Posted by: Lawyer Sanders | August 26, 2009

Attorney Sanders wonders, is there is a surplus in the Kentucky Petroleum Storage Tank Assurance Fund to the tune of $316.5 million?

Is there a true surplus in the Petroleum Storage Tank Assurance Fund account?

Is there a true surplus in the Petroleum Storage Tank Assurance Fund account?

According to Kentuckians for Better Transportation, the Petroleum Storage Tank Assurance Fund, a tank remediation program and an  indemnity fund for oil companies, is financed with a 1.4 cent per gallon levied on motor fuels.  Normally, the gas tax generates about $44 million annually.   The environmental remediation fund funded by this motor fuel tax is regularly “swept” to shore up the sagging General Fund. 

Members of Kentucky’s General Assembly apparently have no qualms about “sweeping fuel tax money out of the Petroleum Storage Tank Assurance Fund and into the General Fund.  Still, as a tax payer, I know that the motor fuel tax is intended to do two specific tasks: (1) clean environmental contamination from leaking underground storage tanks; and (2) help owners and operators of service stations meet the financial responsibility requirements in federal law. Those two intended purposes are being harmed by the drain of funds.

The amount of money taken from this restricted fund is no small potatoes. In 2008, $81.5 million dollars in fuel tax dollars intended for the Petroleum Storage Tank Assurance Fund were diverted to the General Fund.  In 2006, some $60.2 million dollars of fuel taxes collected for the fund were diverted.  Including the current transfer, a total of $316.5 million has been diverted to the General Fund from the Petroleum Storage Tank Assurance Fund since its creation, according to Kentuckians for Better Transportation.

The statute setting up this fund is clear and concise in its language:  “It is the intent of the General Assembly that a state fund be created to assist petroleum storage tank owners or operators in complying with the federal financial responsibility requirements promulgated under federal regulations and to assist petroleum storage tank owners or operators in cleaning up contamination caused by a release.”  There is nothing fancy or convoluted in the words setting up this tax on motor fuels or the intended purpose of this tax money. 

Second, the 1.4 cent per gallon tax on motor fuels sold in Kentucky is supposed to be divided in the following manner: the financial assurance account shall receive four-tenths of one cent ($0.004) from the one and four- tenths cent ($0.014) paid on each gallon of gasoline and special fuels received in this state pursuant to KRS 224.60-145.  The correct action account shall receive one cent ($0.01) from the one and four-tenths cent ($0.014) paid on each gallon of gasoline and special fuels received in this state pursuant to KRS 224.60-145.

 The question is how is the General Assembly legally sweeping millions of dollars of these fuel tax dollars into the state’s general fund?  Well, KRS 224.60-145 (5) reads:

  •  Within thirty (30) days of the close of fiscal year 2001-2002 and each fiscal year thereafter, the state budget director shall review the balance of each account to determine if a surplus exists. “Surplus” means funds in excess of the amounts necessary to satisfy the obligations in each account for all eligible facilities, to satisfy future liabilities and expenses necessary to operate each account, and to maintain an appropriate reserve in the financial responsibility account to demonstrate financial responsibility and compensate for third-party claims. The state budget director shall report the determination to the Interim Joint Committee on Appropriations and Revenue. After a determination that a surplus exists, the surplus shall be transferred to a restricted account and retained until appropriated by the General Assembly.

Any person, company, corporation or other entity who is, or has been, waiting months upon months on the state’s approval of payment from the Petroleum Storage Tank Assurance Fund for corrective action required at a gas station must wonder how the state budget director determined that there is a surplus of funds in the account. 

After seeing the backlog in payments over the last several years and short payments to contractors, it begs the notion of what accounting standards are being employed in Frankfort to make this determination.  In short, there is little wonder that the state budget is in such a mess. It also explains why so many sites remain in the “investigation phase” rather than the remediation or cleanup phase at old gas stations around the state.

More to the point, think about this issue the next time you take a drink of water.  The petroleum products that you ingest with your water should have been cleaned up before they migrated into the water supply, but there was no money available to pay for the cleanup.

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