Dear Governor Brown,
While we appreciate the efforts of CalRecycle to define and attempt to address a ‘Structural Deficit’ in the Beverage Container Recycling Program, the proposals contained in your Governor’s 2014-15 Budget include several counterproductive and unnecessary cuts to the State’s recycling infrastructure, while mostly failing to address the root causes of the problem. We must oppose the proposal unless substantially amended.
CalRecycle’s Budget Proposal will unnecessarily undermine some of the most critical and successful elements of California’s nation-leading recycling efforts including:
- Eliminates $15 million for Curbside Recycling Programs. Curbside provides the backbone of our residential recycling system and is critical to meeting the State’s 75% Recycling Goal. Curbside handles more glass than any other recycler type, and glass is the most expensive to recycle container. Without this funding, curbside programs will be forced to either raise residential rates or stop collecting glass for recycling.
- Eliminates $10.5 million for Local Government Recycling and Litter Clean Up. Local Governments are facing increasing pressure and financial demands to both reduce storm drain litter and increase recycling to meet State Goals. These Recycling block grants represent the only annually available source of state funds to achieve these objectives.
- Eliminates $15 million for local Conservation Corps with a promise to backfill funding from other Special Fund Sources. The State’s Local Conservation Corps annually train and employ 650 corpmembers, many of which are ‘at risk youth’. Consistent with the legal uses of ‘special funds’, for two decades, the vast majority of these corpmembers have been operating mature beverage container recycling programs. These programs will have to be drastically reduced, while Corps try to cobble together new programs for recycling motor oil, e-waste and used tires. We support increasing Conservation Corp access to new recycling funds, but this needed investment in recycling need not come at the expense of existing successful container recycling programs.
- Cap Supermarket Recycler Payments at $1700 per month. There are currently 417 ‘unserved’ supermarket-based recycling sites in the State, and the artificial ‘cap’ proposed in the budget could increase that number to over 1000. There is no basis for a $1700/month cap. CalRecycle’s most recent (2012) ‘Newpoint’ survey of 94 recycling sites found that only one center had monthly costs below $1700/month, and that center’s ‘costs per container’ were more than twice as high as the statewide average. Of nearly 1000 handling fee eligible sites, 82% have costs—based on the Newpoint Survey—that exceed $1700/month, including 100% of the state’s most efficient sites whose costs per container are below the surveyed statewide average. Caps on payments to Handling fee sites were tried and failed 14 years ago. In 1990, AB 1490 (Sher), established a $1500/month cap. The result was high cost/low volume sites that failed to meet the law’s convenience mandate. In 1992, the Legislature established the current ‘Handling Fee’ system (1.7 cents/container) and set the monthly cap at $2300. In 2006, AB 3056 (Hancock), shifted the handling fee to a ‘cost survey’ basis and eliminated the cap. Today, supermarket-based recycling centers are operating with the lowest average cost per container in the program’s 25 year history.
- Eliminates $7.6 million in payments to Recyclers and $17.7 million in payments to Processors. When consumers redeem containers at a recycling center, they receive their CRV payment when they recycle. But the recycler who redeems those containers and the certified processor that submits the reimbursement claim to CalRecycle, may have to wait 30-50 days before they are reimbursed the CRV that they have already advanced to consumers. During any given 30 day period, California’s private and non-profit recycling sector may be advancing California consumers as much as $13 million. The administrative payments, which equal .75% of CRV for recyclers, and 1.75% for processors, is in most cases insufficient to cover the lost time value of money. Additionally, in order to help curb fraud and reduce CalRecycle administrative costs, the department has in the last year added new administrative requirements on certified recyclers which have added to their costs. It appears arbitrary and punitive to eliminate recycler and processor administrative payments, especially while maintaining beverage distributor administrative payments in excess of $16 million.
Last year (FY 2012-13), the reported structural deficit totaled about $100 million. That is about 8.5% of annual program income. The CalRecycle proposal would cut Core Program Recycling Expenditures by $73.8 million (out of the current $133.6 million total). Current total Core Program Recycling Expenditures, when combined with current CalRecycle administrative expenditures ($45.8 million), equal less than 16% of annual program revenue ($1.15-$1.17 billion). In other words, these essential recycling expenditures do not—in and of themselves--contribute to the structural deficit, and would remain sustainable even if recycling rates equaled 84%. While Californians recycled a record level of containers last year, recycling rates have remained steady at 82% for 5 years in a row.
Provision we support/have no objection to:
Processing Fee Offsets. CalRecycle has also proposed phasing out the practice of using ‘unredeemed’ funds to offset up to 90% of beverage manufacturer’s container specific recycling costs (i.e. processing fees). This outdated system costs the Beverage Container Recycling Fund more than $66 million annually. This proposal would increase the cost of PET plastic containers by about one-tenth of a cent/container; the cost of glass containers by about 1.5 cents/container; and the cost of HDPE plastic containers by about eight-tenths of a cent per container. For the first decade of the program, beverage manufacturers were required to cover the full net cost of recycling their containers. We have no objection to CalRecycle’s proposal to return to this practice.
Local Enforcement Grants. The department has proposed establishing a $7 million annual grant program for local public agencies to take over responsibility for enforcing compliance at local certified recycling locations. This is an innovative proposal that is worthy of being tried on a pilot basis to determine if locally directed enforcement might be a more effective. However, we would caution that some local solid waste management agencies have a history of trying to block certified recycling centers from operating based on the perception that these private and non-profit operators compete with local government recycling programs. Of the 417 ‘unserved zones’ statewide, it appears that as many as 30% (125 sites), may be unserved due to the actions of a local agency. We would have no objection to a proposal establishing a ‘pilot’ enforcement program targeting those areas of the state where it has been logistically challenging and costly for CalRecycle to undertake regular site visits and enforcement. We would establishing a local enforcement role and providing consumer recycling funds to those local agencies that have forced the closure and/or blocked the siting of certified recycling centers.
Diversified Funding for Local Conservation Corps. We are generally supportive of the department’s proposal to make non-beverage container recycling funds available to Local Conservation Corps that may be interested in establishing new programs for the collection of used tires, e-waste or motor oil. It will certainly take some time for Local Corps to evaluate need and opportunity in their communities, and then potentially gear up to establish these new programs. So while we support making these funds available to Local corps, it is premature to view these funds as a potential replacement for existing Beverage Container Recycling funding and programs.
Extend and Increase Recycling Grant Funding. The department is proposing to reinstate and actually increase funding for the defunct Recycling and Litter Reduction Grant program. The legislature suspended this largely ineffective and arbitrary expenditure in 2010. While grant funding may have played an important role in creating California’s recycling infrastructure in the 1990’s, today that infrastructure is largely mature, representing hundreds of enterprises, employing tens of thousands of Californians, and moving more than 10 million tons of recycled materials with a market value in excess of $10 billion. While we have no objection to providing CalRecycle with modest annual grant making authority for the occasional special project ($500,000 annually), this specific grant program has proven to be an ineffective and at times a counterproductive means of supporting California’s recycling economy.
Payment Reforms offer a Better Path to Program Sustainability
While there is clearly a structural deficit, expenditures for recycling didn’t create it, and cutting those expenditures won’t fix it. The data demonstrates CRV ‘overpayments’ are the real problem, and that increased enforcement, closing loopholes, and CRV payment reforms are the only solution.
The department’s extensive program data, including the Quarterly Report on the Status of the Beverage Container Recycling Fund suggests that a primary source of the deficit is excess CRV Payments being made for non-CRV materials (both in-state and out-of-state). Some of this is caused by direct and purposeful fraud. But in some cases the problem is one of ‘CRV leakage’ due to inadequate poor record keeping and accounting by both operators and regulators. Even the most conservative estimate suggests that this overpayment problem approaches $100 million annually, and likely exceeds the amount of the current deficit. To CalRecycle’s credit, in the last several months, the department has initiated several critical regulatory reforms that are already paying dividends and reducing the size of the deficit.
- Suspending Commingled Rate Payments - Starting November 1, 2013, the department suspended the practice of allowing buyback recycling centers to make ‘commingled’ CRV payments to consumers for loads containing non-CRV material. While this system was resulting in high recycling, it was also resulting in CRV funds being paid out for non-CRV materials. Based on our informal surveys, we are projecting that this ‘fix’ will result in a 2% to 3% downward ‘correction’ in recycling rates and has the potential to save the fund as much as $25 million in 2014-15.
- Daily Consumer Load Limit - Effective January 1, CalRecycle lowered the amount of daily allowable consumer load limit to 50 pounds for aluminum and plastic, and 250 pounds for glass.
- Out of State Enforcement - To help combat out-of-state fraud, in September, 2012, the Governor signed an urgency measure--AB 1933 (Gordon)—providing CalRecycle and CDFA with added enforcement tools to stop entities from importing empty beverage containers from out of state for illegal redemption. On February 18, 2014 CalRecycle began requiring all importers of empty containers to go through Department of Food and Agriculture (CDFA) quarantine inspection station and obtain and carry proof of inspection. A form documenting the source and destination of the material must also be completed. The Department has projected that out-of-state fraud may be costing the fund as much as $40 million annually.
- Increasing certification requirements for recyclers to help maintain even playing field for legitimate operators.
Priority Legislative Steps to Support Recycling & Return Fund Balance:
In addition to the department’s recent regulatory and enforcement actions, we believe that there are several Program Reforms that the legislature can undertake this year in order to reduce CRV ‘over payments’ and bring program income and expenditures into balance without endangering thousands of recycling jobs and threaten consumers’ ability to conveniently recycle containers.
- Closing CRV Loopholes. Containers for more than 1.2 billion beverages sold in the state are currently exempt from paying CRV due to outdated and arbitrary container size and type distinctions (fruit juice in a 40 ounce glass bottle pays CRV, but the same juice in a 46 ounce glass container does not; Flavored sugar drinks in a 12 ounce aluminum or PET container pays CRV, while the same sugar drink in the same sized box or pouch does not). Closing this loophole will likely increase recycling by more than 500 million containers annually, while reducing the fund imbalance by $55 million or more.
- Adjusting CRV on large Single Serve Containers. Containers under 24 ounces have a 5 cent CRV. Containers 24 ounces and larger have a 10 cent CRV. Last year the average ‘pay-in’ for the more than 9 billion PET Containers sold was 5.8 cents. But the average ‘pay-out’ was somehow 6.4 cents. This differential is costing the fund $40 million annually for PET alone.
- Handling Fee Reform. Every two years, CalRecycle surveys the cost of recycling at supermarket-based recycling centers. Current law requires the department to establish a single statewide average ‘handling fee’ to cover costs. However, the last two surveys reveal that the ‘single average’ system results in a substantial overpayment for high volume recycling centers and a substantial underpayment for lower volume centers. In large part because of this underpayment, there are currently more than 400 ‘unserved’ supermarket sites. Based on the Department’s cost survey, a simple ‘tiered’ payment system would provide a more equitable distribution of existing handling fee payments for supermarket-based recycling centers, while at the same, saving the fund as much as $7 million annually.
- Redirecting staff to Audit and Enforcement. In the most recent Quarterly Report on Fund Status, the department concludes: "CalRecycle must shift the balance of its efforts in primarily encouraging recycling to an increased emphasis on program fiscal integrity under an environment where Californians are enjoying record high recycling rates." We agree. The Division of Recycling has more than 289 employees and an administrative budget of $45 million. The program has reached a level of maturity and recycling success whereby this staffing can and should be focused exclusively on the tasks of ‘money in and money out’.
The incentives and infrastructure provided by the Beverage Container Recycling Program represent California’s oldest and most consistent models of recycling success. The US EPA and other independent analyses have found this program to be the most cost effective container recycling system in the country.
As California looks to substantially expand recycling in order to meet the dual goals of 75% recycling by 2020, and reduced GHG emissions under AB 32, California will need to expand this model of recycling success, and not go backwards, eliminating core program recycling expenditures.
While we must oppose CalRecycle’s budget proposal unless substantially amended, we remain ready to work with the Administration, the Legislature and recycling stakeholders on a solution this budget cycle to bring program income and expenditures into balance.