BOARD MEETING DATE: December 3, 2010
AGENDA NO. 9

PROPOSAL:

Modify HEROS II Program Elements and Execute Sole Source Contract to Implement HEROS II, Sign Memorandum of Agreement to Assist Implementation of Unocal Settlement Program, Recognize Revenues and Adopt Resolution to Implement AB 118 Enhanced Fleet Modernization Program, and Reimburse the Carl Moyer Fund from the Clean Fuels Fund

SYNOPSIS:

There is a need to modify the original Phase II High Emitter Repair or Scrap (HEROS) Program as approved by the Board on October 2, 2009. This action is to 1) rescind the prior contract awards and to execute a sole source contract with the Foundation for California Community Colleges in an amount not to exceed $668,410 and rescind prior allocation of $1,900,000 from AB 923 Fund, 2) create the HEROS II Special Revenue Fund, and 3) transfer $1,866,240 from Moyer Fund 32, $56,915 from the AB 923 Fund, and $189,855 from the Clean Fuels Fund to the HEROS II Special Revenue Fund to implement Phase II HEROS. CARB has requested the AQMD to implement the AB 118 Enhanced Fleet Modernization Program. This action is to adopt a resolution to recognize up to $2,708,000 for the implementation of the vehicle replacement voucher component of the Enhanced Fleet Modernization Program. Lastly, this action is to reimburse the Carl Moyer Fund with $308,339 from the Clean Fuels Fund to cover administrative costs from the first HEROS Program.

COMMITTEE:

Technology, November 19, 2010, Recommended for Approval

RECOMMENDED ACTIONS:

1. Rescind Board actions approved on October 2, 2009 for implementation of the HEROS II Program including awards of $798,960 to Valley Clean Air Now (Valley CAN) and $900,000 to the Foundation for California Community Colleges (FCCC) and an allocation of $1,900,000 from AB 923 Fund 80.

2. Establish a HEROS II Special Revenue Fund to track funds received and expenditures for the HEROS II Program.

3. Transfer the Mercedes Benz USA contribution of $1,000,000 recognized by the Board on October 2, 2009 from the AB923 Fund 80 to the HEROS II Special Revenue Fund.

4. Transfer the remaining $1,866,240 from the Carl Moyer Fund 32 as HEROS I Program cost to the HEROS II Special Revenue Fund for HEROS II scrapping incentives ($1,430,000) and contract (FCCC) expenses ($436,240).

5. Transfer $56,915 from the AB 923 Fund 80 to the HEROS II Special Revenue Fund for HEROS II contract (FCCC) expenses.

6. Transfer $189,855 from the Clean Fuels Fund 31 to the HEROS II Special Revenue Fund. $150,000 will be used for marketing and outreach expenses and $39,855 will be used to cover contract (FCCC) expenses.

7. Approve the attached resolution accepting the terms and conditions of the Grant Award from CARB under AB 118 for the implementation of the vehicle replacement voucher component of the Enhanced Fleet Modernization Program (EFMP) and recognize up to $2,708,000 upon receipt from CARB into the HEROS II Special Revenue Fund.

8. Authorize the Chairman to execute a sole source contract with Foundation for California Community Colleges in an amount not to exceed $668,410 from the HEROS II Special Revenue Fund to implement the HEROS II Program. Within the HEROS II Special Revenue Fund, $493,155 is to be funded from AB 923 monies, $135,400 from AB 118 monies and $39,855 from Clean Fuels monies.

9. Authorize the Executive Officer to negotiate and enter into a Memorandum of Agreement with the Foundation for California Community Colleges to coordinate the HEROS II Program with the Unocal Vehicle Repair, Retirement, Replacement for Motorist (VRRRM) Program for the South Coast Air Basin.

10. Transfer $308,339 from the Clean Fuels Fund 31 to the Carl Moyer Fund 32 to reimburse the HEROS I Program for administrative costs above the 5% cap. This will increase the total allocation to the HEROS I Program to $4,308,339.

11. Recognize $150,000 from CARB in Carl Moyer Fund 32 as HEROS I Program administrative funds for database development.

 

Barry R. Wallerstein, D.Env.
Executive Officer

Background

Gross-polluting vehicles make up about 10 percent of the South Coast Air Basin’s passenger vehicle fleet, and yet they are responsible for more than 50 percent of the air pollution from that fleet. The AQMD has a long history implementing programs to reduce mobile source related emissions, including programs that encourage the use of low-emission vehicles for purposes of achieving state and federal ambient air quality standards. The proposed actions address the implementation of voluntary programs to reduce emissions from high-emitting light- and medium-duty vehicles in the South Coast Air Basin.

High Emitter Repair or Scrap (HEROS) Program

On October 2, 2009, the Board approved the execution of contracts for the implementation of the second phase of the HEROS Program (HEROS II) using Carl Moyer Program AB 923 funds. The goal of the HEROS II program was to achieve higher program participation by drawing interested, prequalified participants into advertised weekend events for vehicle prescreening. Owners of vehicles identified as potential high emitters would then be eligible to schedule appointments for emissions testing at select Smog Check stations. The Board approved an award to Valley CAN to implement the HEROS II Program, an award to the Foundation of California Community Colleges (FCCC) for the testing and repair components of the program, and funding for vehicle scrapping and replacement incentives. This funding included $1 million from Mercedes-Benz to support the HEROS II program.

Subsequent to the Board’s approval, staff received comments from CARB indicating the need to further reduce administrative costs for Moyer Program funding eligibility. CARB staff believed that the weekend events are considered administrative costs. Staff has had several meetings with CARB to delineate programmatic and administrative costs. However, staff has not reached agreement. As such, no contracts have been executed and no funding has been disbursed for the HEROS II Program implementation. Staff is now proposing a different approach to implement the HEROS II Program to address CARB’s concerns and to maximize the program’s effectiveness with other scrapping programs that are going to be or proposed to be conducted concurrently with the HEROS II Program.

AB 118 Enhanced Fleet Modernization Program (EFMP)

Assembly Bill 118, signed in 2007, authorizes implementation of an EFMP to augment the State’s existing voluntary accelerated vehicle retirement program (the existing Consumer Assistance Program (CAP) is administered by the Bureau of Automotive Repair and provides $1,000 for the voluntary retirement of vehicles failing their most recent Smog Check). CARB adopted a regulation to implement the AB 118 EFMP, which was finalized on August 12, 2010. This regulation provides for the AQMD to implement the vehicle replacement voucher component of the EFMP for the South Coast Air Basin. Through this program, owners of vehicles targeted as high-emitters will receive $1,000 or $1,500 (depending on low-income eligibility) to scrap their vehicles and will also be eligible to receive vouchers of $2,000 or $2,500 (depending on low-income eligibility) for vehicle replacement or up to $2,500 towards the purchase of transportation by a public transit agency. The vehicle replacement vouchers are to be administered through the AQMD and redeemed at participating automobile dealerships. The AQMD received a letter dated September 22, 2010 from CARB requesting the AQMD to implement the replacement voucher program and indicating that approximately $2,708,000 would be available from the state.

Unocal Settlement “Vehicle Repair, Retirement, and Replacement for Motorists” (VRRRM) Program

FCCC is proposing to implement a vehicle retirement and replacement program, VRRRM, which would be funded by settlement proceeds from the class action litigation, In Re: Reformulated Gasoline Antitrust & Patent Litigation. The Program has several components, including an element to provide additional funding to complement the implementation of the HEROS II program by filling voids in HEROS and EFMP through funding the scrap and replacement of high-emitting vehicles that are not eligible for these programs. In the first phase of HEROS, approximately 40 percent of the vehicles identified as high emitters were deemed ineligible for program participation due to provisions in the Moyer Guidelines. Through the HEROS, EFMP, and VRRRM Programs, most of the targeted vehicles would be eligible for scrapping and replacement incentives, and matching incentive amounts would be offered to the consumer through one of the three programs.

HEROS Phase I

In the first phase of HEROS, CARB identified administrative tasks amounting to $658,339. Such tasks primarily included call center activities, database development, and analysis costs. The administrative costs identified are beyond the 5% cap established for AB 923 implementation. Based on the funding requested to implement the first phase of the HEROS program, the five percent cap is $200,000. CARB allowed the AQMD to proceed with the HEROS program and contributed $150,000 towards the database development. With CARB’s contribution and the $200,000 in AB 923 funds, a balance of $308,339 in administrative costs above the 5% cap were covered with additional AB 923 funds which must be reimbursed.  

Proposal

Staff is proposing several actions to implement the HEROS II Program in conjunction with other scrap and replacement programs currently or proposed to be conducted in the South Coast Air Basin. In summary, staff is requesting the Board to approve the following:

1. To implement HEROS II:

1. Rescind award of contracts at the Board’s October 2, 2009 meeting to implement HEROS II,

2. Rescind prior Board allocation of $1,900,000 from AB923 Funds to HEROS II,

3. Create a HEROS II Special Revenue Fund,

4. Transfer the remaining $1,866,240 from the Carl Moyer Fund 32 as HEROS I Program cost to the HEROS II Special Revenue Fund.

5. Transfer a total amount not to exceed $56,915 from the AB 923 Fund 80 to the HEROS II Special Revenue Fund to implement HEROS II,

6. Transfer $189,155 from the Clean Fuels Fund 31 to the HEROS II Special Revenue Fund to cover administrative costs and to assist in the marketing and outreach for HEROS II,

7. Transfer the $1 million contribution from Mercedes Benz from the AB 923 Fund 80 to the HEROS II Special Revenue Fund to implement HEROS II, and

8. Execute a sole source contract with FCCC in an amount not to exceed $668,410 to implement HEROS II.

2. To implement the AB 118 EFMP:

1. Adopt resolution to accept terms and conditions to implement the AB 118 EFMP,

2. Recognize $2,708,000 from CARB for the EFMP vehicle replacement voucher program and place these funds in the HEROS II Special Revenue Fund, and

3. Allocate $135,400 of the $2,708,000 to cover administrative costs associated with implementing the AB 118 EFMP Voucher Program.

3. To assist in the implementation of the Unocal Settlement VRRRM Program, enter into a Memorandum of Agreement with FCCC.

4. To address the $308,339 in administrative costs beyond the 5% cap that was incurred under the first phase of HEROS, staff is proposing to transfer $308,339 from the Clean Fuels Fund 31 to the Carl Moyer Fund 32.

The above proposed actions are further discussed below.

The actions proposed by staff were developed to further streamline program administrative costs to meet CARB guidelines and to optimize implementation of these programs such that they would be transparent to the consumer. Table 1 depicts the three different programs being considered in the proposed actions and the total incentive amounts being offered for each program area. The three programs consist of: 1) CARB AB 118 Enhanced Fleet Modernization Program (EFMP); 2) Unocal Settlement VRRRM Program; and 3) the AQMD HEROS II Program. Each of the programs will offer identical incentive amounts to consumers who voluntarily scrap and replace their high emitting vehicles.

Table 1. Summary Table of Scrap & Replacement Programs

HEROS Phase II

Under HEROS II, the program would be streamlined and enhanced in several ways. Under the first phase of HEROS, staff found that vehicle repairs were less cost-effective than vehicle scrapping by a four-to-one margin. As such, staff is proposing to only include a vehicle scrapping element and provide replacement incentives to match the incentives levels offered through the EFMP and the VRRRM Program. Although HEROS, EFMP, and the VRRRM Program have different eligibility requirements, matching incentive levels will facilitate the implementation of the three programs in a manner that is seamless to the consumer.

Additional changes under HEROS II include a proposal to implement HEROS II in a manner similar to the lawnmower exchange program. The primary marketing and outreach effort will rely upon the efforts of new and used car dealerships to implement the replacement vouchers to replace high emitting vehicles. Staff may also use remote sensing data obtained from the first phase of HEROS or a proposed state pilot program to identify clean and high emitting vehicles whereby owners of potentially high emitting vehicles would be solicited for participation in the HEROS II Program.  

Since staff is now proposing the elimination of vehicle repairs and weekend events, and the performance of marketing and outreach, it is recommended that the prior awards to Valley CAN and FCCC be rescinded. Staff also recommends that the Board rescind the prior allocation of $1,900,000 from AB 923 Fund 80 for the HEROS II Program.

To implement the revised HEROS II Program, staff is proposing the execution of a sole source contract with FCCC in a total amount not to exceed $668,410. The total amount of $668,410 would be covered from three separate sources and transferred to the HEROS II Special Revenue Fund: $493,155 from AB 923 funds, $39,855 from Clean Fuels funds, and $135,400 from the AB 118 EFMP funds (discussed below). The use of Clean Fuels funding is proposed in order to cover AB 923-funded administrative activities, based on Moyer guidelines. In addition, staff is requesting that the Board transfer $150,000 from the Clean Fuels Fund 31 to the HEROS II Special Revenue Fund for marketing and outreach under the HEROS II Program. Table 2 shows a breakdown in the estimated FCCC contract cost for up to 18 months of program implementation. 

Table 2. HEROS Program Estimated FCCC Contract Costs

Under the revised proposal for HEROS II, interested participants would contact the call center to be implemented by FCCC. Vehicles identified as HEROS-eligible (determined by the call center staff) would be directed to participating Gold Shield stations for vehicle Smog Check tests. Those vehicles failing Smog Check would be eligible for scrap and replacement under the HEROS Program and would potentially be eligible for vehicle replacement incentives. Vehicles deemed ineligible in the HEROS program would potentially qualify for participation in the VRRRM Program or the EFMP.

Incentives offered for vehicle scrapping and replacement would be enhanced to match the incentives offered through the EFMP and the VRRRM Program. In the first phase of HEROS, $1,000 in vehicle scrapping incentives was offered. For HEROS II, staff is proposing to provide an additional $500 scrapping incentive to low income-eligible participants. The first phase of HEROS vehicle replacement incentives of $1,000 for low-income eligible participants would also be modified for HEROS II. Staff is proposing to offer $2,500 vehicle replacement incentives to low income-eligible participants and $2,000 incentives to remaining participants. 

FCCC is qualified to carry out the proposed responsibilities. During the first phase of the HEROS Program, FCCC was the contractor responsible for developing the web-based data management system, determining vehicle eligibility based on Moyer criteria, soliciting vehicle owners, establishing and managing a call center, scheduling and performing vehicle repairs, and tracking vehicle appointments, repairs, and retirement.

Staff is recommending that the proposed approach for Phase II be initiated as a pilot project. After the first four months of activity, the program would be reassessed for participation levels and effectiveness. The contract amount would cover the cost of testing for an estimated 2,547 vehicles (at $75 per test).

In the first phase of the HEROS Program, Pick Your Part conducted the vehicle scrapping element of the Program. On October 2, 2009, the Board authorized staff to amend the MOU with Pick Your Part for the HEROS II Program and allocated $1,900,000 from the AB 923 Fund 80 for vehicle replacement incentives to low-income eligible participants and for vehicle scrapping. The $1,900,000 in funding would have covered incentive funding for the scrapping of approximately 1,600 vehicles, assuming that 20% of the participants would have received the additional $1,000 incentive available to low-income eligible participants who replaced their high-emitting vehicles with CARB-certified low-emission vehicles.

Disbursement of the HEROS scrapping incentive of $1,000 per vehicle would be provided directly to participants by Pick Your Part as participants relinquish their vehicles for scrapping. Pick Your Part would then be reimbursed for each incentive payment in an amount of $985 per vehicle. The additional $500 incentive to low-income eligible HEROS participants who scrap their vehicles would be distributed by the AQMD to each eligible participant. HEROS-funded vehicle replacement incentives would also be distributed to the participant by the AQMD.

To cover HEROS II incentives funding, staff is recommending that the Board transfer the remaining balance of $1,866,240 from the Carl Moyer Fund 32 for HEROS I program and transfer $56,915 from the AB923 Fund 80 to the HEROS II Special Revenue Fund for vehicle scrapping incentives for approximately 1,350 vehicles, assuming that 10% of the participants receive low-income eligible incentive levels. This would result in a total amount of $1,923,155 available towards HEROS II Program implementation. 

To implement the vehicle replacement voucher element of the proposed HEROS II Program, staff requests the Board to transfer the $1,000,000 Mercedes Benz USA contribution that was placed in the AB 923 Fund 80 to the HEROS II Special Revenue Fund. HEROS II vehicle replacement incentives would be provided through the HEROS II Special Revenue Fund for purposes of providing incentives for an estimated 490 vehicles, assuming 10% of the participants receive low income-eligible incentive levels.

Table 3 depicts the funding allocation for the vehicle retirement and replacement components in addition to delineation of the program costs versus administrative cost/funds allocated for the different program components. Table 3 also shows the anticipated number of vehicles to be scrapped and replaced for each program based on available funds.

Table 3. Program and Administrative Costs for
Vehicle Retirement and Replacement Incentive Programs

VRRRM

The Unocal Settlement VRRRM Program will be implemented by FCCC. The VRRRM Program is currently providing statewide funding for vehicle repairs and combined vehicle scrapping/replacement. These program elements will not necessarily be coordinated with the HEROS Program. An incentive amount of $3,500 is being provided for combined scrap and replacement. To complement the HEROS Program, the VRRRM Program would offer vehicle replacement incentives for approximately 510 HEROS vehicles. The incentive levels would match those provided through HEROS ($2,000 or $2,500, depending on low-income eligibility status).

In addition, the VRRRM Program would provide vehicle scrapping and replacement incentives for up to 1,050 vehicles that may be ineligible for HEROS participation due to Moyer Program criteria. The incentive levels would match those of the HEROS Program ($1,000 or $1,500 for scrapping, and $2,000 or $2,500 for replacement, depending on low-income eligibility status). Combined incentive levels for scrapping and replacement would match HEROS either $3,000 or $4,000 depending on low income-eligibility status.

To coordinate efforts between the HEROS II Program and the Unocal Settlement VRRRM Program, staff is recommending that the Board authorize the Executive Officer to negotiate and enter into a Memorandum of Agreement with FCCC.

CARB AB 118 (EFMP)

Staff is recommending that the Board approve the attached resolution to recognize up to $2,708,000 from CARB and accept the terms and conditions of the Grant Award to administer the EFMP vouchers for the South Coast Air Basin. The funds will be placed in the HEROS II Special Revenue Fund. Potential high-emitting vehicles would be targeted by the Bureau of Automotive Repair and by the AQMD for participation. EFMP scrapping incentives of $1,000 or $1,500 will be offered, depending on low income eligible status. After an identified vehicle is scrapped through EFMP, an owner qualifying as low-income eligible would receive a $2,500 voucher, to be used at a participating automobile dealership towards the purchase of a vehicle eight years old or newer that meets specified fuel economy ratings shown in Table 4, or towards the purchase of transportation by a public transit agency. An owner not qualifying as low-income eligible would receive a voucher of $2,000, to be used at a participating dealership towards the purchase of a vehicle four years old or newer that meets the specified fuel economy ratings listed in Table 4, or towards the purchase of transportation by a public transit agency.

Table 4. Minimum Fuel Economy Rating
Requirements for EFMP Vehicle Replacement Eligibility

Through the EFMP, combined incentives of $3,000 or $4,000 will be offered for vehicle scrapping and replacement, depending on low-income eligibility status. Incentives proposed for HEROS II and for VRRRM Program as it will be applied to HEROS-ineligible vehicles will match the EFMP incentive levels.

New and Used Car Dealerships

Staff is proposing to conduct at least one workshop to solicit automobile dealerships participation in the various programs. Interested dealerships would submit applications to the AQMD for participation. Detailed marketing and outreach plans would be required to be submitted by each dealership. Upon approval, each dealership would enter into contract with the AQMD. Contracts would stipulate that dealerships cannot require a consumer to divulge EFMP voucher participation prior to negotiating vehicle price. Staff would provide training to dealerships on the requirements of the program. The dealerships would provide general information to program participants about the program and assist program participants to correctly complete vehicle replacement voucher applications. Staff would review the applications on a first-come first-served basis. Upon notification that an application has been approved, the dealership would complete the purchase agreement with the participant and receive EFMP voucher reimbursement through the AQMD.

HEROS Phase I Administrative Cost Reimbursement

In the first phase of HEROS, CARB identified administrative tasks amounting to $658,339, which were paid out of the Carl Moyer Fund 32. Administrative tasks identified by CARB included primarily call center activity costs, remote sensing data collection and database development costs. CARB contributed $150,000 towards the database development costs thereby leaving a balance of $508,339. The administrative cost allowance of AB 923 funds requested for the first phase of HEROS amounted to $200,000 thereby leaving an amount of $308,339 exceeding the cost allowance. Staff is proposing that Clean Fuels Funds be used to cover the remaining administrative cost of $308,339. As such, staff is requesting the Board reimburse the Carl Moyer Fund 32 with $308,339 from the Clean Fuels Fund 31. In addition, staff is requesting the Board recognize $150,000 as administrative funds provided by CARB in the Carl Moyer Fund 32.

Benefits to AQMD

As emission contributions from stationary sources become a smaller component of the AQMD’s emissions inventory, the focus has been directed at mobile source emissions. Mobile source emissions represent a major category of the emissions inventories for both ozone and fine particulate matter. The proposed programs focus on the light- and medium-duty sector, which is a major category in the on-road emissions inventory. The HEROS Program has been a voluntary program for consumers interested in reducing emissions from their vehicles either via a repair assistance program or a vehicle retirement and replacement program. The proposed second phase of HEROS would be geared to optimize the participation rate of this voluntary program, and coordination with the VRRRM Program would optimize incentive levels for vehicle scrap and replacement. The vehicle replacement voucher component of the CARB EFMP is a critical augmentation to the State’s vehicle retirement program that would benefit areas in the state with the worst air quality. Implementation of a voucher component of the program by staff would ensure that the South Coast Air Basin benefits from the vehicle replacement incentives of the EFMP. The voucher program may also be utilized to enhance incentives available to HEROS participants. 

Sole Source Justification

In the “Procurement Policy and Procedure” document, subdivision B.2.c of Section VIII allows the awarding of a sole source contract based on “the unique experience and capabilities of the proposed contractor or contractor team.” Staff proposes entering into a sole source contract with the FCCC to coordinate and oversee the voluntary testing and subsequent repairing of the high-emitting vehicles identified in the Proposal for the HEROS Program. Testing and repairs would be performed at designated Gold Shield stations located throughout the South Coast Air Basin. Gold Shield stations meet higher performance standards and provide a variety of vehicle inspection and repair services. FCCC currently provides the Referee function for California's existing Smog Check Program. In this capacity, FCCC resolves conflicts between consumers and the Smog Check stations, including Gold Shield stations, in the testing and/or repairs and diagnoses of the vehicles. Due to this function, FCCC has a unique ability to work effectively with Smog Check stations, including Gold Shield stations. In addition, FCCC contracted with more than 25 Gold Shield stations for testing and repairs performed on high-emitting vehicles through Phase I of the HEROS Program.

FCCC is the authorized statewide auxiliary organization of the California Community Colleges pursuant to California Education Code Sections 72670-72682. It is incorporated as of May 21, 1998 under the provisions of the California Corporations codes as a nonprofit public benefit corporation, exclusively for education, administrative and related services of the California Community Colleges. FCCC operates 36 referee stations throughout the state, mostly on California Community College campuses. 

Resource Impacts

The total cost for implementation of CARB’s EFMP, including administrative costs, will not exceed the grant award of approximately $2,708,000 which staff is proposing to be recognized in the HEROS II Special Revenue Fund. The total cost of the proposed HEROS II Program will not exceed $3,113,010 from the HEROS II Special Revenue Fund and proposed to be funded as follows:

• Transfer from Carl Moyer Fund 32       $1,866,240

• Transfer from AB 923 Fund 80

• AB 923 Money       $56,915

• Mercedes Benz Contribution       $1,000,000

• Transfer from Clean Fuels Fund       31 $189,855

Additionally, $308,339 would be transferred from the Clean Fuels Fund 31to reimburse the Carl Moyer Fund 32 for administrative costs associated with the first phase of the HEROS Program.

Sufficient funds are available in the Special Revenue Funds indicated.

Attachment (DOC, 46k)

1. Resolution of the South Coast Air Quality Management District Board Recognizing and Accepting the Terms and Conditions of the AB 118 Enhanced Fleet Modernization Program Grant Award.

Erratum (DOC, 27k)