Existing law, the California Beverage Container Recycling and Litter Reduction Act, requires a distributor to pay a redemption payment for every beverage container sold or offered for sale in the state. The act requires the Department of Resources Recycling and Recovery to annually designate convenience zones, as defined, statewide and requires at least one certified recycling center or location within every convenience zone that accepts all types of empty beverage containers and pays the refund value, if any, at one location, and that is open for business 30 hours per week.

This bill, until July 1, 2017, would exempt from the requirement that each convenience zone be served by at least one certified recycling center (1) a convenience zone that was served by or exempted because of a recycling center that closed between January 1, 2016, and March 31, 2016, or that is closed as a result of an action taken by the department on or after July 1, 2016, and (2) a convenience zone that is in a jurisdiction with a land use restriction that prevents the siting or operation of a certified recycling center on or after July 1, 2016.

This bill would declare that it is to take effect immediately as an urgency statute.

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Wieckowski, Chair

2017 - 2018 Regular

Bill No: SB 60

SUBJECT: Recycling: beverage containers: convenience zones

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. (Public Resources Code (PRC) §14500 et seq.).
2. Defines “convenience zone” as either the area within one-half mile radius of a supermarket or the area designated by CalRecycle in a rural region that meets specified criteria pursuant to PRC §14571.5. (PRC §14509.4).
3. Defines “dealer” as a retail establishment which offers the sale of beverages in beverage containers to consumers, e.g. a supermarket. However, any lodging, eating, or drinking establishment, or soft drink vending machine operator who engages in the sale of beverages in beverage containers to consumers are not deemed a dealer for purposes of the Bottle Bill. (PRC §14510).
4. Defines “recycling center” as an operation which is certified by CalRecycle and which accepts from consumers, and pays or provides the refund value for empty beverage containers intended to be recycled. (PRC §14520).
5. Defines “recycling location” as a place, mobile unit, reverse vending machine, or other device where a certified recycling center accepts one or more types of empty beverage containers from consumers, and pays or provides refund value for one or more types of empty beverage containers. (PRC §14520.5)
   
6. Defines “supermarket” as a full-line self-service retail store with gross annual sales of $2 million or more, and which sells a line of dry grocery, canned goods, or nonfood items and some perishable items. (PRC §14526.5).
   
7. Requires CalRecycle to annually designate all convenience zones. (PRC §14571.1).
   
8. In a convenience zone where a recycling location does not exist and until one has been established in that zone, requires all dealers (supermarkets) in the zone to either: a) redeem empty beverage containers; or, b) pay CalRecycle an in-lieu fee of $100/day until a recycling location is established. (PRC §14571.6).
   
9. Authorizes CalRecycle to grant an exemption for a convenience zone based on specified conditions, such as: whether the zone is within a curbside service area which collects CRV containers at least twice a month, whether there is a sufficient number of recycling centers in the area, and whether the volume collected by the last recycler in the zone was below 60,000 containers in the past 12 months. (PRC §14571.8).
   

This bill:

1. Exempts from the requirement that each convenience zone be served by at least one certified recycling center that meets the following criteria:
   
   1. The convenience zone was served by or exempted because of a recycling center that closed between January 1, 2016, and March 31, 2016;
      
   2. The convenience zone was served by or exempted because of a recycling center that is closed as a result of an action taken by CalRecycle on or after July 1, 2016; or,
      
   3. A convenience zone that is in a jurisdiction with a land use restriction that prevents siting or operation of a certified recycling center at a supermarket site on or after July 1, 2016.
2. Provides that the provisions of this bill become inoperative on or before July 1, 2017, and repeal as of January 1, 2018.
   
3. Declares this bill an urgency measure.
   

Background

1. Background on the Bottle Bill program. The Bottle Bill was established by AB 2020 (Margolin, Chapter 1290, Statutes of 1986). The purpose of the program is to be a self-funded program that encourages consumers to recycle beverage containers to prevent littering. The program accomplishes this goal by requiring consumers to pay a deposit for each eligible container purchased. Then the program guarantees consumers repayment of that deposit, the California Redemption Value (CRV), for each eligible container returned to a certified recycler. Statute includes two main goals for the program: (1) reducing litter; and, (2) achieving a recycling rate of 80% for eligible containers.
   
   Over the years, various concerns about the program have been raised such as the structural deficit, the effectiveness of some supplemental programs supported by the program, fraud, and whether some offsets support the goals of the program.
   
   Currently, the Administration is collaborating with stakeholders on a comprehensive reform of the Bottle Bill program that is intended to align with the state’s climate change goals and the state’s 75% solid waste reduction, recycling, and composting goal, as well as be fiscally sustainable. CalRecycle has proposed a policy framework for modernizing the program based on the following principles: a) Improving recycling and remanufacturing; b) Sharing responsibility; and, c) Enhancing adaptability and sustainability.
   
2. Recycling convenience zones. According to CalRecycle, a convenience zone is typically a half-mile radius within the center point originating at a supermarket that: a) Is identified in the Progressive Grocer Marketing Guidebook; b) Has gross annual sales of $2 million or more; and, c) Is considered a “full-line” store that sells a line of dry groceries, canned goods, or non-food items and perishable items.
   
   In some instances, a convenience zone may be larger than a half mile. For example, an interested person may petition CalRecycle for a three-mile convenience zone to be created in a rural region when there are at least two dealers within three miles of a singular recycling center, and where the dealers are a mile or less apart and have an aggregate sales volume of at least $2 million gross annual sales. Convenience zones are intended to provide consumers opportunities to redeem containers near where beverages are purchased.
   

Recycling centers are privately owned and operated by individuals, profit, and nonprofit organizations. They are certified by CalRecycle and must adhere to standards to help provide the public the service they need, e.g. operating at least 30 hours per week and signs depicting prices paid for beverage containers.

Overlapping convenience zones are common in commercial zoning areas throughout the state. If a recycler is on-site at one convenience zone where one or more convenience zones overlap, each of these zones are served by this recycler. Accordingly, it is not necessary in such cases for each convenience zone to support its own recycling center.

A convenience zone may be exempt from the requirement to have a recycling center within its boundaries if one or more conditions are met, including: Ease of access to redemption center by consumers, reasonable distance to next closest recycling center, consumers in area predominantly use curbside program for recycling, and recycling centers in the area fail to meet a sufficient volume for economic viability.

1. Unserved convenience zones: Option A & Option B. When a dealer finds itself in an unserved convenience zone, the dealer has 2 choices: Option A, in which the dealer agrees to take back beverage containers in-store; or, Option B, in which the dealer agrees to pay an in-lieu fee of $100/day if they choose not to take back beverage containers in-store. Prior to January 1, 2016, CalRecycle had 1,521 Option A dealers.
   
   In June 2016, CalRecycle sent out 1,074 letters notifying stores that they were in unserved convenience zones and must choose Option A or Option B. Of the 1,074 letters, 416 of the recipients were unserved zone dealers prior to January 1, 2016, and 478 recipients were around the rePlanet closures (see Comment #4, last paragraph).
   
   In August 2016, CalRecycle sent out 738 letters asking unresponsive stores to submit an affidavit choosing either Option A or Option B.
   
   In November 2016, CalRecycle sent out an additional 450 notices to those stores that had yet to respond and notified those stores that they would be invoiced $100/day beginning January 2, 2017.
   
2. Recent recycling center closures. One reason for recycling center closures may be attributed to subsidies allocated to recycling centers. According to the Legislative Analyst’s Office, the state subsidizes recycling by making “processing payments” to recyclers and processors. Processing payments are intended to cover the difference between a container’s scrap value (the worth of a physical asset’s components when the asset itself is deemed no longer usable) and the cost of recycling it (including a reasonable rate of return). Both the costs of recycling and the scrap value of beverage containers can fluctuate significantly based on changing market prices. As a result, processing payments vary over time. Some contend that they have failed to keep up with real time pricing and includes a minimum three-month gap – this gap results in recycling centers receiving insufficient state payments to make up for the income they may lose from the decline in scrap value.
   
   rePlanet runs the largest recycling network in California. On January 31, 2016, the company announced that it closed 191 of its 350 recycling centers and laid off 278 of its 800 employees throughout the state. In an announcement on February 1, 2016, rePlanet stated, “Following the most recent reduction in State fees on January 1 2016 and after enduring twelve months of unprecedented declines in commodities pricing of aluminum and PET plastic, coupled with the mandated rise in operating costs as a result of minimum wage increases and required health and workers compensation insurance, the Company has concluded that operation of these recycling centers is no longer sustainable.”
   

Comments

1. Purpose of Bill. The author states:
   

Current law requires retail establishments which offer the sale of beverages in containers to consumers to provide facilities for consumers to recycle beverage containers subject to California Redemption Value (CRV), or to have a facility located within a half-mile radius of their store. For nearly 30 years, grocers have willingly complied with this mandate, providing the backbone of the state’s Beverage Recycling Container Program [Bottle Bill] which has resulted in 300 billion aluminum, glass, and plastic beverage containers to have been recycled since the program began in 1987.

Unfortunately, the [Bottle Bill’s] infrastructure suffered a significant setback in January 2016 when a combination of factors – most notably a reduction in fees paid by the state to recyclers and a precipitous decline in global commodities prices – resulted in the closure of nearly 300 recycling centers across the state. This resulted in hundreds of stores (the 300 grocery stores within the recycling centers, plus any grocery stores within the half-mile radius of the 300 recycling centers) being forced out of compliance with the law through no fault of their own.

This has put retailers and grocers in an untenable position, as the state’s recycling laws call for sanctions against stores that don’t provide recycling centers – either pay a $100-per-day, per location fine, or take back dirty bottles and cans in-store at the same checkout lanes where customers pay for their fresh food and goods. Neither of these choices are good for grocers, retailers, or consumers.

This bill would provide immediate and temporary relief to California’s retailers and grocers by simply pressing “pause” on sanctions resulting from January 2016 recycling center closures. Affected store locations will be held harmless until July 2017 after the budget is passed, allowing for stakeholder negotiations to play themselves out as a comprehensive fix is worked out through the budget.

1. Punishment or responsibility? Current law provides that when a convenience zone does not have a recycling center operating, the responsibility to redeem then falls on the dealer, i.e. a supermarket. A supermarket is required to either redeem CRV beverage containers in-store (Option A) or pay a daily fee of $100 to CalRecycle in order to opt out of redeeming CRV containers in-store (Option B).
   
   In the author’s statement (Comment #1), the fee is referred to as a “fine” and each option as a “sanction.” However, a “fee” pays for a service, or in this case, an in-lieu fee to compensate for waiving the responsibility of performing a service. A fee is not a fine. A fine is levied as an enforcement measure and may be considered a form of punishment. The Bottle Bill contains an entire chapter (Chapter 8, PRC §14590 et seq.), which is dedicated to enforcement and includes penalties as well as disciplinary actions; the in-lieu fee provision is not located in Chapter 8.
   
   Instead, the requirement for stores to either take back CRV containers or pay a daily fee when a recycling center is not operating in a convenience zone is a statutory obligation pursuant to the act and is included in a different chapter (Chapter 6, PRC §14570 et seq.) regarding the return of beverage containers. They serve as alternatives for fulfilling a duty to provide redemption opportunities to consumers.
   
   To characterize the duty of a store to fulfill an obligation to provide consumers an opportunity to redeem their CRV as a form of punishment is not accurate.
   
2. Daily in-lieu fee of $100/day. PRC §14571.6, which includes the $100/day fee option, has been in statute since the enactment of the Bottle Bill in 1986 and has not been amended since 1994; nor has the amount increased with inflation, which in today’s dollars is the equivalent of $218.98. Considering $100 was worth significantly more in 1986 than 2017, is it an unreasonable burden for a supermarket, with gross annual sales of $2 million or more, to pay a $100/day fee in-lieu of taking back CRV beverage containers in-store?
   
3. Sufficient reasons to grant temporary relief?
   
   1. Of the 1,074 letters that CalRecycle sent in June 2016 to stores notifying them that they must either take back beverages in-store or pay an in-lieu fee, 416 of them were unserved zone dealers prior to January 1, 2016; 478 recipients were around the rePlanet closures in early 2016. Does the particular circumstance warrant temporary relief? And if so, why for some, but not others?
      
      Various causes may have attributed to the closure of these recyclers. The drop in commodity prices, which have been declining over several years. California exports a significant amount of its recycled scrap material, primarily to China where the economy has weakened, causing the demand for exported scrap to decline. Also, oil prices have declined significantly and reached historically low levels in 2016. In 2011, PET plastic scrap prices were at a peak of $500/ton and have steadily been dropping to $200 in 2016; a decline of 60%. New plastic is manufactured from oil, so when the price of oil is very low, using recycled plastic can be more expensive because it has to be sorted and cleaned. In addition, recyclers have reported increased operating costs as a result of minimum wage increases and required health and workers’ compensation insurance. Lastly, changes to processing payments have not kept pace with the decline in scrap values. Processing payments to recycling centers are based on a 12-month rolling average of scrap values and adjusted quarterly. According to the Container Recycling Institute, in 2015, California’s approximately 2,100 certified beverage container redemption centers lost $20 million from inadequate state payments received, for a total of $42.7 million lost since 2012 as a result of the compensation method for processing payments.
      
      Knowing the hardships that recycling centers have been facing over several years, and knowing that the Bottle Bill, for multiple decades, has placed responsibility on the dealers to act as the backstop for ensuring consumers have a place to redeem their CRV, should these dealers have prepared for the possibility of the current situation?
      
   2. So too, does a store located in a convenience zone served by or exempted because of a recycling center that closes as a result of an action taken by CalRecycle on or after July 1, 2016, merit temporary relief? “Action” refers to an instance when a zone becomes unserved due to decertification of a recycling center. In the past, CalRecycle has decertified centers based on violations by the recycling center that may include fraud or operating inconsistently with the Bottle Bill program.

As noted by interested parties, it is not the dealers’ fault in either of these circumstances for the closures of recycling centers. However, wouldn’t that be the case for many more dealers, than only the ones provided relief in this bill, in unserved convenience zones? Why does this bill limit temporary relief only to those situations that occurred during specified windows of time?

1. Are the options feasible for stores? As of February 6, 2017, 2,594 out of 3,725 dealers (including those affected by the recent closures of recycling centers), who are in unserved convenience zones, have agreed to redeem CRV in-store as a result of a dealer being located in a convenience zone without a recycling center. Approximately 70% have signed and sent back to CalRecycle an affidavit choosing to fulfill their obligation by providing consumers the opportunity to redeem their CRV in-store; and about 3.5% (141 dealers) have chosen to pay the in-lieu fee.
   
   The Bottle Bill designates the dealers as the backstop for providing consumers a convenient opportunity to redeem their CRV and has done so for multiple decades. Based on the numbers above, a substantial majority of dealers affirmatively agreeing to take back beverage containers in-store, in order to fulfill their responsibility as that backstop, seems to indicate that the options are feasible.
   
2. What about the consumers? This bill would provide a temporary relief for some dealers, but may unintentionally and negatively impact consumers who will be unable to conveniently redeem their CRV. The core of the Bottle Bill is that this is a redemption program – Is it prudent to cut off the last convenient opportunity for consumers to get back their CRV if a dealer would have chosen to take back containers in-store if not for this bill – like the 70% of such dealers who have already committed to doing so?
   
3. July 1, 2017 happens, and then what? This bill would grant temporary relief from some dealers’ obligation to either take back CRV containers in-store or pay an in-lieu fee of $100/day until July 1, 2017, which is the expected date of the state budget passing. What if there is no comprehensive Bottle Bill reform through the state budget by then? Will there be another bill introduced to extend the sunset? If so, for how long? What if the comprehensive reform maintains the same requirements on dealers to either take back or pay an in-lieu fee of $100/day if the convenience zone is unserved? Then what? Although this bill may provide temporary relief for some dealers from having to fulfill their responsibilities for the next few months, it is unclear what benefits this bill provides beyond July 1, 2017, or policy goals this bill fulfills.
   
4. Taking away focus from comprehensive reform efforts. There have been several efforts over the years to revamp the Bottle Bill program. Currently, the Administration is working on comprehensively reforming the program with stakeholders at the table. It appears that most, if not all, stakeholders have concerns about the program and how it impacts their interests. This bill serves one group of stakeholders. Does protecting the interest of one interest compromise the efforts occurring now to reform the entire program? Does it encourage other stakeholders to introduce their own individual bills in order to protect themselves rather than work together on a comprehensive plan?
   
   The Committee may wish to consider whether it is prudent to accommodate a particular group of stakeholders with this bill while discussions are happening among all stakeholders for comprehensive reform of the Bottle Bill program. Would it be prudent to provide temporary relief for one stakeholder to the detriment to consumers, other stakeholders, and the state?
   

SOURCE:

California Grocers Association

SUPPORT:

California Retailers Association

Wine Institute

OPPOSITION:

None received

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