HOUSE FINANCE COMMITTEE May 16, 1999 7:58 P.M. TAPE HFC 99 - 144, Side 1 TAPE HFC 99 - 144, Side 2 TAPE HFC 99 - 145, Side 1 CALL TO ORDER Co-Chair Therriault called the House Finance Committee meeting to order at 7:58 p.m. PRESENT Co-Chair Therriault Representative Foster Co-Chair Mulder Representative Grussendorf Representative Austerman Representative Kohring Vice-Chair Bunde Representative Moses Representative J. Davies Representative Williams Representative G. Davis ALSO PRESENT Senator Dave Donley, Sponsor; Representative Scott Ogan; Darwin Peterson, Staff, Senator Torgerson; Steven Daugherty, Assistant Attorney General, Natural Resource Section, Department of Law; Larry Dietrick, Director, Division of Spill Prevention and Response, Department of Environmental Conservation; Jim Hayden, Manager, Storage Tank Program, Department of Environmental Conservation; Annette Kreitzer, Staff, Senator Leman; Barbara Frank, Director, Division of Administration, Department of Environmental Conservation; Larry Dietrick, Program Manager, Prevention and Emergency Response Program, Department of Environmental Conservation; Senator Dave Donley, Sponsor. SUMMARY CSSB 11(JUD) "An Act relating to good time credits for prisoners serving sentences of imprisonment for certain murders." HCS CSSB 11 (FIN) was REPORTED out of Committee with "no recommendation" and a fiscal impact note by the Department of Administration and a zero fiscal note by the Department of Corrections, both notes were published on 5/13/99. CSSB 128(FIN) am "An Act moving the termination date of the Board of Storage Tank Assistance to June 30, 1999; relating to the storage tank assistance fund, to financial assistance for owners and operators of underground petroleum storage tank systems, and to discharges from underground petroleum storage tank systems; and providing for an effective date." CSSB 128 (FIN) was heard and HELD in Committee for further consideration. CS FOR SENATE BILL NO. 128(FIN) am "An Act moving the termination date of the Board of Storage Tank Assistance to June 30, 1999; relating to the storage tank assistance fund, to financial assistance for owners and operators of underground petroleum storage tank systems, and to discharges from underground petroleum storage tank systems; and providing for an effective date." DARWIN PETERSON, STAFF, SENATOR TORGERSON testified on behalf of the sponsor in support of the SB 128. He explained that the legislation was introduced by the Senate Finance Committee in an effort to modify the underground petroleum storage tank upgrade, enclosure and cleanup programs. The legislation would lower the cap on eligible grantees and establish a low interest new tank clean-up loan program for those that are not eligible for a grant. Mr. Peterson reviewed the sectional analysis for CSSB 128 (FIN) am: Section 1 puts the Board of Storage Tank Assistance in its "wind-down" year beginning June 30, 1999. Section 2 removes a reference to the tank tightness and site assessment incentive program repealed in section 14 and adds a reference to the tank cleanup loan program enacted in section 10. Section 3 adds a reference to the tank cleanup loan program. Section 4 amends the storage tank assistance fund section in Title 46 by adding two statements about potential appropriations of money in the storage tank assistance fund. This section also clarifies that a pending application is not considered to be an encumbrance of the fund. Section 5 deletes a reference to the repealed tank tightness and site assessment incentive program. Adds a reference to the newly enacted tank cleanup loan program. Sections 6-9 convert the loan program for cleanup relating to underground petroleum storage tank systems to a grant program for tanks whose owners have $1,000,000 or less in tangible net worth. Section 9 contains limitations on total grants and loans. Grants may not exceed $250,000 and a combination of grants and loans may not exceed $500,000. Section 10 establishes a new tank cleanup loan program Section 11 limits grants for upgrading and closure of underground petroleum storage tanks to those whose owner has a tangible net worth of $250,000 or less. Adds the same limitations on total grants and loans as established in section 9. Section 12 defines "tangible net worth" as the total value of tangible assets minus liabilities associated with bringing underground petroleum storage tanks into compliance with state and federal laws. Section 13 adds a reference to the newly enacted tank cleanup loan program. Section 14 repeals the program currently under AS 46.03.415, the tank tightness and site assessment program, and repeals references to that program. Also repeals a reimbursement program established in 1990. Section 15 specifies that the limitations on grants, loans, and total financial assistance enacted by this Act apply to money received on or after July 1, 1999. Sections 16-17 allow the board's regulations process to begin immediately and make the change in the termination date of the board effective immediately. Co-Chair Therriault asked for more information on the net worth provision. Mr. Peterson explained that an owner of an underground storage tank would be eligible if their tangible net worth value were $1 million dollars or less. The House Resource Committee version includes the definition of tangible net worth as: "tangible net worth" means the value of tangible assets, including existing assets and probable future economic benefits that will be obtained or controlled by the entity as a result of past transactions, minus liabilities associated with bringing underground petroleum storage tank systems into compliance with state and federal laws and liabilities associated with releases of petroleum from underground petroleum storage tank systems; notwithstanding other provisions of this paragraph, "tangible net worth" does not include the value of goodwill. Vice-Chair Bunde MOVED to ADOPT proposed committee substitute, work draft 1-LS0624\S dated 5/16/99 STEVEN DAUGHERTY, ASSISTANT ATTORNEY GENERAL, NATURAL RESOURCE SECTION, DEPARTMENT OF LAW provided information on SB 128. He explained that the definition of "tangible net worth" is the only remaining legal concern of the Department of Law. The definition is not consistent with the definition of "net worth" used under generally accepted accounting principles or under other statutes and regulations that deal with net worth. The Department of Law would define "net worth" as assets minus liabilities. The bill includes all assets but would not included liability such as the notes on a facility. He observed that it would be possible to have a negative net worth. He explained that an applicant could be found to be ineligible for a grant because their facilities value exceeds the limit. He recommended the insertion of "including liabilities". This would increase the number of people eligible for the program. The number of eligible applicants could be reduced by lowering the cap. A person that has a million-dollar facility that has been paid for would be eligible for a grant. Someone who has bought a $1.1 million dollar facility with a loan would not be eligible for a loan. He provided members with a proposed Amendment 1 that would inset "including liabilities" on page 8 line 12 and change "1 million dollars" to "$500 thousand dollars" on page 5, lines 11 and 13. He stressed that the current definition is not enforceable. It would be difficult to prove that a person did not know that their application was not truthful given the fact that their accountants use a different definition of "net worth". Representative Grussendorf questioned if the standard of net worth is set in statute. Mr. Daugherty observed that it is defined in statute and in federal regulation. The legislation does not go far enough in establishing the total liability. The legislation only looks at liabilities associated with cleanup. It is difficult to determine liability associated with cleanup due to changing estimates and costs. An owner with only 5 percent equity in a building would be considered by the bill to own the entire building despite the fact that the bank owns 95 percent of the facility. Mr. Peterson stated that the general definition of tangible net worth is not acceptable because the intent is to lower the threshold of those that are can be eligible. The intent is for small mom and pop operators to be eligible. Larger owns would be eligible for a 4.5 percent state loan. He spoke against the amendment. He stressed that the amendment would raise the cap. Vice-Chair Bunde observed that the legislation is being crafted to the recipients that have been identified. He asked if mom and pop operations would be excluded if the cap were lowered to $500 thousand dollars. Mr. Peterson stated that the sponsor believes that the amendment would raise the cap significantly. Co-Chair Therriault concluded that the intent is to restrict the program to a size of business. Representative Grussendorf observed that "total" is not included in the definition in section 12. He assumed that the definition included total liability. He concluded that either interpretation could be made and that the definition needs clarification. LARRY DIETRICK, DIRECTOR, DIVISION OF SPILL PREVENTION AND RESPONSE, DEPARTMENT OF ENVIRONMENTAL CONSERVATION expressed concern with aspects of the legislation. The Department of Environmental Conservation supports the concept of a filter to sort out the mom and pop operations from large corporations. He stressed that the definition of "net worth" needs to be clarified for implementation. In addition to enactment of the legislation there must also be funding in the operating budget for staff and capital funding for implementation. The proposed that the program be capitalized level at $5 million dollars. He stressed that the ability to implement the program has been reduced due to funding cuts. Staff has been cut from 30 to 20 positions. The affects of the cuts go beyond the grant loan program. This is the last year of the grant program. He observed that there are 250 operators that are moving to clean up without financial assistance. The reductions to staff affect businesses that are attempting to cleanup at their own expense. Contamination continues to migrate and grow. Delays create larger areas of contamination and greater costs. Ten of the engineering staff that reviews and close out cleanups would be cut. This impacts the number of stations with abandoned dirt piles. The reductions impact the ability to remove contaminated substances and delays cleanup and recirculation of property. REPRESENTATIVE SCOTT OGAN acknowledged that there is a difference of opinion regarding "net worth". He defined mom and pop operations as sole source or single site operators. The intent is not to give grants to large corporations that can afford cleanup operations. He acknowledged that some single site operators would be hurt by the legislation. He spoke in support of the intent of the legislation. He noted the difficulty of resolving the issue. Co-Chair Therriault stressed the difficulty of defining "mom and pop" operations. The intent is to use a flat dollar amount. Representative Ogan noted concern by small operators that they would be placed in a different category. The amount is arbitrary. Co-Chair Therriault pointed out that the lower amount captures persons that do not have the financial ability to do the cleanup. Representative Ogan recalled an individual that spent $400 thousand dollars of his own money and $500 thousand dollars of the state's money and is still not quite done. Representative Grussendorf pointed out that section 12 needs clarification. Co-Chair Therriault asked if "total" on page 8, line 12 would resolve concerns by Representative Grussendorf. Representative Grussendorf stated that it would help. Co- Chair Therriault questioned if someone with a net value of $10 million dollars should get state assistance. Mr. Daugherty concluded that the legislation does include the total value of tangible assists. Under normal circumstances total liabilities would also be included. The legislation only pertains to a limited subset of liabilities. He did not think that the addition of "total" would change the legislation's interpretation. In response to a question by Representative Grussendorf, Mr. Daughtery reiterated concerns that the legislation does not pertain to total liabilities. Only liabilities associated with the estimated cleanup costs are included. Co-Chair Therriault explained that the Department wants the ability to subtract mortgages from the determination of a business' worth. The sponsor is concerned that a bulk storage plant that is heavily leveraged could qualify because the facility is mortgaged down the size of a small operator. Representative Grussendorf MOVED to ADOPT insert "total". On page 8, line 5 after "the". Mr. Peterson stated that the sponsor would not object to the amendment. Mr. Daugherty stated that the amendment would not create other legal problems. Co-Chair Therriault asked the terms of the loan program. Mr. Peterson observed that the loan program would be created by the legislation in subsection (f) on page 7. The interest rate is one-half percentage point above the federal discount rate. Based on current rates the interest would be at 4.5 percent. Representative J. Davies noted that the service station nearest to his residence has stopped pumping gas due to liability. Representative Foster pointed out that it could cost $300 dollars a yard to remove contaminated soil. Co-Chair Therriault observed that the state of Alaska was forced into the business of offering loans in order to prevent shutdowns of mom and pop operations by the federal government. Mr. Peterson agreed that the state had to comply with federal law. Representative G. Davis observed that the state has provided funding for cleanup of contaminated sites. Co-Chair Therriault pointed out that there are other factors, such as insurance for liability that can force operators out of business. Representative Ogan pointed out that the legislation would not take into account liability for debt service. Mr. Peterson stated that small owners would be assisted if liability were associated with contamination. It is not the sponsor's intent to give state money if the operator is in debt for other reasons. Representative Ogan observed that an operator that has high leverage on paper could not qualify for a grant. Co-Chair Therriault pointed out that the intent is to reserve free state money for the smallest operators. In response to a question by Representative Ogan, Mr. Peterson observed that funding would come from the 470 fund. Mr. Daugherty clarified that his amendment would consider total liabilities and total assets. (Tape Change, HFC 99 - 144, Side 2) In response to a question by Representative Kohring, Mr. Peterson explained that the intent would be to give the Board one-year to wind down. The intent is to revisit the termination date if a problem arises. Representative Kohring questioned if there has been problems with the Board. Co- Chair Therriault clarified that the Board was not intended to be permanent. Mr. Daugherty noted that the intent was for the tanks were to be upgraded within 10 years. The cleanups are not driven by the ten-year timeframe. Co-Chair Therriault questioned if the department is concerned about the termination of the Board. Mr. Daugherty stated that the department would like to see the Board reinstated as long as the department is funding a cleanup effort. He stressed that there are going to be conflicts with the public as long as a determination is made that some expenditures are eligible and some are not. JIM HAYDEN, MANAGER, STORAGE TANK PROGRAM, DEPARTMENT OF ENVIRONMENTAL CONSERVATION clarified that the cost of the Storage Tank Assistance Board is $100 thousand dollars per year. The Board would remain in existence until June 30, 2000. Mr. Hayden explained that the Board has many functions. It allocates the funds, writes regulations and hears disputes on loan and grant issues. The Board is administering two programs. The upgrade and closure program will finish next year. The cleanup program will continue for approximately 10 more years. Representative J. Davies questioned the intent of the legislature in placing a termination date of June 30, 1999. He maintained that there should be clear legislative intent regarding if the Board's status. Co-Chair Therriault stated that it is clear that the Board will sunset unless there is additional legislation. He stated that he is comfortable with the sunset. He noted that it would be his intent to allow the program to be administered through the Department of Environmental Conservation. Mr. Peterson responded to concerns by Representative J. Davies. He noted that the cleanup program would be the only program administered by the Board by the time it is terminated. The cleanup list is closed. There will be no additions to the cleanup list. He maintained that it is not necessary to extend the Board for the 10 years needed to complete the cleanups. Representative Ogan asked if section 8 is retroactive. Mr. Peterson replied that it could prevent individuals currently receiving a grant or loan from receiving future ones. Mr. Hayden noted that applications are on file. No new applications would be accepted. The most serious sites are taken first. Cleanups that are lower on the list will be easier. Deadlines for applications were established by state law in 1990. The leak rate prior to new standards was 65 percent. The leak rate on new facilities is approximately 10 percent. Current operators are required to have insurance. The leak rate is measured on a per facility basis. He estimated that the rate would be lower on the next assessment. Co-Chair Therriault referred to the fiscal note. ANNETTE KREITZER, STAFF, SENATOR LEMAN reviewed the fiscal note. She explained that the Senate Finance Subcommittee for the Department of Environmental Conservation cut 15 positions from the New Contaminated Sites BRU. The conference committee on the operating budget restored 5 of these positions. An additional amount of $58.2 thousand dollars is needed to restore the positions added by the conference committee. The $200 thousand dollars in contractual is needed for the Department of Commerce and Economic Development. The Division of Investments manages the loans. There is a $5.4 million dollar front section transfer of funds from the Oil and Hazardous Substance Spill Prevention Release and Response Fund to the Storage Tank Assistance Fund to capitalize the grants. The front section language is contained in the House's operating budget. The transfer would have to occur either through adoption of the fiscal note or in the front section of the budget. Representative J. Davies asked why the positions were not shown. Co-Chair Therriault explained that the body count is already in the operating budget through conference committee action. The funding was not added properly. Ms. Kreitzer explained that the $200 thousand dollars for contractual would be an RSA. BARBARA FRANK, DIRECTOR, DIVISION OF ADMINISTRATION, DEPARTMENT OF ENVIRONMENTAL CONSERVATION observed that the fiscal note will not change the department's impact statement regarding the funding level. She stated that there would not be sufficient funding to implement the legislation. The department would not have sufficient staff to implement the cleanup portion of the program. There would not be sufficient funds for the Board of Storage Tank Assistance to write regulations. The Department of Environmental Conservation proposed an alternative fiscal note that would have reduced four staff positions. Ms. Kreitzer stated that it is the wish of Senator Leman that the Board of Storage Tank Assistance is funded. She maintained that it is the choice of the Department of Environmental Conservation to fund the Board. The upgraded and closure list amount would be $3.5 million dollars with the changes in SB 128. The Department of Environmental Conservation proposed $3.5 million dollars for the upgraded and closure list and $1.5 million dollars for the clean up list. There is $24 million dollars worth of cleanup projects. With the changes in SB 128 the upgraded closure list is reduced to $1 million dollars worth of work. She maintained that the cleanup work would be continued for a long time to come. Representative Grussendorf observed differences between the House and Senate budgets for the Department of Environmental Conservation. Representative Williams observed that the conference committee added back 5 positions. Ms. Frank reviewed the department's impact statement. The department would continue the prevention program, issue upgrade and closure grants and continue the above ground section of the storage tank program, which has a staff of three. The staff reductions would come from the cleanup portion. Cleanups would be addressed when they become emergency situations under the Contaminated Sites Program. The cleanup portion of the bill would not been implemented. She acknowledged that the department would choose not to fund the Board. She observed that regulations would not be needed on a program that is not funded or staffed to implement. Ms. Frank reiterated that the Department offered a compromise position. The Department offered an alternate fiscal note, which would have cut 4 positions and saved $232 thousand dollars. The Department would be able to continue the program under their proposed fiscal note. Co-Chair Therriault held the bill to enable time to consider the fiscal impact. Representative G. Davis asked for further detail on the above ground program. LARRY DIETRICK, PROGRAM MANAGER, PREVENTION AND EMERGENCY RESPONSE PROGRAM, DEPARTMENT OF ENVIRONMENTAL CONSERVATION provided information on the Above Ground Storage Tank Program. The Above Ground Storage Tank Program is a small program to help rural above ground tanks that have been threatened with cessation of fuel deliveries. Tanks that are out of compliance with federal contingency plans would not receive deliveries. The state has been working with the operators to bring the facilities into compliance and make the capital improvements. The total cost of addressing the above ground storage tank problem has been estimated at $200 million dollars. Mr. Dietrick spoke regarding the funding reductions in the upgrade and closure program. He acknowledged that the legislation would reduce grants from 168 to 60. This is a third of the grants. He observed that there are 6 staff positions working on the upgrade and closure program. The department's proposal would reduce this number by half. There is no reduction in work for the other staff. He stressed that the loss of cleanup staff would be a significant burden. He encouraged members to look at the fiscal note. SB 128 was HELD in Committee for further consideration. CS FOR SENATE BILL NO. 11(JUD) "An Act relating to good time credits for prisoners serving sentences of imprisonment for certain murders." SENATOR DAVE DONLEY, SPONSOR testified in support of SB 11. He noted that the intent to the legislation was to reduce "good time" provisions for first-degree and second-degree murder to the national average. Inmates would have to serve 85 percent of their sentence. The current average is 66 percent. He observed that his primary concern is for second degree murder. He acknowledged that the state of Alaska's sentencing for first-degree murder is tough, minimum of 20 years to life. He compared second degree sentencing of other states. He suggested that the mandatory sentence be raised for second degree murder from 5 to 10 years. He maintained that there would be a small fiscal impact. Senator Donley explained that if there is manifested justice a lower sentence could be given. Representative Grussendorf observed that murders are committed in emotional states. Senator Donley observed that if the sentencing judge feels that a mandatory sentence is inappropriate the case could be recommended to a three-judge panel. The three-judge panel can overrule the mandatory minimum sentence if there is manifest injustice. He noted that prosecutors could charge manslaughter instead of second degree murder. He referred to the statutes on second degree murder. He noted that second-degree murders involve serious crimes. Representative J. Davies stated that he would like to see a comparison of time actually served. Senator Donley stated that the national standard is 85 percent of sentence served. Representative Austerman asked if there was a new fiscal note. Co-Chair Therriault stated that the fiscal note would continue to be zero. Senator Donley explained the fiscal impact would be reduced because first-degree sentencing would not be changed. Only 15 to 20 percent of second-degree murder cases would be influenced by the legislation. (TAPE CHAANGE, HFC 99-145, Side 1) Representative J. Davies stated that he is sympathetic to the feelings of the victims but expressed concern that law should not be made based on anecdotal information. He stated that the question is how the state's sentencing pattern compares to the national average. Senator Donley replied that the state's sentencing is below other states. Representative J. Davies disagreed. Representative G. Davis expressed concern with the fiscal impact. Co-Chair Mulder expressed surprise that the mandatory minimum for second-degree murder is five years. He felt that there is justification to raise second-degree murder to 10 years. Representative J. Davies asked if there are bench marks for this particular standard. He stressed that more egregious situations would receive longer sentences. Senator Donley stated that the benchmarks are relative to the next step up. He spoke in support of the change to a 10 years minimum sentence for second-degree murder. BRUCE RICHARDS, PROGRAM COORDINATOR, DEPARTMENT OF CORRECTIONS stated that the average sentence for second- degree murder is 42 years. He was not aware of any cases where sentencing was below 10 years. Representative J. Davies stressed that prisoners are already receiving long sentences. Co-Chair Therriault questioned if sentencing would increase if the minimum were raised. Mr. Richards could not answer. He anticipated that sentences would increase. In response to a question by Representative Grussendorf, Mr. Richards reiterated that all of the sentences for second- degree murder were above 10 years. Senator Donley pointed out that the mandatory sentences are not limited to homicide. Representative Grussendorf observed that prosecuting attorneys do not always make a second- degree charge. Cases are plea-bargained down to manslaughter. Manslaughter carries a 20-year maximum sentence. Co-Chair Mulder MOVED to ADOPT proposed committee substitute, work draft 1-LS0148\H, dated 5/16/99. There being NO OBJECTION, it was so ordered. Representative J. Davies MOVED to amend the committee substitute: change "10" to "8" on page 9, line 9. Amendment 1 would place the minimum sentence for second-degree murder. He spoke in support of the amendment. Co-Chair Mulder spoke against the amendment. He emphasized that the minimum amount of time that would be served with good time behavior under a ten-year sentence would be six years. Representative J. Davies argued that the Judicial Council recommended a five year minimum sentence. A roll call vote was taken on the motion to amend "10" to "8". IN FAVOR: Davies, Grussendorf, Moses, Williams OPPOSED: Kohring, Austerman, Bunde, Davis, Therriault, Mulder Representative Foster was absent from the vote. The MOTION FAILED(4-6). Representative Kohring MOVED to report HCS CSSB 11 (FIN) out of Committee with the accompanying fiscal notes. Representative J. Davies OBJECTED. A roll call vote was taken on the motion to move. IN FAVOR: Kohring, Williams, Austerman, Bunde, Davis, Grussendorf, Therriault, Mulder OPPOSED: Davies, Moses Representative Foster was absent from the vote. The MOTION PASSED (8-2). HCS CSSB 11 (FIN) was REPORTED out of Committee with "no recommendation" and a fiscal impact note by the Department of Administration and a zero fiscal note by the Department of Corrections, both notes were published on 5/13/99. ADJOURNMENT The meeting adjourned at 9:50 p.m.