Municipalities and small gasoline station owners would get top priority over large chains as state government scales back and phases out a controversial fuel pollution abatement program, according to legislation adopted late Tuesday and early Wednesday in a special session of the General Assembly.

But while state lawmakers were prepared to offer many stations owners pennies on the dollar for their pollution abatement costs, they declined to provide any aid to diesel fuel consumers, who face a big tax increase July 1.

“It is difficult to negotiate with people on reimbursement that’s anything less than what they expected, but this was not a sustainable program,” Rep. Patricia Widlitz, D-Guilford, said of modifications to the Underground Storage Tank Petroleum Clean-up Fund.

Those changes were included in an omnibus policy bill that had been adopted 88-53 in the House of Representatives Tuesday evening and cleared the Senate by a 22-14 vote shortly after 12:15 a.m. Wednesday.

The U.S. Environmental Protection Agency warned Connecticut in January that it had until May 9 to fix the program or face federal decertification of the program. The General Assembly met part of that deadline, approving $36 million to resolve a huge backlog of claims — $9 million in each of the next four fiscal years — to be financed through bonding.

But it left the details of how those funds would be distributed until Tuesday’s special session. Federal officials opted not to decertify the program in the interim.

After Congress toughened regulation of leaking underground tanks in 1984, federal regulators accepted state cleanup programs as a crucial alternative for gasoline stations unable to get private insurance to cover their pollution liabilities. State legislators now say the insurance market has improved and the program no longer is essential.

Connecticut’s tank cleanup fund has been plagued by debt and backlogs stretching back nearly a decade. It entered the calendar year owing more than $16.8 million in aid, and with available funds to cover less than 2 percent of that.

The program also had nearly $82 million worth of backlogged applications that hadn’t been processed yet.

Though most entities seeking assistance are businesses, some cities and towns also have been awaiting aid to cover pollution abatement costs.

The legislation creates four categories of recipients for the $36 million in final funding. Besides designating municipalities as one group, it breaks potential businesses down into three subgroups:

  • Those owning or operating five or fewer stations or other polluted properties.
  • Mid-sized chains with between six and 99 stations or other properties.
  • Large chains with more than 100.

The $9 million annual funding for the program would be divided equally, with $2.25 million designated to cover claims from each group.

But both municipalities and small businesses represent a relatively small share of the cash value of backlogged claims, and the proposed funding is expected to be sufficient to cover most or all existing, valid claims over the next four years.

But midsized and large gasoline station chains would share the remaining funds in an unusual “reverse auction” system.

Those chains that agree to accept the greatest reduction in their claims will receive funds first. No midsized chain would receive more than 35 cents on each $1 claimed under this system, and no large chain more than 20 cents on each $1.

Both ceiling payments continue to shrink annually, eventually reaching only 1 cent per $1 for midsized chain claims not resolved before 2019 and for large chain claims not resolved before 2028.

“The reform of the Underground Storage Tank program will ensure compliance with federal law, save taxpayers money and prioritize assistance for municipalities, innocent landowners and small station owners,” said Gian-Carl Casa, spokesman for Gov. Dannel P. Malloy’s budget agency, the Office of Policy and Management. “The existing program is virtually open-ended and treated big oil companies the same as mom-and-pop shops. That ends with this reform.”

But the Independent Connecticut Petroleum Association, which represents about 1,000 gasoline stations and roughly 5600 home heating oil dealers, called the program changes “patently unfair” in a statement released Tuesday evening.

“Any citizen in the state of Connecticut who is told they are going to get 35 cents on every dollar they are owed would go ballistic,” the association said. “To most taxpayers this would be unacceptable and it is unacceptable to the businesses” that paid to abate pollution with the expectation of state assistance.

Rep. Leonard Greene, R-Beacon Falls, said the legislature wouldn’t have to phase out the assistance program had it not raided fuel tax revenues that were supposed to be dedicated to pollution abatement in years past to prop up excessive government spending.

“Why is this fund no longer working? What’s the big problem?” he said. “Quite frankly it’s us. … We killed this fund.”

And while gasoline stations were being offered pennies on the dollar, lawmakers declined to offer anything Tuesday to the state’s largest trucking association.

The Motor Transportation Association of Connecticut, which represents more than 800 companies, asked the legislature to scale back a 5-cents-per-gallon increase in the diesel tax that takes effect July 1.

Under a statute adopted five years ago, the diesel tax is adjusted annually using a complicated formula that analyzes wholesale diesel price changes over the prior year, as well as state taxes on regular gasoline.

Last July that formula added 3.6 cents per gallon to the diesel tax rate. And the legislature and Malloy added another 3 cents on top of that last summer to help close the state budget deficit.

All totaled, the rate will have jumped 11.6 cents between this July and last, an increase of 29.3 percent.

“We’re very disappointed that they chose not to address it,” Michael Riley, association president, said Tuesday, adding that his group would again appeal for relief in the regular 2013 legislative session, which starts in January. “The tax is way out of whack.”

Connecticut already has one of the highest diesel fuel rates in the nation, outpacing all other New England states, New York and New Jersey. While Connecticut is headed for a 51.2 cents-per-gallon diesel rate in less than three weeks, its chief competitors charge: 41 cents in New York; 31 cents in Rhode Island; and 23.5 cents in Massachusetts.

Riley argued that higher diesel taxes would harm the economy, driving up the price of groceries, beer and liquor, clothing and other goods routinely transported by trucks.

But Widlitz said that while Riley’s concerns are valid, lawmakers just closed a deficit in the current state budget, and downgraded revenue expectations for the coming fiscal year back in April.

“It’s just not a prudent move right now when we’re looking at projections that are slipping,” she said.

Diesel fuel taxes raised $98.6 million last fiscal year, according to state tax records, and have pulled in another $93 million through May 2012, with one more month of collections still to come in the current fiscal 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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