CS FOR SENATE BILL NO. 128(RES) "An Act moving the termination date of the Board of Storage Tank Assistance to June 30, 1999; relating to the storage tank assistance fund; relating to financial assistance for owners and operators of underground petroleum storage tank systems; relating to discharges from underground petroleum storage tank systems; and providing for an effective date." JOHN BARNETT, Executive Director, Board Of Storage Tank Assistance, Division of Spill Prevention and Response, Department of Environmental Conservation, testified against the bill. The board was opposed to converting the grant program into a loan program at this time. The upgrades and closures had one more year to wrap up a nine-year effort. Tank owners had been ranked and had been waiting on the list for several years. The tank owners acted on good faith to report contamination that otherwise may not have been reported. Department of Environmental Conservation and the US Environmental Protection Agency now had that information. Should the tank owners fail to obtain financing to clean up their site, under the terms of this bill, they would face enforcement actions from EPA. That would cause the loss of potential services and possibly hundreds of jobs, according to John Barnett. The department understood and applauded the Legislature's interest in finding cost-saving measures this program was funded out of the prevention account as opposed to the general fund. He told the committee that the department wanted to see it funded for at least one more full year to finish the upgrades and closures. They also wanted to entertain the possibility of looking at other financing means: combinations of grants and loans, but they wanted to phase that in or base it upon a financial need basis. They would need time to evaluate that option. He continued saying, under the terms in this legislation, smaller tank owners would probably not have sufficient collateral to obtain the loans. Nor could they absorb the payments of such a large-scale cleanup. Most of the cleanups averaged $100,000 and some cost over a half- million dollars. Most of the tank owners had upgraded their facilities and were carrying large notes to pay off their upgraded tanks and would not be able to afford the additional loan. He repeated his statement that the department told the tank owners nine years ago that if they acted in good faith to report the contamination the EPA would not punish them and they would be provided with assistance to clean up their sites. Under this legislation, failure to obtain a loan would result in enforcement action. The tank owners that the department was trying to keep in business would face possible bankruptcy. He concluded by saying the department felt this bill had room for improvement. He suggested it be tabled for a year to allow the department to look at alternatives. Co-Chair John Torgerson said the bill would not be tabled for a year. He asked what suggestions John Barnett had to improve the loan program to make it work. John Barnett felt that the smaller businesses would be unable to neither afford these loans nor have sufficient collateral. Therefore, he recommended writing in a financial need criteria for the smaller tank owners to allow them to obtain grants. He spoke to how other states dealt with the tank cleanup. Most had some type of assistance programs. Some had an insurance program where the tank owners paid a premium, and when they had contamination that needed cleanup, the state paid the bill. Others had a subsidy program. Alaska's program had the most direct aid since they only charged a registration fee. He suggested looking at the other states' programs and their success and failure rates to determine the best option for Alaska. He continued explaining that the board had a ranking system authorized by the Legislature to rank the sites in order of public health first, location and size of business. The department was unable to eliminate certain facilities from that list. The ranking system worked very well for the upgrade and closure program because the larger companies were now at the bottom of the list. However, in the clean- up program, the small tank owners were distributed throughout the list and many would be excluded with the passage of this bill. He would like to modify the ranking system for the cleanup list so that those that could pay would pay and the department could try to help those who could not stay in business without assistance. Therefore, he recommended a phase-in program. Co-Chair John Torgerson wanted to know the maximum amount the department gave under the grant program. John Barnett replied that for the upgrade and closure program, the department provided a combined grant of $60,000 total for the upgrade and the closure. A typical four-tank facility would cost approximately $150,000 - $250,000 to upgrade. The balance of the funding for that came from private sector through the Small Business Administration. On the clean-up program, the tank owners were required to cover ten-percent of the cost up to $25,000 and the balance of the clean-up costs were covered by the state up to $1 million per facility. Co-Chair John Torgerson asked about John Barnett's earlier comments that many of the smaller tank owners would be unable to produce enough collateral to meet the $60,000 for the clean up. John Barnett clarified that many who could not afford the tank clean-up costs made other upgrades and improvements and were carrying large loans to fund those projects. The EPA agreed to hold off on enforcement so long as this state program was in place. Co-Chair John Torgerson wanted to know if the other portion of the bill would allow some of that prevention account to be spent on state and federal closures. John Barnett replied that the prevention account was already used for state facilities. The federal facilities were mandated by the federal government and the state had no incentive to pay for those. Law specifically to regulated underground storage tanks limited the storage tank assistance fund. The money for that fund derived from the prevention account. Senator Al Adams asked were most of the tank owners waiting for assistance were located. John Barnett said they were statewide. The majority were along the Railbelt; there were more in Western Alaska and as far north as Nome. Senator Al Adams suggested changing the effective date of the bill to July 1, 2000 so tank owners who were expecting assistance under this program would still qualify for grants and not have to obtain the loans. Co-Chair John Torgerson asked how many grants had already been applied for. John Barnett answered there were 176 pending applications for the upgrade and closure grants and 220 for the clean-up grants. Co-Chair John Torgerson asked for a printed list of those applicants. John Barnett said that information was contained in the annual report. Senator Loren Leman noted the Department of Environmental Conservation fiscal note for services contracted to the Department of Law. He wanted to know if the department could contract with someone other than the Department of Law such as a financial institution. John Barnett responded that they had discussed that option. Currently, the loans were handled through and RSA with the Division of Investments. The problem was the eligible costs, which were very elusive until the project began. Therefore, the department was reluctant to support any type of loan that gave a blanket amount based on their application. Cost could actually be less or more depending on the extent of contamination. In addition, the projects were usually phased. Costs would have to be audited constantly as they were with the grant program to determine eligible and ineligible costs. To contract the loan to an outside entity, there would be insufficient information to make those determinations based upon the simple loan application. The department did not want the tank owners to use any balance of funds on other purposes if the tank cleanup did not cost the entire amount estimated. He added that since this program would have to be capitalized to provide the loans, and since it would not be a revolving loan program it would need to be capitalized either annually or more frequently and still cost the state money from the prevention account. Senator Loren Leman asked if another contract service could be given the same criteria as what was provided to the Department of Law to make those same determinations. John Barnett deferred to Jim Hayden. JIM HAYDEN, Program Manager, Storage Tank Program, Division of Spill Prevention and Response, Department of Environmental Conservation, drafted the fiscal note. While the Department of Law submitted a fiscal note, it was to cover the cost of added enforcement that they anticipated would accompany this program. The Department of Environmental Conservation main fiscal note in regards to the loan program was to RSA funds to the Department of Commerce and Economic Development, Division of Investments to run the loan programs. Normally the Division of Investments contracted out those functions to the private sector and Department of Environmental Conservation expected that would happen here. Senator Loren Leman asked if the grant were replaced with a loan system, would there still be a need for the board. John Barnett stated a conflict of interest in that he was an employee of the board. However, he anticipated the workload of the board would greatly increase. First, the board acted as a buffer between the tank owners and the regulators. When regulations were proposed by Department of Environmental Conservation, the existing authorities allowed the board to review those regulations and not sign off on them if they had a problem. He gave an example in 1993 when the department proposed new sweeping regulations on tank owners. The board was able to delay those regulations for two years so the general public could go through a workshop and hearing process to determine the flaws in those regulations. The board had been very effective in reviewing regulations and preventing onerous regulations that would cost businesses within the state. The board also determined the eligible cost of tank clean- ups and was able to mediate disputes on cleanup plans. He told the committee the board was made up of six members of the private sector and one commissioner. The board also wrote the final financial assistance regulations. Co-Chair John Torgerson wanted to know if the annual report showed programs that had current grants. Jim Barnett responded that there were four separate programs. One was the site assessment and tightness testing program, which had been fully funded and sunsetted. Co-Chair John Torgerson asked if the annual report showed if there were any on-going grants for the same recipients that were applying for new grants. Jim Hayden replied that the latest report did not show the current activity for 1999. He could tell the committee that the department had approximately 150 grants scheduled this year. Those would take from 12-18 months to close out over their lifetime. Co-Chair John Torgerson asked if the annual report or any other data showed annual income limits or the total assets of the grantees prior to receiving the grant. Jim Hayden answered that information was not required as part of this program. Co-Chair John Torgerson then asked if this legislation changing from a grant program to a loan program would affect any federal funds. John Barnett answered that the department received federal funds for staff purposes not for grants or loans. He detailed the funding amounts totaling $700,000 and their specified purposes. Co-Chair John Torgerson asked again if the loan program would affect the federal funds. Jim Hayden said it would not. STEVEN DAUGHERTY, Assistant Attorney General, Natural Resources Section, Civil Division, Department of Law, testified. He brought up a technical issue with the bill. There currently many underground storage tank regulations that would be called into question with this legislation. It could be argued that they would be repealed by implication. However, the bill anticipated that those who had qualified under the existing regulations would continue to qualify for the loan. He suggested an amendment to keep those provisions of regulations that were not inconsistent with the bill in a transition section. It would allow the department to continue to rely on those regulations. He also noted the early effective date on the legislation. The normal regulation process took at least four to six months to get regulations into place. He recommended a transition provision to allow the department to start the regulation process when the bill passed and that those regulations would not be effective until after the substantive provisions became effective on July 1. He provided an amendment with the proposed language to committee members. He then discussed the fiscal note. The Department of Law would have some initial start-up costs to prepare the new regulations and get the new loan program established in providing legal advice to the Division of Investments and the Department of Environmental Conservation. After the programs were established, the Department of Law would no longer be required on a continuing basis except when loans were in default. They did expect a number of loans to default, noting that these types of facilities were economically marginal that were constantly going into bankruptcy. Therefore, the Department of Law had an on- going fiscal not to cover the cost of increased enforcement for facilities that could not qualify for the program and for collecting on the loans were issued. Co-Chair John Torgerson asked for an example of regulations that were not inconsistent with the provision of the bill. Steven Daugherty could not give a specific example but knew of many situations in the current regulations stating that the department would give a grant. All the provisions dealing with grants would therefore be inconsistent. It could be argued that the entire section adopted as regulation had been repealed by implication while the criteria for getting the loan would be the same as the criteria for the grant. Tank owners could argue that they automatically qualified for the loan because they were on the list to receive a grant. The Department of Law wanted to see that existing regulation base stay in place. Senator Randy Phillips referred to the testimony stating the regulations would take four to six months for implementation. He felt that was overly ambitious. Steven Daugherty qualified that would be a rapid regulation process. Senator Randy Phillips wanted to know what was the fastest time the Department of Environmental Conservation regulations had been adopted. Steven Daugherty said a lot would depend upon the public comment and how complex the regulations were. In this case, he felt they would be moderately complex regulations because it was already established who would be eligible. The regulations would only have to set up criteria as to how the loans would be administered. He anticipated there could be considerable public comment but felt the process was possible to accomplish within the four to six month period. Senator Loren Leman noted the testimony that many of these businesses were not financially stable and wondered if it made sense to grant the money to a businesses that was financially insolvent or on the edge. He understood it was a public safety issue but wondered if it made more sense to grant the funds rather than loan the funds and have the loan defaulted. Steven Daugherty said the Department of Law was limited to legal issues and this was a policy issue that he did not want to address. Co-Chair John Torgerson noted two proposed amendments. He also had some that were being drafted. He wanted to set the bill aside until the next meeting. Senator Pete Kelly warned that the committee needed to proceed cautiously with this legislation. Many smaller businesses would be impacted by this legislation and needed to be considered. He had some personal experience with this matter and had heard stories of the difficulties that smaller businesses would encounter. He admitted that the Legislature was in a difficult position, but admonished that the tank owners were also in a difficult position with the imposition of regulations by the EPA. Co-Chair John Torgerson asked if Senator Pete Kelly recommended a phase-in period. Senator Pete Kelly said that was one option. Co-Chair John Torgerson understood but felt the state made a mistake by having this grant program with no income limitations. Senator Pete Kelly admitted that was true, but noted that when the EPA imposed the new regulations, it began charging enormous fines on the small businesses and if the state didn't grant the funds, the fines would again be charged. Co-Chair John Torgerson asked if Senator Pete Kelly would prepare an amendment to address his issues. Senator Pete Kelly said he would. It would not be ready by the next meeting. Senator Loren Leman noted the validity of Senator Al Adams's suggestions about delayed implementation. Senator Loren Leman said he had argued for a different funding source when the program was first introduced. He felt the Legislature probably brought many of the problems on itself. Senator Dave Donley stressed that if there was a delayed implementation, it should not apply to the large multi- million dollar corporations, but only to the smaller "mom and pop" organizations. Co-Chair John Torgerson asked about the balance of the prevention account, the source of the tax and how much it generated per year. LARRY DIETRICT, Program Manager, Prevention and Emergency Response Program, Division of Spill Prevention and Response, Department of Environmental Conservation, detailed that the three-cent tax was estimated to generate $10.9 million this year. Co-Chair John Torgerson wanted to know if all that was granted out each year or if some of the revenues remained in the account. Tape: SFC - 99 #87, Side B 10:03 AM Larry Dietrict answered it was all encumbered in the budget every year. Senator Dave Donley asked if there was anything in statute that would have prohibited the department to adopt regulations to impose financial criteria on tank owners for access to these funds. Larry Dietrict deferred to the Department of Law. Steven Daugherty hadn't researched the issue so was unable to give a definitive answer. He did believe there had been legislative history where the Legislature considered requiring financial criteria when the original legislation was adopted. That would have been interpreted against the department having the power to require financial need. He thought he might have an answer at the next hearing for this bill. Co-Chair John Torgerson requested that information be provided to the committee. Co-Chair John Torgerson then asked what was the current balance in the prevention account. Jim Hayden said he would have to check and would provide that information later in the day. Co-Chair John Torgerson's understanding was that it could be as much as $30 million, so the total amount had not been obligated. Jim Hayden added that the department had looked at federal funding sources. There was a trust account with funds and the department was investigating the possibility of using those funds. The bill was held in committee.