State government is facing a deadline this spring to resolve an $80 million backlog in a fuel cleanup program — or risk hundreds of gasoline stations going out of business.

But a state Department of Energy and Environmental Protection spokesman said the department already is mobilizing industry representatives, state legislators and the U.S. Environmental Protection Agency to craft a long-term solution for the Underground Storage Tank Petroleum Cleanup Program.

Plagued by backlogs stretching back nearly a decade, the program owes $17 million in aid already approved for Connecticut businesses — primarily gasoline stations — that faced leaking underground tanks. The program also has $81.6 million worth of backlogged applications that haven’t been processed yet, DEEP spokesman Dennis Schain said.

Typically, about 70 percent of the applications have been approved. If that ratio were to hold with the backlogged cases worth $81.6 million, the state would likely have to pay another $57 million in aid.

Since Congress toughened regulation of leaking underground tanks in 1984, state cleanup programs became a crucial alternative nationwide for gasoline stations often unable to get private insurance to cover their liabilities.

For more than two decades, Connecticut funded its cleanup assistance program by dedicating a portion of receipts from its wholesale fuel tax. Between 1990 and 2009 the state’s transfer averaged $9.7 million per year, according to budget records.

As the last recession hit and state officials raided a host of programs to avoid deficits, the annual transfer was cancelled. In its place, legislators and former Gov. M. Jodi Rell allocated $4.7 million for the program in 2010 and $3.2 million in 2011.

This past spring, Gov. Dannel P. Malloy and the legislature approved just $1.3 million for the program, both for the current year and for 2012-13. And of that $1.3 million, only $250,000 is available to help businesses, with the remainder to cover administrative costs.

But federal officials in the EPA’s Boston regional office warned state officials in July that it might stop recognizing the Connecticut program as an alternative to insurance, given the huge discrepancy between pending awards and applications, and available assistance funds.

“At current funding levels, most owners and operators will not receive reimbursement in their lifetime,” James T. Owens III, director of the EPA’s Office of Site Remediation and Restoration, wrote to state Environmental Protection officials. “Clearly, in its current condition, the use of the state fund as a means of financial responsibility does not encourage — or in some cases enable — releases to be addressed promptly.”

Without federal endorsement of the state program, most stations — particularly those with any history of tank leakage — would be forced to self-insure, said Michael J. Fox, executive director of the Stamford-based Gasoline and Automotive Dealers Association of America.

Fox, whose group represents more than a third of Connecticut’s nearly 1,200 licensed gasoline stations, said he thinks close to half of all stations would have to close. Those large enough to self-insure would have to raise retail prices drastically.

“I think the EPA is 100 percent dead serious about this issue,” Fox added. “We have to deal with it this year.”

A follow-up letter from the EPA’s Boston office in September pressed state officials for a solution by October. “EPA is taking this matter very seriously, and looks forward to working with the state to resolve the problem,” the federal agency added Wednesday in a written statement.

State officials have asked for more time, noting that the administration cannot dedicate new resources for the program unilaterally. The regular 2012 General Assembly session starts Feb. 8 and ends in early May.

And both Schain and state legislators said Tuesday that it is clear Connecticut must work quickly toward a solution.

Schain added that this process already is under way. “We are working closely with all interested parties, including the EPA, the UST (oversight) board, industry representatives, the legislature and the governor’s office to fashion a solution to what is a complex issue,” he said. “We believe good progress is being made.”

Eugene Guilford, director of the Independent Connecticut Petroleum Association, said the Malloy administration “has shown it thoroughly understands the necessity of putting this program back into a position where it can do what it is supposed to do.”

Key state legislators said Tuesday that they also believe they are facing a May deadline to resolve the backlog to the satisfaction of federal officials.

Whether the solution lies with borrowing funds to a one-time infusion of cash, once again dedicating a portion of fuel tax revenues, or some combination, wasn’t clear Tuesday.

But Rep. Patricia Widlitz, D-Guilford, House chairwoman of the Finance, Revenue and Bonding Committee, said she’s confident lawmakers understand the need to act promptly.

“I was rather appalled by the situation,” she said. But she also noted that the current legislature and administration already have a good track record when it comes to unraveling fiscal problems created during the last recession.

Malloy, who campaigned last fall against a growing trend of using fuel revenues for general budget purposes, worked with the legislature last spring to begin shifting fuel dollars back into transportation programs. They dedicated nearly $227 million, or two-thirds of Connecticut’s wholesale fuel tax receipts, for that purpose this fiscal year.

Sen. Edward Meyer, D-Branford, co-chairman of the Environment Committee, said he would like to see the underground storage tank program once again receive a regular share of these tax receipts as well.

“If we go back to the previous system, we will know our environment will be better in the long run,” he said. “But I am very much committed to dealing with it this year.”

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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