HOUSE BILL NO. 238 "An Act relating to the response account of the oil and hazardous substance release prevention and response fund; and providing for an effective date." MICHAEL PAWLOWSKI, STAFF, CO-CHAIR MEYER, referred to a spreadsheet in the members' packets (copy on file.) He explained that the legislation would create a subaccount within the Response Account and direct the Department of Revenue to invest that money to generate a higher rate of return similar to the way the subaccount in the CBR is managed. Mr. Pawlowski reported that Section 1 deals with the Department of Administration's calculations of the balance of the fund and relates to the imposition of the 1 cent tax. Section 2 would add realized income of the subaccount created in Section 3 to the Prevention Account. Section 3 creates a subaccount in the Response Account and directs the Commissioner of Revenue to manage the subaccount based on a five-year basis. Section 4 transfers $40 million from the Response Account to the subaccount created in Section 3. Section 5 is an effective date. Co-Chair Meyer observed that the intent is to increase the 470 Account by investing it like a similar subaccount in the CBR. 3:07:07 PM Representative Gara noted that the fund can be used for a catastrophic spill and questioned what would happen if a spill occurred after the $40 million was invested. Co-Chair Meyer thought that the cost would be paid out of the general fund and replenished from collection for damages. BRIAN ANDREWS, DEPUTY COMMISSIONER, TREASURY DIVISION, DEPARTMENT OF REVENUE, pointed out that the subaccount could be liquidated in a day. The anticipated return of the subaccount will be somewhere between 7 and 9 percent and the longer it is invested, the higher the probability of a higher return. Representative Gara asked where the interest would go. Mr. Pawlowski explained that the interest would go through several other accounts within the fund and is then credited to the Prevention Account. Representative Gara asked if it would alter the amount of money of the 4 cents or 1 cent per barrel tax. Mr. Pawlowski replied that it would not alter the amount of money other than what could happen in terms of a different market valuation. Representative Gara asked if additional interest earned would have an effect on the barrel tax. Mr. Pawlowski responded that those taxes are charged regardless of the interest earned. The 1 cent tax is charged based on the balance of the $50 million. He explained that added in Section 1 is a provision that if there is an investment loss, net loss is added back to the balance. If an expenditure is made out of the account, the 1 cent tax would accumulate normally. Representative Gara thought that made sense. Mr. Pawlowski observed that on page 2, line 28 "Revenue" needed to be changed to "Administration" for collection purposes. Co-Chair Meyer MOVED to ADOPT Amendment #1: On page 2, line 28 Delete "Revenue" Add "Administration" There being NO OBJECTION, it was so ordered. In response to a question by Co-Chair Meyer, Mr. Pawlowski noted that the balance in the fourth quarter of FY 06 dropped below $50 million. There has not been a drop below $40 million. At ease: 3:12:17 PM Reconvened: 3:16:09 PM Representative Hawker referred to a chart provided by the Department of Environmental Conservation demonstrating expenditures from the Response Account (copy on file.) He asked why there is a large ($8.5 million) encumbrance outstanding from a Department of Law review. BRECK TOSTEVIN, SENIOR ASSISTANT ATTORNEY GENERAL, ENVIRONMENTAL SECTION, CIVIL DIVISION, DEPARTMENT OF LAW, explained that the funds were set aside for outside legal counsel for a state damages claim against BP and others arising out of the North Slope oil spill. Representative Hawker did not believe that the statutory intent of the oil spill response account was for investigating litigation. Mr. Tostevin referred to the Response Fund, AS 46.08.040 (a)(1)(A): (a) In addition to money in the response account of the fund that is transferred to the commissioner of commerce, community, and economic development to make grants under AS 29.60.510 and to pay for impact assessments under AS 29.60.560, the commissioner of environmental conservation may use money (1) from the response account in the fund (A) when authorized by AS 46.08.045, to investigate and evaluate the release or threatened release of oil or a hazardous substance, and contain, clean up, and take other necessary action, such as monitoring and assessing, to address a release or threatened release of oil or a hazardous substance that poses an imminent and substantial threat to the public health or welfare, or to the environment; Representative Hawker argued that the funds are being spent on litigation without legislative appropriation. In response to a question by Representative Gara, Mr. Tostevin explained that $8.5 million was from the Response Account, which is the 1 cent per barrel tax. Representative Gara summarized that the Response Account applies to responses to releases or threatened release. Mr. Tostevin agreed and noted that it applies to imminent or substantial threats. Representative Gara felt that the costs were justified by the shut down of the pipeline due to a threat of a release. 3:23:14 PM Co-Chair Meyer acknowledged the arguments for the use, but noted that it was not the original intent of the fund. Representative Hawker characterized it as an "absurd stretch". Representative Kelly requested an explanation. Mr. Tostevin explained that the basis for using the fund is both for (a)(1)(A) and (a)(1)(C). When the Response Fund was split in 1994, there was discussion of using the fund to recover costs incurred in spills where you tapped the Response Account. He opined that there is a clear legal basis to use the Fund as it is currently being used. Co-Chair Meyer redirected attention to the purpose of HB 238, which is to redirect $40 million of the $50 million into a subaccount. 3:25:42 PM Representative Gara suggested that the intent of the 4 cents and 1 cent tax was for spill prevention and spill response work. He maintained that the 4 cents tax does not cover the cost of spill prevention and should be closer to 6 cents. Co-Chair Meyer thought this bill would provide more money toward that purpose. LARRY DIETRICK, DIRECTOR, SPILL PREVENTION AND RESPONSE, DEPARTMENT OF ENVIRONMENTAL CONSERVATION, acknowledged that the projections are good until 2010. 3:28:14 PM Representative Foster MOVED to REPORT CSHB 238 (FIN) out of Committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CSHB 238(FIN) was REPORTED out of Committee with a "do pass" recommendation and with a new fiscal note by the Department of Revenue, a new indeterminate fiscal note by the Department of Environmental Conservation, and with a new zero fiscal note by the Department of Administration. 3:29:50 PM