Testimony in Support of Senate Bill 349 – The Regulatory Certainty Act

TO:Members of the Senate Committee on Workforce Development, Forestry, Mining, and Revenue
FROM:  Scott Manley, Vice President of Government Relations, WMC and
               Eric Bott, Director of Energy and Environmental Policy, WMC
DATE:   October 24, 2013
RE: Testimony in Support of Senate Bill 349 – The Regulatory Certainty Act

Introduction
Wisconsin is seeing tremendous economic development and job creation across western, northwestern, and central Wisconsin.  The growth in jobs and investment is happening too rapidly to quantify but everywhere across the region it is visible.  People that were laid off during the great recession are getting back to work.  Local coffers are filling with new revenues.  Entire rail lines that have lain largely idle for decades are being rebuilt and put to good use.

Unfortunately, a loophole created by a State Supreme Court ruling that some local governments argue allows local jurisdictions to arbitrarily shut down businesses without due process or just compensation and a hodgepodge of excessive and unnecessary local regulations are slowing both investment and job creation.

These notions – that local jurisdictions can retroactively apply their police powers to shut down a mine site, a factory, or any other business and the idea that localities can create and operate duplicative, excessive, and even contradictory air and water permitting programs fly in the face of fairness and the regulatory certainty required for any employer to operate.

Wisconsin Manufacturers and Commerce, Wisconsin’s largest business advocacy organization representing more than 3,500 businesses thanks  Senator Tom Tiffany, Representative Joan Ballweg, and the members of this committee for taking up this issue today to begin the discussion about how to best address these threats to Wisconsin’s job creators.

Nonmetallic Mining and Wisconsin’s Role in the Energy Boom
Nonmetallic mining is a significant piece of Wisconsin’s economy.  In 2010, before the growth in demand for industrial sand really took off, nonmetallic mining contributed $2 billion to Wisconsin’s GDP according to the National Mining Association.  There are nearly 2,500 nonmetallic mines licensed and operating in Wisconsin.

Wisconsin’s nonmetallic mining tradition runs deep.  For more than a century, companies throughout central and western Wisconsin have extracted from the earth high quality silica for use in glass making, iron casting and ceramics.  The industrial sand mined and used for these processes since our founding is identical to the sand now used in hydraulic fracturing. 

Indeed, Wisconsin’s world renowned cast iron industry remains dependent upon a steady supply of industrial sand for use in their molds.

Wisconsin is usually ranked as the second largest foundry state in terms of cast iron output.  Foundries are a $3 billion a year industry.  If our single largest foundry company, Waupaca, were its own country, it would be the 8th largest supplier of cast metals in the world.  To produce such an output, our foundries require hundreds of thousands of tons of industrial sand each year.  The sand is casted into molds and reused as many as 50 times before being recycled into low cost, clean fill for use in state and local road projects.  It’s no wonder that the Wisconsin Cast Metals Association has joined our efforts to pass the Regulatory Certainty Act. 

However, Wisconsin’s long familiarity with sand mining has obviously not fully prepared it for the rapid expansion taking place as a result of the boom in domestic energy production in shale deposits throughout much of the country.

Wisconsin sand found here in our St. Peters, Jordan, and Wonewoc formations is globally the best known proppant or solid material used to keep oil or natural gas wells open.  It is unique in terms of its compression strength and far more economical than manmade alternatives.   Roughly 85% of the material that goes into a given well is proppant and the very best and cost effective proppant is Wisconsin sand.

Wisconsin should be proud of this contribution toward American energy independence.  Our state is playing an important part of some truly spectacular activities.

This year America has pushed ahead of Saudi Arabia as the #1 total petroleum producer and ceased to be the top importer of crude for the first time in decades.   We’re on track to surpass the Saudis in total oil production by 2020 and could be a net exporter by 2030.

The growth of petroleum production means great things for American and Wisconsin industry and families.  Its growth has already created 2.1 million jobs nationwide and is on pace to create more than 3,000,000 by 2020.  In Wisconsin, it was responsible for the creation of nearly 20,000 jobs as of 2012 and that figure is expected to rise to more than 33,000 by the end of the decade.

The highly respected energy research firm, IHS Global Insight, recently published a study showing that the shale energy boom saved the average American family $1,200 last year and that those savings will increase to $3,500 by 2025.  Wisconsin sand helps that happen.

Industry is feeling the benefits too.  What been described as the industrial renaissance is nothing short of amazing.  Whereas just a few years ago we were all worried about off-shoring, low cost natural gas is now resulting in onshoring, particularly in the plastics, fertilizer, chemical and other industries that require large quantities of natural gas.

Moreover, low cost natural gas may just turn out to be the saving grace for Wisconsin’s paper industry, as it struggles to comply with the US Environmental Protection Agency’s extremely costly Boiler MACT rule.   An analysis from Fischer International estimated that the Boiler MACT rule could result in the closure of up to 11 paper mills and the loss of 7,500 jobs in Wisconsin.  As it turns out, the opportunity to convert to natural gas afforded because of hydraulic fracturing might just keep a number of those mills up and running.

For those concerned with carbon emissions, this is also good news.  The Energy Information Administration estimates that American carbon emissions will be 5% less in 2040 than they were in 2005, in no small part because of the availability of low cost natural gas due to hydraulic fracturing.  Wisconsin sand is playing a role in that as well.

So what does all this have to do with SB 349?  Obviously WMC supports Wisconsin’s role in contributing to low cost energy and American energy independence.  The regulatory certainty created through SB 349 will help ensure that Wisconsin’s role in America’s movement toward energy independence continues uninterrupted.

Zoning as the Proper Place for Local Land Use Regulation
Our support for the Regulatory Certainty Act, however, also stems from other issues that may be even more significant to Wisconsin’s job creators.

As we all know, the growth in petroleum production has not gone on without controversy.   Opposition to hydraulic fracturing and the typical growing pains associated with a rapidly expanding industry have raised concerns throughout Western Wisconsin as to the impacts that the sand mining industry may be having on local communities.

Those concerns have in turn spawned a new series of regulatory challenges that apply far more broadly than to just the nonmetallic mining industry.  

At the heart of SB 349 is a response to a February 2012 State Supreme Court Decision in Zwiefelhofer v. Town of Cooks Valley. 

Zoning has been traditionally viewed as the lawful tool to regulate land uses.  Wisconsin Towns have had the option to participate in county zoning or to enact their own zoning ordinance.  Many towns opted out of that scheme in favor of no zoning at all.  That in its self is a local control decision. 

In Zwiefelhofer, the Wisconsin Supreme Court ruled that a local township possessed inherent police powers to regulate certain land uses within its borders.  Specifically, a nonmetallic mine was opening and the township sought to regulate that use even though it had voluntarily withdrawn from county-wide zoning.  The Supreme Court ruled that notwithstanding the lack of zoning power, the Township could regulate land uses through its inherent health and safety powers.

In doing so, the Supreme Court limited the Zwiefelhofer case to the facts that were before it and specifically declined to rule that the broad use of police powers could be used in any other circumstances.

Despite this limited ruling, the use of police powers to regulate land use in ways traditionally confined to zoning is spreading rapidly across dozens of jurisdictions. 

In addition, the court noted in footnote 12 that the State, through its legislative powers, may standardize the regulation of land uses by creating state-wide standards:

The parties agree that the state legislature, if it so chose, could enact a uniform statewide law regulating nonmetallic mines, which might preempt a Town’s Ordiance. 

Further, Chief Justice Abrahamson explained in the Zweiefelhofer case “[d]espite the similarity and potential overlap between zoning ordinances and non-zoning police power ordinances, the legislature imposes different procedural requirements on these two forms of ordinances. … The heightened procedural requirements on zoning ordinances are often justified because zoning runs the risk of unduly infringing on individuals’ property rights.”

We contend that individual property rights are now very much being infringed. 

The key procedural requirement in question here is the application of legal nonconforming use rights.

Imagine a factory built out in the country in an area that has been zoned industrial.  Over time, development encroaches on the area surrounding the facility and with that development the local jurisdiction changes the zoning for the area.

Under a well-established legal framework for zoning, that factory has legal nonconforming use rights and may continue operating.

In the blurry world created through the application of police power ordinances to land use situations, those rights are eviscerated. 

Adopting the logic now applied by several local jurisdictions, any given business can be shut down at any time through the retroactive application of police powers ordinances.

Consider the chilling effect that has on investment in Wisconsin.

A business considering constructing a new facility or expansion in Wisconsin must now contemplate the fact that their investment could be shut down arbitrarily if they become the target of a particular local faction.

From a broad industry perspective, this is a huge problem for Wisconsin’s business community and should be addressed by the legislature.

SB 349 puts this genie back in the bottle before it wreaks its havoc on other sectors of our economy.

The bill simply takes us back to a system that operated quite well in Wisconsin prior to February 2012.

It does not eliminate local regulation but rather, it preserves local control for the regulation of nonmetallic mining through zoning.

A Hodgepodge of Local Environmental Regulations and Permitting Programs
The second series of problems we see this bill addressing are the local application of air and water permitting programs, monitoring and reporting requirements, and environmental standards that are duplicative, excessive, unscientific,  or even contradictory in relation to the health based standards established by the US Environmental Protection Agency (EPA) and DNR.

In January 2012 the DNR published an outstanding resource material entitled Silica Sand Mining in Wisconsin.  It includes a list of the dozens of state regulations that apply to nonmetallic mining.  These include: NR 135: Reclamation; NR 407: Air Permitting; NR 415: Particulate Matter; NR 140: Groundwater Quality Standards; NR 809: Protection of Drinking Water; NR 815: Groundwater protections; NR 103 – Wetlands protections, etc…  This list goes on and on and we encourage you to review the document for yourselves.

Suffice it to say that nonmetallic mining is a heavily regulated industry in Wisconsin it is regulated according to scientifically sound health based standards.  We cannot say the same about some of the regulations we have seen enacted at the local level.

More importantly, the promulgation of air and water regulations by local governments is a monumental shift in state public policy that hasn’t been considered let alone approved by the state legislature.

The negative economic consequences for job creators faced with overlapping regulatory jurisdictions are significant. It is also bad government. The establishment of environmental regulations has traditionally been a state function, and it generally is a state function throughout the United States. It is only at the state level that the expertise can be developed and maintained to enact and enforce the environmental regulation of air and water.

As a matter of governance, it simply makes no sense to suggest that every town, village, city, or county (and there are nearly 2,000 of them) can establish its own air and water regulatory program.  Given that these would be enacted as an exercise of police power, the regulations could change with every change in local government, and if every local government could enact environmental regulations, a single county could have many different environmental laws.  

A facility that crosses local lines could find itself subjected to more than one air or water regulatory program (which would be forever changeable).

SB 340 addresses this problem succinctly by reaffirming the DNR as the state’s environmental regulator.

Abuse of Local Road Agreements and the Application of Illegal Severance Taxes
Finally, this legislation addresses a third set of problems developing with increasing frequency for businesses involved in nonmetallic mining and in other sectors of the economy.

Wisconsin law has long granted local jurisdictions the right to seasonally post weight limits on roads to prevent undo damage during a spring thaw or other unique circumstance.

State law also allows for a business that must use a road during such a temporary posting to enter into a contract with the jurisdiction to compensate it for any actual damages that business might cause.

Businesses in Wisconsin recognize that this is their responsibility and have generally been able to reach consensus with their local governments on road use agreements.

What we are now seeing, however, are these provisions of the statutes being manipulated in ways the legislature never intended – to leverage massive upfront payments from businesses or to levy severance taxes that have never been approved by the legislature.

Moreover, these agreements are not being applied seasonally nor are they being applied as general weight limitations.

They are being applied on a discriminatory basis against individual employers.

Keep in mind, these are businesses that have paid their license and registration fees and gas taxes and are now being told on an individual basis that they cannot use public thoroughfares.  Such draconian actions by the state should be applied sparingly, if at all.  They are becoming all too common.

SB 349 approaches these various abuses reasonably.  It does not preclude local jurisdictions from collecting compensation for damages to roads.

Instead, it codifies the best practices that have existed in local road use agreements between businesses and local jurisdictions for years.

The bill grants local jurisdictions the authority to collect for actual damages after the fact.  It provides for a third party engineer to intervene and determine actual damages if the two parties cannot agree and it allows local jurisdictions to require reasonable proof of financial assurance. 

Further, the bill avoids nullifying existing contracts and instead asks only that businesses be granted the right to petition to renegotiate and that those negotiations be conducted in good faith.  At the end of the day, the ultimate authority, including the authority to post a road to prohibit use altogether rests with the local jurisdiction.

Conclusion

We thank you again for the opportunity to speak before you today and for your patience with our lengthy testimony.  The issues addressed by the Regulatory Certainty Act of are great importance to Wisconsin’s business community.  We hope that our description of the problems addressed by SB 349 and our analysis of the bill are helpful as you deliberate the bill’s merits.  We encourage your support.