Legislature(2015 - 2016)HOUSE FINANCE 519

04/01/2015 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 2:00 p.m. Today --
Moved CSHB 158(FIN) Out of Committee
Heard & Held
<Bill Hearing Postponed to 4/2/15>
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 158                                                                                                            
     "An Act relating to a refined fuel surcharge; relating                                                                     
     to the motor fuel tax; relating to a qualified dealer                                                                      
     license; and providing for an effective date."                                                                             
2:39:06 PM                                                                                                                    
Co-Chair  Neuman  MOVED  to  ADOPT  the  proposed  committee                                                                    
substitute  for  HB  158, Work  Draft  29-LS0608\I  (Nauman,                                                                    
4/1/15). There being NO OBJECTION, it was so ordered.                                                                           
Co-Chair  Thompson asked  his staff  to explain  the changes                                                                    
between the bill versions.                                                                                                      
JANE   PIERSON,   STAFF,  REPRESENTATIVE   STEVE   THOMPSON,                                                                    
discussed the changes in the  Committee Substitute (CS). The                                                                    
first  change  appeared  on  page 2,  line  6  and  exempted                                                                    
aviation   fuel  from   the  surcharge   imposed  under   AS                                                                    
43.40.055. The second change was  on page 5, lines 1 through                                                                    
9  and conformed  to federal  grant  assurances and  Federal                                                                    
Aviation Administration (FAA) guidance  to use aviation fuel                                                                    
taxes for capital or operating costs for airports.                                                                              
Co-Chair   Thompson  asked   for  a   brief  recap   of  the                                                                    
CRYSTAL   KOENEMAN,  STAFF,   REPRESENTATIVE  CATHY   MUNOZ,                                                                    
detailed that  the bill  would add a  one cent  surcharge on                                                                    
all refined  fuels. She  added that  aviation fuel  had been                                                                    
added to the list of exemptions.                                                                                                
Co-Chair  Neuman addressed  that the  CS added  an exemption                                                                    
for  aviation  fuel;  however, page  6  of  the  legislation                                                                    
specified  that  aviation  fuel  taxes  could  be  used  for                                                                    
capital and  operating costs for  airports. He  wondered why                                                                    
the bill would take tax away from airlines.                                                                                     
Ms.  Koeneman  replied  that  Section  5  of  the  bill  (AS                                                                    
43.40.010e) included  existing statutory language.  The bill                                                                    
would amend  the statute  by adding  "motor fuel"  to ensure                                                                    
there  was no  confusion about  which taxes  were collected;                                                                    
currently motor  fuel tax  was the  only tax  collected into                                                                    
the fund, which would continue under the legislation.                                                                           
2:42:42 PM                                                                                                                    
Co-Chair  Neuman   observed  that  the  words   "capital  or                                                                    
operating  costs of  airports"  had been  added to  existing                                                                    
statute  and  the  words   "aviation  facilities"  had  been                                                                    
deleted  on page  5, line  8. He  surmised the  change meant                                                                    
that the motor  fuel tax (which had been  for cleanup) would                                                                    
be used for capital and operating costs of airports.                                                                            
Ms. Koeneman  agreed that the  language had  previously read                                                                    
"aviation  facilities."  She  explained  that  it  had  been                                                                    
expanded  to capital  and operating  costs of  airports. She                                                                    
furthered that  the current statute  had never been  for the                                                                    
Spill  Prevention   and  Response  Section  (SPAR)   of  the                                                                    
Department   of   Environmental  Conservation   (DEC).   She                                                                    
deferred  the question  to the  Department of  Revenue (DOR)                                                                    
for further detail.                                                                                                             
Co-Chair Neuman  thought the bill  was for the SPAR  fund to                                                                    
clean up fuel that was  spilled in various locations. He was                                                                    
confused  about  language  that  would  allow  money  to  be                                                                    
appropriated for  capital and operating costs  for airports.                                                                    
He  stressed  that  the  expenditures  did  not  go  towards                                                                    
cleaning up fuel.                                                                                                               
Ms.  Koeneman answered  that  some  conforming language  had                                                                    
been necessary  in order to  specify the  difference between                                                                    
the  motor fuel  tax  collected  by the  state  and the  new                                                                    
surcharge.   There   were   numerous   conforming   statutes                                                                    
throughout the  legislation that  referenced the  motor fuel                                                                    
component specifically  in order  to delineate  between what                                                                    
was collected for DOR to administer.                                                                                            
Co-Chair  Neuman  remarked  that he  and  Co-Chair  Thompson                                                                    
would not  take money from the  fund to use for  capital and                                                                    
operating  expenses,  but  they  could  not  guarantee  what                                                                    
future  legislatures would  do.  He thought  that the  issue                                                                    
should be  considered further to prevent  the situation from                                                                    
Representative Munoz noted that  the fuel that was collected                                                                    
on aviation  was required  to go back  to the  airports. She                                                                    
explained that  the clarifying  language had  been requested                                                                    
by the department and did not relate to SPAR.                                                                                   
2:46:05 PM                                                                                                                    
KEN  ALPER, DIRECTOR,  TAX DIVISION,  DEPARTMENT OF  REVENUE                                                                    
(via  teleconference),  clarified  that  most  of  the  bill                                                                    
included   existing  statutory   language  on   motor  fuels                                                                    
(different tax amounts were collected  on different types of                                                                    
fuel  such  as  highway   fuel,  marine  fuel,  and  other).                                                                    
Existing  language in  Section  5 clarified  that the  money                                                                    
(roughly $5 million  per year) must be spent  on projects at                                                                    
airports in order to conform  to new federal guidelines over                                                                    
how  fuel tax  was collected  on aviation  fuels. He  stated                                                                    
that  the  issue  was  slightly outside  the  scope  of  the                                                                    
legislation, but  it satisfied  an existing need  that would                                                                    
be addressed  in budget documents  as well; some  money that                                                                    
was   currently   appropriated   for   airports   would   be                                                                    
specifically tied back to the  aviation fuel coming in on an                                                                    
annual basis from motor fuel  tax. The exclusion of aviation                                                                    
from the  new surcharge  was a separate  issue that  did not                                                                    
impact the change  in Section 5; however, it  did reduce the                                                                    
scope of fuel that would be subject to the new surcharge.                                                                       
Co-Chair  Neuman understood  that  the  money collected  for                                                                    
airports went back into airports.  He discussed collecting a                                                                    
surcharge on  the tax sold  for aviation for use  on capital                                                                    
and operating costs  at airports. He asked  for comment from                                                                    
Mr. Alper replied that the  existing tax was not impacted by                                                                    
the bill  (3.2 cents per  gallon on  jet fuel and  4.7 cents                                                                    
per gallon on general aviation  fuel). Under Section 5, fuel                                                                    
[funds] currently in a subaccount  of the general fund would                                                                    
be   specifically  designated   for   capital  projects   at                                                                    
airports. He  furthered that if  aviation fuel had  not been                                                                    
excluded from  the new  surcharge it  would be  necessary to                                                                    
find similar language to ensure  the fuel [tax] was directed                                                                    
to aviation activity.                                                                                                           
Co-Chair  Neuman  highlighted  a  scenario in  which  a  jet                                                                    
spilled fuel at a remote airport.  He added a side note that                                                                    
all  airports  within  the  state   with  the  exception  of                                                                    
municipal airports,  Ted Stevens International  Airport, and                                                                    
the  Fairbanks International  Airport fell  under Department                                                                    
of Transportation and Public  Facilities' expenses. He asked                                                                    
if  the  tax could  be  used  for  capital projects  at  the                                                                    
Deadhorse Airport if a jet spilled fuel.                                                                                        
Mr. Alper answered that the  language about capital projects                                                                    
was related  to existing (general fund)  aviation motor fuel                                                                    
tax,  which was  similar  to  the 8  cent  gasoline tax.  He                                                                    
explained that a funding source  would need to be identified                                                                    
in order  for money to  be spent on  cleanup-type activities                                                                    
at  airports because  currently  the  purchases of  aviation                                                                    
fuel would not pay into the SPAR surcharge.                                                                                     
2:50:22 PM                                                                                                                    
Co-Chair Neuman asked  if SPAR funds could be  used to clean                                                                    
up a  spill at an  airport. Mr. Alper deferred  the question                                                                    
to DEC.                                                                                                                         
Co-Chair Neuman  assumed that SPAR teams  would respond with                                                                    
cleanup  efforts  if  a  boat delivering  jet  fuel  to  Ted                                                                    
Stevens  International  Airport  spilled fuel.  However,  he                                                                    
asserted  that airports  would not  be paying  anything into                                                                    
the SPAR Fund.                                                                                                                  
Ms.  Koeneman   noted  that  DEC  was   present  to  address                                                                    
questions.  She added  that under  the highlighted  scenario                                                                    
DEC  would initially  respond with  cleanup efforts,  but it                                                                    
would work with  the entity and responsible  party to recoup                                                                    
costs; therefore,  cost recovery would come  from the entity                                                                    
that had spilled the fuel.                                                                                                      
Co-Chair Neuman countered that the  approach outlined by Ms.                                                                    
Koeneman was standard practice for every spill.                                                                                 
Co-Chair Thompson read from a  statement [copy not on file],                                                                    
which he assumed had been the impetus for the new CS:                                                                           
     Federal  grant  assurances  49 U.S.C.  47107(b)  states                                                                    
     that  assurance 25  requires that  any  local taxes  on                                                                    
     aviation  fuel  will be  expended  by  the airport  for                                                                    
     capital  and  operating  costs of  the  airport.  Using                                                                    
     monies derived from the  airport system for non-airport                                                                    
     uses like  cleaning up heating  oil spills  etcetera is                                                                    
     likely   clearly  a   grant  assurance   violation.  In                                                                    
     November  2014  the   Federal  Aviation  Administration                                                                    
     identified taxes on an aviation  fuel as being required                                                                    
     to be used for aviation  purposes. The proposed refined                                                                    
     fuel language  in both SB 86  and HB 158 would  seem to                                                                    
     run  directly   contrary  to   that  very   recent  FAA                                                                    
     guideline. The  FAA will be giving  heightened security                                                                    
     to aviation fuel  tax issues not less  scrutiny. If the                                                                    
     bills are not amended and in my role as an advising                                                                        
     attorney for this legislation I would recommend a note                                                                     
    that we are in likely violation of 49 U.S.C. 47107.                                                                         
KRISTIN  RYAN, DIRECTOR,  DIVISION OF  SPILL PREVENTION  AND                                                                    
RESPONSE, DEPARTMENT  OF ENVIRONMENTAL  CONSERVATION, agreed                                                                    
that everything  said to date  was accurate; SPAR  would try                                                                    
to  pursue  cost  recovery  as it  did  currently  with  all                                                                    
parties.  She   elaborated  that   under  federal   law  and                                                                    
restrictions on  the use of  revenue collected  at airports,                                                                    
it would be difficult for  SPAR to spend exactly that amount                                                                    
annually  cleaning up  or preventing  spills. She  concluded                                                                    
that  the requirement  restricted how  the revenue  could be                                                                    
2:54:17 PM                                                                                                                    
Co-Chair  Neuman referred  to Ms.  Ryan's testimony  that it                                                                    
would  be  difficult  to  determine   that  the  annual  tax                                                                    
collected  from aviation  would equal  the amount  spent. He                                                                    
reasoned that  the same could be  said for every one  of the                                                                    
taxes.  He wondered  if  SPAR tried  to  determine how  much                                                                    
would be  spent on  cleaning up  industrial or  oil pipeline                                                                    
fuel  spills.   He  wondered  if   there  was   currently  a                                                                    
delineation on how SPAR funds  were spent. Ms. Ryan answered                                                                    
in  the negative;  however, the  specific federal  law would                                                                    
require it  for aviation fuel,  whereas, SPAR was  not under                                                                    
the same obligation for the other funding streams.                                                                              
Co-Chair  Neuman  asked  for verification  that  SPAR  would                                                                    
record how  much fuel was  used. He assumed  the information                                                                    
was  already  available  at DOR.  [Nonverbal  agreement  was                                                                    
given.]  He surmised  that the  calculation  would not  take                                                                    
significant work.  He remarked  on a more  difficult process                                                                    
related to  tire tax. He  did not understand why  SPAR funds                                                                    
would be spent  on entities that did not pay  into the fund.                                                                    
He found the issue troubling.  He pointed to gasoline tax on                                                                    
drivers, heating  fuel tax charged to  homeowners, and taxes                                                                    
on  oil companies.  He  did  not believe  it  made sense  to                                                                    
exempt one  entity, while  SPAR still had  to use  its funds                                                                    
for cleanup.                                                                                                                    
Ms. Ryan  believed the  point was  well taken;  the aviation                                                                    
fuel would  be exempt,  while everyone  else would  not. She                                                                    
could not  answer whether it  was the  right thing to  do or                                                                    
not. She  added that as  is, the bill would  generate enough                                                                    
revenue to solve the SPAR shortfall.                                                                                            
Co-Chair Neuman  reiterated that  the bill would  take money                                                                    
from commuters and homeowners purchasing heating fuel.                                                                          
Representative Munoz  communicated that she had  been tasked                                                                    
with the DEC  budget for the past three years.  She had been                                                                    
specifically directed  to find a  solution to the  SPAR Fund                                                                    
shortfall. She relayed that three-quarters  of the spills in                                                                    
Alaska  happened  with  refined   fuels  yet  currently  the                                                                    
program was  primarily funded through  a surcharge  on crude                                                                    
oil. She  explained that the  bill represented an  effort to                                                                    
recognize that there were  multiple entities responsible for                                                                    
spilling  in Alaska.  The federal  language limited  how the                                                                    
revenue  could be  spent with  aviation activity;  the total                                                                    
revenue  coming in  from aviation  activity would  be around                                                                    
$1.3 million. Yet every year  the state would be required to                                                                    
define  the   activity  at  $1.3  million   to  justify  the                                                                    
activity.  The   federal  requirement   made  implementation                                                                    
difficult, which  is why aviation  fuel had  ultimately been                                                                    
Co-Chair  Neuman  understood;  however, state  general  fund                                                                    
dollars  were  still  spent  on  spill  prevention  practice                                                                    
efforts by  fire crews and  other. He  did not know  why the                                                                    
exemption would be included.                                                                                                    
Vice-Chair   Saddler  asked   if  the   aviation  fuel   was                                                                    
specifically  defined  as jet  fuel  for  jet transport.  He                                                                    
wondered  if  it  also  included   100  low-lead  fuel.  Ms.                                                                    
Koeneman answered that it covered all aviation fuel.                                                                            
Vice-Chair  Saddler  asked  how the  proposed  exemption  of                                                                    
aviation  fuel would  impact the  projected revenue  stream.                                                                    
Ms. Koeneman  answered that it  would reduce the  revenue by                                                                    
approximately  $1.4  [million].  She   noted  that  DOR  was                                                                    
working on providing a more precise figure.                                                                                     
Vice-Chair Saddler  referenced the definition of  motor fuel                                                                    
on  page 5  of the  legislation.  He noted  that there  were                                                                    
currently motor  fuel taxes  that were  paid by  vehicles on                                                                    
the ground and  in the air. He remarked  that aviation taxes                                                                    
were   used  at   the  aviation   facility  per   FAA  grant                                                                    
requirements. He  observed that  the bill created  a refined                                                                    
fuel surtax, which was not a  motor fuel tax. He asked about                                                                    
the distinction.                                                                                                                
Ms. Koeneman  agreed. The bill would  specifically delineate                                                                    
a  motor  fuel tax  to  prevent  confusion. She  noted  that                                                                    
currently  statute had  used the  word "taxes";  because the                                                                    
bill would  bring more  than one stream  coming in,  a clear                                                                    
distinction had been made.                                                                                                      
Vice-Chair  Saddler   asked  if  there  was   any  effectual                                                                    
distinction between  the use of  aviation funds  for capital                                                                    
and  operating  costs  of   airports  compared  to  aviation                                                                    
3:01:11 PM                                                                                                                    
Ms.  Koeneman replied  that she  was not  certain. She  knew                                                                    
there had  been recent discussion about  giving airports the                                                                    
ability  to  utilize monies  more  efficiently  in order  to                                                                    
reduce the level of general  fund dollars going to airports.                                                                    
She added that the funds would offset.                                                                                          
Vice-Chair Saddler  stated that the SPAR  Fund was currently                                                                    
funded with money raised from a  4 cent to 5 cent per barrel                                                                    
tax on  crude oil. He  continued that crude oil  was refined                                                                    
in the  state and used  to power jet aircrafts.  He reasoned                                                                    
that in  essence revenue was  being raised to pay  for spill                                                                    
response by  the stream  of fuel used  to fuel  aircrafts in                                                                    
the state.                                                                                                                      
Ms. Koeneman replied in the affirmative.                                                                                        
Representative  Wilson referred  to a  document listing  the                                                                    
top  spills in  Alaska  [DEC letter  addressed to  Co-Chairs                                                                    
Thompson and Neuman from DEC  "HB 158 Refined Fuel Surcharge                                                                    
Follow  Up" dated  March 31  (copy on  file)]. She  observed                                                                    
that  the  cost  related  to  the  Aniak  airport  was  $6.8                                                                    
million. She  did not know  why the state could  not collect                                                                    
money from airports to use  towards cleanup at airports. She                                                                    
wanted  to better  understand how  the funds  were currently                                                                    
utilized. She had  been surprised to see Flint  Hills on the                                                                    
list at  $4.4 million and to  learn that the money  had been                                                                    
used for studies  and public meetings, but  not for cleanup.                                                                    
She wondered  how to distinguish  what was used  for cleanup                                                                    
versus other services.                                                                                                          
Ms. Ryan  answered that there  were a variety of  costs that                                                                    
went  into  the  figures, including  toxicologists  and  the                                                                    
approval of  an onsite cleanup  plan (such as for  the Flint                                                                    
Hills  Refinery  property).  She   relayed  that  the  costs                                                                    
depended  on  the  site;  many   legal  costs  were  usually                                                                    
included. She  explained that  all of  the incidents  in the                                                                    
document  had  gone  to formal  settlement;  therefore,  the                                                                    
Department of  Law had been  heavily involved  in retrieving                                                                    
any payback from  the spills. She offered to  follow up with                                                                    
a per site explanation.                                                                                                         
3:04:03 PM                                                                                                                    
Representative Wilson referred  to a sulfolane contamination                                                                    
in North  Pole. She  had been told  that the  department was                                                                    
not  doing  a   cleanup  of  the  area   because  the  party                                                                    
responsible for the contamination  was known. She pointed to                                                                    
other examples  provided to the committee  and believed that                                                                    
the parties  responsible for contamination were  known there                                                                    
as well.  She asked for  an explanation of the  process SPAR                                                                    
used when  a spill occurred and  how it decided to  clean up                                                                    
the site and  seek reparations or create a  plan for another                                                                    
party to clean up the site.                                                                                                     
Ms.   Ryan  answered   that   every   site  was   different;                                                                    
contaminated  sites  tended to  be  the  most expensive  for                                                                    
SPAR.  She relayed  that  SPAR  was anticipating  recovering                                                                    
costs  from each  of the  listed sites;  it was  expecting a                                                                    
large  settlement related  to the  Aniak spill  cleanup (the                                                                    
funds  were  included in  the  SPAR  budget  as a  stop  gap                                                                    
measure).  She  noted  that  SPAR  had  settled  with  River                                                                    
Terrace  Laundry;  the  document   showed  the  balance  and                                                                    
recovered costs.  She shared that the  agency frequently put                                                                    
liens on  property; there  were liens on  many of  the sites                                                                    
listed  in  the  letter,  which  meant  SPAR  would  recover                                                                    
additional  costs   when  the  properties  were   sold.  She                                                                    
reiterated that the  cost varied by site;  SPAR first looked                                                                    
at risk  and whether  exposure may  be dangerous  to people.                                                                    
She elaborated  that the level  of risk drove how  SPAR used                                                                    
its funds, which was designated  in its statutory authority;                                                                    
if the  risk was great, SPAR  was supposed to use  its funds                                                                    
to  protect human  health and  the environment  and then  go                                                                    
after the responsible  party. She added that  in cases where                                                                    
the responsible party was known  and the risk was mitigated,                                                                    
SPAR would  take the slower  route prior to stepping  up and                                                                    
taking over.                                                                                                                    
Representative  Wilson stated  that the  SPAR Fund  used for                                                                    
spill response  and cleanup had  typically been  funded with                                                                    
money from  a barrel  of oil  versus charging  residents for                                                                    
something they  were not responsible for.  She remarked that                                                                    
if she  spilled something SPAR  would make her clean  it up.                                                                    
She  wondered  why the  state  would  not keep  its  current                                                                    
system instead of introducing a new tax.                                                                                        
Ms.  Ryan replied  that the  administration had  been asking                                                                    
for a solution; it was  not advocating for one solution over                                                                    
another, but  it did  believe the  bill included  a solution                                                                    
that made  sense based  on the number  of spills  related to                                                                    
refined  fuels  (the  tax would  collect  revenue  from  the                                                                    
spillers). She  elaborated that spills came  from many homes                                                                    
and  entities  that  were not  regulated,  which  made  cost                                                                    
recovery difficult.                                                                                                             
Representative  Wilson did  not  believe  the solution  made                                                                    
sense.  She questioned  why  the state  should  not just  go                                                                    
after the  industries that  were most  likely to  spill. She                                                                    
asked  for the  percentage  of  individuals responsible  for                                                                    
spills compared  to trucking companies and  other. She noted                                                                    
that mines  already had  a costly  process related  to spill                                                                    
regulation. She stressed that the  bill would cost a mine in                                                                    
her region  over $100,000  per year;  she remarked  that the                                                                    
likelihood of a spill at the mine was minute.                                                                                   
3:07:59 PM                                                                                                                    
Ms. Ryan referred to information  provided by the department                                                                    
that  showed spills  by type  ["HB 158  Supporting Documents                                                                    
Active Sites CSP"  (copy on file)]. The  document showed the                                                                    
sites  spills were  occurring by  product  type. She  shared                                                                    
that  spills   varied  by  industries  and   some  were  not                                                                    
industries  (i.e.  boats,   trucks,  homeowners,  and  small                                                                    
facilities such  as dry cleaners  that were  not regulated).                                                                    
She  did not  know of  an efficient  a way  to regulate  the                                                                    
group to recover costs upfront;  SPAR tried to recover costs                                                                    
after  cleanup, but  sometimes  it was  not  possible if  an                                                                    
entity did not  have the revenue, the  responsible party was                                                                    
unknown, or the division  was locked in long-term litigation                                                                    
to recover costs.                                                                                                               
Representative Wilson  thought the bill only  represented an                                                                    
easier way to get the money.  She was bothered that the bill                                                                    
would  create  another  cost for  residents,  especially  in                                                                    
Fairbanks where people already paid  high heating costs. She                                                                    
was concerned that while it  appeared that the SPAR fund was                                                                    
used to clean  up property, much of the  money actually went                                                                    
to other things such as studies, litigation, and other.                                                                         
Co-Chair Thompson asked the  Legislative Finance Division to                                                                    
address the aviation fuel exemption.                                                                                            
Co-Chair  Neuman asked  for a  description of  discrepancies                                                                    
between the motor  fuel tax and the  refined fuel surcharge.                                                                    
He requested  further detail  on why  the aviation  fuel had                                                                    
been exempted.                                                                                                                  
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
referenced  federal   regulations  related  to   capital  or                                                                    
operating [expenses] that Co-Chair  Thompson had referred to                                                                    
earlier.  Current statute  referred to  aviation facilities;                                                                    
however, typically  facilities were thought of  as buildings                                                                    
or  infrastructure.  He  explained that  the  bill  replaced                                                                    
"aviation facilities"  with "capital or operating  costs" in                                                                    
order  to comply  with  federal  regulations. Federal  grant                                                                    
requirements stated that aviation  fuel taxes could be spent                                                                    
only  for the  capital or  operating costs  at airports.  He                                                                    
explained that  if the tax  or surcharge proceeds  were sent                                                                    
to  DEC, it  would have  to do  all of  the accounting.  The                                                                    
process would  result in dedicated  revenue inside  the SPAR                                                                    
Fund, which was not a  dedicated fund. He furthered that the                                                                    
state  did not  know how  to classify  a non-dedicated  fund                                                                    
housing   dedicated   revenue;   therefore,  it   had   been                                                                    
determined it  was best not  to send  the money to  the SPAR                                                                    
Fund at all.                                                                                                                    
Mr.  Teal  communicated that  the  second  problem was  that                                                                    
there were  three airport systems in  Alaska (international,                                                                    
municipal,  and rural  airports)  and each  of the  airports                                                                    
received a share  of the funds, meaning that  DEC would have                                                                    
to account for three different  outflows by system. He noted                                                                    
that the  international airports  had onsite  spill response                                                                    
capabilities, which meant that SPAR  would not need to spend                                                                    
money responding to  a spill. He addressed that  the bulk of                                                                    
the  fuel tax  or surcharge  was generated  at international                                                                    
airports, where  the big sales  occurred. He  explained that                                                                    
if  the aviation  surcharge was  sent  to SPAR  it would  be                                                                    
difficult  to spend  the money.  One  option was  to levy  a                                                                    
surcharge  and house  it in  the  special aviation  account;                                                                    
however,  he explained  that someone  had  decided that  the                                                                    
bill  would only  address SPAR  and would  not do  a general                                                                    
overhaul of  motor fuel  taxes. The  decision had  also been                                                                    
made that if the surcharge did  not go to SPAR, it should be                                                                    
dropped  from  the  bill.  He   summarized  that  putting  a                                                                    
dedicated surcharge in DEC would only create a problem.                                                                         
3:14:11 PM                                                                                                                    
KARA MORIARTY, PRESIDENT AND CHIEF EXECUTIVE OFFICER,                                                                           
ALASKA OIL AND GAS ASSOCIATION (AOGA), provided a prepared                                                                      
statement (copy on file):                                                                                                       
     Good  Afternoon  Co-Chairs   Thompson  and  Neuman  and                                                                    
     members of  the Committee. For  the record, my  name is                                                                    
     Kara Moriarty and I am  the President/CEO of the Alaska                                                                    
     Oil  and  Gas  Association,  commonly  referred  to  as                                                                    
     AOGA is a professional  trade association whose mission                                                                    
     is to  foster the  long-term viability  of the  oil and                                                                    
     gas  industry   in  Alaska  for  the   benefit  of  all                                                                    
     Alaskans.  Thank you  for  the  opportunity to  testify                                                                    
     today on House  Bill 158, an act relating  to a refined                                                                    
     fuel  surcharge;  relating  to   the  motor  fuel  tax;                                                                    
     relating to  a qualified dealer license;  and providing                                                                    
     for an effective date.                                                                                                     
     AOGA represents the majority of  oil and gas producers,                                                                    
     explorers,  refiners,  transporters  and  marketers  in                                                                    
     Alaska. Our  current members include:  Alyeska Pipeline                                                                    
     Service   Company,  Apache   Corporation,  BP,   Caelus                                                                    
     Energy,  Chevron, eni  petroleum, ExxonMobil,  Hilcorp,                                                                    
     PetroStar,  Repsol,  Shell,  Statoil, Tesoro,  and  XTO                                                                    
     Energy.  Because  this  legislation is  a  tax  related                                                                    
     matter, this  testimony has the unanimous  consent from                                                                    
     all of these companies; producers and refiners alike.                                                                      
     As a  bit of history, Alaska  has had some sort  of oil                                                                    
     spill cleanup fund  in place since 1976  when the state                                                                    
     created   the  Coastal   Protection  Fund   during  the                                                                    
     construction  of the  Trans-Alaska  Pipeline System  or                                                                    
     TAPS. Over  time, the fund  morphed into the  Oil Spill                                                                    
     Mitigation   Account,  then   the  Oil   Spill  Reserve                                                                    
     Account, then in  1986, into what it is  today, the Oil                                                                    
     and Hazardous  Substance Prevention &  Release Response                                                                    
     Fund, or  what it is  commonly referred to as  the "470                                                                    
     Fund", a reference to the  bill number that created it.                                                                    
     The  revenue generated  by HB  158  would be  deposited                                                                    
     into the prevention account of this fund.                                                                                  
     In  addition to  the  hundreds of  millions of  dollars                                                                    
     invested  each  year  by  the  industry  in  Alaska  to                                                                    
     prevent,  prepare   and  respond  to  the   release  of                                                                    
     hazardous substances, AOGA has  long supported fair and                                                                    
     equitable  efforts to  ensure  the State  of Alaska  is                                                                    
     also financially prepared.                                                                                                 
     To date,  the state has  collected a surcharge  only on                                                                    
     the oil and gas industry to  pay for the "470 fund". If                                                                    
     an  incident  occurs, the  oil  and  gas industry  also                                                                    
     repays costs  associated with the response,  as do some                                                                    
     other industries.  Still, the  oil and gas  industry is                                                                    
     the  only industry  that has  been assessed  a specific                                                                    
     surcharge/tax  to pay  for the  purposes of  this fund,                                                                    
     even though the  state utilizes the fund  for a variety                                                                    
     of other  industries and individual Alaskans.  To date,                                                                    
     the  oil and  gas  industry has  contributed more  than                                                                    
     $350 million through this surcharge for the 470 Fund.                                                                      
     AOGA  has   been  engaged   in  the   policy  decisions                                                                    
     surrounding the 470 Fund since  its inception. In 1994,                                                                    
     AOGA supported  the legislation that split  the initial                                                                    
     surcharge into two separate  accounts, one for response                                                                    
     and  one  for  prevention.  AOGA  did  not  oppose  the                                                                    
     modification  to  the  surcharge in  2006  because  the                                                                    
     total taxable amount remained at 5 cents per barrel.                                                                       
     Despite  the   stated  purpose   of  cleaning   up  and                                                                    
     preventing   spills,   previous   Administrations   and                                                                    
     Legislatures allowed for  the fund to be  used for non-                                                                    
     spill  projects such  as  campgrounds, state  airports,                                                                    
     tank farm remediation,  privately owned greenhouses and                                                                    
     new  ferries.   DEC  and  the  Legislature   should  be                                                                    
     commended   because   it   appears   these   types   of                                                                    
     expenditures are no longer  being appropriated from the                                                                    
     fund,  but  the  corpus  of  the  fund  may  have  been                                                                    
     unnecessarily reduced during years  when these types of                                                                    
     appropriations were authorized.                                                                                            
     Although oil and gas  production currently accounts for                                                                    
     100 percent of  the surcharge for the  fund, DEC annual                                                                    
     reports show  that, from  Fiscal Year  2010 -  FY 2014,                                                                    
     oil   production  and   exploration  and   natural  gas                                                                    
     production altogether  amount to  less than  29 percent                                                                    
     of total spill volume.                                                                                                     
     It is  important to  note, as  I've mentioned,  the oil                                                                    
     and  gas  industry  invests  hundreds  of  millions  of                                                                    
     dollars   every  year   to  have   a  robust   response                                                                    
     capabilities  in the  event  an industry-related  spill                                                                    
     occurs.   We  are   required  by   federal  and   state                                                                    
     regulations  to  have   current  contingency  plans  in                                                                    
     place,  have  spill  response equipment  available  and                                                                    
     exercise   both  plan   and  equipment   regularly.  In                                                                    
     addition,  the   companies  belong   to  not-for-profit                                                                    
     response   cooperative,  such   as  Cook   Inlet  Spill                                                                    
     Prevention and Response and Alaska Clean Seas.                                                                             
     AOGA  endorses the  same position  as the  Oil and  Gas                                                                    
     Transition Team for  the Walker/Mallott administration,                                                                    
     which advocated for the State  to utilize other revenue                                                                    
     sources before increasing the surcharge  on the oil and                                                                    
     gas  industry.   House  Bill   158  does   broaden  the                                                                    
     contributing  efforts of  others  that  use the  fund's                                                                    
     Additionally,  AOGA advocates  for DEC  to continue  to                                                                    
     identify  efficiencies internally.  To  that end,  AOGA                                                                    
     has identified suggestions  for DEC's consideration and                                                                    
     will  work  with the  State  to  further identify  cost                                                                    
     reductions  without  diminishing   the  state's  strong                                                                    
     oversight and regulation of the industry.                                                                                  
3:20:42 PM                                                                                                                    
Ms. Moriarty continued to read a statement:                                                                                     
     We also encourage the State  to adopt other policies to                                                                    
     assist the  state in recovering costs  from other users                                                                    
     who  are not  currently reimbursing  the State  after a                                                                    
     response. In FY 14, DEC  billed more than $3 million to                                                                    
     various  industries  and  recovered one-third  of  that                                                                    
     amount. To  strengthen the State of  Alaska's oil spill                                                                    
     preparedness and  response, there must be  an effort to                                                                    
     recover more than 30 percent of the state's spending.                                                                      
     In closing, AOGA  is not opposed to House  Bill 158. It                                                                    
     does broaden  the contributions of others  that use the                                                                    
     fund's  services  without   having  an  overly  adverse                                                                    
     impact on our member companies.                                                                                            
Co-Chair Neuman  referred to  Ms. Moriarty's  testimony that                                                                    
in  the past  the  SPAR  fund had  been  used for  non-spill                                                                    
projects such  as campgrounds and  other. He did  not intend                                                                    
to make  changes to  the bill at  present, but  he suggested                                                                    
working with the bill sponsor  to define the sideboards (the                                                                    
proper  usage  of  the  funds).  He  had  heard  from  other                                                                    
entities with  the same concerns. He  thought the sideboards                                                                    
should   be   put  in   statute.   He   observed  that   the                                                                    
administration appeared  to be  cognizant of the  proper use                                                                    
of  the  funds,  but  he thought  the  sideboards  could  be                                                                    
included in the legislation as it moved forward.                                                                                
Representative  Pruitt asked  whether the  legislation would                                                                    
impact  AOGA  member  companies  financially.  Ms.  Moriarty                                                                    
replied  in  the affirmative.  She  detailed  that the  bill                                                                    
would increase the cost of  the fuels used in the companies'                                                                    
operations given that distributors  would pass the costs on.                                                                    
The organization did not yet  know what the financial impact                                                                    
would  be, but  it assessed  that  the impact  would not  be                                                                    
overly adverse.  She acknowledged that all  industries using                                                                    
refined products would have to pay a little more.                                                                               
Representative Gara  stated that  over the years  people had                                                                    
tried to implement 2 cent  per barrel increases. He remarked                                                                    
that if  the change had  been made  in 2008, the  fund would                                                                    
currently be  solvent. He  noted that  the oil  industry had                                                                    
been  opposed to  the  increase. He  surmised  that the  oil                                                                    
industry was opposed  to inflation proofing (the  5 cent tax                                                                    
had  been  implemented in  1989),  but  was not  opposed  to                                                                    
charging consumers.                                                                                                             
Ms.  Moriarty replied  that AOGA's  position  had been  that                                                                    
other industries  utilizing the fund should  also contribute                                                                    
in some way. She added that  how the legislature chose to do                                                                    
it  was completely  up to  the  legislature. She  elaborated                                                                    
that  the   oil  and   gas  industry   had  been   the  only                                                                    
contributors to the fund, but not the only user.                                                                                
Representative Gara  appreciated that other  industries were                                                                    
responsible. He referred to recent  testimony that 2 percent                                                                    
of spill  response was  related to mines  and 7  percent was                                                                    
related to  marine vessels.  He stated  that a  solution was                                                                    
needed  and he  did  not  intend to  block  it. However,  he                                                                    
observed that the bill did  not spread the responsibility to                                                                    
other  industries; it  would financially  impact people  who                                                                    
had nothing to  do with spills. He acknowledged  that 1 cent                                                                    
per gallon was not a huge  amount of money, but the bill did                                                                    
not share  the cost  with other  industries. He  wondered if                                                                    
AOGA had a suggestion on how to share the costs.                                                                                
Ms. Moriarty  answered that  it was  not AOGA's  position to                                                                    
try  to  determine  how  to   share  the  costs  with  other                                                                    
industries  or individuals.  She  remarked that  individuals                                                                    
were responsible for spills as well.                                                                                            
Representative   Gara  interjected   that  the   individuals                                                                    
responsible for  spills represented  a "tiny"  percentage of                                                                    
the  total.  Ms. Moriarty  replied  that  DEC would  be  the                                                                    
appropriate  party  to   comment  on  Representative  Gara's                                                                    
statement.  She reiterated  that  it had  never been  AOGA's                                                                    
position to get  into who or how the state  chose to broaden                                                                    
the fund;  AOGA had only  advocated that the fund  should be                                                                    
broadened beyond the oil and gas industry.                                                                                      
Representative Wilson  asked for  verification that  the oil                                                                    
and gas  industry passed  the tax off  to someone  else. She                                                                    
surmised  that if  the cost  was increased  to 10  cents per                                                                    
barrel that the industry would pass the cost on.                                                                                
Ms. Moriarty replied  that the oil and gas  industry did not                                                                    
pass off  its production,  property, or  any other  tax. She                                                                    
stated that the  industry was not passing the cost  off on a                                                                    
distributor; it  was not as clean  as a pass through  that a                                                                    
distributor may  have at a  gas station. She  furthered that                                                                    
the  industry could  not  pass  all of  its  taxes  on to  a                                                                    
3:27:01 PM                                                                                                                    
Co-Chair Thompson CLOSED public testimony.                                                                                      
Representative Gara was interested  to know the largest cost                                                                    
drivers  for the  prevention  fund (the  4  cent per  gallon                                                                    
fund).  He was  looking for  a rational  way to  address the                                                                    
issue through  the legislation,  but he did  not know  if it                                                                    
was possible. He  referred to six types  of spill prevention                                                                    
costs  paid   for  with   the  SPAR   Fund.  He   asked  for                                                                    
verification that there were 50  crude oil related oil spill                                                                    
prevention or contingency plans.                                                                                                
Ms. Ryan replied in the affirmative.                                                                                            
Representative Gara  asked if the  crude oil  prevention and                                                                    
contingency planning was the most expensive for the fund.                                                                       
Ms.  Ryan replied  in  the affirmative.  She  referred to  a                                                                    
request  for  information  from  Representative  Gara  about                                                                    
prevention  activity. She  noted  that  prevention work  was                                                                    
part of the  cost paid for by the fund.  She elaborated that                                                                    
the primary  prevention activity was related  to contingency                                                                    
plans  (plans  that  were statutorily  required  of  certain                                                                    
operators  including   all  oil  and  gas   exploration  and                                                                    
production activity). The contingency  plan explained how an                                                                    
entity would prevent a spill  from occurring (e.g. corrosion                                                                    
detection  in pipelines)  and what  action the  entity would                                                                    
take in  the event of  a spill.  The agency had  approved 50                                                                    
contingency   plans   related   to   oil   exploration   and                                                                    
production;  it  had  approximately  580  contingency  plans                                                                    
related  to refined  fuel. Refined  fuel primarily  included                                                                    
vessels  shipping  the  fuel   around  the  state;  it  also                                                                    
included  large  tank  farms  (small  tank  farms  were  not                                                                    
regulated by  DEC). Other  prevention related  work included                                                                    
drills  and  exercises  where the  industry  was  tested  to                                                                    
ensure  it could  adequately respond;  the drills  were very                                                                    
expensive for  SPAR and the  industry. She noted  that there                                                                    
were  legal   obligations  on  the   industry  to   do  test                                                                    
exercises, which  were observed  by SPAR. She  detailed that                                                                    
the preceding year  21 drills had been  conducted related to                                                                    
the oil  and gas  industry and  3 had  been done  related to                                                                    
refined fuel. She  noted that more emphasis  had been placed                                                                    
on  the  oil  industry   because  there  was  more  activity                                                                    
associated with cleaning up oil.                                                                                                
Ms. Ryan  relayed that the  third prevention was  related to                                                                    
financial responsibility;  SPAR verified that  companies had                                                                    
the financial capacity  to clean up a spill.  She noted that                                                                    
the  oversight was  limited to  the industries  regulated by                                                                    
SPAR (it did  not include smaller facilities  or homes). The                                                                    
fourth  prevention activity  was  inspections and  verifying                                                                    
that people had prevention measures in place.                                                                                   
3:31:53 PM                                                                                                                    
Representative  Gara   addressed  SPAR's   prevention  check                                                                    
related   to   financial   responsibility.  He   asked   for                                                                    
verification  that  SPAR  had conducted  414  responsibility                                                                    
checks and 869 refined  fuel responsibility checks. Ms. Ryan                                                                    
replied in the affirmative.                                                                                                     
Representative  Gara asked  if ensuring  that crude  oil and                                                                    
refinery  entities  could  satisfy  their  prevention  plans                                                                    
represented the  bulk of the  cost for the  spill prevention                                                                    
portion of the agency. Ms. Ryan replied in the affirmative.                                                                     
Representative Kawasaki  pointed to  pie charts  provided by                                                                    
DEC   showing  contaminated   sites   ["HB  158   Supporting                                                                    
Documents Active Sites  CSP" (copy on file)].  He noted that                                                                    
oil  spills  tended  to  be   more  expensive  in  terms  of                                                                    
remediation and  cleanup. He wondered  if there was  a chart                                                                    
that  showed   the  largest  cost  drivers   associated.  He                                                                    
referenced the first page and  pointed out that 4 percent of                                                                    
contaminated sites  were explosives and munitions,  which he                                                                    
believed would  be easier  to clean  up than  something like                                                                    
waste  oil.  He was  interested  in  understanding the  cost                                                                    
drivers  in  order  to  determine who  should  be  the  most                                                                    
responsible for the costs.                                                                                                      
Ms.  Ryan  replied  that  she  did  not  have  the  specific                                                                    
information. Based  on her experience, oil  spills were more                                                                    
expensive  to clean  up than  refined fuel  spills; however,                                                                    
DEC regulated the  oil industry to ensure  that the industry                                                                    
had the capacity to respond to  the spills, which it did not                                                                    
do with  all of  the refined fuel  carriers. Thus  far, SPAR                                                                    
had recovered its cost from  the oil industry. She explained                                                                    
that it  was the  smaller entities that  SPAR was  unable to                                                                    
recover costs from,  which had caused the account  to not be                                                                    
100 percent sustainable through cost recovery.                                                                                  
Representative  Kawasaki  referred  to  a  letter  from  DOR                                                                    
[addressed to Co-Chairs Neuman and  Thompson, dated April 1,                                                                    
2015]  that  described groups  covered  or  exempt from  the                                                                    
surcharge.  He noted  that  highway-use gasoline,  utilities                                                                    
and power  plants, and  other would  not be  exempted, while                                                                    
foreign flights and other would  be exempted. He wondered if                                                                    
the groups  listed in  the letter  were most  appropriate to                                                                    
place the financial burden on.                                                                                                  
Ms. Ryan  replied that  the letter did  not reflect  the CS,                                                                    
which now included the aviation  exemption. She replied that                                                                    
the letter included DOR calculations  based on fuel usage by                                                                    
industry. She  could not correlate the  information directly                                                                    
with  spill data.  She pointed  to the  DEC graph  showing a                                                                    
breakdown of spills based on categories determined by SPAR.                                                                     
3:36:38 PM                                                                                                                    
Representative  Kawasaki referred  to  a  couple of  letters                                                                    
from DOR providing follow up  answers to committee questions                                                                    
[dated March  31, 2015 and April  2, 2015]. He asked  if the                                                                    
aviation  fuel  component was  an  issue  of accounting.  He                                                                    
surmised  that the  second letter  stated  that a  surcharge                                                                    
could  be collected.  He  wondered  if it  was  a matter  of                                                                    
sequestering the funds separately in the SPAR Fund.                                                                             
Mr.  Teal  replied  there  were  the  accounting  issues  of                                                                    
handling a dedicated fund inside  another fund (the aviation                                                                    
fuel  tax  fund  would  be  dedicated  due  to  the  federal                                                                    
requirement   limiting   aviation   fuel  tax   to   airport                                                                    
spending). Additionally,  there was  a legal  problem trying                                                                    
to spend  the aviation  tax proceeds  on spill  recovery. He                                                                    
furthered that if funds from  aviation fuel tax were sent to                                                                    
DEC it  would be necessary  to separate the account  for the                                                                    
three different  airport systems. A number  of problems were                                                                    
presented by the  inclusion of aviation fuel.  The issue was                                                                    
simplified by exempting aviation  fuel from the bill because                                                                    
the state could  not guarantee the funds would  be spent the                                                                    
way the federal government mandated.                                                                                            
Representative Kawasaki noted that  the large airports (i.e.                                                                    
Fairbanks and Anchorage airports) would  pay the bulk of the                                                                    
surcharge if  it was not  exempted in the bill.  He wondered                                                                    
if the  money could  be used for  other airports  outside of                                                                    
Fairbanks and  Anchorage. Mr. Teal replied  in the negative.                                                                    
He detailed  that international  airport money  stayed where                                                                    
it  was, likewise  the municipal  and rural  airport systems                                                                    
each received their money.                                                                                                      
Co-Chair  Neuman asked  how frequently  the division  had to                                                                    
respond to  a fuel spill  from a vehicle. Ms.  Ryan referred                                                                    
page 2 of  a pie chart ["HB 158  Supporting Documents Active                                                                    
Sites CSP" (copy on file)]  and reported that spill response                                                                    
related  to  a  vehicle  accounted  for  2  percent  of  the                                                                    
division's cleanup activity.                                                                                                    
Co-Chair Neuman asked for clarification.  He wondered if the                                                                    
percentage accounted for vehicle  spills at gas stations. He                                                                    
noted the most gas stations  were equipped with an emergency                                                                    
fuel shutoff. He added that  gas stations were also required                                                                    
to have absorbents, holding  tanks, and other cleanup/safety                                                                    
materials  available. He  wondered  if SPAR  had to  cleanup                                                                    
fuel spills from an average passenger vehicle.                                                                                  
Ms. Ryan answered  that truck rollovers stood out  to her as                                                                    
a prominent example; the agency  had seen an increasing need                                                                    
for response to  the incidents and had  responded to several                                                                    
in  the current  year.  She  offered to  work  on a  further                                                                    
breakdown of the increment.                                                                                                     
Co-Chair Neuman  explained that his  curiosity was  based on                                                                    
the  fact that  passenger  vehicles were  responsible for  a                                                                    
large portion of the tax under the legislation.                                                                                 
Representative  Wilson asked  when  the SPAR  Fund had  last                                                                    
been  audited.  Ms. Ryan  replied  that  the fund  had  been                                                                    
audited  two  or three  times  in  the  past 10  years.  She                                                                    
believed the most  recent audit had been completed  in FY 12                                                                    
or FY  13 (prior to  her tenure).  She would follow  up with                                                                    
the information.                                                                                                                
Vice-Chair  Saddler pointed  to charts  provided by  DEC and                                                                    
asked for a definition of active contaminated site.                                                                             
3:42:50 PM                                                                                                                    
Ms. Ryan answered that an  active contaminated site could be                                                                    
a site  where DEC had  agreed to leave the  contamination in                                                                    
the ground  to naturally  dissipate or  a site  where active                                                                    
cleanup work  was underway. She  furthered that  sites where                                                                    
contamination  was  left  to  dissipate  were  monitored  to                                                                    
ensure that the  spill was not migrating  and was degrading;                                                                    
the  site  would  be  closed if  levels  dropped  below  the                                                                    
cleanup  level standards  and  regulation.  There were  many                                                                    
sites  where active  remediation was  occurring, which  were                                                                    
above  DEC's  cleanup  level, but  were  left  to  naturally                                                                    
dissipate.  She added  that active  "pump and  treats" could                                                                    
also be  underway, which took  years to slowly  dissolve the                                                                    
Vice-Chair Saddler  wondered how much responsibility  it was                                                                    
fair to  apportion to  those paying the  tax. He  pointed to                                                                    
page  2 of  the DEC  document  related to  active sites  and                                                                    
observed that  diesel and gasoline accounted  for 29 percent                                                                    
of  (all  products  spilled)   volume  released  by  product                                                                    
(aviation fuel had been exempted  in the bill). He looked at                                                                    
the  pie charts  related  to refined  products and  observed                                                                    
that diesel and  gasoline accounted for about  72 percent of                                                                    
volume released by product. He  wondered if kerosene, engine                                                                    
lubricating oil,  and hydraulic oil were  considered refined                                                                    
fuel products and subject to the surcharge.                                                                                     
Ms. Ryan replied  that she did not believe  so, but deferred                                                                    
the question to DOR as to how it classified the oils.                                                                           
Vice-Chair  Saddler noted  that the  oils (kerosene,  engine                                                                    
lubricating  oil,  and   hydraulic  oil)  represented  small                                                                    
portions of the  pie. He estimated that  diesel and gasoline                                                                    
represented   approximately   one-third  of   all   products                                                                    
spilled. He  observed that diesel  represented approximately                                                                    
60 percent of the refined products spilled.                                                                                     
Co-Chair Thompson  interjected that there would  not be time                                                                    
to hear HB 41 during the meeting.                                                                                               
3:46:25 PM                                                                                                                    
Representative Gara discussed  circumstances under which the                                                                    
state  was  reimbursed  for  its  enforcements  costs  (e.g.                                                                    
antitrust consumer  cases, and  other). He wondered  if SPAR                                                                    
received its  full enforcement costs back  after going after                                                                    
a responsible party.  He commented that in most  law suits a                                                                    
party only received 20 percent of its litigation fees.                                                                          
Ms. Ryan  responded that all situations  were different. She                                                                    
detailed  that  the  division  initiated  cost  recovery  by                                                                    
sending  a letter  to potentially  responsible parties.  She                                                                    
elaborated that SPAR referred the  case to the Department of                                                                    
Law (DOL) for  a formal cost recovery if  the initial effort                                                                    
was  unsuccessful. She  explained that  large [spill]  sites                                                                    
tended to be  settled out of court and it  was rare that the                                                                    
division received  full cost recovery; the  amount recovered                                                                    
varied by site.                                                                                                                 
Representative  Gara  reiterated  his prior  statement  that                                                                    
most  litigants  only received  20  percent  of their  legal                                                                    
costs back  when they  won a case.  However, 100  percent of                                                                    
litigation costs  were returned from responsible  parties in                                                                    
some  cases such  as antitrust  or  consumer protection.  He                                                                    
wondered which situation applied to SPAR's efforts.                                                                             
Mr. Ryan answered that she  would follow up on the question.                                                                    
She  relayed  that things  had  changed  over the  past  few                                                                    
years, but  SPAR did  not receive 100  percent of  its legal                                                                    
fees back.                                                                                                                      
3:48:04 PM                                                                                                                    
Representative Pruitt highlighted a  site in Anchorage where                                                                    
a new  Walmart was located  at Muldoon and Debarr  Roads. He                                                                    
discussed that before  the Walmart had been  built there had                                                                    
been a  construction company that had  contaminated the site                                                                    
with oil and other materials.  He furthered that the oil had                                                                    
migrated and had seeped into  the water in the area. Walmart                                                                    
had   purchased  the   property  and   had  mitigated,   but                                                                    
contamination  persisted.  He  wondered  who  paid  for  the                                                                    
monitoring. He believed  the state had to  have a regulatory                                                                    
role  in the  situation in  some capacity.  He asked  if the                                                                    
fund paid  for the  monitoring or  if state  was compensated                                                                    
for its efforts.                                                                                                                
Ms. Ryan  replied that she  was familiar with the  site, but                                                                    
did  not  have specific  information.  She  relayed that  it                                                                    
depended on  the site and  the risks exposed.  She discussed                                                                    
that DEC had  been very concerned about fumes  that had been                                                                    
seeping into a neighboring  church and other properties. The                                                                    
division had  done some  of the  initial sampling  to verify                                                                    
that  the   fumes  were  carcinogenic   and  needed   to  be                                                                    
addressed.  She  furthered that  the  division  had a  legal                                                                    
mandate to  pursue the  responsible party  if it  was known;                                                                    
however, in  situations when the  responsible party  was not                                                                    
known, SPAR would  use its funds to mitigate  a health risk.                                                                    
Additionally, DOL searched  for previous responsible parties                                                                    
that had left the state or other.                                                                                               
Representative  Pruitt  used  the  Walmart  property  as  an                                                                    
example  of the  overall  situation. He  discussed that  the                                                                    
property  under discussion  had been  purchased by  Walmart,                                                                    
but   the   contamination   had  migrated   to   neighboring                                                                    
properties.   He   wondered   if    it   the   new   owner's                                                                    
responsibility  to address  the issue.  He believed  Walmart                                                                    
had understood that the contamination  issue had existed. He                                                                    
asked if  Walmart was now  the responsible party as  the new                                                                    
owner  or  if  there  was  a  statute  of  limitations  that                                                                    
prevented  the state  from  going after  the  new owner.  He                                                                    
observed  that   new  owners  would  not   always  be  large                                                                    
commercial owners.                                                                                                              
Ms.  Ryan  replied  that  the   current  owner  was  legally                                                                    
responsible for  contaminated property even if  they did not                                                                    
cause the  contamination. She added that  in most situations                                                                    
they  turned  around and  went  after  the true  responsible                                                                    
party that had caused the contamination.                                                                                        
3:52:37 PM                                                                                                                    
Representative  Pruitt  wondered  at what  point  the  state                                                                    
abandoned  its efforts  to  seek  financial reparations  for                                                                    
contaminated  site  cleanup.  He  asked  when  the  division                                                                    
decided the fund  would pay. He spoke  to historical concern                                                                    
about whether the SPAR Fund had been used correctly.                                                                            
Ms.  Ryan  replied that  DOL  made  the determination  about                                                                    
whether there was a legal  ability to recover any funds. She                                                                    
deferred to  DOL for  further detail.  She relayed  that the                                                                    
division  was currently  working on  regulations to  clarify                                                                    
what  criteria would  be considered  for when  cost recovery                                                                    
should  be   pursued.  The   division  could   provide  more                                                                    
information to help people understand  how and when DOL made                                                                    
the decisions.                                                                                                                  
Representative  Pruitt asked  if regulation  was sufficient.                                                                    
He wondered if  statute was needed to ensure  that the state                                                                    
was not  "held hostage"  to some of  the scenarios  where it                                                                    
stepped in  to take care  of the problem. Ms.  Ryan answered                                                                    
that  she was  not  aware  of any  statutory  help that  was                                                                    
needed, but she would follow up.                                                                                                
Co-Chair Thompson shared  that 15 years earlier  he had been                                                                    
involved  in   the  purchase  of  property   that  had  been                                                                    
contaminated in the  1950s and 1960s. He  elaborated that at                                                                    
the time insurance companies did  not have clauses that they                                                                    
would  not be  responsible  for  environmental cleanups.  He                                                                    
detailed  that  money  had  been   collected  from  the  old                                                                    
insurance  companies to  help pay  for monitoring  wells and                                                                    
Representative  Wilson   referred  to  testimony   from  Ms.                                                                    
Moriarty  that  she had  discussed  other  options with  the                                                                    
division  besides the  one in  the bill.  Ms. Ryan  believed                                                                    
that increasing  the surcharge on  oil had been  the primary                                                                    
alternative discussed in the past.                                                                                              
Representative  Wilson  wondered  what   could  be  done  to                                                                    
improve  cost recovery  from something  like  30 percent  to                                                                    
around 50 percent.  She surmised that the  revenue issue may                                                                    
be temporary while the division waited for cost recovery.                                                                       
Ms.  Ryan answered  that looking  at the  regulations was  a                                                                    
good first step to improving  cost recovery efforts. She had                                                                    
done  a variety  of things  within the  division to  improve                                                                    
cost   recovery.  She   detailed  that   billing  had   been                                                                    
automated;   bills  also   went  out   monthly  instead   of                                                                    
occasionally. She  reasoned that people were  more likely to                                                                    
pay a  monthly bill  than an occasional  bill. Additionally,                                                                    
the  division was  connecting its  time  tracking data  with                                                                    
cost recovery. For example, a  spill responder may receive a                                                                    
phone call  asking for advice  about a potential  spill. She                                                                    
explained that it  was not efficient to bill  the caller for                                                                    
15 minutes  of technical assistance; it  had been determined                                                                    
that a fee would be charged  for an on-site visit or if more                                                                    
than 4 or  5 hours was spent on the  phone. She believed the                                                                    
division  would  see  the  benefits  from  the  efforts  and                                                                    
3:58:04 PM                                                                                                                    
Representative Wilson referenced  a document indicating that                                                                    
$5 million  would be recovered  from a spill in  Aniak (copy                                                                    
on file).  She wondered what  the actual shortfall  would be                                                                    
in the next year after expected cost recovery took place.                                                                       
Ms. Ryan replied that the  [cost recovery] timing had been a                                                                    
problem and had  resulted in insufficient funds  in the SPAR                                                                    
account;  SPAR had  anticipated  that the  funding would  be                                                                    
available in FY 16. She  explained that under the accounting                                                                    
system, money was allocated to  the fund and appropriated to                                                                    
the prevention account; therefore,  there was a one-year lag                                                                    
before SPAR  could access the money.  The division estimated                                                                    
that the fund would be  approximately $7 million short in FY                                                                    
16  going  forward.  Once  funds  came  in  from  the  Aniak                                                                    
settlement the  SPAR Fund's deficiency could  decrease by $5                                                                    
million in  FY 17. Historically, when  large settlements had                                                                    
come  in they  sat in  the  account and  were available  for                                                                    
appropriation  by   the  legislature  in  the   future.  She                                                                    
explained that the  $5 million could be  appropriated to the                                                                    
SPAR fund or used by the legislature for something else.                                                                        
Representative Wilson  asked for clarification that  some of                                                                    
the shortfall may have  occurred because incoming settlement                                                                    
money was not necessarily appropriated to the SPAR fund.                                                                        
Ms. Ryan  answered in the  negative. She explained  that the                                                                    
money went into a special fund  and SPAR drew its portion on                                                                    
an annual  basis. She discussed that  as production declined                                                                    
the surcharge  was only  generating about  half of  what the                                                                    
fund  needed;  therefore,  SPAR   had  been  living  off  of                                                                    
settlement money that  built up in the  fund. The settlement                                                                    
funds had all been used;  because the Aniak settlement funds                                                                    
had not come in for FY  16 as anticipated, the SPAR fund was                                                                    
facing a crisis mode.                                                                                                           
Representative Wilson  asked why the bill  would not include                                                                    
a sunset date in the  event that the efficiencies took place                                                                    
and  the fund  became  solvent. Ms.  Ryan  replied that  the                                                                    
decision was up to the legislature.                                                                                             
Representative Munoz  MOVED to  REPORT CSHB 158(FIN)  out of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.                                                                                                      
Co-Chair Thompson  noted there was a  new forthcoming fiscal                                                                    
note from DOR.                                                                                                                  
Representative  Wilson OBJECTED.  She was  sensitive to  the                                                                    
fund's shortfall,  but she believed  the money had  not been                                                                    
spent  on cleanup  activities. She  thought other  solutions                                                                    
existed  that the  legislature had  not considered;  she did                                                                    
not believe the state was  recouping the funds it should be.                                                                    
She stressed  that the one  cent tax  put a tax  on everyone                                                                    
who  may  be  doing  the  right  things  (e.g.  individuals,                                                                    
mining,  and other  industries). She  did not  think it  was                                                                    
appropriate to  make entities pay  for things that  had been                                                                    
done by others who were not  as careful. She did not want to                                                                    
add to  the cost  her constituents  were paying  for heating                                                                    
oil. She reiterated that other  options should be considered                                                                    
and  noted that  many questions  on  the bill  had not  been                                                                    
answered. She  referred to $4  million that had  been spent.                                                                    
She wondered  where the funds  had gone and did  not believe                                                                    
the money had  gone to cleanup. She stressed  that the funds                                                                    
were  supposed to  be used  for  spills. She  had heard  the                                                                    
funds  had  been  used for  studies,  public  meetings,  and                                                                    
4:04:25 PM                                                                                                                    
Representative  Gara recognized  the  difficulty facing  the                                                                    
bill  sponsor  to determine  a  solution  to make  the  fund                                                                    
solvent. He remarked that a  number of legislators had tried                                                                    
to come  up with a  solution, but there had  been opposition                                                                    
from the  oil industry to increase  the tax per barrel  by 2                                                                    
cents. He  understood that the  bill would most  likely fail                                                                    
if the  tax only targeted  the oil industry.  He sympathized                                                                    
with  the difficulty  of determining  which industries  were                                                                    
the  most responsible  for  spills and  how  to charge  them                                                                    
accordingly. However,  he did not  want to hold up  the bill                                                                    
just  because  he  had  not  been  able  to  find  the  best                                                                    
solution. He relayed his intent  to consider the bill before                                                                    
it was heard again on the  House floor. He asked the sponsor                                                                    
to  consider   that  the  state  should   be  recouping  its                                                                    
enforcement  costs.  He  planned  to  look  into  the  issue                                                                    
Vice-Chair  Saddler  did  not  want  to  excessively  impose                                                                    
additional fees  on drivers  in Alaska,  but he  believed it                                                                    
was  clear that  Alaskans valued  effective and  responsible                                                                    
oil  spill response  prevention. He  spoke to  the need  for                                                                    
response to  be effective  and cost-efficient.  He discussed                                                                    
efforts by the state to  improve efficiency, spend less, and                                                                    
shed personnel positions. He observed  that there was a need                                                                    
to maintain  the capability  that was not  being met  by the                                                                    
current financing  structure. He  stated that if  the bill's                                                                    
solution was not chosen, the  other option would be to spend                                                                    
general   funds  and   consequently  Constitutional   Budget                                                                    
Reserve (CBR) money. He communicated  his intent to vote for                                                                    
the bill  in the absence  of a better solution.  He believed                                                                    
the sponsor  had made  a good effort  to apportion  costs of                                                                    
spill  response  to  users.  He   did  not  believe  it  was                                                                    
appropriate  to  only  put the  responsibility  on  the  oil                                                                    
industry. He acknowledged that the  effort may be imperfect,                                                                    
but it was an effort in the right direction.                                                                                    
Co-Chair Neuman  noted that Representative Munoz  had done a                                                                    
good job trying to find  a solution to the problem. However,                                                                    
he would not vote to move  the bill out of committee because                                                                    
he did not support taxing Mat-Su commuters.                                                                                     
4:08:36 PM                                                                                                                    
Representative   Pruitt   discussed    his   reasoning   for                                                                    
supporting to move the bill forward.  He had been on the DEC                                                                    
budget subcommittee and  knew that the challenge  had been a                                                                    
long-time coming. The subcommittee  had discussed per barrel                                                                    
surcharges, but an increase would  only impact one industry,                                                                    
while it  was clear that  spills came from  multiple sources                                                                    
(i.e. marine vessels, underground  fuel storage, and other).                                                                    
He  could  not  come  up   with  another  way  to  make  the                                                                    
responsible  party pay.  He stressed  that  the state  would                                                                    
have to pay for the service  with general funds, the CBR, or                                                                    
other.  He  noted  that  the   committee  had  held  several                                                                    
meetings  about going  to constituents  with one  of several                                                                    
methods on paying  for state government. He  stated that the                                                                    
legislature  could  either  perpetuate the  use  of  general                                                                    
funds that it did not have  or it could make the solution as                                                                    
fair  as  possible  for residents.  He  stated  that  mines,                                                                    
marine  vessels, and  other users  would participate  in the                                                                    
tax. He  stressed that the decision  to go to the  people to                                                                    
pay  for  the service  meant  that  the division  should  be                                                                    
scrutinized more  than ever. He  reiterated that he  had not                                                                    
been  able to  find another  way for  users to  pay for  the                                                                    
service. He  believed the  option in the  bill was  the best                                                                    
solution thus far.                                                                                                              
4:12:38 PM                                                                                                                    
Representative Kawasaki referenced  that the legislature had                                                                    
discussed increasing  user fees  to ensure that  people were                                                                    
helping to  pay for the  burden of state government;  it had                                                                    
also  spent   much  time  discussing   the  SPAR   Fund.  He                                                                    
appreciated the sponsor's diligence,  but he was troubled by                                                                    
some aspects of  the bill. He detailed  that identifying the                                                                    
cost drivers  and how they  would pay  for the cost  had not                                                                    
yet been determined.  He noted that it was  possible to look                                                                    
at  volume of  all  products spilled  and  by facility  type                                                                    
(e.g. mining operations accounted  for 22 percent); however,                                                                    
vehicles and  residences were at  2 to 3 percent.  He stated                                                                    
that  he   "did  not  know   if  it  was  the   cost  driver                                                                    
necessarily, but volume is certainly  an indicator of that."                                                                    
He  discussed that  the solution  would  tax people  heating                                                                    
their homes with oil,  drivers, and charitable institutions.                                                                    
Additionally, the  tax would apply  to utilities  that would                                                                    
pass  costs off  onto  consumers.  He did  not  know if  the                                                                    
method  was  fair; however,  absent  a  better solution,  he                                                                    
would support moving the bill forward.                                                                                          
Co-Chair Thompson  believed the bill represented  one way to                                                                    
reduce  general fund  spending in  the upcoming  year, which                                                                    
meant that more  general funds would be  available for other                                                                    
items  such as  education  and public  safety. He  supported                                                                    
moving  the  bill forward.  He  remarked  that the  solution                                                                    
would spread  the responsibility  to everyone in  the state.                                                                    
He  reasoned  that  many  legislators  had  no  children  in                                                                    
school,  but they  still paid  for school  property tax.  He                                                                    
believed everyone  had to pay  their share. The  solution in                                                                    
the  bill represented  a small  way  to make  the SPAR  Fund                                                                    
solvent without using additional general funds.                                                                                 
A roll call vote was taken  on the motion to report the bill                                                                    
from committee.                                                                                                                 
IN FAVOR: Edgmon,  Gara, Kawasaki,  Munoz, Pruitt,  Saddler,                                                                    
OPPOSED: Gattis, Guttenberg, Wilson, Neuman                                                                                     
The MOTION PASSED (7/4).                                                                                                        
There  being   NO  further  OBJECTION,  CSHB   158(FIN)  was                                                                    
REPORTED  out of  committee with  an "amend"  recommendation                                                                    
and with  one new zero  fiscal noted from the  Department of                                                                    
Environmental Conservation, one new  fiscal impact note from                                                                    
the House Finance Committee for  Fund Transfers, and one new                                                                    
forthcoming  fiscal  impact  note  from  the  Department  of                                                                    
Co-Chair Thompson  discussed the schedule for  the following                                                                    

Document Name Date/Time Subjects
HB 13 Explanation of Changes ver H to ver N.pdf HFIN 4/1/2015 1:30:00 PM
HB 13
HB 13 Supporting Documents - 3 emails.pdf HFIN 4/1/2015 1:30:00 PM
HB 13
HB13 Sponsor Statement.pdf HFIN 4/1/2015 1:30:00 PM
HB 13
HB 158 NEW FN DOR.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
HB 158 Oil Spill Prevention-Public Letters of Support 3-31-2015.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
SB 86
HB 158 CAP Comments.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
HB 158 Overview of the Spill Prevention and Response Division.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
HB 158 ADEC Cleanup Levels Established For Petroleum for Soil and Groundwater.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
House Finance Committee HB158 Refined Fuel Surcharge Follow Up.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
HB 13 Current Statute Language.pdf HFIN 4/1/2015 1:30:00 PM
HB 13
HB 13 NEW FN GOV.pdf HFIN 4/1/2015 1:30:00 PM
HB 13
HB 158 NEW FN Fund Transfer.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
HB 158 CS WorkDraft FIN 29-LS0608-I version.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
Alper to Thompson and Neuman re HB158 04-01-15.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
HB 41 CS WorkDraft FIN P version.pdf HFIN 4/1/2015 1:30:00 PM
HB 41
HB 158 AOGA Testimony for HB 158 470 Fund FINAL.pdf HFIN 4/1/2015 1:30:00 PM
HB 158
15.052 House Finance Committee HB158 Refined Fuel Surcharge Follow Up to....pdf HFIN 4/1/2015 1:30:00 PM
HB 158
HB 158 Opposition Letter.pdf HFIN 4/1/2015 1:30:00 PM
HB 158