Under the Elder California Pipeline Safety Act of 1981, the State Fire Marshal exercises safety regulatory jurisdiction over intrastate pipelines used for the transportation of hazardous or highly volatile liquid substances. The act authorizes the State Fire Marshal to exercise safety regulatory jurisdiction over portions of interstate pipelines located within the state and subject to an agreement between the United States Secretary of Transportation and the State Fire Marshal. The act authorizes the State Fire Marshal to enter, inspect, and examine, at reasonable times and in a reasonable manner, the records and properties of any pipeline operator that are required to be inspected and examined to determine whether the pipeline operator is in compliance with the act.

This bill would require, commencing January 1, 2017, the State Fire Marshal, or an officer or employee authorized by the State Fire Marshal, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the State Fire Marshal, and would require the State Fire Marshal to adopt regulations implementing this provision by that date. The bill would prohibit the State Fire Marshal from becoming an inspection agent for specified interstate pipelines unless all regulatory and enforcement authority over those pipelines is transferred to the State Fire Marshal from the federal Pipeline and Hazardous Materials Safety Administration. The bill would require the State Fire Marshal to revise specified fees assessed to cover the costs associated with this measure.

Under the Elder California Pipeline Safety Act of 1981, the State Fire Marshal exercises safety regulatory jurisdiction over intrastate pipelines used for the transportation of hazardous or highly volatile liquid substances. The act authorizes the State Fire Marshal to exercise safety regulatory jurisdiction over portions of interstate pipelines located within the state and subject to an agreement between the United States Secretary of Transportation and the State Fire Marshal. The act authorizes the State Fire Marshal to enter, inspect, and examine, at reasonable times and in a reasonable manner, the records and properties of any pipeline operator that are required to be inspected and examined to determine whether the pipeline operator is in compliance with the act.

This bill would require, commencing January 1, 2017, the State Fire Marshal, or an officer or employee authorized by the State Fire Marshal, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the State Fire Marshal, and would require the State Fire Marshal to adopt regulations implementing this provision by that date. The bill would prohibit the State Fire Marshal from becoming an inspection agent for specified interstate pipelines unless all regulatory and enforcement authority over those pipelines is transferred to the State Fire Marshal from the federal Pipeline and Hazardous Materials Safety Administration. The bill would require the State Fire Marshal to revise specified fees assessed to cover the costs associated with this measure.

Under the Elder California Pipeline Safety Act of 1981, the State Fire Marshal exercises safety regulatory jurisdiction over intrastate pipelines used for the transportation of hazardous or highly volatile liquid substances. The act authorizes the State Fire Marshal to exercise safety regulatory jurisdiction over portions of interstate pipelines located within the state and subject to an agreement between the United States Secretary of Transportation and the State Fire Marshal. The act authorizes the State Fire Marshal to enter, inspect, and examine, at reasonable times and in a reasonable manner, the records and properties of any pipeline operators that are required to be inspected and examined to determine whether the pipeline operator is in compliance with the act.

This bill would require require, commencing January 1, 2017, the State Fire Marshal, or an officer or employee authorized by the State Fire Marshal, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the State Fire Marshal. Marshal, and would require the State Fire Marshal to adopt regulations implementing this provision by that date. The bill would require prohibit the State Fire Marshal, to the maximum extent possible, to become Marshal from becoming an inspection agent by entering into an agreement with for specified interstate pipelines unless all regulatory and enforcement authority over those pipelines is transferred to the State Fire Marshal from the federal Pipeline and Hazardous Materials Safety Administration, as specified. Administration. The bill would require the State Fire Marshal to revise specified fees assessed to cover the costs associated with this measure.

Under the Elder California Pipeline Safety Act of 1981, the State Fire Marshal exercises safety regulatory jurisdiction over intrastate pipelines used for the transportation of hazardous or highly volatile liquid substances. The act authorizes the State Fire Marshal to exercise safety regulatory jurisdiction over portions of interstate pipelines located within the state and subject to an agreement between the United States Secretary of Transportation and the State Fire Marshal. The act requires those pipelines over 10 years of age to be hydrostatically tested every 3 or 5 years, as provided, except that high-risk pipelines, as designated by the State Fire Marshall, are to be tested every 2 years or annually, as provided. authorizes the State Fire Marshal to enter, inspect, and examine, at reasonable times and in a reasonable manner, the records and properties of any pipeline operators that are required to be inspected and examined to determine whether the pipeline operator is in compliance with the act.

This bill would require the State Fire Marshal, or an officer or employee authorized by the State Fire Marshal, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the State Fire Marshal. The bill would require pipelines over 5 years of age to be hydrostatically tested every 2 or 3 years, as provided, and would require all designated high-risk pipelines to be tested annually. The bill would require the State Fire Marshall, Marshal, to the maximum extent possible, to become an inspection agent by entering into an agreement with the federal Pipeline and Hazardous Materials Safety Administration, as specified. The bill would require the State Fire Marshall Marshal to revise specified fees assessed to cover the costs associated with this measure. The bill would also delete obsolete provisions.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws, including, for taxable years beginning on or after January 1, 2014, and before January 1, 2017, a credit equal to a certain percentage of a contribution to the College Access Tax Credit Fund for specified education purposes, as provided.

This bill would extend the allowance of these credits to taxable years beginning before January 1, 2018.

This bill would take effect immediately as a tax levy.

 UNFINISHED BUSINESS  

Bill No: SB 295

Author: Jackson (D), et al.

Amended: 8/19/15

Vote: 21

PRIOR VOTES NOT RELEVANT

SENATE GOVERNMENTAL ORG. COMMITTEE: 10-1, 9/3/15 (pursuant to Senate Rule 29.10)

AYES: Hall, Berryhill, Block, Glazer, Hernandez, Hill, Hueso, Lara, McGuire, Vidak

NOES: Runner

NO VOTE RECORDED: Gaines, Galgiani

ASSEMBLY FLOOR: 73-1, 9/1/15 - See last page for vote

SUBJECT: Pipeline safety: inspections

SOURCE: Author

DIGEST: This bill requires the State Fire Marshall (SFM), or an officer or employee authorized by the SFM, beginning on January 1, 2017, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the SFM and requires the SFM to adopt regulations implementing this provision by that date.

Assembly Amendments delete the Senate version of the bill that dealt with the College Access Tax Credit Fund and instead requires the SFM, or an officer or employee authorized by the SFM, beginning on January 1, 2017, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the SFM and would require the SFM to adopt regulations implementing this provision by that date.

ANALYSIS:

Existing law:

1. Specifies, under the Elder California Pipeline Safety Act of 1981 (Act), that the SFM exercises safety regulatory jurisdiction over intrastate pipelines used for the transportation of hazardous or highly volatile liquid substances.

2. Authorizes the SFM to exercise safety regulatory jurisdiction over portions of interstate pipelines located within the state and subject to an agreement between the United States Secretary of Transportation and the SFM.

3. Authorizes the SFM to enter, inspect, and examine, at reasonable times and in a reasonable manner, the records and properties of any pipeline operators that are required to be inspected and examined to determine whether the pipeline operator is in compliance with the Act.

This bill:

1. Requires the SFM, or an officer or employee authorized by the SFM, beginning on January 1, 2017, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the SFM to ensure compliance with applicable laws and regulations.

2. Requires the SFM, by January 1, 2017, to adopt regulations implementing the provisions of this bill.

3. Specifies that for portions of interstate pipelines that are not under the jurisdiction of the SFM, the SFM shall not become an inspection agent for those pipelines unless all regulatory and enforcement authority over those pipelines is transferred to the SFM from the federal Pipeline and Hazardous Material Safety Administration.

4. Requires the SMF to revise fees to a level sufficient to cover the costs of the annual inspections.

Background

Purpose of the bill. According to the author, “on May 19 of this year tragedy struck again when an onshore pipeline carrying crude oil ruptured and spilled over 100,000 gallons of oil, over 20,000 gallons of which ended up in the ocean off the Santa Barbara coastline. To date this spill has caused significant negative impacts to the ocean, local beaches, wildlife, and the local economy. The pipeline that ruptured, line 901, was being inspected every other year. If line 901 had been inspected annually the corrosion would likely have been detected before it ruptured and this disaster would have been avoided.”

Refugio Oil Spill. The Refugio oil spill occurred on May 19, 2015, just north of the Refugio State Beach in Santa Barbara County, California. The spill came from a ruptured pipeline owned by Plains All American Pipeline. The final tally found $142,800 U.S. gallons leaked from the pipeline. The immediate oil spill area stretched over nine miles of California coastline, and tar balls have washed up as far as one hundred miles from the spill site.

On May 20, 2015, Governor Brown issued an emergency proclamation for Santa Barbara County due to the effects of the oil spill. Refugio State Beach and El Capitan State Beach were closed for over a month because of the oil spill. About 100 live birds and mammals were rescued and expected to be returned to the wild. Another 260 dead birds and mammals were found in the spill area. However, the full impact will never be known since animals may travel a long distance before succumbing to their injuries.

The Office of the SFM's Pipeline Safety Division. The SFM regulates the safety of approximately 5,500 miles of intrastate hazardous liquid transportation pipelines and acts as an agent of the federal Office of Pipeline Safety concerning the inspection of more than 2,000 miles of interstate pipelines. Pipeline Safety staff inspect, test, and investigate to ensure compliance with all federal and state pipeline safety laws and regulations. Hazardous liquid pipelines are also periodically tested for integrity using procedures approved by the SFM. The program has been certified by the federal government since 1981.

Prior/Related Legislation

AB 2201 (Bradford, Chapter 481, Statutes of 2012) raised the civil penalties associated with violations of the Act. Specifically, it raises the civil penalties for each day that a violation of the Act persists from $10,000 to $200,000, and raises the civil penalties for any related series of violations of the Act from $500,000 to $2 million.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Assembly Appropriations Committee:

1. One-time costs of approximately $3.3 million (special fund) to establish regulations and administer the inspection program in the first year.

2. Ongoing annual costs of approximately $2.4 million (special fund) to administer the inspection program.

3. Unknown potential increase in fees charged to pipeline operators and independent hydrostatic testing firms. The current fee schedule for pipeline operations is $6,000 per pipeline operator and $550 per mile of pipeline operated for intrastate pipelines. There is also a fee on the registration of the independent hydrostatic testing firms. Fee revenues have not been raised since 2007. The special fund into which these fees are placed had a significant fund balance of $8.8 million at the end of 2014-15.

SUPPORT: (Verified 9/2/15)

Asian Pacific Environmental Network

Audubon California

Azul

California Coastal Commission

California Coastal Protection Network

California League of Conversation Voters

California Professional Firefighters

Center for Biological Diversity

Clean Water Action

Defenders of Wildlife

Environment California

Environmental Action Committee of West Marin

Environmental Defense Center

Environmental Working Group

Heal the Bay

National Parks Conservation Association

Natural Resources Defense Council

Santa Barbara Channelkeeper

Santa Barbara County Board of Supervisors

Surfrider Foundation

Surfrider Foundation Santa Barbara Chapter

Surfrider Foundation South Bay Chapter

Venoco, Inc.

Wildcoast

OPPOSITION: (Verified 8/31/15)

None received

ARGUMENTS IN SUPPORT: Supporters of the bill argued that SB 295 helps reduce the risk of another catastrophic oil spill to our sensitive coast and ocean environment by required the SFM to annually inspect all intrastate pipeline operators. In addition, supporters argue that this bill increases the frequency of hydrostatic pipeline testing, and it requires the SFM to increase the fees assessed on pipeline operators to pay for the increased inspections.

ASSEMBLY FLOOR: 73-1, 9/1/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, O'Donnell, Olsen, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Weber, Wilk, Williams, Wood, Atkins

NOES: Gallagher

NO VOTE RECORDED: Brough, Beth Gaines, Harper, Obernolte, Patterson, Waldron

Prepared by: Felipe Lopez / G.O. / (916) 651-1530

9/3/15 17:18:46

**** END ****

 UNFINISHED BUSINESS  

Bill No: SB 295

Author: Jackson (D), et al.

Amended: 8/19/15

Vote: 21

PRIOR VOTES NOT RELEVANT

ASSEMBLY FLOOR: 73-1, 9/1/15 - See last page for vote

SUBJECT: Pipeline safety: inspections

SOURCE: Author

DIGEST: This bill requires the State Fire Marshall (SFM), or an officer or employee authorized by the SFM, beginning on January 1, 2017, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the SFM and requires the SFM to adopt regulations implementing this provision by that date.

Assembly Amendments delete the Senate version of the bill that dealt with the College Access Tax Credit Fund and instead requires the SFM, or an officer or employee authorized by the SFM, beginning on January 1, 2017, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the SFM and would require the SFM to adopt regulations implementing this provision by that date.

ANALYSIS:

Existing law:

1. Specifies, under the Elder California Pipeline Safety Act of 1981 (Act), that the SFM exercises safety regulatory jurisdiction over intrastate pipelines used for the transportation of hazardous or highly volatile liquid substances.

2. Authorizes the SFM to exercise safety regulatory jurisdiction over portions of interstate pipelines located within the state and subject to an agreement between the United States Secretary of Transportation and the SFM.

3. Authorizes the SFM to enter, inspect, and examine, at reasonable times and in a reasonable manner, the records and properties of any pipeline operators that are required to be inspected and examined to determine whether the pipeline operator is in compliance with the Act.

This bill:

1. Requires the SFM, or an officer or employee authorized by the SFM, beginning on January 1, 2017, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the SFM to ensure compliance with applicable laws and regulations.

2. Requires the SFM, by January 1, 2017, to adopt regulations implementing the provisions of this bill.

3. Specifies that for portions of interstate pipelines that are not under the jurisdiction of the SFM, the SFM shall not become an inspection agent for those pipelines unless all regulatory and enforcement authority over those pipelines is transferred to the SFM from the federal Pipeline and Hazardous Material Safety Administration.

4. Requires the SMF to revise fees to a level sufficient to cover the costs of the annual inspections.

Background

Purpose of the bill. According to the author, “on May 19 of this year tragedy struck again when an onshore pipeline carrying crude oil ruptured and spilled over 100,000 gallons of oil, over 20,000 gallons of which ended up in the ocean off the Santa Barbara coastline. To date this spill has caused significant negative impacts to the ocean, local beaches, wildlife, and the local economy. The pipeline that ruptured, line 901, was being inspected every other year. If line 901 had been inspected annually the corrosion would likely have been detected before it ruptured and this disaster would have been avoided.”

Refugio Oil Spill. The Refugio oil spill occurred on May 19, 2015, just north of the Refugio State Beach in Santa Barbara County, California. The spill came from a ruptured pipeline owned by Plains All American Pipeline. The final tally found $142,800 U.S. gallons leaked from the pipeline. The immediate oil spill area stretched over nine miles of California coastline, and tar balls have washed up as far as one hundred miles from the spill site.

On May 20, 2015, Governor Brown issued an emergency proclamation for Santa Barbara County due to the effects of the oil spill. Refugio State Beach and El Capitan State Beach were closed for over a month because of the oil spill. About 100 live birds and mammals were rescued and expected to be returned to the wild. Another 260 dead birds and mammals were found in the spill area. However, the full impact will never be known since animals may travel a long distance before succumbing to their injuries.

The Office of the SFM's Pipeline Safety Division. The SFM regulates the safety of approximately 5,500 miles of intrastate hazardous liquid transportation pipelines and acts as an agent of the federal Office of Pipeline Safety concerning the inspection of more than 2,000 miles of interstate pipelines. Pipeline Safety staff inspect, test, and investigate to ensure compliance with all federal and state pipeline safety laws and regulations. Hazardous liquid pipelines are also periodically tested for integrity using procedures approved by the SFM. The program has been certified by the federal government since 1981.

Prior/Related Legislation

AB 2201 (Bradford, Chapter 481, Statutes of 2012) raised the civil penalties associated with violations of the Act. Specifically, it raises the civil penalties for each day that a violation of the Act persists from $10,000 to $200,000, and raises the civil penalties for any related series of violations of the Act from $500,000 to $2 million.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Assembly Appropriations Committee:

1. One-time costs of approximately $3.3 million (special fund) to establish regulations and administer the inspection program in the first year.

2. Ongoing annual costs of approximately $2.4 million (special fund) to administer the inspection program.

3. Unknown potential increase in fees charged to pipeline operators and independent hydrostatic testing firms. The current fee schedule for pipeline operations is $6,000 per pipeline operator and $550 per mile of pipeline operated for intrastate pipelines. There is also a fee on the registration of the independent hydrostatic testing firms. Fee revenues have not been raised since 2007. The special fund into which these fees are placed had a significant fund balance of $8.8 million at the end of 2014-15.

SUPPORT: (Verified 9/2/15)

Asian Pacific Environmental Network

Audubon California

Azul

California Coastal Commission

California Coastal Protection Network

California League of Conversation Voters

California Professional Firefighters

Center for Biological Diversity

Clean Water Action

Defenders of Wildlife

Environment California

Environmental Action Committee of West Marin

Environmental Defense Center

Environmental Working Group

Heal the Bay

National Parks Conservation Association

Natural Resources Defense Council

Santa Barbara Channelkeeper

Santa Barbara County Board of Supervisors

Surfrider Foundation

Surfrider Foundation Santa Barbara Chapter

Surfrider Foundation South Bay Chapter

Venoco, Inc.

Wildcoast

OPPOSITION: (Verified 8/31/15)

None received

ARGUMENTS IN SUPPORT: Supporters of the bill argued that SB 295 helps reduce the risk of another catastrophic oil spill to our sensitive coast and ocean environment by required the SFM to annually inspect all intrastate pipeline operators. In addition, supporters argue that this bill increases the frequency of hydrostatic pipeline testing, and it requires the SFM to increase the fees assessed on pipeline operators to pay for the increased inspections.

ASSEMBLY FLOOR: 73-1, 9/1/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, O'Donnell, Olsen, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Weber, Wilk, Williams, Wood, Atkins

NOES: Gallagher

NO VOTE RECORDED: Brough, Beth Gaines, Harper, Obernolte, Patterson, Waldron

Prepared by: Felipe Lopez / G.O. / (916) 651-1530

9/2/15 10:21:14

**** END ****

 UNFINISHED BUSINESS  

Bill No: SB 295

Author: Jackson (D), et al.

Amended: 8/19/15

Vote: 21

PRIOR VOTES NOT RELEVANT

ASSEMBLY FLOOR: 73-1, 9/1/15 - See last page for vote

SUBJECT: Pipeline safety: inspections

SOURCE: Author

DIGEST: This bill requires the State Fire Marshall (SFM), or an officer or employee authorized by the SFM, beginning on January 1, 2017, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the SFM and requires the SFM to adopt regulations implementing this provision by that date.

Assembly Amendments delete the Senate version of the bill that dealt with the College Access Tax Credit Fund and instead requires the SFM, or an officer or employee authorized by the SFM, beginning on January 1, 2017, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the SFM and would require the SFM to adopt regulations implementing this provision by that date.

ANALYSIS:

Existing law:

1. Specifies, under the Elder California Pipeline Safety Act of 1981 (Act), that the SFM exercises safety regulatory jurisdiction over intrastate pipelines used for the transportation of hazardous or highly volatile liquid substances.

2. Authorizes the SFM to exercise safety regulatory jurisdiction over portions of interstate pipelines located within the state and subject to an agreement between the United States Secretary of Transportation and the SFM.

3. Authorizes the SFM to enter, inspect, and examine, at reasonable times and in a reasonable manner, the records and properties of any pipeline operators that are required to be inspected and examined to determine whether the pipeline operator is in compliance with the Act.

This bill:

1. Requires the SFM, or an officer or employee authorized by the SFM, beginning on January 1, 2017, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the SFM to ensure compliance with applicable laws and regulations.

2. Requires the SFM, by January 1, 2017, to adopt regulations implementing the provisions of this bill.

3. Specifies that for portions of interstate pipelines that are not under the jurisdiction of the SFM, the SFM shall not become an inspection agent for those pipelines unless all regulatory and enforcement authority over those pipelines is transferred to the SFM from the federal Pipeline and Hazardous Material Safety Administration.

4. Requires the SMF to revise fees to a level sufficient to cover the costs of the annual inspections.

Background

Purpose of the bill. According to the author, “on May 19 of this year tragedy struck again when an onshore pipeline carrying crude oil ruptured and spilled over 100,000 gallons of oil, over 20,000 gallons of which ended up in the ocean off the Santa Barbara coastline. To date this spill has caused significant negative impacts to the ocean, local beaches, wildlife, and the local economy. The pipeline that ruptured, line 901, was being inspected every other year. If line 901 had been inspected annually the corrosion would likely have been detected before it ruptured and this disaster would have been avoided.”

Refugio Oil Spill. The Refugio oil spill occurred on May 19, 2015, just north of the Refugio State Beach in Santa Barbara County, California. The spill came from a ruptured pipeline owned by Plains All American Pipeline. The final tally found $142,800 U.S. gallons leaked from the pipeline. The immediate oil spill area stretched over nine miles of California coastline, and tar balls have washed up as far as one hundred miles from the spill site.

On May 20, 2015, Governor Brown issued an emergency proclamation for Santa Barbara County due to the effects of the oil spill. Refugio State Beach and El Capitan State Beach were closed for over a month because of the oil spill. About 100 live birds and mammals were rescued and expected to be returned to the wild. Another 260 dead birds and mammals were found in the spill area. However, the full impact will never be known since animals may travel a long distance before succumbing to their injuries.

The Office of the SFM's Pipeline Safety Division. The SFM regulates the safety of approximately 5,500 miles of intrastate hazardous liquid transportation pipelines and acts as an agent of the federal Office of Pipeline Safety concerning the inspection of more than 2,000 miles of interstate pipelines. Pipeline Safety staff inspect, test, and investigate to ensure compliance with all federal and state pipeline safety laws and regulations. Hazardous liquid pipelines are also periodically tested for integrity using procedures approved by the SFM. The program has been certified by the federal government since 1981.

Prior/Related Legislation

AB 2201 (Bradford, Chapter 481, Statutes of 2012) raised the civil penalties associated with violations of the Act. Specifically, it raises the civil penalties for each day that a violation of the Act persists from $10,000 to $200,000, and raises the civil penalties for any related series of violations of the Act from $500,000 to $2 million.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Assembly Appropriations Committee:

1. One-time costs of approximately $3.3 million (special fund) to establish regulations and administer the inspection program in the first year.

2. Ongoing annual costs of approximately $2.4 million (special fund) to administer the inspection program.

3. Unknown potential increase in fees charged to pipeline operators and independent hydrostatic testing firms. The current fee schedule for pipeline operations is $6,000 per pipeline operator and $550 per mile of pipeline operated for intrastate pipelines. There is also a fee on the registration of the independent hydrostatic testing firms. Fee revenues have not been raised since 2007. The special fund into which these fees are placed had a significant fund balance of $8.8 million at the end of 2014-15.

SUPPORT: (Verified 8/31/15)

Asian Pacific Environmental Network

Audubon California

Azul

California Coastal Commission

California Coastal Protection Network

California League of Conversation Voters

California Professional Firefighters

Center for Biological Diversity

Clean Water Action

Defenders of Wildlife

Environment California

Environmental Action Committee of West Marin

Environmental Defense Center

Environmental Working Group

Heal the Bay

National Parks Conservation Association

Natural Resources Defense Council

Santa Barbara Channelkeeper

Santa Barbara County Board of Supervisors

Surfrider Foundation

Surfrider Foundation Santa Barbara Chapter

Surfrider Foundation South Bay Chapter

Venoco, Inc.

Western States Petroleum Association

Wildcoast

OPPOSITION: (Verified 8/31/15)

None received

ARGUMENTS IN SUPPORT: Supporters of the bill argued that SB 295 helps reduce the risk of another catastrophic oil spill to our sensitive coast and ocean environment by required the SFM to annually inspect all intrastate pipeline operators. In addition, supporters argue that this bill increases the frequency of hydrostatic pipeline testing, and it requires the SFM to increase the fees assessed on pipeline operators to pay for the increased inspections.

ASSEMBLY FLOOR: 73-1, 9/1/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, O'Donnell, Olsen, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Weber, Wilk, Williams, Wood, Atkins

NOES: Gallagher

NO VOTE RECORDED: Brough, Beth Gaines, Harper, Obernolte, Patterson, Waldron

Prepared by: Felipe Lopez / G.O. / (916) 651-1530

9/1/15 21:12:37

**** END ****

SENATE THIRD READING

STR Bill Id:SB 295

Author:(Jackson)

As Amended Ver:August 19, 2015

Majority vote

SENATE VOTE: 38-0

SUMMARY: Expands the State Fire Marshal's responsibilities for regulating intrastate pipelines safety. Specifically, this bill:

1. Requires, commencing January 1, 2017, the State Fire Marshal, or an officer or employee authorized by the State Fire Marshal, to annually inspect all intrastate pipelines and operators of intrastate pipelines under the jurisdiction of the State Fire Marshal to ensure compliance with applicable laws and regulations.

2. Requires, by January 1, 2017, the State Fire Marshal, to adopt regulations.

3. Prohibits the State Fire Marshal from becoming an inspection agent for the portions of intrastate pipelines that are not under the jurisdiction of the State Fire Marshal unless all regulatory and enforcement authority over those pipelines is transferred to the State Fire Marshal from the federal Pipeline and Hazardous Materials Safety Administration (PHMSA).

4. Requires the State Fire Marshal to revise the fee assessed to a level sufficient to cover the costs associated with implementation.

FISCAL EFFECT: According to the Assembly Appropriations Committee, this bill may result in one-time costs of approximately $3.3 million to establish regulations and administer the inspection program in the first year; ongoing annual costs of approximately $2.4 million to administer the inspection program; and unknown potential increases in fees charged to pipeline operators and independent hydrostatic testing firms.

COMMENTS:

Need for this bill: According to the author, "On May 19 of this year tragedy struck when an onshore pipeline carrying crude oil ruptured and spilled more than 100,000 gallons of oil, more than 20,000 gallons of which ended up in the ocean off the Santa Barbara Coastline. To date, this spill has caused significant negative impacts to the ocean, local beaches, wildlife, and the local economy. Although the investigation into the response and the oil spill is ongoing, we do know that corrosion was responsible for the rupture. Before the spill, the last completed inspection was in 2013. The pipeline was again inspected in 2015, but at the time of the accident the results of the inspection had not been analyzed.

"The pipeline that ruptured – Line 901 – was being inspected every other year. If Line 901 had been inspected annually the corrosion would likely have been detected before it ruptured and this disaster would have been avoided. Because Line 901 is federally regulated, SB 295 addresses these shortcomings by directing the State Fire Marshall to seek the authority to inspect federally regulated pipelines and to inspect all pipelines annually.

"Most importantly, oil pipeline owners should be financially responsible to ensure their pipelines operate safely and meet applicable laws and regulations, not taxpayers, which is why SB 295 requires fee increases on pipeline owners to pay for more inspections."

Refugio oil spill: On May 20, 2015, Governor Brown issued an emergency proclamation for Santa Barbara County due to the effects of the oil spill described by the author. Refugio State Beach and El Capitan State Beach have been closed for more than a month because of the oil spill. Fisheries from Canada de Algeria to Coal Oil Point remain closed, which has negatively impacted several commercial fisheries – including lobster, crab, shrimp, halibut, urchin, squid, whelk, and sea cucumber. The Oiled Wildlife Care Network has recovered 192 dead birds and 103 dead marine mammals from the spill to date. Dead marine mammals recovered include dolphins, sea lions and seals. Sensitive habitat of the California least tern and the snowy plover, birds protected by the Endangered Species Act, has been damaged. Hotels, tour outfits and other tourism businesses have experienced cancelations and decreased bookings due to the spill. More than 1,000 workers from local, state and federal agencies have been working to clean up the beaches. Since May 20, approximately 14,267 gallons of oily water have been recovered.

On May 21, 2015, PHMSA issued a Correct Action Order to require Plans All American Pipeline, the owner of the ruptured pipeline, to take certain corrective actions to protect the public, property, and the environment from potential hazards associated with Line 901 in Santa Barbara County. The Correct Action Order also found that Line 901 was a 24-inch diameter line that was installed in 1987 and the section that ruptured had extensive corrosion. The deepest metal loss at each area ranged between 54% to 74% of the original pipeline wall thickness. The failure site wall thickness had degraded to an estimate one-sixteenth of an inch.

Intrastate vs. Interstate Pipelines: The United States Department of Transportation PHMSA has exclusive federal authority over interstate pipeline facilities (49 United States Code Section 60101, et seq.). Interstate pipeline is defined as a pipeline or that part of a pipeline that is used in the transportation of hazardous liquid or carbon dioxide in interstate or foreign commerce. Typically, these lines cross state borders, of begin in federal waters. Also, A Federal Energy Regulatory Commission (FERC) filing by the operator can be the determining factor. The two pipelines in Santa Barbara County have a FERC filing.

Office of the State Fire Marshal has safety regulatory and enforcement authority over intrastate hazardous liquid pipelines pursuant to the Elder California Pipeline Safety Act of 1981 (Government Code Section 51010, et seq.). Intrastate pipeline is defined as means a pipeline or that part of a pipeline to which this part applies that is not an interstate pipeline. Those pipelines are located entirely within state borders including offshore state waters.

Analysis Prepared by: Paige Brokaw / E.S. & T.M. / (916) 319-3965 FN: 0001642

Date of Hearing: August 26, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

SBPCA Bill Id:SB 295

Author:(Jackson) – As Amended Ver:August 19, 2015

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill beginning January 1, 2017, requires the State Fire Marshal to annually inspect all intrastate pipelines and pipeline operators under its jurisdiction to ensure compliance with applicable laws and regulations. Additionally, this bill:

1. Requires the State Fire Marshal to adopt regulations for annual inspections by January 1, 2017.

2. Prohibits the State Fire Marshal from becoming an inspection agent for interstate pipelines unless the federal Pipeline and Hazardous Materials Safety Administration transfers regulatory and enforcement authority to the State Fire Marshal.

3. Requires the State Fire Marshal to revise fees to a level sufficient to cover the costs of the annual inspections.

FISCAL EFFECT:

1. One-time costs of approximately $3.3 million (special fund) to establish regulations and administer the inspection program in the first year.

2. Ongoing annual costs of approximately $2.4 million (special fund) to administer the inspection program.

3. Unknown potential increases in fees charged to pipeline operators and independent hydrostatic testing firms.

The current fee schedule for pipeline operations is $6,000 per pipeline operator and $550 per mile of pipeline operated for intrastate pipelines. There is also a fee on the registration of the independent hydrostatic testing firms.

Fee revenues have not been raised since 2007. The special fund into which these fees are placed had a significant fund balance of $8.8 million at the end of 2014-15.

COMMENTS:

1. Purpose. According to the author, oil pipeline owners should be required to ensure their pipelines operate safely and meet applicable laws and regulations.

According to proponents, this bill will protect Californians against a repeat of the May 2015 Refugio oil spill where an onshore pipeline carrying crude oil ruptured and spilled over 100,000 gallons of oil. The pipeline that ruptured was being inspected biennially.

By providing an annual inspection schedule, any pipeline corrosion will be detected earlier, thus preventing future ruptures.

2. Background. The Lempert-Keene-Seastrand Oil Spill Prevention and Response Act (Act) requires the Governor to establish a state oil spill contingency plan and establishes oil spill prevention, response, containment, and cleanup programs.

Under the Act, the Oil Spill Administrator promulgates regulations that provide for the best achievable protection of waters and natural resources of the state.

This bill revises the Act to provide further inspection and financial responsibility.

Analysis Prepared by: Jennifer Galehouse / APPR. / (916) 319-2081

Date of Hearing: July 15, 2015

ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION

Adam Gray, Chair

SBPCA Bill Id:SB 295

Author:(Jackson) – As Amended Ver:June 24, 2015

SENATE VOTE: Not Relevant

SUBJECT: Pipeline safety: inspections.

SUMMARY: Increases the frequency of intrastate pipeline inspections. Specifically, this bill:

1) Changes from 10 years to 5 years the age of the pipeline that is not provided with effective cathodic protection that is to be hydrostatically tested on a periodic basis, and increases that periodic basis from every 3 years to every 2 years.

2) Changes from 10 years to 5 years the age of the pipeline that is provided with effective cathodic protection that is to be hydrostatically tested on a periodic basis, and increases that periodic basis from every 5 years to every 3 years.

3) Increases from every 2 years to annually the testing frequency on those pipelines that are provided with effective cathodic protection that are on the State Fire Marshal's (SFM) list of higher risk pipelines.

4) Deletes language made obsolete by SFM's active regulations.

5) Requires SFM, or an officer or employee authorized by the SFM, to annually inspect all operators of intrastate pipelines under the jurisdiction of the SFM to ensure compliance with applicable laws and regulations.

6) Requires SFM, to the maximum extent possible, to become an inspection agent by entering into an interstate inspection agent agreement with the federal Pipeline and Hazardous Materials Safety Administration for authority to inspect portions of interstate pipelines that are not under the jurisdiction of the State Fire Marshal.

7) Requires SFM to revise the fee assessed to a level sufficient to cover the costs associated with implementation.

EXISTING LAW:

1) Pursuant to the Elder California Pipeline Safety Act of 1981:

a. Requires SFM to adopt hazardous liquid pipeline safety regulations in compliance with the federal law relating to hazardous liquid pipeline safety, including, but not limited to, compliance orders, penalties, and inspection and maintenance provisions. (Government Code (GO) §51011)

b. Requires each pipeline operator to file with SFM an inspection, maintenance, improvement, or replacement assessment for older pipelines built before January 1, 1960 and any pipeline installed on or after January 1, 1960, for which regular internal inspections cannot be conducted, or which shows diminished integrity due to corrosion or inadequate cathodic protection. (GO §51012.4)

c. Requires every newly constructed pipeline, existing pipeline, or part of a pipeline system that has been relocated or replaced, and every pipeline that transports a hazardous liquid substance or highly volatile liquid substance, to be tested in accordance with federal regulations and every pipeline more than 10 years of age and not provided with effective cathodic protection to be hydrostatically tested every three years, except for those on the SFM's list of higher risk pipelines, which shall be hydrostatically tested annually. (GO §51013.5)

d. Defines "hydrostatic testing" as the application of internal pressure above the normal or maximum operating pressure to a segment of pipeline, under no-flow conditions for a fixed period of time, utilizing a liquid test medium. (GO §51010.5 (c))

e. Authorizes SFM to assess and collect from every pipeline operator an annual administrative fee. (GO §51019)

2) Pursuant to the Lempert-Keene-Seastrand Oil Spill Prevention and Response Act:

a. States that because of the inadequacy of existing cleanup and response measures and technology, the emphasis must be put on prevention, if the risk and consequences of oil spills are to be minimized, and that improvements in the design, construction, and operation of rail tank cars, tank trucks, tank ships, terminals, and pipelines; improvements in marine safety; maintenance of emergency response stations and personnel; and stronger inspection and enforcement efforts are necessary to reduce the risks of and from a major oil spill. (GO §8670.2 (f)-(g))

b. Requires the Governor to appoint an oil spill response coordinator (GO §86703.4) who has the primary authority to direct prevention, removal, abatement, response, containment, and cleanup efforts with regard to all aspects of any oil spill in waters of the state, in accordance with any applicable facility or vessel contingency plan and the California oil spill contingency plan. (GO §8670.7)

c. Requires the Governor to establish a state oil spill contingency plan (GO §8574.1 et seq.), establishes oil spill response and contingency planning requirements (GO §8670.1 et seq.), and establishes oil spill prevention, response, containment, and cleanup programs. (Public Resources Code §8750 et seq.)

FISCAL EFFECT: Unknown

COMMENTS:

Purpose of the Bill: According to the author, "On May 19 of this year tragedy struck when an onshore pipeline carrying crude oil ruptured and spilled more than 100,000 gallons of oil, more than 20,000 gallons of which ended up in the ocean off the Santa Barbara Coastline. To date, this spill has caused significant negative impacts to the ocean, local beaches, wildlife, and the local economy. Although the investigation into the response and the oil spill is ongoing, we do know that corrosion was responsible for the rupture. Before the spill, the last completed inspection was in 2013. The pipeline was again inspected in 2015, but at the time of the accident the results of the inspection had not been analyzed.

The pipeline that ruptured—Line 901—was being inspected every other year. If Line 901 had been inspected annually the corrosion would likely have been detected before it ruptured and this disaster would have been avoided. Because Line 901 is federally regulated, SB 295 addresses these shortcomings by directing the State Fire Marshall to seek the authority to inspect federally regulated pipelines and to inspect all pipelines annually.

Increasing the frequency of hydrostatic testing will also help reduce the risk of oil spills caused by pipeline failure. Hydrostatic tests are performed by pressurizing pipelines beyond their operating pressure. It has been reported that the operating pressure of line 901 was 650 pounds per square inch (psi); the failure occurred when the pressure spiked to 700 psi, or 107.7 percent of its operating pressure. The State Fire Marshall pressurizes pipelines to 125 percent during hydrostatic testing, well above the 107.7 percent that caused line 901 to fail. A hydrostatic test would likely have ruptured Line 901, spilling nothing.

Most importantly, oil pipeline owners should be financially responsible to ensure their pipelines operate safely and meet applicable laws and regulations, not taxpayers, which is why SB 295 requires fee increases on pipeline owners to pay for more inspections."

Refugio Oil Spill: On May 19, 2015, a pipeline owned by Houston-based Plains All American Pipeline ruptured, spilling up to 101,000 gallons of heavy crude oil along the Gaviota coast in Santa Barbara County. It is estimated that as much as 21,000 gallons of the oil went down a storm culvert onto cliffs and into the Pacific Ocean. The immediate oil spill area stretched over nine miles of California coastline, and tar balls have washed up as far as one hundred miles from the spill site. The pipeline that ruptured, known as Line 901, is a common carrier pipeline that transports oil that was produced on platforms offshore in both state and federal waters to be refined in Santa Maria or Kern County.

On May 20, 2015, Governor Brown issued an emergency proclamation for Santa Barbara County due to the effects of the oil spill. Refugio State Beach and El Capitan State Beach have been closed for over a month because of the oil spill. Fisheries from Canada de Alegria to Coal Oil Point remain closed, which has negatively impacted several commercial fisheries — including lobster, crab, shrimp, halibut, urchin, squid, whelk, and sea cucumber. The Oiled Wildlife Care Network has recovered 192 dead birds and 106 dead marine mammals from the spill to date. Dead marine mammals recovered included dolphins, sea lions and seals. Sensitive habitat of the California Least Tern and the Snowy Plover, birds protected by the Endangered Species Act, has been damaged. Hotels, tour outfits and other tourism businesses have experienced cancelations and decreased bookings due to the spill. More than 1,000 workers from local, state and federal agencies have been working to clean up the beaches. Since May 20, approximately 132 volunteers have participated in clean-up efforts. 14,267 gallons of oily water have been recovered to date.

Lempert-Keene-Seastrand Oil Spill Prevention and Response Act (Act): On March 24, 1989, the Exxon Valdez spilled approximately 11 million gallons of crude oil in Alaska. Less than a year later on February 7, 1990 the American Trader spilled approximately 416,598 gallons of crude oil off Huntington Beach in Southern California. These events inspired the California Legislature to enact legislation in 1990 called the Lempert-Keene-Seastrand Oil Spill Prevention and Response Act.

The Act covers all aspects of marine oil spill prevention and response in California. It established an Administrator who is given very broad powers to implement the provisions of the Act. The Act also gave the State Lands Commission certain authority over marine terminals. In 1991, the Office of Spill Prevention and Response (OSPR) opened, headed by the Administrator.

The Act created an Administrator who is appointed by the Governor, subject to the advice and consent of the Senate, and serves at the pleasure of the Governor. Subject to the Governor, the Administrator has the primary authority in California to direct prevention, removal, abatement, response, containment, and cleanup efforts with regard to all aspects of any oil spill in marine waters of the state. The Governor, through the Administrator, must provide the best achievable protection of the coast and marine waters.

The Administrator is also a Chief Deputy Director of the California Department of Fish & Wildlife, and as such the Administrator has been delegated the additional responsibilities of carrying out the statewide water pollution enforcement authority of the Department of Fish & Wildlife.

In 2014, Governor Edmund G. Brown Jr. expanded the OSPR program to cover all statewide surface waters at risk of oil spills from any source, including pipelines and the increasing shipments of oil transported by railroads. This expansion provided critical administrative funding for industry preparedness, spill response, and continued coordination with local, state and federal government along with industry and non-governmental organizations. SB 861(Senate Committee on Budget) authorized the expansion and provided the additional statutory and regulatory authority, for the prevention, preparedness and response activities in the new inland areas of responsibility. Key objectives are:

• Target critical locations to stage spill responders and equipment for the best response to rail and pipeline incidents;

• Develop effective regulations in close collaboration with local government, non-governmental organizations, and industry;

• Implement regulations that will guide industry, local and state government, and the public and build relationships with local governments through workshops and presentations;

• Create inland response plans that have the depth and breadth of the marine Area Contingency Plans; and,

• Work with communities to build a strong response spill team.

Intrastate vs. Interstate Pipelines: The U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) has exclusive federal authority over interstate pipeline facilities (49 USC § 60101, et seq.). Interstate pipeline is defined as a pipeline or that part of a pipeline that is used in the transportation of hazardous liquid or carbon dioxide in interstate or foreign commerce. Typically, these lines cross state borders, of begin in federal waters. Also, A Federal Energy Regulatory Commission (FERC) filing by the operator can be the determining factor. The two pipelines in Santa Barbara County have a FERC filing.

Office of the State Fire Marshal (OSFM) has safety regulatory and enforcement authority over intrastate hazardous liquid pipelines pursuant to the Elder California Pipeline Safety Act of 1981 (Gov. Code, § 51010, et seq.). Intrastate pipeline is defined as means a pipeline or that part of a pipeline to which this part applies that is not an interstate pipeline. Those pipelines are located entirely within state borders including offshore state waters.

SB 295 requires the SFM, to the maximum extent possible, become an inspection agent through entering into an interstate inspection agent agreement with the federal PHMSA.

Pipeline Testing:

1. Hydrostatic Testing - This test involves filling the pipe system with a liquid, usually water, which may be dyed to aid in visual leak detection, and pressurization of the vessel to the specified test pressure. The test for oil pipelines are done at 125% of pressure over an 8 hour period. Pressure tightness can be tested by shutting off the supply valve and observing whether there is a pressure loss. The location of a leak can be visually identified more easily if the water contains a colorant. Strength is usually tested by measuring permanent deformation of the container. Hydrostatic testing is the most common method employed for testing pipes.

2. Pipe Line Inspection Gauge (a.k.a. “Smart Pig”) - Smart Pigs are inspection devices that record information about the internal conditions of a pipeline. The device is inserted into the pipeline and is pushed along by the flowing product. They may measure several different things from inside of the pipeline, including restrictions and deformations of the pipe, as well as metal loss. Smart Pigging is effective at detecting pre-leak situations.

Should SB 295 become law, it would increase the frequency of hydrostatic testing from 5 years to 3 years for pipes with cathodic protection; and from 3 years to 2 years for pipes without cathodic protection. Some concerns have been raised by industry that increasing the frequency of these high pressure tests could be counterproductive because it could weaken the integrity of the pipes.

Support: According to the California Professional Firefighters, "Ultimately SB 295, through the implementation of such required inspections, will better protect Californians against a repeat of the May 2015 tragedy where an onshore pipeline carrying crude oil ruptured and spilled over 100,000 gallons of oil …The pipeline that ruptured was being inspected biennially. However, if it has been on an annual inspection schedule, the pipeline's corrosion would have been detected before rupturing and this disaster would have been avoided."

Opposition: According to the Western States Petroleum Association, "A key concern with SB 295 is a mandate for intrastate pipeline operators to conduct more frequent hydrostatic testing of pipelines without considering the drawbacks and unintended consequences it can have on crude oil pipelines … SB 295 would not lower the risk of pipeline spills and may actually have more unintended consequences of placing pipelines at risk by requiring more frequent hydrostatic testing since this method cannot determine where any defects are located along the pipeline system. Not only that, requiring more hydrostatic testing raises significant questions about increased water use, disposal and treatment costs, and lost throughput by taking product out of the pipeline without any determinable level of increased safety. On the other hand, in-line inspection tools provide a complete listing of the defects in the pipeline and their location in an electronic format which can be used as a baseline for future inspections and to calculate corrosion rates."

Author amendments: The author will propose amendments in committee in response to concerns raised about pipelines being weakened through more frequent hydrostatic testing. The amendments will:

1. Requires the State Fire Marshal to approve other pressure tests, specifically “Smart Pigging”, in lieu of hydrostatic testing.

2. Should operator use other pressure tests, they shall occur twice as frequently (Annually for non-cathodic and every 18 months for cathodic pipes) as than hydrostatic tests.

3. This amendment shall not apply to State Fire Marshal’s list of higher risk pipelines.

REGISTERED SUPPORT / OPPOSITION:

Support

Asian Pacific Environmental Network

Audubon California

Azul

California Coastal Commission

California Coastal Protection Network

California Professional Firefighters

Center for Biological Diversity

Clean Water Action

Defenders of Wildlife

Environment California

Environmental Action Committee of West Marin

Environmental Defense Center

Environmental Working Group

Heal the Bay

National Parks Conservation Association

Natural Resources Defense Council

Santa Barbara Channelkeeper

Surfrider Foundation

Surfrider Foundation, Santa Barbara Chapter

Surfrider Foundation, South Bay Chapter

WILDCOAST

Opposition

Western States Petroleum Association

Analysis Prepared by: Kenton Stanhope / G.O. / (916) 319-2531

Date of Hearing: July 14, 2015

ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS

Luis Alejo, Chair

SBPCA Bill Id:SB 295

Author:(Jackson) – As Amended Ver:June 24, 2015

SENATE VOTE: Not relevant

SUBJECT: Pipeline safety: inspections.

SUMMARY: Increases the frequency of intrastate pipeline inspections. Specifically, this bill:

1. Changes from 10 years to 5years the age of the pipeline that is not provided with effective cathodic protection that is to be hydrostatically tested on a periodic basis, and increases that periodic basis from every 3 years to every 2 years.

2. Changes from 10 years to 5 years the age of the pipeline that is provided with effective cathodic protection that is to be hydrostatically tested on a periodic basis, and increases that periodic basis from every 5 years to every 3 years.

3. Increases from every 2 years to annually the testing frequency on those pipelines that are provided with effective cathodic protection that are on the State Fire Marshal's list of higher risk pipelines.

4. Deletes language made obsolete by the State Fire Marshal's active regulations.

5. Requires the State Fire Marshal, or an officer or employee authorized by the State Fire Marshal, to annually inspect all operators of intrastate pipelines under the jurisdiction of the State Fire Marshal to ensure compliance with applicable laws and regulations.

6. Requires the State Fire Marshal, to the maximum extent possible, to become an inspection agent by entering into an interstate inspection agent agreement with the federal Pipeline and Hazardous Materials Safety Administration for authority to inspect portions of interstate pipelines that are not under the jurisdiction of the State Fire Marshal.

7. Requires the State Fire Marshal to revise the fee assessed to a level sufficient to cover the costs associated with implementation.

EXISTING LAW:

1. Pursuant to the Elder California Pipeline Safety Act of 1981:

1. Requires the State Fire Marshal to adopt hazardous liquid pipeline safety regulations in compliance with the federal law relating to hazardous liquid pipeline safety, including, but not limited to, compliance orders, penalties, and inspection and maintenance provisions. (Government Code (GO) §51011)

2. Requires each pipeline operator to file with the State Fire Marshal an inspection, maintenance, improvement, or replacement assessment for older pipelines built before January 1, 1960 and any pipeline installed on or after January 1, 1960, for which regular internal inspections cannot be conducted, or which shows diminished integrity due to corrosion or inadequate cathodic protection. (GO §51012.4)

3. Requires every newly constructed pipeline, existing pipeline, or part of a pipeline system that has been relocated or replaced, and every pipeline that transports a hazardous liquid substance or highly volatile liquid substance, to be tested in accordance with federal regulations and every pipeline more than 10 years of age and not provided with effective cathodic protection to be hydrostatically tested every three years, except for those on the State Fire Marshal's list of higher risk pipelines, which shall be hydrostatically tested annually. (GO §51013.5)

4. Defines "hydrostatic testing" as the application of internal pressure above the normal or maximum operating pressure to a segment of pipeline, under no-flow conditions for a fixed period of time, utilizing a liquid test medium. (GO §51010.5 (c))

5. Authorizes the State Fire Marshal to assess and collect from every pipeline operator an annual administrative fee. (GO §51019)

2. Pursuant to the Lempert-Keene-Seastrand Oil Spill Prevention and Response Act:

1. States that because of the inadequacy of existing cleanup and response measures and technology, the emphasis must be put on prevention, if the risk and consequences of oil spills are to be minimized, and that improvements in the design, construction, and operation of rail tank cars, tank trucks, tank ships, terminals, and pipelines; improvements in marine safety; maintenance of emergency response stations and personnel; and stronger inspection and enforcement efforts are necessary to reduce the risks of and from a major oil spill. (GO §8670.2 (f)-(g))

2. Requires the Governor to appoint an oil spill response coordinator (GO §86703.4) who has the primary authority to direct prevention, removal, abatement, response, containment, and cleanup efforts with regard to all aspects of any oil spill in waters of the state, in accordance with any applicable facility or vessel contingency plan and the California oil spill contingency plan. (GO §8670.7)

3. Requires the Governor to establish a state oil spill contingency plan (GO §8574.1 et seq.), establishes oil spill response and contingency planning requirements (GO §8670.1 et seq.), and establishes oil spill prevention, response, containment, and cleanup programs. (Public Resources Code §8750 et seq.)

FISCAL EFFECT: Unknown.

COMMENTS:

Need for the bill: According to the author, "On May 19 of this year tragedy struck when an onshore pipeline carrying crude oil ruptured and spilled more than 100,000 gallons of oil, more than 20,000 gallons of which ended up in the ocean off the Santa Barbara Coastline. To date, this spill has caused significant negative impacts to the ocean, local beaches, wildlife, and the local economy. Although the investigation into the response and the oil spill is ongoing, we do know that corrosion was responsible for the rupture. Before the spill, the last completed inspection was in 2013. The pipeline was again inspected in 2015, but at the time of the accident the results of the inspection had not been analyzed.

"The pipeline that ruptured—Line 901—was being inspected every other year. If Line 901 had been inspected annually the corrosion would likely have been detected before it ruptured and this disaster would have been avoided. Because Line 901 is federally regulated, SB 295 addresses these shortcomings by directing the State Fire Marshall to seek the authority to inspect federally regulated pipelines and to inspect all pipelines annually.

"Increasing the frequency of hydrostatic testing will also help reduce the risk of oil spills caused by pipeline failure. Hydrostatic tests are performed by pressurizing pipelines beyond their operating pressure. It has been reported that the operating pressure of line 901 was 650 pounds per square inch (psi); the failure occurred when the pressure spiked to 700 psi, or 107.7 percent of its operating pressure. The State Fire Marshall pressurizes pipelines to 125 percent during hydrostatic testing, well above the 107.7 percent that caused line 901 to fail. A hydrostatic test would likely have ruptured Line 901, spilling nothing.

"Most importantly, oil pipeline owners should be financially responsible to ensure their pipelines operate safely and meet applicable laws and regulations, not taxpayers, which is why SB 295 requires fee increases on pipeline owners to pay for more inspections."

Refugio oil spill: On May 20, 2015, Governor Brown issued an emergency proclamation for Santa Barbara County due to the effects of the oil spill described by the author. Refugio State Beach and El Capitan State Beach have been closed for more than a month because of the oil spill. Fisheries from Canada de Algeria to Coal Oil Point remain closed, which has negatively impacted several commercial fisheries – including lobster, crab, shrimp, halibut, urchin, squid, whelk, and sea cucumber. The Oiled Wildlife Care Network has recovered 192 dead birds and 103 dead marine mammals from the spill to date. Dead marine mammals recovered include dolphins, sea lions and seals. Sensitive habitat of the California least tern and the snowy plover, birds protected by the Endangered Species Act, has been damaged. Hotels, tour outfits and other tourism businesses have experienced cancelations and decreased bookings due to the spill. More than 1,000 workers from local, state and federal agencies have been working to clean up the beaches. Since May 20, approximately 14,267 gallons of oily water have been recovered.

On May 21, 2015, the Pipeline and Hazardous Material Safety Administration (PHMA) issued a Correct Action Order to require Plans All American Pipeline, the owner of the ruptured pipeline, to take certain corrective actions to protect the public, property, and the environment from potential hazards associated with Line 901 in Santa Barbara County. The Correct Action Order also found that Line 901 was a 24-inch diameter line that was installed in 1987 and the section that ruptured had extensive corrosion. The deepest metal loss at each area ranged between 54%-74% of the original pipeline wall thickness. The failure site wall thickness had degraded to an estimate 1/16 of an inch.

Oil spill prevention and response: The Lempert-Keene-Seastrand Oil Spill Prevention and Response Act (Act) requires the Governor to establish a state oil spill contingency plan, establishes oil spill response and contingency planning requirements, and establishes oil spill prevention, response, containment, and cleanup programs. Under the Act, the oil spill administrator promulgates regulations that provide for the best achievable protection of waters and natural resources of the state. The regulations permit the development, application, and use of an oil spill contingency plan for vessels, pipelines, terminals, and facilities within a single company or organization, and across companies and organizations. Each oil spill contingency plan must provide for appropriate financial or contractual arrangements for all necessary equipment and services for the response, containment, and cleanup of a reasonable worst case oil spill scenario for each area the plan addresses.

Plains All American Pipeline has an Oil Spill Contingency Plan and will pay for the more than $92 million in cleanup costs that have been incurred so far.

Arguments in support: According to the California Professional Firefighters, "Ultimately SB 295, through the implementation of such required inspections, will better protect Californians against a repeat of the May 2015 tragedy where an onshore pipeline carrying crude oil ruptured and spilled over 100,000 gallons of oil …The pipeline that ruptured was being inspected biennially. However, if it has been on an annual inspection schedule, the pipeline's corrosion would have been detected before rupturing and this disaster would have been avoided."

Arguments in opposition: According to the Western States Petroleum Association, "A key concern with SB 295 is a mandate for intrastate pipeline operators to conduct more frequent hydrostatic testing of pipelines without considering the drawbacks and unintended consequences it can have on crude oil pipelines … SB 295 would not lower the risk of pipeline spills and may actually have more unintended consequences of placing pipelines at risk by requiring more frequent hydrostatic testing since this method cannot determine where any defects are located along the pipeline system. Not only that, requiring more hydrostatic testing raises significant questions about increased water use, disposal and treatment costs, and lost throughput by taking product out of the pipeline without any determinable level of increased safety. On the other hand, in-line inspection tools provide a complete listing of the defects in the pipeline and their location in an electronic format which can be used as a baseline for future inspections and to calculate corrosion rates."

Related legislation: AB 864 (Williams, 2015), which is pending before the Senate Natural Resources & Water Committee, would require the operators of pipelines in environmentally and ecologically sensitive areas of state waters or along the coasts of those areas to use the best achievable technologies to reduce the amount of oil released in an oil spill to protect the state waters and wildlife, and to include a description of the use of those technologies in their oil spill contingency plans.

Double referral: This bill is double referred to the Assembly Government Organization Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Asian Pacific Environmental Network

Azul

California Coastal Commission

California Coastal Protection Network

California Professional Firefighters

Center for Biological Diversity

Clean Water Action

Defenders of Wildlife

Environment California

Environmental Action Committee of West Marin

Environmental Defense Center

Environmental Working Group

Heal the Bay

National Parks Conservation Association

Natural Resources Defense Council

Santa Barbara Channelkeeper

Surfrider Foundation

Surfrider Foundation, Santa Barbara Chapter

Surfrider Foundation, South Bay Chapter

WILDCOAST

Opposition

California Independent Petroleum Association

Western States Petroleum Association

Analysis Prepared by: Paige Brokaw / E.S. & T.M. / (916) 319-3965

 THIRD READING  

Bill No: SB 295

Author: De León (D)

Introduced: 2/23/15

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 5/6/15

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/18/15

AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen

SUBJECT: College Access Tax Credit Fund

SOURCE: Author

DIGEST: This bill extends the College Access Tax Credit Fund sunset date to January 1, 2018, and increases the credit percentage.

ANALYSIS:

Existing law:

1. Allows taxpayers to receive an income or franchise tax credit for a specified percentage of cash contributions made to the College Access Tax Credit Fund (Fund).

2. Provides that the yearly maximum allocation amount is $500 million plus any carryover of unused funds from the prior year.

3. Specifies the percentages used to calculate the credit as follows:

• 60% of the amount contributed during the 2014 taxable year,

• 55% of the amount contributed during the 2015 taxable year,

• 50% of the amount contributed during the 2016 taxable year.

4. Requires the California Educational Facilities Authority to allocate and certify the income tax credit to personal and corporate taxpayers and provide the Franchise Tax Board (FTB) a copy of each credit certificate immediately following the year of issue. The cash contributions are used to fund the Cal Grant B program.

This bill:

1. Extends Fund repeal date to December 1, 2018.

2. Increases the credit percentage amounts as follows:

• 60% of the amount contributed during the 2015 taxable year,

• 55% of the amount contributed during the 2016 taxable year,

• 50% of the amount contributed during the 2017 taxable year.

Comments

1. Program to date. In 2014, the Fund received a total of $6,199,289 in donations. The California Educational Facilities Authority allocated $3,719,573 in tax credits. While receiving over $6 million in donations will help many students fund the ever rising cost of college, the Fund’s yearly maximum allocation amount is $500 million. The program may need more time to maximize incoming donations as the program becomes more established.

2. No double dipping. The credit does not allow any deductions for amounts taken into account in the calculation of the credit, but a deduction may be made on a taxpayer’s federal return. For example, Jane Doe contributes $10,000 to the Fund, thus she is entitled to a $6,000 credit (60% × $10,000). Jane may claim a $6,000 credit on her California tax return. She can also claim a $10,000 charitable contribution on her federal return. However, she will not be able to claim a charitable contribution on her California return.

3. The research is in. Phillip Blackman (associate director of development at the Penn State Dickinson School of Law) and Kirk Stark (Professor and Vice Dean at the UCLA School of Law) wrote a report “Capturing Federal Dollars with State Charitable Tax Credits” where they outline the extensive benefits of this type of credit, with very little cost to the state. They use their research to show a significant benefit to a federal Alternative Minimum Tax (AMT) taxpayer; specifically:

An AMT taxpayer making a $100,000 donation to the CATCF [College Access Tax Credit Fund] special fund has a net out-of-pocket cost of only $12,000—that is, $100,000 minus $28,000 (in federal tax savings) minus $60,000 (in state tax savings). Clearly, the tax savings for that type of donation are far more than the tax savings normally arising from charitable gifts. AMT payers willing to make a gross gift of $1 to Cal Grants will be reimbursed a total of $0.88, consisting of $0.60 from the state of California and $0.28 from the federal governments. As structured, S.B. 798 is a powerful ‘‘matching grant’’ program that if enacted is likely to generate significant new funds for the Cal Grants program. Indeed, the matching rates are so generous that it is also likely to draw charitable dollars away from other worthy causes. Even so, it is worth noting that the program could be made even more attractive to potential donors. The most obvious way to do that would be to increase the credit percentage. Any credit percentage greater than 72 percent would ensure that donors experience no out-of-pocket costs for their donations. In states with charitable tax credit programs already in place, tax planners are beginning to catch on. One website describing Arizona’s tax credit for school tuition organizations notes that if you are subject to the AMT, the tax benefits received exceed the out-of-pocket cost.

The report considers that this “may be too good to be true,” but for the recent IRS ruling, and considers this tax credit a way to increase federal funds that does not rely on Congressional actions.

Mr. Blackman and Professor Stark go even farther, suggesting that the credit would be more lucrative if it were transferable or allowed against sales taxes.

4. Redirection or new money? This bill encourages giving to the state’s Cal Grant program through a 60%, 55%, and 50% credit against contributions, the most generous tax credit the state has ever allowed. Such a credit is sure to entice taxpayers to contribute but the credit may be so great that it redirects contributions from charities that currently receive them to this program. Instead of making a donation to UCLA, for example, a taxpayer may choose to use this tax credit instead therefore creating a greater need for a public university which is at partially funded by the general fund. Will this result in new revenue or simply redirect charitable funds from some charities to Cal Grants? The study’s authors (Comment #3) believe that donations to schools are largely from alumni and that these dollars will remain intact.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, FTB estimates that this bill will result in an annual revenue loss of $50 million in 2015-16, $85 million in 2016-17, and $65 million in 2017-18. This bill requires funds to be transferred from the Fund to the General Fund such that the net impact of College Access Tax Credits on the General Fund would be zero. Administrative expenses of all affected state entities would be backfilled by the Fund.

SUPPORT: (Verified 5/20/15)

The Institute for College Access & Success

OPPOSITION: (Verified 5/20/15)

None received

Prepared by: Myriam Bouaziz / GOV. & F. / (916) 651-4119

5/21/15 10:15:37

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SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 295 (De León) - College Access Tax Credit Fund

This bill does not meet the criteria for referral to the Suspense File.

Bill Summary:

SB 295 would (1) extend the College Access Tax Credit Fund (CATCF) sunset date to January 1, 2018, and (2) increase the credit percentage.

Fiscal Impact:

• The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $50 million in 2015-16, $85 million in 2016-17, and $65 million in 2017-18.

• Estimated revenue gains beyond current law in the hundreds of millions of dollars over the three-year period, to be deposited into CATCF.

• Costs to the California Educational Facilities Authority (CEFA) in the range of $108,000 in 2017-18, and $126,000 in 2018-19 to administer the certification of tax credits for contributions.

• FTB administrative costs would be minor and absorbable.

• The bill would require funds to be transferred from CATCF to the General Fund such that the net impact of College Access Tax Credits on the General Fund would be zero. Administrative expenses of all affected state entities would be backfilled by CATCF.

Background:

Current state law allows taxpayers to receive a tax credit for a specified percentage of cash contributions made to CATCF. The yearly maximum allocation amount is $500 million plus any carryover of unused funds from the prior year, and the specified percentage used to calculate the credit is:

• 60 percent of the amount contributed during the 2014 taxable year.

• 55 percent of the amount contributed during the 2015 taxable year.

• 50 percent of the amount contributed during the 2016 taxable year.

CEFA is required to allocate and certify the income tax credit to personal and corporate taxpayers and provide FTB a copy of each credit certificate immediately following the year of issue. The cash contributions are used to find the Cal Grant B program.

State law precludes any deductions for amounts taken into account in the calculation of the credit. Applications for the tax credit are processed on a first come, first served basis. There is no maximum contribution limit.

Under current law the credit would be repealed as of December 1, 2017.

Proposed Law:

This bill would (1) extend the CATCF repeal date to December 1, 2018, and (2) increase the credit percentage amounts as follows:

• 60 percent of the amount contributed during the 2015 taxable year.

• 55 percent of the amount contributed during the 2016 taxable year.

• 50 percent of the amount contributed during the 2017 taxable year.

Related Legislation:

SB 798 (De Leon, Chapter 367, Statutes of 2014) created the College Access Tax Credit, an income tax credit for cash contributions made to an education special fund with an aggregate credit cap of $500 million per calendar year.

Staff Comments:

SB 295 would encourage taxpayers to contribute to the state’s Cal Grant program through a generous tax credit against contributions. Depending on the credit amount available in each of the years in which it is available, and depending on how a taxpayer files taxes and the tax bracket that applies, a taxpayer could receive close to 90 percent of his or her donation back in state tax credits and federal tax deductions combined. For example, if a taxpayer subject to the Federal Alternative Minimum Tax (AMT) donates $1,000 to CATCF in 2015, he or she would receive a $600 state tax credit. The taxpayer would also receive a federal tax deduction for the $1,000 contribution, reducing federal tax liability by $280 (assuming a 28% marginal rate). AMT filers are not eligible for state tax deductions related to charitable contributions. On balance, the taxpayer would receive $880 in reduced tax liability for a $1,000 contribution, and only be out of pocket a net $120.

The tax benefit related to this bill could result in reduced contributions directly to education institutions, such as the University of California and others, and could result in decreased charitable giving to other causes. As such, this credit could result in a redirection of charitable giving, rather than providing “new” money for Cal Grants. The extent of this potential substitution effect is unknown.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

COLLEGE ACCESS TAX CREDIT FUND

Extends the College Access Tax Credit Fund sunset date to January 1, 2018 and increases the credit percentage.

Background and Existing Law

State law allows taxpayers to receive an income or franchise tax credit for a specified percentage of cash contributions made to the College Access Tax Credit Fund (Fund). The yearly maximum allocation amount is $500 million plus any carryover of unused funds from the prior year.

The specified percentage used to calculate the credit is:

• 60 percent of the amount contributed during the 2014 taxable year,

• 55 percent of the amount contributed during the 2015 taxable year,

• 50 percent of the amount contributed during the 2016 taxable year.

The California Educational Facilities Authority is required to allocate and certify the income tax credit to personal and corporate taxpayers and provide the Franchise Tax Board (FTB) a copy of each credit certificate immediately following the year of issue. The cash contributions are used to find the Cal Grant B program.

State law precludes any deductions for amounts taken into account in the calculation of the credit. Applications for the tax credit are processed on a first come, first served basis. There is no maximum contribution limit.

The credit would be repealed by its own terms as of December 1, 2017.

Proposed Law

Senate Bill 295 extends the College Access Tax Credit Fund repeal date to December 1, 2018. SB 295 also increases the credit percentage amounts as follows:

• 60 percent of the amount contributed during the 2015 taxable year,

• 55 percent of the amount contributed during the 2016 taxable year,

• 50 percent of the amount contributed during the 2017 taxable year.

State Revenue Impact

FTB estimates that the credit will result in a revenue loss of $50 million in fiscal year 2015-16; $85 million in 2016-17 and $65 million in 2017-18.

FTB notes that the estimate shows the impact on income and corporation tax collections. SB 295 requires funds to be transferred from the College Access Tax Credit Fund to the General Fund, to fully offset the tax credit’s impact on the General Fund.

Comments

1. Purpose of the bill. According to the author, “This bill seeks to continue to increase Cal Grant B Access Award amounts for California’s lowest income students, to improve academic achievement and graduation rates through $500 Million in available tax credits in the College Access Tax Credit Fund by leveraging federal tax deductions for charitable contributions. This tax credit has been fully vetted by a University of California Los Angeles report which concludes that the members of legislature are custodians of California’s welfare, particularly in an era of state budgetary distress and should take advantage of Internal Revenue Service (IRS) rules and regulations to benefit the state. This tax credit differs from most others in that the state does not lose money to incentivize a behavior. Rather, the taxpayer makes a donation to the state and then a credit is given. For every dollar donated to the Fund in the first year, the individual taxpayer or the corporate donor would receive 60 cents back from the state and the Fund would receive 40 cents plus interest. The Franchise Tax Board (FTB) predicts that the College Access Tax Credit Fund would be fully subscribed due to the high incentive to taxpayers because according to IRS rules the taxpayer would also be able to take a donation deduction on their Federal Taxes. The taxpayer would get back on every dollar donated a total of 80 cents to over 95 cents depending on how they file.

California is a so-called donor state, only receiving around 78-cents for every dollar state taxpayers send to Washington. It’s time to leverage Federal dollars to help offset skyrocketing college tuition. For each of the three years of the program, the California Student Aid Commission (CSAC) would have on average an extra $300 Million, after the tax credits are paid to taxpayers, and after all administrative costs are paid for, to increase the underfunded Cal Grant B Access Awards for over 170,000 California students at our for profit and not-for-profit private institutions, and all three sectors of our public institutions. College graduates are a critical part of the engine that drives California’s economy. They are the future innovators; educators, engineers, lawyers, scientists, doctors, architects, executives, and so on that help make California the 9th largest economy in the world.

The taxpayers of California make a tremendous investment in its college graduates. There is not a single public college or university student, whether they are on direct financial aid or not, who doesn’t have their education at least partially underwritten by the taxpayers of California. We must make sure that we are getting maximum benefit from that investment.

When the Cal Grant B Access Award was first established in 1969, the amount granted per student for the year was $960 to pay for books, housing and transportation. 43 years later that amount has grown to only $1,473 for the year – not even close to keeping up with inflation—that figure should be $5,900. What results is that many students must work one or even two jobs to help pay the bills, which delays graduation and impacts the students’ ability to maximize their learning experience. This not only shortchanges the students but it shortchanges the California taxpayers, who are investing in their education for much longer than the four years it should take students to complete their degree and start contributing to the economy as graduates.”

2. Program to date. In 2014, the College Access Tax Credit Fund received a total of $6,199,289 in donations. The California Educational Facilities Authority allocated $3,719,573 in tax credits. While receiving over $6 million in donations will help many students fund the ever rising cost of college, the Fund’s yearly maximum allocation amount is $500 million. The program may need more time to maximize incoming donations as the program becomes more established.

3. No double dipping. The credit does not allow any deductions for amounts taken into account in the calculation of the credit, but a deduction may be made on a taxpayer’s federal return. For example, Jane Doe contributes $10,000 to the Fund, thus she is entitled to a $6,000 credit (60% × $10,000). Jane may claim a $6,000 credit on her California tax return. She can also claim a $10,000 charitable contribution on her federal return. However, she will not be able to claim a charitable contribution on her California return.

4. The research is in. Phillip Blackman (associate director of development at the Penn State Dickinson School of Law) and Kirk Stark (Professor and Vice Dean at the UCLA School of Law) wrote a report “Capturing Federal Dollars with State Charitable Tax Credits” where they outline the extensive benefits of this type of credit, with very little cost to the state. They use their research to show a significant benefit to an AMT taxpayer; specifically,

An AMT taxpayer making a $100,000 donation to the CATCF special fund has a net out-of-pocket cost of only $12,000—that is, $100,000 minus $28,000 (in federal tax savings) minus $60,000 (in state tax savings). Clearly, the tax savings for that type of donation are far more than the tax savings normally arising from charitable gifts. AMT payers willing to make a gross gift of $1 to Cal Grants will be reimbursed a total of $0.88, consisting of $0.60 from the state of California and $0.28 from the federal governments. As structured, S.B. 798 is a powerful ‘‘matching grant’’ program that if enacted is likely to generate significant new funds for the Cal Grants program. Indeed, the matching rates are so generous that it is also likely to draw charitable dollars away from other worthy causes. Even so, it is worth noting that the program could be made even more attractive to potential donors. The most obvious way to do that would be to increase the credit percentage. Any credit percentage greater than 72 percent would ensure that donors experience no out-of-pocket costs for their donations. In states with charitable tax credit programs already in place, tax planners are beginning to catch on. One website describing Arizona’s tax credit for school tuition organizations notes that if you are subject to the AMT, the tax benefits received exceed the out-of-pocket cost.

The report considers that this “may be too good to be true,” but for the recent IRS ruling, and considers this tax credit a way to increase federal funds that does not rely on Congressional actions.

Mr. Blackman and Professor Stark go even farther, suggesting that the credit would be more lucrative if it were transferable or allowed against sales taxes.

5. Redirection or new money? This bill encourages giving to the state’s Cal Grant program through a 60%, 55%, and 50% credit against contributions, the most generous tax credit the state has ever allowed. Such a credit is sure to entice taxpayers to contribute but the credit may be so great that it redirects contributions from charities that currently receive them to this program. Instead of making a donation to UCLA, for example, a taxpayer may choose to use this tax credit instead therefore creating a greater need for a public university which is at partially funded by the general fund. Will this result in new revenue or simply redirect charitable funds from some charities to Cal Grants? The study’s authors (comment 3) believe that donations to schools are largely from alumni and that these dollars will remain intact.

Support and Opposition

(4/30/15)

Support: Unknown.

Opposition: Unknown.

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