Commission Agenda Item No. 6
Exhibit A

SAND AND GRAVEL PERMIT RULES

PROPOSAL PREAMBLE

1. Introduction.

         The Texas Parks and Wildlife Department proposes an amendment to §69.121, concerning Prices.

         The proposed amendment would create a mechanism for the department to impose penalties and interest on permittees who are delinquent in the payment of royalties or the submission of reports or documents or for the submission of incorrect reports, affidavits, or documents. The proposed amendment would stipulate that as of the effective date of the section, any royalty not paid when due or any required affidavit, report, or document not submitted when due would be delinquent and subject to penalties. For delinquent royalty payments, the penalties would consist of five percent of the delinquent amount or $100, whichever is greater, for royalties delinquent less than 30 days; or 10 percent of the delinquent amount or $100, whichever is greater, for royalties delinquent more than 30 days. For delinquent or incorrect reports and documents, the penalty would consist of $100 per document, affidavit, or report.  The proposed amendment also would require the payment of interest on delinquent royalties at the rate of 12% per year (simple interest), beginning 30 days after the due date of the royalty payment. In 2011, the department conducted an internal audit of the sand and gravel program’s business model and determined that permittees were substantially noncompliant with regulatory deadlines for the submission of royalty payments and reports. This finding was also identified in a 2009 audit. When royalty payments are not timely remitted, the department is denied the full use and benefit of funds that are due. When required affidavits, reports and other documents are incorrect or not timely filed, department staff must expend additional effort to rectify the deficiency. The department therefore believes it is appropriate to promulgate rules to create a monetary penalty that accrues in value the longer the deficiency exists. The department based the structure of the proposed rule on the provisions used by the General Land Office to calculate penalty and interest payments with respect to oil and gas royalties paid to the state under the provisions of 31 TAC §9.51, concerning Royalty and Reporting Obligations to the State, and selected the $100 value as an amount that would be likely to encourage prompt compliance with the provisions of the subchapter

2. Fiscal Note.

         Tom Heger, Sand and Gravel Permit Program Administrator, has determined that for each of the first five years that the rules as proposed are in effect, there will be fiscal implications to state government as a result of enforcing or administering the rule. The department cannot predict the magnitude or frequency of payment or reporting delinquencies; however, the implications will be positive for the state, since the proposed rule would increase the penalties for delinquent payments and reports.

         There will be no fiscal implications for other units of state or local government.

3. Public Benefit/Cost Note.

            Mr. Heger also has determined that for each of the first five years the rule as proposed is in effect:

         (A) The public benefit anticipated as a result of enforcing or administering the rule as proposed will be rules that recoup the department’s cost to administer the program and protect the public fresh water resources of the state.

         (B) There will be an adverse economic effect on persons required to comply with the rule as proposed, but the department notes that the rule would not apply to any person who complies with the payment and reporting requirements of the subchapter. However, persons who are delinquent in submission of royalty payments or reports will owe additional charges as set forth in the rule.

         (C) Under the provisions of Government Code, Chapter 2006, a state agency must prepare an economic impact statement and a regulatory flexibility analysis for a rule that may have an adverse economic effect on small businesses and micro-businesses. As required by Government Code, §2006.002(g), the Office of the Attorney General has prepared guidelines to assist state agencies in determining a proposed rule’s potential adverse economic impact on small businesses. Those guidelines state that an agency need only consider a proposed rule’s “direct adverse economic impacts” to small businesses and micro-businesses to determine if any further analysis is required. For that purpose, the department considers “direct economic impact” to mean a requirement that would directly impose recordkeeping or reporting requirements; impose taxes or fees; result in lost sales or profits; adversely affect market competition; or require the purchase or modification of equipment or services. The proposed amendment affects individuals who are delinquent in submitting required payments and/or reports or who submit incorrect reports. The magnitude of such adverse economic impacts is dependent on the number of violations and the length of time that elapses between notification and resolution; therefore, it is impossible to calculate a meaningful estimate of potential adverse economic impacts related to the payment of penalties and/or interest. The department notes, however, that permittees who comply with the rules as proposed and timely submit documentation/pay royalties will experience no adverse economic impact related to penalties and interest.

         The department considered several alternatives to achieve the goals of the proposed amendment while reducing potential adverse impacts on small and micro-businesses and persons required to comply. One alternative the department considered was status quo. This alternative was rejected because the goal of the proposed amendment is to provide an incentive for permittees to timely submit required payments and reports, which represents a cost savings to the department both in the form of staff time spent attempting to rectify delinquencies and inaccurate reports, as well as in allowing the full use and benefit of royalty payments The department concluded that these considerations outweigh the adverse economic impacts to small and micro-businesses and persons required to comply.

         The department also considered increasing the penalties by a lesser amount. This alternative was rejected because a lesser amount is not believed to provide a sufficient incentive for compliance and the $100 value will allow the department to recoup the administrative cost of reconciling delinquencies.

         (D) The department has not drafted a local employment impact statement under the Administrative Procedures Act, §2001.022, as the agency has determined that the rule as proposed will not impact local economies.

         (E) The department has determined that there will not be a taking of private real property, as defined by Government Code, Chapter 2007, as a result of the proposed rule.

4. Request for Public Comment.

         Comments on the proposed rule may be submitted to Tom Heger, Texas Parks and Wildlife Department 4200 Smith School Road, Austin, Texas, 78744; (512) 389-4583 (e-mail: tom.heger@tpwd.state.tx.us).

5. Statutory Authority.

         The amendment is proposed under authority of Parks and Wildlife Code, Chapter 86, which authorizes the commission to adopt rules to govern the pricing of and terms for payment for substrate materials and any other matter necessary for the administration of the chapter.     The proposed amendments affect Parks and Wildlife Code, Chapter 86.

6. Text.

         §69.121.   Prices.

                 (a) The commission, with the approval of the governor, establishes a minimum royalty of $.20 ton for sedimentary materials. The permittee shall pay the minimum royalty or a percent royalty of 6.25% on the average selling price per ton sold calculated on a monthly basis, whichever is higher. The percent royalty shall increase to 8.0% on September 1, 1996.

                         (1) Where the permittee uses a floating dredge and barge or does not have access to a scale, measurement of materials sold may be made in cubic yards and converted into tons according to industry standard prior to payment.

                         (2) Payment for materials dredged solely for personal use may be based on the minimum royalty.

                         (3) Penalties and interest on delinquencies.

                                          (A) Penalties.  Any royalty not paid when due, or any required affidavit, report, or document not submitted when due, is delinquent and penalties as provided in this paragraph shall be assessed. For royalties and reports due after the effective date of this section, the department shall add:

                                                    (i) a penalty of 5.0% of the delinquent amount or $100, whichever is greater, to any royalty which is delinquent 30 days or less;

                                                    (ii) a penalty of 10% of the delinquent amount or $100, whichever is greater to any royalty which is more than 30 days delinquent;

                                                   (iii) a penalty of $100 per document for each report, affidavit, or document that is delinquent or incorrect. An additional penalty of $100 per affidavit, report, or document that is delinquent or incorrect shall be assessed for each 30-day period that each affidavit, report, or document remains delinquent or is not corrected.

                                          (B) Interest.  Any royalty not paid is delinquent and shall accrue interest as provided in this subsection.

                                                    (i) interest shall accrue on all delinquent royalties at the rate of 12% per year (simple interest).

                                                   (ii) interest shall begin to accrue 30 days after the date due.

                 (b) The commission, with approval of the governor, establishes a price of $1.25 per cubic yard on all grades of shell removed from state-owned submerged tidelands. The price of shell will hereafter be adjusted semiannually, starting October 1, 1981, to reflect any increase or decrease (percent of change) in the Consumer Price Index of retail sales as prepared by the Bureau of Labor Statistics, U.S. Department of Labor (using the National Consumer Price Index, all urban consumers, 1967 equals 100) except that any adjustment for the six-month period starting October 1, 1981, will be based upon the Consumer Price Index statistics compiled for the six months ending June 30, 1981, and each succeeding six-month period will be adjusted in the same manner in order to provide permittees advanced notice of price adjustments, and except that the price of shell per cubic yard will be rounded off to the nearest whole cent and will not be adjusted in any six-month period to less than the base price of $1.25 per cubic yard as established in this section.

                 (c) In addition, 5.0% of all shell dredged from state-owned submerged tidelands will be delivered to points designated by the department in Texas bays and spread at permittee’s expense for reef enhancement. Except that when permittee is required to deliver and spread shell at a point greater than 50 statute miles (computed using the nearest water route through public navigational channels) from the dredge site, the director is authorized to adjust the amount of shell permittee is required to deliver and spread to a quantity less than 5.0% in order to offset permittee’s increased delivery cost for the distance over 50 miles. Permittee will not be required to pay for the shell used for reef enhancement.

                 (d) The department’s actual cost of monitoring the dredging operations from state-owned submerged tidelands, not to exceed $50,000 per year, will be assessed against each permittee in proportion to the quantity (percentage of the total) shell removed by each permittee; provided however the maximum monitoring cost of $50,000 will be adjusted each fiscal year using the Consumer Price Index (CPI-U) for the preceding 12-month period except that in no event will the maximum monitoring cost be adjusted below $50,000. The director is authorized to determine the methods and terms for payment of the monitoring cost.

         This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency’s authority to adopt.

         Issued in Austin, Texas, on