BOARD MEETING DATE: October 29, 2010
AGENDA NO. 1
PROPOSAL:
Adopt Rule 320—Automatic Adjustment Based on Consumer Price Index for Regulation III Fees
SYNOPSIS:
The proposed rule would provide that all fees set forth in Regulation III, with specified exceptions, would automatically be adjusted effective July 1 of each year by the California Consumer Price Index for the preceding calendar year as referred to in Health and Safety Code Sections 40510 and 40523, unless the Governing Board by rule decides not to implement such fee increase for a given year, either for all fees or for a specified fee or fees.
COMMITTEE:
Stationary Source, October 15, 2010, Reviewed
RECOMMENDED ACTION:
Adopt the attached resolution:
- Certifying the CEQA Notice of Exemption for Proposed Rule 320—Automatic Adjustment Based on Consumer Price Index for Regulation III Fees; and
- Adopting Proposed Rule 320—Automatic Adjustment Based on Consumer Price Index for Regulation III Fees
Barry R. Wallerstein, D.Env.
Executive Officer
Background
For many years, the AQMD has implemented a fee program for stationary and area sources as authorized by various provisions of the Health and Safety Code, and adopted pursuant to provisions of Regulation III, which provides over 60% of the AQMD’s annual revenues which support the AQMD’s operations. Additional revenues supporting the AQMD’s operations are derived from sources such as motor vehicle registration fees (AB 2766) and non-fee revenues such as lease payments and penalty revenues. The authority to adopt permit fees, and to vary such fees based upon emissions, has existed since the AQMD’s inception, in 1976. From time to time, the Health and Safety Code has been amended to either expand or restrict the AQMD’s fee authorities, as deemed appropriate by the Legislature. For example, in 1984 the Legislature adopted Section 40522, allowing the AQMD to adopt fees for the approval of plans for the control of air contaminants, if such plans are required by AQMD rules. In 1988, the Legislature adopted Section 40522.5, authorizing the AQMD to adopt fees for areawide or indirect sources which are regulated, but for which permits are not required. In 1993, the Legislature adopted Section 40523, which limited the total amount of fee revenues to that amount collected in fiscal 1993-1994, as adjusted by the California CPI. (The limit does not apply to fees imposed to implement a new state or federal mandate adopted after January 1, 1994.) In 1993 and 1994, the Legislature adopted and amended Section 40510.5, requiring any increase in existing permit fees greater than the California CPI to be phased in over a period of at least two years. The AQMD’s current fees remain less than the fees collected in 1993-1994, as adjusted for inflation by the California CPI. Air district fees have been held to be valid regulatory fees which are not subject to the 2/3 popular vote requirement of Proposition 13 (1978) for “special taxes.” San Diego Gas & Electric Co. v. San Diego County Air Pollution Control Dist., (1988) 203 Cal. App. 3d 1132. This Board Letter serves as the Staff Report for this proposed rule.
Proposition 26
On the November ballot is an initiative proposition, Proposition 26, which would amend provisions of the California Constitution to broaden the definition of “tax” to include various fees that have heretofore been held to be valid regulatory fees that are not “taxes.” Sinclair Paint Co. v. State Bd. of Equalization (1997) 15 Cal. 4th 866, 874. Since the enactment of Proposition 218 in 1996, the California Constitution has required that increases in local taxes be approved by the voters; however air district fees have been considered to be regulatory fees and not taxes under the above authorities. As relevant to air district fees, Proposition 26 would amend Article XIII C of the California Constitution to provide that “(e) As used in this article, “tax” means any levy, charge, or exaction of any kind imposed by a local government, except the following.” (The term “local government” is defined to include “any special district, or any other local or regional governmental entity.”) The specific exemptions from the definition of “tax” in Proposition 26 include several which may be argued to be applicable to some or all of the AQMD’s fees. However, they certainly present an opportunity for litigation challenging any fee increase adopted after the effective date of Proposition 26, should it be approved by the voters. (Initiative measures are effective the day after they pass.) Moreover, it does not appear that the authors of Proposition 26 were familiar with the various types of regulatory fees implemented by air districts, so the exceptions do not precisely match the provisions of the Health & Safety Code. Attachment G contains the Legislative Analyst’s impartial analysis of Proposition 26. The Legislative Analyst has identified certain fees which may be reclassified as taxes under Proposition 26, including fees to promote pollution prevention, and fees on businesses to support code or law enforcement.
In addition, even if a particular exemption is applicable, Proposition 26 provides that “The local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.” This reverses the usual burden of proof in litigation which places the burden on the party challenging the fee. Sea & Sage Audobon Society, Inc. v. Planning Com. (1983) 34 Cal. 3d 412, 421, cited with approval in Sinclair Paint, supra.
Proposal
In view of the likelihood of litigation challenging fee increases adopted after the effective date of Proposition 26, should it be enacted by the voters, and the shifting of the burden of proof to the defendant public agency effectuated by Proposition 26, staff recommends that the Governing Board adopt Proposed Rule 320, which would provide for an automatic fee adjustment effective July 1 of each year, based on the change in the California Consumer Price Index for the preceding calendar year, for most fees included in Regulation III. Staff research has disclosed at least eight other air districts which already have automatic CPI adjustments in their fee rules. Should there be a year in which the CPI is negative, the fees would be reduced accordingly. The rule would allow the Governing Board to decide, in any given year, to provide by rule that the otherwise-applicable CPI increase would not occur for any or all of the fees otherwise covered by the CPI increase. However, should the Governing Board exercise that option, there still could not be a fee increase the following year that was greater than the CPI, without complying with the provisions of Proposition 26. In lieu of deciding not to implement the fee adjustment, we believe the Governing Board could decide to rebate the amount of the fee adjustment, for any given year, as it did with specified fees this fiscal year, without impacting the continuation of the fee adjustment for that year. Staff’s analysis indicates that over the last 6 years, the costs of AQMD programs supported by fees on stationary sources has increased by about 22.2% whereas the CPI has increased by about 16.3%, thus showing the need for a CPI adjustment. (The budget and work program documents from which this data was gathered are incorporated by reference herein and available for public review in the AQMD Public Information Center.)
The proposed rule would exempt from the automatic CPI adjustment any fee imposed in the event of a dishonored check, as that fee is set by statute, as well as the Clean Air Act Nonattainment Fees, set by Rule 317, which would be instead adjusted by the federally-determined CPI as required by Section 185 of the Clean Air Act. We do, however, believe that the Section 185 fees would not be covered by Proposition 26’s definition of “tax,” should it be enacted, since they are not imposed unconditionally by AQMD, but rather are an option in lieu of reducing emissions to 80% of the emissions occurring in the 1-hour ozone attainment year.
Public Process
The proposed rule, and draft Board Letter, were released to the public on September 29, 2010. A public workshop was held on October 5, 2010. Notices for the public workshop were mailed to all permit holders in the District, approximately 28,000 facilities. Two people attended the public workshop, and did not raise any issues. Three written comments have been received, as follows:
Comments & Responses:
Comment 1: The proposal is anti-business and should not be adopted.
Response: The proposal seeks to address the AQMD’s continuing need for sufficient revenues to carry out its statutory mandates, and does not increase fees beyond the cost of living. In fact, assuming emissions continue to decline, total emission fees are likely to drop even when the fee rate (dollars per ton) is increased by the CPI.
Comment 2: Governments should not be able to tie their fee rates to an indicator which governments can influence, such as CPI.
Response: The AQMD has no role in determining what is the CPI, nor in setting monetary policy which may affect the CPI.
Comment 3: The proposed automatic adjustment should not be adopted because it would mean the normal deliberative process, including socioeconomic analysis, and balancing the budget needs of the District against the impact on industry, would not occur. Also, public participation would be limited.
Response: Under the proposal, the AQMD Governing Board remains free to adopt a different fee adjustment or no adjustment in any year. If deemed helpful, the Board may direct staff to prepare a socioeconomic analysis of what the impacts of the automatic adjustment would be in a given year. Finally, on its own motion or at the request of a member of the public, the Board may direct staff in any given year to prepare for public comment and Board consideration an alternative proposal which would not adjust fees.
AQMP and Legal Mandates
The proposed rule is not a part of the AQMP. However, various provisions of the Clean Air Act require the AQMD to adopt fee rules to recover sufficient fees to support the permit programs, including the new source review permit program (42 U.S.C. § 7410(a)(2)(L)), and the Title V permit program (42 U.S.C. §7661a(b)(3)).
Draft Findings
California Health and Safety Code §40727 requires that prior to adopting, amending, or repealing a rule or regulation, the AQMD Governing Board shall make findings of necessity, authority, clarity, consistency, non-duplication, and reference based on relevant information presented at the public hearing and in the staff report.
Necessity
The AQMD Governing Board finds that a need exists to adopt Proposed Rule 320 to ensure that the AQMD is able to recover sufficient revenues to maintain its existing programs, as the Consumer Price Index changes in the future.
Authority
The AQMD Governing Board derives its authority to adopt Proposed Rule 320 from California Health and Safety Code §§ 39002, 40001, 40440, 40702, 40500, 40500.1, 40506, 40510, 40510.5, 40510.7, 40511, 40512, 40522, 40522.5, 40523, and 40725 through 40728.
Clarity
Proposed Rule 320 is written or displayed so that its meaning can be easily understood by the persons directly affected by the rule.
Consistency
Proposed Rule 320 is in harmony with and not in conflict with or contradictory to existing statutes, court decisions, or state or federal regulations.
Non-Duplication
Proposed Rule 320 will not impose the same requirements as any existing state or federal regulations. The proposed rule is necessary and proper to execute the powers and duties granted to, and imposed upon, the AQMD.
Reference
By adopting Proposed Rule 320, the AQMD Governing Board will be implementing, interpreting, or making specific the provisions of the California Health and Safety Code Sections 40500 (fees for the granting of variances); 40506 (fees for issuance and modification of permits); 40510 (fees for the issuance of variances and permits to cover the reasonable cost of permitting, planning, enforcement, and monitoring related thereto); 40512 (surcharge for clean fuels for stationary sources); 40522 (fees for plans for control of air contaminants; and 40522.5( fees for areawide or indirect sources which are regulated but for which permits are not issued);and Federal Clean Air Act Sections 110(a)(2)(L); 42 U.S.C. §7410(a)(2)(L)(fees to cover the cost of new source review permit program);110(a)(2)(E); 42 U.S.C. §7410(a)(2)(E)(adequate resources to carry out the state implementation plan); 502(b)(3); 42 U.S.C.§7661a(b)(3)(fees to support Title V permit program).
California Environmental Quality Act (CEQA)
State law provides a statutory exemption from CEQA for the establishment or modification of rates, tolls, fares and other charges which the public agency finds are for the purpose of meeting operating expenses, purchasing or leasing supplies, equipment, or materials, meeting financial reserve needs and requirements, and obtaining funds for necessary capital projects to maintain services. State CEQA Guidelines § 15273. An appropriate Notice of Exemption will be prepared.
Socioeconomic Assessment
State law does not require a socioeconomic assessment for this Proposed Rule since it does not “significantly affect air quality or emissions limitations.” Health & Safety Code § 40440.8(a).
Implementation and Resources
Existing AQMD resources will be used to implement Proposed Rule 320.
Attachments (ZIP, 1.8m)
A. Summary of Proposal
B. Key Issues and Responses
C. Resolution
D. Proposed Rule 320 Rule Language
E. Notice of Exemption from CEQA
F. Text of Proposition 26
G. Legislative Analyst’s Impartial Analysis of Proposition 26