HB 89-EXTRACTION OF BEDLOAD MATERIAL  2:12:28 PM CO-CHAIR SEATON announced that the next order of business is HOUSE BILL NO. 89, "An Act authorizing the commissioner of natural resources to offer bedload material for disposal for flood control purposes in exchange for a percentage of the profit from the sale of that material." CO-CHAIR SEATON moved to adopt CSHB 89, Version 27-LS0334\B, Bullock, 3/11/11, as the working document. REPRESENTATIVE P. WILSON objected for discussion. 2:13:01 PM LOUIE FLORA, Staff, Representative Paul Seaton, Alaska State Legislature, informed the committee that the differences between Version B and HB 89 can be found on page 1, line 6, where the language "approved flood control project" was changed to "site- specific flood mitigation plan". The change was in response to conversations with the Department of Natural Resources (DNR) regarding the "flood mitigation project", which is usually a federal term implicating the U.S. Army Corps of Engineers in a broader project. There are statutes under existing AS 38.05 that address federal flood mitigation projects, whereas this legislation [aims to address] smaller scale site-specific projects that would be approved by the commissioner of DNR. Conversations with the Department of Transportation & Public Facilities (DOT&PF) revealed their concern that the entire statute could apply to their operations when they perform gravel removal to protect their infrastructure. The DOT&PF didn't want to bureaucratize their process. Therefore, on page 1, line 14 through page 2, line 1, the language "other than the state or federal government or a political subdivision of the state" was inserted in order to exempt DOT&PF from this statute. He clarified that this statute applies to a private entity performing the removal. Mr. Flora then pointed out the conceptual amendment that makes changes to ensure that the state infrastructure isn't impacted by the extraction, which can be found in the committee packet. 2:17:18 PM REPRESENTATIVE P. WILSON removed her objection. There being no further objection, Version B was before the committee. 2:17:38 PM MR. FLORA explained that Version B would allow the commissioner of DNR to make a finding based on the findings listed on page 1, lines 8-13. Once those findings are complete, the commissioner under a site-specific plan, would be able to offer bedload material under navigable waters to be extracted by a private contractor for approved flood mitigation projects. The main problem with any extraction issue is that the state is bound by statute to receive the fair market value for its bedload material sales. He told the committee that the committee packet includes a price listing of the fair market value [of bedload material] statewide. The upfront fees that an extractor must pay are quite high and inhibit the ability to extract the gravel and resell it. Therefore, this legislation would allow the extractor, under a site-specific plan, to extract the gravel, net out the transportation extraction costs, and pay the state no less that 12.5 percent of the profit. The general intent of HB 89 is to alleviate flooding problems, providing financial incentive for extractors to extract and sell the gravel. Mr. Flora then directed the committee's attention to aerial slides of bedload flooding. Generally, bedload flooding is when gravel comes down during a sustained rain event and fills the stream over time, which results in flooding. 2:20:10 PM CO-CHAIR SEATON, referring to a photograph of Seward, explained that so much gravel comes down the Resurrection River with its low flow that it deposits and builds up such that sometimes there are portions of the river that are higher than the airport. Paying $3.25 per yard to take out the gravel, which is paid upfront and can't be done as commercial use, creates a problem. There is a similar problem in Valdez, he mentioned. The purpose of HB 89 is to let the commissioner, in those cases where there is bedload buildup, determine that the state is receiving extra value by mitigating floods for which it will have to pay in terms of emergency services and damages to airports and roads. The legislation would allow the department to hold an alternative sale of which the state will receive a minimum of 12.5 percent of the net profit of the sale. The aforementioned would allow businesses to remove this material, which would save the state money in the long term. Co-Chair Seaton then displayed various slides that illustrate the situation in Seward. 2:23:49 PM CO-CHAIR FEIGE asked if the commissioner gets to pick the site; that is the sale is preemptive in nature. CO-CHAIR SEATON responded that is correct. He explained that under HB 89 a contractor or someone with a project that has a bedload would apply to the commissioner. The commissioner would then have to make the findings [outlined in the legislation] and determine whether it would be beneficial and provide enough added value to the state in flood mitigation. Nothing in the legislation restricts or expands the department's ability to let gravel extraction now. Currently, people can apply to DNR, but they have to pay $3.50 per cubic yard. That $3.50 per cubic yard is high enough that commercial entities aren't applying for it because it doesn't make financial sense. The legislation aims to avoid the state having to use state equipment during a flood to maintain a channel, rather it would be performed over time with the state as a partner that takes a minimum of 12.5 percent of the profit. 2:25:15 PM CO-CHAIR FEIGE asked if the all findings listed on page 1, lines 8-13, will apply or will one finding apply. CO-CHAIR SEATON pointed out the use of the term "and", which means that all the findings must apply. 2:26:06 PM REPRESENTATIVE KAWASAKI expressed the desire to obtain the best value for the state's resources, including gravel. He then inquired as how the legislation addresses the Compton case regarding selling something for less than its value. CO-CHAIR SEATON reiterated that the legislation allows part of the value to the state, as determined by the commissioner, to include the savings to the state in terms of flood mitigation and offsetting costs the state will incur due to floods if the gravel isn't removed. In response to Representative Kawasaki, Co-Chair Seaton offered to contact Legislative Legal Services for comment on Representative Kawasaki's concern. MR. FLORA mentioned there is existing statute in AS 38.05 that allows the department for flood control projects to provide 5,000 cubic yards free of charge and additional yardage at $.50 per cubic yard for political subdivisions. Therefore, there is existing precedence in statute. 2:28:17 PM REPRESENTATIVE DICK asked if there is anyone locally selling gravel that would be adversely affected by selling it below fair market value. CO-CHAIR SEATON said that he couldn't answer that because this situation could occur at several spots across the state. However, he suggested that it's likely that those who currently sell gravel would apply for this usage. REPRESENTATIVE GARDNER interjected that for those who sell gravel, the ability to purchase it at below market value would be advantageous to them. REPRESENTATIVE HERRON related his understanding that HB 89 offers a narrow application to mitigate disasters and doesn't attempt to compete. CO-CHAIR SEATON concurred. CO-CHAIR FEIGE pointed out that to sell gravel it must be sized, which requires various crushing and sorting equipment and trucks. Therefore, Co-Chair Feige didn't view the legislation as resulting in unfair competition. He characterized HB 89 as a short-term source of inexpensive raw materials for [existing] operators. 2:33:14 PM CO-CHAIR SEATON moved to adopt Conceptual Amendment 1, as follows: Page 2, line 8, following "state."; Insert "The commissioner may request the plans for bed load material extraction to be reviewed by a professional engineer with relevant experience." REPRESENTATIVE P. WILSON objected for discussion. 2:34:20 PM REPRESENTATIVE P. WILSON related her understanding that departmental staff would've already examined the area, and therefore she surmised that this individual would've already done something like this. Therefore, she questioned whether department staff could perform this work at no cost to the municipality [or the project]. CO-CHAIR SEATON said that the language on page 1, including the findings, is general. A person applying to take and dispose of bedload material will have a plan of development and extraction and DOT&PF would like to ensure that it has been reviewed by an engineer with relevant experience. Such oversight is desired to ensure the state's structures aren't damaged as a result of the removal of the bedload material. He did note, however, that there could be situations in which the commissioner would determine that review by an engineer isn't necessary. The aforementioned could be the case when, for example, the area [where the bedload material is being deposited] is in the middle of a flood plain where there are no bridges or state infrastructure and the desire is to merely have a channel. 2:37:46 PM REPRESENTATIVE P. WILSON inquired as to who pays for the aforementioned review by an engineer. CO-CHAIR SEATON answered that it would be paid for by the person wishing to extract the gravel. He clarified that he wouldn't want to say that the departments have free engineers with expertise in relevant areas. 2:38:30 PM ROGER HEALY, P.E., Director/Chief Engineer, Division of Statewide Design & Engineering Services, Department of Transportation & Public Facilities, paraphrased from the following written remarks [original punctuation provided]: The Department of Transportation & Public Facilities is familiar with the challenges of containing the waters and sediments of our rivers adjacent to our transportation infrastructure. Whether it is flooding of the Seward Airport or undermining of highway embankments along the Haines or Glenn Highway, our large braided glacial rivers have a high bed load of sediment making the river hydrology unstable and difficult to easily predict deposition areas and new flow channels. Our Department does not typically undertake upstream or in-stream excavations adjacent to our bridges, highways, or airports, but when we do so as a part of our capital projects to protect new or expanded infrastructure, the in-stream work is designed by registered professional engineers specializing in river hydrology. Because our transportation infrastructure of highways, airports, and bridges represent significant state owned assets, the Department recommends to the Committee that any in-stream work adjacent to or upstream from the State's transportation or facility infrastructure authorized through this proposed bill be designed by professional engineers with relevant experience. Our Department would encourage and support coordination between the Department of Natural Resources and our Department when removal of bedload material is proposed near our transportation infrastructure. Thank you for the opportunity to testify, and if you have any questions, I will be happy to answer them. 2:40:25 PM MR. HEALY, in response to Representative P. Wilson, responded that for work that is adjacent to highways and airports, DOT&PF engineers will undoubtedly be involved in the review of the plan. However, he pointed out that there is a liability associated with the excavation. If there are associated impacts to the excavation, then the operator should follow the guidance of a professional engineer. Still, the department would have to assess the impact of these projects because the engineers are currently working on active projects. He pointed out that doing the detailed discussion and analysis from a design standpoint versus a review standpoint creates a different cost impact to the department. 2:42:50 PM REPRESENTATIVE P. WILSON noted that the state budget already includes these [engineering] positions, and she opined that DOT&PF shouldn't charge for this work. 2:43:23 PM CO-CHAIR SEATON surmised that if these engineers will have to be available throughout the state, then there will likely need to be another position to implement this. Due to the legislature's work in constraining the number of personnel in the state departments, involving department staff could result in significant delays of projects. He noted that the gravel operators thought the 12.5 percent of profit was reasonable and acceptable. In further response to Representative P. Wilson, Co-Chair Seaton clarified that the aforementioned is covered in the [gravel operators'] plan of development. Co-Chair Seaton further clarified that the person performing the project would have to pay for the design of the project and the engineer's review of the project. 2:45:52 PM REPRESENTATIVE P. WILSON opined that someone from the state must oversee this anyway and review the project, and therefore she questioned why the state's engineers wouldn't be the ones to review the plan. CO-CHAIR SEATON echoed Mr. Healy's comment that from an engineering standpoint there is a difference between designing a project and reviewing another engineer's design. 2:46:41 PM REPRESENTATIVE GARDNER said that although these situations seem to happen on an emergency basis, it would seem that one could see the gravel building up. Therefore, removal of the gravel could be arranged and sold prior to an emergency situation. She opined that the language on page 1 of Version B would allow the aforementioned. If that's the case, she inquired as to how the cost would compare when it's not an emergency situation, particularly in terms of the payment proposal in the legislation. CO-CHAIR SEATON clarified that this isn't thought of as an emergency situation, rather it's a situation in which when bedloading is known to occur flooding is known to occur. Furthermore, at $3.50-$5.00 per cubic yard no one will come in to remove the gravel and maintain the stream bed. Moreover, river bed gravel is suboptimal. The purpose of HB 89 is to create a situation in which a commercial operation can exist. 2:48:41 PM REPRESENTATIVE MUNOZ asked whether DOT&PF would compete for this gravel for its projects. MR. HEALY explained that DOT&PF's gravel needs depend upon the specific requirements of the project, and therefore some projects would not be able to use river bed gravel. In general, Mr. Healy said that DOT&PF probably wouldn't use river bed gravel. 2:50:34 PM REPRESENTATIVE P. WILSON removed her objection to Conceptual Amendment 1. There being no further objection, Conceptual Amendment 1 was adopted. 2:50:59 PM REPRESENTATIVE KAWASAKI noted that he has been working on similar legislation in which royalty oil could be sold below the fair market value. However, the legislation ran into problems regarding selling an item below the fair market value due to the Compton case. He inquired as to how the Compton case would impact HB 89. 2:51:32 PM DONALD BULLOCK, Attorney, Legislative Legal Counsel, Legislative Legal and Research Services, Legislative Affairs Agency, directed attention to Article 8, Section 1 of the Alaska State Constitution, which read: Statement of Policy. It is the policy of the State to encourage the settlement of its land and the development of its resources by making them available for maximum use consistent with the public interest. MR. BULLOCK explained that HB 89 addresses a unique situation with regard to a flood mitigation plan. Under the plan, it's sometimes the case that gravel needs to be removed. There is a benefit to the state for offering the gravel for sale at a reduced price in order to encourage someone to remove the gravel. The aforementioned would avoid the state having to pay someone to remove the gravel in order to prevent flooding and improve the area. Therefore, both sides would benefit. 2:52:50 PM PHILLIP E. OATES, City Manager, began by relating his support for CSHB 89, Version B. To illustrate support the City of Seward has enacted a similar resolution for gravel that is owned by the city. He thanked Co-Chair Seaton for coming to Seward to examine the problem and develop a solution. He noted that the city has had at the borough level comprehensive meetings with DNR to address this issue. This issue is important because gravel is uneconomic unless produced in large quantities and the cost of transport often makes it uneconomic for commercial purposes. Furthermore, the additional state charge for removing gravel from streams makes it uneconomic. He opined that the issue revolves around the state receiving value for its resources. However, HB 89, he opined, adequately and fully compensates the state in two ways. The legislation provides the state a profit akin to what it receives for selling its other resources and provides protection from flooding. Therefore, the legislation prevents the state from having to assist after a [flood] disaster happens. He opined that the legislation allows communities/boroughs to remove the gravel at no cost to it, allows the contractor to make a small profit, and provides benefits to the state in terms of profit and flood prevention. Mr. Oates then expressed the importance of validating [the plan] through appropriate engineering as well as for it to be for flood mitigation purposes. He opined that when the aforementioned requirements are met it would be a win-win situation. 2:56:21 PM REPRESENTATIVE P. WILSON, referring to the definition of "bedload material" on page 2, line 12 of the legislation, asked if the definition of "bedload material" includes sand or sediment. CO-CHAIR SEATON answered yes. 2:56:46 PM REPRESENTATIVE KAWASAKI related that he thought the legislation dealt with displaced gravel after a flood. Is that the case, he asked. CO-CHAIR SEATON clarified that the legislation refers to material that deposits over time when there isn't a flood. This material builds up over time such that when there is a high water event there is no streambed left and the bedload material causes a flood. 2:57:41 PM REPRESENTATIVE P. WILSON recalled the river braiding that looks mostly to be sand, which occurs in the Tok area. She asked whether the proposal in HB 89 would work in that situation. CO-CHAIR SEATON reminded the committee that this legislation would address areas where the commissioner has made the findings that there is a flood mitigation plan. 2:58:46 PM CO-CHAIR SEATON announced that HB 89 would be held over.