|October 29, 2013
||IDEM Threatens Independence and Solvency of Indiana’s Successful Tank Fund
By Christopher J. Braun, Esq.
The Indiana General Assembly and the regulatory oversight board it created, the Financial Assurance Board (FAB), should be quite proud of the fact that the Indiana Underground Storage Tank Fund Excess Liability Trust Fund (ELTF) that they established in 1988 and have since maintained is the single most successful environmental clean-up program in the State of Indiana and is the envy of many sister states.
While petroleum contamination from leaking underground storage tank systems at gasoline stations is frequently encountered across the United States, in Indiana, the ELTF program has been extremely successful in providing the necessary funding to address these environmental liabilities. The Indiana Department of Environmental Management (IDEM) reports that, since the ELTF program began, approximately 4,300 leaking UST sites have been satisfactorily cleaned up in Indiana, with hundreds of UST sites currently in the ELTF program being investigated and cleaned up, with another 3,500 such sites yet to be addressed.
However, as more fully explained in this article, given the thousands of sites yet to be addressed, the ELTF is not overly flush with cash and it would be premature and imprudent to undermine this highly successful program by either siphoning the still-needed monies away from this legislatively-dedicated trust fund or seeking to combine this dedicated trust fund with any of the other dedicated trust funds managed by IDEM which serve other purposes and programs.
Nevertheless, the Indiana Petroleum Marketers & Convenience Store Association (IPCA) has learned that senior IDEM officials are seeking to combine the ELTF fund with nearly a dozen other, smaller environmental funds to create a bigger pool of money for the agency to raid and spend at its discretion. The ELTF's $77 million balance is more than three times the $25 million balance of the other 11 funds combined. It is also worth noting, that in five of the 11 funds managed by IDEM in fiscal year 2012, IDEM spent more than it received in revenue, thereby depleting the balance of these funds. Despite these facts, after being expressly considered and rejected by the General Assembly in 2012, IDEM officials are expected to try again to have the FAB dissolved and assign its duties to the super-sized environmental board the General Assembly created in 2012.
Background on the ELTF Program
In 1988, the Indiana legislature created a financial assurance program known as the ELTF to help underground storage tank (UST) owners meet federal requirements that require them to possess $1 million of financial assurance to cover costs arising from leaking USTs. If a UST owner takes the steps necessary to establish and maintain eligibility, the ELTF is a powerful tool the UST owner may rely on to reimburse expenses reasonably incurred for the investigation and remediation of environmental liabilities (in excess of the ELTF deductible, which ranges from $25,000 to $35,000) arising from leaking USTs and any related third-party claims, up to a maximum of $2 million per claim.
The ELTF is funded in two ways: (1) UST owners pay an annual tank registration fee of $90 per tank, which is split evenly between the ELTF and the Petroleum Trust Fund; and (2) the state’s collection of an oil inspection fee of one cent per gallon of gasoline and diesel sold in Indiana, which accounts for more than 97 percent of annual funding for the ELTF. For fiscal year 2013, the ELTF collected more than $46 million in revenue.
Depending on the extent of the petroleum contamination in the soil and groundwater, the cost to investigate and remediate one of these UST sites may range from as low as $100,000 for a slightly impacted site with only soil impacts to more than the $2 million cap for a site with extensive soil and groundwater contamination with off-site impacts.
To put the overall ELTF funding program into financial perspective, just since 2005, the ELTF has received claims totaling more than $500 million in environmental expenses, with the ELTF paying more than $326 million during this nine-year period.
Without the ELTF funding and the development of the governing statutory provisions and regulations by the General Assembly and the FAB, many of these owners would have lacked the funding to perform the cleanups. Absent the ELTF funding many of these sites would have become abandoned “brownfield” sites, thwarting economic development and causing environmentally impacted sites to worsen and impact off-site properties. The ELTF program enjoys wide support from IDEM, the regulatory community, the petroleum industry, environmental groups, and the insurance industry.
General Assembly’s 2012 Decision To Keep the FAB and the ELTF Program Independent
Since its inception and particularly in the last decade, the ELTF program and the FAB have worked closely with the regulated community to develop the expertise needed to continually update and improve the ELTF program’s regulations, processes and reimbursable costs.
For example, during this time period, the FAB has worked with the regulated community, the IPCA and others to successfully complete rulemakings with much-needed enhancements to the ELTF program. In addition, as was specifically recognized by the General Assembly during the 2012 session, when it consolidated several environmental boards into one board, lawmakers specifically recognized the importance of keeping the ELTF program and its oversight board, the FAB, as a stand alone environmental program and carved out the FAB and its ELTF program from the consolidation. The rationale supporting the Legislature’s wise decision to allow this highly successful program to continue to operate independently continues to this day and any efforts by IDEM officials to consolidate the ELTF with any other dedicated trust funds would run directly counter to the General Assembly’s express decision in 2012.
Status of ELTF Funding - Past and Present
While a simple snapshot of the ELTF’s revenues may suggest that the ELTF has excess funds available, a proper understanding of the ELTF program confirms this is not the case. Instead, as detailed below, a proper, in-depth analysis of the ELTF funding, claims submitted, and claims approved over the past nine fiscal years (which run from July 1 through June 30 of the succeeding year), from 2005 through 2013 tells a far different story.
Total Amount of Claims Submitted to the ELTF: $531,039,576.30
Total Amount of Claims Paid by the ELTF: $326,497,418.05
Total Shortfall in ELTF Payments: ($204,542,158.25)
Average Annual Shortfall in ELTF Payments: ($22,726,906.47)
Average Percentage of Claims Paid
by the ELTF 2005-2013: 61%
There are several important factors underlying the ELTF funding that warrant further attention. First, since 2005 the amount of claims submitted by or on behalf of UST owners to the ELTF have ranged from a high of more than $68 million to a low of more than $52 million. Second, in each of these nine fiscal years, the total amount of the claims submitted to the ELTF for reimbursement has significantly exceeded the amount of ELTF revenue, which results in the following averages during this time:
Annual average of the total amount of claims
submitted to the ELTF for reimbursement: $59,004,397.37
Average amount paid by the ELTF: $36,277,490.89
Third, the ELTF is only paying, on average, 61 cents on every $1 of claim submitted, which creates a false sense of security as to the ELTF balance. Again, it is critical to note that, every year in the last nine fiscal years, the amount of claims submitted for payment by the UST owners to the ELTF has significantly exceeded the amount of revenue received by the ELTF. The most recent fiscal year, ending June 30, 2013, is consistent with this trend.
Claims Submitted to the ELTF for FY 2012: $54,469,796.85
Total ELTF Revenue for FY 2012: $46,553,840.00
Claims Paid by the ELTF for FY 2012: $38,546,046.00
Shortfall in ELTF Payments versus
Claims Submitted for FY 2012: ($15,923,750.85)
Fourth, another concern is that the ELTF revenues for the most recent fiscal year ending June 30, 2013, reflected a decline of more than eight percent in the amount of revenue received by the ELTF for the previous fiscal year. This is attributable to reduced gallonage of gasoline and diesel being sold in Indiana due in large part to more fuel efficient vehicles. If this downward trend of funding for the ELTF continues, it will put even greater pressure on the ELTF to continue to meet its funding obligations to UST owners and will further widen the gap between claims submitted for reimbursement to the ELTF and ELTF revenue.
Fifth, the current ELTF balance as of June 30, 2013 has much less available funding than appears at first blush. From the roughly $76 million balance, more than $21 million is already encumbered, as it is owed to Speedway for past claims approved but not yet paid because they exceed the $3 million annual cap on payments by the ELTF to any one UST owner. In addition, by statute $25 million is to be kept in the ELTF to avoid going into a default priority payment mode. In addition, IDEM’s annual operating expenses charged to the ELTF more than $4.7 million to fund IDEM operations and the ELTF. Specifically, the ELTF program already pays to IDEM 11% of its annual revenues. Stated differently, the ELTF program paid more than $4.7 million to IDEM this past fiscal year to process and pay $38 million in claims, an extraordinarily high cost for claims administration and ELTF operations.
Finally, in the most recent fiscal year, the ELTF still only paid 63% of the claimed expenses submitted by UST owners for reimbursement. Had the ELTF paid at least 85% of the claims submitted, it would have paid more in claims than it received in revenue, further reducing the ELTF balance.
As demonstrated above, given the financial realities of the ELTF program during the past nine years, it remains more important than ever that the FAB and the ELTF program remain vigilant in continuing to use all of the ELTF funding to meet the long standing statutory obligations to pay for the thousands of UST sites that are and/or still need to have their environmental liabilities funded through the ELTF program as these investigation and remediation efforts are projected to continue for many more years.
In addition, it is important that IDEM adheres to the General Assembly’s considered decision in 2012 to recognize the importance of the ELTF program and leave it and its oversight FAB board as a stand-alone program. To do otherwise would seriously jeopardize the operation and funding of the most successful environmental clean up program in the history of IDEM.
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