BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                       AB 1108|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |

                                   THIRD READING 

          Bill No:  AB 1108
          Author:   Low (D) 
          Amended:  6/28/16 in Senate
          Vote:     21 

           AYES:  Wieckowski, Hill, Leno, Pavley
           NO VOTE RECORDED:  Gaines, Bates, Jackson


           ASSEMBLY FLOOR:  75-0, 5/26/15 - See last page for vote

           SUBJECT:   Beverage containers:  recycling

          SOURCE:    Author

          DIGEST:  This bill reduces the daily load limits of empty  
          beverage containers for purposes of receiving a California  
          Redemption Value (CRV) payment. 
          ANALYSIS:  Existing law, under the California Beverage Container  
          Recycling and Litter Reduction Act (Act):  
          1)Requires beverage containers, as defined, sold in-state to  
            have a 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. 


                                                                    AB 1108  
                                                                     Page 2

          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, or claim CRV for material received from, a person not  
          certified by CalRecycle and who delivers more than 50 pounds of  
          aluminum beverage containers, 50 pounds of plastic beverage  
          containers, or 500 pounds of glass beverage containers, during a  
          24-hour period.  

          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 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  

          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  


                                                                    AB 1108 
                                                                     Page 3


             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  
             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 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  


                                                                    AB 1108  
                                                                     Page 4

             for individuals to fraudulently redeem large quantities of  
             out-of-state beverage containers.  Specifically, AB 1108 cuts  
             current redemption weight limits to 50 pounds for plastic and  
             aluminum beverage containers, and to 500 pounds for glass  
             beverage containers.  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 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  
          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  


                                                                    AB 1108  
                                                                     Page 5

          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), authorized  
          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), reduced 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.

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes

          SUPPORT:   (Verified  6/28/16)

          None received

          OPPOSITION:   (Verified  6/28/16)

          Association of California Recycling Industries
          Camarillo Recycling, Inc.
          2 Individuals  


                                                                    AB 1108
                                                                     Page 6

           ARGUMENTS IN SUPPORT:  - - -

          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  

          ASSEMBLY FLOOR:  75-0, 5/26/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bonilla,  
            Bonta, Brown, Burke, Calderon, Campos, Chang, Chau, Chiu, Chu,  
            Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier,  
            Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia,  
            Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley,  
            Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim,  
            Lackey, Levine, Linder, Lopez, Low, Maienschein, Mayes,  
            McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,  
            O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon,  
            Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark  
            Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,  
            Wood, Atkins
          NO VOTE RECORDED:  Bloom, Brough, Chávez, Harper, Mathis

          Prepared by:Rebecca Newhouse / E.Q. / (916) 651-4108
          6/29/16 15:45:46

                                   ****  END  ****