receipts. Those payments between 1987 and 1990, as well as
general funds received since the surcharge, total $76.7
million. Revenues and expenditures shown on the chart were
calculated on a ratio of surcharge moneys versus general
funds. Those ratios indicate that of the $37.4 million fund
balance, 41.29% is general funds and 58.71% accrued from the
nickel surcharge. That supports the administration's
argument that the $37.4 million should be split between the
abatement and mitigation account and the catastrophic spill
account.
Co-chair Pearce directed that the bill be HELD in committee
pending public testimony. She then directed that the
meeting be briefly recessed prior to proceeding with the
agenda.
RECESS - 10:10 A.M.
RECONVENE - 10:20 A.M.
SENATE BILL NO. 308
An Act modifying administrative procedures and
decisions by state agencies that relate to uses and
dispositions of state land, property, and resources,
and to the interests within them, and that relate to
land, property, and resources, and to the interests
within them, that are subject to the coastal management
program; and providing for an effective date.
Upon reconvening the meeting, Co-chair Pearce announced that
discussion of SB 308 would constitute subcommittee
deliberation on the bill. She explained that it would
provide the Dept. of Law an opportunity to advise of
background information on lawsuits that encouraged the
department to introduce the legislation. Further, a group
meeting in Anchorage has worked through discussion on two of
three major portions of the bill. The group has not yet
considered changes to Title 46. Subsequent subcommittee
meetings will be had with working group members as suggested
language is developed for presentation to committee next
week. Co-chair Pearce directed attention to new
correspondence from various interests which she noted had
been copied and placed in members' files.
End: SFC-94, #34, Side 2
Begin: SFC-94, #36, Side 1
KYLE PARKER, Office of the Governor, came before committee
and read from a prepared text providing background
information and a summary of resource disposal litigation
(Mr. Parker's comments were subsequently incorporated within
a memo dated March 28, 1994, (copy appended as Attachment
D). He explained that the court decision in the Good News
Bay sale evidences that, absent some legislative action, the
courts are driving the state toward a federal environmental
impact process.
BARBARA FULLMER, Legal Counsel, Division of Oil and Gas,
Dept. of Natural Resources, next spoke via teleconference
from Anchorage. She outlined the basics of litigation
relating to Sale 78, advising that one day after the appeal
period, the sale was appealed by a group including fishermen
organizations, a local traditional council, and Trustees for
Alaska. The points on appeal were quite broad. They
claimed that the division of oil and gas had not adequately
considered the pros and cons of the lease sale. The state
moved for a more specific accounting of the points on
appeal. The court denied that motion. Court action
indicates that the court is willing to accept anything.
There was no requirement that appellants identify what they
are appealing or that conjecture appear earlier in the
record. Two weeks prior to the sale, appellants moved for a
stay. The court granted that motion, based not on the
points of appeal but upon apparent court perusal of
regulations under ACMP and selection of an argument not
raised by appellants. Oral arguments are to be had in
September. That time frame is after the point when the sale
could properly go forward without having to again commence
the administrative process from the beginning.
Senator Rieger inquired concerning the position the
administration seeks to assert through the proposed bill.
Barbara Fullmer explained that the administration hopes to
ensure that the scope of review is molded by public comment
received by the department. It is not the intent to limit
what the public comments on. The scope of review must
address any public comments received during the public
comment period. The cutoff point is the materiality of
facts and issues raised or known to the director. The
director must find that the fact or issue is material, and
that finding must rest on the record. Senator Rieger voiced
his understanding that public comment would occur prior to a
determination by the director concerning to what extent the
administrative review is limited. He further advised of his
understanding that problems arise when a second round of
public comment is allowed at the court level. The
department then becomes trapped when it is alleged that the
department did not consider something that, in actuality,
was never brought up.
SENATOR SALO commented upon difficulties associated with a
subjective decision as to whether something is or is not
material. She then asked if pending legislation would
impact Sale 78. Mr. Parker explained that, if enacted, SB
322 (Oil and Gas Lease Sales: Schedule and Delay) would
allow the department to proceed with the sale as soon as the
stay is lifted. Mr. Parker acknowledged that he did not
know when that might occur. He further noted that the
department has been in court, in some instances, up to seven
years.
Senator Salo next inquired about a potential settlement
involving removal of key fishing tracts. JIM EASON,
Director, Division of Oil and Gas, Dept. of Natural
Resources, responded from Anchorage. He reiterated that
allegations in Sale 78 are very broad. They include claims
that the state failed to properly consider impacts and
effects on "this fishing corridor" as well as archeological
artifacts, view sheds, etc. There is nothing in the record
to indicate that resolution of any one issue would have
avoided litigation. That is particularly true in light of
the diversity of interests of appellants. Further, to this
date, no one has been able to specifically identify the
fishing corridor.
In response to a further question from Senator Salo, Mr.
Eason acknowledged an offer of settlement presented by
Trustees for Alaska. Appellants have requested that the
offer remain confidential. The state rejected the offer.
The state response is a matter of record. Mr. Eason advised
of correspondence from Assistant Attorney General Mary
Lundquist rejecting the offer and setting forth reasons for
rejection. Mr. Eason agreed to provide copies of the
correspondence (Attachment E) to committee.
ADJOURNMENT
The meeting was adjourned at approximately 11:05 a.m.
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