Legislature(1999 - 2000)

04/12/1999 09:07 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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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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