HB 325-OIL SPILL PREVENTION FUND  1:26:00 PM CO-CHAIR SADDLER announced that the next order of business is HOUSE BILL NO. 325, "An Act increasing the balance of the oil and hazardous substance release prevention and response fund required to suspend the surcharge levied on oil produced in the state; increasing the amount of the surcharge levied on oil produced in the state that may be appropriated to the oil and hazardous substance release prevention account; and providing for an effective date." 1:26:16 PM REPRESENTATIVE CATHY MUNOZ, Alaska State Legislature, stated that she had chaired the budget subcommittee for the Department of Environmental Conservation (DEC) operating budget for the past two years and that the committee had closely reviewed long term options to maintain the oil and hazardous substance release prevention and response funding. She reported that the fund had originally been established to provide a reliable source of payment to the expenses incurred by DEC in responding to a release or threatened release of oil or hazardous substances. In the wake of the Exxon Valdez oil spill in 1989, the Alaska State Legislature had passed a bill which levied a $0.05 surcharge on each barrel of crude oil produced in Alaska. In 1994, there was legislation to establish two separate funds, the prevention fund and the response fund. In 2006, as oil production was declining, there was legislation to change the division of the receipts so that $0.04 would go to the prevention fund to pay for DEC activities for the prevention of oil spills, and $0.01 would be dedicated to the response fund for major oil spill response. She relayed that the current $0.04 surcharge for prevention activities raised about $6.5 million each year with additional interest income of about $1 million and income from fines and penalties of about $1.5 million. REPRESENTATIVE MUNOZ said that current law applied the $0.01 to the response fund savings account until the fund was valued at $50 million, and then the $0.01 would be suspended. Currently, that response fund account was valued at $49 million. She reported that in Fiscal Year 2016, the prevention account would operate at a $6.5 million deficit, which, due to declining oil production, would increase to almost $8 million by FY 2022. She acknowledged that this did not take into account new production, as it was based on current revenue forecasts. She relayed that the subcommittee had adopted intent language which directed the administration to present viable, long term ideas to the legislature for financing and managing the oil and hazardous substance prevention and response fund. In response to this intent language, DEC suggested the use of general funds to cover the projected deficit. She declared that proposed HB 325 would begin a discussion for a solution to the long term shortfall for activities by the Division of Spill Prevention and Response. She stated that the bill had two components. Sections 1 and 2 would maintain the $0.01 surcharge in place until the response fund was valued at $75 million. The second component would increase the $0.04 surcharge for the prevention activities to $0.07, an increase of about $4.5 million in annual revenue. She referenced a letter from the Chamber of Commerce [Included in members' packets] which stated that prevention fund activities reached across industries that were primarily funded by the oil industry. She shared that the budget subcommittee had discussed ways to spread the prevention costs, including a refined products tax. She pointed out that the proposed bill did not fully fund the projected deficits, and that amendments would be considered for a broader application. REPRESENTATIVE MUNOZ mentioned that the Division of Spill Prevention and Response had operated efficiently, with an annual growth over the past 10 years of 1.5 percent, and the addition of only two full time positions during that time frame. She reported that DEC had cut back considerably on its use of the prevention account, noting that the department had stopped requesting capital appropriations for the clean-up of state owned sites in FY 2011. She said that a loan and grant program for the removal of underground storage tanks was also withdrawn. She declared that the core mission of the prevention account remained to pay for operational costs and readiness activities within the Division of Spill Prevention and Response and to work toward preparedness and prevention of large and small oil and hazardous substance spills. She shared that, with increasing exploration activity, it was important to maintain a robust spill prevention and response capacity. 1:32:55 PM REPRESENTATIVE KAWASAKI expressed his agreement for the difficulty to obtain funding, especially with the decline in oil production and an aging infrastructure. Referencing the letter from the Chamber of Commerce, he asked if there was a better way to do this. REPRESENTATIVE MUNOZ suggested that amendments to the proposed bill could consider a broader application across industries, although it had not been included in the proposed bill. 1:34:14 PM CO-CHAIR FEIGE directed attention to the pages in the pamphlet that referenced the spills and corresponding volume by industry, and asked if there was a directly proportional cost between the size of the spill and the cleanup. REPRESENTATIVE MUNOZ deferred to DEC. 1:36:02 PM LYNN KENT, Deputy Commissioner, Office of the Commissioner, Department of Environmental Conservation, replied that there was no direct proportional increase between the size and the cost of a spill clean-up. She said that variables such as type of material spilled and location of spill greatly influenced the costs. 1:37:04 PM CO-CHAIR SADDLER opened public testimony on HB 325. 1:37:18 PM ANDY ROGERS, Deputy Director, Alaska State Chamber of Commerce, referenced the aforementioned letter from the Chamber of Commerce, which expressed its concerns for the proposed increase to the per barrel tax and to the cap for the fund. He stated that the business community had ideological opposition to a fee targeted at one specific industry, but used to distribute services to a larger community. He referenced the audit numbers for the fund from 2005 - 2007, which listed administrative costs for contaminated sites of 53 percent, while administrative costs for prevention and emergency response were more than 72 percent. He offered his belief that the projected deficit for the fund could indicate the increase to the administrative costs. He noted the concern of the business community for the targeting of a single industry to fund operations to police a much broader audience. He questioned the necessity of an increase, opining that the business community would like to have the intent of the fund addressed if a potential increase, or decrease, was proposed to the per barrel tax levied against the producers. He stated that these should be driven by the cost necessary to support the intent of the fund, and not by an assigned percentage increase. He asked about the use of technology for clean-ups, and how legislation had refined the wording for liability borne by spillers. He suggested that the state could mitigate some of its responsibility to have funds on hand to deal with spills. He suggested that there should be a basis beyond "things get more expensive over time as an argument for a potential increase." He again referenced the comments contained in the letter the chamber had submitted. He expressed his desire for more information during the upcoming discussions. He stated that the chamber had significant concerns for immediate percentage increases to the fund and to its cap. REPRESENTATIVE KAWASAKI asked whether Mr. Rogers had any suggestions for the most appropriate way to manage the fund. MR. ROGERS replied that he did not know if he was or ever would be qualified to offer a better way to perform spill remediation because he was not in the industry. However, he stated, when the business community reviewed a fund with a specified purpose and a single funding mechanism that did not solely address problems created by the industry, there was concern. 1:45:33 PM CO-CHAIR SADDLER asked how other states managed to share these expenses for funding. 1:45:47 PM CHRISTOPHER CLARK, Chief of Staff, Representative Cathy Munoz, Alaska State Legislature, explained that, during the presentations on the spill response fund, they had asked what other states were doing. He noted that the history of this fund in Alaska was unique, as it was created prior to the 1989 Exxon Valdez oil spill, and "then significantly tweaked thereafter." He said that he was unsure if there were any similar funds, although there had been discussions for the way other states addressed the means for levying fees on industry. 1:46:43 PM REPRESENTATIVE SEATON announced that he had three proposed amendments: one specifically addressing a restriction to the usage of the fund, another for diversifying the funding source, and a third regarding fees for a review of contingency plans. 1:47:49 PM CO-CHAIR SADDLER asked if there had been any consultation with the Alaska Oil and Gas Conservation Commission (AOGCC) for its perspective. MR. CLARK replied that there had not been any discussions. REPRESENTATIVE SEATON clarified that he was also on the finance subcommittee for DEC. REPRESENTATIVE P. WILSON shared that she was also on the subcommittee, and that it had been evident that it was necessary to increase the availability of funds, as it was functioning on a deficit. REPRESENTATIVE HAWKER suggested that another option was to review the use of the money, and whether it was only being used for its designation. He offered his belief that the money was being used for "things that absolutely are unrelated to the purpose for which it's being put in there, a material amount of the money." REPRESENTATIVE OLSON questioned whether this included the cleaning up for soy bean spills or general training. REPRESENTATIVE HAWKER expressed his agreement for "that kind of thing as well as the commissioner's office, I believe, administrative costs, it's not hard to track, just look at fund sources in the short form of the budget." He suggested that people would be amazed at where this money was going. He stated that this was taking money from the oil industry "to pay the faults of all the other industries, as well as administrative costs that just really, in my opinion, should not be allocated to this fund." REPRESENTATIVE JOHNSON requested that DEC report on what percentage of the bills was not recovered. He offered his belief that this was an emergency fund that should be reimbursed, and questioned what portion was not reimbursed by industry. He suggested that a fund that was reimbursed only needed "enough money in the pot to respond." REPRESENTATIVE P. WILSON reported that there was an ongoing cleanup effort which could not be discussed because of a lawsuit, with the possibility that the state could end up paying "an absolute huge amount." REPRESENTATIVE JOHNSON clarified that he was not as confident that the state was truly on the hook for expenses as the other parties both had deep pockets. 1:52:54 PM REPRESENTATIVE TARR asked for an update on the legacy projects at contaminated sites, and an update on the administrative costs at DEC as the numbers cited by Mr. Rogers differed from those which she remembered from a presentation to the budget subcommittee. MS. KENT replied she did not know where the Alaska State Chamber of Commerce got its percentages. She said that she did not have them with her, but she would supply them to the committee. 1:54:25 PM TOM CHERIAN, Director, Division of Administrative Services, Department of Environmental Conservation, said that he would get back to the committee with an answer. REPRESENTATIVE TARR asked for more information regarding the legacy sites. MS. KENT, in response to Representative Tarr, said that a lot of the contaminated sites in which DEC was involved were federal sites, so federal grant funding was used for the clean-up. She said that the funding by the response fund from the prevention account for oversight was used for other privately owned sites and state owned sites. Whenever possible, DEC tried to recover the costs. She said that the state had stopped using prevention account funds for clean-up of state owned or state managed orphan sites, and, instead, requested general fund appropriations through the capital budget. She opined that there could still be open budgets funded from the prevention account, although new money had not been requested from the prevention account for several years CO-CHAIR SADDLER asked if Representative Tarr was referring to the Bureau of Land Management (BLM) legacy wells. REPRESENTATIVE TARR asked if there were a number of sites that still needed to be cleaned up, although the projects had finished decades before, versus projects that were currently active but would need a clean-up should there be a spill. CO-CHAIR FEIGE requested an estimate of the revenues, as well as a range of revenue under various scenarios, that would be raised under the proposed amendments to be offered by Representative Seaton. He directed a question to DEC, and inquired what the different types of contaminants were in each of those earlier spills in order to more equitably spread the costs to the offending industry. 1:58:33 PM CO-CHAIR SADDLER held over HB 325 and kept public testimony open.