BILL ANALYSIS Ó
AB 274
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Date of Hearing: March 24, 2015
ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS
Alejo, Chair
AB
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 §
25269.8)
FISCAL EFFECT: Unknown.
COMMENTS:
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
possible."
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.
REGISTERED SUPPORT / OPPOSITION:
Support
Natural Resources Defense Council
Opposition
AB 274
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None on file
Analysis Prepared
by: Paige Brokaw / E.S. & T.M. / (916) 319-3965