BILL ANALYSIS                                                                                                                                                                                                    Ó





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          |                                                                 |
          |         SENATE COMMITTEE ON NATURAL RESOURCES AND WATER         |
          |                   Senator Fran Pavley, Chair                    |
          |                    2013-2014 Regular Session                    |
          |                                                                 |
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          BILL NO: AB 881                    HEARING DATE: June 25, 2013
          AUTHOR: Chesbro                    URGENCY: No
          VERSION: June 18, 2013             CONSULTANT: Katharine Moore
          DUAL REFERRAL: Environmental QualityFISCAL: Yes
          SUBJECT: Oil spill prevention and administrative fee.
          
          BACKGROUND AND EXISTING LAW
          In response to concern following significant oil spills, the  
          Legislature passed the Lempert-Keene-Seastrand Oil Spill  
          Prevention and Response Act (Act) (SB 2040, c. 1248, Statutes of  
          1990) (Government Code (GOV) §8670.1 et seq., and others). The  
          act created the Office of Spill Prevention and Response (OSPR)  
          in the Department of Fish and Wildlife (department).  The State  
          Lands Commission (commission) has responsibility under OSPR to  
          minimize the possibility of oil spills at the California's 58  
          marine oil terms.  OSPR's mission is to provide the best  
          achievable protection (GOV §8670.3) of California's natural  
          resources and the public health and safety by preventing,  
          preparing for, and responding to spills of oil and other  
          deleterious materials; and to restore and enhance affected  
          resources. The act provides for an administrator to be appointed  
          for OSPR and establishes the Oil Spill Prevention and  
          Administration Fund (OSPAF) which finances oil spill prevention  
          and planning programs and the Oil Spill Response Trust Fund  
          (OSRTF) which is used to provide the cash flow for the response  
          to and clean-up of California's oil spills and for certain  
          wildlife care and spill-related damages. 

          OSPAF is funded by a per barrel fee assessed on each barrel of  
          oil received at marine oil terminals or from offshore production  
          facilities.  OSPAF is also supported by the application fee for  
          a certificate of financial responsibility (COFR) nontank vessels  
          (e.g. ships that do not carry oil as a cargo and are larger than  
          300 gross tons in size) are required to have in California's  
          waters.  The nontank vessel fee is a "reasonable fee" intended  
          to pay for the costs to OSPR of the state's oil spill prevention  
          and response activities related to nontank vessels.  Each  
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          certificate is good for 2 years. In order to address OSPR  
          funding problems, AB 1112 (Huffman, c. 583, Statutes of 2011)  
          increased the maximum per barrel fee temporarily to $0.065.  On  
          January 1, 2015, the per barrel fee will revert to $0.05.  
          Legislative attempts to change the nontank vessel fee have  
          failed in recent years and the current base fee of $3,250 was  
          set recently by regulation.  This increase was instituted, at  
          the Governor's behest, to bring revenues from the nontank  
          program more in line with program costs. Lower COFR fees are  
          charged to nontank vessels associated with a reduced pollution  
          risk.

          OSRTF is funded by a $0.25 per barrel fee. This fee is assessed  
          on distributors, pipeline operators, refiners, and marine  
          terminal operators until the fund balance reaches its statutory  
          target of $55 million. Fee collection resumes only when the fund  
          contains less than 95% of its designated funding level. This  
          automatic replenishment is designed to prevent any oil spill  
          response from being limited by available funds.

          The Oiled Wildlife Care Network (OWCN) rescues and rehabilitates  
          wildlife affected by coastal oil spills and has more than 30  
          member organizations and affiliated agencies.  It maintains more  
          than 12 specialized facilities in a constant state of readiness,  
          and has saved more than 14,000 oiled birds and mammals affected  
          by more than 80 oil spills since 1995.  It was formed pursuant  
          to the act in collaboration with the department in order to  
          provide the most proactive response in the world to oiled  
          wildlife.

          OWCN's $2 million annual budget has come from interest accruing  
          to the OSRTF.  In 2011, $40 million was transferred from the  
          OSTRF and loaned to the general fund resulting in a temporary  
          loss of earned interest.  As a result, it is projected that the  
          OWCN will not be fully funded as early as 2014.  Further,  
          current interest rates, according to a recent audit report from  
          the Department of Finance (DOF) titled "Review of State's Oil  
          Spill Prevention, Response, and Preparedness Program," are too  
          low to support the cost of the program. In his response to the  
          report, the department's director notes that "?California's oil  
          spill contingency plan holders rely on OWCN existing in order to  
          meet regulatory requirements."

          PROPOSED LAW
          This bill would amend the act to ensure that significant cuts  
          are not required in the state's oil spill prevention and  
          preparedness program when current fee levels sunset and to  
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          ensure that OWCN is funded.  Specifically, this bill would :
                 As of January 1, 2015, increase the maximum annual  
               assessment to $0.07 per barrel of crude oil or petroleum  
               products.
                 As of January 1, 2015, increase and cap the nontank  
               vessel fee to obtain a COFR at $3,500, while allowing the  
               administrator to charge less for vessels that pose reduced  
               risk for pollution as of January 1, 2015.
                 Allow the administrator to transfer up to $2 million in  
               funds from OSPAF to OSRTF annually, as described, to fund  
               specified OWCN activities if interest revenue from the  
               OSRTF is insufficient.

          ARGUMENTS IN SUPPORT
          According to the author, the goal of this bill is to "save the  
          OWCN and ensure the solvency of the OSPAF for the near future by  
          increasing the per barrel fee to 7[." 

          The Natural Resources Defense Council and the Ocean Conservancy  
          state that this bill "would provide a stable funding source for  
          the [OWCN]. [?]  AB 881 provides funding to address the  
          structural budget gap in the state's important oil spill  
          prevention and response work."

          The Pacific Merchant Shipping Association states "the existing  
          mechanism for funding of the OWCN through interest earned on the  
          [OSRTF] [?] is inadequate for their budget needs, due to the  
          very low interest rates earned, and coupled with the loan of 80%  
          ($40 million) of that fund to the general fund.  We understand  
          and support the need for non-tank vessels to share in the cost  
          of funding this important program, and are amendable to  
          increasing that fee to help support the OWCN shortfall."

          ARGUMENTS IN OPPOSITION
          None received

          COMMENTS 
           Financial viability and recent amendments.   The December 31,  
          2012 DOF audit report of OSPR's programs stated that OSPAF was  
          financially sound, but found, as noted above, that the OWCN  
          lacks funding.  This result conflicts with a department report  
          prepared pursuant to GOV §8670.40 that shows OSPAF with a  
          projected structural deficit of $3.8 million for fiscal year  
          (FY) 2012/13.  Given that the per barrel fee will be reduced  
          from $0.065 to $0.05 on January 1, 2015, OSPAF will have a  
          considerably increased structural deficit (projected at $9.7  
          million in FY 2015/16 when fully phased in).  The author's  
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          office has asked the DOF for clarification of the basis for  
          their findings. 
           
          On the Assembly floor, the author committed, by a letter to the  
          Journal, to amendments reducing the maximum proposed per barrel  
          fee from $0.08 to $0.07, and removing the administrator's  
          authority to adjust fees based upon changes to the California  
          Consumer Price Index.  These amendments removed prior  
          opposition.  Based upon current projections, however, this fee  
          increase would raise a maximum of $2.5 million per year which in  
          addition to the projected $600,000 increased revenue in the  
          nontank vessel fee program would not be sufficient to offset the  
          current deficit.

          Commission staff in a June 19, 2013 letter to the author  
          expressed concerns about the June 18, 2013 amendments:

               "While capping the fee at 7[ will fund the state's  
               [OWCN] program, it will not resolve the $3.8 million  
               structural deficit.  The program will continue to  
               experience a multi-million dollar structural deficit  
               that will result in staff layoffs and cuts to the  
               program."

           Per barrel vs nontank vessel fee.   While the proportion varies,  
          the per barrel fees in FY 2011/12 accounted for roughly 80% of  
          the $35.5 million collected for OSPAF ($28.4 million).  
           
           Implications of Proposition 26  .  Concerns were raised in the  
          last legislative session regarding the implication of  
          Proposition 26 for proposed changes to OSPR, including  
          expansions in the purposes of the OSPAF and OSRTF and placing  
          maximum or minimum limits on per barrel and nontank vessel fees.  
           In a written opinion dated May 21, 2013, Legislative Counsel  
          stated that none of these actions would constitute a tax.

           OSTRF loan repayment  .  Per the DOF audit report, the $40 million  
          loan from OSTRF to the general fund is intended to be repaid on  
          June 30, 2014 with interest earned.  However, there is no  
          assurance of repayment.

           Recent related legislation
           AB 1601 (Huffman, 2012) would have placed a temporary cap of  
          $3,500 on the nontank vessel fee for a certificate of financial  
          responsibility and allowed for the fee to change annually based  
          upon a price index (held in Senate Appropriations Committee  
          Suspense file)
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          SB 1192 (Evans, 2012) would have increased the nontank vessel  
          fee cap to $3,500, raised the per barrel fee to $0.068, among  
          other provisions, to support, in part, the Oiled Wildlife Care  
          Network. (died on Assembly floor) 

          SB 584 (Evans, 2011) would have allowed the Oil Spill Prevention  
          and Administration Fund to support more elements of the Oiled  
          Wildlife Care Network. (held on Senate Appropriations Committee  
          Suspense file)

          AB 1112 (Huffman, c. 583, Statutes of 2011) raised the per  
          barrel fee from $0.05 to $0.065 until January 1, 2015 to support  
          the marine facilities and tank vessel programs under OSPR (a  
          provision to set the nontank vessel fee cap at $3,000 was  
          removed in the Senate).

          AB 234 (Huffman, 2010) would have, among other provisions,  
          raised the nontank vessel fee to exactly $3,000 (vetoed by  
          Governor Schwarzenegger (the nontank vessel fee was not  
          mentioned in the veto message.))
          
          SUPPORT
          San Francisco Baykeeper (sponsor)
          Aquarium of the Pacific
          California Academy of Sciences
          California Association of Professional Scientists
          California Association of Zoos and Aquariums
          California Coastal Protection Network
          California Coastkeeper Alliance
          Channel Islands Marine and Wildlife Institute
          Environment California
          Environmental Action Committee of West Marin
          Heal the Bay
          International Bird Rescue
          The Marine Mammal Center
          Monterey Bay Aquarium
          Natural Resources Defense Council
          Ocean Conservancy
          Orange County Coastkeeper
          Pacific Merchant Shipping Association
          PRBO Conservation Science
          Russian Riverkeeper
          Santa Barbara Wildlife Care Network
          San Francisco Bar Pilots Association
          San Francisco Bay Bird Observatory
          Surfrider Foundation
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          Sierra Club California
          The Society for the Prevention of Cruelty to Animals for  
          Monterey County
          University of California, Santa Cruz, Marine Mammal Stranding  
          Network
          2 individuals

          OPPOSITION
          None Received






































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