BILL ANALYSIS Ó SENATE COMMITTEE ON ENVIRONMENTAL QUALITY Senator Wieckowski, Chair 2015 - 2016 Regular Bill No: AB 1108 ----------------------------------------------------------------- |Author: |Low | ----------------------------------------------------------------- |-----------+-----------------------+-------------+----------------| |Version: |5/5/2015 |Hearing | 6/8/2016 | | | |Date: | | |-----------+-----------------------+-------------+----------------| |Urgency: |No |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant:|Rebecca Newhouse | | | | ----------------------------------------------------------------- SUBJECT: Beverage containers: recycling. ANALYSIS: Existing law, under the California Beverage Container Recycling and Litter Reduction Act (Bottle Bill): 1) Requires beverage containers, as defined, sold in-state to have a California redemption value (CRV) of 5 cents for containers that hold fewer than 24 ounces and 10 cents for containers that hold 24 ounces or more, and requires distributors to pay a redemption payment to the Department of Resources Recycling and Recovery (CalRecycle) for every beverage container sold in the state. These funds are continuously appropriated to CalRecycle for the payment of refund values and processing fees. The Act also: 2) Requires CalRecycle to certify recycling centers and promulgate regulations establishing a procedure for certification of recycling centers. 3) Prohibits a certified recycling center or processor from paying or claiming any refund value, processing payment, or administrative fee on beverage containers if the center or processor knew, or should have known, that the containers were from out of state. This bill prohibits certified recycling centers from paying the CRV to a consumer for more than 50 pounds of aluminum beverage containers or plastic beverage containers, or any combination AB 1108 (Low) Page 2 of ? thereof, or 500 pounds of glass beverage containers, during a 24-hour period. Background 1) Background on the Act. The Act is designed to provide consumers with a financial incentive for recycling and to make recycling convenient to consumers. The centerpiece of the Act is the California Redemption Value (CRV). Consumers pay a deposit, the CRV, on each beverage container they purchase. Retailers collect the CRV from consumers when they buy beverages. The dealer retains a small percentage of the deposit for administration and remits the remainder to the distributor, who also retains a small portion for administration before remitting the balance to CalRecycle. When consumers return their empty beverage containers to a recycler (or donate them to a curbside or other program), the deposit is paid back as a refund. 2) Structural deficit. Deposits on covered beverage containers are remitted to CalRecycle and deposited into the Beverage Container Recycling Fund (BCRF). The BCRF's expenditures fit into two primary categories: 1) CRV reimbursements to recycler and 2) program expenses, including administration, grant programs, education and outreach that are funded by unredeemed CRV. Higher recycling rates reduce the amount of unredeemed CRV to fund program expenses. The "breakeven" recycling rate where expenditures equal revenues is about 75%. CalRecycle's most recent quarterly report projects an average structural deficit of $75 million from 2015-16 to 2017-18. This revenue-expenditure imbalance is primarily due to historically high recycling rates, and supplemental program costs including statutorily mandated program payments. Illegal redemption of beverage containers also contributes to the structural deficit. When the Act does not have adequate funding, CalRecycle is required to "proportionally reduce" many of the program's expenditures evenly among program participants, with the exception of CRV redemption for consumers. 3) Fraud. The BCRF is currently operating at a recycling rate of greater than 80%, but it is known that there is some level of fraud within the program that artificially elevates the recycling rate and, as noted earlier, contributes to the structural deficit. A significant type of fraud is the AB 1108 (Low) Page 3 of ? importation of out-of-state beverages. Pursuant to AB 1933 (Gordon, Chapter 540, Statutes of 2012), CalRecycle adopted regulations in 2013 to require anyone transporting into California a load of empty plastic or aluminum beverage containers weighing 25 pounds or more, or 250 pounds or more of glass, to pass through a California 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. Other recent changes CalRecycle has undertaken to prevent fraud include training requirements for operators of recycling centers and processing facilities, and revised regulations that reduce the number of containers individuals can redeem in a single day from 500 pounds of aluminum or plastic to 100 pounds, and from 2,500 pounds to 1,000 pounds of glass. AB 1108 aims to expand on CalRecycle's ongoing efforts to eliminate fraud in the program by making it more difficult for individuals to fraudulently redeem large quantities of out-of-state beverage containers. Specifically, AB 1108 would cut current redemption weight limits to 50 pounds for plastic and aluminum beverage containers, and to 500 pounds for glass beverage containers. AB 1108 also specifies that a recycling center is prohibited from paying CRV refunds on "any combination" of plastic or aluminum beverage containers over 50 pounds. For glass, 500 pounds comes out to roughly 940 containers. Fifty pounds of aluminum and polyethylene terephthalate (PET) plastic beverage containers equates to about 1,450 aluminum containers, and about 1,000 PET containers. Fraud enforcement. In recent years, CalRecycle and the Department of Justice (DOJ) have increased Bottle Bill fraud enforcement efforts, which have resulted in numerous arrests and several high profile prosecutions. In February 2015, a Los Angeles-area recycling business agreed to pay $1.8 million in restitution to the state's Bottle Bill Program as part of a settlement agreement resulting from illegal claims for refunds on out-of-state bottles and cans. In November of 2014, five people were arrested in the Turlock area on charges of conspiracy, grand theft, and recycling fraud after investigators found 250,000 pounds of beverage containers (22 truckloads) unauthorized beverage containers and $125,000 cash. Also, in May of 2015, CalRecycle announced indictments of five AB 1108 (Low) Page 4 of ? Californians on grand theft and recycling fraud charges in Kern County. CalRecycle and DOJ conducted an investigation spanning nearly two years that revealed a complex scheme involving out-of-state used beverage containers, 24 Southern California recycling centers, and $14 million worth of fraudulent California Redemption Value claims. Comments 1) Purpose of Bill. According to the author, "The Bottle Bill Program is a victim of its own success. While the intention of the beverage program was to be self-sustainable, in recent years the beverage program has not regenerated enough revenue to cover expenditures. One of the contributing factors of the deficit has been the importation of out-of-state beverage containers. According to CalRecycle, lowering the limits is a significant way to reduce fraud in the program. AB 1108 helps address the fraud in this well intentioned program by limiting how much a certified recycling center can accept from one consumer in a 24 hour period." The author also notes that "According to CalRecycle, lowering the limits is a significant way to reduce fraud in the program. As a result, importers of out-of-state containers, which are not eligible for CRV refunds, and scavenger fleets illegally removing the contents of residential curbside recycling bins will find it considerably time-consuming and risky to reap any fraudulent gains." Related/Prior Legislation AB 1846 (Gordon, Chapter 596, Statutes of 2014), authorizes CalRecycle to suspend or revoke the handling fees from a recycling center or centers if these are found to be committing fraud or deceit. AB 1933 (Gordon, Chapter 540, Statutes of 2012), reduces the amounts of beverage container material that can be imported into the state without notice to CalRecycle and requires specified documentation for loads exceeding those limits. SOURCE: Author SUPPORT: AB 1108 (Low) Page 5 of ? None received OPPOSITION: Association of California Recycling Industries Camarillo Recycling, Inc. 2 Individuals ARGUMENTS IN SUPPORT: None received. ARGUMENTS IN OPPOSITION: The Association of California Recycling Industries states that AB 1108 would force consumers to make numerous trips in order to collect their pre-paid deposits, and that AB 1108 will benefit illegal operators by establishing a revolving door of illegal transactions. They also argue that CalRecycle's reduced load limits for recyclable materials should first be evaluated before additional steps are taken. They further note that AB 1108 treats all recyclable materials the same, and specifies "any combination thereof" when relating to different types of recyclable materials, which are currently prohibited from being co-mingled. Camarillo Recycling states that there are many legitimate types of consumers that collect larger quantities of beverage containers, and reducing the redemption limits will hamper their ability to redeem their containers. -- END --