Legislature(1993 - 1994)
02/15/1993 05:00 PM House O&G
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 465-3744 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 465-5010 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 SHORT TITLE: LIABILITY FOR ENVIRONMENTAL DAMAGE/LIENS 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 substance." 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, JUDICIARY 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 added. 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 JERRY WEAVER, SENIOR VICE PRESIDENT/MANAGER, COMMERCIAL MARKETING, NATIONAL BANK OF ALASKA, ANCHORAGE, and SECRETARY/TREASURER, ALASKA BANKERS ASSOCIATION, testified 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 AL STRAWN, CHAIRMAN, GOVERNMENTAL AFFAIRS COMMITTEE, ALASKA CREDIT UNION LEAGUE (ACUL), and GENERAL MANAGER, MATANUSKA 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 JANICE ADAIR, ASSISTANT COMMISSIONER, DEPARTMENT OF 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 sponsor. 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 serve. 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 questions. Number 357 RUSSELL HEATH, DIRECTOR, ALASKA ENVIRONMENTAL LOBBY (AEL), a 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 committee. 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 chaired. 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 wrong." 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 things. 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 comments. ADJOURNMENT There being no further comments or questions, CHAIRMAN GREEN adjourned the meeting at 5:41 p.m.