BILL ANALYSIS Ó SB 445 Page 1 Date of Hearing: June 17, 2014 ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS Luis Alejo, Chair SB 445 (Hill) - As Amended: June 10, 2014 SENATE VOTE : Not relevant. SUBJECT : Underground storage tanks: petroleum. SUMMARY : Extends the current State Water Resources Control Board (State Water Board) program for the clean-up of Underground Storage Tanks (USTs) from 2016 to 2020. Specifically, this bill : 1)Authorizes a two-cent per gallon fee on petroleum products until 2020 to the extent the current State Water Board program for the clean-up of USTs pursuant to the Barry Keene Underground Storage Tank Cleanup Act (Act) of 1989. 2)Requires owners and operators of single-walled USTs to permanently close their single-wall tanks by December 31, 2020. Single-wall tanks near public drinking water wells must be closed by December 31, 2018. 3)Provides that before December 31, 2018, the owner or operator of an UST must demonstrate that they will meet the financial responsibility requirements of state and federal laws with an alternative to the existing Underground Storage Tank Cleanup Fund (Fund). Beginning on January 1, 2019, UST owners or operators must meet existing federal and state financial assurance requirements without relying on the Fund. 4)Authorizes the State Water Board to impose administrative civil liability on persons who make fraudulent claims and misrepresentations to the Fund. 5)Bars claimants and consultants convicted of fraud against the Fund from further participation in the Fund. 6)Authorizes the State Water Board to recover the costs associated with investigating and prosecuting fraud cases against the Fund from persons who were proven to have engaged in fraud. SB 445 Page 2 7)Increases the maximum amount for replacing, removing, or upgrading USTs program grants from $50,000 to $70,000. 8)Establishes a new Site Cleanup Subaccount in the Fund which can be used to pay for the costs of investigating and remediating sites with surface or groundwater contamination. 9)Dedicates $0.003 (3 mils) of the assessment for the State Water Board to use for the following purposes: a) Loans and grants to assist small business UST owners and operators to come into compliance with UST regulatory requirements by removing, replacing, or upgrading USTs, including complying with the phase out of single-wall tanks; b) Deposit into the Site Cleanup Subaccount for the investigation and remediation of contaminated sites with no viable responsible party; and, c) Provides additional funding, as needed, to the School District Account to reimburse school districts for their costs associated with cleaning up leaking USTs. EXISTING LAW : Pursuant to the Barry Keene Underground Storage Tank Cleanup Act (Act) of 1989: 1)Establishes the Fund for the deposit of fees collected pursuant to the Act. 2)Establishes a base storage fee of $0.014 (14 mils) for each gallon of petroleum placed in an UST. 3)Established, until January 1, 2014, an additional storage fee of $0.006 (6 mils) for each gallon of petroleum placed in an UST for a total of $0.02 per gallon. 4)Authorizes the State Water Board to expend the moneys in the Fund, upon appropriation by the Legislature, for various purposes, including the payment of claims to aid owners and operators of petroleum USTs who take corrective action to clean up unauthorized releases from those tanks, corrective actions undertaken by specified agencies, the clean-up and SB 445 Page 3 oversight of unauthorized releases at abandoned tank sites, and grants to small businesses to retrofit certain hazardous substance USTs. 5)Requires, pursuant to United States Environmental Protection Agency (US EPA) regulations (section 280.90, subpart H-Financial Responsibility, part 280, 40 CFR) published on October 26, 1988, owners and/or operators of USTs to demonstrate through insurance coverage or other acceptable mechanisms that they can pay for clean-up and third-party damages resulting from leaks that may occur from their USTs. FISCAL EFFECT : 1)This bill would result in increased revenues into the Cleanup Fund of approximately $79 million between January 1, 2015, to January 1, 2016 (by increasing the current assessment by $.006 (6 mils), and would continue to generate approximately $260 million annually thereafter until January 1, 2020. 2)Approximately $40 million annually would be available to the State Water Board for the following purposes: a) Replacing, removing, or upgrading underground storage tanks (RUST) loans and grants to assist small business UST owners and operators to come into compliance with UST regulatory requirements by removing, replacing, or upgrading USTs, including complying with the phase out of single-wall tanks; b) For deposit into the Site Cleanup Subaccount for the investigation and remediation of contaminated sites with no viable responsible party; c) Provide additional funding, as needed, to the School District Account to reimburse school districts for their costs associated with cleaning up leaking USTs (LUSTs); and d) The remaining amount would be available to reimburse UST owners and operators for their costs of cleaning up leaking USTs and Cleanup Fund and Regulatory Oversight administrative costs. COMMENTS : SB 445 Page 4 Need for the bill : According to the author, "Leaks from underground storage tanks represent an ongoing threat to California groundwater and land resources. Even a small amount of petroleum released from a leaking tank can contaminate groundwater. SB 445 will continue the important work that the state has done to address the threat from underground tanks and allow businesses, local agencies, and schools to clean up the legacy of past practices that poses a threat to public health and the environment. This bill provides new direction for the state to tackle the legacy issue of single-walled tanks still in use and begin to address groundwater contamination from a wider range of toxic chemicals." UST Program Background : The Barry Keene Underground Storage Tank Cleanup Fund Act of 1989 was created by the California Legislature, and is administered by the State Water Board, to provide a means for petroleum UST owners and operators to meet the federal and state requirements. The Fund also assists a large number of small businesses and individuals by providing reimbursement for unexpected and catastrophic expenses associated with the clean-up of leaking petroleum USTs. Currently, the UST program is supported by a 1.6 cent per gallon fee collected quarterly from petroleum UST owner or operators by the State Board of Equalization. The fee currently generates about $270 million per year for claims reimbursement and disbursement to other authorized accounts including: the Emergency, Abandoned, and Recalcitrant (EAR) Account; the Commingled Plume (CP) Account; the RUST program; and, the Drinking Water Treatment and Research Fund (DWTRF). With the exception of the DWTRF, which is administered by the Department of Public Health, these accounts are all managed by the State Water Board. Claims are paid in priority order based on criteria established in statute: "A" or first priority is given to homeowners; "B" or second priority is for small business, non-profit, or small local government agencies with revenue below a specified level; "C" or third priority is given to parties with fewer than 500 employees; and, "D" or lowest priority is given to all other claimants, including major corporations and larger local governmental agencies. In recent years, program expenditures have exceeded revenues, SB 445 Page 5 in part due to poor program oversight by State Water Board, and in part due to unforeseen cost increases to clean up contaminated sites. Based on the results of a recent program audit, State Water Board has made several changes to the program to better manage available funding and to speed up the process for completing cleanup projects. Additionally, the statute changes made over the last several years and the increased revenues from AB 291 (Wieckowski), Chapter 579, Statutes of 2011, offset a large portion of the program deficiency. SWRCB believes that recent program improvements should also reduce demand for future funding. Single-walled USTs brief : This bill would require owners and operators of single-walled USTs to permanently close their single-wall tanks by December 31, 2020, except single-wall tanks near public drinking water wells must be closed by December 31, 2018. Antiquated single-walled USTs and components present a high risk of leaking gasoline, diesel fuels, fuel additives, and other hazardous substances into the soil and groundwater, posing a threat to human health and the environment. Single-walled tank systems have a higher propensity for leaking than newer tanks and without secondary containment, pollutants leak directly into the soil and groundwater. This risk is heightened in areas where USTs are located near drinking wells, with leaks resulting in serious consequences to drinking water sources. Recent studies indicate that newly emerging fuels - such as biodiesel and ethanol - may cause degradation of UST systems, thus increasing the possibility that these systems will fail. This is of particular concern with older systems and single-walled USTs because these systems have a higher propensity to leak than newer tanks, and without secondary containment, the fuels leak directly into the soil and groundwater. Even when a release from a single-walled tank occurs, UST owners are only required to replace the tank with double-walled components if the entire system is replaced. The State Water Board has no authority under current law to require the replacement of single-walled USTs with more reliable double-walled tanks designed to prevent releases from entering the environment. Currently there are approximately 2,000 operating UST facilities (12 percent of the total) that have single-walled USTs, or pipes, or both. SB 445 Page 6 Fraud prevention and recovery brief : This bill would provide the State Water Board with authority to help prevent fraud in the Fund and help recover monetary losses to the Fund due to fraud and misrepresentation. The bill would accomplish this by: 1) authorizing the State Water Board to impose administrative civil liability on persons who make fraudulent claims and misrepresentations to the Fund; 2) barring claimants and consultants convicted of fraud against the Fund from further participation in the Fund; and, 3) authorizing the State Water Board to recover the costs associated with investigating and prosecuting fraud cases against the Fund from persons who were proven to have engaged in fraud. Current law does not provide the State Water Board with the necessary enforcement tools to effectively prevent fraud in the Fund program or to recover funds in a timely, cost-effective manner from those who defraud the State. This lack of authority appears to have resulted in numerous cases of fraudulent claims being submitted to the Fund by UST owners and operators. Every dollar fraudulently obtained from the Fund is one dollar less that is available for legitimate and necessary clean-up of the environment contaminated by UST leaks. Current Funding - Comparison of LUSTs and Site Cleanup Programs : LUST cases have benefited from the Cleanup Fund, which has greatly contributed to moving LUST cases through closure. The Cleanup Fund provides a means for petroleum UST owners and operators to meet the federal and state requirements of maintaining financial responsibility to pay for any damages arising from unauthorized releases of petroleum from their UST systems. Since implementation of the Cleanup Fund in 1989, the Cleanup Fund has disbursed over $3.2 billion to eligible claimants for LUST clean up. Additionally, the UST Program has overseen the clean-up of over 35,000 LUST cases since 1984. Clean up for many of these cases, which are small businesses and individuals that could not normally afford cleanup in its entirety, were funded partially or fully with Cleanup Fund revenues up to $1.5 million each. In contrast, the Site Cleanup Program (SCP) has very little revenues to assist small business owners and individuals with clean up. The Water Boards' Cleanup and Abatement Account typically disburses between $1 million to $5.5 million per year for as few as four to six SCP cases for small business owners or individuals. For the vast majority of SCP cases, the responsible party is required to finance the clean-up of their site in its entirety and pay for agency SB 445 Page 7 oversight under the Water Boards' Cost Recovery Program. Of the 5,667 open SCP cases, only 2,366 (42%) are in the Cost Recovery Program. For oversight and administration of the program, the Water Boards receive approximately $15 million of funding per year from the Cost Recovery Program for these 2,366 cases. For oversight of the remaining 3,301 cases that are not in the Cost Recovery Program, the Water Boards receive approximately $2 million per year from the State General Fund. Related Legislation : AB 282 (Wieckowski) would extend the sunset date of the Underground Storage Tank (UST) Cleanup Program from 2016 until 2018, and extend the sunset of a $0.006 surcharge on petroleum stored in an UST from 2014 until 2016. Held in the Senate Appropriations Committee. Prior related Legislation : AB 120 (Committee on Environmental Safety and Toxic Materials, Chapter 635, Statutes of 2013). This bill requires the State Water Board to waive a provision in existing law that requires a school district to have continuously maintained a permit for their underground storage tanks in order to qualify for funding from the Underground Storage Tank Cleanup Fund School District Account (School District Account), if the school district meets certain conditions. The School District Account is used to reimburse school districts for their costs associated with cleaning up LUSTs. AB 291 (Wieckowski, Chapter 569, Statutes of 2011). This bill extends for two years a temporary fee paid per gallon on motor vehicle fuel that the owner of an underground storage tank must pay from 1.4 mils to 2 mils per gallon through January 1, 2014. The State Water Board indicates that projected revenues from the extension of the supplemental tax will be about $180 million over two years. AB 358 (Smyth, Chapter 571, Statutes of 2011). This bill streamlines the State Water Board process for completing the clean-up of USTs by establishing authority for the State Water Board to close sites overseen by local government as part of the State Water Board existing five-year review process. REGISTERED SUPPORT / OPPOSITION : SB 445 Page 8 Support : California League of Conservation Voters Consultants, Owners, Regulators and Enviro-Vendors (CORE), Inc. Opposition : California Independent Oil Marketers Association Analysis Prepared by : Bob Fredenburg / E.S. & T.M. / (916) 319-3965