BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
                               Senator Wieckowski, Chair
                                 2015 - 2016  Regular 
           
          Bill No:            AB 1108
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          |Author:    |Low                                                  |
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          |Version:   |5/5/2015               |Hearing      | 6/8/2016       |
          |           |                       |Date:        |                |
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          |Urgency:   |No                     |Fiscal:      |Yes             |
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          |Consultant:|Rebecca Newhouse                                     |
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          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  







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          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  








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             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  








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             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:               









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          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. 
                                            
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