The failure of the Connecticut state government to properly maintain an insurance fund for gas station cleanups has reminded industries and businesses of the dangers of relying on state government. And some are wary of entering into any similar agreements in the future.
“If you take a dollar out of my pocket and use two-thirds of it for a reason other than what you told me, why should I believe you if you try to do it again?” asked Gene Guilford, president of the Independent Connecticut Petroleum Association. “What is the expectation we have you are telling us the truth? They have no credibility.”
The immediate issue is the Underground Storage Tank Fund, which was set up to help businesses. After 21 years of regulations and legislative raids on the fund, the businesses were left hurting when the legislature decided to pull the plug earlier this month.
The problems causing this failure are not unique to the Underground Storage Tank Fund. They are called 'sweeps,' and they occur every time the governor and the Connecticut General Assembly need to find money to balance the state budget. Programs with excess money and dedicated sources of funding through taxes or fees are raided to pay for general fund deficiencies.
And 'sweeps' have become quite routine in Connecticut state government.
In addition to the UST Fund, otherwise solvent programs that lost funding in budget raids include the Connecticut Energy Efficiency Fund, the Connecticut Clean Energy Fund, the University of Connecticut operating fund, the State University System operating fund, and the UConn Health Center Malpractice Fund.
“It is a lot easier to raid existing revenue sources than it is to raise taxes or cut expenses,” said Eric Brown, associate counsel with the Connecticut Business & Industry Association. “You end up getting defunded, and that obviously messes up the whole purpose why it was set up to begin with.”
Administrators and beneficiaries of these programs can only sit and watch as their expenses remain and their programming is destroyed with little hope for reconciliation of their lost dollars.
“It is hard to get in legal trouble when you make the laws,” said Zach Janowski, investigative reporter for East Hartford watchdog group Yankee Institute. “The legislators make rules they choose not to follow.”
The UST Fund began as a cooperative venture in 1991 where the state would collect a gross receipts tax on the sale of vehicle fuel and set aside the money to insure against hazardous spills, fulfilling a U.S. Environmental Protection Agency requirement.
Trouble started when the state changed the fund regulations making UST funding claims harder to process. Then, the state government needed money to balance its budget and decided to put the gross receipts tax collections into the general fund, allocating a smaller portion to UST.
With less revenue to make payouts and $1 million in staff and overhead expenses, the UST Fund ran up a deficit of $18.3 million in unpaid approved claims and $85 million in unprocessed claims. Facing EPA threats of decertification, the General Assembly decided to close down the UST Fund and pay most of the businesses 25 percent of what they are owed.
“Especially in this day and age where government resources are scarce, state government shouldn't be in the business of providing an insurance service to private business,” said Dennis Schain, spokesman for the Department of Energy & Environmental Protection, which oversees the fund. “This really isn't an important role for government.”
While that may be sound policy, it's an abrupt change that leaves a lot of gas station owners scrambling.
With the fund closing down, businesses that own more than five gas stations must obtain private insurance by October while smaller businesses have until October 2013.
Obtaining private insurance will be harder — if not impossible — for gas station that have existing or previous contaminations and will less likely receive payouts for future problems, Guilford said.
“There won't be much money to do a cleanup,” Guilford said.
One of the main providers of UST insurance — Zurich American Insurance — announced in June it would no longer provide new policies or renewals. The availability of private insurance continues to shrink, Guilford said.
Dominick Vallera, manager of the Shell Station on Capitol Avenue in Hartford, said he believes he has to self-insure because his station has a steel underground tank. The added cost will keep him from being competitive against the larger businesses, and he'll be forced to close.
“That will probably put us out, because it takes a lot of money to self-insure,” Vallera said. “It exceeds what is in our bank account.”
While gas stations scramble for insurance and face closure, the state general fund keeps all of the money from the gross receipts tax on vehicle fuel — at a rate that has tripled since it was first dedicated for UST in 1991. The gross receipts tax is one of the main reasons Connecticut gasoline prices are significantly higher than surrounding states.
It is the same fate for other taxes and fees that originally had other purposes, such as tobacco taxes, lottery purchases and taxes on casino slot revenue.
“The gas stations thought they essentially had a contract with the state of Connecticut to provide this service, and then the legislature went in and rewrote the agreement,” Guilford said.
The Connecticut Energy Efficiency Fund faced — but was spared from — a similar fate when the legislature took its programming money.
CEEF was established in 1998 with a fee from utility ratepayers to pay for programming to help businesses and homeowners become more energy efficient, such as home energy audits and financing for equipment upgrades.
Under Gov. John Rowland, CEEF lost $12 million to pay for a gap in the Department of Public Works budget. CEEF lost another $100 million under Gov. M. Jodi Rell to pay for a bonding initiative to balance the state budget.
“You have to reduce all your funding,” said Richard Steeves, the first vice chair of the Connecticut Energy Efficiency Board, overseer of CEEF. “You still have the same fixed costs, but you have less money to do programming.”
Since CEEF's budget is set in September and the legislative raids don't start until the following spring, the organization would have to alter programming at the last minute, or even after it already started, Steeves said.
“We have all these grand plans, and it is not going to happen,” Steeves said. “You are always looking over your shoulder worrying if it is going to happen again.”
Fortunately for CEEF, current Gov. Dannel Malloy has made energy efficiency a priority for his administration. Dan Esty — Malloy's hand-picked commissioner for the Department of Energy & Environmental Protection — is the chairman of the Energy Efficiency Board.
That, and the problems associated with taking ratepayer funds for taxpayer purposes, should leave the CEEF money secure for the near future.
“This may be the first year where we don't have to worry about the raiding of the funds,” Steeves said.
The same commitment to energy efficiency isn't comforting to the gas station owners and other members of the Independent Connecticut Petroleum Association.
Malloy and the General Assembly are proposing a tax on the sale of heating oil to pay for increased efficiency programs for homes that use oil for heat. Homes and businesses heated with natural gas and electricity already pay into these CEEF programs through a fee on their utility bills.
Still stinging from the 21-year failure of the UST Fund, the ICPA members — who own gas stations and heating oil businesses — aren't buying the promise that a new heating oil tax will stay in the conservation fund, Guilford said.
“The reactions of people in my industry are 'You've got to be kidding!'” Guildford said.