BILL ANALYSIS SB 1402 SENATE COMMITTEE ON ENVIRONMENTAL QUALITY Senator S. Joseph Simitian, Chairman 2009-2010 Regular Session BILL NO: SB 1402 AUTHOR: Dutton AMENDED: March 23, 2010 FISCAL: Yes HEARING DATE: April 19, 2010 URGENCY: Yes CONSULTANT: Caroll Mortensen SUBJECT : AIR POLLUTION PENALTIES SUMMARY : Existing law : 1)Generally establishes processes for assessing fines and penalties and specifies the deposit of fines and penalties for violations of vehicular air pollution control laws into the Air Pollution Control Fund or the General Fund. (Health and Safety Code 43000 et seq.). 2)Establishes a process to assess administrative penalties in lieu of civil penalties for violation of specified vehicular air pollution control laws up to $100,000 and establishes a threshold of $100,000 for penalty assessments that qualify a person for mutual settlement agreements and requires the settlements to be deposited into the General Fund. (43023). 3)Requires the California Air Resources Board (ARB) and the courts to consider specified conditions when considering the amount assessed for administrative or civil penalties for violations of vehicular air pollution control laws such as: (a) the extent of harm to public health, safety, and welfare caused by the violation; (b) the nature and persistence of the violation, including the magnitude of the excess emissions; (c) the compliance history of the defendant, including the frequency of past violations; (d) the preventive efforts taken by the defendant, including the record of maintenance and any program to ensure compliance; (e) the innovative nature and the magnitude of the effort SB 1402 Page 2 required to comply, and the accuracy, reproducibility, and repeatability of the available test methods. (f) the efforts to attain, or provide for, compliance; and (g) the cooperation of the defendant during the course of the investigation and any action taken by the defendant, including the nature, extent, and time of response of any action taken to mitigate the violation. (43023, 43031). 4)Requires any person who violates any vehicular air pollution control law as specified to be liable for a civil penalty not to exceed $5,000 per vehicle and those penalties be deposited in the Air Pollution Control Fund (APCF). (41354). 5)States that any action brought pursuant to 43154 above to recover such civil penalties must take special precedence over all other civil matters on the calendar of the court except those matters to which equal precedence on the calendar is granted by law. 6)Requires the revenues from penalties recovered by the ARB pursuant to this chapter to be deposited in the APCF and must only be expended by the ARB for environmental cleanup, abatement, or pollution prevention technology. (43031.5). 7)Prohibits the sale of any new motor vehicle in California that does not meet the emission standards adopted by the ARB, and any manufacturer who sells, attempts to sell, or causes to be offered for sale a new motor vehicle that fails to meet the applicable emission standards must be subject to a civil penalty of $5,000 for each such action, with the penalty to be deposited into the General Fund. (43211). This bill : 1) Requires written or oral communications from the ARB that allege an imposition of a penalty to contain specific information including the manner in which the ARB used to determine the amount of a penalty, how much pollution was emitted, and reasoning for the use of the particular provision for assessing the violation. 2) Requires the ARB to make available to the public all final SB 1402 Page 3 mutual settlement agreements arising from violations of vehicular air pollution control laws. 3) Requires all penalties and proceeds for mutual settlement agreements to be deposited into the General Fund rather than the APCF. 4) Dismisses application of civil penalties for vehicular air pollution control violations if a criminal complaint for a violation under the vehicular air pollution control law is brought. 5) Raises the threshold for ARB to assess administrative penalties in lieu of civil penalties for violation of vehicular air pollution control laws from $100,000 to $300,000 and raises the threshold for penalty assessments that qualify a person for mutual settlement agreements from $100,000 to $300,000. 6) Allows a person who has alleged to have violated vehicular air pollution control laws to be entitled to an administrative hearing in lieu of a civil action. 7) Beginning in March 2011, and annually thereafter, requires ARB to prepare an annual report on administrative penalties imposed in lieu of civil penalties as specified in #5 above. 8) For specified violations of vehicular air pollution control law, limits the liability of a person from civil, administrative, or criminally penalty to one violation arising from the same conduct. 9) Prohibits the ARB from assessing multiple persons for the production or sale of the same vehicle or units under specified vehicular air pollution control laws and requires the ARB to impose the penalty only on the person the ARB determines to be most responsible for the violation. 10)No later than March 1, 2011, requires the ARB to adopt and submit to the Legislature a written penalty policy that is based on specified criteria (#3 under Existing Law) and the "United States Environmental Protection Agency's 2009 Clean SB 1402 Page 4 Air Act Mobile Source Civil Penalty Policy for Vehicle and Engine Certification Requirements". 11)Expands the process for application of civil or administrative penalties for violations of fuel regulations to other vehicular air pollution control violations and requires the penalty to be assessed according to the policy in #10 above. 12)Specific to new engine certifications, limits the civil penalty to $10,000 per engine family for which the person failed to obtain certification rather than per vehicle. 13)Limits accumulation of civil penalties to $5,000 per vehicle for specified violations relating to certification and sale of new vehicles and engines regardless of the number of violations or violators. 14)Deletes the requirement that revenues from penalties recovered by the ARB for violations of fuel regulations be deposited in the APCF and be only expended by the ARB for environmental cleanup, abatement, or pollution prevention technology (#6 under Existing Law). 15)Contains an urgency clause. COMMENTS : 1) Purpose of Bill . According to the author, "Numerous affected stakeholders have repeated expressed concern over the lack of information on how ARB determines and assesses penalties as well as the lack of consistency from one violation to the rest. This confusion undermines ARB's credibility and effectiveness in achieving its core mission - protection of air quality. This confusion also makes it increasingly difficult for ARB to effectively resolve settlements or for regulated entities to comply with ARB regulations and to do business in California." 2) Background . a) Fines and Penalties: In general, not just for environmental or public health and safety violations, SB 1402 Page 5 fines and penalties are established for three main objectives. The first is to ensure swift compliance with the law. This helps to minimize the negative impact that continued violation in law could pose. Second, it is to remove any advantage the violator may have obtained by failing to comply with the law. This strives to eliminate competitive and/or economic advantage that a non-compliant entity may gain by being out of compliance. This helps ensure a level playing field for regulated entities. Finally, penalties are set at levels sufficient to discourage future violations. This should deter the violator and others from violating requirements in the future. b) General Fund vs. The APCF: The APCF is the depository for ARB's fee revenue streams, as well as other revenue streams, such as fines, interest, and transfers. ARB's operating budget is fully supported by the fee portion of the APCF. The Health and Safety Code specifies that monies in this fund are only available to ARB upon legislative appropriation. By law, ARB does not control the penalty monies deposited into APCF and, therefore, cannot use penalties for any of its program needs without appropriation by the Legislature. Air quality laws protect the public health, safety and welfare. When an air violation occurs, the environment is negatively impacted and the public is exposed to excessive air pollution emissions. For this reason when ARB assesses penalties for violations of air quality requirements, one of the many considerations for penalty assessment is to seek mitigation related to the environmental harm the violation caused. Depositing those penalties into APCF ensures that those penalty monies will be applied towards air pollution programs. Diverting penalties to the General Fund would decrease the likelihood of those penalties being applied to mitigate air pollution. c) ARB Enforcment Policy - Ongoing Efforts. Since late last year, the ARB has focused efforts to work on its enforcment policy in repsonse to comments from SB 1402 Page 6 stakeholders during open comment periods of several ARB meetings regarding transparency and consistency in its enforcement program. The ARB held a workshop on October 12, 2009 to explore ways to achieve higher levels of compliance, expedite settlements, prioritize actions, eliminate economic advantage from violations, ensure consistent enforcement results, serve environmental justice communities, encourage voluntary compliance, increase access to ARB's administrative hearing process, and communicate the goals of ARB's enforcement program. ARB staff also discussed strict liability for violations, model penalty policies and ways to increase opportunities for public access, outreach, compliance assistance and training. According to ARB's website, the notice was distributed widely via the largest email broadcast in ARB's history and reached approximately 350,000 people, businesses and other organizations. The workshop was attended by over 200 attendees in person and 150 more people via the internet and 30 individuals testified in person and many more submitted written comments. On January 28, 2010, staff presented an update to the ARB on progress made to address comments on its enforcement program received at the October 12, 2009 workshop. Many of the comments mirror the issues raised in this bill. The ARB continues to work on the enforcment policy and plan to hold another workshop in the future (A comment period on the information presented by staff at the January 28th workshop closed March 30th). In reviewing the various documents used for workshop discussion and reading transcripts from the workshop, there are some areas that could be considered for improvement. While there is not consensus as how to specifically proceed on this complex issue, there are several areas that do seem to lend themselves to possible legislative attention including transparency in assessing penalties, some sort of ARB guidance for regulated entities on penalties and reports on enforcement efforts and resulting penalties. SB 1402 Page 7 3) Support and Opposition Arguments . a) Supporters generally state that this bill will promote fairness, equity, transparency, and efficiency for air pollution law in California. They contend that ARB often imposes overlapping and duplicative penalties for similar violations. They also contend that regulated entities are faced with uncertainty regarding their potential exposure for non-compliance. b) Opponents state that the caps on penalties proposed are a disincentive for compliance as they drop the penalties so low it is no longer a deterrent. They are also concerned that the proposed changes to the penalty assessment processes impacts the ability of prosecuters to tailor the fine or penalty to fit the violation. 4) Amendments Needed . Several amendments to this bill are needed. a) This bill proposes to direct fines and penalties to the General Fund rather than the APCF. This would have a detrimental effect on air quality in California. Those references should be deleted. b) This bill proposes to make significant changes to many aspects of vehicular air pollution control law dealing with expansion of existing penalties assessment mechanisms and capping penalties for violations. The effect of some of the changes are difficult to quantify, thus at this time, they should be removed from the bill and the author should work with Committee staff, stakeholders and the ARB to investigate these options or others that will be protective of public health and safety by decreasing air pollution while increasing transparency and clarity, enhance enforcement and help ensure a level playing field for regulated entities. Specifically, strike sections 2, 3, 4, 5, 7, 9, 10, 11, and 12. c) Consistent with the need for transparency and clarity: SB 1402 Page 8 i) Section 6 should be amended to remove the proposed changes to current law except for subdivision (l) that establishes an enforcement reporting requirement. That should be retained. ii) Section 8 should be amended to remove the proposed changes to current law except for the proposed subdivision (c) dealing with a written penalty policy. This section should be amended to delete the reference to the US EPA policy as the specific model. d) Technical amendment: Page 3, line 5 strike "both of the". SOURCE : Californians for Enforcement Reform and Transparency (CERT) SUPPORT : CERT Members including: American Home Furnishing Alliance California Chapter of the American Fence Contractors Association California Dump Truck Owners Association California Motorcycle Dealers Association California Moving and Storage Association California Retailers Association Compliant Car Builders Association Construction Industry Air Quality Association Engineering Contractors Association Flasher/Barricade Association Independent Waste Oil Collectors and Transporters Marine Builders Association Moving and Storage Association National Marine Manufacturers Association Outdoor Power Equipment Institute Southern California Contractors Association One Individual OPPOSITION : American Lung Association Bay Area Air Quality Management District Breathe California SB 1402 Page 9