BOARD MEETING DATE: June 6, 2003
AGENDA NO. 35
PROPOSAL:

Amend Regulation III - Fees

SYNOPSIS:

Staff prepared two amendment proposals for Regulation III – Fees for Board consideration. Proposal A is the Set Hearing proposal of April 4, 2002, that reflects the increase in the Consumer Price Index of three percent and other minor administrative and regulatory enhancements. Proposal B has been prepared in response to the unforeseen requirement for additional funding of 5.9 million dollars for FY 2003-04 by the employee retirement association and includes additional proposals for Board consideration. These additional proposals seek to better recover program costs, such as expedited permit processing; notification and inspection costs for lead, asbestos and area sources; laboratory costs for non-compliant material; RECLAIM/Title V inspection; and certify and align fees for administrative and change of conditions.

COMMITTEE:

Stationary Source, March 28, 2003; April 25, 2003;
Administrative, May 8, 2003, 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. As stipulated in Proposed Amended Regulation III – Fees (PAR III) Option A or PAR III Option B 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 Board was scheduled to adopt the FY 2003-04 Budget at its May 2, 2003 meeting. Historically, both the budget and the fee rules have been adopted at the May Board meeting each year. The Public Hearings regarding the adoption of both PAR III and the FY 2003-04 Budget were moved to the June 6, 2003 Board meeting in order to consider options for meeting the new revenue obligations to the San Bernardino County Employee Retirement Association (SBCERA). Staff first became aware of the new obligation in late March. Staff has developed two PAR III proposals for Board consideration: PAR III Option A and PAR III Option B. PAR III Option A is the staff proposal originally set for hearing in May by the Board. It was initially released in March 2003 before the notification by the SBCERA for an additional $5.9 million in retirement contribution. PAR III Option B includes PAR III Option A plus a list of additional cost recovery measures that staff believes will more equitably align specific services provided with the cost to the AQMD to provide that service. As such Option B will help the District meet its obligation to SBCERA. Staff is forwarding both Options so that the Board in its discretion may determine the fee rates and basis for FY 2003-04 budget. The Board can adopt part or all of both proposals.

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 eleven 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, registration programs, fee schedules and certain training programs.

Fees from Regulation III fund approximately two-thirds of the AQMD programs. As described in more detail in Attachment B, the FY 2003-04 Budget is projected to have a budget deficit of $6.1 million with expenditures estimated to be $101.6 million and revenues estimated to be $95.5 million. The shortfall is the result of several factors including a requirement for additional funding by the San Bernardino County Employee Retirement Association (SBCERA); a decrease in state subvention funding; the continuing decline in emissions and associated annual emissions fees; and that revenues are remaining generally flat from permit and annual renewal fees.

The AQMD was notified in March 2003 by SBCERA that an additional $5.9 million would be needed for FY 2003-04 to fund the employers contribution of the employee retirement fund. This notification was subsequent to the initial Public Consultation meeting on Regulation III. State subvention funding is expected to be about $4 million for FY 2003-04, down from $6 million received in FY 2001-02. The additional $2 million had been used to enhance compliance programs. Other factors are long term effects from the AQMD regulatory program to reduce emissions.

Proposed Amendments to Regulation III - Fees

There are currently 11 rules comprising Regulation III - Fees (Rule 301 – Permit Fees, Rule 303 – Hearing Board Fees, Rule 304 - Equipment, Materials and Ambient Air Analyses, Rule 304.1 - Analyses Fees, Rule 305 - Fees for Acid Deposition Research, Rule 306 - Plan Fees, Rule 307 - Fees for Air Toxics Emissions Inventory, Rule 307.1 - Alternative Fees for Air Toxics Emissions Inventory, Rule 308 - On-Road Motor Vehicle Mitigation Options Fees, Rule 309 - Fees for Regulation XVI, Rule 311 - Air Quality Investment Program (AQIP) Fees). There are two proposed sets of amendments to Regulation III – Fees, Option A and Option B. For each of the two options the proposals are summarized as follows:

OPTION A

For FY 2003-04, this staff proposal for amending Regulation III consists of:
 
A.   Adjusting most fees by the cost of living index. An across-the-board 3% increase in fees corresponding to the change in the California Consumer Price Index (CPI) for 2002 is being proposed (Fiscal Impact = +$1,800,000)
 
B.   Other Amendments:
  1. Requiring all delinquent facility (including RECLAIM facilities) fees such as annual permit renewal, excess emissions, Toxic Hotspots, Change of Condition/Modification to be paid in full before the acceptance of any new applications, or a change of operator.
    (Estimated Fiscal Impact = +$111, 000)
     
  2. Adding ammonia as a Toxic Air Contaminant and establishing a fee for the District to recover costs for tracking and reporting ammonia emissions as required by the (United States Environmental Protection Agency (USEPA). Staff recommends that the fee be set at $0.02 per pound and be applicable to facilities with annual emissions of 200 lbs of ammonia or more. This fee will be phased in over two years. Facilities subject to this fee will pay $0.01 per pound for FY 2003-2004 and $0.02 per pound for FY 2004-05 and beyond.
    (Estimated Fiscal Impact FY 03-04 = +$40,000; FY 04-05 = +80,000)
     
  3. Increasing expedited permit processing premium rates (to $47.86 per hour from $44.80 per hour) to recover the travel expense (mileage claim) for processing staff working after regular business hours. In addition, the same hourly premium of $47.86 is also charged for any expedited CEQA analysis.
    (Estimated Fiscal Impact = +$25,500)
     
  4. Updating Rule 303 – Hearing Board Fees language.
    (No Fiscal Impact Estimated)
     
  5. Providing the Executive Officer (EO) the discretion to reinstate permits erroneously cancelled.
    (No Fiscal Impact Estimated)
     
  6. Establishing a fee for conversion of ERCs to Short Term ERCs.
    (Minimal Fiscal Impact Estimated)
     
  7. Incorporating the fee schedule for Rule 1309.2 – Offset Budget into Rule 301 – Fees.
    (No Change in Fees; No Fiscal Impact Estimated)
     
  8. Providing the Executive Officer the discretion to waive permit fees for equipment to properly dispose of fowl under the current declared "State of Emergency" to address the outbreak of Exotic Newcastle Disease.
    (Minimal Fiscal Impact Estimated)
     
  9. Other Minor Amendments. Other proposed amendments are either for clarification or emphasis of existing language in Regulation III rules.

OPTION B

Option B contains all of the proposals of Option A and incorporates the following proposals:
 
      
  1. Recovery of Program Costs for Optional Expedited Permit Processing: The proposal restructures the expedited permit processing fee structure by replacing the time and materials based fee structure with a new fee structure rate, set at a 50% premium over the standard permit processing fee for Schedules A, A1, B, B1, C, D, and E. For applications in Schedule F and above that exceed the pre-established time limits for processing, an additional hourly rate would be assessed up to a set cap fee per Schedule. The expedited permit processing rate schedule is based on the non-expedited permit processing rate schedule given in the Rule 301 – Permit Fees "Summary Permit Fee Rates, Permit Processing, Change of Conditions, Alteration/Modification" table, established based on time tracking study data analysis. This new fee structure will provide applicants certainty in the fee charged for this optional program and better align the optional programs costs and revenues.
    (Estimated Fiscal Impact = +$500,000)
     
  2. Recovery of Plan Audit, Verification, Evaluation, Inspection and Tracking Costs (Rules 444 – Open Burning, 1113 – Architectural Coatings, and 1610 – Old Vehicle Scrapping): This proposed fee is established to recover staff time and resources used to verify and audit plans. Some of the work is done on the weekends most of the program costs currently are not charged back to the sources.
    (Estimated Fiscal Impact = +$100,000)
     
  3. Annual Operating Fees for RECLAIM / Title V Facilities Cost Recovery: This proposal revises the annual operating fees for RECLAIM and Title V facilities to recover the inspection costs associated with these facilities, which typically require additional resources beyond those required for Non-RECLAIM and Non-Title V facilities.
    (Estimated Fiscal Impact = +$700,000)
     
  4. Recovery of Laboratory Analysis Costs for Non-Compliant Samples: Currently the initial non-compliant sample obtained as a result of a facility audit is not charged for the lab analysis costs. Under this proposal all samples found to be non-compliant will be charged such that the compliance effort charges incurred are recovered.
    (Estimated Fiscal Impact = +$100,000)
     
  5. Recover Costs by Clarifying the Definition for Change of Condition With Emissions Increase: This clarifies that the changes to conditions that result in an emissions increase are alteration/modifications.
    (Estimated Fiscal Impact = +$350,000)
     
  6. Administrative Permit Change (Schedule B and Higher) Cost Recovery: Based on the time tracking study data this fee is undercollected. The fee for an administrative change would be $328 for Schedule B and higher. This cost recovery proposal would be phased in over two years.
    (Estimated Fiscal Impact = +$100,000)
     
  7. Recovery of Notification Costs of Rule 1149 – Storage Tank Degassing and Rule 1166 – Volatile Organic Compound Emissions from Decontamination of Soil projects: The proposal establishes a fee to recover staff resources used to track, record , and monitor these activities.
    (Estimated Fiscal Impact = +$100,000)
     
  8. Recovery of Asbestos / Lead Project Notification Costs: This fee schedule restructuring recovers the cost of monitoring, recording, and compliance efforts for these sources of air toxics.
    (Estimated Fiscal Impact = +$700,000)

Public and Board Review of Budget/Fee Options

The initial set of proposed fee amendments, PAR III Option A, were available for public review and comment during early March and into early April and a public hearing was set for May 2, 2003. The Board continued the Public Hearing until June 6, 2003 and staff prepared additional proposals, presented as PAR III Option B, that was publicly noticed and available for public review and comment on May 6, 2003. A Public Consultation meeting, for PAR III Option A was held on March 12, 2003, and both PAR III Option A and PAR III Option B on May 8, 2003. Joint Regulation III – Fees and Budget Public Workshop presenting both Option A and Option B proposals was held on April 22, and May 28, 2003. Proposals were presented to the Budget Advisory Committee twice and once to the Local Government and Small Business Assistance Advisory Group. There has also been review by the Stationary Source and Administrative Committees of the Board, in addition to the two Board Budget Workshops.

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 2002 is 3%. To provide for a balanced budget 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 amendments to Regulation III to more closely align program costs with program revenues and provide for a proposed balanced budget.

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 charges 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 (Option A) will increase fee revenue by about $2.0 million for the fiscal year 2003-04. The proposed amendments to Regulation III - Fees (Option B) will increase fee revenue by an additional estimated $2.4 million ($4.4 million total), for the fiscal year 2003-2004. Regulation III – Fees in total will generate approximately $62.2 million under Option A and an estimated $64.6 million under Option B, for the fiscal year 2003-04 which has an estimated budget of $100.8 million.

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

Attachments (1,159 KB)

A1 Summary of Proposed Amendments PAR III Option A
A2 Summary of Proposed Amendments PAR III Option B
B   Abstract of Fiscal Year 2003-04 Draft Budget and Draft Work Program
C   Key Issues
D   Rule Development Process
E   Summary of Key Contacts
F    Resolution
G   Notice of Exemption
H   Proposed Rule Language
I    Staff Report
J    Socioeconomic Assessment

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