MINUTES OF THE ASSEMBLY COMMITTEE ON NATURAL RESOURCES, AGRICULTURE AND MINING Sixty-eighth Session June 26, 1995 The Committee on Natural Resources, Agriculture and Mining was called to order at 1:15 p.m., on Monday, June 26, 1995, Chairman Marcia de Braga presiding in Room 321 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Mr. John C. Carpenter, Chairman Mrs. Marcia de Braga, Chairman Mr. Max Bennett, Vice Chairman Mrs. Genie Ohrenschall, Vice Chairman Mr. Douglas A. Bache Mr. Thomas A. Fettic Mr. David E. Humke Mr. P.M. Roy Neighbors Mr. Brian Sandoval Mrs. Gene Wines Segerblom STAFF MEMBERS PRESENT: David S. Ziegler, Senior Research Analyst OTHERS PRESENT: Allen Biaggi, NDEP; Ron Nagel, Advanced Scientific Solutions; Eric Taxer, NDEP; `BJ' Selinder, Churchill County; Irene Gurley; Joe Johnson, Toiyabe Sierra Club; Peter D. Krueger, Nevada Petroleum Marketers Assoc.; Bob Hadfield, Nevada Association of Counties; Nancy Howard, Nevada League of Cities. Chairman de Braga called the meeting to order and roll call was taken. SENATE BILL 121: Increases fees for certain petroleum products and storage tanks. Mr. Peter Krueger, Nevada Petroleum Marketers Association, thanked the chairmen and committee for expediting the bill and expressed the need to pass the bill. Mr. Krueger felt the need to pass S.B. 121 was crucial, and he spoke from remarks from (Exhibit C). The federal government had mandated every tank owner with the exception of tanks under 1100 gallons must demonstrate, to the satisfaction of the Nevada Department of Environmental Protection, financial responsibility. A tank owner or operator must be able to prove through an insurance policy, a tank fund, such as was instituted by the legislature in 1989, or some other financial vehicle, they would be credit worthy for at least a million dollars. The federal government did this so if a tank ever had a leak, and would cost a million dollars, an owner or operator would be able to stand the cleanup cost. The private insurance market in 1987-88 went crazy and immediately started drying up. The Nevada Petroleum Marketers Association came to the legislature to ask for a bill to create the Nevada Petroleum Fund, which they granted. He noted the fund had been working very well since 1989, and had not been back to the legislature to ask for a fee increase. Some forty states have adopted funds, and many used the same method of funding as Nevada, a fee on petroleum products. The initial bill was 6/10 of one cent. S.B. 121 was originally S.B. 324. The bill was amended heavily in the Senate Taxation Committee and at the time there was an agreement and the bill was killed. Through the efforts of Senator Jacobsen and other members in the Senate they allowed Mr. Krueger to bring the bill back as S.B. 121. He mentioned there were people here to testify, homeowners and public sector, as to the need. Since the inception of the bill there had been great use of the fund, primarily in Clark and Washoe County. Both health departments had been very active in underground tanks. Most of the claims that have come to the fund, have come from the result of those two counties, because of the very active work of the two health departments. The number of claims from those two jurisdictions would begin to decline because of their active work. This would leave the rural counties and he said his concern would be if the bill did not pass, the rural counties who must meet the same standards as the two large counties were coming up to the expiration date of December 22, 1998. There would be a great demand on the fund now until the expiration date. Mr. Krueger said they would like the fund increased 4/10 of one cent, this would take the tax to a full penny. He said they had not come up with a method of controlling costs. The cap system had not worked well as prices seemed to raise to meet the cap. The fund generated between $6 and $7 million annually, and had been used to clean up some 625 tanks or leaks statewide and had done an excellent job. There was about 93 percent compliance with people who have eligible tanks in the fund. NDEP was doing their job, educating people and working together to get it done. Mr. Krueger read from an article in which it said the state of Illinois met with federal EPA to set terms for a federal takeover of the state's bankrupt tank fund. EPA was also moving to withdraw approval of the fund. Nevada's fund was approved in approximately 1990-91 and approved to date, but the federal government looks very carefully at the funds. If they do not have the ratio between revenue and expense which would be acceptable, they could decertify the fund. If the decertification happened each tank owner would have to show some form of financial responsibility. Mr. Allen Biaggi, NDEP, said he had provided the committee with some supplemental information (Exhibit D), with regard to the status of the fund and some projections NDEP had made of where the fund was going financially. The table was actual revenues and expenses for up to fiscal year 1995 and it included some conservative projections going into fiscal years 1996, 1997 and 1998. On the first page titled revenues and reimbursements the first column would be the fiscal year, column two would be the total revenue of the program to include the petroleum fund fees, the $50 per tank fee assessed for each tank enrolled in the program, and the interest accrued from this fund. Column three was the total program expenses including reimbursement for cleanups, administrative costs to the division and the administrative cost to the department of taxation. The total administrative costs for the program was 5.2 percent which would be extremely low for a program of this complexity and dealing with this kind of money. The revenue and expense columns for 1995 had been projected to the end of the fiscal year. Column four would be program reserve or the revenues minus the expenses. Column five was the outstanding liability which included backlog, unreviewed reimbursement requests and board authorized pro-rata payments. The statute required pro-rata payments so the fund did not have a negative balance. Essentially it would mean the reimbursement to the owner and operator of the tank would be delayed and paid as the revenue became available. Mr. Biaggi said as the liabilities were increased over the revenues the time period for paying tank owners becomes longer. For the years 1996-1998 the NDEP was projecting revenue and expenses with levels similar to 1993- 1995. These would be very conservative projections and were not projecting any dramatic increases of case load. The projections for 1996-1998 capped the expenses at yearly revenue levels. The division would be reviewing claim amounts in the $11 million range, but the cost of reimbursement amounts above revenue would be shown in the liability column. The table indicated after 1995 the fund reserves would be fully depleted and the liability would be increasing on a yearly basis up to the year 1998. The fund would be realizing greater liability every year, which would mean the tank owner and operators would have to wait longer and longer for reimbursement. He noted last week when the State Petroleum Board met to oversee the payments of the fund, only 30 percent of the claim amounts could be paid upon approval. Owners and operators would have to wait for the remaining 70 percent as funds become available. It would take approximately two to three months to pay off the additional 70 percent, and would leave less money for the next meeting. Additional revenues were needed to meet the demand of environmental cleanup activities. A graphical representation of the annual cash flow could be found on page 3 of the handout. Mr. Biaggi said NDEP had done some calculations as to how long it would take for owners and operators to be paid with status quo, without the additional fee increases as proposed by the legislation. It was now taking between two and three months to pay owners and operators, by the end of fiscal year 1996 the number would be ten months. At the end of fiscal year 1997 it would be 18 months and by the end of fiscal year 1998 it would be 26 months to be paid. The owners and operators would have an outstanding debt to his creditors for $100 thousand, and would have to maintain the liability on the books for a period of 26 months before it could be paid. The fund cannot pay interest, therefore the owner or operator would be out additional money for the interest it would cost them. The next table would be Revenues and Reimbursements with the $.01 petroleum fee and $100 tank registration fee. This reflects the current condition of the fund for FY 1990-1995 and the impact this legislation would have on the fund. The additional funds would result in an additional $5.4 million in revenue, to the fund, per year, of this, $5.2 million would be from the petroleum fee increase, and about $220 thousand would be from the per tank fee increase. The fund would have a cash reserve by 1998. The fund also has a floor and a cap. When $7.50 million in reserve would be reached in the fund, the fee on the petroleum products would be removed and the fund would be allowed to be tapped until it reached $5 million at which time the fee would be placed on again. The fund would not be allowed to increase to dramatic levels; it would constantly fall between the $7.50 million and $5 million level. The next page there was a graphical representation similar to the first graph which showed what the legislation would do. He noted a factor which would be difficult to determine would be the increase in caseload and reimbursement requests. In 1998 all tanks must meet certain construction and operational standards which would reduce the liklihood for spills. NDEP's records indicate about one-quarter of all tanks currently meet the requirements. Three-quarters of the tanks still need modification, which were mostly in the urban areas. This upgrade process was one of the major ways tank leaks and environmental contamination would be discovered. The other ways include property transactions, discovery through leak detection activities and tank closure activities. Mr. Bennett asked about the column which was entitled "Outstanding Liability," and questioned whether a cost benefit analysis had been done. Mr. Biaggi said unreviewed cases meant those owners and operators had submitted claims to the office but there was a backlog of claims and NDEP had not been able to go through the claims in detail, review the invoices, review whether or not those cases were cost effective. He said there were certain costs on every claim they did not approve. Less than 10 percent would come off the top for disallowed claims. Mr. Fettic said he had mentioned the fees would come off, how about the 4/10 of a cent on the fuel. Mr. Biaggi said that would be the fee which would be removed. The yearly tank fee would not come off. Mr. Carpenter said from Mr. Biaggi's figures, through 1994 the fund had collected $32 million and had paid out in claims $30 million. He said the table showed an outstanding liability of $3 million, and wanted to know why the fund had not spent the additional money shown. Mr. Biaggi reiterated the "Outstanding Liability" included claims which were in the office and had not been reviewed. They had not come before the board and been expended, they were waiting review in the office. There was no reserve left and at the last board meeting they could only pay $.30 on the dollar. Mr. Carpenter would go over the figures with Mr. Biaggi, he had heard from many people the fund was not cost effective. If approved this would be the biggest tax increase to come out of the legislature. He felt there needed to be a handle on the cost of the claims. Mr. Neighbors asked if some of the cleanups had been big dollars. Mr. Biaggi said they had some claims for $1 million and yet some small claims barely over the deductible amount. The average cleanup cost per tank had been costing $110 to $120 thousand per tank. There was criteria set up such as three bids and accepting the lowest bid, not to exceed proposals and many other cost effective measures. Mr. Ron Nagel, Advanced Scientific Solutions, which was a private firm in Reno, assists clients processing their remediation problems and claims. He wished to speak to the committee from two points of view. He recently retired as Superintendent of Schools in Lyon County and while there they processed and dug up some of the tanks and had leaks in the process. Mr. Nagel would be glad to explain some of the cost containment factors they had accomplished. He introduced a lady, Irene Gurley, from the Rancho area in Gardnerville. She has been a client and was a private owner who had a heating oil tank being processed at this time and could relate to the committee from a private owners point of view. Mr. Nagel was in public government for 30 years and had many tanks in the ground which was the appropriate way to handle storage at the time. They realized they had a problem with some of their tanks and started to work with environmental managers according to the regulations in the state. The school district did use as many cost containing avenues as they could. They tried to get every conceivable lowest bid and felt some of the things they were required to do could have been done in another manner. Many people felt the contaminated soil could be handled in a different manner. He opened a bid for the school district two weeks ago to find the best way to contain the cost. Mr. Nagel's prime responsibility with the business was Director of Marketing, but he has worked as a technician as well, assisting people such as Mrs. Gurley. The public agencies such as the school district, did not have a budget to handle these problems. They have to rob or steal from any other place to pay the invoices, as vendors want their money. Two years ago the claims went into the state and they were immediately paid, because the fund was in good shape. On the private owner even though it might be only $8 or $10 thousand dollars it would be a lot of cash flow to carry. He urged passage of the legislation and felt it was a good bill and capped to cut off. Until we get Nevada cleaned up it would be good legislation. Mrs. de Braga asked if it were his feeling the increase would take care of the problem for an indefinite period of time. She asked how did we know what might come down the road. Mr. Nagel said they were not his projections but he would speak to the issue. He felt it could be a stop gap measurement, the proposed increase would take care of what the state sees on the immediate horizon. When the federal legislation was invoked, if all of the tanks were processed throughout Nevada, who knows. There would be a percentage of the tanks which were leakers and there could be extenuating problems with those. He would suggest to the committee we were not through with the problem. Mr. Bennett asked Mr. Nagel if the firm did cleanup consulting. He said yes, his firm did. Roughly for a home heating tank, how many yards of dirt would be removed? Bids were opened two weeks ago on a small heating oil tank which was in the 750-1000 gallon size tank. The tank was sitting in a layer of clay around it. The fluid oil leaked several hundred gallons, but was contained in the clay area. They drilled around the tank and did not find any contamination and would have plus or minus forty yards to remove, and it could be as much as a 100 yards when a backhoe started to work. The dirt would be processed at Nevada Hydro Carbons. A yard of contaminated soil weighs approximately a ton and they would process somewhere around 60 ton at $55 a yard. Mr. Bennett asked why they would process the soil. Mr. Nagel said it was the present methodology approved in the industry to eliminate contamination by burning the soil. Mr. Bennett asked what percentage of hydro carbons were they trying to attain after processing. Mr. Nagel said it was out of his area. Mr. Carpenter asked if the contamination did not go anywhere, the tank was taken out, why should you do anything with the soil when it was not hurting anything. Mr. Nagel said one of the requirements when the tank was taken out of the ground was to take soil samples underneath the tank. Those samples were processed in a lab and the hydro carbons were above the action levels. Mr. Carpenter felt this was the whole problem. The source of fuel had been cut off and it was not hurting any water supply, etc. why did the ground have to be sterilized. Mr. Nagel had not seen the estimate but thought it would run into $20 or $30 thousand. Under current regulations it was the correct procedure. Mr. Neighbors asked out of every dollar collected from clients, what percent went for actual construction, the backhoe, the digging, etc. as opposed to administrative. Mr. Neighbors was referring to the individual consulting firms. Mr. Nagel gave a description of what occured from the consulting firm from the time a client calls and a determination was made on the budget or the cost of the project to be submitted to NDEP. Mr. Neighbors wanted to know where all the money was going in the projects. Mr. Nagel said a lot of the cost was in investigation to determine the scope of the problem. Mrs. de Braga referred to another bill which would determine the scope, we mean impact, would there be a real need for all the work. Mr. Biaggi said under either of the analysis ASTM or an A-K, the extent of the contamination had to be known. It would require under either scenario drilling the site and determining how big the problem was and how far down it went. He noted there were other factors which required a full clean-up for a lending institute or selling property. Mr. Fettic said some of the clean-ups were required to obtain a clear title. Mr. Biaggi agreed. The purpose for being here was to raise the tax 4/10 of cent and from $50 to $100. Mr. Carpenter felt NDEP would be back to the legislature in 2020 for more money because someone had put in more regulations to throw money at. If the problem was contamination of the water and doing damage it might need to be cleaned up. Mr. Carpenter, Mr. Biaggi and Mr. Bennett had another discussion regarding taking a tank out and burning the ground and the need for doing it. Mr. Fettic asked if there was some way to web the two bills which had been discussed. Mrs. Irene Gurley stated they had one rental house and decided to switch the house over from heating oil to gas. To be a good environmentalist they decided to take the tank out which was contaminated. The cost would be from $8,000 to $10,000 to remove. She noted they would be in financial trouble if it were not for the fund. She felt there would be more tanks being removed as many people in their area had changed to gas. Mrs. Gurley said they found out from the title company who to contact. She said the lenders were not going to clear property titles unless the problem had been resolved. It would be nice to have a clean bill of health and a clear title when they decide to sell the house. She felt it was important to keep the fund active. Mrs. de Braga asked if they would be refunded 100 percent. Mrs. Gurley said they had to pay to take the tank out in the beginning which was $1,000, included the certified tank puller, backhoe and disposal of the tank and the first analysis. Then there would be a $250 deductible and whatever would not be allowed on the claims. Mr. Bob Hadfield, Nevada Association of Counties, said he sensed the frustration from the committee. He was pleased the committee was able to hear from one of the small people who get caught in an awful situation. He was representing county government and vice Chairman of the Minden County Board where they also have a tank replacement problem. This measure was carefully crafted a number of years ago and one of the best initial programs established in the United States. The measure dealt with everyone, it dealt with people at all levels and would give different levels of relief for people caught in this bind. He felt the measure addressed earlier would help in the long run. He determined Nevada could turn the tide on some of the scope of the regulations which all of us were becoming aware of. In the meantime Nevada still had a serious problem. When the bill was first crafted and the tide has turned and we take care of the problems, the fund would go away. There were not many laws in city or state government that go away. The program could go forward and be adequately funded and take care of the little people and towns like Minden where Minden ended up with a $25 thousand problem on the 100 year old CVIC Hall. Mr. Hadfield discussed the reason for the fund and congratulated the people who first enacted the legislation and felt it was time to fine tune the legislation and take into consideration the scope of the problem. Mr. `BJ' Selinder, Churchill County Manager, was a user of the petroleum fund. He said Churchill County has all of the nightmare situations one could think of. High water table, variable soil conditions, all sort of things which truly made it a blessing to be able to avail themselves of the fund. Without the fund they would be in serious financial difficulty. The county ran up a tremendous bill with a tank at the fire station when the fund first became available. As a result by the state to control costs, the NDEP instituted and certified an environmental manager program, which in Mr. Selinders opinion was a step to try and keep a control on expenditures. He perceived A.B. 121 as a continuation of the original legislation which addressed the possibility of having to increase the rate from 6/10 of a cent to one cent. He was impressed with the other bill which had been talked about. Churchill County had a claim in at the last board meeting which would be paid at 30 percent. This might not be bad for local government which had resources at their disposal which private sector did not. He was concerned about the small private operators in his community and throughout the state who would be faced with a long term liability which could make or break in some instances. It was for those reasons Churchill County supported the increase in the rate from 6/10 of a cent to one cent. He felt this was one measure which had a public and private partnership that worked and he strongly urged the committee to have favorable consideration of S.B. 121. Mr. Joe Johnson, of the Toiyabe Chapter of the Sierra Club, said in our environment until one knows how thick the clay was, what the extent was, small auger type samples would have to be taken. In the last few years there have been vast improvements in cost control, the techniques were advancing. In small rural areas where the cost of digging up the tank, moving the dirt, or having an environmental manager come in over a period of time, it might be cheaper to dig the tank up and move it on a cost basis rather than have a consultant come in over a six month period. The division has made improvements in technology and recognized advancement in changing things. Taking clay out and burying it was an option depending on the level of petroleum content in the soil. There were various options, taking it off to be burned would be one of the last resorts and a high risk involvement. The remediation in Reno of a diesel fuel tank when preparing Riverside Park cost $1 million. It was no fault of the city in purchasing the land for a park but they acquired the petroleum with it. Historically there had been over 1500 tanks which have been remediated. A lot of the tanks were the small home heating oil tanks and those homeowners needed protection. He urged and supported passage of the bill. Ms. Nancy Howard, Nevada League of Cities, testified in support of S.B. 121. The fund assists local government to use the fund to clean up sites. A memorandum by Mr. Ziegler to Mr. Carpenter concerning how the proposed fee increases in S.B. 121 would change the fund's revenues and liabilities has been included as (Exhibit E). Chairman de Braga closed the hearing on S.B. 121. The meeting was adjourned at 3:45 pm. RESPECTFULLY SUBMITTED: Pat Menath, Committee Secretary Assembly Committee on Natural Resources, Agriculture and Mining June 26, 1995 Page