BOARD MEETING DATE: June 3, 2005
AGENDA NO. 38

Amend Regulation III - Fees

SYNOPSIS:

Staff is proposing an adjustment to fees to fund the AQMD FY 2005-06 Budget.

COMMITTEE:

Stationary Source, April 22, 2005; Administrative, May 13, 2005

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; 307.1 – 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 Regulation III – Fees, including Rules 301 – Permitting and Associated Fees; 303 – Hearing Board Fees; 304 – Equipment, Materials and Ambient Air Analyses; 304.1 – Analyses Fees; 306 – Plan Fees; 307.1 – 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, by adopting all proposals listed in Part A, and one of the three cost recovery scenarios listed in Part B, seeking an across-the-board fee increase as follows:
   – Scenario 1 – 3.6% (CPI) or,
   – Scenario 2 – 6%, or
   – Scenario 3 – 7.5%
    
3. Amending Rule 303 – Hearing Board Fees by adopting all proposals I Part A and an across-the-board fee increase of 3.6% (CPI) which will ensure full cost recovery.

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. For the past three fiscal years, staff has projected a deficit in the projected budget. The budget shortfall is the result of several factors, including an increase in mandated employer contribution to the San Bernardino Country Employee Retirement Association (SBCERA). Regulation III – Fees, establishes the fee rates and schedules associated with permitting, emissions and other activities that help fund most of the AQMD regulatory programs and services. In the 1990’s, the AQMD began experiencing shortfalls in some budget years. These shortfalls occurred despite the significant budget reductions adopted and continuous improvements in performance and efficiency. Also, primarily as a result of changes in the actuarial assumptions and poor stock market performance, legally mandated retirement related contributions to the SBCERA increased by $6.0 million in FY 2003-04 and an additional $2.3 million for FY 2004-05. Therefore, it is anticipated that the FY 2004-05 Budget will require some use of the budget stabilization reserves to balance the Budget. It is also anticipated that retirement contribution rates for FY 2005-06 will increase on average 29% over the FY 2004-05, but thereafter, SBCERA projects little or no increase in the following year.

To address the potential shortfall in revenues resulting from legally mandated funding requirements, staff has prepared three separate sets of proposals (scenarios) for consideration. Each scenario has the same amendments to better align program costs with revenues and an across the board fee increase. The three fee scenarios proposed for consideration include fee increases of 3.6% (the change in the 2004 California Consumer Price Index), 6%, and 7.5%, respectively. A fee increase of 7.5% still results in a revenue shortfall and use of budget stabilization reserves for FY 2005-06. The proposed fee increase will nevertheless help to better recover program costs such as the legally mandated requirement for additional funding by the San Bernardino County Employee Retirement Association (SBCERA) and revenues remaining generally flat from permit and annual renewal fees. Also, revenues from CPI adjusted emission fees have declined by more than 50 percent over the last fifteen years and have remained flat over the last several years due to rapidly declining emission inventories at rates exceeding annual CPI rates. State subvention funding which had been as high as $6 million in past years dropped to about $4 million for FY 2004-05, and is expected to remain the same for FY 2005-06. The Board at its discretion may determine the fee rates and basis for FY 2005-06 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 twelve rules (Rule 312 will expire on July 1, 2005) 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.

California Health and Safety Code sections relating to the fees of the AQMD allow staff to align fees with revenues. Part A of staff’s proposed amendments and an across-the-board increase of up to 7.5% are consistent with state law as program costs exceed revenues for many categories. Since staff is proposing full cost recovery for Rule 303 – Hearing Board Fees staff is recommending that Rule 303 fees be adjusted by only 3.6% (CPI).

Proposed Amendments to Regulation III - Fees

The amendments being considered for Regulation III focus on recovering the costs of the various source programs and clarifying existing language in the rule. They consist of two parts, Part A and Part B, with Part A containing the same proposals and Part B consisting of the three different across the board fee increases.

Staff is recommending that all the proposed amendments in Part A be adopted along with only one of the three proposed fee increases in Part B.

The proposed amendments in Part A include but are not limited to:

Part A

• Recovering Hearing Board Costs – for FY 2003-04 only one third of the total Hearing Board budget was offset by revenues. This proposal seeks to fully fund the operation of the Hearing Board by raising excess emissions fees to fully recover expenses.
  (estimated cost recovery = $828,000).
   
• Compliance Cost Recovery for RECLAIM / Title V Facilities – a per device based fee to recover the increased costs of compliance activities at RECLAIM facilities. A per device fee of $500 for Major, $100 for Large and $100 for Process units/devices would be assessed per facility. Title V facilities would pay an annual flat fee of $300. This proposal would be phased in over two years.
  (estimated cost recovery = $365,000 [FY 2005-06]; $700,000 [FY 2006-07]).
   
• Recovering the Cost of Permitting "Crude Oil/Gas/Water Separation System (< 30 BPD)" – This source category is being revised from Schedule B to Schedule C equipment to reflect current practice which recognizes the correct cost of processing these applications.
  (estimated cost recovery = $116,000).
   
• Recovering the Cost of Certification of Certain Equipment Subject to Rule(s) 1111, 1121 and 1146.2 – recovers the cost of processing applications and issuing certifications/certified permits for certain equipment under the provisions of these rules to be grouped into families of similar units for compliance determination purposes. Certification is a voluntary program that benefits the applicant by having their equipment certified.
  (estimated cost recovery = $85,000).
   
• Recover the Cost of Preparing Public Notices for Compliance with ERC/STC Issuance – recovers the cost to the District of preparing mandatory notices in compliance with the requirements for issuance of ERC and STC credits.
  (estimated cost recovery = $3,000).
   
• "No Show" Cost Recovery Fee for Rule 461 – Gasoline Dispensing Equipment Scheduled Testing – recovers the resource cost of lost assigned inspector time when testing companies do not show up for or do not conduct Reverification, Performance and Pre-Backfill inspections as scheduled, and do not give prior notification to the District if the appointment is to be cancelled.
  (estimated cost recovery = $2,000).
   
• Recovering the Cost of Re-Issuance of Short Term Credits (STC’s) – recovers the cost of processing Short Term Credit applications which require the same resources to process as any other emission reduction credit application.
  (estimated cost recovery = $1,000).

Other minor proposed administrative amendments are for correction and clarification of current rule text that have negligible or no fiscal impact. These include:

• Recovering the Cost for Expediting Processing of Rule 306 Plan Submittals, ERC/STC applications, Air Dispersion Modeling, HRA, Source Test Protocols and Reports Fees
   
• "Filing and Processing Fee" in Lieu of an Annual Renewal Fee for Equipment Subject to Rule 222
   
• Extending the Reinstatement Term for Expired Permits from the Current 6 Months to 1 Year
   
• Clarification of the Fee for a Facility Permit Amendment Application
   
• Clarification of the Change of Operator Application Fee
   
• Alignment of the Administrative Permit Revision Fee
   
• Clarification of Certain Items in Rule 301 Table IB
   
• Clarification of Language for Asbestos Notification Fees
   
• Refunding the Plan Cancellation Fee When Based On An Erroneous District Request
   
• Technical Infeasibility Certification Requests
   
• Extending the Applicability of Rule 308 to Include Creditable Commute Vehicle Reduction (CCVR) Certifications

In addition to the proposals listed in Part A, to partially address significant under-recovery of consistent program costs, exacerbated by cost increases beyond AQMD’s control and exceeding the California Consumer Price Index (CPI), staff has formulated and is seeking input on three alternative cost recovery scenarios listed below:

Part B

1. an across the board partial cost recovery fee adjustment of 3.6%; reflecting the 2004 CPI (estimated cost recovery = +$1,950,000); or
    
2. an across the board partial cost recovery fee adjustment of 6.0% (estimated cost recovery = +$3,379,000); or
    
3. an across the board partial cost recovery fee adjustment of 7.5% (estimated cost recovery +$4,271,000).

Public and Board Review of Budget/Fee Options

PAR III was presented at a Public Workshop on March 30, 2005. Additional presentations on PAR III were made on April 21 (Budget Public Workshop), April 22 (Stationary Source Committee), April 26 (Budget Advisory Committee), April 29 (Board Budget Workshop), May 4 (Budget Advisory Committee), May 13 (Administrative and Budget Advisory Committees), and May 27 (Stationary Source Committee).

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 40500.1, 40510, 40510.5 and 40523 authorize AQMD to increase fees consistent with annual increases in the California Consumer Price Index (CPI). The AQMD can recover program costs from under-funded categories. The change in the California CPI applicable to the year 2004 is 3.6%. 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.

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.

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

Attachments (2,544 KB)

1. Summary of Proposed Amendments
2. Abstract of Fiscal Year 2004-05 Draft Budget and Draft Work Program
3. Rule Development Process
4. Summary of Key Contacts
5. Resolution
6. Notice of Exemption
7. Proposed Rule Language
8. Staff Report
9. Socioeconomic Assessment

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