SENATE BILL NO. 215 An Act relating to and redesignating the oil and hazardous substance release response fund and to its use in the event of a disaster emergency; repealing the authority in law by which marine highway vessels may be designed and constructed to aid in oil and hazardous substance spill cleanup in state marine water using money in the oil and hazardous substance release response fund; amending requirements relating to the revision of state and regional master prevention and contingency plans; altering requirements applicable to liens for recovery of state expenditures related to oil or hazardous substances; amending the authority to contract to provide personnel to respond to a release or threatened release of oil or a hazardous substance and to contract to conduct spill related research; reassigning responsibility for the oil and hazardous substance response corps and for the emergency response depots to the Department of Environmental Conservation, and for the operation of the state emergency response commission and its attendant responsibilities for the local emergency planning commissions to the Department of Military and Veterans' Affairs; and modifying definitions of terms relating to the preceding provisions; terminating the nickel-per-barrel oil conservation surcharge; levying and collecting two new oil surcharges; and providing for the suspension and reimposition of one of the new surcharges; and providing for an effective date. CSSB 215 (work draft "V") was adopted as a working document. Additional amendments were proposed and adopted for incorporation within the work draft. CSSB 215 (Finance) was REPORTED OUT of committee with a "do pass" recommendation and zero fiscal notes from the Dept. of Environmental Conservation, Dept. of Public Safety, etc. Upon reconvening the meeting, Co-chair Pearce directed that SB 215 be brought on for discussion and directed attention to work draft (8-LS1107\V, Chenoweth, 4/6/94). Co-chair Frank MOVED for adoption of CSSB 215 (Version V) and requested unanimous consent. No objection having been raised, CSSB 215 (Fin), the "V" version was ADOPTED. DAVID ROGERS, Contract Counsel to the Senate Finance Committee, and JACK CHENOWETH, Legal Services, Legislative Affairs Agency, came before committee to speak to major changes within the new draft. Mr. Rogers noted changes in order of importance. The prevention account conservation surcharge was increased from 2.5 cents to 3 cents per barrel, and the response account conservation surcharge was reduced from 2.5 cents to 2 cents per barrel (Secs. 13 and 17). Money in the response account can be used to respond to a release or threatened release of oil or hazardous substance when the governor declares a disaster emergency or, if within 120 hours of initiating a response action, the commissioner of DEC reports to the governor on the release, the state's action, and the anticipated cost of the response action. The governor may, at any time during the state's response, approve, disapprove, or amend the action (Sec. 30). In previous versions of the bill, the commissioner's action had to be approved by the governor in order for the commissioner to continue use of the response fund. The response account inflation proofing provision has been deleted. The threshold for municipal impact grants remains 2,500 barrels or more or the equivalent of hazardous substances (Secs. 2 through 7). Grants could be made from either account, depending upon the type of spill. School districts are now eligible for grants. Co-chair Pearce voiced her understanding that school districts suffer most of the spills in rural Alaska. Further, there are no municipalities to receive grants in some areas. Fines, penalties, and interest earned on various accounts accrue to the prevention mitigation account. Under the prior version, some interest on the response account was deposited into the response account for inflation proofing, and fines and penalties and damages were split, depending upon the type of the spill. Cost recovery moneys remain split in accordance with the source of the funds used. Mr. Rogers acknowledged an additional change to Sec. 24 that may pose a potential problem. It relates to replacement of the words "equal to" with "not to exceed." Mr. Chenoweth directed attention to page 16, line 23, and advised members that "not to exceed" could be construed by the court as raising either a question of legislative ability to make appropriations or a violation of dedicated fund prohibitions. "Not to exceed" sets a maximum limitation statutorily. Mr. Chenoweth referenced the recent case of Sonneman v. Hickel where the court implied that statutory limitations on the ability of the legislature to make appropriations could be construed as an extension of the dedicated fund argument. There is no definitive decision on the issue. Mr. Chenoweth told members he was merely flagging the wording because of his concerns. Mr. Rogers explained that the language change was made at the request of DEC. It would allow the legislature to appropriate less than the full amount into the prevention account. "Equal to" may or may not provide that flexibility. Language relating to hazardous substances is added to the matching fund provision (Sec. 26). Current law limits it to oil releases only. Sec. 26 also limits applicability of the "Pearce Amendment," that deals with emergency response and preparedness measures, only to oil and hazardous substance purposes. The amendment was unintentionally drafted too broadly and allowed use for any disaster emergency purpose. The section also allows underground storage tank fund assistance to come from the general prevention account as opposed to just the portion of the account relating to EXXON VALDEZ reimbursements. A new amendment allows local emergency planning committee costs to be paid out of the prevention fund, subject to a 3% limit on the estimated annual balance (Sec. 28). The cost of pursuing cost recovery efforts may be paid out of either fund, depending on the type of the spill. Subject to appropriation, the prevention fund can be used to fund the citizen's oversight council. Secs. 31, 32, 33, 34, and 35, implement audit recommendations relating to reporting and interagency reimbursement requirements. The last significant change pertains to Sec. 45 (the so called blackmail clause). Under the prior version of the bill, the suspension is permanent if the balance is not appropriated this year. Under the new approach, the suspension would only last for one year if that amount is not appropriated this year. The bill also contains a clarification of what is meant by spill reserve. Mr. Chenoweth advised that it is described as the unencumbered, unexpended portion of the oil and hazardous substance release response fund. JOHN SANDOR, Commissioner, Dept. of Environmental Conservation, next came before committee, accompanied by BOB POE, Director, Administrative Services, Dept. of Environmental Conservation. The Commissioner voiced support for the "V" version of the bill which he said meets the requirements and objectives of both spill prevention and response. Co-chair Pearce requested additional information on grant provisions within the bill. Bob Poe explained that municipal grants are allowed from both the prevention account and the response account. Most grants have been made under an emergency spill situation responded to from the response account. Under the proposed bill the grant would be made from the account used to respond to the spill. Co-chair Pearce next asked how the department determines whether or not a grant should be made. MIKE CONWAY, Director, Division of Spill Prevention and Response, Dept. of Environmental Conservation, explained that in the event of a spill, the commissioners of DEC and DC&RA would collaborate on the response effort. DEC is the state on- scene coordinator for all spills for all state agencies. The collaborative effort of the two commissioners would determine whether a grant should be made. An amount would be set aside from the account utilized to respond to the spill, and the commissioner of the Dept. of Community and Regional Affairs would handle disbursement of grant funds. Senator Sharp inquired concerning the number of ongoing situations that could be classified as an immediate threat to the aquifer of people living in a particular area and could, through collaboration of the commissioners and the governor, open financing from the response fund rather than the prevention fund. Mr. Conway told members he knew of no sites where communities have come to the Dept. of Community and Regional Affairs or DEC for assistance funds. He acknowledged that the state has approximately 250 contaminated sites. Most are being addressed through responsible parties and the state lead program. Co-chair Pearce stressed that grants would only be used for release of 2,500 barrels or more (105,000 gallons). The spill would thus have to be large and probably threaten more than the aquifer before application for a grant could be made. Mr. Conway concurred that that was the intent. That type of spill in a coastal community would place huge stresses and demands on the community. Under the national contingency plan, 105,000 is classified as a major spill. At that point, even at the national level, the Coast Guard would be involved. Senator Sharp raised questions concerning a large release that accumulated over a substantial period of time. Mr. Poe advised that the 2,500 barrel limit has been in state statutes for many years and has never been used. Senator Sharp voiced his understanding that the reason for establishing a separate account and contributing a 3-cent surcharge is to "take care of situations like that." He registered concern over use of a fund for cleanup of massive spills to "potentially make loans and grants to school districts and municipalities all over the state . . . ." Mr. Conway explained that contamination of an aquifer would fall under the contaminated sites state lead program. That is provided for in the prevention account. Mr. Conway cited examples of cases where drinking water supplies have been contaminated, and a new source must be found. The proposed bill would allow use of funds for an alternative source of water. Prior law limited use of fund moneys for capital purchases. Language within the proposed bill would "allow that to happen." He stressed that problems with contaminated aquifers are within the contaminated sites program that would flow from the 3-cent prevention account. Bob Poe reiterated that, under the current 2,500 "trigger," these grants have not been made. The proposed change was not requested in an effort to offer more grants, it was included so that smaller corrections could be made from the prevention account. If grants were "all on the prevention side," the 3 cents would not be adequate. Co-chair Pearce advised that provisions allowing grants to flow from both accounts were incorporated within CSSB 215 (Res). If the spill is catastrophic, response flows from the response account, if it is not, response derives from the prevention account. The change effected by the "V" version adds school districts and makes them eligible for grants if the spill meets the 2,500 threshold. It was not the intent to include release from a slow leaking tank that spilled 2,500 barrels over a 20-year period. Senator Kelly suggested that a spill "event" would not have to occur. All that would be necessary would be for the commissioner to concur that "this could happen some day in the future" in order to access the fund. The Senator then asked how much would flow to the prevention account each year. Mr. Poe responded that for 1995 the accumulation of nickels would total $25.8. Sixty percent of the three cents is approximately $13.5 million. He stressed that the legislature would determine how this funding is spent through its appropriation power. Mr. Poe acknowledged language allowing for use of funding to respond to an "imminent substantial threat" when the commissioner determines that response must be undertaken. Through the history of the fund, less than 1% has been expended in that manner. All other expenditures have been made through appropriation. There is no change from that approach in the proposed bill. Discussion of the grant process followed between Senator Kelly and Mr. Poe. Further discussion followed regarding audit findings relating to use of response fund moneys. Mr. Poe stressed that audit results indicate the department has never abused use of the fund. Response to emergencies have totaled $200.0 to $225.0 a year. Senator Kelly asked why school districts were included. Senator Miller voiced his understanding that in some areas where large spills could occur, school districts are often the strongest governmental unit in the area. The school district may thus be the logical candidate to receive the grant to assist with community services. Senator Kelly asked if the bill contains provisions requiring that the Legislative Budget and Audit Committee be notified when money from the response account is used. Mr. Poe directed attention to Sec. 34, page 24, lines 18 through 25, and noted report requirements for use of the response account. In response to a further question from Senator Kelly concerning the governor's role in response, Mr. Poe referenced Sec. 30, page 22, subsection (b). Senator Kelly MOVED to amend language at page 22, line 27, by adding "and the legislative budget and audit committee" to provisions requiring a written report to the governor within 120 hours of use of response account moneys. Co-chair Pearce asked that amendments to the bill be held until after public testimony. Co-chair Pearce directed attention to written testimony from the Regional Citizens' Advisory Council (RCAC) and asked if representatives wishes to testify. GINNY FAYE, advised that she was available to respond to questions. RUSSELL HEATH, Executive Director, Alaska Environmental Lobby, came before committee. He advised that the latest version of the bill represents a "great improvement over the earlier versions" and reflects a greater understanding of the state's prevention and response programs. The following concerns remain: 1. Splitting of the nickel. While 3 cents will now be devoted to prevention, keeping the nickel whole is clearly in the best interest of the public. The reason for splitting the nickel is to restrict fund expenditures to quickly reach the $50 million cap. The Lobby agrees that the formula for determining the $50 cap was unfair to the oil industry and should be change. Changing it to enable producers to reach the cap sooner, does not require a split nickel. 2. Distribution of the current $37 million balance of the fund. Mr. Heath voiced his belief that there is no moral or rational defense for putting the entire amount into the response account. Much of the funding came from the general fund. It should be split 60/40 between the two accounts. The consequences of not doing so are that some programs (corps and depots were cited) may never be established. 3. Equity. It has been argued that an oil company should not pay for things (such as contaminated sites) over which it has no control or responsibility. The Lobby has argued that cleanup of contaminated sites is one of the original purposes of the fund, and, like all taxpayers, the oil industry cannot pick and choose the services it wants its taxes to pay for. 4. The Lobby has also argued that the legislature should not removed funding for a critical program without providing an alternative source. CSSB 215 (Fin) adds the underground storage tank program to the list of legal appropriations from the 470 fund. While it is critical and necessary, it is not part of the purpose of the fund, and alternative sources of funding exist. The prevention account, the source of the funds, does not have the resources to pay for it as well as current programs. It should be removed from the bill. In his closing comments, Mr. Heath voiced his hope that the above-cited concerns could be remedied prior to passage of the bill from committee. Co-chair Pearce called for additional testimony. None was forthcoming. She then called for amendments. Senator Kelly restated his MOTION to include the legislative budget and audit committee in notice requirements for use of response fund moneys (page 22, subsection (b). Co-chair Pearce called for objections to Amendment No. 1. No objection having been raised, Amendment No. 1 was ADOPTED. Co-chair Pearce next directed attention to a memorandum from Mr. Chenoweth suggesting that language at page 16, line 23, revert from "not to exceed" back to current law which states "equal to." Senator Jacko MOVED to effect the change. Senator Sharp objected. Co-chair Pearce called for a show of hands. The motion CARRIED, and Amendment No. 2 was ADOPTED. Co-chair Pearce explained that in Senate Resources Committee, Senator Leman added language to the bill providing a mechanism for inflation proofing the response fund. Evolution of the 3/2 split included provisions whereby all interest flows to one particular fund, and there is no way to use the interest for inflation proofing. She then said that if the committee intends to inflation proof the fund, language could be added saying that the legislature may appropriate funds to do so. Under present law, the response fund caps at $50 million, and the legislature may not adds funds for inflation even if it wanted to. Senator Leman's proposal for inflation proofing would allow the fund to exceed the $50 million cap. Senator Kelly voiced his belief that inflation proofing funds would be needed for other things. He suggested that the $50 million cap remain in place. End: SFC-94, #54, Side 1 Begin: SFC-94, #54, Side 2 Discussion followed among members concerning accumulated interest from all four accounts. Senator Miller noted language within Sec. 24 providing that the legislature "may" appropriate the interest to the prevention fund. In the absence of that appropriation, interest earnings would remain in the general fund. In response to a question from Senator Kelly concerning the purposes of the accounts, Bob Poe explained that the prevention mitigation account collects fines, penalties, and other types of payments. The response mitigation account would collect cost recovery on use of the fund. Appropriations to and from these accounts is made in the front section of the annual operating budget. Discussion followed between Mr. Poe and Senator Sharp regarding cost recovery associated with the response mitigation account. Mr. Poe noted that the fund could possibly "go slightly above $50 million" through cost recovery of "old nickels" and subsequent appropriation of that recovery, by the legislature, from the mitigation account to the response account. Mr. Poe voiced his understanding that the $50 million balance is merely a trigger mechanism to determine when the 2-cent surcharges is or is not levied. Senator Sharp asked if avenues for use of the response mitigation account are more liberal than for use of funds from the response account. Mr. Poe explained that funds in the response mitigation account are technically in the general fund. Historically, the legislature has taken funds from the mitigation account and used them for other purposes. Senator Sharp next referenced language in Sec. 3 and suggested that allowing grants to derive from both the prevention fund and the response fund negates the splitting of the nickel. He voiced his belief that since the prevention fund will receive the majority of the surcharge, language referencing the response fund should be removed. He then MOVED to remove "and response" at page 4, line 11. He further MOVED to remove the word "response" and replace it with "prevention" at page 5, lines 9 & 10, 16, 19, 22. Senator Kelly voiced his understanding that if there is imminent danger of a major spill, the other account could be utilized. Mr. Rogers said that for 045 spills, the grant would flow from the response account. If it is a non-045 spill, funding would derive from prevention moneys. Mr. Rogers then voiced his understanding of Senator Sharp's amendment to be that all grants should flow from the prevention account, regardless of the type of spill involved. Senator Sharp concurred. Mr. Rogers advised that municipalities, villages, and school districts are all treated the same under the proposed bill. In the course of further discussion, Mr. Rogers clarified that the 2,500 barrel limitation only applies to eligibility for receipt of a grant. Expenditures from the 045 account are not grants. Mr. Poe said that the amendment proposed by Senator Sharp would have an "extremely detrimental" effect on state ability to maintain a spill prevention response program. Past history evidences that grants have never been utilized. They are intended for large spills--EXXON VALDEZ size. While provisions for grants have been in statute for many years, division of funding between prevention and response efforts is new to CSSB 215 (Fin). In attempting to take an equitable approach, the department envisioned possible need for grants for both large and small spills. The department did not argue for bifurcation of grants. The department approach supports availability of grants only in cases where communities are severely impacted by a large spill. If grants are tied to prevention funding only, and the response account cannot be used to response to community needs, grant funding would flow from ongoing operations. Responding to further comments by Senator Sharp, Mr. Poe observed that $15 million from the 3-cent surcharge would accrue to the prevention account the first year. That decreases over time as production deceases. In addition, the account would accrue approximately $2 million in interest. Mr. Poe noted that the proposed bill also allows capital projects and storage tank assistance funding to flow from the prevention account. Additional new pressures are thus levied on prevention funding. Senator Kelly inquired concerning use of prevention funding for capital projects. Mr. Rogers pointed to page 20, subsection (E), language covering costs to acquire, repair, or improve an asset. He further referenced depot language, as well. Senator Kelly asked what the language relates to. Mr. Poe responded, "The emergency response center for Military and Veterans' Affairs"--the capital project that caused problems last year. Passage of SB 33 also allows the Dept. of Military and Veterans' Affairs to incur "some expenses using the prevention account," providing the activities are related to spill prevention and response. Senator Kelly asked if the funds would have to be appropriated, and Mr. Poe responded affirmatively. Senator Kelly asked if subsection (F) language at page 20, allowing use of the prevention fund to pay costs incurred by local emergency planning committees, was new. Mr. Poe and Mr. Rogers acknowledged that it was new. Mr. Rogers added that it is subject to a 3% limitation (Sec. 28). Mr. Poe explained that while the new language appeared in Senate Finance drafts, the department has paid for "this kind of activity, in the past, using the response fund." The 3% target is based on historical expenditure patterns. In response to an additional inquiry from Senator Kelly, Mr. Rogers and Co-chair Pearce advised that the language was proposed by Senator Leman. Senator Kelly voiced his understanding that use of funding for capital purposes is narrowly limited. Co-chair Pearce concurred. She explained that it was deliberately limited. Funding must be provided by appropriation. She said that she sought to ensure that if there is a legitimate use (the emergency center at the Anchorage armory was cited), funding from this source makes sense. It responds to Dept. of Law denial of use of the appropriation to the armory, last year. Further discussion of current funding for local emergency planning followed. Mr. Poe said that the current budget request totals $400.0. Mike Conway explained that 18 local planning committees are at various stages of completion of their plans. He further described the method utilized by local committees to secure funding. Senator Rieger called for a vote on Amendment No. 3, proposed by Senator Sharp (see page 9 of these minutes). Senator Sharp advised that he wished to WITHDRAW his amendment. He expressed concern that existing language would provide greater access to the $50 million response account, but suggested that if that is the case, corrective legislation could be introduced at a future time. Co-chair Pearce said she would share his concern had the department audit evidenced misuse. A total of $120 million has flowed to the fund, and the department has not "made huge grants like we're concerned about." No objection having been raised, Amendment No. 3 was WITHDRAWN. Senator Sharp next directed attention to page 3, line 21, and MOVED to add "is spontaneous and" following the word "release." Co-chair Frank concurred in the amendment, advising that it describes a large release "all at once" as opposed to something that has leaked over time. Senator Rieger MOVED to amend the motion to "was spontaneous and." He then called for the question. Co-chair Pearce called for objections. No objection having been raised, the motion on the amendment to Amendment No. 4 carried. Co-chair Pearce called for a show of hands on Amendment No. 4. No objection having been raised, Amendment No. 4 was ADOPTED. Senator Kelly directed attention to page 20, line 14, and voiced need to provide oversight of local emergency planning committee costs by adding "approved by the Commissioner" following "costs" and before "incurred." He then so MOVED. Senator Rieger again called for the question on Amendment No. 5. Co-chair Pearce requested a show of hands. No objection having been raised, Amendment No. 5 was ADOPTED. Senator Kelly referenced page 20, lines 30 and 31 (subsection (J)), and page 21, line 1, and MOVED to delete language providing for reimbursement of the Alaska Legislative Council for expenditures for operation of the Citizens' Oversight Council on Oil and Other Hazardous Substances. Mr Chenoweth noted need to delete associated language within Sec. 29 as well (page 21, lines 30 and 31, and page 22, lines 1 through 3). Senator Kelly noted that the oversight council was established soon after the EXXON VALDEZ spill. It was subsequently found to be duplicative and was never funded. Senator Kelly restated his MOTION to delete all references to the council from the bill. Co- chair Pearce OBJECTED. She then called for a show of hands. The motion CARRIED on a vote of 4 to 1, and Amendment No. 5 was ADOPTED. Senator Jacko MOVED that CSSB 215 (Fin) pass from committee with individual recommendations. No objection having been raised, CSSB 215 (Fin) was REPORTED OUT of committee with an indeterminate fiscal note from the Dept. of Law and zero notes from the Dept. of Environmental Conservation, Dept. of Public Safety, Dept. of Revenue, and Dept. of Administration. Co-chairs Pearce and Frank and Senators Jacko, Kelly, and Sharp signed the committee report with a "do pass" recommendation. Senator Rieger signed "no recommendation." ADJOURNMENT The meeting was adjourned at approximately 6:30 p.m.