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PROPOSAL:

1997 Annual Report, FY 1998-99 Program Cost Estimate and Fee Adjustments for FYs 1997-98 and 1998-99 for Implementing the Air Toxics "Hot Spots" Information and Assessment Act (AB 2588)

SYNOPSIS:

This report fulfills two AB 2588 requirements by providing a program summary for 1997 with goals for 1998 and a cost estimate for the upcoming fiscal year. For the fees in FYs 1997-98 and 1998-99, staff recommends several funding options for Board consideration. These options may require higher industrywide fees and the transfer of already collected monies from the AB 2588 Air Toxics Fund to lower fees from the level which would otherwise occur.

COMMITTEE:

Administrative Committee and Stationary Source Committee,
February 20, 1998, Reviewed

RECOMMENDED ACTION:

1. Receive and file the AB 2588 Annual Report.

2. Approve inclusion of the AQMD in the statewide AB 2588 fee regulation for FY 1998-99.

3. Approve use of the AB 2588 Air Toxics Fund and industrywide fees to finance AQMD fee adjustments to AB 2588 core program facilities for FY 1997-98 for up to an additional $100,000 beyond the $700,000 approved by the Governing Board on March 3, 1997, and for FY 1998-99 for up to $800,000, and for FY 1999-2000 for up to $845,000.

4. Approve the attached AQMD program cost findings and estimate to implement AB 2588 for FY 1998-99 and its transmittal to CARB in accordance with the attached Board Resolution.

Barry R. Wallerstein, D.Env.
Acting Executive Officer

Background

AB 2588 Annual Report

Under the requirements of AB 2588, local air districts must prepare an annual report of program activities and air toxics rulemaking. The Act requires that the AQMD review and approve facility emissions inventories, determine which facilities prepare health risk assessments and ensures that health risk assessments are prepared according to state and AQMD guidelines. The attached report provides a summary of major program activities during 1997 and anticipated activities during 1998.

A major accomplishment for 1997 was a review of over 1,500 inventory reports as part of an effort to streamline the program and comply with new legislative changes. During the review of inventory reports over 600 facilities were exempted from the program and about 200 were reclassified. A second major accomplishment was the progress on review of existing health risk assessments (HRAs) from Phase I facilities and requesting new HRAs from Phase II and III facilities. Forty-two Phase I HRAs from large facilities were completed or canceled with another 12 near completion and awaiting revision by facilities. From this group, one facility notified the impacted community about the potential health effects of emissions from the facility.

Cost Estimate for the "Hot Spots" Program During FY 1998-99

The AB 2588 Fee Regulation, which recovers state and local program costs, requires the AQMD to transmit an annual program cost estimate to CARB by April 1 for the following fiscal year. Alternatively, the AQMD must establish its own annual fee schedule by rule to collect the AQMD and state costs for implementation of the program. The fees assessed through this regulation are used to:

• inventory toxic air emissions;
  
• prioritize facilities for preparation of risk assessments;
  
• review risk assessments;
  
• notify the public of potential health risk from exposure to the emissions; and,
  
• provide guidance to the facilities in reducing the potential health risks from exposure to the emissions.

The AQMD’s cost estimate and estimates from other districts, CARB, and the state Office of Environmental Health Hazard Assessment (OEHHA) are used by CARB to calculate the fees each district charges to facilities in its jurisdiction. The Fee Regu-lation is amended by CARB each year to incorporate these program cost estimates and other changes. The fees are specifically designated for the purpose of administering and implementing the mandated requirements of the Act. The AQMD collects the fees assessed by the CARB regulation and transmits the state portion of the collected fees to CARB.

A number of factors affect this year’s fiscal estimate:

• Continued implementation of changes to the 1996 state fee regulation which significantly reduce the number of facilities that pay.

• Use of fund balance in the AB 2588 Air Toxics Fund to adjust fee increases for facilities left in the program.

• Board approval of the fee for district tracking facilities is required for FY 1998-99.

• An industrywide source fee will be required for areawide facilities.

FY 1998-99 Cost Estimate

Staff has developed a program cost estimate for FY 1998-99 based on both the Three-Year Budget Forecast and costs incurred in FY 1997-98. The attached Table 1 contains a summary and breakdown of the AQMD’s estimated AB 2588 core program cost for FY 1998-99 which totals $1,329,330. Additional program costs are summarized in attached Tables 2 and 3. The total projected costs for FY 1998-99 are $1,626,269.

The total projected costs for FY 1998-99 will increase by $14,402 (1%) over FY 1997-98. This increase is due to the work projected for industrywide facilities. The work will include updating inventories and risk evaluation for over 8,500 facilities.

Fee Regulation

Assembly Bill 564 (Cannella) downsized the program leaving fewer sources to bear program costs. Nonetheless, substantial efforts are needed to complete reviews of health risks assessments for a small group of facilities. Staff expects the bulk of this work to continue until the year 2000.

Status of AB 2588 Air Toxics Fund

The state-wide AB 2588 program is designed to be self-funding. Source fees are determined each year based on state and AQMD cost estimates. According to the state fee regulation (section 90705(c)), underexpenditures by AQMD must be used to adjust future fees.

Local districts are required to collect fees for the state. Currently, AQMD and CARB are negotiating final reconciliation for a number of past billing years.

After this reconciliation is complete, the AB 2588 Air Toxics Fund is projected to have approximately $1,223,000 for potentially adjusting source fees. This is shown in Table 5.

Fee Adjustments

The need to adjust fees is the result of significant fee increases for 20% of the facilities because of the implementation of Assembly Bill 564. The new legislation exempted numerous low risk facilities from fees, recategorized a number of moderate risk facilities to lower fees, and therefore requires facilities with high risk values to pay significantly more fees.

Without providing an adjustment, fees would dramatically increase over this and subsequent years. AQMD fee increases would increase by 146% for FY 1997-98 without the $700,000 used to adjust the fee as approved by the Governing Board on March 3, 1997.

Without new adjustments AQMD yearly fee increases would be an additional 25% in FY 1997-98, 139% in FY 1998-99 and 21% in FY 1999-2000.

Options

There are many fee options which the Board can consider relative to the AB 2588 Air Toxics Fund core program sources in future years. As shown below, staff has provided three options based on expected program activity levels and initial input from the Board Committees which reviewed this item.

Option 1 would not provide any further fee adjustment beyond the $700,000 previously approved by the Governing Board for FY 1997-98. Facilities would face significant fee increases, especially in FY 1998-99. This option may be viewed as inconsistent with the fee regulation which directs districts to use these funds for subsequent fiscal expenditures.

Option 2 would authorize spending most of the remaining AB 2588 Air Toxics Fund balance in FY 1997-98 and FY 1998-99. This would reduce AQMD fees to the level of FY 1996-97. However, this proposal would require industrywide (small sources) to share an increased portion of costs in FY 1999-2000. Under this option, the industrywide fees are projected to be $52 in FY 1998-99 and $108 in FY 1999-2000. Despite this shift in costs to industrywide facilities, core program facility (large sources) fees in FY 1999-2000 would increase by 131%.

Option 3 involves spreading the projected reserves over three years, instead of two. This would provide estimated core facility fee increases of 10% for FY 1997-98, 10% for FY 1998-99, and 10% for FY 1999-2000. This proposal also requires industrywide facilities to share an increased portion of overall program costs in FY 1998-99 and FY 1999-2000. Industrywide fees are projected to be $82 for FY 1998-99 and $85 for FY 1999-2000.

By FY 2000-01, AQMD program costs should be substantially reduced as the major core facility activities such as risk assessment reviews, public notification, and guidance to facilities subside.

Staff recommends Option 3 because it spreads projected reserves more evenly over the next three years. Facilities would also not face as large an increase in the last year.

Billing Clarification

In the past, AQMD has sent a consolidated AB 2588 invoice to sources. At the suggestion of the Board’s Stationary Source Committee, the consolidated invoice will be split out to show the separate contributions of AQMD and state costs to the total fee. Examples of the draft invoice and cover letter for FY 1997-98 are attached as Figures 1 and 2.

District Tracking Fee

The FY 1997-98 regulation exempts a category of intermediate risk facilities from state fees. The category is defined as facilities with prioritization scores less than or equal to 10 and greater than one. Local districts are required to track and process update reports on a quadrennial cycle (every four years). These facilities’ reporting schedules are spread over the four-year cycle.

The update process includes the following AQMD annual activities and documents:

• maintaining an active list;
  
• maintaining electronic and physical records;
  
• preparing a notification package;
  
• mailing the notification package by February 1 of each year;
  
• tracking and reviewing responses;
  
• interacting and confirming reports with facilities (quality assurance);
  
• requiring full updates for facilities with significant changes;
  
• reprioritizing facilities based on new information; and,
  
• notifying facilities reclassified to a higher risk category.

The regulation requires districts to collect a fee for each of these facilities to process their quadrennial report. State law restricts a local district to a fee of $125 unless a special finding is approved by the district board. Staff has determined that AQMD costs exceed the limit as shown in the attached Table 2 for FY 1998-99. The fee to recover AQMD costs for FY 1998-99 is $652 per facility. The fee for the group of facilities reporting in FY 1997-98 was $517. This year’s fee is larger for the next reporting group because the total number of quadrennial facilities has been decreased. This is the only program fee these facilities will pay until their next report is due in four years. Staff recommends that the Board approve this special finding and fee for FY 1998-99.

Industrywide Source Fee

AQMD will collect industrywide fees for the FY 1997-98 billing. This will be the first in several years because of the high administrative cost of collecting a small fee (about $25 per year) from thousands of facilities. The only previous billing occurred in 1994 and facilities were charged $100 for past and projected expenses. The AQMD has paid state costs of $15 for each facility annually since FY 1993-94 using this original collection.

CARB has now completed and released several risk assessment guidelines for a number of industrywide source categories. For FY 1997-98, CARB’s industrywide fee is $25 per facility. CARB staff indicate this cost could increase in the future.

AQMD staff projects an increased level of work to review and identify high risk facilities. Additionally, AQMD staff propose that for the next two years, industrywide facilities (small sources) share an increased portion of overall program costs. This proposal will provide needed funding adjustments for core facilities as discussed under "Fee Adjustment Options." Based on staff’s review of program activities, cost and the Governing Board’s final decision on proposed adjustment options for core facilities, industrywide fee will be one of the following:

Attached Tables 3 and 4 give the basis for this fee. AQMD staff recommends that the Board approve Option 3, an industrywide fee of $82.

Summary

By approving these recommendations, the Board is:

1. Requesting that the AQMD be included in the statewide fee regulation;

2. Providing CARB with preliminary cost estimates for core program and industrywide sources under this program;

3. Increasing the FY 1997-98 fee adjustment by up to $100,000;

4. Allowing a FY 1998-99 fee adjustment for core program facilities by up to $800,000;

5. Allowing a FY 1999-2000 fee adjustment for core program facilities by up to $845,000; and,

6. Establishing a new "District Tracking Fee" for FY 1998-99.

Attachments

Table 1 - Air Toxics "Hot Spots" Program Cost Estimate for FY 1998-99

Table 2 - Air Toxics "District Tracking Fee Estimate" for FY 1998-99

Table 3 - Air Toxics "Hot Spots" Industrywide Cost Estimate for FY 1998-99, Options 1 or 2

Table 4 - Air Toxics "Hot Spots" Industrywide Cost Estimate for FY 1998-99, Option 3

Table 5 - AB 2588 Air Toxics Fund

Figure 1 - Air Toxics "Hot Spots" Fee Billing Invoice

Figure 2 - Air Toxics "Hot Spots" Fee Billing Cover Letter Resolution

1997 Annual Report

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