Legislature(2015 - 2016)HOUSE FINANCE 519
04/01/2015 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB13 | |
| HB158 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 158 | TELECONFERENCED | |
| + | HB 13 | TELECONFERENCED | |
| += | HB 41 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 158
"An Act relating to a refined fuel surcharge; relating
to the motor fuel tax; relating to a qualified dealer
license; and providing for an effective date."
2:39:06 PM
Co-Chair Neuman MOVED to ADOPT the proposed committee
substitute for HB 158, Work Draft 29-LS0608\I (Nauman,
4/1/15). There being NO OBJECTION, it was so ordered.
Co-Chair Thompson asked his staff to explain the changes
between the bill versions.
JANE PIERSON, STAFF, REPRESENTATIVE STEVE THOMPSON,
discussed the changes in the Committee Substitute (CS). The
first change appeared on page 2, line 6 and exempted
aviation fuel from the surcharge imposed under AS
43.40.055. The second change was on page 5, lines 1 through
9 and conformed to federal grant assurances and Federal
Aviation Administration (FAA) guidance to use aviation fuel
taxes for capital or operating costs for airports.
Co-Chair Thompson asked for a brief recap of the
legislation.
CRYSTAL KOENEMAN, STAFF, REPRESENTATIVE CATHY MUNOZ,
detailed that the bill would add a one cent surcharge on
all refined fuels. She added that aviation fuel had been
added to the list of exemptions.
Co-Chair Neuman addressed that the CS added an exemption
for aviation fuel; however, page 6 of the legislation
specified that aviation fuel taxes could be used for
capital and operating costs for airports. He wondered why
the bill would take tax away from airlines.
Ms. Koeneman replied that Section 5 of the bill (AS
43.40.010e) included existing statutory language. The bill
would amend the statute by adding "motor fuel" to ensure
there was no confusion about which taxes were collected;
currently motor fuel tax was the only tax collected into
the fund, which would continue under the legislation.
2:42:42 PM
Co-Chair Neuman observed that the words "capital or
operating costs of airports" had been added to existing
statute and the words "aviation facilities" had been
deleted on page 5, line 8. He surmised the change meant
that the motor fuel tax (which had been for cleanup) would
be used for capital and operating costs of airports.
Ms. Koeneman agreed that the language had previously read
"aviation facilities." She explained that it had been
expanded to capital and operating costs of airports. She
furthered that the current statute had never been for the
Spill Prevention and Response Section (SPAR) of the
Department of Environmental Conservation (DEC). She
deferred the question to the Department of Revenue (DOR)
for further detail.
Co-Chair Neuman thought the bill was for the SPAR fund to
clean up fuel that was spilled in various locations. He was
confused about language that would allow money to be
appropriated for capital and operating costs for airports.
He stressed that the expenditures did not go towards
cleaning up fuel.
Ms. Koeneman answered that some conforming language had
been necessary in order to specify the difference between
the motor fuel tax collected by the state and the new
surcharge. There were numerous conforming statutes
throughout the legislation that referenced the motor fuel
component specifically in order to delineate between what
was collected for DOR to administer.
Co-Chair Neuman remarked that he and Co-Chair Thompson
would not take money from the fund to use for capital and
operating expenses, but they could not guarantee what
future legislatures would do. He thought that the issue
should be considered further to prevent the situation from
happening.
Representative Munoz noted that the fuel that was collected
on aviation was required to go back to the airports. She
explained that the clarifying language had been requested
by the department and did not relate to SPAR.
2:46:05 PM
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE
(via teleconference), clarified that most of the bill
included existing statutory language on motor fuels
(different tax amounts were collected on different types of
fuel such as highway fuel, marine fuel, and other).
Existing language in Section 5 clarified that the money
(roughly $5 million per year) must be spent on projects at
airports in order to conform to new federal guidelines over
how fuel tax was collected on aviation fuels. He stated
that the issue was slightly outside the scope of the
legislation, but it satisfied an existing need that would
be addressed in budget documents as well; some money that
was currently appropriated for airports would be
specifically tied back to the aviation fuel coming in on an
annual basis from motor fuel tax. The exclusion of aviation
from the new surcharge was a separate issue that did not
impact the change in Section 5; however, it did reduce the
scope of fuel that would be subject to the new surcharge.
Co-Chair Neuman understood that the money collected for
airports went back into airports. He discussed collecting a
surcharge on the tax sold for aviation for use on capital
and operating costs at airports. He asked for comment from
DOR.
Mr. Alper replied that the existing tax was not impacted by
the bill (3.2 cents per gallon on jet fuel and 4.7 cents
per gallon on general aviation fuel). Under Section 5, fuel
[funds] currently in a subaccount of the general fund would
be specifically designated for capital projects at
airports. He furthered that if aviation fuel had not been
excluded from the new surcharge it would be necessary to
find similar language to ensure the fuel [tax] was directed
to aviation activity.
Co-Chair Neuman highlighted a scenario in which a jet
spilled fuel at a remote airport. He added a side note that
all airports within the state with the exception of
municipal airports, Ted Stevens International Airport, and
the Fairbanks International Airport fell under Department
of Transportation and Public Facilities' expenses. He asked
if the tax could be used for capital projects at the
Deadhorse Airport if a jet spilled fuel.
Mr. Alper answered that the language about capital projects
was related to existing (general fund) aviation motor fuel
tax, which was similar to the 8 cent gasoline tax. He
explained that a funding source would need to be identified
in order for money to be spent on cleanup-type activities
at airports because currently the purchases of aviation
fuel would not pay into the SPAR surcharge.
2:50:22 PM
Co-Chair Neuman asked if SPAR funds could be used to clean
up a spill at an airport. Mr. Alper deferred the question
to DEC.
Co-Chair Neuman assumed that SPAR teams would respond with
cleanup efforts if a boat delivering jet fuel to Ted
Stevens International Airport spilled fuel. However, he
asserted that airports would not be paying anything into
the SPAR Fund.
Ms. Koeneman noted that DEC was present to address
questions. She added that under the highlighted scenario
DEC would initially respond with cleanup efforts, but it
would work with the entity and responsible party to recoup
costs; therefore, cost recovery would come from the entity
that had spilled the fuel.
Co-Chair Neuman countered that the approach outlined by Ms.
Koeneman was standard practice for every spill.
Co-Chair Thompson read from a statement [copy not on file],
which he assumed had been the impetus for the new CS:
Federal grant assurances 49 U.S.C. 47107(b) states
that assurance 25 requires that any local taxes on
aviation fuel will be expended by the airport for
capital and operating costs of the airport. Using
monies derived from the airport system for non-airport
uses like cleaning up heating oil spills etcetera is
likely clearly a grant assurance violation. In
November 2014 the Federal Aviation Administration
identified taxes on an aviation fuel as being required
to be used for aviation purposes. The proposed refined
fuel language in both SB 86 and HB 158 would seem to
run directly contrary to that very recent FAA
guideline. The FAA will be giving heightened security
to aviation fuel tax issues not less scrutiny. If the
bills are not amended and in my role as an advising
attorney for this legislation I would recommend a note
that we are in likely violation of 49 U.S.C. 47107.
KRISTIN RYAN, DIRECTOR, DIVISION OF SPILL PREVENTION AND
RESPONSE, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, agreed
that everything said to date was accurate; SPAR would try
to pursue cost recovery as it did currently with all
parties. She elaborated that under federal law and
restrictions on the use of revenue collected at airports,
it would be difficult for SPAR to spend exactly that amount
annually cleaning up or preventing spills. She concluded
that the requirement restricted how the revenue could be
used.
2:54:17 PM
Co-Chair Neuman referred to Ms. Ryan's testimony that it
would be difficult to determine that the annual tax
collected from aviation would equal the amount spent. He
reasoned that the same could be said for every one of the
taxes. He wondered if SPAR tried to determine how much
would be spent on cleaning up industrial or oil pipeline
fuel spills. He wondered if there was currently a
delineation on how SPAR funds were spent. Ms. Ryan answered
in the negative; however, the specific federal law would
require it for aviation fuel, whereas, SPAR was not under
the same obligation for the other funding streams.
Co-Chair Neuman asked for verification that SPAR would
record how much fuel was used. He assumed the information
was already available at DOR. [Nonverbal agreement was
given.] He surmised that the calculation would not take
significant work. He remarked on a more difficult process
related to tire tax. He did not understand why SPAR funds
would be spent on entities that did not pay into the fund.
He found the issue troubling. He pointed to gasoline tax on
drivers, heating fuel tax charged to homeowners, and taxes
on oil companies. He did not believe it made sense to
exempt one entity, while SPAR still had to use its funds
for cleanup.
Ms. Ryan believed the point was well taken; the aviation
fuel would be exempt, while everyone else would not. She
could not answer whether it was the right thing to do or
not. She added that as is, the bill would generate enough
revenue to solve the SPAR shortfall.
Co-Chair Neuman reiterated that the bill would take money
from commuters and homeowners purchasing heating fuel.
Representative Munoz communicated that she had been tasked
with the DEC budget for the past three years. She had been
specifically directed to find a solution to the SPAR Fund
shortfall. She relayed that three-quarters of the spills in
Alaska happened with refined fuels yet currently the
program was primarily funded through a surcharge on crude
oil. She explained that the bill represented an effort to
recognize that there were multiple entities responsible for
spilling in Alaska. The federal language limited how the
revenue could be spent with aviation activity; the total
revenue coming in from aviation activity would be around
$1.3 million. Yet every year the state would be required to
define the activity at $1.3 million to justify the
activity. The federal requirement made implementation
difficult, which is why aviation fuel had ultimately been
exempted.
Co-Chair Neuman understood; however, state general fund
dollars were still spent on spill prevention practice
efforts by fire crews and other. He did not know why the
exemption would be included.
Vice-Chair Saddler asked if the aviation fuel was
specifically defined as jet fuel for jet transport. He
wondered if it also included 100 low-lead fuel. Ms.
Koeneman answered that it covered all aviation fuel.
Vice-Chair Saddler asked how the proposed exemption of
aviation fuel would impact the projected revenue stream.
Ms. Koeneman answered that it would reduce the revenue by
approximately $1.4 [million]. She noted that DOR was
working on providing a more precise figure.
Vice-Chair Saddler referenced the definition of motor fuel
on page 5 of the legislation. He noted that there were
currently motor fuel taxes that were paid by vehicles on
the ground and in the air. He remarked that aviation taxes
were used at the aviation facility per FAA grant
requirements. He observed that the bill created a refined
fuel surtax, which was not a motor fuel tax. He asked about
the distinction.
Ms. Koeneman agreed. The bill would specifically delineate
a motor fuel tax to prevent confusion. She noted that
currently statute had used the word "taxes"; because the
bill would bring more than one stream coming in, a clear
distinction had been made.
Vice-Chair Saddler asked if there was any effectual
distinction between the use of aviation funds for capital
and operating costs of airports compared to aviation
facilities.
3:01:11 PM
Ms. Koeneman replied that she was not certain. She knew
there had been recent discussion about giving airports the
ability to utilize monies more efficiently in order to
reduce the level of general fund dollars going to airports.
She added that the funds would offset.
Vice-Chair Saddler stated that the SPAR Fund was currently
funded with money raised from a 4 cent to 5 cent per barrel
tax on crude oil. He continued that crude oil was refined
in the state and used to power jet aircrafts. He reasoned
that in essence revenue was being raised to pay for spill
response by the stream of fuel used to fuel aircrafts in
the state.
Ms. Koeneman replied in the affirmative.
Representative Wilson referred to a document listing the
top spills in Alaska [DEC letter addressed to Co-Chairs
Thompson and Neuman from DEC "HB 158 Refined Fuel Surcharge
Follow Up" dated March 31 (copy on file)]. She observed
that the cost related to the Aniak airport was $6.8
million. She did not know why the state could not collect
money from airports to use towards cleanup at airports. She
wanted to better understand how the funds were currently
utilized. She had been surprised to see Flint Hills on the
list at $4.4 million and to learn that the money had been
used for studies and public meetings, but not for cleanup.
She wondered how to distinguish what was used for cleanup
versus other services.
Ms. Ryan answered that there were a variety of costs that
went into the figures, including toxicologists and the
approval of an onsite cleanup plan (such as for the Flint
Hills Refinery property). She relayed that the costs
depended on the site; many legal costs were usually
included. She explained that all of the incidents in the
document had gone to formal settlement; therefore, the
Department of Law had been heavily involved in retrieving
any payback from the spills. She offered to follow up with
a per site explanation.
3:04:03 PM
Representative Wilson referred to a sulfolane contamination
in North Pole. She had been told that the department was
not doing a cleanup of the area because the party
responsible for the contamination was known. She pointed to
other examples provided to the committee and believed that
the parties responsible for contamination were known there
as well. She asked for an explanation of the process SPAR
used when a spill occurred and how it decided to clean up
the site and seek reparations or create a plan for another
party to clean up the site.
Ms. Ryan answered that every site was different;
contaminated sites tended to be the most expensive for
SPAR. She relayed that SPAR was anticipating recovering
costs from each of the listed sites; it was expecting a
large settlement related to the Aniak spill cleanup (the
funds were included in the SPAR budget as a stop gap
measure). She noted that SPAR had settled with River
Terrace Laundry; the document showed the balance and
recovered costs. She shared that the agency frequently put
liens on property; there were liens on many of the sites
listed in the letter, which meant SPAR would recover
additional costs when the properties were sold. She
reiterated that the cost varied by site; SPAR first looked
at risk and whether exposure may be dangerous to people.
She elaborated that the level of risk drove how SPAR used
its funds, which was designated in its statutory authority;
if the risk was great, SPAR was supposed to use its funds
to protect human health and the environment and then go
after the responsible party. She added that in cases where
the responsible party was known and the risk was mitigated,
SPAR would take the slower route prior to stepping up and
taking over.
Representative Wilson stated that the SPAR Fund used for
spill response and cleanup had typically been funded with
money from a barrel of oil versus charging residents for
something they were not responsible for. She remarked that
if she spilled something SPAR would make her clean it up.
She wondered why the state would not keep its current
system instead of introducing a new tax.
Ms. Ryan replied that the administration had been asking
for a solution; it was not advocating for one solution over
another, but it did believe the bill included a solution
that made sense based on the number of spills related to
refined fuels (the tax would collect revenue from the
spillers). She elaborated that spills came from many homes
and entities that were not regulated, which made cost
recovery difficult.
Representative Wilson did not believe the solution made
sense. She questioned why the state should not just go
after the industries that were most likely to spill. She
asked for the percentage of individuals responsible for
spills compared to trucking companies and other. She noted
that mines already had a costly process related to spill
regulation. She stressed that the bill would cost a mine in
her region over $100,000 per year; she remarked that the
likelihood of a spill at the mine was minute.
3:07:59 PM
Ms. Ryan referred to information provided by the department
that showed spills by type ["HB 158 Supporting Documents
Active Sites CSP" (copy on file)]. The document showed the
sites spills were occurring by product type. She shared
that spills varied by industries and some were not
industries (i.e. boats, trucks, homeowners, and small
facilities such as dry cleaners that were not regulated).
She did not know of an efficient a way to regulate the
group to recover costs upfront; SPAR tried to recover costs
after cleanup, but sometimes it was not possible if an
entity did not have the revenue, the responsible party was
unknown, or the division was locked in long-term litigation
to recover costs.
Representative Wilson thought the bill only represented an
easier way to get the money. She was bothered that the bill
would create another cost for residents, especially in
Fairbanks where people already paid high heating costs. She
was concerned that while it appeared that the SPAR fund was
used to clean up property, much of the money actually went
to other things such as studies, litigation, and other.
Co-Chair Thompson asked the Legislative Finance Division to
address the aviation fuel exemption.
Co-Chair Neuman asked for a description of discrepancies
between the motor fuel tax and the refined fuel surcharge.
He requested further detail on why the aviation fuel had
been exempted.
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
referenced federal regulations related to capital or
operating [expenses] that Co-Chair Thompson had referred to
earlier. Current statute referred to aviation facilities;
however, typically facilities were thought of as buildings
or infrastructure. He explained that the bill replaced
"aviation facilities" with "capital or operating costs" in
order to comply with federal regulations. Federal grant
requirements stated that aviation fuel taxes could be spent
only for the capital or operating costs at airports. He
explained that if the tax or surcharge proceeds were sent
to DEC, it would have to do all of the accounting. The
process would result in dedicated revenue inside the SPAR
Fund, which was not a dedicated fund. He furthered that the
state did not know how to classify a non-dedicated fund
housing dedicated revenue; therefore, it had been
determined it was best not to send the money to the SPAR
Fund at all.
Mr. Teal communicated that the second problem was that
there were three airport systems in Alaska (international,
municipal, and rural airports) and each of the airports
received a share of the funds, meaning that DEC would have
to account for three different outflows by system. He noted
that the international airports had onsite spill response
capabilities, which meant that SPAR would not need to spend
money responding to a spill. He addressed that the bulk of
the fuel tax or surcharge was generated at international
airports, where the big sales occurred. He explained that
if the aviation surcharge was sent to SPAR it would be
difficult to spend the money. One option was to levy a
surcharge and house it in the special aviation account;
however, he explained that someone had decided that the
bill would only address SPAR and would not do a general
overhaul of motor fuel taxes. The decision had also been
made that if the surcharge did not go to SPAR, it should be
dropped from the bill. He summarized that putting a
dedicated surcharge in DEC would only create a problem.
3:14:11 PM
KARA MORIARTY, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
ALASKA OIL AND GAS ASSOCIATION (AOGA), provided a prepared
statement (copy on file):
Good Afternoon Co-Chairs Thompson and Neuman and
members of the Committee. For the record, my name is
Kara Moriarty and I am the President/CEO of the Alaska
Oil and Gas Association, commonly referred to as
"AOGA".
AOGA is a professional trade association whose mission
is to foster the long-term viability of the oil and
gas industry in Alaska for the benefit of all
Alaskans. Thank you for the opportunity to testify
today on House Bill 158, an act relating to a refined
fuel surcharge; relating to the motor fuel tax;
relating to a qualified dealer license; and providing
for an effective date.
AOGA represents the majority of oil and gas producers,
explorers, refiners, transporters and marketers in
Alaska. Our current members include: Alyeska Pipeline
Service Company, Apache Corporation, BP, Caelus
Energy, Chevron, eni petroleum, ExxonMobil, Hilcorp,
PetroStar, Repsol, Shell, Statoil, Tesoro, and XTO
Energy. Because this legislation is a tax related
matter, this testimony has the unanimous consent from
all of these companies; producers and refiners alike.
As a bit of history, Alaska has had some sort of oil
spill cleanup fund in place since 1976 when the state
created the Coastal Protection Fund during the
construction of the Trans-Alaska Pipeline System or
TAPS. Over time, the fund morphed into the Oil Spill
Mitigation Account, then the Oil Spill Reserve
Account, then in 1986, into what it is today, the Oil
and Hazardous Substance Prevention & Release Response
Fund, or what it is commonly referred to as the "470
Fund", a reference to the bill number that created it.
The revenue generated by HB 158 would be deposited
into the prevention account of this fund.
In addition to the hundreds of millions of dollars
invested each year by the industry in Alaska to
prevent, prepare and respond to the release of
hazardous substances, AOGA has long supported fair and
equitable efforts to ensure the State of Alaska is
also financially prepared.
To date, the state has collected a surcharge only on
the oil and gas industry to pay for the "470 fund". If
an incident occurs, the oil and gas industry also
repays costs associated with the response, as do some
other industries. Still, the oil and gas industry is
the only industry that has been assessed a specific
surcharge/tax to pay for the purposes of this fund,
even though the state utilizes the fund for a variety
of other industries and individual Alaskans. To date,
the oil and gas industry has contributed more than
$350 million through this surcharge for the 470 Fund.
AOGA has been engaged in the policy decisions
surrounding the 470 Fund since its inception. In 1994,
AOGA supported the legislation that split the initial
surcharge into two separate accounts, one for response
and one for prevention. AOGA did not oppose the
modification to the surcharge in 2006 because the
total taxable amount remained at 5 cents per barrel.
Despite the stated purpose of cleaning up and
preventing spills, previous Administrations and
Legislatures allowed for the fund to be used for non-
spill projects such as campgrounds, state airports,
tank farm remediation, privately owned greenhouses and
new ferries. DEC and the Legislature should be
commended because it appears these types of
expenditures are no longer being appropriated from the
fund, but the corpus of the fund may have been
unnecessarily reduced during years when these types of
appropriations were authorized.
Although oil and gas production currently accounts for
100 percent of the surcharge for the fund, DEC annual
reports show that, from Fiscal Year 2010 - FY 2014,
oil production and exploration and natural gas
production altogether amount to less than 29 percent
of total spill volume.
It is important to note, as I've mentioned, the oil
and gas industry invests hundreds of millions of
dollars every year to have a robust response
capabilities in the event an industry-related spill
occurs. We are required by federal and state
regulations to have current contingency plans in
place, have spill response equipment available and
exercise both plan and equipment regularly. In
addition, the companies belong to not-for-profit
response cooperative, such as Cook Inlet Spill
Prevention and Response and Alaska Clean Seas.
AOGA endorses the same position as the Oil and Gas
Transition Team for the Walker/Mallott administration,
which advocated for the State to utilize other revenue
sources before increasing the surcharge on the oil and
gas industry. House Bill 158 does broaden the
contributing efforts of others that use the fund's
services.
Additionally, AOGA advocates for DEC to continue to
identify efficiencies internally. To that end, AOGA
has identified suggestions for DEC's consideration and
will work with the State to further identify cost
reductions without diminishing the state's strong
oversight and regulation of the industry.
3:20:42 PM
Ms. Moriarty continued to read a statement:
We also encourage the State to adopt other policies to
assist the state in recovering costs from other users
who are not currently reimbursing the State after a
response. In FY 14, DEC billed more than $3 million to
various industries and recovered one-third of that
amount. To strengthen the State of Alaska's oil spill
preparedness and response, there must be an effort to
recover more than 30 percent of the state's spending.
In closing, AOGA is not opposed to House Bill 158. It
does broaden the contributions of others that use the
fund's services without having an overly adverse
impact on our member companies.
Co-Chair Neuman referred to Ms. Moriarty's testimony that
in the past the SPAR fund had been used for non-spill
projects such as campgrounds and other. He did not intend
to make changes to the bill at present, but he suggested
working with the bill sponsor to define the sideboards (the
proper usage of the funds). He had heard from other
entities with the same concerns. He thought the sideboards
should be put in statute. He observed that the
administration appeared to be cognizant of the proper use
of the funds, but he thought the sideboards could be
included in the legislation as it moved forward.
Representative Pruitt asked whether the legislation would
impact AOGA member companies financially. Ms. Moriarty
replied in the affirmative. She detailed that the bill
would increase the cost of the fuels used in the companies'
operations given that distributors would pass the costs on.
The organization did not yet know what the financial impact
would be, but it assessed that the impact would not be
overly adverse. She acknowledged that all industries using
refined products would have to pay a little more.
Representative Gara stated that over the years people had
tried to implement 2 cent per barrel increases. He remarked
that if the change had been made in 2008, the fund would
currently be solvent. He noted that the oil industry had
been opposed to the increase. He surmised that the oil
industry was opposed to inflation proofing (the 5 cent tax
had been implemented in 1989), but was not opposed to
charging consumers.
Ms. Moriarty replied that AOGA's position had been that
other industries utilizing the fund should also contribute
in some way. She added that how the legislature chose to do
it was completely up to the legislature. She elaborated
that the oil and gas industry had been the only
contributors to the fund, but not the only user.
Representative Gara appreciated that other industries were
responsible. He referred to recent testimony that 2 percent
of spill response was related to mines and 7 percent was
related to marine vessels. He stated that a solution was
needed and he did not intend to block it. However, he
observed that the bill did not spread the responsibility to
other industries; it would financially impact people who
had nothing to do with spills. He acknowledged that 1 cent
per gallon was not a huge amount of money, but the bill did
not share the cost with other industries. He wondered if
AOGA had a suggestion on how to share the costs.
Ms. Moriarty answered that it was not AOGA's position to
try to determine how to share the costs with other
industries or individuals. She remarked that individuals
were responsible for spills as well.
Representative Gara interjected that the individuals
responsible for spills represented a "tiny" percentage of
the total. Ms. Moriarty replied that DEC would be the
appropriate party to comment on Representative Gara's
statement. She reiterated that it had never been AOGA's
position to get into who or how the state chose to broaden
the fund; AOGA had only advocated that the fund should be
broadened beyond the oil and gas industry.
Representative Wilson asked for verification that the oil
and gas industry passed the tax off to someone else. She
surmised that if the cost was increased to 10 cents per
barrel that the industry would pass the cost on.
Ms. Moriarty replied that the oil and gas industry did not
pass off its production, property, or any other tax. She
stated that the industry was not passing the cost off on a
distributor; it was not as clean as a pass through that a
distributor may have at a gas station. She furthered that
the industry could not pass all of its taxes on to a
consumer.
3:27:01 PM
Co-Chair Thompson CLOSED public testimony.
Representative Gara was interested to know the largest cost
drivers for the prevention fund (the 4 cent per gallon
fund). He was looking for a rational way to address the
issue through the legislation, but he did not know if it
was possible. He referred to six types of spill prevention
costs paid for with the SPAR Fund. He asked for
verification that there were 50 crude oil related oil spill
prevention or contingency plans.
Ms. Ryan replied in the affirmative.
Representative Gara asked if the crude oil prevention and
contingency planning was the most expensive for the fund.
Ms. Ryan replied in the affirmative. She referred to a
request for information from Representative Gara about
prevention activity. She noted that prevention work was
part of the cost paid for by the fund. She elaborated that
the primary prevention activity was related to contingency
plans (plans that were statutorily required of certain
operators including all oil and gas exploration and
production activity). The contingency plan explained how an
entity would prevent a spill from occurring (e.g. corrosion
detection in pipelines) and what action the entity would
take in the event of a spill. The agency had approved 50
contingency plans related to oil exploration and
production; it had approximately 580 contingency plans
related to refined fuel. Refined fuel primarily included
vessels shipping the fuel around the state; it also
included large tank farms (small tank farms were not
regulated by DEC). Other prevention related work included
drills and exercises where the industry was tested to
ensure it could adequately respond; the drills were very
expensive for SPAR and the industry. She noted that there
were legal obligations on the industry to do test
exercises, which were observed by SPAR. She detailed that
the preceding year 21 drills had been conducted related to
the oil and gas industry and 3 had been done related to
refined fuel. She noted that more emphasis had been placed
on the oil industry because there was more activity
associated with cleaning up oil.
Ms. Ryan relayed that the third prevention was related to
financial responsibility; SPAR verified that companies had
the financial capacity to clean up a spill. She noted that
the oversight was limited to the industries regulated by
SPAR (it did not include smaller facilities or homes). The
fourth prevention activity was inspections and verifying
that people had prevention measures in place.
3:31:53 PM
Representative Gara addressed SPAR's prevention check
related to financial responsibility. He asked for
verification that SPAR had conducted 414 responsibility
checks and 869 refined fuel responsibility checks. Ms. Ryan
replied in the affirmative.
Representative Gara asked if ensuring that crude oil and
refinery entities could satisfy their prevention plans
represented the bulk of the cost for the spill prevention
portion of the agency. Ms. Ryan replied in the affirmative.
Representative Kawasaki pointed to pie charts provided by
DEC showing contaminated sites ["HB 158 Supporting
Documents Active Sites CSP" (copy on file)]. He noted that
oil spills tended to be more expensive in terms of
remediation and cleanup. He wondered if there was a chart
that showed the largest cost drivers associated. He
referenced the first page and pointed out that 4 percent of
contaminated sites were explosives and munitions, which he
believed would be easier to clean up than something like
waste oil. He was interested in understanding the cost
drivers in order to determine who should be the most
responsible for the costs.
Ms. Ryan replied that she did not have the specific
information. Based on her experience, oil spills were more
expensive to clean up than refined fuel spills; however,
DEC regulated the oil industry to ensure that the industry
had the capacity to respond to the spills, which it did not
do with all of the refined fuel carriers. Thus far, SPAR
had recovered its cost from the oil industry. She explained
that it was the smaller entities that SPAR was unable to
recover costs from, which had caused the account to not be
100 percent sustainable through cost recovery.
Representative Kawasaki referred to a letter from DOR
[addressed to Co-Chairs Neuman and Thompson, dated April 1,
2015] that described groups covered or exempt from the
surcharge. He noted that highway-use gasoline, utilities
and power plants, and other would not be exempted, while
foreign flights and other would be exempted. He wondered if
the groups listed in the letter were most appropriate to
place the financial burden on.
Ms. Ryan replied that the letter did not reflect the CS,
which now included the aviation exemption. She replied that
the letter included DOR calculations based on fuel usage by
industry. She could not correlate the information directly
with spill data. She pointed to the DEC graph showing a
breakdown of spills based on categories determined by SPAR.
3:36:38 PM
Representative Kawasaki referred to a couple of letters
from DOR providing follow up answers to committee questions
[dated March 31, 2015 and April 2, 2015]. He asked if the
aviation fuel component was an issue of accounting. He
surmised that the second letter stated that a surcharge
could be collected. He wondered if it was a matter of
sequestering the funds separately in the SPAR Fund.
Mr. Teal replied there were the accounting issues of
handling a dedicated fund inside another fund (the aviation
fuel tax fund would be dedicated due to the federal
requirement limiting aviation fuel tax to airport
spending). Additionally, there was a legal problem trying
to spend the aviation tax proceeds on spill recovery. He
furthered that if funds from aviation fuel tax were sent to
DEC it would be necessary to separate the account for the
three different airport systems. A number of problems were
presented by the inclusion of aviation fuel. The issue was
simplified by exempting aviation fuel from the bill because
the state could not guarantee the funds would be spent the
way the federal government mandated.
Representative Kawasaki noted that the large airports (i.e.
Fairbanks and Anchorage airports) would pay the bulk of the
surcharge if it was not exempted in the bill. He wondered
if the money could be used for other airports outside of
Fairbanks and Anchorage. Mr. Teal replied in the negative.
He detailed that international airport money stayed where
it was, likewise the municipal and rural airport systems
each received their money.
Co-Chair Neuman asked how frequently the division had to
respond to a fuel spill from a vehicle. Ms. Ryan referred
page 2 of a pie chart ["HB 158 Supporting Documents Active
Sites CSP" (copy on file)] and reported that spill response
related to a vehicle accounted for 2 percent of the
division's cleanup activity.
Co-Chair Neuman asked for clarification. He wondered if the
percentage accounted for vehicle spills at gas stations. He
noted the most gas stations were equipped with an emergency
fuel shutoff. He added that gas stations were also required
to have absorbents, holding tanks, and other cleanup/safety
materials available. He wondered if SPAR had to cleanup
fuel spills from an average passenger vehicle.
Ms. Ryan answered that truck rollovers stood out to her as
a prominent example; the agency had seen an increasing need
for response to the incidents and had responded to several
in the current year. She offered to work on a further
breakdown of the increment.
Co-Chair Neuman explained that his curiosity was based on
the fact that passenger vehicles were responsible for a
large portion of the tax under the legislation.
Representative Wilson asked when the SPAR Fund had last
been audited. Ms. Ryan replied that the fund had been
audited two or three times in the past 10 years. She
believed the most recent audit had been completed in FY 12
or FY 13 (prior to her tenure). She would follow up with
the information.
Vice-Chair Saddler pointed to charts provided by DEC and
asked for a definition of active contaminated site.
3:42:50 PM
Ms. Ryan answered that an active contaminated site could be
a site where DEC had agreed to leave the contamination in
the ground to naturally dissipate or a site where active
cleanup work was underway. She furthered that sites where
contamination was left to dissipate were monitored to
ensure that the spill was not migrating and was degrading;
the site would be closed if levels dropped below the
cleanup level standards and regulation. There were many
sites where active remediation was occurring, which were
above DEC's cleanup level, but were left to naturally
dissipate. She added that active "pump and treats" could
also be underway, which took years to slowly dissolve the
contaminant.
Vice-Chair Saddler wondered how much responsibility it was
fair to apportion to those paying the tax. He pointed to
page 2 of the DEC document related to active sites and
observed that diesel and gasoline accounted for 29 percent
of (all products spilled) volume released by product
(aviation fuel had been exempted in the bill). He looked at
the pie charts related to refined products and observed
that diesel and gasoline accounted for about 72 percent of
volume released by product. He wondered if kerosene, engine
lubricating oil, and hydraulic oil were considered refined
fuel products and subject to the surcharge.
Ms. Ryan replied that she did not believe so, but deferred
the question to DOR as to how it classified the oils.
Vice-Chair Saddler noted that the oils (kerosene, engine
lubricating oil, and hydraulic oil) represented small
portions of the pie. He estimated that diesel and gasoline
represented approximately one-third of all products
spilled. He observed that diesel represented approximately
60 percent of the refined products spilled.
Co-Chair Thompson interjected that there would not be time
to hear HB 41 during the meeting.
3:46:25 PM
Representative Gara discussed circumstances under which the
state was reimbursed for its enforcements costs (e.g.
antitrust consumer cases, and other). He wondered if SPAR
received its full enforcement costs back after going after
a responsible party. He commented that in most law suits a
party only received 20 percent of its litigation fees.
Ms. Ryan responded that all situations were different. She
detailed that the division initiated cost recovery by
sending a letter to potentially responsible parties. She
elaborated that SPAR referred the case to the Department of
Law (DOL) for a formal cost recovery if the initial effort
was unsuccessful. She explained that large [spill] sites
tended to be settled out of court and it was rare that the
division received full cost recovery; the amount recovered
varied by site.
Representative Gara reiterated his prior statement that
most litigants only received 20 percent of their legal
costs back when they won a case. However, 100 percent of
litigation costs were returned from responsible parties in
some cases such as antitrust or consumer protection. He
wondered which situation applied to SPAR's efforts.
Mr. Ryan answered that she would follow up on the question.
She relayed that things had changed over the past few
years, but SPAR did not receive 100 percent of its legal
fees back.
3:48:04 PM
Representative Pruitt highlighted a site in Anchorage where
a new Walmart was located at Muldoon and Debarr Roads. He
discussed that before the Walmart had been built there had
been a construction company that had contaminated the site
with oil and other materials. He furthered that the oil had
migrated and had seeped into the water in the area. Walmart
had purchased the property and had mitigated, but
contamination persisted. He wondered who paid for the
monitoring. He believed the state had to have a regulatory
role in the situation in some capacity. He asked if the
fund paid for the monitoring or if state was compensated
for its efforts.
Ms. Ryan replied that she was familiar with the site, but
did not have specific information. She relayed that it
depended on the site and the risks exposed. She discussed
that DEC had been very concerned about fumes that had been
seeping into a neighboring church and other properties. The
division had done some of the initial sampling to verify
that the fumes were carcinogenic and needed to be
addressed. She furthered that the division had a legal
mandate to pursue the responsible party if it was known;
however, in situations when the responsible party was not
known, SPAR would use its funds to mitigate a health risk.
Additionally, DOL searched for previous responsible parties
that had left the state or other.
Representative Pruitt used the Walmart property as an
example of the overall situation. He discussed that the
property under discussion had been purchased by Walmart,
but the contamination had migrated to neighboring
properties. He wondered if it the new owner's
responsibility to address the issue. He believed Walmart
had understood that the contamination issue had existed. He
asked if Walmart was now the responsible party as the new
owner or if there was a statute of limitations that
prevented the state from going after the new owner. He
observed that new owners would not always be large
commercial owners.
Ms. Ryan replied that the current owner was legally
responsible for contaminated property even if they did not
cause the contamination. She added that in most situations
they turned around and went after the true responsible
party that had caused the contamination.
3:52:37 PM
Representative Pruitt wondered at what point the state
abandoned its efforts to seek financial reparations for
contaminated site cleanup. He asked when the division
decided the fund would pay. He spoke to historical concern
about whether the SPAR Fund had been used correctly.
Ms. Ryan replied that DOL made the determination about
whether there was a legal ability to recover any funds. She
deferred to DOL for further detail. She relayed that the
division was currently working on regulations to clarify
what criteria would be considered for when cost recovery
should be pursued. The division could provide more
information to help people understand how and when DOL made
the decisions.
Representative Pruitt asked if regulation was sufficient.
He wondered if statute was needed to ensure that the state
was not "held hostage" to some of the scenarios where it
stepped in to take care of the problem. Ms. Ryan answered
that she was not aware of any statutory help that was
needed, but she would follow up.
Co-Chair Thompson shared that 15 years earlier he had been
involved in the purchase of property that had been
contaminated in the 1950s and 1960s. He elaborated that at
the time insurance companies did not have clauses that they
would not be responsible for environmental cleanups. He
detailed that money had been collected from the old
insurance companies to help pay for monitoring wells and
other.
Representative Wilson referred to testimony from Ms.
Moriarty that she had discussed other options with the
division besides the one in the bill. Ms. Ryan believed
that increasing the surcharge on oil had been the primary
alternative discussed in the past.
Representative Wilson wondered what could be done to
improve cost recovery from something like 30 percent to
around 50 percent. She surmised that the revenue issue may
be temporary while the division waited for cost recovery.
Ms. Ryan answered that looking at the regulations was a
good first step to improving cost recovery efforts. She had
done a variety of things within the division to improve
cost recovery. She detailed that billing had been
automated; bills also went out monthly instead of
occasionally. She reasoned that people were more likely to
pay a monthly bill than an occasional bill. Additionally,
the division was connecting its time tracking data with
cost recovery. For example, a spill responder may receive a
phone call asking for advice about a potential spill. She
explained that it was not efficient to bill the caller for
15 minutes of technical assistance; it had been determined
that a fee would be charged for an on-site visit or if more
than 4 or 5 hours was spent on the phone. She believed the
division would see the benefits from the efforts and
efficiencies.
3:58:04 PM
Representative Wilson referenced a document indicating that
$5 million would be recovered from a spill in Aniak (copy
on file). She wondered what the actual shortfall would be
in the next year after expected cost recovery took place.
Ms. Ryan replied that the [cost recovery] timing had been a
problem and had resulted in insufficient funds in the SPAR
account; SPAR had anticipated that the funding would be
available in FY 16. She explained that under the accounting
system, money was allocated to the fund and appropriated to
the prevention account; therefore, there was a one-year lag
before SPAR could access the money. The division estimated
that the fund would be approximately $7 million short in FY
16 going forward. Once funds came in from the Aniak
settlement the SPAR Fund's deficiency could decrease by $5
million in FY 17. Historically, when large settlements had
come in they sat in the account and were available for
appropriation by the legislature in the future. She
explained that the $5 million could be appropriated to the
SPAR fund or used by the legislature for something else.
Representative Wilson asked for clarification that some of
the shortfall may have occurred because incoming settlement
money was not necessarily appropriated to the SPAR fund.
Ms. Ryan answered in the negative. She explained that the
money went into a special fund and SPAR drew its portion on
an annual basis. She discussed that as production declined
the surcharge was only generating about half of what the
fund needed; therefore, SPAR had been living off of
settlement money that built up in the fund. The settlement
funds had all been used; because the Aniak settlement funds
had not come in for FY 16 as anticipated, the SPAR fund was
facing a crisis mode.
Representative Wilson asked why the bill would not include
a sunset date in the event that the efficiencies took place
and the fund became solvent. Ms. Ryan replied that the
decision was up to the legislature.
Representative Munoz MOVED to REPORT CSHB 158(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes.
Co-Chair Thompson noted there was a new forthcoming fiscal
note from DOR.
Representative Wilson OBJECTED. She was sensitive to the
fund's shortfall, but she believed the money had not been
spent on cleanup activities. She thought other solutions
existed that the legislature had not considered; she did
not believe the state was recouping the funds it should be.
She stressed that the one cent tax put a tax on everyone
who may be doing the right things (e.g. individuals,
mining, and other industries). She did not think it was
appropriate to make entities pay for things that had been
done by others who were not as careful. She did not want to
add to the cost her constituents were paying for heating
oil. She reiterated that other options should be considered
and noted that many questions on the bill had not been
answered. She referred to $4 million that had been spent.
She wondered where the funds had gone and did not believe
the money had gone to cleanup. She stressed that the funds
were supposed to be used for spills. She had heard the
funds had been used for studies, public meetings, and
other.
4:04:25 PM
Representative Gara recognized the difficulty facing the
bill sponsor to determine a solution to make the fund
solvent. He remarked that a number of legislators had tried
to come up with a solution, but there had been opposition
from the oil industry to increase the tax per barrel by 2
cents. He understood that the bill would most likely fail
if the tax only targeted the oil industry. He sympathized
with the difficulty of determining which industries were
the most responsible for spills and how to charge them
accordingly. However, he did not want to hold up the bill
just because he had not been able to find the best
solution. He relayed his intent to consider the bill before
it was heard again on the House floor. He asked the sponsor
to consider that the state should be recouping its
enforcement costs. He planned to look into the issue
further.
Vice-Chair Saddler did not want to excessively impose
additional fees on drivers in Alaska, but he believed it
was clear that Alaskans valued effective and responsible
oil spill response prevention. He spoke to the need for
response to be effective and cost-efficient. He discussed
efforts by the state to improve efficiency, spend less, and
shed personnel positions. He observed that there was a need
to maintain the capability that was not being met by the
current financing structure. He stated that if the bill's
solution was not chosen, the other option would be to spend
general funds and consequently Constitutional Budget
Reserve (CBR) money. He communicated his intent to vote for
the bill in the absence of a better solution. He believed
the sponsor had made a good effort to apportion costs of
spill response to users. He did not believe it was
appropriate to only put the responsibility on the oil
industry. He acknowledged that the effort may be imperfect,
but it was an effort in the right direction.
Co-Chair Neuman noted that Representative Munoz had done a
good job trying to find a solution to the problem. However,
he would not vote to move the bill out of committee because
he did not support taxing Mat-Su commuters.
4:08:36 PM
Representative Pruitt discussed his reasoning for
supporting to move the bill forward. He had been on the DEC
budget subcommittee and knew that the challenge had been a
long-time coming. The subcommittee had discussed per barrel
surcharges, but an increase would only impact one industry,
while it was clear that spills came from multiple sources
(i.e. marine vessels, underground fuel storage, and other).
He could not come up with another way to make the
responsible party pay. He stressed that the state would
have to pay for the service with general funds, the CBR, or
other. He noted that the committee had held several
meetings about going to constituents with one of several
methods on paying for state government. He stated that the
legislature could either perpetuate the use of general
funds that it did not have or it could make the solution as
fair as possible for residents. He stated that mines,
marine vessels, and other users would participate in the
tax. He stressed that the decision to go to the people to
pay for the service meant that the division should be
scrutinized more than ever. He reiterated that he had not
been able to find another way for users to pay for the
service. He believed the option in the bill was the best
solution thus far.
4:12:38 PM
Representative Kawasaki referenced that the legislature had
discussed increasing user fees to ensure that people were
helping to pay for the burden of state government; it had
also spent much time discussing the SPAR Fund. He
appreciated the sponsor's diligence, but he was troubled by
some aspects of the bill. He detailed that identifying the
cost drivers and how they would pay for the cost had not
yet been determined. He noted that it was possible to look
at volume of all products spilled and by facility type
(e.g. mining operations accounted for 22 percent); however,
vehicles and residences were at 2 to 3 percent. He stated
that he "did not know if it was the cost driver
necessarily, but volume is certainly an indicator of that."
He discussed that the solution would tax people heating
their homes with oil, drivers, and charitable institutions.
Additionally, the tax would apply to utilities that would
pass costs off onto consumers. He did not know if the
method was fair; however, absent a better solution, he
would support moving the bill forward.
Co-Chair Thompson believed the bill represented one way to
reduce general fund spending in the upcoming year, which
meant that more general funds would be available for other
items such as education and public safety. He supported
moving the bill forward. He remarked that the solution
would spread the responsibility to everyone in the state.
He reasoned that many legislators had no children in
school, but they still paid for school property tax. He
believed everyone had to pay their share. The solution in
the bill represented a small way to make the SPAR Fund
solvent without using additional general funds.
A roll call vote was taken on the motion to report the bill
from committee.
IN FAVOR: Edgmon, Gara, Kawasaki, Munoz, Pruitt, Saddler,
Thompson
OPPOSED: Gattis, Guttenberg, Wilson, Neuman
The MOTION PASSED (7/4).
There being NO further OBJECTION, CSHB 158(FIN) was
REPORTED out of committee with an "amend" recommendation
and with one new zero fiscal noted from the Department of
Environmental Conservation, one new fiscal impact note from
the House Finance Committee for Fund Transfers, and one new
forthcoming fiscal impact note from the Department of
Revenue.
Co-Chair Thompson discussed the schedule for the following
day.