Legislature(1993 - 1994)

02/15/1993 05:00 PM House O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              HOUSE SPECIAL COMMITTEE ON OIL & GAS                             
                        February 15, 1993                                      
                            5:00 p.m.                                          
  MEMBERS PRESENT                                                              
  Representative Joe Green, Chairman                                           
  Representative Harley Olberg                                                 
  Representative Gary Davis                                                    
  Representative Jerry Sanders                                                 
  MEMBERS ABSENT                                                               
  Representative Pete Kott, Vice-Chairman                                      
  Representative Joe Sitton                                                    
  Representative Jerry Mackie                                                  
  OTHER MEMBERS PRESENT                                                        
  Representative Bill Hudson                                                   
  COMMITTEE CALENDAR                                                           
  *HB 95    "An Act relating to the liability of certain                       
            security interest holders arising out of an                        
            unpermitted release of a hazardous substance or                    
            the substantial threat of an unpermitted release                   
            of a hazardous substance, and to liens on the                      
            property of certain security interest holders                      
            resulting from an oil or hazardous substance spill                 
            or the substantial threat of a release of oil or a                 
            hazardous substance."                                              
            HELD IN COMMITTEE FUR FURTHER CONSIDERATION                        
  (* first public hearing)                                                     
  WITNESS REGISTER                                                             
  Representative Bill Hudson                                                   
  Capitol Building, Room 108                                                   
  Juneau, Alaska  99801-1182                                                   
  POSITION STATEMENT: Prime Sponsor of HB 95                                   
  Jerry Weaver, Senior Vice-President                                          
  Manager, Commercial Marketing                                                
  National Bank of Alaska, Anchorage                                           
  P. O. Box 100600                                                             
  Anchorage, Alaska  99510-0600                                                
  POSITION STATEMENT: Supported HB 95                                          
  Al Strawn, Chairman                                                          
  Governmental Affairs Committee                                               
  Alaska Credit Union League                                                   
  4000 Credit Union Drive, Suite 650                                           
  Anchorage, Alaska  99503-6647                                                
  POSITION STATEMENT: Supported HB 95                                          
  Janice Adair, Assistant Commissioner                                         
  Alaska Department of Environmental Conservation                              
  410 Willoughby, Suite 105                                                    
  Juneau, Alaska  99801-1182                                                   
  POSITION STATEMENT: Supported HB 95                                          
  Russell Heath, Director                                                      
  Alaska Environmental Lobby                                                   
  P. O. Box 22151                                                              
  Juneau, Alaska  99801                                                        
  POSITION STATEMENT: Voiced concerns related to HB 95                         
  PREVIOUS ACTION                                                              
  BILL:  HB 95                                                                 
  BILL VERSION:                                                                
  SPONSOR(S):  LABOR & COMMERCE                                                
  TITLE: "An Act relating to the liability of certain security                 
  interest holders arising out of an unpermitted release of a                  
  hazardous substance or the substantial threat of an                          
  unpermitted release of a hazardous substance, and to liens                   
  on the property of certain security interest holders                         
  resulting from an oil or hazardous substance spill or the                    
  substantial threat of a release of oil or a hazardous                        
  JRN-DATE     JRN-PG               ACTION                                     
  01/29/93       177    (H)   READ THE FIRST TIME/REFERRAL(S)                  
  01/29/93       177    (H)   OIL & GAS, LABOR & COMMERCE,                     
  02/15/93              (H)   O&G AT 05:00 PM CAPITOL 124                      
  ACTION NARRATIVE                                                             
  Tape 93-6, Side A                                                            
  Number 000                                                                   
  HB 95:  LIABILITY FOR ENVIRONMENTAL DAMAGE/LIENS                             
  CHAIRMAN JOE GREEN called the meeting to order at 5:05 p.m.,                 
  noted there was a quorum, and that the meeting was being                     
  teleconferenced to Anchorage, Fairbanks, and Mat-Su.  He                     
  said HB 95, which deals with certain security interest                       
  holders, would be reviewed.  He then introduced                              
  Representative Bill Hudson, who is Chairman of the House                     
  Labor and Commerce Committee, the Prime Sponsor of HB 95.                    
  Number 033                                                                   
  REPRESENTATIVE BILL HUDSON stated that as Chairman of the                    
  House Labor and Commerce Committee he was instrumental in                    
  bringing HB 95 before that committee.  He advised that HB 95                 
  addressed the needs of both commercial and individual                        
  lenders, including those who chose to self-finance.  He said                 
  the intent of HB 95 was to limit the liability of security                   
  interest holders in certain hazardous contamination cleanup                  
  situations.  He explained these situations as when lenders,                  
  as innocent third parties who did not initiate or contribute                 
  to a contamination were held liable beyond their borrowers                   
  for any or all costs of containment or cleanup under the                     
  state's strict liability laws.  Such lender liability could                  
  exceed the value of the loan or its collateral and, in some                  
  cases, place other companies or personal assets at risk, he                  
  REPRESENTATIVE HUDSON explained that through HB 95 lender                    
  liability would be limited, but not eliminated in certain                    
  cases.  The basic reasons for HB 95 were to provide lenders                  
  with a clearer picture of potential liability so they could                  
  more realistically assess loan risk and collateral value to                  
  ensure reasonable and consistent credit availability for                     
  Alaska businesses, especially small and mid-size businesses,                 
  perhaps even more so in rural Alaska, he said.  The need for                 
  the provisions in HB 95 were not unique to Alaska, he added.                 
  REPRESENTATIVE HUDSON claimed the impact of strict liability                 
  laws had been reviewed nationally, and several other states                  
  have passed legislation similar to HB 95.  He provided                       
  backup listing other states that have adopted such                           
  legislation, and invited the committee to pass the bill.  He                 
  stated HB 95 was crafted to limit but not eliminate                          
  liability, and noted the handout contained a detailed                        
  sectional analysis from legislative legal services, and                      
  backup letters from credit unions and banks in various parts                 
  of the state.  He further noted some of the backup                           
  information came from SB 154, which was almost passed in the                 
  17th Alaska Legislature.                                                     
  Number 125                                                                   
  CHAIRMAN GREEN asked that testimony be taken first and                       
  questions answered at the end of all the testimony.  He                      
  noted for the record that Representatives Sitton and Kott                    
  had joined the meeting.                                                      
  Number 136                                                                   
  MARKETING, NATIONAL BANK OF ALASKA, ANCHORAGE, and                           
  via teleconference from Anchorage.  He stated that after the                 
  Exxon Valdez accident, when HB 68 became law, it basically                   
  added strict liability provisions to the Federal Surety Act                  
  and extended greatly any liability the security holder could                 
  have, both in real estate or polluted personal property.                     
  Since then, there has been a turndown of loan activity                       
  related to this risk.  He believed that was carrying over                    
  into renewed and extended loans with some operating lines                    
  and other intermediate term credits that basically had                       
  partial real estate collateral.                                              
  MR. WEAVER believed this was beginning to dampen lending                     
  and, in general, was having an effect on some of the senior                  
  credit approval and certainly on the board of directors of                   
  some local and statewide banks.  If a lender or security                     
  interest holder was forced into a cleanup of some polluted                   
  property, the magnitude of the loss would be so significant                  
  that it would mean some other type of investment or lending                  
  activity would be the way to go, he said.                                    
  MR. WEAVER alleged the Environmental Protection Agency (EPA)                 
  has introduced regulations that would reduce some of the                     
  liability of innocent third party members.  He wanted to                     
  have the state law no more restrictive than the federal law                  
  or the various federal regulations, and believed HB 95 would                 
  certainly do that.                                                           
  Number 182                                                                   
  CHAIRMAN GREEN asked Mr. Weaver to stay on-line for                          
  questions, and introduced Al Strawn from the Mat-Su area.                    
  Number 197                                                                   
  VALLEY CREDIT UNION, testified via teleconference from Mat-                  
  Su, on behalf of the ACUL in support of HB 95.  He said,                     
  "Credit unions have felt the impact of this as well, and                     
  even though they are primarily consumer lenders, they do                     
  make loans on residential real estate and there is liability                 
  under the present law dealing with residential property."                    
  He alleged some of the credit unions in the state have                       
  curtailed their real estate lending because of the present                   
  liability, the largest example being the Alaska USA Federal                  
  Credit Union who discontinued granting real estate loans in                  
  October, 1989, primarily because of lender liability.  He                    
  encouraged the committee to act on HB 95 in a positive way.                  
  Number 234                                                                   
  ENVIRONMENTAL CONSERVATION (DEC), stated she worked                          
  extensively on HB 95 and that in theory, the DEC supported                   
  the general thrust of the bill, but some issues had come to                  
  light over the interim since she had worked on the language                  
  from Senate Bill 154, on which HB 95 was based.  She offered                 
  to either go over some of those issues or work directly with                 
  the sponsor.                                                                 
  Number 240                                                                   
  CHAIRMAN GREEN asked if the issues could be worked on with                   
  the sponsor.                                                                 
  Number 244                                                                   
  MS. ADAIR felt the issues could be worked on with the                        
  Number 243                                                                   
  REPRESENTATIVE HUDSON requested Ms. Adair give some of the                   
  general problem areas.                                                       
  Number 256                                                                   
  MS. ADAIR stated the definitions in HB 95 were an                            
  abbreviated version of the federal EPA definitions.  In the                  
  abbreviations, she felt some important aspects had been                      
  lost.  On the federal level it was very important that                       
  lenders not foreclose on property and then be able to hold                   
  the property for an investment purpose and still have the                    
  benefit of limitation of their liability.  On the federal                    
  level, lenders were required to take certain steps to try to                 
  rid themselves of the property if it was foreclosed upon.                    
  Neither of these provisions were contained in HB 95, she                     
  said, and explained that every 90 days property must go up                   
  for sale, a legitimate offer could not be turned down, and                   
  there were a variety of steps that the EPA have lined out                    
  that, in their mind, indicated an attempt was being made to                  
  get rid of the property and not hold it for two or three                     
  years as an investment.                                                      
  Number 278                                                                   
  REPRESENTATIVE HARLEY OLBERG asked what purpose that would                   
  MS. ADAIR stated the purpose for limitation was to protect                   
  the security interest in property.  She said, "If you loan                   
  someone money and you take the property back to protect the                  
  money that you have invested in it as a lender only, under                   
  current law you would become an owner of that property, but                  
  what this would say is if you foreclose on a property, to                    
  protect that security interest, you are not an owner in the                  
  strict sense of the word.  At some point in time you do                      
  become an owner.  If you do not divest yourself of that                      
  property you probably are not trying to protect the money                    
  that you lent, your security interest, you might be holding                  
  it as a real owner in the true sense of the word."                           
  MS. ADAIR believed the EPA tried to make a distinction                       
  between holding the property as an investor and holding it                   
  only to protect one's security interest.  She said, "If you                  
  are going to be an owner you are an owner.  It is a fine                     
  line, which is why it is somewhat complicated."                              
  MS. ADAIR also brought up the issue under existing statute,                  
  where if the state uses the response fund to cleanup a piece                 
  of property, a lien could be attached on that property or                    
  any other property owned by the person responsible for the                   
  contamination.  Under HB 95, a lender would not be an owner,                 
  and she contended the Attorney General's office was afraid                   
  that the state would be unable to protect its liens and                      
  collect monies spent on cleanup.  She noted an attempt had                   
  been made to address that in Section 2 of the bill.                          
  MS. ADAIR added, "We feel this is a provision that needs                     
  some work so we do not loose our ability to collect response                 
  funds when the state has in fact paid for the cleanup."                      
  Number 324                                                                   
  REPRESENTATIVE GARY DAVIS stated there would probably be                     
  quite a few instances where tracking the responsible party                   
  to recoup cleanup costs would not be possible.                               
  Number 328                                                                   
  MS. ADAIR acknowledged that was currently the case, and                      
  stated the DEC did not want to loose the ability of                          
  recouping cleanup costs due to foreclosures.                                 
  Number 343                                                                   
  REPRESENTATIVE DAVIS asked if the lender, or the new owner                   
  sold the property and was also trying to recoup their costs,                 
  the difference might not be enough to cover the DEC's cost.                  
  Number 349                                                                   
  MS. ADAIR said, "That could be, but if they have no lien                     
  they would not get anything."                                                
  Number 352                                                                   
  CHAIRMAN GREEN introduced Russell Heath and stated after Mr.                 
  Heath's testimony he would open the floor to general                         
  Number 357                                                                   
  coalition of 19 Alaska environmental groups, stated HB 95                    
  was a complicated bill and he did not understand all the                     
  various facets of it.  The AEL did not want to remove too                    
  much liability from the banks because the strict liability                   
  under HB 68 provided a great incentive to prevent and                        
  cleanup hazardous waste.  The central issue in the                           
  environmental community was to prevent hazardous waste                       
  spills and clean them up if they occurred and, ideally, have                 
  the responsible party pay for them, he said, but recognized                  
  lenders have a legitimate concern about an open-end                          
  liability, which should be addressed fairly.                                 
  MR. HEATH stated the AEL was also concerned that if banks                    
  did not have a liability and the responsible party was not                   
  to be found or was bankrupt, then the taxpayers would                        
  ultimately be responsible.  The AEL wanted to ensure all                     
  these issues were addressed one way or another, and                          
  suggested two possible mechanisms to ensure a lender                         
  retained or had an incentive to check for pre-existing                       
  environmental damage, ensure the borrower was                                
  environmentally responsible, and that the ongoing operation                  
  was not causing environmental damage:  An environmental                      
  assessment prior to the lender making his investment; and,                   
  specifying that the lender's liability be limited to either                  
  the amount of his investment or a larger sum, so the lender                  
  is aware he would be at risk if he did not adequately                        
  monitor his investment.                                                      
  Number 414                                                                   
  CHAIRMAN GREEN thanked Mr. Heath and opened the floor to                     
  questions from the Committee.                                                
  Number 418                                                                   
  REPRESENTATIVE JOE SITTON recognized what was driving the                    
  introduction of HB 95, but wondered if there was more than                   
  one approach to the problem.  He questioned the                              
  constitutionality of the DEC operating the way they did and                  
  asked if this had ever been tested in court.  He agreed                      
  there was a responsibility when money was loaned to someone                  
  on a piece of property.  He noted the public, banks, and the                 
  borrower all had responsibilities and would like to see that                 
  they all receive those responsibilities.                                     
  Number 432                                                                   
  REPRESENTATIVE HUDSON felt all the testimony had been very                   
  useful and promised to look at all the issues brought                        
  forward by Ms. Adair, Mr. Heath, and Representative Sitton.                  
  He noted the state and the federal government have taken                     
  great strides in trying to prevent the leaking of                            
  underground storage tanks from occurring in the future, and                  
  pointed out that in one report in the state of Alaska there                  
  was an assessment that went up to $100 million worth of                      
  underground leaking, in addition to other pollution.                         
  REPRESENTATIVE HUDSON believed it was not in Alaska's best                   
  interest to become so tight that future loans in Alaska, to                  
  small and medium size businesses were obliterated.  He                       
  promised to get together with the EPA and others and propose                 
  some recommendations, which he would then bring back to the                  
  Number 463                                                                   
  REPRESENTATIVE OLBERG did not have a problem with HB 95, and                 
  felt if it needed work the place to do it would be in the                    
  Labor and Commerce Committee, which Representative Hudson                    
  Number 469                                                                   
  REPRESENTATIVE DAVIS stated research could be done in either                 
  committee.  He felt it was the work of any committee to do                   
  what they could to improve a bill before it was passed on.                   
  Number 477                                                                   
  REPRESENTATIVE SITTON stated he was new and did not know all                 
  the history on this, but thought surely some of this had                     
  been challenged in court.  He mentioned the Kelly Tire                       
  Company in Fairbanks, a little family store that the DEC had                 
  given an $800,000 bill to.  He thought there might have been                 
  some court action in that instance.                                          
  Number 483                                                                   
  REPRESENTATIVE HUDSON advised that the origin of the whole                   
  subject matter came about in the aftermath of the Exxon                      
  Valdez oil spill, with the passage of more stringent federal                 
  laws.  Following this, the State of Alaska passed                            
  legislation which dealt with the leaking underground storage                 
  tank, commonly referred to as the LUST program.  He was                      
  unsure if the courts have tried to address whether the                       
  authority rests with the DEC or the EPA, but presumed it                     
  must rest at least with the federal law.  He suggested                       
  getting a response from the attorney general's office.                       
  Number 500                                                                   
  REPRESENTATIVE SITTON questioned what was prompting HB 95.                   
  He said, "Bankers are having problems, property owners are                   
  having problems, I cited as an example, Kelly Tire Company                   
  in Fairbanks, which DEC handed an $800,000 bill to and if                    
  that property had a lender involved there would be no way                    
  that lender could ever sell the property and pay DEC's fine                  
  and still do business.  He would essentially be prohibited                   
  from doing business.  Something prompted this, surely                        
  someone has challenged this in court, like the Kellys."                      
  Number 510                                                                   
  MS. ADAIR disclosed that in 1989, HB 68 was passed, which                    
  created strict liability for hazardous substance spills.                     
  This bill followed a federal model, but in Alaska, oil is                    
  considered a hazardous substance and in the federal model it                 
  is not, which makes Alaska's strict liability statute much                   
  broader than the federal statute, she noted.                                 
  MS. ADAIR reported, "There was a provision in that law that                  
  followed the federal model called the innocent landowner                     
  that was supposed to have exempted lenders.  There was a                     
  First Circuit Court decision in 1991, which people commonly                  
  referred to as fleet factors, where the court held that the                  
  lender associated with fleet factors was liable for                          
  contamination because they have the capacity to participate                  
  in the management of the company.  This is what got it going                 
  on a national level.  The lending communities said if you                    
  are going to say I can be responsible for simply having the                  
  capacity to manage, whether or not I actually do it, that                    
  was a very big jump from the circumstances under which they                  
  thought they were operating."                                                
  MS. ADAIR stated congress had been introducing bills to try                  
  to fix this situation, which was why the EPA went ahead with                 
  their regulations, because the bills in congress tended to                   
  get bogged down.  The EPA tried to define the terms in an                    
  attempt to clarify for lenders when they might or might not                  
  be held accountable or responsible for pollution, she said.                  
  MS. ADAIR, on the issue with Mr. Kelly in Fairbanks, said,                   
  "He got stuck at the beginning of this underground storage                   
  tank problem, and probably was one of the deciding factors                   
  in getting that legislation with a grant program through                     
  this legislature.  I know Mr. Kelly was fined by the EPA and                 
  there has been some amount of cleanup that has been                          
  undertaken, but I do not think our department has gone out                   
  and tried to cost recover.  That whole area is contaminated                  
  and we are trying to get the railroad involved.  This is a                   
  great example of where something can go wrong and it did go                  
  Number 555                                                                   
  REPRESENTATIVE SITTON asked if a bill for $800,000 had been                  
  presented to Mr. Kelly by the EPA.                                           
  Number 557                                                                   
  MS. ADAIR honestly did not know the dollar amount, but said,                 
  "I was in a meeting with Bud and he had a letter from the                    
  EPA saying it is going to be $10,000 a day and every day                     
  you're in violation is another $10,000.  Whether they ever                   
  assessed a total amount, I do not know."                                     
  Number 563                                                                   
  REPRESENTATIVE DAVIS stated he did not want to hold HB 95 up                 
  anymore than anybody else and said, as Representative Olberg                 
  discussed, it might be more proper to continue work on the                   
  bill in the House Labor and Commerce Committee.                              
  Number 570                                                                   
  CHAIRMAN GREEN stated this was a complex situation that had                  
  probably gone past the realm of the House Special Committee                  
  on Oil and Gas.  He said, "It seems we have three different                  
  ways to go right now, either take a motion to table this and                 
  get some return from the Department of Law; we could                         
  entertain a motion to pass it on with individual                             
  recommendation; or, we could have a motion to pass it on                     
  with a recommendation from this committee for Labor and                      
  Commerce to look at.  Does anybody have a particular                         
  interest or a fourth motion?"                                                
  Number 587                                                                   
  REPRESENTATIVE SITTON did not particularly care which                        
  procedure was adopted, but suggested the attorney general's                  
  office be invited to give a more thorough explanation of                     
  HB 95.                                                                       
  Number 591                                                                   
  REPRESENTATIVE OLBERG suggested moving HB 95 to the House                    
  Labor and Commerce Committee would do all three of those                     
  REPRESENTATIVE HUDSON said his staff had just advised him                    
  that HB 95 did not yet have a fiscal note and, therefore,                    
  could not be moved out.  He appreciated the comments of the                  
  committee and said his staff would be happy to work with the                 
  committee, Ms. Adair, and others and see if they could not                   
  help the committee come up with some amendments to HB 95 and                 
  then move it on over to the House Labor and Commerce                         
  Committee.  "By the time we get the fiscal note back to you,                 
  we can deal with it expeditiously at that time," he said.                    
  Number 606                                                                   
  CHAIRMAN GREEN stated HB 95 could be rescheduled after                       
  receipt of the fiscal note and an attorney general's                         
  opinion.  He also appreciated Representative Olberg's                        
  There being no further comments or questions, CHAIRMAN GREEN                 
  adjourned the meeting at 5:41 p.m.                                           

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