4/21/10

The report below was written by Michael Vasquez, Program Manager, Texas Conference of Urban Counties, and is reprinted with permission. 

"The House Ways & Means Committee met yesterday to discuss Prop. 2 and several members seemed to understand that the program is in danger of being expanded to a level that may require legislative action.

Chairman Oliveira opened the discussion with his view on the Valero applications and his concern that expansion of the exemptions should be of concern to the committee because of the impact it could have on the budget. He suggested maybe the definition of pollution control devices needs to be looked at and updated during the next session.

Of particular note was a statement by TCEQ staff that the commission, in their order remanding the Valero application back to the executive Director, found that: 1) the EPA requirement to remove sulfur from the fuel is an environmental regulation and 2) portions of Valero’s hydrotreater equipment was installed to meet that regulation and may provide a partial environmental benefit at the site and therefore may qualify for a partial determination. TCEQ is now waiting for Valero to file supplemental information proving up that the equipment provides a partial benefit at the site and upon receipt the Executive Director will issue a new determination. In response to a question from the Chairman as to whether the decision has essentially been made, TCEQ explained that if Valero cannot show a partial environmental benefit at the site, the Executive Director could make a negative determination.

In response to questions from Vice-Chairman Otto, TCEQ staff indicated that this could open up the program to include substantially more equipment used to produce products that are regulated under environmental laws.

In response to a question, TCEQ mentioned that if Valero gets a positive determination, all other refineries would be eligible for that same determination. TCEQ indicated there 8 pending applications from other refineries and there are at least 12 other refineries who have not yet filed.

Valero testified that they are only following the law and working with TCEQ to figure out what portion of their hydrotreating equipment qualifies as pollution control. It is their position that removing the sulfur at the refinery keeps the sulfur from being emitted later in fuel. Installing equipment to remove the sulfur was required to meet EPA regulations.

David Thompson, with the Texas Association of School Administrators, provided testimony on the impact on school districts in the Gulf Coast area. He indicated support for the “at the site” requirement, and noted that the provision has been in the rules since 2001 without being an issue. He indicated they estimate the impact of the Valero exemption on the four school districts in Harris County that have refineries (Houston, Goose Creek, Pasadena, and Deer Park ISDs) for just 2010 would be $13.6 million. He indicated that some of that cost will be shifted to the state, but some will be borne by the local districts.

Chairman Oliveira asked the TCEQ why the commission disagreed with the Executive Director on the hydrotreaters being ineligible because they are used to produce a cleaner product, which is clearly excluded. TCEQ responded that they seemed to be persuaded by the argument that Valero would not have installed the equipment were it not for the EPA regulation.

Another speaker with school districts commented on the fact that even if the state holds the school districts harmless, that only applies to the M&O rate, not to debt.

The superintendant of Ingleside ISD indicated that they could be devastated by the Valero exemptions, particularly for previous years. He estimated $16.7m would have to be refunded back to the state and indicated that the districts current annual budget is $15m.

Martin Pena clarified that even if the state held school districts harmless, it would only be going forward and not for the previous years under existing formulas. He also pointed out that this would impact all school districts, because if the state has to prioritize funding to hold impacted districts harmless, it will have less to provide to the other districts.

Don Lee discussed the legislative history of the Prop. 2 program and the work of the Prop. 2 Advisory Committee. He discussed the resolution of the advisory committee recommending that the TCEQ move from the “at the site” requirement to language that more closely tracks the statute by ensuring that exemptions are not to be provided for equipment used to produce a product that reduces pollution.

Jim Robinson, HCAD, testified on the impact on school districts in Harris County of the Valero exemptions. Based on 2009 values, just over $1 Billion would come off the rolls. Going back to 2007, would require refunds of about $20 million. He indicated that a review of the payments appears to show that Valero made no indication that the payments were made under protest, so the taxing units had no way of knowing they should hold onto the funds. He also pointed out that extending the program to products would open it to people who produce catalytic converters and any other product that controls pollution. He added that losing the “at the site” could lead to exemptions for products that provide no benefit for the people of Texas.

If you were unable to attend and want to view the hearing, it is available on the House website (Prop. 2 is taken up at about 3:10 in the recording, if you right-click on the progress bar you can seek a specific time mark). The discussion on Prop. 2 is about 1.5 hours long:

http://www.house.state.tx.us/committees/broadcasts.php?session=81&committeeCode=490"