Capitol Alert

Legislature needs to rethink California’s recycling program, audit concludes

A Sacramento County employee removes some remaining items from his truck at Recycling Industries in September in Sacramento.
A Sacramento County employee removes some remaining items from his truck at Recycling Industries in September in Sacramento. rpench@sacbee.com

Persistent deficits undermining California’s recycling fund compel the Legislature to rethink how the program is structured, a new state audit concludes.

Auditors suggested a handful of approaches, including a crackdown on fraud and perhaps broadening the kinds of products that are redeemable.

“The beverage program continues to face deficits,” the audit says, and “immediate action is needed to ensure the continued viability of the program.”

The complex system of fees and payments rests on a simple foundation – beverage distributors pay California for every eligible receptacle sold in the state and pass the increased cost on to consumers, who can reclaim the money by cashing those cans and bottles in and receiving a California Redemption Value, or CRV, payment.

But the money flowing in is often not enough to cover California’s obligatory payments to CRV-seeking consumers and processors. As a result, the program faces persistent shortfalls. In three of the last four fiscal years, the audit found, those funding gaps exceeded $100 million.

Paradoxically, the program is in some ways a victim of its success. The more people recycle and draw down the pot of money funded by distributors, the less cash California’s recycling fund will have.

“It is important to understand that the beverage program cannot achieve a high recycling rate and be financially self-sustaining,” the audit notes, pointing out that the 85 percent recycling rate California has achieved exceeds the break-even rate of about 75 percent.

The audit suggested some ways legislators could shore up the recycling program’s finances:

▪ Eliminate subsidies for beverage manufacturers paying processing fees. Currently the state covers more than half the cost – to the tune of between $60 million and $80 million a year, the audit says.

▪ Eliminate a provision allowing beverage distributors to keep 1.5 percent of what they owe the state.

▪ Add new types of containers to the program. That could generate more revenue, the audit suggests, but that money would evaporate as consumers caught on and began recycling the newly eligible products.

If the Legislature chooses to focus on what California owes, not what the beverage industry pays, policymakers could reduce mandatory payments to processors, curbside recyclers and others.

Or lawmakers could overhaul how the state collects revenue in the first place. Currently the amount beverage manufacturers and distributors pay is contingent on industry reporting their sales, with CalRecycle vetting those numbers. It could be more efficient to have the Board of Equalization collect payments at the cash register, the audit says.

“Using the point of sale as the focal point for revenue collection may lessen the uncertainty over how much revenue should be flowing into the beverage program,” according to the audit.

Fraud is costing California money as well, the audit notes, particularly when consumers cash in bottles and cans purchased out of state. Since beverage distributors pay California only for the number of containers sold in California, there is no money in the fund to cover CRV payments for containers purchased elsewhere. California must be more vigilant about tracking the problem, according to the audit.

“CalRecyle needs to better understand and quantify the fraud risk presented by the importation of out-of-state beverage containers for recycling refund payments,” the audit says, noting that CalRecycle has begun collecting data but still “lacks an estimate on the fraud exposure stemming from this problem.”

Call Jeremy B. White, Bee Capitol Bureau, (916) 326-5543.

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