California's beverage container recycling program, at nearly 30 years old, is broken.
With cost overruns of $100 million in three of the last four years, one key problem is paying out refunds for beverage containers that were actually purchased out-of-state and never subject to California's deposit system, according to a new report from the California State Auditor.
Last fiscal year's cost overrun at the program overseen by the California Department of Resources Recycling and Recovery was nearly $29 million, the report states.
“CalRecycle needs to better respond to the fraud risk presented by the importation of out-of-state beverage containers for recycling refund payments,” warns a summary of the report issued by the auditor's office.
California has never expected every single one of the containers subject to the deposit law would actually be recycled. And it's that difference in what is paid by consumers and what is actually refunded that has historically covered operational costs of the program.
A break-even point for the program is a 75-percent recycling rate, but CalRecycle reported a recycling rate of 85 percent in 2013, the auditor's report states.
“Based on that recycling rate, the revenue collected from beverage distributors is no longer adequate to cover recycling refund payments and other mandated spending,” the summary states.
While the problem is now years in the making, the program has been able to stay solvent thanks to what the auditor calls “significant loan repayments, primarily from the State's General Fund.”
The state General Fund and Air Pollution Control Fund, at the end of the 2009-10 fiscal year, owed the beverage container program $497 million. But repayments in recent years have brought that balance down to $82 million.
These loan repayments have allowed the beverage container program to continue operating, but have also masked the program's cash flow problems, the auditor reported. “Based on the recent financial condition of the beverage program ... immediate action is needed to ensure the continued viability of the beverage program,” the auditor warns.
Solutions include reducing or eliminating subsidies to beverage makers, “requiring them to pay the full cost of processing fees” paid to recycling centers and other entities, the report states.
The state currently subsidizes more than half of thee processing fees, and eliminating that subsidy would add $60 million to $80 million.
Another way to raise revenue for the program that started in 1986 could be the elimination of a 1.5 percent administrative fee that beverage distributors are allowed to retain. This could add another $18 million to the coffers, the auditor's report states.
In total, the audit report has identified potential savings and additional revenue of up to $233 million annually for the program.
CalRecycle Director Caroll Mortensen, in a letter to the auditor, said the agency “generally agrees” with recommendations regarding recycling program fraud detailed in the report “and will strive to implement them over time.”