At the request of the Department of Safety and Professional Services and the Department of Administration, and in accordance with s. 13.94 (1s), Wis. Stats., we have completed a financial audit of the State of Wisconsin Petroleum Inspection Fee Revenue Obligations Program for the fiscal years ending June 30, 2011, and June 30, 2010. We have provided our unqualified audit opinion on the Statement of Changes in Program Assets. The Department of Safety and Professional Services' responsibilities related to this program were performed by the former Department of Commerce through the end of fiscal year (FY) 2010-11.

Under the program, the State was authorized to issue $386.9 million in revenue bonds and commercial paper to provide financing for payment of claims under the Petroleum Environmental Cleanup Fund Award (PECFA) program. These revenue obligations are not general obligation debt of the State. Instead, they are to be repaid primarily from the $0.02 per gallon fee charged to suppliers of petroleum products sold in Wisconsin. As of June 30, 2011, a total of $188.7 million in revenue obligations remained outstanding, including $117.5 million in revenue bonds and $71.2 million in commercial paper.

The State collected $73.8 million in petroleum inspection fees during FY 2010-11. Because the State refinanced a portion of the program's outstanding revenue obligations during FY 2009-10, only $5.9 million of the inspection fees needed to be retained by the program for debt service and other costs during FY 2010-11. This allowed $67.9 million of inspection fees to be deposited to the Petroleum Inspection Fund, of which $8.8 million was used to pay PECFA claims. The remaining $59.1 million was used for a variety of purposes, including transfers authorized in 2009 Wisconsin Act 28 of $24.1 million to the Transportation Fund and $9.2 million to the General Fund. In addition, $4.8 million was transferred to the General Fund to meet lapse requirements under 2009 Wisconsin Acts 2 and 28.

2011 Wisconsin Act 32, the 2011-13 Biennial Budget Act, authorized the transfer of $25.8 million from the Petroleum Inspection Fund to the Transportation Fund during each year of the 2011-13 biennium. To ensure funding is available for these transfers, the spending authority in the appropriation used to pay PECFA claims was reduced from $9.1 million for FY 2010-11 to $4.6 million for each year of the 2011-13 biennium. A balance is expected to remain in the fund through the biennium. However, if PECFA claims exceed the amounts appropriated, a backlog will likely develop and related interest costs will be incurred. The Department of Safety and Professional Services indicated that it may seek increased appropriation authority to avoid a backlog.

We appreciate the courtesy and cooperation extended to us during our audit by staff of the departments of Safety and Professional Services, Administration, and Revenue.