SB 128-STORAGE TANK ASSISTANCE FUND CHAIRMAN HALFORD called the Senate Resources Committee meeting to order at 3:15 p.m. and announced SB 128 to be up for consideration. SENATOR DONLEY said SB 128 is part of the overall financial package to utilize state money more efficiently. We are the only state in the union that has a grant program for storage tank facilities. The other states have loan programs. Our existing program utilizes money from the "470 fund" and the statutes don't allow us to use that money for public storage tanks. SB 128 does two things; since the program would otherwise go away because of lack of funding, it turns it into a loan program and allows the Legislature to utilize money from the "470 fund" for doing necessary projects on government storage tanks. SENATOR DONLEY said he also supported the proposed committee substitute. Number 66 MS. JULI LUCKY, Staff for Senator Halford, said the basic intent of the bill is to create a loan program out of what used to be the Cleanup and Upgrade and Closure grants. She noted there was a sectional analysis in the packets and explained the spreadsheets are a breakdown of the FY99 proposed projects. SENATOR LINCOLN asked if there were commitments for future funding. CHAIRMAN HALFORD said there were commitments for these programs that go out for the foreseeable future of funding of the State of Alaska, one is $24 million. MS. LUCKY explained that there are basically four programs: the first one is the Tank Tightness, Testing, and Site Assessment Incentive Program and hasn't been funded since FY92. The Tank Cleanup Grant and Loan Program and the Tank Upgrade and Closure Grant Programs, which are active, are the ones addressed in SB 128 by converting them to loan programs. The first program is repealed. CHAIRMAN HALFORD said the intent is to repeal the Reimbursement Program, as well, but that's in a session law, not in permanent law. It also doesn't have funding. MS. LUCKY responded that it's not an active program and hasn't been funded basically because the other programs took precedence. MR. BARNETT, Executive Director, Board of Storage Tank Assistance, said that Mr. Jim Hayden, DEC, actually administers the program, but the Board acts as an appeal board and mediates disputes between the tank owners and DEC. They also review and adopt regulations that DEC proposes. MR. BARNETT explained that this whole program is driven by the 1988 Underground Storage Tank Act established by the EPA. It required all the motor fuel tanks in the U.S. to upgrade by December 22, 1998. Those two conditions created this program. The cost to clean up these tanks in order to obtain insurance was found to be excessive and a lot of smaller businesses could not afford to it. The Legislature in 1989 and 1990 decided to develop a four phase program. The first one was the Site Assessment and Tank Tightness Program which was to determine the extent of the problem. This program is complete and puts into place a list of applicants all of them were funded to a fairly small level. The second phase was the Upgrade and Closure Program providing a portion of the funds to upgrade tanks up to $60,000 per facility with a maximum of 60 percent of the cost of the upgrade. The upgrades for a typical four tank facility was $150,000 - $200,000. The $60,000 worked out to about $45,000 for upgrade and about $15,000 toward the closure of old tanks. The $45,000 was about 20 percent of the cost to actually upgrade the tanks. The tank owners, then, went to the Small Business Administration or the bank and obtained financing for the balance of the upgrade. So the upgrade portion is sort of a down payment incentive program for getting the upgrades complete. CHAIRMAN HALFORD asked if the $60,000 was per business site or per owner. MR. BARNETT answered that it was per facility. CHAIRMAN HALFORD asked if Mapco and Tesoro could have 10 facilities at $60,000 each. MR. BARNETT answered yes. SENATOR KELLY asked why some people on the list have received hundreds of thousands of dollars for the same place. MR. BARNETT answered those funds probably came from the clean up program which is the third aspect of the financial assistance program. Alaska has a higher ground water table than places in the lower 48, so contamination was much more extensive and expensive. Banks would not provide the financing to clean up the sites and there were no other funds available to do the job. Previously, when a tank owner could not clean up the site, EPA and DEC enforcement people would step in and clean up the site using the old 470 fund and hand the bill to the tank owner. If he couldn't afford to pay, he would have to declare bankruptcy, getting the state into a major legal battle. The conclusion was instead of the State becoming a bank to provide loans, they felt the default rate would be high as the cost of the loans would be too high of a financial burden in order for the businesses to stay in business. At this point, it was determined that there would be a grant program with a portion of it being a loan up to $25,000. The balance would be covered by the State up to $1 million per facility. The fourth program is the reimbursement program which is in the Session Law. These were for the people that upgraded their tanks between the EPA law going into effect on December 22, 1988 and the State law going into effect on September 5, 1990. These are the people who acted first. The conditions to get money out of that was that everyone else would be taken care of first and if there was still money, they would get paid. CHAIRMAN HALFORD asked how much money it would take to get to them under the existing program. MR. BARNETT said it would go to $24 million before they could even touch the reimbursement program. He explained that a ranking system was established by the Legislature at the time that emphasized public health threats and the smaller businesses. This ranking system pushed the larger companies toward the bottom of the list. Most of the smaller and rural businesses have been taken care of. The cleanup program still has an extensive list. They focused on the upgrade and closure because of the 1998 deadline. EPA was threatening a $10,000 per day per tank fine for noncompliance with the upgrade requirements. There is one more year for the upgrade program to finish it; then they would work their way down the cleanup list. The application period closed in 1994. The cleanup program sites are ranked with the highest threats to public health at the top. The next criteria would be their location and size of business. To change the program now, like SB 128 does, although they applaud the Legislature on looking for ways to save money, the Board feels would be detrimental to the small businesses left on the list and probably be more costly to the State in the long run. Many tank owners will not have sufficient collateral to be able to obtain a loan of this size for the cleanup. Those that might have sufficient collateral may also be mortgaged to the hilt because they have just finished financing their upgrade tanks and are carrying a loan for $140,000 - $150,000 to the banks for their new tanks. They would not be able to afford another loan on top of that for the cleanup. If they can afford to get the loan, should they default, the State would assume the liability on those site, have to clean them up, and then seek cost recovery from the owner. MR. BARNETT explained that the large companies on the bottom of the upgrade and closure list will not go for a loan. Most of their work is already complete. They are on the list because it was originally required that everyone had to register their tanks. And the argument was, if I have to register my tanks, I should be eligible for financial assistance. They are on the list because they have paid registration fees to the State for 10 years. Number 354 CHAIRMAN HALFORD asked what the registration fee is. MR. BARNETT answered that it begins at $500 per tank, per facility. It declines depending on the level of upgrade completed. The larger facilities have dropped down to about $50 per tank. He said there are smaller businesses who are awaiting upgrade funds that are paying the higher registration fee while waiting for funds to upgrade. CHAIRMAN HALFORD asked how much they were proposing to spend in the upcoming year. MR. BARNETT answered $1 million for cleanups and $4 million for closure and upgrade. The emphasis is to finish the upgrade and closure program and focusing on the cleanup program. He explained that originally there was a real low reporting requirement because of possible large EPA fines. The Board held out a carrot and said if you report your contamination, you would be given a grant. Their concern now is that some of the smaller companies at the bottom of the list are being punished for being there by having to pay back their loans as previous ones did not and they acted in good faith to report. CHAIRMAN HALFORD asked DEC if they have a list that is in approval order. Someone from DEC responded that they did. MR. BARNETT noted that the larger companies had been moved to the bottom of the list. Initial estimates for these programs have been significantly reduced by developing more efficient ways of cleaning up and creative ways to finance the rest of the cleanup could be looked at, but the Board didn't think a loan program would work for the small businesses. CHAIRMAN HALFORD asked how much had been disbursed in total. MR. BARNETT answered $22 million. SENATOR LINCOLN noted there were a lot of Seven Eleven's on the list and asked why. MR. BARNETT said at the time of the owner's application, they were in a bankruptcy state and they are now owned by Tesoro. MR. BARNETT reiterated that their ranking system has worked putting big companies at the bottom of the list. They were determined to be eligible and this is the last year of funding for the upgrade program. They can't be ranked any lower. Number 444 SENATOR LINCOLN said that $2.2 million was for the applicants who ranked the very lowest which would be the larger businesses which may not have had public health concerns. $2.2 million would not be a great impact to these individuals if it went from a loan to a grant. MR. BARNETT said he didn't disagree. SENATOR TAYLOR asked why West Side Service on page 3 was just now getting its funding when its installation had been completed for some time. MR. BARNETT explained the way the ranking system works, if work has already been completed to a certain extent, in many cases they were dropped down on the list. The Board was trying to get to the people who had yet to upgrade in order to protect public health. They have been waiting for money for quite some time. SENATOR TAYLOR asked if they went ahead and spent the money relying upon that money coming through in this fashion. MR. BARNETT said that was correct. SENATOR TAYLOR noted that West Side Services had received $14,000 and Mr. Barnett has projected for 1999 they would receive the remainder of $44,331. MR. BARNETT said that was correct. SENATOR TAYLOR pointed out that this legislation does not impact them, because it doesn't take effect until July 1. MR. BARNETT said that was correct if they were in the reimbursement mode, but if they had yet to do the work... SENATOR LINCOLN said she was confused with what Senator Taylor is saying because it means the whole $11 million is committed, because it's all FY99. Number 500 SENATOR LINCOLN asked if $4.2 million was committed for FY99 because it was last year's appropriation. CHAIRMAN HALFORD said let's see where next year's money goes. MR. BARNETT said there is a cleanup list, but the Board doesn't just give a loan or grant and "it" gets done. It usually takes four to five years to complete a cleanup, so a business receives multiple grants. Work gets done; they wait a year; they test it again; they get results; they do the next phase of work. That way they don't overspend on a site, a very cost effective way to do something and a lot of sites can be helped at once. Some businesses have been on the continuing project list for quite a while because of the extent of the contamination. This was a concern with a loan program, because you would have to do phased loans. The grant program was determined to be the simplest and most cost effective way to do it in the long run. He said that businesses do not have to be reranked for FY00. CHAIRMAN HALFORD asked what the $39,000 to Chugiak Texaco was for. MR. JIM HAYDEN, Storage Tanks Program Manager, explained that it was on the ranked list of the cleanup applications that had not been funded to date. Because of the 1998 deadline, this list was suspended to make sure all the upgrades and closures were funded. CHAIRMAN HALFORD asked what was more important to the State, cleanup or new tanks and closures. MR. HAYDEN replied at this point, because of the deadline, the decision was made to put the money into the upgrade and closures and try to meet that deadline and prevent leaks from occurring. CHAIRMAN HALFORD asked if that decision was discussed with the legislature in the funding process. MR. HAYDEN answered that they testified a number of times regarding the 98 deadline. SENATOR HALFORD said they have already shut down the cleanup program for one year. MR. HAYDEN said that was partially true for the new cleanup applications, but they have a very highly ranked list of cleanups that have been ongoing for the last few years. Generally, they are the ones that cause drinking water or water supply contamination. TAPE 99-21, SIDE B Number 590 CHAIRMAN HALFORD asked about number three. MR. HAYDEN said it's planned to reopen about the top ten sites in FY00. That particular site would be eligible for funding next year. He didn't know the specifics of that site other than it ranked very highly. He explained that when the tanks were tested and either upgraded or closed, some contamination was found in the ground. There's probably a low water table, so the water table in the area has been impacted and there's probably a stockpile of soil that they need to get rid of. CHAIRMAN HALFORD said that site was a service station that's been closed for at least a decade. The guy who owned it has since died, and he didn't know the status of the property. If there had been any danger to the public, some time in the last decade, it would have occurred. Number 7, Fire Lake Flying Club, is about a half mile from his house. It sits on the Old Glenn Highway and is one 500 or 1,000 gallon tank along the side of the road. It was from a group of people who got together and sold each other gas - hardly the most needy of the community. He didn't know how they could possibly spend $181,000 unless you're going to fix the whole Fire Lake dam. MR. HAYDEN responded that these are estimates that were provided with the application, but the Board hadn't done ground proofing on them. Often, when the Board sends a letter to the applicant saying they are eligible for funding; then they have to review the application. The amount may very well be different than the one on the application. MR. BARNETT added that the percentage of money they provide tank owners does not cover the full cost of the facilities. MR. HAYDEN explained that this is why they phase the grant program. They don't give a business $120,000 and say go at it and give us your receipts. The owners have to submit a work plan to the Department; they do the first phase of that work; report the results back and then the work plan is reviewed and changed. A lot of times the $100,000 cleanups are only $20,000 cleanups. Sometimes it works the other way, too. SENATOR LINCOLN asked since some of the applicants are from 1991, those numbers could increase, as well. MR. BARNETT agreed that it could go in the other direction, but they have found that most costs have been less than originally asked for. The cost goes up for a few because of the ground water contamination. SENATOR LINCOLN asked why applications are dated 1995, 1996, etc. if they are accepting no new applications since 1994. MR. BARNETT replied that those who were already on the closure and upgrade list prior to 1994 were given two more years to determine if they had any contamination. They could squeak an application in until July 1, 1996. CHAIRMAN HALFORD asked how far down he thought they could get on the six page list. MR. BARNETT responded that the plan for this next year's funding cycle is to fund only the continuing projects. MR. HAYDEN said recent information indicates there were withdrawals from the Upgrade and Closure Program which will allow, for the first time in two years, some new cleanup sites. It's likely they would get to the first 10 or so after reviewing the work plans. SENATOR TAYLOR asked if the people in FY99 would get their money. MR. BARNETT said they have yet to start their work. They are waiting for the season to begin. The process is that the money becomes available to many of the applicants mid-season or at the beginning of the fiscal year which is too late in the season to line up contractors to do their work. A lot of times the work will actually take place the following spring. MR. HAYDEN added that some people have a combined closure upgrade program where the tanks were closed three or four years ago with a closure grant, but now they are waiting for their upgrade grant. SENATOR PETE KELLY said he is concerned about a lot of people on this list, because in Fairbanks there's a huge storage tank facility. In that same area is the headquarters of the Alaska Gold Company and Golden Valley Electric where they used to have their generator. The municipality also used to spray the gravel roads there with excess oil. Out on the edge is "old Bud Kelly" who had a little tank and used to sell gas. Then it's found there's petroleum products in the soil and he's got to pay, and pay the full cost of cleanup on his site. But it's possible that he didn't contribute one molecule of particulates to that site. He thought there were more people like that on the list, particularly where everyone is bunched up. This was a bad idea, he said. CHAIRMAN HALFORD said there were tens of thousands of residential people who had quit using underground fuel tanks that were just waiting to leak. SENATOR PETE KELLY said in Fairbanks the Department of Public Health hasn't said there's a higher level of cancer and something has to be done. This issue is driven by a bunch of Greenies who hate industry and unfortunately the easy ones to get are the small businesses. He thought it was bad public policy to give people money. SENATOR GREEN asked what happened in other states that don't have a grant program. MR. BARNETT answered that there are reimbursement programs in some states which are predominantly loan programs. The cleanup costs in the lower 48 were considerably lower and more manageable loans could be obtained. The ground water table was typically much deeper. This fact alone is what really drives the cost up. Minnesota's loan program is financed by their lottery system; others are funded by a motor fuel tax. There are some forgiveness programs on the loans after a certain point and certain costs are reimbursable. Our intention up here was to keep as many of these people as possible in business. CHAIRMAN HALFORD said he needed Mr. Barnett to find a way to make a transition to a loan program. The list is full of things that are unnecessary expenditures of state money to profit-making companies, some of whom make more by polluting more. Some are totally innocent of that and it's not fair to put this in their laps. MR. BARNETT said they are funded through the 470 fund and that state tanks are eligible to receive those funds, also. The Board wants to wrap up the upgrade/closure program and look at long term funding and financing techniques for the cleanup program. There may be some ways to do creative grants and loans. CHAIRMAN HALFORD said he thought the upgrade, at least for one person he knew, was the financial responsibility of the person who was going to profit from it. Number 338 SENATOR TAYLOR said he didn't see how they could solve the problem. The federal law was wrong. By the time the law was implemented, it closed 40 percent of the service stations in the United States. CHAIRMAN HALFORD said he thought one of the criteria in the original law was the individual's ability to pay. MR. BARNETT responded that's what their problem was. There was no financial need base within the original set of statutes causing constitutionality questions. It was determined if everyone paid their registration fee, they would all be eligible. The federal requirements are driving the program. SENATOR KELLY asked if an area comes up clean, why wouldn't they sign a Notice Of No Further Action. MR. BARNETT answered the only time there might not be a No Further Action letter would be if there was some question about the results of the testing. Number 245 MR. HAYDEN informed the committee that there is a pot of money called the "Federal Lust Trust" which comes from the surcharge that every citizen pays at the motor fuel pump. It's now at $1.2 billion. It's not being used; small pieces of it are trickled out to certain programs. We get a federal grant from that fund, but it's been the policy of the EPA to limit it to pay for staff to oversee the cleanups in the state. It doesn't go for actual cleanups. CHAIRMAN HALFORD asked how long their list was for the public tanks. MR. HAYDEN answered that they are all on the same list and had to meet the application deadline. Anchorage and Fairbanks seemed to submit the most applications. CHAIRMAN HALFORD asked why the public tanks ranked lower than the private large private profit making corporation tanks. MR. BARNETT replied that it could have been the degree of contamination. CHAIRMAN HALFORD commented that a criteria was the bigger the mess, they higher you rank. MR. BARNETT responded that is a clause within the statute itself. The Board was given the authority to rank sites, but instead of giving them the authority to rank them with their own criteria, they were limited to half of the list had to be public health based. MR. HAYDEN added that most of the municipal tanks are diesel which is not as hazardous as gasoline tanks, because the components in gasoline dissolve in water which causes more of a problem. The characteristics of diesel are that they do not dissolve in water and are immobile in the ground. They basically stay put, whereas gasoline evaporates, but it also dissolves and is carried by rain water. It can dissolve up to a thousand parts per million in the water. It's very easy to distinguish a water supply that's been contaminated with gasoline. It's very sweet smelling and tasting. MS. ANNETTE KREITZER, Staff to Senator Leman, explained his proposed amendment which accelerates the termination date of the Storage Tank Assistance Board by one year. They would still have their wind down year through 2000. The last legislative audit recommended extending the Board through June 30, 2000. There will be another audit of the Board in the summer of 1999, so the Legislature will still have the opportunity to make a policy call, if they chose to extend it longer. SENATOR GREEN moved to adopt the CS to SB 168. There were no2 objections and it was so ordered. SENATOR TAYLOR moved the "sunset amendment". SENATOR GREEN objected for clarification. CHAIRMAN HALFORD explained that the current sunset is the year 2000, but there is always a year after that of wind down. Senator Leman is recommending June 30, 1999 which leaves the one-year wind down. CHAIRMAN HALFORD assumed that he understood the prioritization of the Board was essential for the grant programs, but not for the loan programs. SENATOR GREEN withdrew her objection. CHAIRMAN HALFORD announced that the amendment was adopted. Number 97 SENATOR GREEN moved to repeal the fourth category, to pay back grants that have never been funded or the retroactive reimbursement program. There were no objections and it was so adopted. CHAIRMAN HALFORD said another concern was the interest rate of the loans that replace the grants. He thought it should be a preferential one. Current federal discount is four and a half and he thought it was good to put it at a half percentage point above that. So these would be five percent loans which would still represent a subsidy. At least, it is some incentive to pay back instead of letting the interest rate grow. MR. BARNETT responded that the only people who can afford these loans are the ones the committee is most concerned about like Tesoro and Chevron. Others already have their places mortgaged to cover their upgrade loans and he thought the state would end up cleaning their sites, anyway, through the response fund. A fellow in Delta Junction contacted him saying he was already mortgaged to the hilt and there was no way he could finish his cleanup. He would basically put a "For Sale" sign out and walk. CHAIRMAN HALFORD said Mr. Barnett had the rest of this year with state funding for grants. The timing of when this occurs will ride with the effective date of the legislation and what the Finance Committee does in terms of money. SENATOR GREEN asked what happens if you're the owner of the property and can't afford a loan. MR. BARNETT answered if you are on the list and have a $100,000 cleanup and are offered a loan through the program and you determine you don't want the loan, you can sit there. The next thing that will happen is that the State will come in and file a Notice of Violation that you haven't cleaned up your site. You would receive more Notices of Violation; it would be turned over to the Attorney General's Office or the EPA for enforcement. They would step in and direct the owner to clean up the site. If he didn't, the State would do the clean up. TAPE 99-22, SIDE A Number 001 They would present the bill to the owner and the owner would probably leave the state. CHAIRMAN HALFORD remarked that all this based on a risk that was assessed so low by DEC that it didn't need to get any help for a decade. He said it seemed like they could do something else with the enforcement before it gets that far. SENATOR TAYLOR said if we don't do it to them, the feds would. MR. BARNETT said this program was started because the feds were being highly unreasonable and using a big stick approach. It was felt the state had to intervene with its own program and people. We don't see the headlines of 10 years ago about the heavy handed enforcement of the EPA. If you take away key portions of the State program and EPA steps in, there will be a repeat of the 80's. The sites with contamination that doesn't rate as a public health threat are still obligated by federal law, which is mirrored by state law, to clean it up. We don't have any way around that except to change it at the federal level. CHAIRMAN HALFORD asked if the enforcement actions in the past were state actions. MR. BARNETT said that was correct. The federal fines are set at $10,000 per day per tank for noncompliance. These people were being treated like criminals and that's why this whole program began. Number 69 SENATOR GREEN asked if this program was intended to last forever. MR. BARNETT answered that the original appropriation for this program was $10 million for the first year. In the summer work sessions of 1989 and 1990, the number that came out was $100 million problem. Now it's a $14 million problem; it won't go on forever. There are creative financing ways to still address the problem. The Board does not feel the loan approach is the best way to protect our businesses. The original estimates have been greatly reduced through the Department's innovative approvals of new remediation technologies. SENATOR GREEN moved to establish the interest rate at a half percent above the federal discount rate which is currently 4 + percent. There were no objections and it was so ordered. SENATOR TAYLOR noted that his district had so far received $59,000, where as Anchorage and Fairbanks had each received millions. They could get rid of the entire problem in his district with less than $120,000. He wanted to know why they were spending so much more money in a handful of communities and not a dime anywhere else. Number 138 MR. HAYDEN answered if more communities from Southeast Alaska had applied, they would have been on the list. SENATOR TAYLOR responded that these people did apply and they haven't seen a dime. Only eight communities have had any help - Wasilla, Soldotna, Palmer, North Pole, King Salmon, Ketchikan, Fairbanks, and Anchorage. He asked if villages were taken care of on some different program. MR. BARNETT said that village programs were handled through DCRA. SENATOR GREEN moved to pass CSSB 128(RES) from committee. There were no objections and it was so ordered.