History of the Response Fund
The Oil and Hazardous Substance Release Prevention and Response Fund (Response Fund) was created by the Legislature in 1986 to provide a readily available funding source to investigate, contain, clean up and take other necessary action to protect public health, welfare and the environment from the release or threatened release of oil or a hazardous substance. Alaska Statute 46.080.030 states: “It is the intent of the legislature and declared to be the public policy of the state that funds for the abatement of a release of oil or a hazardous substance will always be available.” (SLA 1986 Sec.1 Ch. 59).
The statutes governing the Response Fund were amended in 1989, 1990, 1991, 1994, 1999, 2006 and 2015. These amendments increased the scope that defines how the Response Fund can be used and it also increased the DEC’s reporting requirements. In addition, the 1994 amendment made major changes to the Response Fund structure by dividing the Response Fund into two separate accounts. The first account is the Response Account and the second account is the Prevention Account. The changes became effective on July 1, 1994.
The 1999 amendment changed the requirement for an annual fund status report to the legislature to a biennial status report. The 2006 amendment changed the surcharge levied on crude oil produced in the state. HB3001C amended Sec. 28 of AS 43.55.300 and imposed a Prevention Account surcharge of $.04 (formerly $.03) per barrel of oil produced from each lease or property in the state, less any oil the ownership or right to which is exempt from taxation. Sec. 26 of AS 43.55.201 was also amended to change the Response Account surcharge of $.02 to a $.01 per barrel of oil produced from each lease or property in the state.
Due to declining oil production and related revenues, the 2015 amendment (HB 158) added a new .0095 cent-per-gallon on refined fuel sold, transferred or used at the wholesale level. The tax includes gasoline and heating oil but not aviation fuel or fuel used on the Alaska Marine Highway system. The tax was effective July 1, 2015 and the generated revenue is deposited in the Prevention Account.
The Response Account may be used to finance the state’s response to an oil or hazardous substance release disaster declared by the governor, or to address a release or threatened release that poses an imminent and substantial threat to the public health or welfare, or to the environment. If the Response Account is accessed for any incident other than a declared disaster, within 120 hours the Commissioner of DEC must provide the Governor and the Legislative Budget and Audit Committee with a written report summarizing the release, the State's actions and associated costs, both taken and anticipated, and any other information deemed appropriate.
The Response Account receives funding from two different sources:
- A surcharge of two cents per barrel that is levied on each taxable barrel of oil produced in the state, which is deposited to the response surcharge account until March 31, 2006. Effective April 1, 2006, House Bill 3001C changed the surcharge tax of two cents to a one cent per barrel.
- Money that is recovered from parties financially responsible for the release of oil or hazardous substance which is deposited in the response mitigation account.
The one cent per barrel surcharge is suspended when the combined balances of the surcharge account, the response mitigation account and the unreserved and unobligated balance in the Response Account itself reaches or exceeds $50 million.
The Response Account balance reached $50 million for the first time during the quarter ending December 31, 1994. Therefore, beginning April 1, 1995, the surcharge collection was suspended.
Access to the fund for the response to the North Slope Pipeline spills occurred on November 20, 2006. This action lowered the balance of the account below $50 million. On April 1, 2007, the Department of Administration imposed the $.01 cent surcharge to restore the balance to $50 million. Spill responses reduced the balance again over the years and on July 1, 2013 the $.01 surcharge was reimposed to restore the balance to $50 million. The combined balance of the Response Account as of June 30, 2015 was $49.2 million. As a result, the $.01 cent surcharge has remained on through the Fiscal Year 2015.
The Prevention Account may be used to investigate, evaluate, clean up, and take other necessary action to address oil and hazardous substance releases that have not been declared a disaster by the Governor, or do not pose an imminent and substantial threat to the public health or welfare of the environment. The Prevention Account may also be used to fund Alaska's oil and hazardous substance release prevention programs and to fund activities related to cost recovery.
The Prevention Account is financed with a $.04 per barrel surcharge and fines, settlements, penalties and interest. The Prevention Account receives funding from four sources:
- a surcharge of four cents per barrel that is levied on each taxable barrel of oil produced in the state which is deposited in the prevention surcharge account;
- fines, settlements, penalties, and costs recovered from parties financially responsible for the release of oil or a hazardous substance deposited into the prevention mitigation account;
- interest earned on the balance of each of the following accounts deposited into the general fund and credited to the Prevention Account: (a) the prevention account; (b) the prevention mitigation account; (c) the response account; and (d) the response mitigation account; and
- a surcharge of .0095 cent-per-gallon on refined fuel sold, transferred or used at the wholesale level in Alaska.
The legislature annually appropriates money from the prevention surcharge and prevention mitigation accounts into the Prevention Account to support the State's oil and hazardous substance spill clean-up efforts and spill prevention and preparedness planning activities (AS 46.08.040(a)(2)) which is part of the Spill Prevention and Response (SPAR) annual budget).
The Prevention Account balance based on the Department of Administration’s quarterly report on the Oil Surcharge account shows an unobligated balance of minus $1 million at the end of FY15. Due to the declining Prevention Account balance, HB158 passed the legislature in the spring of 2015. The majority of SPAR spills and resulting contaminated sites are associated with refined fuel so HB158 assessed a .0095 cent surcharge per gallon on most refined fuel. This legislation was anticipated to bring in appx. $7.5 million annually to fund SPAR’s important prevention and response activities. In addition, SPAR continues to focus on increasing collections from cost recovery which are deposited in the Prevention Account.