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November 10, 2009

California's Capitol

Major Recycler Sues Over Beverage Container Fund Insolvency

California’s largest single recycling services provider sued the state November 9 claiming $416 million in so-called loans made to the cash-starved general fund from the Beverage Container Recycling Fund are illegal and must be repaid.

In a lawsuit filed in Alameda Superior Court, Tomra Pacific Inc., which operates nearly one-third of the state’s 1,200 supermarket parking lot recycling centers, claims the loans have driven the recycling fund into insolvency, causing the state Department of Conservation to eliminate payments to recyclers and irreparably harming the state’s 23-year-old effort to reduce can and bottle waste.

“The continued effect of the (department’s) funding cuts to the key participants in the recycling program will have a direct and unavoidable consequence,” the lawsuit says.

“If (small) recyclers and processors throughout the state have to drastically scale back operations, if not close entirely, literally billions upon billions of used bottles and cans in the state will go unrecycled.

“The entire purpose of the recycling program will be thwarted, as beverage containers that would otherwise be recycled will be left on public beaches, streets and highways or discarded in landfills.”

Tomra says it has laid off 45 of its 700 employees in California and closed 32 of its recycling sites because of the reductions in payments from the department. Another four sites are slated for closure, the company says.

A copy of Tomra’s lawsuit was e-mailed to the department’s press office seeking comment.

Should Tomra prevail in court, it would add $416 million to the state’s mounting budget shortfall which Gov. Arnold Schwarzenegger told the Fresno Bee November 9 was likely more than $14 billion over the next 19 months, rather than the $7.4 billion estimate offered by his administration in July.  

Californians recycled a record 16.1 billion beverage containers in 2008. The state’s bottle and can recycling program, created in 1986, touches numerous entities – glass manufacturers, beer and soft drink makers, wholesalers and grocers, among them. Money deposited in the recycling fund pays for its activities.

Three loans to the general fund have come from the recycling fund since 2002 – starting with a $218 million one, followed by a $98 million loan in 2003. Those loans were to be repaid on June 30, 2009. But lawmakers postponed payback until June 30, 2013.

Gov. Arnold Schwarzenegger borrowed another $100 million for the general fund in this year’s budget.

However, the GOP governor has also taken another $67 million from the recycling fund to pay for the initial costs incurred by the Air Resources Board to begin implementation of AB 32, the landmark greenhouse gas emissions reduction measure.

The air board is supposed to reimburse the fund through revenue from imposing fees on polluters. No fees have been assessed.

Borrowing from the recycling fund since 2002, general fund or otherwise, totals more than $567 million.

Revenue in the recycling fund comes from the nickels and dimes California assesses on cans and bottles and fees imposed on the makers of aluminum, glass and plastic beverage containers.

Formulas dictate the annual level of these “processing fees” but, generally, the more flush the recycling fund, the lower the fees assessed against manufacturers.

At current recycling rates, nearly $1.2 billion in recycling fees pass through the state fund each year.

Money from the fund subsidizes recyclers like Tomra and the processors of the cans and bottles collected at smaller recycling centers, which account for roughly one-third of the state’s recycled cans and bottles.

Tomra operates 382 small recycling centers and also processes the recycled cans and bottles.

Recyclers receive two types of payments from the state. One is a set, per-container handling fee. The other, a processing payment, is designed to cover the difference between the market value of scrap material and the costs of transporting it to a processor.

“Without these recycling program payments, the operation of (small) recycling centers is a money-losing proposition in California,” Tomra’s lawsuit says.

In June, the department announced that the recycling fund was insolvent.

Nowhere in the announcement did the department note that at least a contributing factor for the insolvency was money raked out of the fund to pay for other state purposes. A higher level of recycling – a record 74 percent in 2008 — plus the state’s economic downturn caused increased level of payments, the announcement said.

“The dramatic increase in the recycling rate, coupled with a flattening of container sales due to the downturn in the economy, has resulted in increased pay-outs without a commensurate rise in previously expected revenues,” the department said.

As a consequence of the insolvency, handling fees and processing payments would be reduced by 85 percent and 27 percent respectively. 

Cities and counties, which receive subsidies from the fund to support local curbside recycling efforts, saw their payments fall from $10.5 million to $1.5 million.

Grants to local conservation corps fell from $19.5 million to less than $3 million.

Again citing the “lack of monies in the fund,” the department announced on October 20 that handling fees would not be paid at all and processing payments would be reduced an additional 5 percent.

Money for local conservation corps dropped to less than $1 million. Cities and counties saw their $1.5 million cut to $525,000.

Tomra contends that if the rake-offs to the general fund had not occurred, the recycling fund would still have been able to cover its normal level of payouts.

The lawsuit argues that the three loans must be repaid because their effect violates the express requirements placed on each of the loans by lawmakers: “Repayment shall be made so as to ensure that the programs supported by the California Beverage Container Recycling Fund are not adversely affected by the loan.”

The department is working on a one-time accounting change in how payments are made to the recycling fund, which would bring in an additional $100 million during this fiscal year.  

Payments to the state of the California Refund Value – the nickels and dimes assessed on bottles and cans — are not due until 90 days after the month of sale.

The department is developing emergency regulations to accelerate those payments by shortening the deadline to 60 days. In effect, that would create a year in which 13 monthly payments are received instead of 12. 


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