Legislature(1993 - 1994)
03/16/1994 08:15 AM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE RESOURCES STANDING COMMITTEE
March 16, 1994
8:15 a.m.
MEMBERS PRESENT
Representative Bill Williams, Chairman
Representative Bill Hudson, Vice Chairman
Representative Con Bunde
Representative Pat Carney
Representative John Davies
Representative David Finkelstein
Representative Joe Green
Representative Jeannette James
Representative Eldon Mulder
MEMBERS ABSENT
None
OTHER LEGISLATORS PRESENT
Representative Al Vezey
Senator Mike Miller
COMMITTEE CALENDAR
HB 238: "An Act relating to the oil and hazardous
substance release response fund, repealing the oil
and hazardous substance municipal impact
assistance program and 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, relating to a restoration standard in
certain state environmental laws, modifying
definitions of related terms, amending the manner
of computing the amounts required for the
suspension and reimposition of the oil
conservation surcharge, relating to fees to be
charged and collected by the Department of
Environmental Conservation, and annulling a
regulation related to costs for certain site
restorations."
HEARD AND HELD IN COMMITTEE
WITNESS REGISTER
DAVE PARISH
Exxon Company, U.S.A.
P.O. Box 196601
Anchorage, Alaska 99519
Phone: 561-5331
POSITION STATEMENT: Commented on various versions of HB 238
KEN REITHER
Exxon Company, U.S.A.
P.O. Box 196601
Anchorage, Alaska 99519
Phone: 561-5331
POSITION STATEMENT: Commented on various versions of HB 238
BOB POE, Director
Division of Information and Administrative Services
Department of Environmental Conservation
410 Willoughby Avenue, Suite 105
Juneau, Alaska 99801-1795
Phone: 465-5010
POSITION STATEMENT: Commented on Mr. Reither's overview
and the various versions of HB 238
JIM GRIFFIN, Manager
Legislative Audit Division
P.O. Box 113300
Juneau, Alaska 99811-3300
Phone: 465-3830
POSITION STATEMENT: Commented on the Oil and Hazardous
Substance Release Response Fund Audit
MEAD TREADWELL, Deputy Commissioner
Department of Environmental Conservation
410 Willoughby Avenue, Suite 105
Juneau, Alaska 99801-1795
Phone: 465-5050
POSITION STATEMENT: Answered questions
MIKE CONWAY, Director
Division of Spill Prevention and Response
Department of Environmental Conservation
410 Willoughby Avenue, Suite 105
Juneau, Alaska 99801-1795
Phone: 465-5250
POSITION STATEMENT: Answered questions
PREVIOUS ACTION
BILL: HB 238
SHORT TITLE: OIL/HAZARDOUS SUBS. FUND,TAX,PLANS
SPONSOR(S): SPECIAL COMMITTEE ON OIL AND GAS
JRN-DATE JRN-PG ACTION
03/19/93 707 (H) READ THE FIRST TIME/REFERRAL(S)
03/19/93 708 (H) RESOURCES, STATE AFFAIRS
03/24/93 (H) RES AT 08:00 AM CAPITOL 124
03/24/93 (H) MINUTE(RES)
04/07/93 (H) MINUTE(RES)
04/07/93 (H) MINUTE(JUD)
04/14/93 (H) MINUTE(RES)
04/16/93 (H) MINUTE(RES)
04/17/93 (H) RES AT 10:00 AM CAPITOL 124
04/17/93 (H) MINUTE(RES)
11/12/93 (H) MINUTE(RES)
02/23/94 (H) MINUTE(RES)
03/02/94 (H) RES AT 08:15 AM CAPITOL 124
03/02/94 (H) MINUTE(RES)
03/09/94 (H) RES AT 08:15 AM CAPITOL 124
03/09/94 (H) MINUTE(RES)
03/16/94 (H) RES AT 08:15 AM CAPITOL 124
ACTION NARRATIVE
TAPE 94-33, SIDE A
Number 000
HB 238 - OIL/HAZARDOUS SUBS. FUND,TAX,PLANS
The House Resources Committee was called to order by
Chairman Bill Williams at 8:27 a.m. Members present at the
call to order were Representatives Williams, Bunde, Carney,
Davies, Finkelstein, Green, James, and Mulder.
Representative Hudson was absent.
CHAIRMAN WILLIAMS announced there is a quorum present. The
meeting is on listen only teleconference with Anchorage,
Cordova, Homer, Soldotna and Valdez. He stated HB 404 was
taken off the schedule at the request of the sponsor.
DAVE PARISH, EXXON COMPANY, U.S.A., stated Ken Reither will
be giving a presentation on how Exxon understands the
different versions of the bills. He commented Exxon has not
yet seen a copy of the Department of Environmental
Conservation (DEC) Oil and Hazardous Substance Release
Response Fund audit and understood there are several
sections in HB 238, version Y that attempt to incorporate
the key findings of the audit. He said Exxon has seen those
sections, they seem reasonable and Exxon would support them.
From Exxon's perspective, there have been problems with the
470 fund, but not particularly with the management of the
fund by the current Administration. The industry agrees
that this Administration has been responsible in their
efforts to build up the fund balance, which has grown
significantly under their stewardship.
Number 053
KEN REITHER, EXXON COMPANY, U.S.A., stated he will discuss
the tax suspension mechanism, what the industry is seeking
in this matter, some charts showing the immediate benefit of
the various proposals, the concept of splitting the nickel,
and version Y. He said despite testimony last week to the
contrary, the tax suspension mechanism in the current 470
fund law does not work. The last calculation made to
determine whether or not the $50 million cap had been
reached was on January 24, 1994. At that time, the
commissioner of Administration calculated as follows: oil
surcharge cumulative revenue-$115 million; cumulative
expenditures-$128 million; with a difference of negative $13
million.
MR. REITHER stated there is $37.4 million in the spill
reserve and any mechanism which calculates whether or not
the $50 million is reached ought to reach a result close to
the $37.4 million. He said the negative $13 million is
wrong, it does not work and it ought to be fixed.
MR. REITHER recalled that a lot of testimony characterized
the industry as seeking a tax break. The industry would
like to see a mechanism which provides a stable source of
revenue to DEC for ongoing spill prevention and response
programs, and a fix to the tax suspension mechanism so that
funds available for spill response build to $50 million as
intended, but then part of the tax suspends unless and until
there is a draw down below the $50 million target level. He
said the law in 1989 was intended to build up a $50 million
fund and the tax was supposed to shut off.
MR. REITHER remarked there have been charts developed by DEC
which show an immediate benefit from the various proposals
ranging from $26.8 million to $64.7 million. These amounts
were derived by comparing the negative $13 million against
what the result would be if the formula was fixed, which has
nothing to do with tax liability, but rather only has to do
with when the tax turns on and shuts off in the future.
Exxon feels the comparison is invalid. The proper way to
calculate any benefit to the industry is to compute the
difference between the tax the industry pays under present
law versus the tax it would pay under the new law. He
pointed out there is no immediate benefit to industry from
any of the proposals. What happens under a couple of the
proposals is there is a partial suspension of some of the
tax beginning in mid fiscal year 1995. That benefit is no
where close to $26.8 to $64.7 million.
Number 106
MR. REITHER commented on the concept of splitting the
nickel. One of the reasons why splitting the nickel makes
sense is that the 470 fund has in reality become a dual
purpose fund, trying to serve two purposes. First, it is
used to fund ongoing spill preparation and prevention
programs which are done by DEC. Second, it is used as a
storehouse of moneys available to respond to catastrophic
and other spills. He stressed there are two separate and
distinct, but really unrelated purposes trying to be served
by a single fund.
MR. REITHER stated splitting the nickel into two separate
surcharges - one to take care of the ongoing needs of DEC
and the other to build the fund, and make one of them a
permanent tax and the other a suspending tax, seems to be a
sensible and workable approach. He said Exhibit A shows how
a split of 2 cents for ongoing programs and 3 cents for the
suspending tax will work. (Exhibit A is on file.) He
explained the concept is simple. There is $37.4 million in
the spill reserve and approximately $26 million has been
collected from the nickel during fiscal year 1994. The
proposals basically divide the $26 million into two piles of
money; one going to fund the ongoing DEC programs in the
coming fiscal year and the other going in the spill reserve.
Adding the one part from the $26 million for the spill
reserve, to the $37.4 million already there, results in
approximately $50 million. Mr. Reither explained depending
how the nickel is split, he determined a $49.9 million fund.
The tax would suspend under that scenario as of January 1,
1995.
Number 144
MR. REITHER stated Exhibit B illustrates a split of 2 1/2
cents and 2 1/2 cents. The differences shown in Exhibit B
are: 1) more dollars are available for appropriation to DEC
for ongoing programs in future years; $16.1 million or more
versus DEC's projected need of $13.5 million, and 2) the
buildup of the $50 million fund is not quite as fast as
under the 2 cents/3 cents proposal. He stressed both
proposals raise the fund above $50 million, but how fast
that point is reached is different between the proposals.
MR. REITHER stated DEC has come forward with a 3 cents/2
cents proposal with 3 cents going to ongoing programs and 2
cents for the spill reserve fund and taking 60 percent of
the $37.4 million spill reserve and appropriating that
amount to DEC in a nonlapsing appropriation to be spent for
ongoing programs (illustrated in Exhibit C, on file.) The
result is $38 million appropriated to DEC for ongoing
programs, compared to DEC's projected need of $13.5 million.
In addition, that proposal would reduce the spill reserve to
$25.4 million and it would take 2 1/2 years for the fund to
build to $50 million as compared to the 2 cents/3 cents
split, or the 2.5 cents/2.5 cents split where the fund will
exceed $50 million by the middle of the coming fiscal year.
He added that under the 2 cents/3 cents and 2.5 cents/2.5
cents proposals, the fund actually grows higher than the $50
million.
Number 191
MR. REITHER stated the fourth proposal, HB 238, version Y is
illustrated in Exhibit D. Under version Y, the nickel
surcharge would remain in place and a tax credit would be
given when the spill response fund got to $50 million. He
said he tried to prepare a detailed analysis of how version
Y would work, but did not get very far before he ran into
problems due to ambiguities as to how it would work. He
noted he had examined the work draft and the amendments and
determined the following problems. In the work draft by
itself, the accounting problem is not fixed and none of the
amendments fix the accounting problem. In section 4 of the
bill, which contains the calculation whether the $50 million
target is reached, the bill subtracts reserves for
outstanding appropriations and then subtracts total
appropriations. He said he remembered a comment by members
of the Administration that it seemed like double accounting.
He stated in some of the earlier versions of the Senate Bill
and most recent versions of the Senate and House bills, that
problem had been taken care of.
MR. REITHER stated in the version Y work draft, a taxpayer
is entitled to a credit against the tax imposed by AS
43.55.011-150. He said that range of tax laws covers two
taxes, an oil production tax and a gas production tax, which
are two separate taxes. Presumably the credit would be
against the oil production tax, but the bill should be more
precise in this area. If passed as drafted, he thought the
Department of Revenue (DOR) would have to pass a regulation
attempting to clarify this point.
Number 230
MR. REITHER said the second problem is the credit may be
taken only during a tax year in which the credit is
calculated and reported, but under neither tax is there a
tax year. He stressed both the oil production tax and the
gas production tax are calculated and paid monthly, not
annually.
MR. REITHER stated the third problem under version Y is the
surcharge would be segregated into a separate account in the
general fund. At the end of the year, the legislature would
appropriate the nickels collected into the 470 fund, but
since the credit is allowed against production taxes, which
are paid into the general fund, that credit effectively
comes out of the general fund, not the 470 fund. Thus the
470 fund would continue to grow, funded indirectly by the
general fund, and not by the surcharge itself.
MR. REITHER said the Y.4 amendment does solve that problem
in that it changes the credit to be against the surcharge
itself. He pointed out it also solves the problem of
clarifying exactly which tax the credit is applied against.
He stated the Y.4 amendment presents another problem in that
it only allows the credit during the state fiscal year in
which the credit is calculated and reported. He outlined
the fourth quarter of the fiscal year. By April 30, the
commissioner of Administration must make the calculation and
by May 14 must report that to DOR. DOR, within no specified
time limit, calculates the amount of credit by taxpayer and
notifies each taxpayer the exact amount of credit which is
allowed. He stressed the problem is the next tax return
before the end of the quarter is due June 20 and delinquent
June 30. That leaves only 45 days for DOR to make the
calculation, notify taxpayers of the amount of credit, and
the taxpayers to fold the credit into their return;
otherwise the credit is apparently lost.
MR. REITHER stated another problem with the tax credit
mechanism is if there is an amended return filed later in
which the volumes change. He said Exxon has had volume
changes which occurred during the audit process. He pointed
out that taxes are not calculated on a close enough basis,
they have to be calculated exactly to the penny. Otherwise,
the company is not complying with the law. He another
concern is the issue of whether natural gas liquids are gas
or oil. Should the DOR prevail in it's claim that natural
gas liquids are oil, then amended returns will be required
which change the number of barrels reported and accordingly,
the surcharge due. Depending on when the issue is resolved,
and it could be five to ten years from now, DOR will have to
go back and calculate what the tax credit would have been in
a certain year.
MR. REITHER emphasized that while the tax credit looks like
a good idea in theory, in practice it puts a large burden on
DOR and the taxpayers. He added that no taxpayer can verify
the accuracy of the amount of credit calculated by DOR
without knowing the total amount of surcharge collected from
the other taxpayers, which is confidential, as adjusted
after audits are closed, ten or more years later. He
stated there is no doubt that DOR can write regulations and
make any calculation required under just about any law which
is passed. However, he felt the tax credit mechanism is
burdensome, creates a tax compliance problem, and it seems
that splitting the nickel is simpler. If the nickel is
split and there is a tax suspension mechanism which really
works, when the $50 million cap is reached, all DOR would
have to do is send a form letter to the producers, notifying
them of the suspension or reinstatement of the surcharge.
DOR would have nothing to calculate.
MR. REITHER stated in summary, Exxon does not support the
tax credit solution. Although some of the problems he
described could be resolved through amendments, the result
is still one fund trying to do two jobs; the effort required
by DOR and the taxpayers to make and keep up with the
calculations seems out of line with the objectives that are
being sought. He stressed the far simpler approach is to
split the tax into two parts: One to fund ongoing programs
and the other to build the $50 million fund. Under the
split nickel approach which Exxon has supported, only part
of the nickel tax suspends, and only after full funding of
DEC's ongoing programs, and only after the full $50 million
fund is built up for response to catastrophic and other
spills to be addressed out of that fund.
(CHAIRMAN WILLIAMS noted for the record that Senator Mike
Miller had joined the committee.)
REPRESENTATIVE DAVID FINKELSTEIN stated the complexities of
what is being discussed are significant but many of them can
be solved. He asked if the surcharge is shut off when the
$50 million cap is reached, will there be a situation
created where the surcharge will shut off and turned on over
and over during a quarter since spending is erratic.
MR. REITHER stated what Exxon contemplates and what is being
proposed under one of the proposals is splitting the tax.
The funding for ongoing programs is in place and the
suspension only works quarterly. The suspension would not
be on a daily or weekly basis. The result is a stable
source of money for the amounts appropriated for ongoing
programs and a $50 million fund.
REPRESENTATIVE FINKELSTEIN asked in a situation where there
was a big drain on the fund within a quarter due to a
significant spill, would the restarting of the nickel
surcharge not start until the next quarter.
MR. REITHER responded the surcharge would begin again the
next quarter.
REPRESENTATIVE FINKELSTEIN expressed concern. He said it is
possible that the state could have two catastrophic spills
within one quarter. He stated he cannot support a system
where the fund drops below $50 million and there is no
restarting of the surcharge for a whole quarter, regardless
of what happens.
MR. REITHER stated that is the way it works in present law.
REPRESENTATIVE FINKELSTEIN agreed but said the $50 million
cap has never been reached, so it is not an issue. If the
nickel tax is going to shut off, there needs to be a basis
for what the spending needs are.
MR. REITHER said the present law has a shut off mechanism.
It was put in place to shut off at $50 million but it does
not work. He stated he is advocating that be fixed. He
noted the shut off mechanism would not work differently
under any of the proposals, including the tax credit
proposal.
Number 466
REPRESENTATIVE FINKELSTEIN stated the $50 million is a
theoretical number which has not been reached and was put
into law as an estimate. He said the state's final Exxon
Valdez spill report which came out in June 1993 concluded
that out-of-pocket costs to the state for cleaning up the
spill exceeded $50 million. He asked if Exxon would support
a proposal with the fund at a higher level, so if a
situation like the Exxon Valdez happens again, the state
would have enough money in the fund to pay for the cleanup.
MR. REITHER replied probably not, because the $50 million
fund is there to fund a cleanup of a spill caused by an
elusive, foreign tanker; someone with low capitalization and
no funds available to respond to a spill and someone likely
to spill oil and disappear. That is not the case in respect
to the major producers. There are Jones Act considerations
and other funds available which give comfort. He believed
that if another spill occurred similar to the Exxon Valdez,
the company involved will be just as responsive as Exxon
was. He felt $50 million is adequate.
REPRESENTATIVE JEANNETTE JAMES felt the $50 million is to be
used as an emergency response fund so that when a spill
occurs, there is an immediate response and there is not a
question of who pays. It allows the response to a spill,
with an understanding that most likely the funds will be
returned when the responsible party pays for the cleanup.
Number 527
CHAIRMAN WILLIAMS recalled that Mr. Reither had said the
present law says the fund will build to $50 million and then
shut off. He asked if the 470 fund law does, in fact, say
that.
MR. REITHER stated the fund would temporarily shut off
unless and until the fund drops below $50 million, provided
the tax suspension mechanism is worded properly in the law.
CHAIRMAN WILLIAMS clarified the present law says when the
fund reaches $50 million, the tax shuts off.
Number 540
MR. PARISH responded it shuts off on a temporary basis until
it is drawn down below $50 million and then it begins again.
REPRESENTATIVE ELDON MULDER recalled that Mr. Reither had
said the fund could go higher than the $50 million before
the tax shuts off and asked how that could happen.
MR. REITHER replied that could happen because of the delay
in how the shut off mechanism works. A full quarter has to
elapse before any collections for that quarter are counted
and there is a need to wait until recoveries come in.
During the middle of the second quarter, the calculation is
made and the effect of that calculation does not take place
until the beginning of the next quarter. He said you
effectively have two quarters of collections.
REPRESENTATIVE JOHN DAVIES stated there is a need to be
careful about what fund is being discussed when talking
about current law because of the way the calculation is
done. What has been talked about is a response fund and the
other ongoing expenses are mixed. Therefore, the fund is an
overall pot of money which consists of both the day-to-day
expenditures and contingency funds for a major spill.
Number 586
REPRESENTATIVE JOE GREEN stated that is why the split nickel
version was introduced. The split nickel is to stabilize
the fund so it would not be constantly vacillating.
REPRESENTATIVE FINKELSTEIN felt the state's analysis of the
Exxon Valdez spill costs were such that if one were to apply
those costs to the kind of situation mentioned earlier where
an irresponsible party caused a spill and disappeared, the
state could easily be at a point where $50 million was not
enough. He stated the $50 million is inadequate for the
types of spills being discussed. He said the issues at hand
are difficult because of the accounting. He asked if Exxon
feels the nickel surcharge tax is excessive or feels the
legislature is inappropriately appropriating the funds.
MR. PARISH stated there is a systematic problem with the
current law. He said last week DEC presented a chart to the
committee which illustrated how costs had gone up because
the legislature kept passing changes in the law with
mandates to spend more money. He expressed concern with the
pattern of "if the fund is there, it is going to be spent."
He said that is particularly true when one looks back at the
original fiscal notes where the expenditure estimates were
$5 million a year and every year, the actual appropriations
have exceeded that amount.
Number 680
REPRESENTATIVE GREEN stated there has been concern expressed
about the adequacy of the $50 million. He reiterated that
the fund is for emergency response. He felt the state is
currently in a completely different situation than when the
Exxon Valdez oil spill occurred plus there is a $1 million
federal government back up. He said funding is not the
issue. It is the immediacy and the capability to go to a
spill at a moments notice, and that is why there is a need
to reach $50 million so there is money to accomplish that.
He stressed what is happening currently is an attempt to
revoke the law on its original purpose. The law was passed
several years ago and currently there is a diffusion of
attitude as to what the purpose of the 470 fund is. He felt
the ongoing prevention programs, oversights, etc., are
legitimate charges but he stressed in some instances,
expenditures have exceeded the original purpose and that is
why there is a need to refocus through this bill.
TAPE 94-33, SIDE B
Number 000
REPRESENTATIVE DAVIES stated Mr. Reither had commented it
was inappropriate to consider a division of the $37.4
million currently in the fund balance. In light of the fact
that the industry has pumped $112 million into the fund and
the state has contributed approximately $75 million through
general fund appropriations, he asked if those two numbers
should be taken into account in allocating the $37.4 million
if the decision is made to split the fund.
MR. REITHER responded as he understands it, an amount
remains in the spill reserve after DEC has been fully funded
for prior expenditures and what occurs is money left over
from the nickels. Since it is there, he felt it was
appropriate for the money to remain there.
REPRESENTATIVE DAVIES disagreed. He stressed the money
remaining is from the combination of nickels and state
appropriations. He said people have argued that because the
$37.4 million was created from both nickels and state
appropriations, that fact should be taken into account.
MR. PARISH stated Exxon had discussions with DEC last year
in regard to the question of general fund money flowing
through the fund and ending up in the reserve, and at that
time, DEC could not track exactly what was nickels and what
was general fund money in the fund. He said one of the
primary original purposes of the nickel tax when it was
enacted and revamped in 1989 was to build up an emergency
fund. The discussion being heard from all parties is there
is a desire to have a strong emergency response fund. For
that reason, Exxon supports taking the existing emergency
fund and keeping it whole.
Number 044
REPRESENTATIVE CON BUNDE stated many people are saying that
stopping the nickel when the $50 million is reached is a tax
break for oil companies. He asked how Exxon would respond
to that comment.
MR. REITHER stated when the nickel-a-barrel surcharge was
first enacted, it was supposed to stop at $50 million. If
the stoppage mechanism does not work and there is a desire
to fix it, he did not see how that translates into a tax
break. He said the tax is not like a deduction where some
particular aspect of the oil industry's function is being
targeted for a deduction, to induce them to act in a certain
way. He felt characterizing the shutting off of the nickel
as a tax break is improper.
REPRESENTATIVE BUNDE asked if the nickel continues, will it
affect Exxon's operation in any way.
MR. REITHER responded it would not make a foot note in the
annual report. He said just because oil companies are
profitable does not mean they do not face the same problems
as what the legislature is facing today. The price of oil
is hurting the industry just as bad as it is hurting the
legislature. He said Exxon is doing everything possible to
reduce costs. He stressed profits of the oil companies do
not relate to the issue at hand.
CHAIRMAN WILLIAMS stated he appreciates what the oil
companies are confronted with. He said his initial
discussion about the nickel-a-barrel tax was that all of the
nickel should go right to the catastrophic fund. Then he
was told the oil companies want to pay for preparedness
programs and that is why the nickel should be split. He
expressed concern with the split nickel because with the
volume of oil leaving the state, there are questions as to
where the nickel is going to come from and how the state can
be assured that the programs are fully funded, and will
continue. Today he has people talking to him about cutting
welfare and education programs, etc., and he wonders how
anyone can be assured that ten years from now the spill
response and prevention programs will exist or if they are
even needed.
Number 110
MR. REITHER stated in regard to the volume of oil going
down, there are other sources of funds in the various
proposals such as using the interest off of the $50 million.
The projections he made earlier under the 2 cent/3 cents or
the 2 1/2 cents/2 1/2 cents proposals, show a result of more
money available to fund ongoing programs over the next five
years. He stressed it is very difficult to predict where
industry will be five years from now. If a projection of
oil production volumes made five years ago was looked at,
now it would be determined that the projection was based on
what could be seen at the moment. Many fields which have
come on line, were not in the projections made. Therefore,
what is happening is a projection which follows volumes of
production is constantly being revised. He felt that five
years from now, the volume will probably not be as low as
projected because of past experience of improving production
methods.
MR. REITHER stated it is very difficult in the oil business
to predict where anyone is going to be five years from now.
He said it appears the mechanisms Exxon has been advocating
takes care of the problem at least for five years and if at
the end of five years if it is not working, take another
look.
Number 148
BOB POE, DIRECTOR, DIVISION OF INFORMATION AND
ADMINISTRATIVE SERVICES, DEC, stated there has been a lot of
discussion regarding the $50 million shut off, what it was
intended for, etc. He advised that representatives from
legislative audit are present and if there is a desire to
review what the original intent of the law was, how it
changed, etc., the audit is a good source to refer to. He
pointed out present law says the nickel should shut off when
total expenditures from the fund subtracted from the nickels
which have gone into the fund equals $50 million. It does
not say anywhere in the law that the nickel surcharge will
stop when the spill reserve balance equals $50 million.
Therein lies the problem.
MR. POE said in regard to the question of what is in the
$37.4 million spill reserve fund presently, DEC cannot go
back and determine what came from nickels and what came from
general fund dollars. Referring to a chart he distributed,
he said a snapshot was taken for each year; the money which
went into the fund each year and the money that went out
each year. (The referenced chart is on file). He then
applied that ratio of money coming in and money going out to
determine how much of the money going out was general funds
and how much was nickels. In the early years, up to fiscal
year 1990, 100 percent of the money going out was general
funds. When the same ratio is used and 1987-1994 is looked
at, 41.29 percent of the funds expended or funds remaining
are general funds and 58.71 percent is from surcharge
revenues.
Number 204
MR. POE in response to Mr. Reither's testimony, felt the
comparisons made were apples and oranges. In Mr. Reither's
comparison of the 2 cents/3 cents split and the 2.5
cents/2.5 cents split, he takes all of the $37.4 million and
puts it into the spill account. Therefore, those two
versions come up with good immediate results in the first
year in regard to suspending the nickel surcharge and
reaching $50 million in the fund. On the 3 cents/2 cents
version, Mr. Reither does follow the version, which DEC
submitted to the Senate Resources Committee, that takes the
$37.4 million and splits it 60/40 with the logic being the
fund would split the way the nickel did giving DEC an
advantage.
MR. POE stated when the 3 cents/2 cents version results are
compared under Mr. Reither's analysis to the 2 cents/3 cents
or 2.5 cents/2.5 cents version, the reason the other two
versions look so good is that he takes $37.4 million and
puts it into the calculation to suspend the nickel and in
the spill reserve, so the spill reserve reaches $50 million
rather quickly. The other comment which Mr. Reither made
which Mr. Poe takes exception with is there is no positive
tax break other than the savings in the nickel paid in the
first year upon changing the law. Mr. Poe pointed out that
Mr. Reither starts out at the end of 1995 with a spill
reserve of $57.7 million; he has only paid $7.8 million in
surcharge that year; so somebody got $49.9 million under the
2 cents/3 cents version in one year, where before on June 30
of the same year, he was looking at a negative number.
Number 259
MR. POE said if one takes the same scenario on the 2.5
cents/2.5 cents version, the industry gets $56.4 million,
spends $6.5 million, with a $49.5 million benefit. He
stated just because everyone feels the calculation is a
problem now, does not mean there is no benefit from changing
it. If everyone thinks the calculation is wrong today, it
may have been very well thought out at that time. He
stressed there is a benefit from changing the calculation
because the law presently does not say when the spill
reserve equals $50 million, the nickel turns off. The law
says when the result of the calculation of subtracting all
the expenditures from the nickels that went into the fund
equal $50 million, the nickel will shut off. He pointed out
those are two very different points.
MR. POE stated currently the state is attempting to do two
jobs with the same fund. He is not convinced that because
the state has two jobs to do necessarily argues that there
is a need to draw a partition around the two sources of
money. Perhaps next year, it may be determined there are
three jobs to do. The problem does limit DEC's ability to
respond to the jobs faced. He said in regard to simplicity,
he pointed out that version W contains 23 pages and version
Y is 11 pages. He noted in version W, the number of
accounts tracked is doubled and a lot of complexity has been
added.
MR. POE said many of the concerns Mr. Reither raised about
the tax refund aspect seemed to be what is normally done in
the departments of revenue. He did not know if the refund
aspect necessarily says that a single nickel version is
inherently flawed. Mr. Poe stated perhaps the refund aspect
has a problem, but Mr. Reither's argument did not seem to be
effective against version Y.
Number 324
REPRESENTATIVE GREEN noted on the chart which Mr. Poe had
distributed that mitigation account transfers in are coupled
with the total general fund and asked if that was due to
money paid in first goes through the general fund, then
comes back and therefore it is considered a general fund.
MR. POE responded that mitigation amounts are general fund
money. He pointed out there is nothing in present law or in
past practice which indicates the money is necessarily going
into the response fund. Many of those funds come from
fines, penalties, etc., which probably should not be going
toward the spending of the nickels. Technically,
accounting-wise and in practice, the amounts are general
funds.
REPRESENTATIVE FINKELSTEIN wondered if someone could answer
the question of what the intent of the original law was. He
recalled the issue which Mr. Parish raised, which was the
comparison between the expectations of expenditures and the
actual expenditures. He noted there is a chart in committee
member folders which Stan Stephens mentioned at the hearing
last week. The chart has a straight line across
representing approximately $5 million for what the fiscal
notes were supposed to be for oil and hazardous substance
release response fund expenditures. Then there is a line at
a higher level which goes up to $25 million for actual
appropriations. He said items such as the one time
expenditure on the ferry are not included in the
expenditures and there is no inclusion of the fiscal notes.
He noted what is being compared is a list which is not all
inclusive and asked if the fiscal notes were included, would
the two lines be closer.
MR. POE responded they would be very close. He said DEC
prepared a response to that chart, in committee member
folders (copy on file) which shows the different changes in
law and how the line was reached. The chart which
Representative Finkelstein was showing started with a fiscal
note that related to the starting point and then extended
the fiscal note across the years. He noted there have been
17 legislative changes since the fund got started and those
changes have resulted in additional fiscal notes or the
enabling of the fund to be spent for other reasons, which
were then later appropriated and raised the level of
appropriations up. Referring to the chart, he said DEC has
illustrated how those are composed through time and what
made up that growth in the number.
Number 393
REPRESENTATIVE JAMES felt the prime design of the original
law was to have a $50 million pot of money to be available
for an emergency response. She said the $50 million goal
has not been reached and asked if that should be the primary
goal.
MR. POE responded yes and pointed out that even in the
earlier split nickel versions, the equation was not fixed
and the $50 million still would not have been reached. He
said DEC showed how the equation should be structured to get
there.
JIM GRIFFIN, MANAGER, LEGISLATIVE AUDIT DIVISION, stated
research indicates the intent of the original legislation
passed two years prior to the Exxon Valdez incident was the
cleanup of contaminated sites. When legislation was passed
in 1989, another intent was put into the original intent
which discussed future discharges of oil and it also set up
the response fund. The legislation in 1989 took a mechanism
already in place that had one type of intent, and put the
nickel-a-barrel surcharge and the future discharge language
on top of the original legislation, which resulted in a very
broad intent.
REPRESENTATIVE GREEN asked if the nickel surcharge was
separated to handle crude oil and the 470 fund as it was
envisioned prior to the nickel, would the accounting be
simpler.
MR. GRIFFIN responded administratively speaking there is an
appeal to separate them.
REPRESENTATIVE GREEN said the DEC commissioner is charged
with supplying a review of what has happened each year by
the tenth day after the legislature convenes. He asked if
that report is available.
MR. POE responded the report is late but will be available
by the end of the week. He discussed why the report is
late.
REPRESENTATIVE GREEN clarified that DEC's proposal would
split the amount of money in the fund similar to the way the
nickel income is split. He asked if the amount of money to
be split needs only to be big enough to cover DEC's
expenses, why would DEC need the amount of money in the fund
and what would DEC do with that money.
MR. POE replied for the purpose of analysis, DEC made one
basic assumption and that was the fund got split the same
way as the nickel, because at that time DEC had not done the
proof which shows the fund is 41 percent/58 percent. He
said the numbers which Mr. Reither presented show there is
no problem with the state's spill prevention and response
program because there are other sources of money such as
interest on the fund, Exxon payments to come in the future,
etc. Mr. Poe agreed the interest is and always has been in
the general fund, but it is being used for something else.
To say now that the interest is going to be committed to
this program is a general fund appropriation. On future
Exxon payments, there is no guarantee when those payments
will be received or in what amounts, so it is a very
unpredictable revenue source. In addition, new possible oil
sources are not predictable, so if there is a desire to have
a fund available to respond to spills and another to fund a
spill prevention program, there needs to be an assured
funding source. DEC believes if the fund is split, general
fund and nickels, there would be money to supplement the
shortage occurring in the out years from a split nickel
version.
Number 548
REPRESENTATIVE GREEN pointed out that if the 3 cents tax
went to fund ongoing programs it would generate
approximately $16 million without the interest, mitigation,
etc., and that is $3 million in excess of DEC's annual
budget.
REPRESENTATIVE MULDER stated that Mr. Poe had indicated a
large amount of funds have gone into the response fund as
general funds and asked if the general fund has received any
reimbursements since 1988.
MEAD TREADWELL, DEPUTY COMMISSIONER, DEC, answered the
general fund made direct appropriations for the Exxon Valdez
response, such as to the Department of Law and also
appropriations to the response fund. The appropriations to
the response fund have not reimbursed the general fund
directly. He said it could be argued that some of the
mitigation account expenditures which came from the Exxon
reimbursements that might have come from general fund being
put in the response fund were reimbursed (indiscernible)
general fund but they were not called that. He stated some
of the things which were appropriated out of the mitigation
account were clearly response fund eligible, but they were
taken from the mitigation account.
Number 624
REPRESENTATIVE MULDER said he understands why DEC is
advocating the 3 cents/2 cents proposal. He asked what the
projected revenue is for the 3 cents split for the next five
years.
MR. POE replied $15.7 million, $15.2 million, $14.9 million,
$14.3 million, and $13.4 million.
REPRESENTATIVE MULDER clarified there is a steadily
diminishing supply of funds coming in from the 3 cents, but
when adjustments are made for inflation, the $13.5 million
is going to go up to $14.4 million, so to be somewhat
responsible for a five year plan, DEC is saying the 3 cents
is necessary.
MR. POE said that is correct. He pointed out that DEC does
fiscal notes in a five year plan, but expects oil
development to be ongoing for a long time so there is a need
to think even further out. He stated DEC does not currently
have any indications that the rate of dissent is going to
decrease in terms of production.
TAPE 94-34, SIDE A
Number 000
REPRESENTATIVE DAVIES asked if existing DEC budgets
adequately fund prevention programs.
Number 024
MIKE CONWAY, DIRECTOR, DIVISION OF SPILL PREVENTION AND
RESPONSE, DEC, stated the division based their budget on
requirements in statute to be able to continue programs on
the current level. He added there are many issues which the
legislature can choose to take on in the future not being
addressed currently. He said as long as there is a stable
climate in responsibilities for the next several years, the
budget is adequate. He commented there is a philosophical
debate which goes on amongst members of the legislature to
figure out what the funding level should be for each
program. The State Emergency Response Commission had a task
force put together to look at a strategic plan for local
emergency planning committees (LEPC) and there is an
indication there will be about 20 plans submitted during
fiscal year 1995. Once the plans are submitted, the
substantial up-front costs of getting them going has already
occurred and the debate is how much do the communities kick
in to keep the plan going since they have the responsibility
to do the response.
REPRESENTATIVE JAMES asked if there is a written plan
showing when and where the depots and corps will occur.
MR. CONWAY responded the Department of Military and Veteran
Affairs (DMVA) has the current responsibility for depots and
corps. He said DMVA would have to answer the question. He
stated in working with DMVA, he knows when DMVA first got
that responsibility, their plan included $20 million to
start up depots and corps with approximately $5 million a
year needed after that. He added that the legislature
funded the program at about the $2 million level in the
beginning.
MR. POE commented that when the legislature funded the
program at that level, there was legislative intent which
said the funding was to be used for allowing DMVA to be in a
ready status to respond to spills, so that money basically
goes to personal services.
MR. CONWAY stated DEC has been working on the near shore
demonstration projects to be able to have an equivalent to
depots and corps, based upon current statutes. DEC can
enter into an agreement with local communities and
contractors to provide the capability to respond to the day-
in, day-out spills which are 99 percent of the spills. By
using those existing authorities, DEC is looking at the near
shore demonstration projects to come up with a package for
coastal communities on what kinds of things could be the
equivalent of depots and corps. He described several
upcoming demonstrations.
MR. CONWAY said when DEC finishes evaluating the projects,
they will have packages with a price tag which will come
before the legislature in the future. He added that DEC has
response vessels under construction to be part of the
demonstration projects. He stated DEC will have two kinds
of packages showing what they need for noncrude areas and
what is needed for crude. He pointed out the demonstration
projects have been an independent activity because in fiscal
year 1993, the legislature made a decision to give DEC
funding for the near shore demonstration projects and did
not give any funding, other than for staff, to DMVA for
depots and corps.
REPRESENTATIVE FINKELSTEIN asked in regard to the audit, how
many laws contributed to the legislative intent on the 470
fund.
MR. GRIFFIN responded there is a chart on pages 8 and 9 in
the audit which indicates there have been sixteen.
REPRESENTATIVE FINKELSTEIN clarified the determinations on
intent all promulgates from either language from the law or
fiscal notes, and does not include committee minutes, etc.
MR. GRIFFIN replied the division does read committee minutes
in the course of the audit, but the determination of the
intent comes straight from the law.
REPRESENTATIVE FINKELSTEIN said there has been a debate over
and over again indicating the intent of the 470 fund is for
responding to catastrophic spills, but the audit shows the
purpose is both prevention and dealing with hazardous waste,
as well as dealing with catastrophic spills.
MR. GRIFFIN stated the preamble to the 1989 legislation
which established the nickel-a-barrel surcharge talked
specifically about future events and catastrophic spills.
He said the division also asked the question of Mr.
Chenoweth at legislative counsel as to how that affects
everything which came before and after, and he said it does
not have much effect.
REPRESENTATIVE FINKELSTEIN clarified that the final
conclusion in the audit is that the 470 fund is for both
prevention and dealing with hazardous waste and dealing with
catastrophic spills.
MR. GRIFFIN replied that was correct.
ANNOUNCEMENTS
CHAIRMAN WILLIAMS announced the committee will hear HB 446,
HB 462, and HB 352 on Friday, March 18 at 8:15 a.m.
ADJOURNMENT
There being no further business to come before the House
Resources Committee, Chairman Williams adjourned the meeting
at 10:10 a.m.
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