State of Alaska’s oil spill prevention and response funding unsustainable

Council voices support for full funding

Photo of Representatives from the Alaska Department of Environmental Conservation and SERVS observing an oil spill exercise in Prince William Sound.
Representatives from the Alaska Department of Environmental Conservation and SERVS observe an oil spill exercise in Prince William Sound.

The State of Alaska’s Oil and Hazardous Substances Release Prevention and Response Fund is in trouble. Funding for the prevention of spills is projected to be in a deficit by 2025.

Reduced pipeline flow contributes to shortfall

The amount of money going into the accounts ebbs and flows according to how many barrels flow through the pipeline. The amount of oil, which peaked in 1988 at 2.1 million barrels a day, has slowed considerably over the years and is now averaging just over 500,000 barrels a day. The revenues from the .95 cent surcharge on refined fuels were also originally overestimated. These factors, combined with lack of adjustment for inflation, have all resulted in the shortfall.

Response account used for contaminations other than oil and gas

Compounding the revenue problems, money from the response account has recently been used for sites that have been contaminated with per- and poly-fluoroalkyl substances, or PFAS, which is a group of potentially toxic human-made chemicals. It is possible that more funds from this account will be targeted for PFAS testing and remediation in future years. As a result, the fund balance is shrinking and Alaska’s ability to respond adequately to a major oil spill may be at risk.

Currently, crude and refined oil industries are the only contributors to the fund, even though the response account is used for other hazardous substances, such as the previously mentioned PFAS, acid, drilling mud, antifreeze and for remediation of junkyards containing a multitude of hazardous substances.

Effects of reduced funds

The director of the Alaska Department of Environmental Conservation’s Division of Spill Prevention and Response, Denise Koch, spoke with the Council during a recent meeting, voicing concerns about how this shortage could affect the State. She reported that her department is under pressure to reduce its budget, with seven positions eliminated for the upcoming fiscal year. Without an increase in revenue they may lose additional positions in future years.

Council supports stable and adequate funding

During a meeting in January, the Council reaffirmed its position on the 470 Fund, and passed a motion supporting:

  • Revenue adjustments that include an increase in the .95 cent surcharge on refined fuel products.
  • Inflation-proofing the fund.
  • Broadening the tax base to collect revenue from non-oil industries that are served by the fund but do not currently contribute it.

Delays due to coronavirus

There was significant support for making the funding sustainable in both the Senate and House but the legislature recessed early due to coronavirus concerns and did not address the issue. The Council hopes to see a revenue adjustment during either a special session or next year.

How does this spill prevention and response fund work? Where does the money come from?

Commonly referred to as the “470 Fund” after the bill that created the law in 1986, it was meant to ensure adequate funds are on hand for immediate response to major spills, as well as for maintaining an effective prevention program. Designed to be self-sustaining, this fund pays for the State’s efforts to prevent spills of oil and other hazardous substances and the State’s ability to be prepared and respond quickly to spills when they happen.

To accomplish this, a 5-cents-per-barrel tax is paid to the State by the producers of the crude oil that flows through the Trans Alaska Pipeline System. The 470 fund is separated into two accounts: Four of the five cents go into an account for spill prevention, and one cent goes into an account to support response. Additionally, a .95 cent surcharge on refined fuel products is collected for spill prevention. Both accounts collect settlement penalties and interest earnings. Those who spill substances are also required to reimburse the State for those costs.

New law means sustainable funds for spill prevention and response in Alaska

Right: Governor Walker signs the law, witnessed by council staff member Steve Rothchild; the bill’s sponsor, Rep. Cathy Munoz of Juneau; and Alaska Department of Environmental Conservation’s Commissioner Larry Hartig. Photo courtesy of the office of Governor Walker.
Governor Walker signs the law, witnessed by council staff member Steve Rothchild; the bill’s sponsor, Rep. Cathy Munoz of Juneau; and Alaska Department of Environmental Conservation’s Commissioner Larry Hartig. Photo courtesy of the office of Governor Walker.

A new refined fuel products tax to fund Alaska Department of Environmental Conservation’s Spill Prevention and Response division was signed into law by Governor Walker on June 27.

The division had been facing a significant funding shortfall for some time as previous funding came solely from a per-barrel charge on crude oil produced in the state. Declining oil production meant decreasing funds.

Read moreNew law means sustainable funds for spill prevention and response in Alaska

State spill prevention and response division prevails in fight for funding

By Steve Rothchild
Administrative Deputy Director

The Alaska Department of Environmental Conservation’s division of Spill Prevention and Response, often referred to by the acronym “SPAR,” has been facing a significant funding shortfall for some time due to declining oil production. The division works to prevent, prepare and respond to spills of oil and hazardous substances as well as oversee the cleanup of contaminated sites. Their work includes facility inspections, contingency plan review and approval, drills and exercises and site monitoring.

In the 1980s, the State legislature instituted a per barrel surcharge on crude oil to provide funding for the division. Unfortunately, when originally enacted, there was no inflation protection in the bill and production has declined.

Running out of money

This year, without inflation protection or another funding source, the crude oil surcharge became inadequate to support SPAR’s work, necessitating staff reductions and other cost savings. Starting in early 2014, department personnel provided projections to both the House and Senate showing the decrease of funds due to lower oil production. SPAR has been relying on large oil spill settlements and penalties to address the shortfall for several years but those are now spent. This year, SPAR reduced expenses by combining the planning and prevention program with the prevention and response program, reducing personnel, and more actively pursued cost reimbursement, however the shortfall was projected to be $7 million annually. Without a fix to funding, essential services would cease and SPAR would have to reduce personnel by approximately 40 percent.

Read moreState spill prevention and response division prevails in fight for funding

Resolution 15-03: Urging expeditious action by the Governor of Alaska and the Alaska Legislature to amend the existing State Oil and Hazardous Substances Release Prevention and Response Fund

Photo of the Valdez Duck Flats.Urging expeditious action by the Governor of Alaska and the Alaska Legislature to amend the existing State Oil and Hazardous Substances Release Prevention and Response Fund funding mechanisms and, as may be necessary, to establish requisite ancillary funding mechanisms to support and sustain an adequately robust oil and hazardous substances release prevention and response program.

WHEREAS, the State of Alaska’s Oil and Hazardous Substance Release Prevention and Response Fund (470 Fund) is supported through a 5-cent per barrel surcharge on crude oil production which represents the key funding mechanism for the major components of the State’s oil and hazardous spill prevention and response capabilities; and

WHEREAS, a portion of the 470 Fund is allocated to the “Prevention Account” which is the primary source of operating funds for the Alaska Department of Environmental Conservation’s (ADEC’s) Spill Prevention and Response (SPAR) program, the State’s primary oil spill and hazardous substances oversight, monitoring and readiness program; and

WHEREAS, this prevention and response Fund has been intended to allow the ADEC to have adequate funds to immediately respond to major spills while maintaining an effective program to prevent such spills, without the need for, nor the delay inherently involved with annual appropriations from general revenue; and

WHEREAS, with the recent decline in oil production within the State, the size of the income to the 470 Fund has diminished thereby seriously impairing the ability of State government to prevent oil and hazardous substances releases, maintain a necessary level of response readiness and to adequately respond should there be such a release; and

WHEREAS, in recent years, the SPAR program’s responsibilities have been substantially expanded while at the same time SPAR funding has been reduced thereby placing the public and Alaska’s natural resources and the marine and terrestrial environment as well as the health, safety, economic and social well- being of Alaskans at greater risk of injury from oil and hazardous substances releases; and

WHEREAS, a number of possible ways to address this problem and to adequately fund the SPAR program have been suggested, including broadening the funding sources and inflation-proofing the 470 Fund, such as: (1) increasing the per-barrel charge on oil produced in the state; (2) adjusting the cap of the Response Fund from the current $50 million to the range of $70-$90 million; (3) placing a temporary surcharge on fuels such as diesel, gasoline, and heating oil; (4) collect revenue from non-oil industries that are served by the SPAR Division but do not currently contribute to the Fund; (5) requiring a modest application fee for oil spill contingency plans similar to such fees that are required for air quality plans; and (6) curbing diversions of funds to non-oil and hazardous substance release related purposes such as municipal maintenance, etc.; and

WHEREAS, the State Executive and Legislative branches working together have the full capability to rectify this serious problem;

NOW THEREFORE BE IT RESOLVED, that the Members of the Prince William Sound Regional Citizens’ Advisory Council from communities across the entire Exxon Valdez oil spill region respectfully urge the Governor of Alaska and the Alaska State Legislature to amend the existing State Oil and Hazardous Substances Release Prevention and Response Fund funding mechanism, and to establish ancillary funding mechanisms, necessary to (1) adequately support the prevention of oil and hazardous substances releases and (2) provide adequate response and clean-up capabilities to effectively deal with such releases into the Alaska marine or terrestrial environments should they occur.

PASSED AND APPROVED, by the Prince William Sound Regional Citizens’ Advisory Council on this 22 day of January, 2015.

Resolution 15-03: Urging expeditious action by the Governor of Alaska and the Alaska Legislature to amend the existing State Oil and Hazardous Substances Release Prevention and Response Fund (2.0 MB)

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