BOARD MEETING DATE: May 4, 2007
AGENDA NO. 28

PROPOSAL:

Adopt Proposed Amended Regulation III - Fees

SYNOPSIS:

Staff is proposing an increase of 3.3% equivalent to the change in the 2006 Consumer Price Index for all fee categories, except those for which the Board last year adopted a 3-year phased fee increase, which includes a 10% increase this year to continue cost recovery efforts and fund the AQMD FY 2007-08 Budget. Staff is also proposing a new provision to allow AQMD to recover costs to defend issuance of a permit, fees to implement a new voluntary certification program for consumer cleaners used at institutional and commercial facilities, and also some minor language clarification or corrections to Regulation III.

COMMITTEE:

Stationary Source, March 23, 2007; Administrative, April 13, 2007; (Item deferred to Governing Board Budget Workshop, April 20, 2007)

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, 311 – Air Quality Investment Program (AQIP) Fees, and Proposed Rule 313 – Authority to Adjust Fees and Due Dates.
    
2. Amending Regulation III - Fees to:
   1. Increase all fees, by a rate of 3.3%, which is equivalent to the 2006 change in the California Consumer Price Index (CPI), except those for which the Board last year adopted a 3-year phased fee increase, including a 10% increase this year, to adjust for inflation and continue better recovering program costs; and
   2. Establish provisions to allow AQMD to recover costs to defend the issuance of a permit, implement a voluntary certification program for consumer cleaners used at institutional and commercial facilities, and clarify or correct certain existing language, with negligible or no fiscal impact.

Barry R. Wallerstein, D.Env.
Executive Officer

Background

Regulation III – Fees, establishes the fee rates and schedules associated with permitting, annual renewals, emissions and other activities that help fund most of AQMD's regulatory programs and services. Over the last few years, shortfalls existed despite the significant budget reductions adopted and continuous improvements in performance and efficiency. Key contributors to the shortfalls include the declining emissions fee revenues, and legally mandated retirement contributions. In addition, due to the provisions of Rule 2002(f)(1)(A) effective January 2007, NOx emissions fees from RECLAIM sources will decline due to a mandatory annual reduction each year.

To address the shortfall in revenues, the Board adopted amendments to the fee rule at the June 9, 2006 public hearing to more fully recover specific program costs. The adopted amendment included a 3.65% fee increase (the change in the 2005 California Consumer Price Index) for all source categories for FY 2006-07, except for permitting, annual renewal and emission fees which are to be increased by a total of 10% annually for 3 years, starting last year, to more fully recover program costs. This increase has already been adopted and includes a 10% increase this year.

The current proposal seeks to increase fees other than Permit Processing, Annual Operating Permit Renewal and Annual Operating Emissions Fees by the change in the 2006 CPI. Increasing fees by the change in the 2006 CPI will relieve inflationary pressure on the cost recovery action taken by the Board at the June 9, 2006 Board hearing and as such seeks to preserve the goal of closely aligning revenues with program costs. Other amendments are administrative in nature and include clarification and correction of existing language with negligible or no fee increase. The proposed amendments also include a provision to recover the costs borne by the District in defending a permit issued if it is challenged in court. This fee would allow the District to be reimbursed for all reasonable and necessary costs paid by the District to defend the issuance of a permit against a legal challenge. In addition, the AQMD will be implementing a new program for the voluntary registration of consumer cleaners used at institutional and commercial facilities. A new fee schedule is being added to recover the AQMD costs to test and certify these products.

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 currently twelve rules within Regulation III - Fees that set fees and procedures in three major categories:

1. Permitting processing fees;
    
2. Annual fees; including Annual Permit Renewal and Annual Operating Emission fees for facilities that have the potential to emit or have emitted toxic or criteria air contaminants; and
    
3. Other District services, including variances from the Hearing Board, compliance monitoring and testing such as source testing, review of emission control plans, registration programs, Rule 2202 plans, etc.

California Health and Safety Code sections relating to the fees of the AQMD allow staff to align fees with the costs of services. The current proposal seeks to continue the goal of maintaining better cost recovery by compensating for inflation. The proposed Fiscal Year 2007-08 Budget and Work Program will be incorporated by reference in the final Board package.

Proposal

The amendments being considered for Regulation III focus on better recovering the costs of the various stationary source programs and clarifying existing language in the rule. All fees are proposed to be increased by the change in the 2006 Consumer Price Index (CPI) except that no fee increase is proposed for Permitting, Annual Renewal and Emissions fees for which a 10% increase for FY 07-08 and a further 10% increase for FY 08-09 was adopted in June, 2006.

The following summarizes the proposed amendments and the anticipated cost recovery, as shown in Table 1.

Specifically the proposed amendments are as follows:

1. Consumer Price Index (CPI) Adjustment. A 3.3% rate increase in all fees reflecting the 2006 California Consumer Price Index (CPI) increase except Permit Processing Fees, Annual Operating Permit Renewal Fees and Annual Operating Emission Fees. The Governing Board amended Rule 301 – Permitting and Associated Fees and adopted Rule 313 – Authority to Adjust Fees and Due Dates on June 2, 2006 to increase those three fees by 10 percent in FY 2007-08; therefore, no change is recommended for those three fee categories.

2. Addition of fees to implement the Voluntary Certification of Consumer Cleaning Products program, and a provision to recover the cost of defending permits issued (Defense of Permit).

The Clean Air Choice Cleaner Certification program fee that is being proposed would allow the implementation of a new voluntary program that would model itself after the highly successful Clean Air Solvent Certification program which has 73 participating companies and over 140 certified products. The positive, voluntary program would certify products that met criteria intended to reduce air pollution and consider other factors that contribute to improving the environment and protecting human health. It is expected that such a program would positively influence consumer behavior in selecting ultra-low VOC products and foster the marketing of ultra-low polluting technologies. The fee is proposed to cover the costs of laboratory certification of the cleaning products that choose to participate in the program.

The Defense of Permit provision requires permit applicants or permit holders to reimburse the District for legal costs incurred in defending the issuance of a permit. These costs may be waived if they would create an unreasonable hardship for the permit holder. A model indemnity agreement is attached as Attachment H. During the public comment period following the February 16, 2007 Public Workshop comments were received regarding the scope of the proposed Defense of Permit provision. Staff has added language to clarify that in the event a defense of permit is undertaken, the District and the applicant or permit holder will negotiate an indemnity agreement at the beginning of the litigation including, among other things, attorneys’ fees and legal costs. The intent is that the applicant or permit holder understands and agrees to the shared costs associated in defending the permit or application in question and to clarify that the District only seeks reimbursement for outside legal fees and costs.

3. Corrections and clarifications with minimal or no fiscal impact.

A summary of the proposed amendments in strikeout/underline format is included as Attachment A.

Table 1 below summarizes the estimated net increased revenue for FY 07-08 over FY 06-07 revenue with the adoption of the proposed CPI rate increase in fees.

Table 1. Summary of Estimated Increased Cost Recovery for FY 07-08
 

* 10% increase in Permit, Annual Operating Permit Renewal and Annual Operating Emissions fees

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).

Necessity and Equity
Increasing all other non-permit related fees by the change in the 2006 CPI is necessary in order to relieve inflationary pressure on the cost recovery action taken by the Board at the June 9, 2006 Board hearing and as such seeks to preserve the goal of more closely aligning revenues with program costs. By uniformly increasing all non-permitting, non-emissions and non-annual renewal fees by the CPI the equitable apportionment of the fee increase to sources will remain, while the amount each will pay will continue to more closely recover the actual costs to administer these programs.

The increase in fees for voluntarily requested expedited CEQA work is necessary in order to recover the cost of work provided on an overtime basis. It is equitable because the fee is corrected to align it with the proportionate increase in non-expedited CEQA work. In addition the cost is recovered specifically from the applicant that voluntarily requests expedited processing.

The fee for voluntary Certification of Consumer Cleaning Products Used at Institutional and Commercial Facilities is necessary to recover the specific cost of the program and it is equitable because the fee offsets the cost of the services provided which are voluntary.

The increase in fees for Table IIC - CEMS, FSMS, & ACEMS FEE SCHEDULE items are necessary in order to correctly align these fees with program costs. They are equitable since increased revenues are proportionately applied to programs incurring such costs.

The proposed amendment requiring reimbursement to the District by an applicant or permit holder for all reasonable and necessary costs to defend the issuance of a permit or permit provisions against a legal challenge is necessary in order to recover the specific costs of such a defense. It is equitable since the fee charged is used to offset the cost of the specific services provided that are in addition to those required to process a permit.

CEQA & Socioeconomic Analysis
AQMD staff has reviewed the proposed amendments to Rules 301, 303, 304, 304.1, 305, 306, 307.1, 308, 309, 311, and 313, 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.

Table 2 compares the revenue changes between FY 2007-2008 and fiscal year 2006-07 as a result of fee rate increases approved in 2006 and the proposed amendments. All revenue sources are projected to increase in the 2007-08 fiscal year with the exception of source test and lab analysis fees and other revenues. The smaller projected revenue increase in emission fees (1.75%) than the 10% increase in emission fee rates reflects the continual downward trend in emissions as air gets cleaner. The smaller projected revenue in permit fees (5.83%) reflects the processing of fewer Title V permits. The reduction in Other Revenues is due to the fact that the 2006-2007 fiscal year had one-time settlements of $6.5 million. The increase in Hearing Board fees is due to the anticipated higher level of Hearing Board activity for the next fiscal year.

Table 2. Revenue Comparison Between FY 2006-07 and FY 2007-08
 

*Adopted by the Board on June 2, 2006. The negative numbers in the last two columns represent reductions in revenue.

Other proposed amendments to Regulation III including clarification or correction of existing rule language have either negligible or no fiscal impact.

Resource Impacts
No additional resource impacts are expected.

Attachments (EXE 994kb)

A. Summary of Proposals
B. Abstract of FY 2007-08 Draft Budget and Draft Work Program
C. Rule Development Process
D. Key Contacts
E. Resolution
F. Proposed Rule Language
G. Notice of Exemption
H. Indemnity Agreement