The hazardous waste control laws require the Department of Toxic Substances Control to regulate the handling and management of hazardous waste and hazardous materials. A violation of the hazardous waste control laws is a crime. Existing law requires a generator of hazardous waste to pay to the California Department of Tax and Fee Administration a generation and handling fee for each generator site that generates an amount equal to, or more than, 5 tons for each calendar year, or portion of the calendar year, as provided. For the 202223 fiscal year, the fee rate is $49.25 for each ton or fraction of a ton of hazardous waste generated in calendar year 2021. Existing law, until January 1, 2026, imposes a discounted fee rate of $5.72 for each ton or fraction of a ton of certain hazardous waste generated from projects that meet specified criteria. Existing law requires these generation and handling fees to be deposited into the Hazardous Waste Control Account, which are authorized to be expended, upon appropriation by the Legislature, for specified purposes.

Existing law further requires, until January 1, 2026, every person who is subject to the discounted fee rate to register with the California Department of Tax and Fee Administration on forms provided by the California Department of Tax and Fee Administration.

This bill would, until January 1, 2026, similarly impose a discounted fee rate of $5.72 for each ton or fraction of a ton of that certain hazardous waste generated from residential projects, including mixed-use projects, that were deemed complete on or before December 31, 2021, student housing projects for public universities that were issued permits on or before December 31, 2021, and certain other mixed-use, commercial, or nonprofit projects that were issued permits on or before December 31, 2021, as specified. The bill would, among other requirements, require this fee, which is collected and administered by the Department of Toxic Substances Control, to be due and payable in one installment, and would require the generator of hazardous waste to both file an annual return in the form prescribed by the California Department of Tax and Fee Administration and pay the proper amount of fee due, and to amend the annual return filed in fiscal years 202122 and 202223 to reflect this discounted fee rate, as provided. The bill would require a generator of hazardous waste that is subject to this discounted fee rate to report to the Department of Toxic Substances Control and the California Department of Tax and Fee Administration certain information about the hazardous waste generated, as specified. The bill would require the California Department of Tax and Fee Administration, before issuing a refund or applying a credit, to confirm the generator meets the required criteria and, for purposes of a residential project, that the project has been constructed or is being constructed, as provided. The bill would repeal these provisions on January 1, 2026. Because a violation of these requirements would be a crime, the bill would impose a state-mandated local program.

The bill would require funds collected pursuant to the discounted fee rate to be deposited into the Hazardous Waste Control Account. The bill would also expand the scope of the registration requirement described above to include every person who is subject to the discounted fee rate imposed by the bill.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The hazardous waste control laws require the Department of Toxic Substances Control to regulate the handling and management of hazardous waste and hazardous materials. A violation of the hazardous waste control laws is a crime. Existing law requires a generator of hazardous waste to pay to the California Department of Tax and Fee Administration a generation and handling fee for each generator site that generates an amount equal to, or more than, 5 tons for each calendar year, or portion of the calendar year, as provided. For the 202223 fiscal year, the fee rate is $49.25 for each ton or fraction of a ton of hazardous waste generated in calendar year 2021. Existing law, until January 1, 2026, imposes a discounted fee rate of $5.72 for each ton or fraction of a ton of certain hazardous waste generated from projects that meet specified criteria. Existing law requires these generation and handling fees to be deposited into the Hazardous Waste Control Account, which are authorized to be expended, upon appropriation by the Legislature, for specified purposes.

Existing law further requires, until January 1, 2026, every person who is subject to the discounted fee rate to register with the California Department of Tax and Fee Administration on forms provided by the California Department of Tax and Fee Administration.

This bill would, until January 1, 2026, similarly impose a discounted fee rate of $5.72 for each ton or fraction of a ton of that certain hazardous waste generated from residential projects that were deemed complete, as provided, on or before December 31, 2021, or from residential mixed-use properties that are less than ²/₃ residential or commercial projects that have been issued permits residential projects, including mixed-use projects, that were deemed complete on or before December 31, 2021, student housing projects for public universities that were issued permits on or before December 31, 2021, and certain other mixed-use, commercial, or nonprofit projects that were issued permits on or before December 31, 2021. 2021, as specified. The bill would, among other requirements, require this fee, which is collected and administered by the Department of Toxic Substances Control, to be due and payable in one installment, as provided, and would require the generator of hazardous waste to both file an annual return in the form prescribed by the California Department of Tax and Fee Administration and pay the proper amount of fee due, and to amend the annual return filed in fiscal years 202122 and 202223 to reflect this discounted fee rate, as provided. The bill would require a generator of hazardous waste that is subject to this discounted fee rate to report to the Department of Toxic Substances Control and the California Department of Tax and Fee Administration certain information about the hazardous waste generated, as specified. The bill would repeal these provisions on January 1, 2026. Because a violation of these requirements would be a crime, the bill would impose a state-mandated local program.

The bill would require funds collected pursuant to the discounted fee rate to be deposited into the Hazardous Waste Control Account. The bill would also expand the scope of the registration requirement described above to include every person who is subject to the discounted fee rate imposed by the bill.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The hazardous waste control laws require the Department of Toxic Substances Control to regulate the handling and management of hazardous waste and hazardous materials. A violation of the hazardous waste control laws is a crime. Existing law requires a generator of hazardous waste to pay to the California Department of Tax and Fee Administration a generation and handling fee for each generator site that generates an amount equal to, or more than, 5 tons for each calendar year, or portion of the calendar year, as provided. For the 202223 fiscal year, the fee rate is $49.25 for each ton or fraction of a ton of hazardous waste generated in calendar year 2021. Existing law, until January 1, 2026, imposes a discounted fee rate of $5.72 for each ton or fraction of a ton of certain hazardous waste generated from projects that meet specified criteria. Existing law requires these generation and handling fees to be deposited into the Hazardous Waste Control Account, which are authorized to be expended, upon appropriation by the Legislature, for specified purposes.

The hazardous waste control laws require the Department of Toxic Substances Control to regulate the handling and management of hazardous waste and hazardous materials. A violation of the hazardous waste control laws is a crime. Existing law requires a generator of hazardous waste to pay to the California Department of Tax and Fee Administration a generation and handling fee for each generator site that generates an amount equal to, or more than, 5 tons for each calendar year, or portion of the calendar year, as provided.

This bill would state the intent of the Legislature to enact future legislation relating to hazardous waste generator fees.

Date of Hearing: April 22, 2024

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 2686 (

Author:Grayson) – As Amended Ver:April 11, 2024

Majority vote. Fiscal committee.

SUBJECT: Hazardous waste: generation and handling fees

SUMMARY: Creates a reduced hazardous waste generation and handling fee for specified projects, including those proposing to build affordable housing if the hazardous waste meets specified conditions and only for hazardous waste generated in calendar years 2021, 2022, and 2023. Specifically, this bill:

1. Authorizes a generator of hazardous waste, whose project meets specified criteria, to pay to the California Department of Tax and Fee Administration (CDTFA) a reduced generation and handling fee for hazardous waste generated in an amount equal to, or more than, five tons in a calendar year.
2. Limits the reduced generation and handling fee to a project that meets the following criteria:
   1. A residential project, including a mixed-use project in which at least two-thirds of the square footage consists of residential uses, that was deemed complete, as defined in Government Code Section 65589.8, on or before December 31, 2021, and meets both of the following criteria:

Consists of 600 or fewer units, and,

At least 15% of the total units, as defined in Government Code Section 65915, are affordable to households earning 110% of the area median income or less, or at least 10% of the units are affordable to households earning 80% of the area median income or less;

• 1. A project that was issued a permit on or before December 31, 2021, and that is a nonprofit project of less than 200,000 square feet; or,
  2. A student housing project for a public university that was issued a permit on or before December 31, 2021.

1. Limits the reduced generation and handling fee to hazardous waste that meets all of the following criteria:
   1. The hazardous waste was generated in calendar years 2021, 2022, or 2023;
   2. The hazardous waste is non-Resource Conservation and Recovery Act (RCRA) hazardous waste; and,
   3. The hazardous waste was generated in a remedial action, a removal action, or corrective action taken pursuant to, or generated in a soil disturbance conducted in compliance with a risk management plan approved pursuant to Health and Safety Code (HSC) Sections 25260, 25280, 25299.10, 25300, or 78000, or generated in any other required cleanup, removal, or remediation.
2. The reduced generation and handling fee shall be subject to both of the following:
   1. The fee shall be in an amount of $5.72 for each ton, or fraction of a ton, of hazardous waste; and,
   2. Requires the CDTFA to collect and administer the generation and handling fee. Additionally, the fee must be collected and paid in one installment.
3. Requires the generator of hazardous waste to file an annual return in the form prescribed by the CDTFA, and pay the proper amount of the fee due.
4. Requires the generator of hazardous waste to amend the annual return filed in fiscal years 2021-22 and 2022-23 to reflect appropriate fee rates imposed pursuant to the existing generation and handling fee and the reduced generation and handling fee, created by this bill, in calendar year 2021.
5. Requires the CDTFA to acknowledge the amended annual return within 30 days from the filing date. Requires CDTFA, after acknowledgement of the amended return, to process the refund either by mailing a check or applying a credit to outstanding future balances of the generator, at the discretion of the generator of hazardous waste.
6. Requires the CDTFA, before issuing a refund or applying a credit pursuant to an amended return, to confirm that the generator of hazardous waste meets the criteria established by this bill and that the project has been constructed or is being constructed. In verifying this information, the CDTFA may use information from other state agencies, including but not limited to, the Department of Housing and Community Development, or local governments.
7. Requires a generator of hazardous waste that generated waste from a project subject to the criteria in this bill, to report to the directors of the Department of Toxic Substances Control (DTSC) and CDTFA by January 1 of the fiscal year in which the reduced generation and handling fee is assessed the following information:
   1. All identification numbers issued by DTSC or by the United State Environmental Protection Agency (US EPA) that are associated with the project that meets the criteria in this bill;
   2. All account numbers issued by CDTFA; and,
   3. The total tonnage of hazardous waste generated from the project meeting the criteria in this bill for each identification number issued by DTSC or US EPA.
8. Provides that the reduced generation and handling fee and the provisions for receiving a refund of the generation and handling fee expire on January 1, 2026.

EXISTING LAW:

1. Authorizes through the Hazardous Waste Control Law (HWCL) DTSC to regulate the management of hazardous wastes in California. (HSC Section 25100 et seq.)
2. Establishes, pursuant to the Carpenter-Presley-Tanner Hazardous Substance Account Act (HSAA), a program to provide for response authority for releases of hazardous substances, including spills and hazardous waste disposal sites that pose a threat to public health or the environment. (HSC Section 78000 et seq.)
3. Requires a generator of hazardous waste to pay a generation and handling fee, if they generate an amount equal to, or more than, five tons in a calendar year, equal to $49.25 for each ton or fraction of a ton of hazardous waste generated in a calendar year. (HSC Section 25205.5)
4. Requires the Board of Environmental Safety (Board) to establish, by regulation, a schedule of rates for the generation and handling fee authorized by the HWCL and allows the Board to adjust the schedule of rates no more frequently than once per year thereafter and no later than October 1 of any year in which the Board adopts the schedule of rates. Requires rates to allow for a reserve in the Hazardous Waste Control Account each year at an amount determined by the Board to be sufficient to ensure that all programs funded by the Hazardous Waste Control Account will not be adversely affected by any revenue shortfalls or additional baseline expenditure adjustments, but not to exceed 10% of authorized expenditure levels. Provides that the rate established by the Board shall not exceed $98.50. (HSC Section 25205.5.01)
5. Defines "deemed complete" as that the applicant has submitted a preliminary application pursuant to Government Code Section 65941.1 or, if the applicant has not submitted a preliminary application, has submitted a complete application pursuant to Government Code Section 65943. (Government Code Section 65589.5)
   
6. Requires every person who is subject to the reduced fee amount pursuant to HSC Section 25205.5 to register with the CDTFA. (Revenue and Taxation Code (R&TC) Section 43101.1.)

FISCAL EFFECT: Unknown, but potentially significant costs. By reducing the hazardous waste generation and handling fee from $49.25 per ton to $5.72 per ton for qualifying projects that were deemed complete by December 31, 2021, this bill is estimated to result in a revenue loss in excess of $150,000. The revenue loss would be approximately $435,300 for every 10,000 tons of hazardous waste that qualifies for the reduced fee amount.

COMMENTS:

1. The author provided the following statement in support of this bill:

California is in the midst of a massive housing affordability crisis. Rising costs and high fees have made it difficult to build housing that is affordable. In recent years, certain developers have experienced sharp cost increases due to amended fees for hazardous waste generation that are charged by the Department of Toxic Substance Control. The new hazardous waste generator fee was increased in 2021 by SB 158, and increased fees to a $49.25 per ton flat fee. This caused many projects that were in the pipeline or already built to experience cost overruns, resulting in projects not being able to "pencil out".

To help these projects "pencil out", AB 2686 would offer an alternative fee structure for qualified projects that were deemed complete by December 31, 2021, setting a fee at $5.72 per ton. The "qualified projects" under this bill include residential and mixed-use housing projects, student housing projects, and projects that were by non-profits. This bill would strike a balance to ensure that these vital projects can still "pencil out", and deliver much needed housing in California.

1. The Bay Area Council, writing in support of this bill, notes, in part:

The changes to the fee have significantly increased the cost of remediating contaminated soil for housing as developers prepare a site for development. The changes have had a disproportionate impact on infill housing developments, which are more likely to develop on "contaminated" urban sites. Implementing a fee structure of this nature will likely discourage infill development and make many projects infeasible at a time when California is already struggling with a housing crisis. AB 2686 proposes an amendment to current law to offer an alternative fee structure for housing, mixed-use, and commercial developments deemed complete by December 31, 2021. This alternative fee would be set at $5.72 per ton of hazardous waste. Housing developers should not be penalized for opening land for productive use, especially when they are cleaning up pollution instead of creating it.

1. Committee Staff Comments:
   1. Recent reforms to hazardous waste fees: In order to address longstanding fiscal challenges faced by DTSC, the Legislature passed and the Governor signed into law SB 158 (Senate Budget Committee), Chapter 73, Statutes of 2021. This budget trailer bill enacted several of the reforms advanced by Governor Newsom and was the result of years of negotiation between state leaders, environmental groups, and the business community. In addition to establishing the five-member Board with the ability to set fees and fee rates, SB 158 also enacted significant fee reform, which included repealing the Generator Fee and replacing it with the new Generation and Handling Fee. SB 158 also created a new (hazardous waste) facility fee and modified and raised the environmental fee. All fees were set at a rate that would eliminate DTSC's operating deficit, provide revenue for anticipated needs in the near term, fund the Board and the development of a hazardous waste management plan, and provide DTSC with a prudent reserve.
      
      Beginning January 1, 2022 and for the 2022-23 fiscal year, SB 158 set the generation and handling fee at $49.25 for each ton or fraction of one ton of hazardous waste that was generated in the 2021 calendar year. Additionally, SB 158 provided that, commencing July 1, 2023, the fee rate would be established through regulations adopted by the Board. Prior to SB 158, the hazardous waste fee operated on a tiered structure based on the amount of hazardous waste generated.
   2. What is the precedent for the reduced fee amount? According to proponents of this bill, the reduced fee amount of $5.72 per ton of hazardous waste is consistent with the provisions of a subsequent budget trailer bill, SB 143 (Senate Budget Committee) Chapter 196, Statutes of 2023, which was passed by the Legislature and signed by the Governor in 2023. SB 143 created a reduced generation and handling fee of $5.72 per ton for projects that meet all of the following requirements:
      1. The project is certified by the Governor as an environmental leadership development project pursuant to Public Resources Code Section 21183;
      2. The project provides at least 2,000 new housing units and is legally obligated to produce a minimum amount of required affordable housing units, including via in-lieu fees; and,
      3. The generator of the hazardous waste acquired ownership of the property from which the hazardous waste was generated prior to July 1, 2022, and commenced the cleanup activity of hazardous waste that is non-RCRA hazardous waste before July 1, 2022.

The Governor's Office of Planning and Research (OPR) maintains a webpage for Environmental Leadership Development Projects. As of April 17, 2024, there are three projects with certified applications and no pending applications. Of the three projects with certified applications, none satisfy the criteria of providing at least 2,000 new housing units.^[1] It is therefore unclear whether any projects actually received the reduced fee amount provided in SB 143. There is one project – the Potrero Power Station Project in San Francisco – that applied for Governor certification and judicial streamlining under prior processes that satisfies the criteria of producing at least 2,000 new housing units. The total number of projects that qualify for the reduced fee amount of $5.72 per ton of hazardous waste pursuant to SB 143 is unclear. The Committee may wish to consider whether this narrow precedent is sufficient to establish a reduced fee amount for a larger group of projects.

• 1. CDTFA's role in administering hazardous substance fee programs: The CDTFA administers the hazardous waste fee programs in cooperation with DTSC pursuant to the requirements of the California Hazardous Substances Tax Law. Any person that generates five tons or more of hazardous waste at a site located in California within one calendar year is required to register with the CDTFA. Beginning January 1, 2022, all generation and handling fee accounts are required to make one prepayment, which is due and payable on or before November 30th each year. The annual return and final payment are due on February 28^th of each year. The prepayment must be equal to 50% of the total amount due for the hazardous waste generation and handling fee for the entire prior calendar year. The penalty for filing a late return and/or late fee payment, including prepayment, is 10% of the fee amount due for the period and interest also applies to late fee payments.
  2. Double referral: In addition to this Committee, this bill was referred to the Assembly Committee on Environmental Safety and Toxic Materials, which passed this bill on April 9, 2024 on a vote of 7-to-0. For additional discussion regarding issues that fall under that Committee's jurisdiction, including a thorough summary of reforms to DTSC in recent years, please refer to that Committee's analysis.

REGISTERED SUPPORT / OPPOSITION:

Support

Abundant Housing LA
Bay Area Council
California Community Builders
Habitat for Humanity Greater San Francisco
Housing Action Coalition (UNREG)
Livable Communities Initiative
Nonprofit Housing Association of Northern California
People for Housing - Orange County
San Francisco-Marin Food Bank
Strada Investment Group 11
University of California College of Law, San Francisco

Opposition

None on file

Analysis Prepared by: Wesley Whitaker / REV. & TAX. / (916) 319-2098

1. https://opr.ca.gov/ceqa/judicial-streamlining/environmental-leadership.html. ↑

Date of Hearing: April 9, 2024

ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS

Eduardo Garcia, Chair

ABPCA Bill Id:AB 2686 (

Author:Grayson) – As Amended Ver:April 1, 2024

SUBJECT: Hazardous waste: generation and handling fees

SUMMARY: Creates a reduced hazardous waste generation and handling fee for specified projects, including those proposing to build affordable housing, if the hazardous waste meets specified conditions, and only for hazardous waste generated in calendar years 2021, 2022, and 2023. Specifically, this bill:

1) Authorizes a generator of hazardous waste, whose project meets specified criteria, to pay to the California Department of Tax and Fee Administration (CDTFA) a reduced generation and handling fee for hazardous waste generated in an amount equal to, or more than, five tons in a calendar year.

2) Limits the reduced generation and handling fee to a project that meets the following criteria:

a) A residential project, including a mixed-use project in which at least two-thirds of the square footage consists of residential uses, that was deemed complete, as defined in Section 65589.8 of the Government Code, on or before December 31, 2021 and meets both of the following criteria:

(i) Consists of 600 or fewer units, and

(ii) At least 15 percent of the total units, as defined in Section 65915 of the Government Code, are affordable to households earning 110 percent of the area median income or less, or at least 10 percent of the units are affordable to households earning 80 percent of the area median income or less;

b) A project that was issued a permit on or before December 31, 2021, and that is either a mixed-use project in which less than two-thirds of the square footage consists of residential uses or a commercial or nonprofit project of less than 200,000 square feet; or

c) A student housing project for a public university that was issued a permit on or before December 31, 2021.

3) Limits the reduced generation and handling fee to hazardous waste that meets all of the following criteria:

a) The hazardous waste was generated in calendar years 2021, 2022, or 2023;

b) The hazardous waste is non-Resource Conservation and Recovery Act (RCRA) hazardous waste; and,

c) The hazardous waste was generated in a remedial action, a removal action, or corrective action taken pursuant to, or generated in a soil disturbance conducted in compliance with a risk management plan approved pursuant to, this chapter, Chapter 6.65 (commencing with Section 25260), Chapter 6.7 (commencing with Section 25280), Chapter 6.75 (commencing with Section 25299.10), Chapter 6.8 (commencing with Section 25300), or Division 45 (commencing with Section 78000), or generated in any other required cleanup, removal, or remediation.

4) The reduced generation and handling fee shall be subject to all of the following:

a) The fee shall be in an amount of five dollars and seventy-two cents for each ton, or fraction of a ton, of hazardous waste;

b) There shall be an exemption from the generation and handling fee for hazardous waste generated in the 2021 calendar year if the generator meets criteria in the bill outlining eligible projects and was subject to, and paid to CDTFA, before January 1, 2022, the generator fee for that hazardous waste in calendar year 2021; and,

c) Requires CDTFA to collect and administer the generation and handling fee. Requires the fee to be collected and paid in one installment.

5) Requires the generator of hazardous waste to file an annual return in the form prescribed by CDTFA, and pay the proper amount of the fee due.

6) Requires the generator of hazardous waste to amend the annual return filed in fiscal years 2021-22 and 2022-23 to reflect appropriate fee rates imposed pursuant to the existing generation and handling fee and the reduced generation and handling fee, created by this bill, in calendar year 2021.

7) Requires CDTFA to acknowledge the amended annual return within 30 days from the filing date. Requires CDTFA, after acknowledgement of the amended return, to process the refund either by mailing a check or applying a credit to outstanding future balances of the generator, at the discretion of the generator of hazardous waste.

8) Requires a generator of hazardous waste that generated waste from a project subject to the criteria in this bill, to report to the directors of the Department of Toxic Substances Control (DTSC) and CDTFA by January 1 of the fiscal year in which the reduced generation and handling fee is assessed the following information:

a) All identification numbers issued by DTSC or by the United State Environmental Protection Agency (US EPA) that are associated with the project that meets the criteria in this bill;

b) All account numbers issued by CDTFA; and,

c) The total tonnage of hazardous waste generated from the project meeting the criteria in this bill for each identification number issued by DTSC or US EPA.

9) Provides that the reduced generation and handling fee and the provisions for receiving a refund of the generation and handling fee expire on January 1, 2026.

EXISTING LAW:

1) Authorizes through the Hazardous Waste Control Law (HWCL) DTSC to regulate the management of hazardous wastes in California. (Health and Safety Code (HSC) § 25100 et. seq.)

2) Establishes, pursuant to the Carpenter-Presley-Tanner Hazardous Substance Account Act (HSAA), a program to provide for response authority for releases of hazardous substances, including spills and hazardous waste disposal sites that pose a threat to public health or the environment. (HSC § 78000 et seq.)

3) Requires a generator of hazardous waste to pay a generation and handling fee, if they generate an amount equal to, or more than five tons in a calendar year to pay forty-nine dollars and twenty-five cents for each ton or fraction of a ton of hazardous waste generator in a calendar year. (HSC § 25205.5)

4) Requires the Board of Environmental Safety (Board) to establish, by regulation, a schedule of rates for the generation and handling fee authorized by the HWCL and may adjust the schedule of rates no more frequently than once per year thereafter and no later than October 1 of any year in which the Board adopts the schedule of rates. Requires rates to allow for a reserve in the Hazardous Waste Control Account each year at an amount determined by the Board to be sufficient to ensure that all programs funded by the Hazardous Waste Control Account will not be adversely affected by any revenue shortfalls or additional baseline expenditure adjustments, but not to exceed 10 percent of authorized expenditure levels. Provides that the rate established by the Board shall not exceed ninety-eight dollars and fifty cents ($98.50). (HSC § 25205.5.01)

6) Defines "deemed complete" as that the applicant has submitted a preliminary application pursuant to Government Code Section 65941.1 or, if the applicant has not submitted a preliminary application, has submitted a complete application pursuant to Government Code Section 65943. (Government Code § 65589.5)

FISCAL EFFECT: Unknown.

COMMENTS:

Need for the bill: According to the author: "California is in the midst of a massive housing affordability crisis. Rising costs and high fees have made it difficult to build housing that is affordable. In recent years, certain developers have experienced sharp cost increases due amended fees for hazardous waste generation that are charged by the Department of Toxic Substance Control. The new hazardous waste generator fee was increased in 2021 by SB 158, and increased fees to a $49.25 per ton flat fee. This caused many projects that were in the pipeline or already built to experience cost overruns, resulting in projects not being able to "pencil out".

To help these projects "pencil out", AB 2686 would offer an alternative fee structure for qualified projects that were deemed complete by December 31, 2021, setting a fee at $5.72 per ton. The "qualified projects" under this bill include residential and mixed-use housing projects, student housing projects, and projects that were by non-profits. This bill would strike a balance to ensure that these vital projects can still "pencil out", and deliver much needed housing in California."

California Hazardous Waste Control Law (HWCL): The HWCL is the state's program that implements and enforces federal hazardous waste law in California and directs DTSC to oversee and implement the state's HWCL. Any person who stores, treats, or disposes of hazardous waste must obtain a permit from DTSC. The HWCL covers the entire management of hazardous waste, from the point the hazardous waste is generated, to management, transportation, and ultimately disposal into a state or federal authorized facility.

The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA): CERCLA, or Superfund, provides a Federal "Superfund" to clean up uncontrolled or abandoned hazardous waste sites as well as accidents, spills, and other emergency releases of pollutants and contaminants into the environment. Through CERCLA, the US EPA was given authority to seek out those parties responsible for any release and assure their cooperation in the cleanup.

The US EPA cleans up orphan sites when potentially responsible parties cannot be identified or located, or when they fail to act.

Carpenter-Presley-Tanner Hazardous Substances Account Act (HSAA): State law provides DTSC with general administrative responsibility for overseeing the state's responses to spills or releases of hazardous substances, and for hazardous waste disposal sites that pose a threat to public health or the environment. The HSAA provides DTSC with the authority, to investigate, remove, and remediate contamination at sites.

Legacy of DTSC's fiscal issues: DTSC's funding comes primarily from the HWCA and Toxic Substances Control Account (TSCA). The HWCA is a repository for revenues from cost recovery activities and fees paid by various hazardous waste generators, transporters, and facilities. The HWCA funds DTSC's regulatory work overseeing hazardous waste management activities in the state. The TSCA is a repository for revenues from cost recovery, penalties, interest, and the Environmental Fee. TSCA funds DTSC's work dealing with cleaning up contaminated properties, including federal Superfund sites and state orphan sites, as well as funding the Safer Consumer Products Program (also known as the Green Chemistry Program).

The HWCA and TSCA had been operating with a structural deficit for several years. The Budget Act of 2019-2020 provided the HWCA with $27.5 million from the General Fund to backfill the shortfall and maintain existing operations. The Governor's budget for 2020-2021 provided a $12 million backfill from special funds for TSCA and a backfill of approximately $19 million for the HWCA (also from special funds) as those accounts were projected to be insolvent in the budget year.

Governor Newsom's response to DTSC's fiscal situation: As part of the 2020-2021 budget, the Newsom Administration proposed a reform package intended to resolve DTSC’s governance and fiscal problems. The Administration proposed to remedy DTSC's fiscal instability by providing DTSC the ongoing authority to set and revise fees. The Administration included trailer bill language with its proposal to raise fees in the HWCA and TSCA; this language was proposed as a 2/3 vote measure. To address transparency and governance issues, the Administration proposed, also with trailer bill language, to create the Board. Assembly Bill (AB) 1 (from 2021) similarly would have enacted the Board as well as would have raised the HWCA fees, nearly identical to the Administration's HWCA proposal, except AB 1 did not include the 2/3 vote increase for TSCA.

Governor Newsom proposed a new DTSC reform package as part of 2021-2022 budget: The Governor's DTSC Reform package contained three major components: Establishing a Board of Environmental Safety; Fee Reform; and, Programmatic Reform.

The Governor is proposed to create a five-member Board with the members of the Board appointed by the Governor. The Chairperson of the Board would be full-time and the remaining Board members would be half-time. The Board would: set fees and fee rates; decide permit appeals for hazardous waste facilities; provide opportunities for public comment on DTSC's permit and remediation decisions; review and approve the DTSC Director's annual priorities and performance metrics; provide long-term goals for DTSC's programs; and, provide an annual performance review of the DTSC Director. Along with the Board, this proposal established an Ombudsperson to receive and evaluate complaints and suggestions regarding any action, program, or policy of DTSC.

The Governor was proposing a major overhaul of DTSC's fee structure. The proposal was designed to produce sufficient revenue to eliminate the need to provide General Fund revenues to close DTSC's baseline funding gap; pay the costs associated with the Board, support staff, and Ombudsperson; provide for an additionally $59 million in revenue to support anticipated near-term staffing needs, likely beginning in 2022; and, begin to establish a prudent reserve. Additionally, the proposal eliminated three fees under the HWCA (disposal fee, manifest user fee, and EPA ID fee); restructured the generator fee into a generation and handling fee; established a per ton rate for the generation and handling fee; raised and set a new base rate for the facility fee; and, eliminated all of the exemptions except the exemption for small quantity generators (those that generate less than five tons per year). This fee reform proposal also included changes to the Environmental Fee. The proposal permanently eliminated the fee for businesses with less than 100 employees, froze the fee for businesses with 100-499 employees (the proposal included a provision allowing the Board raise the fee in the future); and, more than tripled the fee for businesses with 500 or more employees.

The Governor's proposal included programmatic changes. The proposal established a hazardous waste management plan (Plan) to be presented to the Board. Within the Plan would have been recommendations to establish hazardous waste reduction goals; update DTSC's pollution prevention program; and, reduce the risk of exposure to communities threatened by releases of hazardous waste. Additionally the Governor's proposal included changes to strengthen financial assurance requirements for permitted hazardous waste facilities and would have established accountability requirements for DTSC's permitting of renewal applications for hazardous waste facilities.

Final DTSC reform (Senate Bill (SB) 158): In 2021, as a result of months of negotiation, the Administration and Legislature agreed to a compromise on DTSC Reform by enacting SB 158. SB 158 included the creation of the 5-member Board that sets policy and prioritizes transparency and accountability for DTSC. Each member of the Board must meet at least one qualification from a specified list and the Board is required to meet at least 6 times a year.

SB 158 also enacted fee reform, by eliminating and modifying some fees. This included repealing the Generator Fee and instead establishing the new Generation and Handling Fee. The bill also created a new (hazardous waste) facility fee and modified and raised the Environmental Fee. All fees were set at a rate that would eliminate DTSC's operating deficit, provide revenue for anticipated needs in the near-term, fund the Board and the development of a hazardous waste management plan, and provide DTSC with a prudent reserve.

Additionally, SB 158 included a number of programmatic reforms such as the development of a hazardous waste management plan to be completed by March 1, 2025 and updated every 3 years; strengthened financial assurance requirements for both hazardous waste facilities and contaminated cleanup sites; and, made changes to the permitting requirements for hazardous waste facilities to improve the efficiency and transparency of the processing of the permits. Lastly, SB 158 included $500 million for the cleanup of contaminated sites, including priority for sites in communities overburdened by pollution.

Polluter pays principle: The current fees on generators of hazardous waste, as required by SB 158, follow the polluter pays principle: the more hazardous waste someone generates the more hazardous waste fees they pay.

Board of Environmental Safety (Board): SB 158 created the Board to improve DTSC's transparency, accountability, and fiscal stability. The Board is comprised of 4 part-time members and one full-time member. Three of the Board members are appointed by the Governor, including the full-time Board Chair, and subject to confirmation by the Senate. The Senate and Assembly each appoint one additional member.

The Board's duties and authorities include: developing a multi-year schedule to develop long-term goals for DTSC's programs; reviewing and approving the Director's priorities and adopting performance metrics; adjusting fee rates based upon changes made in the annual Budget Act; hearing and deciding hazardous waste facility permit appeals; providing opportunities for public hearings on permitted and remediation sites; conducting an analysis of DTSC's fee structure; conducting an analysis of DTSC's programs and their relationship with related programs in other agencies; and, forming advisory subcommittees on any topic, including fees and environmental justice. SB 158 also established an Office of the Ombudsperson within the Board and requires the DTSC Director and the Board Chair to appear annually before Legislative policy committees.

DTSC's new fiscal shortfall: In January 2024, as part of the Governor's proposed budget, DTSC indicated that there was a negative $21 million balance in the HWCA. How did we get here? Below is a summary excerpted from the Legislative Analyst's (LAO's) Report on Insolvency Risks for Environmental and Transportation Special Funds:

"HWCA Revenues Primarily Come From Two Major Regulatory Fees. Funding for HWCA primarily comes from the generation and handling fee (established in SB 158) and facility fees. The generation and handling fee is charged on a per-ton basis to all entities that generate five or more tons of hazardous waste in a calendar year, while facility fees are annual charges levied on permitted facilities that treat, store, or dispose of hazardous waste. Senate Bill 158 set rates for both fees for 2022-23, but authorized BES to adjust rates each year starting in 2023-24.

Lower-Than-Projected Generation and Handling Fee Revenues Reestablished HWCA Deficit in 2022-23. During the enactment of SB 158, the new generation and handling fee was set at $49.25 per ton and was projected to generate approximately $81 million in total revenues in 2022-23. However, in the middle of 2022-23, DTSC indicated that these revenues were coming in significantly below what had been anticipated and would only generate about $40 million that year. The lower-than-projected revenues reestablished the structural deficit within HWCA in 2022-23 and set the fund on a path to insolvency in 2023-24. The department’s preliminary analysis of the issue indicated the shortfalls were attributable to a combination of three primary factors: (1) a reduction in the amount of hazardous waste generated; (2) a higher utilization of government fee exemptions, such as related to a government entity removing or remediating hazardous waste caused by another entity; and (3) nonpayment or low payment of fee amounts owed.

2023-24 Budget Package Authorized Special Fund Loans for HWCA. To address the revenue shortfall, the 2023-24 budget provided $55 million in special fund loans—$15 million from TSCA and $40 million from the Beverage Container Recycling Fund—to support HWCA. (Budget bill language currently requires DTSC to repay both loans by June 30, 2026.) The loans were intended to allow HWCA to cover its planned expenditures in both 2022-23 and 2023-24. The loans also avoided the need for BES to increase the generation and handling fee in 2023-24. This approach was adopted to provide DTSC with additional time to conduct a more in-depth analysis of the revenue shortfalls and to identify a potential solution. The department was authorized to use a small portion of the loans to support this analysis and to improve fee administration and data collection.

HWCA Projected to Be Insolvent in the Budget Year. HWCA has experienced a longstanding structural deficit between its ongoing revenues and expenditures. The state has responded by providing a series of one-time General Fund backfills to keep the fund solvent, which is primarily how the fund balance has remained positive. The reform package was intended to address the structural deficit and generate additional ongoing revenues for HWCA to support both existing services and programmatic expansions. However, the lower-than-projected generation and handling fee revenues have prevented this from being accomplished. Under the administration’s estimates, HWCA is projected to become insolvent in the budget year, absent any corrective action. We note that the department is in the process of gathering revenue data from generation and handling fees that are currently being collected, which could change this projection—potentially for the better or for the worse. Accordingly, uncertainty still exists around the exact magnitude of shortfall that the state will need to address both in the budget year and on an ongoing basis. For instance, higher-than-expected revenues and/or lower-than-expected spending levels in the current year could shrink the anticipated deficit and reduce the magnitude of solutions needed in the budget year.

Administration Indicates Proposal Forthcoming at May Revision. DTSC indicates that it still is in the process of completing its analysis of the causes of the HWCA revenue shortfall, along with collecting updated revenue information. The department has stated that it will use this analysis as the basis for a proposal to address the 2024-25 revenue gap that will be included as part of the May Revision.

Reducing HWCA Expenditures Could Have Negative Implications for Health and Safety. As discussed earlier, generally the Legislature has two key categories of ongoing options for addressing structural fund imbalances: increase revenues (including by raising charges or through loans and transfers) or reduce expenditures. In the case of HWCA, the latter option could raise some concerns. In addition to addressing the structural deficits within HWCA and TSCA, a central component of the recent governance and fiscal reform package the Legislature enacted was to ensure that funding levels in both accounts were sufficient to support DTSC in better delivering on its mission and statutory authorities. For activities supported by HWCA, this included improving hazardous waste generator inspections and enhancing criminal enforcement investigations. Given that the Legislature recently identified the department’s current HWCA expenditure levels as being essential to protecting the public and environment from hazardous waste, this suggests that reducing them could result in a resumption of the safety concerns that initially led to the reform. This does not mean that opportunities for some savings do not exist. For example, the Legislature potentially could direct the department to implement program efficiencies that reduce cost pressures on HWCA and still allow for important services and protections. However, the Legislature likely will want to proceed with caution in considering any reductions to the activities supported by HWCA and ensure they do not result in increased hazards for Californians. Moreover, identifying enough efficiencies to fully address the fund’s structural deficit and maintain essential activities is highly unlikely.

Legislature Has Several Options to Provide Support for HWCA. Given concerns about reducing DTSC’s expenditures and activities, the Legislature might instead want to consider: (1) increasing HWCA revenues; and/or, (2) identifying other fund sources to backfill HWCA. Two primary pathways exist for increasing revenues. First, the Legislature could defer to BES to use its statutory authority to raise the generation and handling fee and align revenues with the amount of 2024-25 expenditures authorized for HWCA. Second, the Legislature could begin to develop its own proposal to increase the amount of revenues collected from the generation and handling fee. For instance, one factor leading to the shortfalls is a higher utilization of government fee exemptions. The Legislature could reduce these exemptions and thereby apply the fee to more payers and generate additional revenues. In addition to raising revenues, the Legislature could identify other fund sources to backfill HWCA, similar to the approach it took in the 2023-24 budget. We note that utilizing this option may be more difficult given the overall budget problem with which the state is grappling. Furthermore, the Governor’s budget already proposes using special fund loans—such as from the Beverage Container Recycling Fund—to support the General Fund, which limits the ability to utilize such sources to support HWCA."

This bill will result in a reduction in fee revenue to DTSC, adding pressure for the Board to raise fees on all other generators of hazardous waste.

Hazardous waste management plan: In July 2021, Senate Bill 158 required DTSC to develop a Hazardous Waste Management Report (Report) and a Hazardous Waste Management Plan (Plan) every three years. The first Report, released in July 2023, marks the starting point of an iterative process to determine the types of information and additional research needed to guide a comprehensive planning process for hazardous waste management in the state. The main objectives of the first Report are the following:

1) Establish a baseline understanding of the management of hazardous waste in the State of California

1. Identify data gaps and items that require additional research
2. Begin to develop plans to fill data gaps and complete additional research

The first Report provides information about the types and quantities of hazardous wastes generated in the state as well as the destinations and ultimate dispositions of these wastes, utilizing available data from roughly the last decade (January 2010 to May 2022). Information from the Report and future iterations will be used to inform the Plan that will be updated triennially. The Plan will recommend strategies to reduce hazardous waste generation, manage more waste in state, and address issues of concern such as hazardous waste impacts to disadvantaged communities.

Future planning efforts will provide the opportunity to identify hazardous waste management strategies that maximize the potential for waste reduction and recycling while ensuring protection of public health and the environment.

DTSC will evaluate California’s current hazardous waste criteria to determine whether they are consistent with current science and technology. This review is a significant effort that will require additional research and collaboration with other internal programs and external agencies like the Office of Environmental Health Hazard Assessment. Evaluation of the criteria has begun and will include an assessment of the differences between California’s criteria and US EPA's criteria.

Opportunities for a win, win: Prior to SB 158, hazardous waste fees hadn't been increased in a couple of decades. During this time there was efforts made by DTSC to look at strategies to reduce hazardous waste however those efforts did not prove fruitful. Now that DTSC is embarking on a statewide hazardous waste management plan, including looking at opportunities to reduce hazardous waste, there could be an opportunity for a win-win. Some generators of hazardous waste have voiced concern over the total amount of fees that they are required to pay since the passage of SB 158 and the increase in hazardous waste generator fees. If efforts are truly made to reduce the generation of hazardous waste then, not only would generators see lower fees, but communities could see a benefit as well. Communities, both near cleanup sites and near landfills, could see fewer trucks carrying hazardous waste. Additionally, less hazardous waste generated means less hazardous waste disposed of (either in California our out-of-state).

This bill: AB 2686 creates a reduced generation and handling fee for three calendar years (2021, 2022, and 2023) for specified affordable housing and mixed-use projects. The author and proponents contend that without a reduction in hazardous waste fees some affordable housing or mixed-used projects may not be able to be constructed.

Possible amendments: Over the last several years the issue of providing affordable housing for Californians has been a top priority within the Legislature. In keeping with that priority, the committee and author may wish to streamline this bill to focus on affordable housing. Specifically, the committee and author may wish to remove exemptions to the hazardous waste generator fee, provide that generators receiving the lower fee in this bill have paid their hazardous waste fees, provide a mechanism for CDTFA and DTSC to confirm that projects meet the criteria in the bill, and tie the reduced fee rate in the bill to projects that have been built or are being built.

Arguments in Support: According to the Bay Area Council: "On behalf of our over 320 employer members, we are pleased to support AB 2686 (Grayson), which will prevent significant cost increases for housing developers who remediate contaminated soil by allowing projects already in the pipeline to use an alternative fee calculation.

AB 2686 proposes an amendment to current law to offer an alternative fee structure for housing, mixed-use, and commercial developments deemed complete by December 31, 2021. This alternative fee would be set at $5.72 per ton of hazardous waste. Housing developers should not be penalized for opening land for productive use, especially when they are cleaning up pollution instead of creating it."

Arguments in Opposition:

None on file.

Double-referral: Should this bill pass the Assembly Environmental Safety and Toxic Materials Committee it will be re-referred to the Assembly Revenue and Taxation Committee.

Related Legislation:

1) SB 143 (Senate Budget Committee, Chapter 196, Statutes of 2023). Creates a reduced generation and handling fee of $5.72 a ton for projects that meet specified criteria including being certified by the Governor as an environmental leadership develop project.

2) SB 158 (Senate Budget Committee, Chapter 73, Statutes of 2021). Establishes a 5-member Board of Environmental Safety; revises, recasts and increases hazardous waste fees; and makes changes to DTSC financial assurance requirements for hazardous waste facilities and cleanup sites; and makes improvements to the permitting of hazardous waste facilities.

3) AB 1 (C. Garcia, 2021). Would have created the Board of Environmental Safety within the California Environmental Protection Agency (CalEPA) to provide policy direction to and oversight of DTSC. Would have raised and recast existing fees within the Hazardous Waste Control Account (HWCA) to fill a projected deficit of approximately $18 million. This bill language was no longer pursued due to the compromise legislation in SB 158 and subsequently amended into a different bill.

4) AB 995 (C. Garcia, 2020). Would have created the Board of Environmental Safety within CalEPA to provide policy direction to and oversight of DTSC. Raises and recasts existing fees within the HWCA to fill a projected deficit of approximately $18 million. This bill was vetoed by the Governor.

REGISTERED SUPPORT / OPPOSITION:

Support

Abundant Housing LA
Bay Area Council
California Community Builders
Habitat for Humanity Greater San Francisco
Housing Action Coalition (UNREG)
Livable Communities Initiative
Nonprofit Housing Association of Northern California
People for Housing - Orange County
San Francisco-Marin Food Bank
Strada Investment Group 11
University of California, Hastings College of the Law

Opposition

None on file.

Analysis Prepared by: Josh Tooker / E.S. & T.M. /