MINUTES SENATE FINANCE COMMITTEE March 22, 1994 9:07 a.m. TAPES SFC-94, #34, Side 1 (325-end) SFC-94, #34, Side 2 (575-end) SFC-94, #36, Side 1 (000-430) CALL TO ORDER Co-chair Drue Pearce convened the meeting at approximately 9:07 a.m. PRESENT In addition to Co-chair Pearce, Senators Kerttula, Rieger, and Sharp were present. Co-chair Steve Frank and Senator Kelly arrived soon after the meeting began. Senator Jacko arrived as it was in progress. ALSO ATTENDING: Senator Leman; Senator Salo; David Rogers, Attorney At Law, Counsel to the Senate Finance Committee; Jack Chenoweth, Legal Services, Legislative Affairs Agency; Bob Poe, Director, Division of Information and Administrative Services, Dept. of Environmental Conservation; Mike Conway, Director, Division of Spill Prevention and Response, Dept. of Environmental Conservation; Kyle Parker, Office of the Governor; Mike Greany, Director, Legislative Finance Division; and aides to committee members and other members of the legislature. ALSO PARTICIPATING VIA TELECONFERENCE FROM ANCHORAGE: Barbara Fullmer, Division of Oil and Gas, Dept. of Natural Resources; Mary Ann Lundquist, Assistant Attorney General, Dept. of Law; and James Eason, Director, Division of Oil and Gas, Dept. of Natural Resources. SUMMARY INFORMATION SB 215 - OIL/HAZARDOUS SUBS. RELEASE RESPONSE FUND A draft CSSB 215 (Finance), "I" version was distributed for committee review. David Rogers and Jack Chenoweth spoke to changes incorporated within the new draft. Senator Sharp moved for adoption as a working document. Senator Kerttula objected. Additional testimony relating to the draft was presented by Bob Poe. The bill was subsequently HELD in committee for additional public testimony. SB 308 - ADMIN ACTION RE LAND/RESOURCES/PROPERTY Background information on litigation regarding past state oil and gas lease sales was presented by Kyle Parker. The bill was assigned to a working group under the direction of David Rogers to work throughout the week on problem language. 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. Co-chair Pearce directed that SB 215 be brought on for discussion and referenced a draft committee substitute (8- LS1107\I, Chenoweth, 3/21/94). She explained that the draft was received by committee last evening and was not distributed for members' review until shortly before the meeting. The intent is to conduct section-by-section review by drafters, Mr. Chenoweth and Mr. Rogers. The bill will then be held for subsequent public testimony later in the week. Senator Sharp MOVED for adoption of CSSB 215 (version "I") for discussion purposes. Senator Kerttula OBJECTED. JACK CHENOWETH, Attorney, Legal Services, Legislative Affairs Agency, and DAVID ROGERS, Contract Attorney to the Senate Finance Committee, came forward to speak to changes incorporated within the new draft. Mr. Rogers first directed attention to Secs. 1 and 5, and explained that amending provisions, proposed by Senator Miller, resolve a problem identified by Senator Frank. New language authorizes appropriation of a portion of reimbursements for expenditures, related to the EXXON VALDEZ oil spill and contained in the release contingency and abatement mitigation account, to the underground storage tank assistance fund. (Sec. 1 contains findings, and Sec. 5 contains specific provisions.) The portion to be appropriated is within the discretion of the legislature. In response to a question from Co-chair Pearce, Mr. Chrenoweth explained that provisions within Sec. 5 apply to "money either already placed there or money that will be placed there in the course of the fiscal year." Responding to a question from Senator Rieger, Mr. Chenoweth noted that the legislature typically appropriates both on the basis of present amounts and amounts estimated to be received during the fiscal year. The second change, requested by Senator Leman, revises and corrects an amendment adopted by the Senate Resources Committee which attempted to establish an inflation-proofing mechanism for the response account. The mechanism allows part of the interest earned on the response account to be appropriated back into the account to maintain the $50 million balance. Remaining interest could be appropriated to the Dept. of Environmental Conservation for oil and hazardous substance operations. Mr. Chenoweth referenced page 6, line 2, and explained that the $50,000,000 figure was restored to inflation-proofing language. Page 11, lines 17 through 20, contains language relating to use of a portion of the interest for inflation-proofing of the response account. Sections relating to use of interest earnings for the contingency abatement account for DEC operations are set forth at page 10, lines 5 through 11. In response to a question from Senator Kerttula, Mr. Chenoweth referenced page 11, lines 19 and 20, and noted that language ties inflation proofing to rates in AS 37.13.145(c)(1) and (2) which are "cross-referenced to the rates that are used to inflation proof the permanent fund." That portion is made available to the response account. Earnings in excess of that are available to the contingency and abatement account--the source of support for operations in DEC. SENATOR LEMAN explained that his intent was to inflation proof the response account. The amendment offered in Senate Resources accomplished that but also triggered some unintended consequences. The intent of the current amendment is to inflation proof the account while keeping other things in place. [Co-chair Frank arrived at the meeting at this time.] Further discussion followed between Senator Rieger and Mr. Chenoweth regarding inflation proofing and the triggering of the surcharge. Mr. Chenoweth stressed that changes at pages 10 and 11 direct that interest earned on investment of 470 fund moneys be first used to inflation proof the response fund. Remaining interest amounts will then be credited to the contingency and abatement mitigation account. There is no direct relationship between page 6 provisions relating to operation of the surcharge and language providing for use of interest earnings set forth at pages 10 and 11. Mr. Rogers explained that the third change, requested by Co- chair Pearce, is incorporated at page 9, Sec. 15, and page 14, lines 2 through 6 (subparagraph v.). [Senator Kelly arrived at this time.] Co-chair Pearce explained that because of problems with statutory language relating to the 470 fund, use of capital moneys provided by the legislature last year for the Dept. of Military and Veterans Affairs' emergency center was disallowed by the Office of Management and Budget. New language would allow the legislature to use 470 funds for "acquisition, repair, and improvement of assets or disaster emergency preparedness." Language is narrowly defined to preclude use of 470 moneys for new ferries, buildings, etc. Mr. Rogers next directed attention to page 16, lines 21 and 22, where the phrase "and the response under way by the department" was added to Sec. 22. The report, required as a precondition to obtaining an administrative order to use money from the response fund, previously related to release or threatened release of hazardous substances. New language requires that the report also discuss response efforts underway at the time. Co-chair Pearce explained that she proposed the change because she could see "absolutely no way a governor could make a decision whether to stop action if he doesn't have any idea what action is being taken." Mr. Rogers next referenced a series of technical amendments proposed by Mr. Chenoweth. Mr. Chenoweth directed attention to new Sec. 2 and explained that it relates to response at the municipal level. It was deemed wise to revise AS 29.60.510(a) to take into account changes in the manner in which moneys may be removed from the response account and the 120-hour report requirement. Other changes relate to shortened references by referring to the "response account" and "the contingency and abatement account." Directing attention to page 2, line 11, Senator Rieger inquired concerning the reference to "commissioner." Mr. Chenoweth explained that under AS 29.60.510, the reference is to the Commissioner of Community and Regional Affairs. In response to further questions, Mr. Chenoweth informed members that the Dept. of Environmental Conservation has principal responsibility. Sec. 2 provisions stem from 1989 legislative action which authorized use of a portion of the proceeds of the fund for grants. The grant-making responsibility for municipalities and villages was assigned to the Dept. of Community and Regional Affairs. Responding to questions regarding access to the fund by the Dept. of Environmental Conservation, Dept. of Community and Regional Affairs, and Dept. of Military and Veterans Affairs, Mr. Chenoweth reiterated that the Dept. of Environmental Conservation continues to have principal responsibility for the fund. The Dept. of Military and Veterans Affairs will have "money out of the abatement side . . . , based upon appropriations made by the legislature for things that Senator Pearce described: the response center in Anchorage . . . ." The Dept. of Community and Regional Affairs, in agreement with DEC, could, in a response situation, provide grants to municipalities and villages. Grants relating to spills subject to the 120- hour report are drawn from the response account. Other grants, for smaller spills, would flow from the contingency and abatement account. Mr. Chenoweth added, "What is done in the contingency and abatement account is subject to specific legislative appropriation." Large spills are responded to from the response fund, and smaller spills are responded to from the contingency and abatement account. For large spills, general appropriation language in the front section of the budget moving moneys from the 470 fund into the response account is sufficient. Specific appropriation by the legislature is required for everything else. Senator Rieger asked if reimbursement collections for cleanup costs would automatically return to the fund and be subject to appropriation. Mr. Chenoweth explained that division of the fund into two accounts attempts to reassign recovered moneys to the respective sources. He directed attention to page 9, lines 19 through 28, and page 11, lines 6 through 12. End: SFC-94, #34, Side 1 Begin: SFC-94, #34, Side 2 Discussion followed regarding claims and liens by the state. Mr. Chenoweth pointed to language at page 18, Sec. 25, and noted that the law already provides that the state has a lien for expenditures from the fund. The fact that the fund is renamed and split into two accounts does not change that situation. Provisions further broaden application to allow for liens not only for expenditures for releases/spills but for threatened releases as well. BOB POE, Director, Administrative Services, Dept. of Environmental Conservation, came before committee, presented a packet of information, and described the flow of the nickel surcharge through three accounts: the surcharge account, the mitigation account, and the response fund. Mr. Poe specifically noted incentive provisions within version "I" of CSSB 215 which shut off the surcharge for one year if the legislature does not appropriate all of the 2.5 cent surcharge on the catastrophic spill side of the split and all cost recovery related to use of the spill response fund. That language is set forth at Sec. 9, page 6, line 20. Discussion followed regarding past use of mitigation account funding for underground storage tanks. Mr. Poe advised that language added to the bill, at the request of Co-chair Frank, does not change the situation. The only change is that cost recovery must be identified and appropriated to the response fund (the catastrophic spill reserve) in order for the surcharge to continue. In response to a question from Co-chair Pearce, asking if cost recovery could be appropriated to the storage tank assistance fund, Mr. Poe indicated that cost recovery must flow to the response fund, or the surcharge will shut off for a year. However, moneys from fines, penalties, and settlements may be appropriated to the storage tank fund. Further discussion followed between Co-chair Pearce and Mr. Poe regarding annual $5 million expenditures from the fund. Mr. Poe advised that cost recovery up to this time has not been great enough to reimburse a large portion of the expenditure. Cost recovery has typically reimbursed $300.0 to $400.0 of the $5 million. That amount is expected to grow. Referencing a flow chart (appended to these minutes as Attachment A), Mr. Poe explained that moneys would flow through surcharge accounts, to mitigation accounts, and then into reserves accounts within the oil and hazardous substance release prevention and response fund. One reserve is the catastrophic oil release response account and the other is the oil and hazardous substance release contingency and abatement account. The catastrophic oil release response account is the account that will accumulate the $50 million. Past limitations on the fund have been changed within the proposed bill so that the 100,000 barrel threshold is no longer required. The contingency and abatement account will accumulate revenues to cover state programs for spill prevention response as well as other department (DMVA, DNR, DF&G) efforts relating thereto. Grants to communities for smaller spills would also flow from this account. Mr. Poe next directed attention to a tabulation (Attachment B) and explained that it presents dollar amounts and revenue flows under five different scenarios. He specifically noted that under Sec. 34 of the draft bill, moneys presently in the spill reserve account would be moved to the catastrophic account. Incentives within the bill encourage that appropriation. That has an important impact in that since the spill reserve would then total more than $50 million, no further surcharge would be paid during FY 95. The surcharge is effectively turned off immediately. The third column reflects the financial situation if both the nickel surcharge and the response fund are split equally between the catastrophic account and the abatement account. There is a valid argument for appropriating in this manner because $74.5 million of the response fund came from general funds appropriated to the fund before the nickel surcharge was enacted. It is thus appropriate that those funds be split for dual purposes: preventing spills as well as cleaning up spills. An additional argument for the divided appropriation rests in the fact that provisions added to version "I" will be difficult to finance on 2.5 cents. Other revenue sources will be needed. Mr. Poe noted that under the third scenario, the surcharge would shut off at the end of the second year. Mr. Poe next spoke to the 3-cent/2-cent spilt proposed by the administration and explained that scenario four represents a split of both the surcharge and the reserve fund balance. Scenario five splits the surcharge but deposits the balance of the fund into the catastrophic spill account. He noted specifically that scenario five would also shut off the surcharge in the first year. Discussion followed between Mr. Poe and Senator Rieger concerning funding shown for existing statutes. Speaking again to the proposed bill, Mr. Poe voiced concern that it underfunds existing programs for all departments. If spill prevention activities are expanded, the underfunding is even greater. Funding would be short $600.0 the first year, $800.0 the second, $1.7 the third, $2.4 million the fourth, and $3.3 million in the fifth year. Total underfunding over five years would equal $8.7 million. Underfunding would not occur if the response fund is split between catastrophic and abatement accounts. Mr. Poe next directed attention to a chart showing historical spending from the response fund. The proposed bill would provide less than the bare minimum to support a spill prevention and response program. He further pointed to a recent legislative audit which indicated that the spill prevention and response program, at existing levels, is marginal, at best. Co-chair Pearce raised questions regarding deposit of interest earnings on the two funds and advised of her understanding that interest of $2.5 million would flow to the spill account on an annual basis. Mr. Poe observed that that would occur only if the legislature chose to appropriate the funds. There is no legislative history supporting that appropriation. Up to this time, interest has been placed in the general fund. Mr. Poe referenced a graph evidencing the seventeen changes made to existing law since imposition of the surcharge and "how the legislature has changed spending from the fund." Directing attention to a chart demonstrating the history of revenues and expenditures for the fund, Mr. Poe noted that moneys from the surcharge were first collected in 1990 and appropriated to the fund in 1991. Prior to that, all revenue to the fund flowed from general funds or program receipts. Those payments between 1987 and 1990, as well as general funds received since the surcharge, total $76.7 million. Revenues and expenditures shown on the chart were calculated on a ratio of surcharge moneys versus general funds. Those ratios indicate that of the $37.4 million fund balance, 41.29% is general funds and 58.71% accrued from the nickel surcharge. That supports the administration's argument that the $37.4 million should be split between the abatement and mitigation account and the catastrophic spill account. Co-chair Pearce directed that the bill be HELD in committee pending public testimony. She then directed that the meeting be briefly recessed prior to proceeding with the agenda. RECESS - 10:10 A.M. RECONVENE - 10:20 A.M. SENATE BILL NO. 308 An Act modifying administrative procedures and decisions by state agencies that relate to uses and dispositions of state land, property, and resources, and to the interests within them, and that relate to land, property, and resources, and to the interests within them, that are subject to the coastal management program; and providing for an effective date. Upon reconvening the meeting, Co-chair Pearce announced that discussion of SB 308 would constitute subcommittee deliberation on the bill. She explained that it would provide the Dept. of Law an opportunity to advise of background information on lawsuits that encouraged the department to introduce the legislation. Further, a group meeting in Anchorage has worked through discussion on two of three major portions of the bill. The group has not yet considered changes to Title 46. Subsequent subcommittee meetings will be had with working group members as suggested language is developed for presentation to committee next week. Co-chair Pearce directed attention to new correspondence from various interests which she noted had been copied and placed in members' files. End: SFC-94, #34, Side 2 Begin: SFC-94, #36, Side 1 KYLE PARKER, Office of the Governor, came before committee and read from a prepared text providing background information and a summary of resource disposal litigation (Mr. Parker's comments were subsequently incorporated within a memo dated March 28, 1994, (copy appended as Attachment D). He explained that the court decision in the Good News Bay sale evidences that, absent some legislative action, the courts are driving the state toward a federal environmental impact process. BARBARA FULLMER, Legal Counsel, Division of Oil and Gas, Dept. of Natural Resources, next spoke via teleconference from Anchorage. She outlined the basics of litigation relating to Sale 78, advising that one day after the appeal period, the sale was appealed by a group including fishermen organizations, a local traditional council, and Trustees for Alaska. The points on appeal were quite broad. They claimed that the division of oil and gas had not adequately considered the pros and cons of the lease sale. The state moved for a more specific accounting of the points on appeal. The court denied that motion. Court action indicates that the court is willing to accept anything. There was no requirement that appellants identify what they are appealing or that conjecture appear earlier in the record. Two weeks prior to the sale, appellants moved for a stay. The court granted that motion, based not on the points of appeal but upon apparent court perusal of regulations under ACMP and selection of an argument not raised by appellants. Oral arguments are to be had in September. That time frame is after the point when the sale could properly go forward without having to again commence the administrative process from the beginning. Senator Rieger inquired concerning the position the administration seeks to assert through the proposed bill. Barbara Fullmer explained that the administration hopes to ensure that the scope of review is molded by public comment received by the department. It is not the intent to limit what the public comments on. The scope of review must address any public comments received during the public comment period. The cutoff point is the materiality of facts and issues raised or known to the director. The director must find that the fact or issue is material, and that finding must rest on the record. Senator Rieger voiced his understanding that public comment would occur prior to a determination by the director concerning to what extent the administrative review is limited. He further advised of his understanding that problems arise when a second round of public comment is allowed at the court level. The department then becomes trapped when it is alleged that the department did not consider something that, in actuality, was never brought up. SENATOR SALO commented upon difficulties associated with a subjective decision as to whether something is or is not material. She then asked if pending legislation would impact Sale 78. Mr. Parker explained that, if enacted, SB 322 (Oil and Gas Lease Sales: Schedule and Delay) would allow the department to proceed with the sale as soon as the stay is lifted. Mr. Parker acknowledged that he did not know when that might occur. He further noted that the department has been in court, in some instances, up to seven years. Senator Salo next inquired about a potential settlement involving removal of key fishing tracts. JIM EASON, Director, Division of Oil and Gas, Dept. of Natural Resources, responded from Anchorage. He reiterated that allegations in Sale 78 are very broad. They include claims that the state failed to properly consider impacts and effects on "this fishing corridor" as well as archeological artifacts, view sheds, etc. There is nothing in the record to indicate that resolution of any one issue would have avoided litigation. That is particularly true in light of the diversity of interests of appellants. Further, to this date, no one has been able to specifically identify the fishing corridor. In response to a further question from Senator Salo, Mr. Eason acknowledged an offer of settlement presented by Trustees for Alaska. Appellants have requested that the offer remain confidential. The state rejected the offer. The state response is a matter of record. Mr. Eason advised of correspondence from Assistant Attorney General Mary Lundquist rejecting the offer and setting forth reasons for rejection. Mr. Eason agreed to provide copies of the correspondence (Attachment E) to committee. ADJOURNMENT The meeting was adjourned at approximately 11:05 a.m.