BILL ANALYSIS                                                                                                                                                                                                    

                                                                     AB 274

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          Date of Hearing:  March 24, 2015


                                    Alejo, Chair

            274 (Committee on Environmental Safety and Toxic Materials) - As  
                            Introduced  February 11, 2015

          SUBJECT:  Oversight costs:  uncollectible accounts.

          SUMMARY:  Authorizes the Department of Toxic Substances Control  
          (DSTC) to not pursue specified uncollected invoices.   
          Specifically, this bill:  

          1)Finds and declares that DTSC should prioritize its cost  
            recovery efforts to make the most efficient use of its  
            resources available for that activity;

          2)Finds and declares that it is not cost effective or  
            practicable to seek recovery of an uncollectible account;

          3)Defines "uncollectible account" as an oversight cost that  
            meets the following conditions:

             a)   The oversight was incurred by DTSC on or after July 1,  
               1987, but not later than December 31, 2013, while  
               overseeing a cleanup action; 

             b)   The amount of the uncollectible cost is not more than  
               five thousand dollars ($5,000); and

             c)   DTSC's estimated cost to pursue the oversight costs  
               exceeds the value of the oversight costs. 


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          4)Authorizes DTSC to not pursue an uncollectible account. 

          EXISTING LAW:  

          1)Requires any costs incurred by DTSC or a regional board to be  
            recoverable from the liable person or persons, and requires  
            the amount of any response action costs that may be recovered  
            to include interest on any amount paid.  (Health & Safety Code  
            (H&S)  25360)

          2)Requires DTSC to review all current outstanding receivables  
            and make an appropriate adjustment for estimated uncollectible  
            amounts, consistent with current accounting practices and  
            recognizing the present value of future collection, and  
            authorizes DTSC to write off or write down those receivable  
            amounts.  (H&S  25269.8) 

          3)Authorizes DTSC to consider whether to enter into a contract  
            with a private collection agency to collect substantially  
            past-due accounts, and for longer term receivables consider  
            whether credit arrangements should be made with banks or other  
            institutions willing to assist in financing a potentially  
            responsible party's obligation for remediation.  (H&S   

          FISCAL EFFECT:  Unknown.



           State Audit Report  :  On August 7, 2014, the Bureau of State  
          Audits (BSA) released a report on DTSC's cost recovery.  The BSA  
          found that long-standing shortcomings with DTSC's recovery of  
          costs have resulted in millions of dollars in unbilled and  
          billed but uncollected cleanup costs dating back to 1987. 


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          As of March 2014, DTSC had 1,661 projects totaling almost $194  
          million in outstanding costs, of which nearly $142 million was  
          unbilled and almost $52 million was billed but uncollected.  
          These outstanding costs were incurred between July 1987 and  
          December 2013.

           Audit follow up  :  DTSC is required to respond to the BSA's audit  
          recommendations within 60 days, 6 months, and 1 year after the  
          report.  In its 60-day response, DTSC stated it conducted a cost  
          recovery work analysis to determine costs associated with  
          conducting outstanding cost collection.  DTSC coordinated with  
          the Department of Finance and the State Controller's Office for  
          clarification on authority to write off outstanding costs less  
          than $5,000.  While attachments to DTSC's response are  
          considered confidential, according to DTSC staff, it is unclear  
          under current law whether DTSC is authorized to write off its  
          due diligence on cleanup costs and, therefore, statutory  
          authorization would remove that legal ambiguity. 

           Fixing the Foundation  :  In early 2012, DTSC launched an internal  
          initiative, "Fixing the Foundation," to address issues that  
          threatened DTSC's ability to achieve its mission and to ensure  
          accountability.  One of DTSC's stated goals is to "[m]aximize  
          the recovery of DTSC's past, present, and future response costs  
          by comprehensively evaluating its unbilled and uncollected costs  
          with the ultimate goal of pursuing collection efforts for all  
          unbilled and uncollected costs to the maximum extent reasonably  

          According to DTSC, efforts to address the backlog have led to a  
          reduction in the number of sites without payment from 2,700 to  
          fewer than 1,600 (40% reduction), and a reduction in the amount  
          of outstanding costs by more than $24 million, which includes  
          settlements paid, cash collected, and data cleanup.  


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           Need for the bill  :  Of the remaining outstanding costs, there  
          are 865 projects, or about $1 million worth of projects valued  
          at less than $5,000 each.  Of that, 235 projects have bills less  
          than $500, and 61 projects billed at less than $25.  

          The initial cost to send a collection letter is roughly $72.70.   
          The cost to conduct a responsible party search costs, on  
          average, is $7,800.  Therefore, DTSC's costs to identify a  
          responsible party for those projects often far exceed the  
          recoverable costs, resulting in a financial loss to DTSC, and  
          therefore to taxpayers. 

          Authorizing the department to cut its losses on low-dollar  
          uncollected projects valued at less than $5,000 would enable the  
          department to more expeditiously get through the backlog of  
          outstanding costs and free up resources to address larger,  
          higher priority cleanup costs. 

           One-time fix  :  This bill is a one-time fix to allow DTSC to dig  
          out of its backlog of uncollected bills.  The bill specifically  
          states that the covered uncollectible bills, as defined, are  
          only those costs accrued between July 1, 1987 and December 31,  
          2013.  The authorization in this bill shall not be applied to  
          any oversight costs accrued after January 1, 2014. 



          Natural Resources Defense Council



                                                                     AB 274

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          None on file

          Analysis Prepared  
          by:  Paige Brokaw / E.S. & T.M. / (916) 319-3965