South Coast Air Quality Management District

Amend Regulation III - Fees

SYNOPSIS: 

Proposed amended Regulation III includes an across-the-board fee adjustment to reflect the change in the California Consumer Price Index and implements many of the state auditor and the 1999 Fee Structure Study recommendations to recover costs of permit processing and related activities, currently not fully recovered. It realigns and simplifies the permit fee structure; adjusts fees to reflect findings of the time tracking study and recover costs of services rendered; extends time to claim refunds; establishes a streamlined, low-cost, standardized permit provision; establishes a minimum annual emissions fee for all sources; requires larger sources to pay annual emission fees for their non-permitted source emissions; and revises the fee structure for gasoline dispensing facilities from nozzles to product grade dispensers. Other changes necessary for clarification are also being proposed.

COMMITTEE: 

Administrative, April 13; Stationary Source, March 23; Reviewed

RECOMMENDED ACTION:

Adopt the attached resolution:

1. Certifying the Notice of Exemption for Proposed Amended Rules 301 – Permitting and Associated Fees; 303 – Hearing Board Fees; 304 – Equipment, Materials and Ambient Air Analyses; 304.1 – Analyses Fees; 306 – Plan Fees; 307 – Fees for Air Toxics Emissions Inventory; 307.1 – Alternative Fees for Air Toxics Emissions Inventory; 308 – On-Road Motor Vehicle Mitigation Options Fees; 309 – Fees for Regulation XVI, and 311 – Air Quality Investment Program (AQIP) Fees; and
   
   
2. Amending Rules 301 – Permitting and Associated Fees; 303 – Hearing Board Fees; 304 – Equipment, Materials and Ambient Air Analyses; 304.1 – Analyses Fees; 306 – Plan Fees; 307 – Fees for Air Toxics Emissions Inventory; 307.1 – Alternative Fees for Air Toxics Emissions Inventory; 308 – On-Road Motor Vehicle Mitigation Options Fees; 309 – Fees for Regulation XVI; and 311 – Air Quality Investment Program (AQIP) Fees.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

The AQMD Governing Board is scheduled to adopt the FY 2001-2002 Budget at its May 11, 2001 meeting. Historically, both the budget and the fee rules have been adopted at the May Board meeting each year.

California Health and Safety Code Section 40500, et seq, established AQMD’s authority to adopt rules and regulations, including fee schedules intended to cover AQMD’s actual costs of cleaning the air. There are ten rules within Regulation III Fees, that set fees in three major categories:

1. Permitting, including permit processing and annual renewals of permits to stationary sources,
2. annual emission fees for facilities that emit toxic or criteria air contaminants, and
3. other District services including variances from the Hearing Board, compliance monitoring and testing, review of emission control plans and certain training programs.

Regulation III fees fund approximately two-thirds of the AQMD programs. As described in more detail in Attachment B, the FY 2001-2002 Budget is projected to be balanced for the first time in 10 years. In previous years, budget deficits were funded from reserves. The balanced budget will be in part achieved by amending Regulation III to more fully recover permit processing costs and to more equitably distribute annual emissions fees. An across-the-board adjustment to account for the change in the California Consumer Price Index is also included as part of the balanced budget proposal. To implement these increases, eight fee rules are proposed for amendment.

The draft FY 2001-2002 Budget expenditures represent a $600 thousand increase from the previous fiscal year. AQMD’s budget has dropped from a high of $113 million in 1992 to just $95.9 million for the coming year. The proposed budget includes $3.1 million in subvention funding specifically earmarked by the legislature for enhanced compliance/enforcement activities.

Policy Issues

Over the past several years, the District has made significant strides in improving performance and efficiency in several of its programs and reducing expenditures. While further program streamlining continues to be the goal, the cost of several District programs continue to be significantly under-recovered. The purpose of the proposed amendments to Regulation III is to partially address the chronic cost of under-recovery, more equitably distribute program costs among impacted sources, and arrive at a balanced budget for the next fiscal year and several years beyond.

The staff proposal for amending Regulation III contains four major elements. First, staff is proposing an across-the-board increase in fees to reflect the change in the California Consumer Price Index. This 3.7% adjustment will be made to all fee rates in Regulation III.

Second, staff is proposing adjustments to the annual emissions fees. In order to implement recommendations by the California State Auditor in 1998, the Revenue Committee established by the Executive Officer in 2000, and the independent consultant for the Fee Structure Study - Thompson, Cobb, Bazilio & Associates, PC (March 1999) - staff is proposing that all facilities pay a flat annual emissions fee of $75 for the first 4 tons of emissions. This $75 minimum fee would be phased-in over two years starting with $37.50 for FY 2001/2002. Additionally, facilities reporting their emissions would have non-permitted emissions assessed and included in their emissions fees. To minimize the economic impact and allow for advanced business planning, staff is proposing this proposal to be phased in over three years starting fiscal year 2002-03. However, staff is not proposing to implement the second half of the total 16% above CPI emissions fee increases for the large emitters that was anticipated to be necessary last year. Last year the first half, an 8% increase was implemented.

Third, staff is recommending adjustments to the permit processing fee rates consistent with the results of the time tracking study. Both the California State Auditor and the independent consultant concluded that AQMD is significantly under-recovering its permit processing costs and recommended that fee rates be aligned with permit processing costs. The time tracking study conducted to better assess the permit processing costs, confirmed these recommendations and staff is proposing increases to the permit fee rates for Schedules A through B and reductions for Schedules D through H.

Fourth, staff is recommending to restructure the annual operating fee structure applicable to gasoline dispensing stations subject to Rule 461. Currently, service stations are being assessed a fee for each nozzle that they operate. The intent of the restructuring is to not raise additional funds beyond the levels obtained when the special service station fees were adopted, but rather to maintain the funding levels necessary to recover the costs of the District’s enforcement efforts and prevent the current anticipated and future revenue decline from this source category as a result of the industry-wide trend to switch from multi-hose to "unihose" configurations.

Other minor amendments are being proposed to clarify the Regulation and make other adjustments.

Taken collectively, the proposed amendments to Regulation III more closely align program costs with program revenues and provide for the first proposed balanced budget in 10 years.

Future Efforts

The time tracking study will be continued to gather further data on permit processing time lines. This additional data will provide a more robust data base for time tracking statistics and opportunities for further enhancements.

AQMD staff will pursue other revenue mechanisms to more fully distribute the fee burden such as area source fees. Area source fees were one of the key recommendations from the revenue committee to provide a more balanced fee structure. The concept is being partially implemented by the introduction of a fee on non-permitted emissions. AQMD staff will continue its work in this field to examine additional approaches for and sources that could be included in such a fee.

Finally, streamlining of AQMD operations remains a program focus. Staff is continuing to look for additional avenues to improve performance. As an example of previous efforts, permit streamlining has resulted in 30% more permits being issued in 2000 than in 1999 and the productivity of permit processing staff has improved by more than 50% over the past ten years. Staff is continuing its efforts in permit streamlining and in other areas for operational improvements.

Proposed Amendments to Regulation III - Fees

Proposed Amended Regulation III calls for the following cost recovery measures which are in line with the State Auditors and the independent consultant (Thompson, Cobb, Bazilio & Associates) recommendations:

PROPOSED AMENDED RULE 301 - PERMITTING AND ASSOCIATED FEES

1. CPI Adjustment. An across-the-board 3.7% increase in most fees. This corresponds to the latest reported change in the California Consumer Price Index (CPI) for 2000.
   
   
2. Emissions Fees.

1. A flat fee of $75.00 per facility ($37.50 for reporting year 2000-01) for all permitted facilities. This proposal implements the recommendation of the State Auditor and the independent consultant to have all facilities with one or more written permits pay an annual emissions fee and contribute their fair share in recovering program costs.
   
   
2. Account for Non-permitted Facility Emissions. This proposal is to account for all emissions, including emissions from non-permitted sources for those facilities required to report actual permitted criteria pollutant emissions. A fee will be assessed for combined permitted and non-permitted emissions of 4 tons or more per year (or 100 tons or more per year of carbon monoxide). This fee will be phased in over three years starting FY 2002-2003.

3. Permit Processing Fees.

1. Adjust the permit processing fee for all Categories to reflect the actual time needed to process those applications. The time tracking study conducted by AQMD staff confirmed the analysis by the independent consultant and the state auditor that the permitting expenses for the lower categories far exceeded the revenue generated. As a result, fee rule increases are proposed for categories A, A1 and B to reflect the findings from the time tracking study. Similarly, reductions are proposed for categories D through H to reflect the permit processing time indicated from the time tracking study.
   
   
2. Consolidate fees charged to process new permits and alterations/modifications. The internal time tracking study conducted by AQMD staff has also indicated that on the average an equivalent amount of time is spent to process a new permit and a modification/alteration typically involves a process change requiring engineering analysis.
   
   
3. Adjust Title V and RECLAIM Fees. Adjustments are proposed to more accurately reflect time required for processing RECLAIM and Title V activities.
   
   
4. Streamlined Standard Permits. A Standard Streamlined Permit (SSP) may be issued for certain types of equipment or processes commonly permitted by the AQMD with pre-set levels of controls and emissions. The SSP processing fee is offered at a significant discount compared to permits under other schedules.

4. Rule 461 Gasoline Dispensing and Transfer Equipment.
   
   Currently a combined annual fee of $62.15 per nozzle is charged to Rule 461 permitted facilities. This per nozzle fee consists of an annual renewal fee of $37.04 and an annual compliance fee of $25.11. The proposed amendment eliminates the two fees charged previously and replaces it with a single per product fee. The per product fee is proposed at $56.50 per product which will maintain the District’s current administrative and inspection program at current levels.
   
   
5. Other Amendments

1. Non-Road and Qualifying Engine Permits to be Charged Per Rule 301 Table 1B Schedule. Current fees for these equipment do not cover toxics impacts which must be evaluated as part of the permitting process. Most equipment in this category can now obtain Statewide permits at lower subsidized rates, thus avoiding the increased fee.
   
   
2. Eliminate Discounts for Change of Operator Applications with Multiple Permits. The time tracking study indicates that the same number of hours are needed to process a change of operator regardless of the number of such requests per facility. The proposal is to applies the current CPI adjusted processing fee to each permit unit included in the change of operator application and sets upper permit processing fee limits.
   
   
3. GIS map generation fee for AB 3205 evaluation. This fee is set at $220 to cover time and materials needed to identify and map hazardous air pollutant emitting facilities in order to comply with the requirements of AB 3205.
   
   
4. Time tracking adjustments for CEQA preparation and review fees. The fee for Notice of Exemption is adjusted down to $174.80 from $658.97 to reflect the average processing time and materials cost. This fee is only charged when the applicant requests CEQA staff to generate the notice.
   
   
5. Certification for New and Repackaged Barbecue Igniter Products. A minimum fee of $436.99 will be charged per product certified. For certification work which exceeds 5 hours the applicant will be billed at an hourly rate of $87.40 per hour for the additional hours.
   
   
6. Extend time for refund claims. The time for a facility to claim a refund is proposed to be extended from 12 months to 14 months.
   
   
7. Addition of a new equipment category in Table IB. Gas Turbines running on landfill/digester gas and rated at less than 0.3 MW will be assessed fees at the schedule B rate. Landfill/digester gas turbines rated at 0.3MW or greater will be assessed fees at the schedule E rate.
   
   
8. Modification of Table IB Category Definition. The Printing Press category is extended to include the electron beam (EB) method of drying and the term "curing" is added for clarification.
   
   
9. Other Minor Changes. Increase the number of chlorinated dioxins and dibenzofurans from 15 to 26 species (this change is not expected to have a fiscal impact). Consolidation of the language regarding reinstatement of permits. Include "exemption" as well as exclusion from Title V. Clarify the accelerated permit processing option by rewording this option from express to "expedited" permit processing.

PROPOSED AMENDED RULE 308 - ON-ROAD MOTOR VEHICLE MITIGATION OPTIONS FEES

The discounts applicable to Multi-site Registration are being clarified by maintaining the percentage discount rate and removing the specific dollar amount from the Rule in Sections (c)(1)(B) and (c)(2)(B).

PROPOSED AMENDED RULES 303, 304, 306, 307, 307.1, 309, and 311

An increase in fees equal to the 3.7% change in the California CPI is proposed for Rule 303 – Hearing Board Fees, Rule 304 – Equipment, Materials and Ambient Air Analyses, Rule 304.1 – Analyses Fees, Rule 306 – Plan Fees, and Rule 309 – Fees for Regulation XVI, Rule 311 – Air Quality Investment Program (AQIP) Fees. No other changes are proposed for these rules. Rule 307 – Fees for Air Toxics Emissions Inventory and Rule 307.1 – Alternative Fees for Air Toxic Emissions Inventory fee period is extended by one year to FY 2001-02.

Public and Board Review of Budget/Fee Options

The budget and fee options were available for public review and comment during the latter part of March and early April. In addition to the two meetings of the Budget Advisory Committee in February and April of this year, a public workshop held in March, and two public consultation meetings were held in April to discuss the proposal. In addition, staff met with the Small Business Alliance to discuss impacts on small businesses. The Public Workshop for Proposed Amended Regulation III was held on March 24, 2001. The Budget Public Workshop and the Governing Board Public Workshop on the proposed FY 2001-2002 Budget and associated fees occurred on April 18 and 28, 2001, respectively.

REGULATION III MEETINGS
 

AQMP and Legal Mandates

The fee rules are not part of the AQMP. California Health and Safety Code §§ 40500 et seq. established the authority to "adopt fee schedules for the issuance of variances and permits to cover the reasonable cost of permitting, planning, enforcement, and monitoring related thereto," and to assess fees for the approval of plans for the control of air contaminants and for regulatory programs affecting indirect and area sources (H&S §§ 40522 and 40522.5).

California Health and Safety Code Sections 40510, 40510.5 and 40523 authorize AQMD to increase fees consistent with annual increases in the California Consumer Price Index (CPI). Larger increases are allowed for individual fees only if the Board finds that the increase is necessary and will result in an equitable apportionment of fees and if the increase is spread over two years. The change in the California CPI applicable to the year 2000 is 3.7%. To provide for the first balanced budget in 10 years and to maintain revenues required to support AQMD’s legally mandated functions of achieving and maintaining health-based state and federal air quality standards, staff is proposing significant revisions to the permit processing fee rates for Schedules A, A1, and B and changes to the annual emissions fees applicability.

Further discussion on legal authority is found in Attachment I, Staff Report on Proposed Amended Regulation III, Fees.

CEQA & Socioeconomic Analysis

The AQMD has reviewed the proposed amendments to Rules 301, 303, 304, 304.1, 306, 307, 307.1, 308, 309, and 311 and because the proposed project involves the modification and structuring of changes by public agencies for the purpose of meeting operating expenses and financial reserve requirements, it is statutorily exempt from CEQA, pursuant to state CEQA Guidelines § 15273 – Rates, Tolls, Fares, and Charges. A Notice of Exemption will be filed with the county clerks immediately following adoption of the proposed project.

The proposed amendments to Regulation III - Fees will increase fee revenue by about $ 3.6 million for the fiscal year 2001-2002. Regulation III – Fees in total will generate $61.5 million for the fiscal year 2001-2002 which has an estimated budget of $95.5 million.

A Socioeconomic Assessment of the proposed amendments to Regulation III, Fees is included as Attachment J to this letter.

Attachments

1. Summary of Proposed Amendments
2. Abstract of Fiscal Year 2001-2002 Draft Budget and Draft Work Program
3. Key Issues
4. Rule Development Process
5. Summary of Key Contacts
6. Resolution
7. Notice of Exemption
8. Proposed Rule Language
9. Staff Report
10. Socioeconomic Assessment

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