BOARD MEETING DATE: June 4, 2004
AGENDA NO. 40

Amend Regulation III - Fees

SYNOPSIS:

Staff has prepared two amendment proposals for Regulation III – Fees for Board consideration. Option A consists of a Consumer Price Index (CPI) adjustment of 1.6 percent and has additional proposals to better align select program revenue and expenses. To partially address the shortfall between revenue and expenditures for FY 2004-05 that resulted primarily from legally mandated funding requirements, staff has prepared an alternative proposal, Option B. Option B is identical to Option A except that fees are increased by 12 percent over two years. In FY 2004-05 the fees are increased across-the-board 6 percent and additionally in FY 2005-06, increased by another 6 percent. The Board may reconsider the increase in FY 2005-06 based on their assessment of the fiscal need at the time.

COMMITTEE:

Stationary Source, March 26, 2004; Administrative, May 14, 2004, Reviewed

RECOMMENDED ACTION:

Adopt the attached resolution:

1. Certifying the Notice of Exemption for the proposed amendments to: Rule 301 - Permitting and Associated Fees; Rule 303 - Hearing Board Fees; Rule 304 - Equipment, Materials and Ambient Air Analyses; Rule 304.1 – Analyses Fees; 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; and,
    
2. Adopting either Option A or Option B and amending, pursuant to the chosen option, the following Rules: Rule 301 - Permitting and Associated Fees; Rule 303 - Hearing Board Fees; Rule 304 - Equipment, Materials and Ambient Air Analyses; Rule 304.1 – Analyses Fees; 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

Barry R. Wallerstein, D. Env.
Executive Officer

Background

Historically, AQMD adopts both the budget and the fee rules at its May Board meeting each year. The Public Hearings regarding the adoption of both PAR III and the FY 2004-05 Budget were moved to the June 4, 2004 Board meeting in order to allow more time to consider options for addressing budget shortfalls. The budget shortfall projected for FY 2004-2005 is primarily due to an increase in mandated employer contribution to the San Bernardino Country Employees’ Retirement Association (SBCERA), changes in actuarial assumptions for FY 2003-04, and the continuing reduction in revenues from emissions fees. For FY 2004-05 it is anticipated that the mandated employer contribution to the SBCERA will be an additional $2.3 million (22% increase over last year), which follows a $6 million increase (141% over the previous year) in FY 2003-04.

Staff has developed two PAR III proposals for Board consideration: PAR III Option A and PAR III Option B. PAR III Option A increases fees by the change in the CPI (1.6%) and has other adjustments to better align program costs with revenues. The second fee proposal (Option B), is being proposed to further reduce the budget shortfall by recovering more of the costs of the various current programs. Option B proposes the same adjustments as Option A except for an across the board increase of 12% (instead of a 1.6% CPI increase) phased in over two years (6% for FY 2004-05 and 6% in FY 2005-06) with the Board having the opportunity to reconsider the second year 6% increase. Permit fee increases are required to be phased in over two years so only 6% would be recovered in the first year (Health & Safety Code §40510.5.). Certain permit fee increases above the current CPI rate must also be phased in over two fiscal years. Both Option A and Option B also incorporate certain individual fee increases which are necessary because fees are not currently being recovered for specific work. For FY 2004-05, Option A is expected to increase revenue by about $2.6 million and Option B by an additional estimated $2.7 million ($5.3 million total). Both options taken together with the proposed cuts in expenditures are expected to reduce the existing budget deficit but not eliminate it completely. Projected budget figures for FY 2004-05 are expenses of $102.3 million and revenues of $98.3 million with an estimated budget deficit of $4.0 million (Option A), and revenues of $101.0 million with an estimated budget deficit of $1.3 million (Option B). Staff is forwarding both options so that the Board at its discretion may determine the fee rates and basis for FY 2004-05 budget. The Board can adopt part or all of either proposal.

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.

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 2004-05, this staff proposal for amending Regulation III consists of:

1. Adjusting most fees by the change in the cost of living index. An across-the-board 1.6% increase in fees corresponding to the change in the California Consumer Price Index (CPI) for 2003 is being proposed (estimated cost recovery = +$993,000).
    
2. Other Amendments: These amendments are designed to better align program costs with revenues for the specific programs listed below and are based on findings from staff’s time tracking analyses.

1. Clarifying whether an application to amend a permit is processed as a Change of Condition or an Alteration/Modification. Currently many applications to amend a permit take longer than the time budgeted for processing a Change of Condition while fees collected are based on the lower Change of Condition schedule due to ambiguity in definitions (estimated cost recovery = +$350,000);
    
2. Recovering the costs associated with Administrative permit changes for Schedule B and higher equipment. This fee increase would be phased in over two fiscal years (FY 04-05 estimated cost recovery = +$55,000; FY 05-06 estimated cost recovery = +$110,000);
    
3. A permit amendment fee for facilities in the RECLAIM universe and also subject to the provisions of Title V to better recover the cost associated with the processing of these more resource intensive audits (estimated cost recovery = +$35,000);
    
4. An increase in fees for asbestos/lead project notifications and tracking and the addition of two categories for projects > 50,000 square feet and > 100,000 square feet to more accurately recover the costs of these more resource intensive projects (estimated cost recovery = +$621,000);
    
5. Conversion to a flat up-front fee for optional expedited permit processing as opposed to the current approach of billing on an hourly basis. This approach will provide more certainty to the applicant about the cost of expedited processing (estimated cost recovery = neutral);
    
6. Allows for optional expedited processing of Continuous Emissions Monitoring System (CEMS), Fuel Sulfur Monitoring System (FSMS) and Alternative Continuous Emissions Monitoring System (ACEMS) and Protocol/Report Evaluation submittals and establishes an hourly fee for such service (estimated cost recovery = +$33,000);
    
7. Recovery of costs associated with notification and tracking of Rule 1149 – Storage Tank Degassing and Rule 1166 – Volatile Organic Compound Emissions from Decontamination of Soil projects (estimated cost recovery = +$108,000);
    
8. Recovery of costs associated with laboratory analysis of non-compliant samples taken in the field for compliance verification (estimated cost recovery = +$100,000);
    
9. Recovery of Plan Audit, Verification, Evaluation, Inspection and Tracking Costs for area source rules such as: Rules 444 – Open Burning, 1113 – Architectural Coatings, and 1610 – Old Vehicle Scrapping (estimated cost recovery = +$102,000); and
    
10. An across the board increase of $17 in addition to the CPI increase is being proposed for all facilities subject to the AB 2588, resulting in an overall increase in revenues in order to better recover program costs. Fees will be billed annually instead of triennially. A fee for project notification was noticed for the Public Hearing. Staff has however withdrawn this portion of the proposal to further evaluate the cost. This fee may be proposed at the next scheduled amendment to Rule 307.1. Also the collection frequency for the District Tracking fee is proposed to be changed from quadrennially to annually (estimated cost recovery = +170,000);
     
11. Revisions to Rule 308 that maintain the rule language consistent with the recent changes to Rule 2202. An adjustment to better align the fee charged for MSERC transactions with processing costs which are comparable to Reclaim Trading Credit transaction processing costs (estimated cost recovery = neutral); and
     
12. Other Minor Amendments. Other proposed amendments are either for clarification or emphasis of existing language in Regulation III rules. Specific amendments are listed in Chapter 3 – Sequential Listing of Proposed Amendments.

OPTION B

Option B contains all of the proposals of Option A above, except that in lieu of a 1.6% across the board CPI cost of living fee rate increase a rate increase of 12% phased in over two years (6% for FY 2004-05 and 6% in FY 2005-06) is proposed with the Board having the opportunity to reconsider the second year 6% increase. For FY 2004-05 specific fee increases (listed in Option A, section B above would not be subject to the first year 6% rate increase). As such, for FY 2004-05, Option B would recover approximately $3.7 million or about $2.7 million over Option A.

Public and Board Review of Budget/Fee Options

The initial set of proposed fee amendments, PAR III Option A, was presented at a Public Workshop on February 18, 2004. Staff prepared additional proposals, presented as PAR III Option B, that was publicly noticed and available for public review and comment on March 22, 2004. Presentations on PAR III were made on March 19 (Finance Committee), March 26 (Stationary Source Committee) and available for public comment. In addition, further presentations were made on PAR III with both Option A and Option B on April 22 (Budget Public Workshop), April 30 (Governing Board Budget Workshop), May 7 (Set Hearing/Governing Board Budget Workshop), May 14 (Administrative Committee) and on May 25 (Budget Public Workshop) with all meetings open to public comment.

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 2003 is 1.6%. 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 Regulation III – Fees (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 CEQA Guidelines §15273 – Rates, Tolls, Fares, and Charges. A Notice of Exemption will be filed with the county clerks of Los Angeles, Orange, Riverside and San Bernardino counties immediately following adoption of the proposed amended rules.

The proposed amendments to Regulation III - Fees (Option A) will increase fee revenue by about $2.6 million for the fiscal year 2004-05. The proposed amendments to Regulation III - Fees (Option B) will increase fee revenue by an additional estimated $2.7 million ($5.3 million total), for the fiscal year 2004-2005. Regulation III – Fees in total will generate approximately $98.3 million under Option A and an estimated $101.0 million under Option B, for the fiscal year 2004-05 which has an estimated budget of $102.3 million.

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

Attachments (1,745 KB)

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