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REPORT:

AQMD Fee Structure Study

SYNOPSIS:

In conjunction with the Permit Streamlining Study, the accounting firm of Thompson, Cobb, Bazilio & Associates was retained by the AQMD in June 1998 to provide an independent review of AQMD’s fee structure and authority. This final report details the consultant’s findings and conclusions; and provides specific recommendations to simplify fee information, improve fee equity among all fee payers and provide greater cost recovery for AQMD programs.

COMMITTEE:

Administrative, March 19, 1999, Recommended approval of staff’s recommendation to receive and file the report and defer consideration of the recommendations pending completion of certain related efforts as set forth in the Board letter.

RECOMMENDED ACTION:

Receive and file.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

Health and Safety Code Sections 40510.5 and 40523 limit AQMD fees and revenue increases to the change in the California Consumer Price Index. These fee and revenue limits, combined with the requirements to implement new state and federal mandates, have impacted AQMD programs and administrative responsibilities in recent years.

Despite the agency’s success at reducing cost to the regulated public and meeting its program mandates with fewer resources, the AQMD continues to generate insufficient fee revenue to fully recover the cost of many of its mandated stationary source programs. Insufficient fee revenues coupled with the desire to simplify the fee rule led the Governing Board in June 1998 to award a contract to Thompson, Cobb, Bazilio & Associates (TCBA) to conduct an in-depth analysis of its stationary source fee structure and make recommendations for changes if appropriate.

Report

The study involved a comprehensive analysis of AQMD program costs and revenues, and interviews with AQMD staff, Board members and the regulated community. It began with the establishment of a Fee Structure Advisory Committee, composed of representatives of industry, including small business, environmental groups and staff. The initial role of this committee was to develop the criteria to be used to evaluate possible fee structure options. These criteria included such factors as simplicity, administrative feasibility, recovery of costs, and fairness to all source payers. This committee reviewed the progress of the consultant’s efforts and provided input and comment on this report.

Building upon the results from the 1995 fee study by KPMG Peat Marwick, the TCBA study focused primarily on permit processing, annual operating and emission fees. These three fee categories represent approximately 94% of the stationary source fee revenue received by the AQMD. Based on their analysis the study noted the following key findings:

• AQMD’s current cost information and tracking system provides a reasonable means for tracking and allocating overall costs but does not provide the detailed information needed for setting permit fees
• Permit fees significantly under-recover current costs
• Cost recovery could be improved by realigning and simplifying the permit fee structure without having to increase permit rates
• Eliminating small business discounts would simplify fees
• A substantial number of emitters (facilities emitting less than 4 tons) are not paying any portion of the cost of mitigating the impact of their emissions
• Title V fee categories and caps in processing groups 1 is too broad a range of devices to fully recover costs and should be broken into two different groups
• Changes to Hearing Board fees can improve cost recovery
• The AQMD should plan for an area source control program and necessary fees to support that program despite the obstacles
• On-Road Motor Vehicle Mitigation registration fees charged under Rule 308 are higher than the registration fees charged under Rule 311 due to the additional work required of AQMD under Rule 308

The report’s conclusions and recommendations, which are based on the best information available, were limited to some degree with respect to permit processing by the lack of actual cost information by type of permit action (new permit, change of ownership) or category of permit (Boiler, Dry Cleaner). This lack of detailed information at the permit level required a greater reliance on engineering staff estimates of the steps and time required to process permit applications by type of equipment.

The key recommendations from the study were:

Better Cost Information System Needs To Be Implemented

AQMD needs an information system that provides critical data on the cost of specific permit processes. This new system would have the full capability to track costs at a detail level that will allow for accurate fees and provide for the data that managers need to evaluate the cost effectiveness of their key processes.

Fee Categories Assigned To Certain BCAT/CCAT Items Need To Be Realigned Within the Existing Regulation III Fee Schedule

AQMD needs to realign certain BCAT/CCAT equipment and control device items to existing Regulation III fee schedule categories, which better match the costs associated with the permit process.

A Simple "Air Quality Improvement Fee" Should Be Instituted and the Annual Operating and Annual Emission Fees Eliminated

AQMD should simplify the Annual Operating and Emission Fee system by unifying these two fees into one annual "Air Quality Improvement Fee." The fee charged should relate to the key mission of the District, which is to improve the air quality in the South Coast Basin. Those permitted facilities that contribute to air quality degradation need to help pay for the cost of improvement. All that pollute should pay their fair share of the costs to make improvements.

Conclusion

The underlying purpose of this study was to independently analyze and document in sufficient detail the cause of AQMD’s revenue shortfalls thereby establishing a basis for evaluating fee or program changes necessary to bring AQMD revenues in line with its program costs. The study has accomplished that. What the analysis has also done is highlight the need to further streamline our business processes; develop actual cost data for the most significant types of permits processed; develop and implement an ongoing cost tracking system targeted at the permit level to provide a mechanism for future adjustments to permit fees as processes and requirements change; and evaluate registration fees for Rule 308 and 311.

Staff has considered and discussed the findings and recommendations made in the study with the Fee Structure Advisory Committee. Several members of the committee have provided written comments that are included as an appendix to the report. The Committee’s comments in general focused on the need:

• for definitive data on the actual staff time and cost of processing specific types of equipment or permit actions before changes are made to the fee structure;
• to establish performance benchmarking goals for staff engineers, supported by a detailed time accounting system;
• to improve efficiency at the AQMD first, implementing the recommendations from the Permit Streamlining Task Force, before realignment of fee schedules and equipment categories;
• for greater analysis and consideration of the fee options proposed by TCBA before the concept of a unified annual operating and annual emission fee is implemented;
• to continue the goal of restructuring and simplifying the permit fee tables.

Based on the Committee’s input and the recommendations put forth last month by the Permit Streamlining Task Force, staff recommends that the Board delay consideration of the consultant’s fee recommendations regarding the realignment of the fee schedules and the Air Quality Improvement Fee until: (1) definitive data on the actual cost of processing permits has been developed; (2) the key efficiency recommendations from the Permit Streamlining Task Force have been implemented; and (3) other fee recommendations or options, such as the Air Quality Improvement Fee (AQIF), have been evaluated.

The approved recommendations detailed in the Permit Streamlining Workplan, specifically: A2 - Develop Streamlined Standard Permit; B6 - Fee Rule; B8 - Permit Application Packages; C1 – Future Title V Facility Permits; C2 – Review Permitting Programs; C3 – Simplified Permit Program; and D4 – Conduct a Study of Permit Processing Time; address the significant action items highlighted in the fee study and provide the mechanism for evaluating and accessing the report’s conclusions and recommendations.

Attachments

Final Fee Structure Study Report

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