Legislature(1999 - 2000)
04/12/1999 09:07 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 128(RES)
"An Act moving the termination date of the Board of
Storage Tank Assistance to June 30, 1999; relating to
the storage tank assistance fund; relating to
financial assistance for owners and operators of
underground petroleum storage tank systems; relating
to discharges from underground petroleum storage tank
systems; and providing for an effective date."
JOHN BARNETT, Executive Director, Board Of Storage Tank
Assistance, Division of Spill Prevention and Response,
Department of Environmental Conservation, testified against
the bill. The board was opposed to converting the grant
program into a loan program at this time. The upgrades and
closures had one more year to wrap up a nine-year effort.
Tank owners had been ranked and had been waiting on the
list for several years.
The tank owners acted on good faith to report contamination
that otherwise may not have been reported. Department of
Environmental Conservation and the US Environmental
Protection Agency now had that information. Should the tank
owners fail to obtain financing to clean up their site,
under the terms of this bill, they would face enforcement
actions from EPA. That would cause the loss of potential
services and possibly hundreds of jobs, according to John
Barnett.
The department understood and applauded the Legislature's
interest in finding cost-saving measures this program was
funded out of the prevention account as opposed to the
general fund. He told the committee that the department
wanted to see it funded for at least one more full year to
finish the upgrades and closures. They also wanted to
entertain the possibility of looking at other financing
means: combinations of grants and loans, but they wanted to
phase that in or base it upon a financial need basis. They
would need time to evaluate that option.
He continued saying, under the terms in this legislation,
smaller tank owners would probably not have sufficient
collateral to obtain the loans. Nor could they absorb the
payments of such a large-scale cleanup. Most of the
cleanups averaged $100,000 and some cost over a half-
million dollars. Most of the tank owners had upgraded their
facilities and were carrying large notes to pay off their
upgraded tanks and would not be able to afford the
additional loan.
He repeated his statement that the department told the tank
owners nine years ago that if they acted in good faith to
report the contamination the EPA would not punish them and
they would be provided with assistance to clean up their
sites. Under this legislation, failure to obtain a loan
would result in enforcement action. The tank owners that
the department was trying to keep in business would face
possible bankruptcy.
He concluded by saying the department felt this bill had
room for improvement. He suggested it be tabled for a year
to allow the department to look at alternatives.
Co-Chair John Torgerson said the bill would not be tabled
for a year. He asked what suggestions John Barnett had to
improve the loan program to make it work.
John Barnett felt that the smaller businesses would be
unable to neither afford these loans nor have sufficient
collateral. Therefore, he recommended writing in a
financial need criteria for the smaller tank owners to
allow them to obtain grants. He spoke to how other states
dealt with the tank cleanup. Most had some type of
assistance programs. Some had an insurance program where
the tank owners paid a premium, and when they had
contamination that needed cleanup, the state paid the bill.
Others had a subsidy program. Alaska's program had the most
direct aid since they only charged a registration fee. He
suggested looking at the other states' programs and their
success and failure rates to determine the best option for
Alaska.
He continued explaining that the board had a ranking system
authorized by the Legislature to rank the sites in order of
public health first, location and size of business. The
department was unable to eliminate certain facilities from
that list. The ranking system worked very well for the
upgrade and closure program because the larger companies
were now at the bottom of the list. However, in the clean-
up program, the small tank owners were distributed
throughout the list and many would be excluded with the
passage of this bill. He would like to modify the ranking
system for the cleanup list so that those that could pay
would pay and the department could try to help those who
could not stay in business without assistance. Therefore,
he recommended a phase-in program.
Co-Chair John Torgerson wanted to know the maximum amount
the department gave under the grant program. John Barnett
replied that for the upgrade and closure program, the
department provided a combined grant of $60,000 total for
the upgrade and the closure. A typical four-tank facility
would cost approximately $150,000 - $250,000 to upgrade.
The balance of the funding for that came from private
sector through the Small Business Administration. On the
clean-up program, the tank owners were required to cover
ten-percent of the cost up to $25,000 and the balance of
the clean-up costs were covered by the state up to $1
million per facility.
Co-Chair John Torgerson asked about John Barnett's earlier
comments that many of the smaller tank owners would be
unable to produce enough collateral to meet the $60,000 for
the clean up. John Barnett clarified that many who could
not afford the tank clean-up costs made other upgrades and
improvements and were carrying large loans to fund those
projects. The EPA agreed to hold off on enforcement so long
as this state program was in place.
Co-Chair John Torgerson wanted to know if the other portion
of the bill would allow some of that prevention account to
be spent on state and federal closures. John Barnett
replied that the prevention account was already used for
state facilities. The federal facilities were mandated by
the federal government and the state had no incentive to
pay for those. Law specifically to regulated underground
storage tanks limited the storage tank assistance fund.
The money for that fund derived from the prevention
account.
Senator Al Adams asked were most of the tank owners waiting
for assistance were located. John Barnett said they were
statewide. The majority were along the Railbelt; there
were more in Western Alaska and as far north as Nome.
Senator Al Adams suggested changing the effective date of
the bill to July 1, 2000 so tank owners who were expecting
assistance under this program would still qualify for
grants and not have to obtain the loans.
Co-Chair John Torgerson asked how many grants had already
been applied for. John Barnett answered there were 176
pending applications for the upgrade and closure grants and
220 for the clean-up grants.
Co-Chair John Torgerson asked for a printed list of those
applicants. John Barnett said that information was
contained in the annual report.
Senator Loren Leman noted the Department of Environmental
Conservation fiscal note for services contracted to the
Department of Law. He wanted to know if the department
could contract with someone other than the Department of
Law such as a financial institution. John Barnett responded
that they had discussed that option. Currently, the loans
were handled through and RSA with the Division of
Investments. The problem was the eligible costs, which were
very elusive until the project began. Therefore, the
department was reluctant to support any type of loan that
gave a blanket amount based on their application. Cost
could actually be less or more depending on the extent of
contamination. In addition, the projects were usually
phased. Costs would have to be audited constantly as they
were with the grant program to determine eligible and
ineligible costs. To contract the loan to an outside
entity, there would be insufficient information to make
those determinations based upon the simple loan
application. The department did not want the tank owners to
use any balance of funds on other purposes if the tank
cleanup did not cost the entire amount estimated. He added
that since this program would have to be capitalized to
provide the loans, and since it would not be a revolving
loan program it would need to be capitalized either
annually or more frequently and still cost the state money
from the prevention account.
Senator Loren Leman asked if another contract service could
be given the same criteria as what was provided to the
Department of Law to make those same determinations. John
Barnett deferred to Jim Hayden.
JIM HAYDEN, Program Manager, Storage Tank Program, Division
of Spill Prevention and Response, Department of
Environmental Conservation, drafted the fiscal note. While
the Department of Law submitted a fiscal note, it was to
cover the cost of added enforcement that they anticipated
would accompany this program. The Department of
Environmental Conservation main fiscal note in regards to
the loan program was to RSA funds to the Department of
Commerce and Economic Development, Division of Investments
to run the loan programs. Normally the Division of
Investments contracted out those functions to the private
sector and Department of Environmental Conservation
expected that would happen here.
Senator Loren Leman asked if the grant were replaced with a
loan system, would there still be a need for the board.
John Barnett stated a conflict of interest in that he was
an employee of the board. However, he anticipated the
workload of the board would greatly increase. First, the
board acted as a buffer between the tank owners and the
regulators. When regulations were proposed by Department of
Environmental Conservation, the existing authorities
allowed the board to review those regulations and not sign
off on them if they had a problem. He gave an example in
1993 when the department proposed new sweeping regulations
on tank owners. The board was able to delay those
regulations for two years so the general public could go
through a workshop and hearing process to determine the
flaws in those regulations. The board had been very
effective in reviewing regulations and preventing onerous
regulations that would cost businesses within the state.
The board also determined the eligible cost of tank clean-
ups and was able to mediate disputes on cleanup plans. He
told the committee the board was made up of six members of
the private sector and one commissioner. The board also
wrote the final financial assistance regulations.
Co-Chair John Torgerson wanted to know if the annual report
showed programs that had current grants. Jim Barnett
responded that there were four separate programs. One was
the site assessment and tightness testing program, which
had been fully funded and sunsetted. Co-Chair John
Torgerson asked if the annual report showed if there were
any on-going grants for the same recipients that were
applying for new grants. Jim Hayden replied that the latest
report did not show the current activity for 1999. He
could tell the committee that the department had
approximately 150 grants scheduled this year. Those would
take from 12-18 months to close out over their lifetime.
Co-Chair John Torgerson asked if the annual report or any
other data showed annual income limits or the total assets
of the grantees prior to receiving the grant. Jim Hayden
answered that information was not required as part of this
program.
Co-Chair John Torgerson then asked if this legislation
changing from a grant program to a loan program would
affect any federal funds. John Barnett answered that the
department received federal funds for staff purposes not
for grants or loans. He detailed the funding amounts
totaling $700,000 and their specified purposes.
Co-Chair John Torgerson asked again if the loan program
would affect the federal funds. Jim Hayden said it would
not.
STEVEN DAUGHERTY, Assistant Attorney General, Natural
Resources Section, Civil Division, Department of Law,
testified. He brought up a technical issue with the bill.
There currently many underground storage tank regulations
that would be called into question with this legislation.
It could be argued that they would be repealed by
implication. However, the bill anticipated that those who
had qualified under the existing regulations would continue
to qualify for the loan. He suggested an amendment to keep
those provisions of regulations that were not inconsistent
with the bill in a transition section. It would allow the
department to continue to rely on those regulations.
He also noted the early effective date on the legislation.
The normal regulation process took at least four to six
months to get regulations into place. He recommended a
transition provision to allow the department to start the
regulation process when the bill passed and that those
regulations would not be effective until after the
substantive provisions became effective on July 1. He
provided an amendment with the proposed language to
committee members.
He then discussed the fiscal note. The Department of Law
would have some initial start-up costs to prepare the new
regulations and get the new loan program established in
providing legal advice to the Division of Investments and
the Department of Environmental Conservation.
After the programs were established, the Department of Law
would no longer be required on a continuing basis except
when loans were in default. They did expect a number of
loans to default, noting that these types of facilities
were economically marginal that were constantly going into
bankruptcy. Therefore, the Department of Law had an on-
going fiscal not to cover the cost of increased enforcement
for facilities that could not qualify for the program and
for collecting on the loans were issued.
Co-Chair John Torgerson asked for an example of regulations
that were not inconsistent with the provision of the bill.
Steven Daugherty could not give a specific example but knew
of many situations in the current regulations stating that
the department would give a grant. All the provisions
dealing with grants would therefore be inconsistent. It
could be argued that the entire section adopted as
regulation had been repealed by implication while the
criteria for getting the loan would be the same as the
criteria for the grant. Tank owners could argue that they
automatically qualified for the loan because they were on
the list to receive a grant. The Department of Law wanted
to see that existing regulation base stay in place.
Senator Randy Phillips referred to the testimony stating
the regulations would take four to six months for
implementation. He felt that was overly ambitious. Steven
Daugherty qualified that would be a rapid regulation
process.
Senator Randy Phillips wanted to know what was the fastest
time the Department of Environmental Conservation
regulations had been adopted. Steven Daugherty said a lot
would depend upon the public comment and how complex the
regulations were. In this case, he felt they would be
moderately complex regulations because it was already
established who would be eligible. The regulations would
only have to set up criteria as to how the loans would be
administered. He anticipated there could be considerable
public comment but felt the process was possible to
accomplish within the four to six month period.
Senator Loren Leman noted the testimony that many of these
businesses were not financially stable and wondered if it
made sense to grant the money to a businesses that was
financially insolvent or on the edge. He understood it was
a public safety issue but wondered if it made more sense to
grant the funds rather than loan the funds and have the
loan defaulted. Steven Daugherty said the Department of Law
was limited to legal issues and this was a policy issue
that he did not want to address.
Co-Chair John Torgerson noted two proposed amendments. He
also had some that were being drafted. He wanted to set the
bill aside until the next meeting.
Senator Pete Kelly warned that the committee needed to
proceed cautiously with this legislation. Many smaller
businesses would be impacted by this legislation and needed
to be considered. He had some personal experience with this
matter and had heard stories of the difficulties that
smaller businesses would encounter. He admitted that the
Legislature was in a difficult position, but admonished
that the tank owners were also in a difficult position with
the imposition of regulations by the EPA.
Co-Chair John Torgerson asked if Senator Pete Kelly
recommended a phase-in period. Senator Pete Kelly said
that was one option.
Co-Chair John Torgerson understood but felt the state made
a mistake by having this grant program with no income
limitations. Senator Pete Kelly admitted that was true, but
noted that when the EPA imposed the new regulations, it
began charging enormous fines on the small businesses and
if the state didn't grant the funds, the fines would again
be charged.
Co-Chair John Torgerson asked if Senator Pete Kelly would
prepare an amendment to address his issues. Senator Pete
Kelly said he would. It would not be ready by the next
meeting.
Senator Loren Leman noted the validity of Senator Al
Adams's suggestions about delayed implementation. Senator
Loren Leman said he had argued for a different funding
source when the program was first introduced. He felt the
Legislature probably brought many of the problems on
itself.
Senator Dave Donley stressed that if there was a delayed
implementation, it should not apply to the large multi-
million dollar corporations, but only to the smaller "mom
and pop" organizations.
Co-Chair John Torgerson asked about the balance of the
prevention account, the source of the tax and how much it
generated per year.
LARRY DIETRICT, Program Manager, Prevention and Emergency
Response Program, Division of Spill Prevention and
Response, Department of Environmental Conservation,
detailed that the three-cent tax was estimated to generate
$10.9 million this year. Co-Chair John Torgerson wanted to
know if all that was granted out each year or if some of
the revenues remained in the account.
Tape: SFC - 99 #87, Side B 10:03 AM
Larry Dietrict answered it was all encumbered in the budget
every year.
Senator Dave Donley asked if there was anything in statute
that would have prohibited the department to adopt
regulations to impose financial criteria on tank owners for
access to these funds. Larry Dietrict deferred to the
Department of Law.
Steven Daugherty hadn't researched the issue so was unable
to give a definitive answer. He did believe there had been
legislative history where the Legislature considered
requiring financial criteria when the original legislation
was adopted. That would have been interpreted against the
department having the power to require financial need. He
thought he might have an answer at the next hearing for
this bill. Co-Chair John Torgerson requested that
information be provided to the committee.
Co-Chair John Torgerson then asked what was the current
balance in the prevention account. Jim Hayden said he
would have to check and would provide that information
later in the day. Co-Chair John Torgerson's understanding
was that it could be as much as $30 million, so the total
amount had not been obligated.
Jim Hayden added that the department had looked at federal
funding sources. There was a trust account with funds and
the department was investigating the possibility of using
those funds.
The bill was held in committee.
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