Call to Order and Roll Call
The 5th meeting of the Interim Joint Committee on Transportation was held on<Day> Tuesday, October 3, 2017, at 1:00 PM, in Room 149 of the Capitol Annex. Senator Ernie Harris, Chair, called the meeting to order, and the secretary called the roll. Minutes from the Committee’s September 5, 2017 meeting were approved.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative Marie Rader, Co-Chair; Senators Joe Bowen, C.B. Embry Jr., Jimmy Higdon, Gerald A. Neal, Dorsey Ridley, Albert Robinson, Brandon Smith, Johnny Ray Turner, and Mike Wilson; Representatives Lynn Bechler, Tim Couch, Chris Fugate, Al Gentry, David Hale, Chris Harris, Dennis Horlander, Kenny Imes, Dan Johnson, James Kay, Donna Mayfield, Robby Mills, Rick Rand, Steve Riggs, Sal Santoro, John Sims Jr, Jim Stewart III, Walker Thomas, and Scott Wells.
Guests: Brian Clark, Executive Director, Kentucky Petroleum Marketers Association; Michael Hardy, Owner, Hardy Oil Company, Chairman, Kentucky Petroleum Marketers Association; David Samford, Goss Samford Attorneys at Law; Scott Butcher, Reentry Affairs Coordinator, Ashland, US Federal Bureau of Prisons; Scarlet Mattingly, Reentry Affairs Coordinator, Lexington, US Federal Bureau of Prisons; Megan McLain, Innovative Finance Manager, Kentucky Transportation Cabinet
LRC Staff: John Snyder, Brandon White, Dana Fugazzi, and Christina Williams.
Kentucky Petroleum Marketers Association (KPMA)
Brian Clark, Executive Director, KPMA; Michael Hardy, Owner, Hardy Oil Company Chairman, KPMA; and David Samford, Goss Samford Attorneys at Law, Associate member of KPMA, and previous senior Legal Advisor for the Kentucky Transportation Cabinet (KYTC), presented to the Committee information about KPMA and the petroleum industry. The KPMA was founded in 1926 and it represents one of the state’s oldest industries. KPMA is made up of representatives of all segments of the petroleum industry which are engaged in the marketing and distribution of petroleum production products in the Commonwealth of Kentucky. Membership to the KPMA includes gas stations/convenience stores, heating oil businesses, truck stops, petroleum trucking companies, bulk storage facilities, and lubricant warehouses, among others.
Some items of interest to KPMA members include: collection and evaporation allowance, Petroleum Storage Tank Environmental Assurance Fund (PSTEAF), motor fuels tax, infrastructure funding priorities, alternative fuels, tolling, vehicle miles traveled, electric and fuel efficient vehicles, tax reform, federal Environmental Protection Agency (EPA) changes and new tank regulations, amendments to Kentucky regulations. The petroleum industry in Kentucky employs almost 42,000 people in the Commonwealth, not including refineries. There are 2,944 fuel retailers/convenience stores, 104 wholesalers, two refineries, and many companies that provide support to these businesses with a payroll of over $831 million and over $40 million in Kentucky state income tax revenue. There have been several supply challenges in the past year including two colonial pipeline disruptions in fall of 2016, as well as the significant impacts that hurricanes have had in the fall of 2017. Even still, petroleum demand seems to be as constant in 2017 as it was in 2016. Members of KPMA have some federal items of interest as well that include Renewable Fuels Standard (RFS) reform, ozone standards (RFG and amendments to state regulations), interstate rest area commercialization, the highway trust fund and motor fuels excise taxes, menu labeling, e-vapor regulation and predication date, credit card swipe fees, and tax reform.
Kentucky petroleum marketers function as the state tax collector of motor fuels tax. Adjustments to the motor fuels tax have direct impacts on KPMA members. Marketers incur direct costs, such as having to provide a form of security to the state to ensure payment (i.e. bond requirements by the state.) Marketers play a critical role in the collection of revenues for state infrastructure.
The existing collection evaporation allowance is 2.25 percent, which exists to offset the costs incurred by marketers while acting as the tax collector for the state. Kentucky gasoline marketers are required by state law to remit the gasoline fuel tax based upon the volume of gasoline purchased from the supplier and then collect the tax from the consumer when the fuel is sold (per KRS 138.220 and KRS 138.240). The collection and evaporation allowance exists in statute for the offset of various costs related to the collection of the gas tax on behalf of the state (collection costs, unaccountable losses, and handling and reporting the tax), it also address product fuel volume lost naturally after the petroleum marketers purchase the fuel from the refiners/suppliers due to the evaporation and shrinkage of gasoline before it is sold to the consumer. Wholesalers pay the tax up front when the product is purchased from refineries/suppliers. A percentage of the product is lost through evaporation and transport due to the physical properties of liquid gasoline. This gap or loss in product is not due to spillage or failure by the marketer. It is due largely to natural evaporation and reduction in temperature.
The 2.25 percent allowance is a deduction that compensates Kentucky marketers for their over-payment of tax paid before the product is sold to consumers. Due to many factors beyond the control of marketers (which are all itemized in the statute) it is impossible to recoup from retail customers the entire amount of taxes paid by the marketers. The allowance attempts to bridge this gap so that marketers are only paying taxes on product that is actually sold. Marketers are unable to fully recoup the tax because it is not collected at the actual point of sale, even though it is supposed to be a tax on fuel sold to consumers and used on the roadways. The KPMA estimates that the average actual cost to collect the gasoline tax is 2.84 percent. The current rate saves the Commonwealth the difference of that amount in collection expenses that are borne by the marketers.
The PSTEAF program was created for owners and operators of underground storage tanks to comply with federal law, which requires them to maintain $1 million of coverage for corrective action and for third-party liability. This program assures Kentucky’s compliance with federally mandated financial responsibility rules for cleanup of releases. Tanks store petroleum fuel underground and despite compliance and proper maintenance these tanks can (and do) leak, especially as they age. When leaks occur, the PSTEAF program cleans up the environmental impact through remediation or removal. This program protects communities, citizens, cities and counties should an environmental impact occur. Within PSTEAF, there are three accounts: Petroleum Storage Tank Account (PSTA), Financial Responsibility Account (FRA), and Small Owner’s Tank Removal Account (SOTRA). These accounts function as one program. The FRA is the account that allows eligible owners and operators to meet the $1 million federal financial responsibility requirements. Small and rural businesses (approximately 1,550) that operate USTs rely most heavily on PSTEAF. These small or rural tank owners are twice as likely to need PSTEAF funds for active tank remediation. The PSTEAF program exists to ensure Kentucky’s more than 3,000 petroleum businesses have access to funds necessary for active tank remediation, environmental clean-up demands, and tank removals for small business owners when qualifying issues arise. The PSTEAF is a 1.4¢ (penny and four tenths) fee assessed on each gallon of fuel sold. The 1.4¢ is collected by fuel retailers on every gallon of gasoline and special fuels in the state, similar to the gas tax. The fee is collected specifically for the PSTEAF program. It is not, nor has it ever been, part of the Road Fund.
There are two types of Underground Storage Tanks covered by PSTEAF: Abandoned tanks that were outlined during PSTEAF’s creation, and active tanks. Kentucky has more than 10,500 active tanks in the ground. These are not the abandoned tanks that were on the Cabinet’s list for remediation when PSTEAF was created. The PSTEAF helps meet federally mandated financial responsibility assurance should one of the 10,500 active tanks have a release. When the program was first created in the early 1990s because of federal regulations, many of those tanks were new. Now, 80 percent are more than 15 years old. Leaks from underground storage tanks negatively affect the quality of groundwater. Kentucky’s unique geology is particularly susceptible to adverse impacts from leaks. Leaks can also impact soil and may create brownfield properties.
Forty-eight percent of underground storage tanks are owned by small business owners in local communities. Without it, these businesses (42,000 KY employees) would sustain negative impacts resulting in business closure. Kentucky communities would suffer harmful environmental impacts and the state, counties, and cities could face a financial liability. The KPMA requested that the Kentucky General Assembly maintain the existing 2.25 percent Gasoline Evaporation Collection Allowance, and preserve program funding to assure PSTEAF requirements are maintained.
In response to a question asked by Representative Gentry, Mr. Hardy stated the lifespans of the underground storage tank systems vary by location of the system due to environmental factors such as ground water.
Senator Bowen commented that PSTEAF should be protected as it is something that environmentalists as well as the petroleum industry can come together on. The program should be kept due to its importance.
In response to a statement made by Senator Higdon, Mr. Hardy stated that credit card fees for retailers are the number two cost, second to labor, and it is perceived that credit card costs could in the future overtake the cost of labor.
In response to a question asked by Representative Santoro concerning why some states have private insurance coverage and Kentucky has an assurance fund in dealing with underground storage tanks, Mr. Samford stated that decision is a policy decision. He added that the EPA recognizes that there are going to be future liabilities associated with underground storage tanks, so it sets a federal requirement that every state much choose how it wants to comply. There are two fundamental models and various hybrids of the two models. Kentucky along with 36 other states have an assurance fund which provides uniformity, and the way the environmental liability is funded is by a uniform user fee that is applied to every gallon of gas sold in the Commonwealth. When an insurance fund is utilized there are bargaining strengths with various size retailers who are able to negotiate premiums and deductibles based on their relative bargaining positions in the marketplace. An insurance system tends to favor the larger retailers. What happens is that a small retailer in an insurance state must reduce margins or increase costs, which ends up squeezing the small retailer. Kentucky’s system provides uniformity, which keeps the playing field level for retailers and it is fundamentally fair.
In response to a question asked by Chairman Harris, Mr. Clark stated approximately $42 million annually is collected for the Underground Storage Tank Fund. Chairman Harris added that historically a little over $30 million is generally kept in the Underground Storage Tank Fund, and the rest is used for other areas. In response to a second question asked by Chairman Harris, Mr. Clark stated the change in the types of fuels used has affected the tanks. Ethanol that is added tends to be more corrosive in nature to the tanks.
Federal Inmate Identification Cards and Driver’s Licenses
Scott Butcher, Reentry Affairs Coordinator, Ashland, US Federal Bureau of Prisons, and Scarlet Mattingly, Reentry Affairs Coordinator, Lexington, US Federal Bureau of Prisons, asked that the 2018 General Assembly amend KRS 186.412 statute to allow consideration for a federal and state prison to meet the residency requirements that the Transportation Cabinet, the Department of Vehicle Regulation, and/or circuit clerks need to issue driver’s licenses or regular state IDs to current and eligible inmates. Mr. Butcher stated that work details that are utilized by the prison systems include food service, commissary, orderly, and various jobs inside facilities. Work details at federal camps which require road access include landscaping and grounds work, outside facilities operations, safety and recycling, and town drivers.
States in which inmates can obtain identification in the form of driver’s licenses include Pennsylvania, Texas, Virginia, and Florida. The eleven determining factors that an inmate would have to meet to be eligible for a driver’s license include: 1.) a custody score of at least “community” or “out” (the two least restrictive levels) must be had by the inmate, 2.) the instant offense shall not be of greater or high severity, 3.) inmates with public safety factors are not eligible, 4.) the inmate must have clear conduct for one year, 5.) the inmate must not have any 100 or 200 level incident reports, 6.) the inmate must not have any history of escape or violence, using discretion, 7.) the inmate must not have any detainers or unresolved pending charges, 8.) an inmate with an unpaid fine must be participating in the financial responsibility program, 9.) the inmate must be no more than two years from release, 10.) the inmate must demonstrate good responsibility in regard to general demeanor and attitude, and lastly 11.) it is management decisions that allow inmates to participate. Inmates who fit the eligibility criteria for a regular state ID would have to produce the same documentation as the average citizen obtaining an ID.
Rick Taylor, Deputy Commissioner, Department of Vehicle Regulation, and Matt Cole, Director, Division of Drivers Licensing, stated that they supported the idea of allowing inmates to receive IDs or drivers licenses that meet the specified criteria.
Representative Riggs encouraged the addition of an inmate’s previous driving record to the list of criteria to be considered before the inmate can obtain a driver’s license, if that inmate has been incarcerated an appropriate amount of time for that record to be considered. He added if the inmate has been incarcerated over an extended period of time, their current driving record may not be a proper reflection of their previous driving habits.
In response to a question asked by Representative Bechler, Mr. Butcher stated government issued vehicles would be used for inmates to take their driver’s test.
In response to a question asked by Chairman Harris, Mr. Butcher stated approximately 250 prisoners are released every three months.
In response to a question asked by Representative Santoro, Mr. Butcher stated an inmate’s license is not automatically revoked if convicted of a felony unless the felony is vehicular related.
Representative Dan Johnson stated his full support in allowing inmates to receive identification cards or driver’s licenses.
Louisville Southern Indiana Ohio River Bridges Tolling System Update
Megan McLain, Innovative Finance Manager, KYTC, gave an update on the RiverLink tolling system that is utilized on the Louisville Southern Indiana Ohio River Bridges. The average daily traffic count for September is 80,533, and those numbers continue to increase. The percentages of vehicles crossing the bridge daily that utilize transponders is approximately 60- 65 percent on weekdays and 45-50 percent on weekends. The revenue collected is in line with projections, and the total revenue collected to date is approximately $50.2 million, with $25.1 million of that being Kentucky Public Transportation Infrastructure Authority’s (KPTIA) share. There has not been an entire completed billing cycle, therefore the collection rates will continue to increase as enforcement measures are put into place. Of the bills that have been sent, the collection rate is a little above 50 percent before the enforcement process begins.
Ms. McLain stated that customer service continues to improve as call wait times are down from over an hour in January to just over one minute in August. There has also been self-service features added so that customers can manage their accounts via telephone without talking to customer service representatives. Text message alerts for accounts are also now available for customers. Tutorials and a help section have been added to the website.
Ms. McLain gave a breakdown of the process of invoicing and collection of toll payments. The first invoice that is received is for the amount of the toll only, there are no fees attached and the customer then has 30 days to pay that amount. If payment is not received, a second invoice will be sent out for the amount of the toll and a $5.00 fee, at which point the customer will then have 20 days to pay that amount. If the toll and fee is still not paid, a violation notice will be sent out with a balance due of the toll, the $5.00 fee, as well as a $25.00 fine that the customer will have 30 days to pay. The next step if the tolls and fines are not received, is for a collection notice to be sent out with a balance due of the toll, the $5.00 fee, the $25.00 fine and a $30.00 fee that is due upon receipt. If the customer still has not paid, a registration hold will be placed on their vehicle 10 days after the collections notice is mailed. It is estimated that the process of registration holds will begin in mid-October, 2017.
With no further business, Chairman Harris adjourned the meeting at 2:05 P.M.