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San Joaquin Valley lEHEALTHY 1 -1R LlV lNF

DATE:TO:FROM:

RE:

WITHIN THE SANJOAQUIN VALLEY THROUGH THEUSEOF MOTORVEHICLE FEES

RECOMMENDATIONS:1. As authorized by California Health and Safety Code Sections4061 0 throl~gh 0613, approve an increase in motor vehicle feesestablished under Sections 44223 and 44225, by one of thefollowing amounts:

a. $24 per year per motor vehicle. Authorize the Chair to sign theadoption resolution (AttachmentA).b. $12 per year per motor vehicle. Authorize additional $6increase effective in 2013, and an additional $6 increaseeffective in 2015, for a maximum increase of $24 per year permotor vehicle. Authorize the Chair to sign the adoptionresolution (AttachmentB).c. $1 0 per year per motor vehicle. Authorize the Chair to sign theadoption resolution (Attachment C).

October 21,2010SJVUAPCD Governing BoardSeyed Sadredin, Executive DireProject Coordinators: Samir SheikhJDaveWarner

Revenues generated shall be used to satisfy the requirementsofSection 185 of the federal Clean Air Act in lieu of imposition ofnonattainment penalties strictly on Valley businesses. Direct theAir Pollution Control Officer (APCO) to develop an alternativeSection 185 program to exempt well-controlled Valley businessesfrom nonattainment penalties. Subsequent to the prerequisitepublic workshops and notification process, the alternative programshall be presented to the Governing Board for approval prior tosubmittal to the United States Environmental Protection Agency(E PA).

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SJVUAPCD Governing BoardCONSIDER ALTERNATIVES FO R T HE EQUITABLE APPLICATION OF MANDAT ED FEDERALNONATTAINMENT PENALT IES T O SOURCES WITHIN THE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR V EHICLE FEESOctober 21, 20103. Spend revenues generated on reducing mobile source emissions as provided underCalifornia Health and Safety Code Sections 44223 and 44225 t o h elp expediteattainment and maintenance of state and federal am bient air quality standards.

Direct the AP CO to p rovide an ann ual report to the,pub lic detailing the ne w revenuesgenerated, em ission reduction projects funded, and expected reductions inemissions.4. Motor vehicle fees adopted here shall sunset upon expiration or revocation of theSection 18 5 nonattainment penalties.5. Direct the A PCO to notify the California Air Resources Board that motor vehicle feeshave been adopted; provide the Ca lifornia Air R esources Board with a copy of theadoption resolution and estimate of total annual funds gene rated by the above fees;and request that the California Air Resources Board make the finding that the District

has undertaken all feasible measu res to reduce n onattainment air pollutants fromsource s within the District's jurisdiction and regulatory control.6. Pursue federal legislative changes to repeal Section 185 of the federal Clean Air Actor eliminate inequities in the fee by providing an exemption from the fee for well-controlled stationary sources.

BACKGROUND:With recen t exceedances of the federal I- ho ur ozone standard, the federal Clean AirAct m andates the imposition o f no nattainme nt penalties on stationary sourcebusinesses in the Valley. Federal law requires the District to promulgate regulations tocomply with Section 185 of th e federal Clean Air Act for the imposition and collection ofthese pe nalties. Failure to do so w ill result in the unilateral imposition and collection ofthese pena lties from Valley businesses by the federal EPA . All pena lties collected byEPAwould then be deposited in the federal treasury with no exp enditures in the Valley..The District believes that these mand ates are un fair to the V alley businesses that havemade significant investments in clean-air technology. Considering their enorm ousexpenditure and sa crifice, Valley businesses deserve ou r recognition and reward, ratherthan pe nalties. W ith that in mind, we asked for alternative approaches to impo singnonattainment penalties on stationary sources. In January 2010, E PA releasedguidan ce that pro vided alterna tive options for the equitable distribution of responsibilityto mobile sources. This combined wi,th the autho rity granted to you r Board by the statelegislature in 2008 (Assembly Bill 2522 -Arambu la), enables the District to craft analternative solution that satisfies the above-referenced federal mand ate in a moreequitable fashion.

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SJVUAPCD Governing BoardCONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OF MANDATED FEDERALNONATTAINMENT PENALTIES TO SOURCES WITHIN THE SAN JOAQU IN VALLEY THROUG H THEUSE OF MOTOR VEHICLE FEESOctober 27, 2070

OPTIONS CO NSIDERED BU T NOT RECOIVIMENDED:1. Take no action - Let current District Rule 3170 (Federally Mandated OzoneNonattainment Fee) stand with no amendments to satisfy Section 185Requirements:

This option is NOT recommended for the following reasons:Valley businesses w ill b e required to pay the fees directly to the federalgovernmen t and th e revenues generated will not be reinvested in the Valley.If the District fails to adopt or implement a required fee program, EPA isrequired by federal law to collect the unpaid fees plus interest on any unpaidfees. Federal laws also require that any fees collected unde r Section 185 tobe deposited in the United States Treasury.The Valley will be subject to expensive federal sanctions including a de-factoban on new businesses locating in the Valley (i.e., 2-1 offset ratio), and theloss of federal h ighway funds ($250 million per year).

The current version of District Rule 3170 was adopted by your Board On May 16,2002. This version includes special provisions to exem pt well-controlled businesses("clean urrits") from the penalties and provides for m ulti-year averag ing of err~iss ionsto extend credit to businesses that invested in early reductions in emissions, and toaccount for fluctuations in production rates due to market cond itions.Unfortunately, in January 2010, the U.S. Environmental Protection Agency (EPA)disapproved these special provisions and issued a limited approval and limiteddisapproval of Rl.lle 3170 . This action by EPA began an 18-m onth sanction clockthat mandates the submission of an approvable rule by the District.

2. Strict adherence to Section 185 mandates- Apply nonattainment penalties tothe Valley's stationary source businesses:This option is also NO T recomm ended for the following reasons:

Well-controlled Valley businesses should no t be penalized for failure to a ttainthe federal I -h ou r ozone standard.Violations of the I-h ou r ozone standard are primarily due to em issions frommobile sources. Emissions from mobile sources constitute more than 80percent of em issions that contribute to the formation of ozone.

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SJVUAPCD Governing BoardCONSIDER ALTERNATIVES F OR THE EQUITABLE APPLICATION OF MANDA TED FEDERALNONATTAINMENT PENALTIES TO SOURCES W ITHIN THE SAN JOAQUIN V ALLEY THROUGH THEUSE OF MOTOR V EHICLE FEESOctober 21, 20 10Em issions from stationary sources in the Valley have already b een reducedby over 80 percent.Valley's stationary source businesses are already subject to som e of thetoughest air regulations in the nation. lmposition of the nonattainmentpenalties on well-controlled stationary sources will NOT result in meaningfulreductions in emissions from these sources as was initially intended underSection 185.lmposition of the Section 185 nonattainment fees on V alley businesses willresult in a significant blow to the Valley's fragile econom y.Recent guidance issued by the E PA provides the option to assessnonattainment fees on m obile sources of emissions.

Section 185 of the federa l Clean Air Act mand ates that "Severe" and "Extreme"ozone no nattainment areas adopt a program requiring major N Ox and VOCstationary sou rces o f air pollution to pay nonattainment fees in the event the areafails to reach attainment by the requ ired attainment date. Affected bus inesses wouldbe required to pay the se fees on a n annual basis 1.1ntil the area reaches attainment.In 1990, the C lean Air Act se t the fee at $5,000 per ton of VOC and NOx em itted bythe sou rce during the calendar year in excess of 80 percent of the facility's "base lineamoun t". The A ct a lso required that the fees be adjusted for inflation based on theConsum er Price Index (CPI) on an annual basis. For 2009, the fee had escalated to$8,755.33 per ton.Wh en S ection 18 5 was first enacted by the U nited States Congress, it was intendedto serve a s a hamm er compelling stationary sources to install additional controls toreduce emissions and expedite attainment. Given today's c ircumstances, however,these fees, if applied to stationary sources, will not h ave the intended imp act in SanJoaquin Valley. Mo st stationary sources in San Joaquin Valley are already equippedwith B est Available Retrofit Control Technology (BA RCT ) or Best Available ControlTechnology (B ACT). In reality, with the mature control programs that are in place inthe San Joaq uin Valley, mos t businesses have already ma de significant investmentsand installed the m ost advanced controls available for their facilities. Please refer tothe District's recent 2010 Ozone Mid-Course Review for a detailed assessm ent ofvarious stationary sou rce regulations that Valley businesses m ust comply with.Under these circumstances, S ection 185 has becom e a punitive fee with no realability by m ost facilities to reduce their emissions. The only options available toValley businesse s to reduce or avoid the fees would be to curtail production or goout of business. Given the Valley's chronic high unemployment rates combined withthe current globa l and regional econo mic distress, the conse quences could bedevastating.

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SJVUAPCD Governing BoardCONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OF MANDATED FEDERALNONATTAINMENT PENALTIES TO SOURCES WITHIN THE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VEHICLE FEESOctober 21, 2010Under a straightforward implementation of Section 185, alley businesses that aremajor sources of NOx or VOC emissions w o ~ ~ l de subject to a total of an estimated$29 million per year in penalty fees. These estimated penalties are dependent onsevera l primary factors, including the level of business activity during the base line(calendar year 201 0) nd subsequent years, and an escalating penalty rate peggedto the CPI. The fees would co ntinue until the D istrict reaches attainmen t for the nowrevoked I hour oz one standard, which wo uld require three co nsecutive yearswithout a violation. The Clean Air Act does not impose any restrictions on themanne r by which the nonattainment fee revenues are to be spent b y the District.Table I: st imate o f Se ct ion 185 Penal ty Fees

Source C ategoryAgriculture

ACTIONS RECOMMENDED:

Section 185 Nonattainment Fees$5,511,014Commercial $1,385,399

Adopt a m ultifaceted approach with the following elements:

Electric Gen eration

Pursue federal legislative changes to repeal Section 185 of the federal C lean AirAct or eliminate inequities in the fee by providing an e xemption from the fee forwell-controlled stationary sources.

$4,123,852

Exemp t well-controlled stationary sources from the Section 185 nonattainmentfees.

Industrial $9,110,370Industrial - Oil and Ga s $6,786,434Industrial - Oil and Ga s Area-wide $1,674,600TOTAL $28,591,668

Provide for an equitable distribution of responsibility by adopting motor vehiclefees for use in sa tisfying federal ma ndates under Section 185.The District hasthe au thority to adopt m otor vehicle fees at a rate greater than that necessary tosatisfy Section 185 equirements.

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SJVUAPCD G overning BoardCONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OF MANDA TED FEDERALNONATTAINME NT PENALTIES TO SOURCES WITHIN THE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR V EHICLE FEESOctober 21 , 2010Sunse t motor vehicle fees upo n expiration or revocation of the Section 185nonattainment penalties.Reinvest generated reve nues in San Joaquin Valley to fund emission reduc tionprojects throughout the V alley.Ensure s trict public accountability with a nnual reports to the public detailing thenew reven ues generated, em ission reduction projects funded, and expectedreductions in emissions.

Given the inherent inequities in S ection 185 pen alties, and the fact that its application tostationary sources in S an Joaquin V alley ca nnot produce the intended results, theDistrict should pursue appropriate legislative remed ies at the federal level. The desiredchanges will require am endm ents to federal Clean Air Act that will take time and will bedifficult to achieve. Historically, the Clean Air Act has been amend ed rarely and eachtime the amendm ent process has been lengthy and has involved a m yriad of nationalissues. Although the District should devote significant resources to pursu e legislativechanges, expecting quick resu lts is not realistic. In the m eantime, it is prudent for theDistrict to act timely to devise and implement a strategy that produces optimum resultsin the face o f problema tic and unfair circumstances generated by these federalmandates.In 2008, when A ssem bly B ill 2522 (Arambu la) was enac ted, the D istrict had identifiedthe need for these funds to expedite attainment of the federal health-based standardsfor ozone and particulate matter. In developing and adopting the 2007 Ozone Plan, theDistrict left no stone unturned in finding and adopting feasible regulatory measures toreduce ozone precursor emissions. Ttris extensive research and planning effortrevealed that the D istrict cannot attain the federal &hour ozone standa rds withregulations alone. The conclusion was that a well-funded incentive-based strategy toprovide grant funding to Valley businesses, residents, and m unicipalities was e ssential.The 2007Ozone Plan estimated that it will take close to $3 billion (approximately $200million per year) in incentives to bring the Valley into attainment with the federalstandard. W ith intensive advocacy at the state and federal level, the D istrict hasachieved a ten-fold increase in grant funding for a sum total of $ 1 10 million per year,leaving a shortfall of nea rly $90 million per year. As can b e seen in Table 2, anadditional 1 million peo ple in the S an Joaquin Valley can breathe healthy air with a well-funded incentive program.

~ -1 Population in Attainment in 2015 2 million 1 1.4million 1Table 2: Benefit of lncentives on Attainmentwith Federal 8-Hour Ozone Standard

I Population in Attainment in 2020 1 3.6million I 2.6 million II With Incentives I Without Incentives 1

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SJVUAPCD Governing BoardCONSIDER ALTERNATIVES FO R THE EQUITABLE APPLICATION OF MANDATE D FEDERALNONATTAINME NT PENALTIES TO SOURC ES WITHIN THE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VE HICLE FEESOctober27, 2070

District staff is sugge sting that the Board consider the following options in se lecting theappropriate amount for the m agnitude of the motor vehicle fees:1. $24 per year per motor vehicle, or2. $12 per year p er motor vehicle with a phased-in increase of an additional $6 in 2013,and an additional $6 in 2015, for a m aximum of $24 p er year, or3. $10 per year per mo tor vehicle.A $10 m otor vehicle fee will generate approx imately $28 m illion dollars per year whichwill be sufficient to meet the S ection 185 mand ates. The following factors should alsobe considered in selecting the am ount and the tirr~in gor m otor vehicle fees:

Incentive-based programs expedite reductions and improve pu blic health whileoffering financial assistance to the regulated comm unityCost of reductions is increasing with time- "lower han ging ,fruitv ed uctions already con sume d- Funding eligibility reduce d in the future due to existing and future stateand local regulationsFunds generated locally can be offered as a m atch for add itional state andfederal fundingGene ral public p articipation (fair share respon sibility)Public's acceptability and ability to absorb fee given the current econom icdistress

The Valley ha s seen stationary source businesse s reduce their emissions by 80% overthe past several decades. This ha s significantly reduced the numb er of days duringwhich the Valley exceeds the I-ho ur ozone standard, as shown in the Table 3 below.Unfortunately, the V alley is still triggering S ection 185 penalty fees due to exceedancesof the standard this year. Mobile sources now make up over 80% of ozone-formingemissions, and are the primary reason for ozone exceedances in the Valley. Comm utetraffic before and after school, for example, pose an ong oing challenge in eliminatingexceedan ces of the standard.

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SJVUAPCD Governing BoardCONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OF MANDA TED FEDERALNONATTA INMENT PENALTIES TO SOURCES WITHIN THE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VEHICLE FEESOctober2 1. 2010

Table 3: Vallev I Hour O zone Exceedances1 Year I Exceedances I

In response to ca lls for added flexibility by the District and other agenc ies, EPA issuednational guidance in Ja nuary 20 10 providing for alternative approaches to sa tisfySection 185 requireme nts. The guidance includes several different alternativeapproaches that could utilize new funding to avoid the imposition of straight pen alties onValley businesses, as follows:

2010

Fee-Equivalent Alternative Program: Program that raises at least as much revenueas the otherwise required Section 1 85 penalties if the proceeds are spent to pay foremissions reductions in the same geograph ic area subject to the section 185program.

7

Emissions-Equivalent Alternative Programs: Program that achieves a t least as m uchadditional emissions red uctions as the amount of em issions aga inst which feeswould b e assessed eac h year und er the Section 185 penalty program (i.e., actualemissions in excess of 80 percent of the baseline emissions).

*Most violations attributed to w ild fires

Com bination of the Above Options: Program that comb ines features of the above-mentioned alternatives. Under this option, a part of the reductions that arenecessary to show equivalence com e from program compon ents that directlyachieve the estimated reductions, and the remainder could com e from imposition offees on a set of sources identified in the alternate program.

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SJVUAPCD Governing BoardCONSIDER ALTERNATIVES FO R TH E EQUITABLE APPLICATION OF MANDATED FEDER ALNONATTAINMENT PENALTIES TO SOURCES WITHIN THE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VEHICLE FEESOctober 21, 2010

PROGRAM FOR EXPEDI'TWRE OF REVENUES:Revenu es generated shall be reinvested in the Valley to reduce mo bile sourceemissions as provided under California Health and Safety Code S ections 44223 and44225. Utilizing the District's highly successful grant administration program, the fundsgenerated here will b e awarded to Valley b usinesses, residents, and m unicipalities togenerate real and q uantifiable reductions in emissions.The District has ne arly 20 years of experience implemen ting highly successful voluntaryincentive programs. To date, the District has awarded over $300 m illion in funds,achieving more than 80,000 tons of em ission reductions through a va riety of incentiveprograms aimed at reducing em issions primarily from mobile sources, but also othersources, such as fireplaces and residential lawn equipment.The District's incentive program has gained a reputation for excellence and serves as amodel for grant programs throughout the State. The D istrict has been acknowledgedthrough a numbe r of recent audits conduc ted by the C alifornia Air Resources B oard, theDepartment of Finance, the Bureau of State Audits and the Sierra N evada Air QualityGroup (funded by the W illiam and Flora Hewlett Foundation) as operating with a highdegree of accountability, efficiency and the ability to do mo re with less. These auditsare a reflection of the com mitment by your B oard to aggressively pursue and com petefor available incentive funds and a llocate the necessary resources to effectivelyadminister these important programs.

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SJVUAPCD G overning BoardCONSIDER ALTERNATIVES F OR THE EQUITABLE APPLICATION OF MAND ATED FEDERALNONATTAINMENT PENALTIES TO SOURCES WITHIN THE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VEH ICLE FEESOctober 21, 2010The following is a list of prog ram areas that will be eligible for grants under the m otorvehicle fee revenues generated here:Table 4: Progra m Areas fo r lncent ive Fund ing

Van PoolsPub lic Trans it Incentive

Annua l Funding Need$150 rn illion$100 m illion$40 million

ProgramABC

$0.5 million$0.5 millionPark & Ride LotsTraffic Signal Synch ronizationClean A lternative Fuel InfrastructureElectron ic mob ility systems (i.e. online services)Bicycle InfrastructureCitylcounty assistance to devise and implementSustainable Comm unity S trategies to reduceVehicle Miles TraveledGross Polluting Vehicles

Q I Ag Irrigation Pum p $5 million

DescriptionTruck ReplacementSchool Bus ReplacementMass Transit

$1.5 rr~ illion$12 m illion$8 million$3 million$0.5 m illion

$15 million$6million

Inland Ports (Truck-to-Rail)Short Sea Shipping (Truck-to-Ship)Construction Equipm ent ReplacementAg O ff-Road Equipment Replacement

I R I Forklifts I $1 rnillion

$12.5 million$2.5 million$4 million

$30 million

Portable Off-Road EnginesLocomotives

X ( School Boilers $1 million

$5 m illion$10 millionUV

W

Specific funding designations and allocations will be m ade, on an annual basis, by theDistrict Governing Boa rd through the District's public budget developm ent and adoptionprocess.

Clean Lawn EquipmentFireplace Change OutResidential Furnace$1 million$0.5 million$0.5 million

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SJVUAPCD Governing BoardCONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OF MAND ATED FEDERALNONATTAINMENT PEN ALTIES TO SOURCES WITHIN THE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VEHICLE FEESOctober 21, 2010

EXPENDITLIRE IN ENVIRONMENTAL JUSTICE AREAS:

The California H&SC includes a specific requirement that $10 million of funds collectedunder the increased motor vehicle fees be used to mitigate the impact of air pollution indisproportionately impacted neighborhoods, commor~lyeferred to as "environmentaljustice" comm unities. Th e D istrict has an excellent track record of distributing themajority of its funds to thes e areas, and fully expects to meet this requireme nt.Additionally, the legislation also requires that the District "convene an environmentaljustice advisoty com mittee, selected from a list given to the boa rd by environmentaljustice groups from the San Joaquin Valley, to recommend the neighbo rhoods in thedistrict that constitute environmen tal ustice communities, and how to expend fundswithin these comm unities." In 2007, the District formed th e Environm ental JusticeAdvisory G roup (EJA G), comprised of mem bers from the environmental justicecom mu r~ity. EJA G ha s been consulted on the potential of increase d motor vehicle feesand their advisory role in the process, and would be utilized by the District to satisfy theadvisory requirements in the legislation.

PROCESS AND LEGAL REQUIREMENTS:California H&SC Sections 40610 through 40613 provide the authority for the DistrictBoard to increase motor vehicle su rcharge fees, and lay out sp ecific requirements forsuch an increase to take effect. The requirements include (see attached legislation fordetailed requirements):

Majority vote of the G overning B oard and a majority vote of the elected me mbers ofthe Board.Adoption of a resolution providing for both the fee increase and a correspondingprogram for expenditure of the m oneys raised by the increased fees for thereduction of mobile source em issions.ARB ma ke the following findings:The District has undertaken all feasible measures to reduce nonattainment airpollutants from sources w ithin the District's jurisdiction and regulatory control.The District has notified ARB that fees have been ad opted pursuan t to thissection and provided ARB with an estimate of the total funds that will beprovided annually b y each of those fees.Collection of the new fees nine months after ARB'S findings, above.Assessmen t by ARB of the D istrict's progress in using the n ew fees to a chieve andmaintain state and federal ambient air quality standards every two years that the feeis assessed, and sub rr~itta l f these assessments to the Legislature within two weeksof their completion.

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SJVUAPCD Governing BoardCONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OF MANDATED FEDERALNONATTAINMENT PENALTIES T O SOURCES WITHIN THE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VEHICLE FEESOctober 2 1, 20 10Fees may be collected between fiscal years 2009-10 and 2023-24. If approved by yourBoard, the District estimates that the process for increasing motor vehicle fees wouldtake approximately 12 months before new fees are ultimately received by the District,with fees being received no sooner than fiscal year 201 1-12.

FISCAL IMPACT:No new motor vehicle fees are anticipated in the 201 0-2011 fiscal year. Given theprerequisite process outlined under AB 2522 and the DMV's administrative process, adelay of approximately 9 months is expected before any new motor vehicle fees arecollected and submitted to the District.No new staffing is proposed at this time for the administration of new grants with therevenues generated under Section 185 or from new motor vehicle fees. To minimizeadministrative costs, the District will utilize and leverage existing grant programs for theexpenditure of new revenues. With this approach, it is anticipated that the bulk ofadditional administrative work can be absorbed by the existing staff. Additional staffing,if needed, will be subject to Board approval in future budgeting actions.

Attachments:A) Resolution to lncrease Motor Vehicle Fees by $24, 5 pagesB) Resolution to lncrease Motor Vehicle Fees by $12, with additional $6 increases in 2013 and201 5, 5 pagesC) Resolution to lncrease Motor Vehicle Fees by $1 0, 5 pagesD) Assembly Bill No. 2522, 3 pagesE) EPA's January 5 2010 mem o, "Guidance on Developing Fee Programs Required by CleanAir Act Section 18 5 for the 1-hour Ozone NAAQ S", 17 pagesF) Suppo rt Letter from California Partnership for the San Joaquin Valley, Februaty 18, 20 10, 2pagesG) Support Letter from S an Joaquin Business Council, October 12, 2010, 2 pages

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San Joaquin Valley Unified Air Pollution Control DistrictMeeting of the Governing BoardOctober 21,2010

CONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OFMANDATED FEDER AL NONATTAINMENT PENALTIES TO SOURCESWITHIN THE SAN JOAQ UIN VALLEY THROUGH THE USE OF MOTORVEHICLE FEES

Attachment A:RESOLUTION TO INCREASE MOTOR VEHICLE FEES BY $24(5 PAGES)

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E. G EmS B U R G

CA 93726-0244

BEFORE THE GOVERNING BOARD OF THESAN JOAQUIN VALLEY UNIFIEDAIR POLLUTION CONTROL DISTRICTIN THE MATTER OF CONSIDER RESOLU'TION N,O.ALTERNATIVES FOR THE EQUITABLEAPPLICATION OF FEDERAL NONATTAIN-MENT PENAL1-IESTO SOURCES WITHINTHE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VEHICLE FEES

WHEREAS, The San Joaquin Valley Unified Air Pollution Control District(District) is a duly constituted unified district, as provided in California Health and SafetyCode sections 401 50 to 401 61 and

1 1 WHEREAS, said District is authorized by California Health and Safety Code1 1 section 40702 to make and enforce all necessary and proper orders, rules andI( egulations to accomplish the purpose of Division 26 of the Health and Safety Code.1 1 and; and1 1 WHEREAS, Federal law under Section 185 of the federal Clean Air Act1 1 mandates that the District adopt a rule to impose nonattainment penalty fees on theI(Valleyls stationary sources due to failure to reach attainment of the now-revoked

federal one-hour ozone standard; andWHEREAS, under Section 185 of the Clean Air Act, Valley businesses that are1 1 major sources of NOx or VOC emissions will be subject to a total of approximately1 1 $29 million per year in nonattainrnent penalty fees; and) I WHEREAS, the imposition of $29 million per year fee on Valley businesses can) Ihave a devastating economic impact on Valley residents and businesses; andI WHEREAS, a January 2010 guidance by the federal Environmental Protection( 1 ~ ~ e n c ~rovides alternatives for meeting Section 185 mandates by assessing all or1 1 part of the nonattainment penalty fees to mobile sources; and1 1 WHEREAS, more than 80 percent of the Valley's NOx emissions, the leading1 1 contributor to Valley's ozone and particulate exceedances, come from mobile sources

outside of the District's regulatory jurisdiction; and1

ATTACHMENTA - RESOLUTION

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GEIlYSBURG

CA 937264264

WHEREAS, Valley stationary sources are already subject to some of the moststringent air pollution regulations in the nation and, therefore, imposition of Section185 nonattainment penalties to stationary sources will not have the intended effect ofcompelling further reductions of emissions from stationary sources; andWHEREAS, Assembly Bill 2522 (Arambula) added Chapter 5.8 (commencingwith Section 40610) to Part 3 of Division 26 of the Health and Safety Code, authorizingthe District to increase the motor vehicle fee specified in Sections 44223 and 44225 ofthe Health and Safety Code by an amount up to twenty-four dollars ($24) per motorvehicle per year to provide funding for air pollution control programs needed to achieveand maintain state and federal ambient air quality standards; and

WHEREAS, section 9250.17 of the California Vehicle Code authorizes theDepartment of Motor Vehicles to collect fees requested by the District Board pursuant toHealth and Safety Code Sections 44223 and 44225; and

WHEREAS, said fees are in addition to any other fees imposed by the Districtand may be charged in any of fiscal years 2009-10 to 2023-24, inclusive, and as of thatdate are repealed unless a later enacted statute, that is enacted prior to 2023-24,deletes or extends the date; andWHEREAS, the San Joaquin Valley Air Pollution Control District has beendesignated as extreme nonattair~rnent or ozone by the United States EnvironmentalProtection Agency; and

NOW, THEREFORE, IT IS RESOLVED THAT, to minimize the economic impactto Valley residents and businesses, and to more equitably distribute responsibility forDzone violations, the Governing Board of the San Joaquin Valley Unified Air PollutionControl District, hereby: levies an additional twenty four dollar ($24) fee on all motorilehicles subject to registration fees in the counties of Fresno, Kings, Madera, Merced,San Joaquin, Stanislaus and Tulare and the San Joaquin Valley portion of Kern inaccordance with Chapter 5.8 (commencing with Section 40610) to Part 3 of Division 263f the Health and Safety Code; requests that the California Air Resources Board make

ATTACHMENT- RESOLUTION

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GETNS~URGCA 93726-0244

required findings under California Health and Safety Code Section 40612; and requeststhat the California Department of Motor Vehicles collect the fee in accordance withSection 9250.17 of the Vehicle Code.

BE IT FURTHER RESOLVED THAT at least ten million dollars ($10,000,000) ofsaid fees shall be used to mitigate the impacts of air pollution on public health and theenvironment on disproportionately impacted environmental justice communities in theSan Joaquin Valley.

BE IT FURTHER RESOLVED THAT the District Governing Board shall convenean environmental justice advisory committee, selected from a list given to the DistrictGoverning Board by environmental justice groups from the San Joaquin Valley, torecommend the neighborhoods in the District that constitute environmental justicecommunities, and how to expend funds in these communities.

BE IT FURTHER RESOLVED THAT the fees adopted PI-~rsuanto thissection, shall become effective after the California Air Resources Board makes thefollowing findings: A) the District has undertaken all feasible measures to reducenonattainment air pollutants from sources within the District's jurisdiction andregulatory control; and 6) he District has notified the California Air ResourcesBoard that the fees have been adopted pursuant to this section and has providedthe California Air Resources Board with an estimate of the total funds that will beprovided annually by each of those fees.

BE IT FURTHER RESOLVED THAT said fees shall cease to be levied uponexpiration or revocation of the Section 185 nonattainment penalties, or June 30,2024, whichever is earlier.

BE IT FURTHER RESOLVED THAT the District shall pursue federallegislative changes to repeal Section 185 of the federal Clean Air Act or eliminateinequities in the fee by providing an exernption from the fee for well-controlledstationary sources.'11

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Gl3 lYSBURG

CA 93726-0244

BE IT FURTHER RESOLVED 'THAT Pursuant to Chapter 5.8 (commencingwith Section 40610) to Part 3 of Division 26 of the Health and Safety Code the feesshall be collected beginning nine months after the above requirements are met.

BE IT FURTHER RESOLVED THAT the San Joaquin Valley Unified AirPollution Control District shall utilize its Emission Reduction Incentive Program touse the above fees in accordance with Chapter 5.8 (commencing with Section40610) of Part 3, and Chapter 7 (commencing with Section 44220) of Part 5 ofDivision 26 of the Health and Safety Code to achieve attainment with state andfederal ambient air quality standards by the earliest practicable date.IllIllIllIllIllI l lI l lI l l111/I1111111'I1'11'I1'I1'I1YY l

ATTACHMENT - RESOLUTION

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G ~ B U R G

CA 93726-0244

THE FOREGOING was passed and adopted by the following majority vote of theGoverning Board and majority vote of the elected officials of the Governing Board of theSAN JOAQUIN VALLEY UNIFIED AIR POLLUI-ION CONTROL DISTRICT this 21stday of October, 2010, to wit:

AYES:

NOES:

ABSENT:SAN JOAQUIN VALLEY UNIFIEDAIR POLLUTION CONTROL DISTRICTBY

Tony Barba, ChairGoverning Board4TTEST:Jerk to the Governing Board3~

Michelle Franco

ATTACHMENT - RESOLUTION

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San Joaq uin Valley U nified Air Pollution Control DistrictMeeting of the Governing Board' October21, 2010

CONSIDER ALTERNA TIVES FOR THE EQUITABLE APPLICATION OFMANDATED FEDERAL NO NATTAINMENT PENALTIES TO SOURCESWITHIN THE SAN JO AQUIN VALLEY THROUGH THE USE OF MOTORVEHICLE FEES

Attachment B:RESOLUTION TO INCREASE MOTOR VEHICLE FEES BY $12, WITH ADDITIONAL$6 INCREASES IN 2013 AND 2015(5 PAGES)

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BEFORE THE GOVERNING BOARD OF THESAN JOAQUIN VALLEY UNIFIEDAIR POLLUTION CONTROL DISTRICTIN THE MATTER OF CONSIDER RESOLUTION NO.ALTERNATIVES FOR THE EQUITABLE

I APPLICATION OF FEDERAL NONATTAIN-MENT PENALTIES TO SOURCES WITHINTHE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VEHICLE FEES

WHEREAS, The San Joaquin Valley Unified Air Pollution Control District(District) is a duly constituted unified district, as provided in Califor~iiaHealth and SafetyCode sections 40150 to 40161 and

WHEREAS, said District is authorized by California Health and Safety Codesection 40702 to make and enforce all necessary .and proper orders, rules andregulations to accomplish the purpose of Division 26 of the Health and Safety Code,and; and

WHEREAS, Federal law under Section 185 of the federal Clean Air Actmandates that the District adopt a rule to impose nonattainment penalty fees on theValley's stationary sources due to failure to reach attainment of the now-revokedfederal one-hour ozone standard; andWHEREAS, under Section 185 of the Clean Air Act, Valley businesses that aremajor sources of NOx or VOC emissions will be subject to a total of approximately$29 million per year in nonattainment penalty fees; and

WHEREAS, the imposition of $29 million per year fee on Valley businesses canhave a devastating economic impact on Valley residents and businesses; and

WHEREAS, a January 2010 guidance by the federal Environmental ProtectionAgency provides alternatives for meeting Section 185 mandates by assessing all orpart of the nonattainment penalty fees to mobile sources; and

WHEREAS, more than 80 percent of ,the Valley's NOx emissions, the leadingcorltributor to Valley's ozone and particulate exceedances, come from mobile sourcesoutside of the District's regulatory urisdiction; and

E. GRP I SBURG

CA 937264244

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GETTYSBURG

CA 937260244

WHEREAS, Valley stationary sources are already subject to some of the moststringent air pollution regulations in the nation and, therefore, imposition of Section185 nonattainment penalties to stationary sources will not have the intended effect ofcompelling further reductions of emissions from stationary sources; and

WHEREAS, Assembly Bill 2522 (Arambula) added Chapter 5.8 (commencingwith Section 40610) to Part 3 of Division 26 of the Health and Safety Code, authorizingthe District to increase the motor vehicle fee specified in Sections 44223 and 44225 ofthe Health and Safety Code by an amount up to twenty-four dollars ($24) per motorvehicle per year to provide funding for air pollution control programs needed to achieveand maintain state and federal ambient air quality standards; and

WHEREAS, section 9250.17 of the California Vehicle Code authorizes theDepartment of Motor Vehicles to collect fees requested by the District Board pursuant toHealth and Safety Code Sections 44223 and 44225; and

WHEREAS, said fees are in addition to any other fees imposed by the Districtand may be charged in any of fiscal years 2009-10 to 2023-24, inclusive, and as of that;late are repealed unless a later enacted statute, that is enacted prior to 2023-24,jeletes or extends the date; and

WHEREAS, the San Joaquin Valley Air Pollution Control District has beenjesignated as extreme nonattainment for ozone by the United States Environmental'rotection Agency: and

NOW, THEREFORE, IT IS RESOLVED THAT, to minimize the economic impacto Valley residents and businesses, and to more equitably distribute responsibility for)zone violations, the Governing Board of the San Joaquin Valley Unified Air Pollution2ontrol District hereby: levies an additional twelve dollar ($12) fee on all motor vehicles;ubject to registration fees in the counties of Fresno, Kings, Madera, Merced, SanJoaquin, Stanislaus and Tulare and the San Joaquin Valley portion of Kern iniccordance with Chapter 5.8 (commencing with Section 40610) to Part 3 of Division 26)f the Health and Safety Code; requests that the California Air Resources Board make

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GE~TVSBURG

CA 93726-0244

required findings under California Health and Safety Code Section 40612; and requeststhat the California Department of Motor Vehicles collect the fee in accordance withSection 9250.17 of the Vehicle Code.

BE IT FURTHER RESOLVED THAT, beginning on January 1, 2013, theGoverning Board of the San Joaquin Valley Unified Air Pollution Control District herebylevies an additional six dollar ($6) fee on motor vehicles subject to registration fees inthe counties of Fresno, Kings, Madera, Merced, San Joaquin, Stanislaus and Tulareand the San Joaquin Valley portion of Kern in accordance with Chapter 5.8:commencing with Section 40610) to Part 3 of Division 26 of the Health and SafetyCode and requests that the California Department of Motor Vehicles collect the fee inaccordance with Section 9250.17 of the Vehicle Code.

BE IT FURTHER RESOLVED 'THAT, beginning on January 1, 2015, theSoverning Board of the San Joaquin Valley Unified Air Pollution Control District herebyevies an additional six dollar ($6) fee for a maximum increase of twenty-four dollars;$24) on all motor vehicles subject to registration fees in the counties of Fresno, Kings,Vladera, Merced, San Joaquin, Stanislaus and Tulare and the San Joaquin Valley)ortion of Kern in accordance with Chapter 5.8 (commencing with Section 40610) toDart 3 of Division 26 of the Health and Safety Code and requests that the Californialepartment of Motor Vehicles collect the fee in accordance with Section 9250.17 of theJehicle Code.

BE IT FURTHER RESOLVED THAT at least ten million dollars ($10,000,000) of;aid fees shall be used to mitigate the impacts of air pollution on public health and theznvironment on disproportionately impacted environmental justice communities in the;an Joaquin Valley.

BE IT FURTHER RESOLVED THAT the District Governing Board shall conveneIn environmental justice advisory committee, selected from a list given to the DistrictSoverning Board by environmental ustice groups from the San Joaquin Valley, toI!

3AITACHMENT - RESOLUTION

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GEllYSBURG

CA 93726-0244

recommend the neighborhoods in the District that constitute environmental justicecommunities, and how to expend funds in these communities.

BE IT FURTHER RESOLVED 'THAT the fees adopted pursuant to thissection, shall become effective after the Califorrria Air Resources Board makes thefollowing findings: A) the District has undertaken all feasible measures to reducenonattainment air pollutants from sources within the District's jurisdiction andregulatory control; and B) the District has notified the California Air ResourcesBoard that the fees have been adopted pursuant to this section and has provided:he California Air Resources Board with an estimate of the total funds that will be~rovided nnually by each of those fees.

BE IT FURTHER RESOLVED THAT said fees shall cease to be levied upon3xpiration or revocation of the Section 185 nonattainment penalties, or June 30,2024, whichever is earlier.

BE IT FURTHER RESOLVED THAT the District shall pursue federalegislative changes to repeal Section 185 of the federal Clean Air Act or eliminatenequities in the fee by providing an exemption from the fee for well-controlled;tationary sources.

BE IT FURTHER RESOLVED THAT Pursuant to Chapter 5.8 (commencingvith Section 40610) to Part 3 of Division 26 of the Health and Safety Code the fees;hall be collected beginning nine months after the above requirements are met.

BE IT FLIRTHER RESOLVED THAT the San Joaquin Valley Unified Air>ollution Control District shall utilize its Emission Reduction Incentive Program torse the above fees in accordance with Chapter 5.8 (commencing with Section10610) of Part 3, and Chapter 7 (commencing with Section 44220) of Part 5 ofIivision 26 of the Health and Safety Code to achieve attainment with state andederal ambient air quality standards by the earliest practicable date.'I

ATTACHMENT B - RESOLUTION

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GETWSBURG

CA 93726-0144

THE FOREGOING was passed and adopted by the following majority vote of theGoverning Board and majority vote of the elected officials of the Governing Board of theSAN JOAQUIN VALLEY UNIFIED AIR POLLUI-ION CONTROL DISTRICT this 21stday of October, 2010, to wit:

AYES:

NOES:

ABSENT:

SAN JOAQUIN VALLEY UNIFIEDAIR POLLU-TION CONTROL DISTRICT

Tony Barba, ChairGoverning BoardATTEST:Clerk to the Governing BoardBY

Michelle Franco

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San Joaquin Valley Unified Air Pollution Control DistrictMeeting of the Governing BoardOctober 21,201 0

CONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OFMANDATED FEDERAL NONATTAINMENT PENALTIES TO SOURCESWITHIN THE SAN JOAQUIN VALLEY 'THROUGH THE USE OF MOTORVEHICLE FEES

Attachment C:RESOLUTION TO INCREASE MOTOR VEHICLE FEES BY $10

I5 PAGES)

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BEFORE THE GOVERNING BOARD OF THESAN JOAQUIN VALLEY UNIFIEDAIR POLLUTION CONTROL DISTRICT3 IN THE MATTEROFCONSIDERI ALTERNATIVES FOR THE EQUITABLE RESOLUTION NO.

1 1 WHEREAS, The San Joaquin Valley Unified Air Pollution Control District45

1 1 (District) is a duly constituted unified district, as provided in California Health and SafetyAPPLICATION OF FEDERAL NONATTAIN-MENT PENALTIES TO SOURCES WITHINTHE SAN JOAQUIN VALLEY THROUGH THEUSE OF MOTOR VEHICLE FEES

Code sections 40150 to 40161; andI I10 1 1 WHEREAS, said District is authorized by California Health and Safety Code11 ( 1 section 40702 to make and enforce all necessary and proper orders, rules andl2 1 regulations to accomplish the purpose of Division 26 of the Health and Safety Code,13 ( 1 and; andl41 WHEREAS, Federal law under Section 185 of the federal Clean Air Act15 1 1 mandates that the District adopt a rule to impose nonattainment penalty fees on thel6 Valley's stationary sources due to failure to reach attainment of the now-revokedI Il7 federal one-hour ozone standard; andI18 1 1 WHEREAS, under Section 185 of the Clean Air A& Valley businesses that arel9(rnajor sources of NOx or VOC emissions will be subject to a total of approximately20 $29 million per year in nonattainment penalty fees; andI21 1 1 WHEREAS, the imposition of $29 million per year fee on Valley businesses can

' 22 1 1 have a devastating economic impact on Valley residents and businesses; and23 1 1 WHEREAS, a January 2010 guidance by the federal Environmental Protection24 ( 1 Agency provides alternatives for meeting Section 185 mandates by assessing all or25 1 1 part of the nonattainment penalty fees to mobile sources; and26 1 1 WHEREAS, more than 80 percent of the Valley's NOx emissions, the leading27 1 1 contributor to Valley's ozone and particulate exceedances, come from mobile sources28 11 outside of the District's regulatory jurisdiction; and

L GElTYSBURG I

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GET'NSBURG

CA 93726-0244

WHEREAS, Valley stationary sources are already subject to some of the moststringent air pollution regulations in the nation and, therefore, imposition of Section185 nonattainment penalties to stationary sources will not have the intended effect ofcompelling further reductions of emissions from stationary sources; and

WHEREAS, Asserr~blyBill 2522 (Arambula) added Chapter 5.8 (commencingwith Section 40610) to Part 3 of Division 26 of the Health and Safety Code, authorizingthe District to increase the motor vehicle fee specified in Sections 44223 and 44225 ofthe Health and Safety Code by an amount up to twenty-four dollars ($24) per motorilehicle per year to provide funding for air pollution control programs needed to achieveand maintain state and federal ambient air quality standards; and

WHEREAS, section 9250.17 of the California Vehicle Code authorizes the3epartment of Motor Vehicles to collect fees requested by the District Board pursuant toieal th and Safety Code Sections 44223 and 44225; and

WHEREAS, said fees are in addition to any other fees imposed by the Districtand may be charged in any of fiscal years 2009-10 to 2023-24,' inclusive, and as of thatjate are repealed unless a later enacted statute, that is enacted prior to 2023-24,jeletes or extends the date; and

WHEREAS, the San Joaquin Valley Air Pollution Control District has beenlesignated as extreme nonattainment for ozone by the United States EnvironmentalDrotection Agency; and

NOW, THEREFORE, IT IS RESOLVED 'THAT, to minimize the economic impacto Valley residents and businesses, and to more equitably distribute responsibility for)zone violations, the Governing Board of the San Joaquin Valley Unified Air Pollution:ontrol District hereby: levies an additional ten dollar ($10) fee on all motor vehiclesiubject to registration fees in the counties of Fresno, Kings, Madera, Merced, Sanloaquin, Stanislaus and Tulare and the San Joaquin Valley portion of Kern in~ccordancewith Chapter 5.8 (commencing with Section 40610) to Part 3 of Division 26,f the Health and Safety Code; requests that the California Air Resources Board make

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G-BURG

CA 93726-0244

required findings under California Health and Safety Code Section 40612; and requeststhat the California Department of Motor Vehicles collect the fee in accordance withSection 9250.17 of the Vehicle Code.

BE IT FURTHER RESOLVED THAT at least ten million dollars ($10,000,000) ofsaid fees shall be used to mitigate the impacts of air pollution on public health and theenvironment on disproportionately impacted environmental justice communities in theSan Joaquin Valley.

BE IT FURTHER RESOLVED THAT the District Governing Board shall convenean environmental justice advisory committee, selected from a list given to the DistrictGoverning Board by enviror~mentalustice groups from the San Joaquin Valley, torecommend the neighborhoods in the District that constitute environmental justicecommunities, and how to expend funds in these communities.

BE IT FURTHER RESOLVED THAT the fees adopted pursuant to thissection, shall become effective after the California Air Resources Board makes thefollowing findings: A) the District has undertaken all feasible measures to reducenonattair~ment air pollutants from sources within the District's jurisdiction andregulatory control; and 6) the District has notified the California Air ResourcesBoard that the fees have been adopted pursuant to this section and has providedthe California Air Resources Board with an estimate of the total funds that will beprovided annually by each of those fees.

BE IT FURTHER RESOLVED THAT said fees shall cease to be levied uponexpiration or revocation of the Section 185 nonattainment penalties, or June 30,2024, whichever is earlier.

BE IT FURTHER RESOLVED THAT the District shall pursue federallegislative changes to repeal Section 185 of the federal Clean Air Act or eliminatenequities in the fee by providing an exemption from the fee for well-controlledstationary sources.'I1

A ~ A C HM E N T- RESOLUTION

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GmYSBURG

CA,93726-0244

BE IT FURTHER RESOLVED THAT Pursuant to Chapter 5.8 (commencingwith Section 40610) to Part 3 of Division 26 of the Health and Safety Code the feesshall be collected beginning nine months after the above requirements are met.

BE IT FURTHER RESOLVED THAT the San Joaquin Valley Unified AirPollution Control District shall utilize its Emission Reduction Incentive Program touse the above fees in accordance with Chapter 5.8 (commencing with Section40610) of Part 3, and Chapter 7 (commencing with Section 44220) of Part 5 ofDivision 26 of the Health and Safety Code to achieve attainment with state andfederal ambient air quality standards by the earliest practicable date./I/IllIll111111Ill111111111Ill

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RG

CA 9 3 7 2 6 - 0 2 4 4

THE FOREGOING was passed and adopted by the following majority vote of theGoverning Board and majority vote of the elected officials of the Governing Board of theSAN JOAQUIN VALLEY UNIFIED AIR POLLU-I-ION CONTROL DISTRICT this 21stday of October, 2010, to wit:

AYES:

NOES:

ABSENT:SAN JOAQUIN VALLEY UNIFIEDAIR POLLU'I'ION CONTROL DISTRICTBY

Tony Barba, ChairGoverning Board

ATTEST:Clerk to the Governing Board

BY Michelle Franco

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San Joaquin Valley Un ified Air Pollution Con trol DistrictMeeting of the G overning BoardOctober 21,20 10

CONSIDER ALTERNATIVES FOR THE EQU ITABLE APPLICATION OFMANDATED FEDERAL NONATTAINMENT PENALTIES TO SOURCESWITHIN THE SAN JOA QUIN VALLEY THROUG H THE USE OF MOTORVEHICLE FEES

Attachment D:ASSEMBLY BILL NO. 2522(3 PAGES)

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Assembly Bill No. 2522CHAPTER 677

An ac t to add Chapter 5.8 (comme ncing with Section 4061 0) to Part 3 ofDivision 26 of the Health a nd Sa fety Cod e, relating to air quality.[Approved by Governor September 30,2 008. Filed with

Secretary of State Scptcrnbcr 30, 2008.1L E G I S L A T I V E COUNSEL'S D I G E S T

AB 2522, Arambula. San Joaquin Valley Unified Air Pollution ControlDistrict.Existing law authorizes air pollution control districts and air qualitymana gemen t districts, except as prov ided, to levy a fee of up to $2 on motorvehicles, and au thorizes the districts to increase this fee to up to $ 6 if certainconditions are met.This bill would authorize the San Joaquin Valley Unified Air PollutionControl District to increase this fee to up to, but not exceeding, $30 forincentive-based programs to achieve surplus emissions reductions, asspecified. The bill would require the state board to assess the use of thesefees in achieving and maintaining state and federal ambient air qualitystandards.The bill would authorize the San Joaquin Valley district to adopt rulesand regulations to reduce v ehicle trips in orde r to reduce air pollution fromvehicular sources.

The people of [he Stale of C ul ~o rn ia o enactm ollows:SECTION 1 . Chapter 5.8 (com mencing with Section 40610) is addedto Part 3 of Division 26 of the Health and Safety Code, to read:

40610. The Legislature finds and declares as follows:(a) Residents of the San Joaquin Valley suffer some of the worst airquality in the world. This poo r air q uality poses a significant threat to publichealth, the environm ent, and the ec onom y of the valley.(b) The extreme difficulty for the valley to meet state and federal ambientair quality standards requires an urgent and unified program that combine smor e strict clean air rules and regulations and ongoing fu nding to clean upthose sources that canno t be regulated effectively.

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Ch. 67 7 - 2 -

(c) The purpose of this chapter is to establish a program for the SanJoaquin Valley to achieve state and federal ambient air quality standardsby the earliest practicable date.406 12. (a) In orde r to provide fund ing for air pollution control programsneeded to achieve and maintain state and federal air quality, the district maydo both of the following:(1) Notwithstanding the limits on the amount of the motor vehicle fees~e c i f i e dn Sections 442 23 and 44225. increase the fee established eursuanttb these sections to up to, but not exceeding , thirty dollars ($30) pkr motorvehicle per year for the purposes of establishing and implementingincentive-based program s to achieve su rplus emissions reductions that thedistrict determines are needed to remediate air pollution harms created bymotor vehicles on which the fee is imposed and that are intended to achieveand maintain state and federal ambien t air quality standards required by thefederal Clean Air Act (42 U.S.C. Sec. 7401 et seq .). Except for the amoun tof the fee, any increase shall be subject to Chapter 7 (commencing withSection 44220) of Part 5, including, but not limited to, the adoption of aresolution providing for both the fe e increase and a corresponding programfor expenditure of the moneys raised by the increased fees for the reductionof mobile source emissions.(2) N otwithstanding Section 40 7 17.9, adopt rules and regulations toreduce vehicle trips in order to redu ce air pollution from vehicular sources.(b) Fees adopted pursuant to this section are in addition to any other feesimposed by the d istrict, and m ay be charged in an y of fiscal years 2009-10to 2023-24, inclusive. Fees may be assesse d after the 2012-13 fiscal yearonly if the United States Environmental Protection Agency approves thedistrict's proposed reclassification of its nonattainment status for ozonefrom severe to extreme. The fees adoeted pursuant to this section are for.the district portion of the total am ount needed to achieve and m aintain stateand federal ambient air quality standards. At least ten million dollars($10,000,000) shall be u sed to m itigate the impacts of air pollution on publichealth and the environment in disproportionately impacted environmentaljustice communities in the San Joaquin Valley. The district board shallconvene an environmental justice adv isory com mittee, selected from a listgiven to the board by en vironm ental justice groups from the San JoaquinValley, to recommend the neighborhoods in the district that constituteenvironmental justice co mm unities, and how to expend funds within these. .communities.(c) (1) The fees adopted pursuant to this section shall become effectiveafter the state board mak es both o f the following findings:(A) The district has undertaken all feasible measures to reducenonattainment air pollutants from sources within the district's jurisdictionand regulatory control.(B) The district has notified the st ate board that fees have been adop tedpursuant to this section and p rovided the state board with an estimate of thetotal funds that will be prov ided an nually by each o f those fees.

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- 3 - Ch . 67 7(2 ) The state board shall file a written c opy of its findings made pursuantto this subdivision with the Secretary of State within two days of itsdetermination.(3 ) The fees adopted pursuant to this section shall be collected ninemonths after the requirements of paragraph (2 ) are met.40613. The state board shall assess the district's progress in using anyfees assessed pursuant to Section 406 12 to achieve and maintain state andfederal ambient air quality standa rds every two years that the fee is assessed,and shall submit these assessments to the Legislature within two weeks oftheir completion.

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San Joaquin Valley Unified Air Pollution Control D istrictMeeting of the G overning BoardOctober 21,20 10

CONSIDER ALTERNATIVES FOR THE EQUITABLE APPLICATION OFMANDATED FEDERAL NO NATTAINMENT PENALTIES TO SOURCES

WITHIN THE SAN JOAQ UIN VALLEY THROUGH THE USE OF MOTORVEHICLE FEES

Attachment E:EPA'S JANUARY 5 2010 MEMO, "GUIDANCE ON DEVELOPING FEE PROGRAMSREQUIRED BY CLEAN AIR ACT SECTION 185 FOR THE 1-HOUR OZONE NAAQS"/ I 7 PAGES)

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Q+

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Summary of Sectioh 185 Requirements . .In the event that a nonattainmint area classified as Severe or E xtreme fails to attain theozone standard by the required d ate, section 185 of the CAA requires each major stationarysource of volatile organic com pounds (VOC) and nitrbgen ox ides located in such area to 'pay a'fee to the state for eachca lend ar ye? fo'llowing the attainment year for emissions above a . ,"baseline amount." In 199 0, the CAA set the fee as $5,000 per ton of VOC and NOx emitted bythe source'during the calendar year in excess of 80 percent' of the "bcke~ ine mount." The feemust be ad justed.for inflation based on the Consumer Price Index (CPI) on an annual basis. ,Attachment B. sets forth the fee s, as adjusted for ifi ati dn , for the years 1990-2009. . . .

The CAA prov ides that the computation of a source's "baseline amounty'must be thelower of the amount of actual or alIowab le emissions under the permit applicable to the source(or if no permit has been issued for the attainment year, the amo unt of VOC and NOx em issionsallowed under the app licable implementation plan) during the attainment year. The CAA alsoprovides that EPA may issue guidance on the calculation of the "baseline amount" as the lowerof the average actual em issions o r average allowable emissions over a period of more than oneyear in cases where a "source's emissions are irregular, cyclical o r otherw ise vary significantlyfrom year to year." According ly, on i arch21,20 08, EPA issued a memorandum entitled"Guidance on Establish ing Emissions Baselines under Section 185 of the CA A for Severe andExtreme Ozone Nonattainm ent Areas that Fail to Attain the 1 hour Ozone NAA QS by theirAttainment Date."

The CAA does not specify how statesmay spend or allocate the fees collected under asection 185 fee program . The refore, states have discretion on how to use the fees. We believethat one beneficial approach w ould be to channel the fees into inno vative programs to provideincentives for additional ozone p recursor emissions reductions from stationary or mobile sources,or for other purposes aim ed at reducing ambient ozone concentrations in the affected area.If the state fails to adopt or implement a required fee program, EPA is required to collectthe unpaid fees and may also collect interest on any unpaid fees. All revenue collected by EPAunder authority of section 185 is required to be deposited in a special fund in the United StatesTreasury for licensing and other services and may be used to fund he Agency's activities forcoIlecting such fees. See, CA A sections 185(d) and 502(b)(3)(C).

Alternatives to Section 1 85 Fee Proerams'

& a result of the 2006 court decision in South ~ o a s t ~ s t a t e sith areas classified as ...Severe or Extreme nona ttainrnent for the I-hour ozone standard at the time of the 'initialnonattaim ent designation for the.8-hour standard ar e~ ~u bj bc to the requirem ents of section 185.We believe'states can meet this obligation through a SIP revision containing either the fee .program prescribed in section 185, or an equivalent.alternative program ,,as fb th er explained

. . whil e section 185 expressly rnentidns only VOC, sectio! I82(f) extendsth e application of this provision. 'to NOx, y providing that "plan provisions required unde! [iubpartD] or major stationary sources df [VOCI-hallalso apply to major stationary sources. ..of[NOx]." , ' ' -

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below. EPA believes that an alternative program may be acceptable if it is consisten t with theprinciples of section 172(e) of the CAA,' which allows EPA thrdugh rulemaking to acceptalternative programs that are "not less .&ingent" where EPA.has revised the NAAQS to make it. . less stringent. This discre tion does not currently apply to a section 1'85 fee program obligationarising from failure to attain the 1997 8-hour ozone NAAQS by the attainmen t date associatedwith a Severe or Extterne classification for that NAAQS because, hat NAAQS has not beenrevoked.

Section 172(e) is an anti-backsliding provision of the CAA that requires EPA to developregulations to ensure that co ntrols are "not less stringent" than those that applied prior to relaxinga standard where EPA has revised a NAAQS to make it less stringen t In the implementationrule for the 1997 ozone NAAQS, E PA determined that although section 172(e) does not directlyapply where EPA has strengthened the NAAQS, as it did in 1997 , it was reasonable to apply thesame principle for the transition from the 1 hour NAAQS to the 1997 8-hour NAAQS. As partof applying the principle in section 172(e) for purposes of the transition fiom the 1-hour standardto the 1997 8-hour standard, EPA can either require states to retain programs that applied forpurposes of the 1-hour standard , or alternatively can allow s tates flexibility to adopt alternativeprograms, but only if such alternatives are "not less stringent" than the m andated program.

EPA is electing to con sider alternative programs to satisfy the section 185 fee programSIP revision requirement. The rem ainder of this memorandum describes the circumstancesunder which we believe we can app rove an alternativeprogram that is "no less stringent." Theseinterpretations will on ly be finalized through EPA actions taken under notice-and-commentd e m a k in g to address the fee program obligations associated with each applicable nonattainmentarea. If a state chooses to ado pt an aIternative program to the section 185 fee program, the statemust dem onstrate that the alternative program is no less stringent than the otherw ise applicablesection 185 fee program. If our preliminary assessment indicates that the alterna tive program isnot less stringent, we would issue a notice in the Federal Register proposing to make such adetermination at the sam e time we propose and take action on any accom panying SIP revisionpursuant to section 11O(k).EPA believes that for an area that we determine is attaining either the I -hour or 1997 8-hour ozone NAAQS, based on permanent and enforceable emiss ions reductions, the area wouldno longer be obligated to subm it a fee program SIP revision to satisfy the anti-backslidingrequirements associated with the transition from the 1-hour standard to the 1997 8-hour standard.In such cases an area's existing SIP should be considered an adequate alternative program. Ourreasoning follows from the.fact that an area's existing SIP measures, in conjunc tion with othereliforceable federa1 measures , are adequate for the area to achieve attainment, which is thepurpose of the section I85 program. The section 185 fee program is an elemen t of an area's

attainment dem onstration, and its object is to bring about attainment after a failure of an area toattain by its attainment date. Thus , areas that have attained the 1 hou r standa rd, the standard forwhich the fee program was originally required, as a result of permanent and enforceab leemissions reductions, would h ave a SIP that i s not less stringent than the SIP required undersection 185. Also, once an area attains the 1997 8-hour ozone standard, which replaced the nowrevoked I-hour s tandard , the purpo se of retaining the section 185 fee program as an anti-backsliding measure w ould also be fulfilled a s the area would have attained the 8-hour standard

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demonstration to ensure eq uivalency, the state's submission should not underestimate theexpected fees an dor emiss ions reductions fiom the section 185 fee program, nor overestimatethe expected fees andlor em issions reductions associated with the proposed alternative program.Recently, a task force com posed of members of the Clean Air Act Advisory Committee

(CAAAC) was formed to discuss alternate ideas on complying with section 1 8 5 .~ he conceptsdescribed here w ere discussed by the task force, and the CAAAC forwarded a list of potentialprogram features to EPA for review. EPA 's assessm ent of whether and how certain programfeatures identified by the CA AA C can be used in the context of satisfying the requirements ofsection 185 is included as Attachment C to this memorandum.EPA cannot conclude at this time whether specific state-developed programs relying onthese concepts or containing any of the features presented by the CAAAC would be approvablebecause such a determination would be based on the specific param eters of the program adopted.Further, any such determ ination would need to be made through notice-and-commentrulemaking. States may decide to develop unique &ternathe programs for each applicable

nonattainment area, and we will independently evaluate the app rovab ility of each alternativeprogram. To assure a valid dem onstration that an alternative is no less stringent, we'recomm endthat states work with EPA on a case-by-case basis.~d di tio na l ee-Ec~uivalentAltetnative Programs. .

We anticipate (subjec t to notice-and-comment rulemaking as noted abo ve) that we couldapprove a program that clearly raises at least as much revenue as the otherwise required section185 fee program if the proceeds a re spent to pay for emissions reductions of ozone-formingpollutants (NOx a n do r V OC) in the same geographic area subject to the section 185 program.Under this approach, the state would estimate revenues that would result under the section 185fee program if all section 185 sources paid fees for each applicable calendar year, develop analternative program that would raise at least that m uch revenue, and estab lish a process where therevenues would be used to pay for emissions reductions that will further improve ozone airquality.Under this concept, states could develop programs that shift the fee burden from thespecific set of major stationa ry sources that are otherwise required to pay fees according tosection 185, to o ther non-m ajor sou rces of emissions, including ownersloperators of mobilesources. This could allow states to recognize through reduced fees those m ajor sources ofemiss ions that have alread y installed the latest technology, and assess the remainder of th e totalrequired fees on other sou rces that are not already as well controlled. EP A recognizes thatsection 185 is not strateg ic in im posing emissions fees on 4 major stationary sources, including

already well-controlled sources that have few, if any, options for avoid ing fees by achievingadditional reductions. States canbe more stra tegic by crafting alternative programs that exemptor reduce the fee obligation on wellkontro lled sources, and assign the requ ired fees to less well-controlled sources as an incentive for those sources to further reduce emiss ions of ozone-forming, pollutants. The alternative program should not rely on emissions reduc tions already required by

' or more information on the CAAA C and the proceedings of the Task Force on section 185 fee programs,' visit the following Web site: http://www.epa.~ov/air/caaac/185.html

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the applicable SIP , since the goal is to achieve fiuther reductions to move the area expeditiouslyto attainment.Additional Em issions-E auivalen t Alternative Programs

EPA believes that as an alternative to the section 185 fee program a state could adopt aprogram that achieves at leas t as much additional emissions reductions as would be expected toresult &om the fee-m inimization incentive of the section 185 fee program. EPA believes thiswould clearly be demonstrated if the alternative program achieves emiss ions reductions eachyear that are equal to or grea ter than the amount of emissions against which fees would beassessed each year under th e sec tion 185 fee program (i.e., actual emissions in excess of 80percent of the baseline emission^).^ For purposes of estimating the emissions reductions requiredin such a program, the state would assum e that sources would redu ce their emissions to the feeapplicability threshold. This conservative approach would assure that emissions reductions fromthe alternative program are at lea st as great as reductions that m ight have occurred if the statutoryfee program resulted in all m ajor stationary sources reducing their em issions to no m ore than 80 .percent of the baseline emissions. The emissions reductions in the altern ative program couldcome from the sam e set of m ajor sources subject to section 185, or from a different set ofsources, in whole or in part, s o long as all reductions come from w ithin the nona ttaim ent areaand are equally benefic ial in reducing ozone formation. The alternative program should not relyon emissions reductions already required by the' applicab le SIP, since the goal is to achievefk th er reductions to m ove the area expeditiously to attainment.

Under this app roach, states would first calculate the em issions baseline for the majorstationary sources o f VOC and NOx in accordance with the methodology required under CAAsection 185(b)(2) and as fu rther described in the March 2 1,2 008 guidance memorandum. Oncea state calculates the baseline amount of each pollutant for each so urce affected by section 185,the amount of emission s in excess of 80 percent of the baseline would be the amount ofemissions of each pollutan t that sources within the area would need to redu ce on a calendar yearbasis in each year following the I-hour ozone attainment year until such time as the feeprogramno longer applies.I Additional Alternative Program s Com bining Emissions Reductions and Fees .

A program that combines features of an emissions-equivalent program with a fee-equivalent program could also be adopted. For example, som e portion of the emissionsreductions necessary to dem onstrate equivalence (as explained above) could be offset by feescollected.on each ton of emissions that is offset. To illustrate, assum e that 1000 tons ofemissions reductions is needed to demonstrate equivalence. The state could instead adopt aprogram that ob tains 600 tons of emissions reductions and collect fees totaling $2.0 million- (calculatedas the rem aining 400 tons times $5,000 per ton).

Aprogram that achieves less 'than this amount of emissions reductionsmay also.be approvable depending an the,case-specific circumstances.. .. . .

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..EPA AssistanceMy office is availab le to provide any additional guidance and to consult with any statethat wants to develop m alternative equivalent program to the sect ion 185 fee program. Foradditional consultation you may contact Denise Gerth, 919-541-5550.

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ATTACHMENT ATex t of CAA Section 185

SEC. 185.ENFORCEMENT FOR SEVERE AN D EXTREME OZONE NONAlTAINMENTAREAS FOR FAILURE TO ATTAIN.(a) General Rule.-' Each implemen tation plan revision required under sec tion 182 (d) and (e)(relating to the attainm ent plan for Severe and Extreme ozone nonattainment areas) shall providethat, if the area to w hich such plan revision applies has failed to attain the national primaryambient air quality standard for ozone by the applicable attainment date, each major stationarysource of VOCs located in the area sha ll, except as otherwise provided under subsection (c), paya fee to the State as a penalty for such fa ilure, computed in accordance with subsection (b), foreach calendar year beginn ing after the attainment date, until the area is redesignated as anattainment area for ozone. Each such plan revision should include procedures for assessment andcollection of such fees.(b) Com putation of Fee.-(1) Fee amount.- The fee sha ll equal $5,000, adjusted in acco rdance with paragraph (3), per

ton of VOC emitted by the source during the calendar year in excess of 80 percent of the baselineamount, computed under parag raph (2).(2) Baseline amount.- For purposes of this section, the baseline amount shall be computed,in accordance with such guidance as the Administrator may provide, as the lower of the amountof actual VOC emissio'ns ("actuals") or VOC emissions allowed under the permit applicable tothe source (or, if no such perm it has been issued for the attainment year, the amount of VOCemissions allowed under the applicab le implementation plan "allowables")) during theattainment year. Notwithstanding the preceding sentence, the Adm inistrator may issue guidanceauthorizing the baseline amount to be determined in accordance with the lower of averageactuals or average allowables, determined over a period of more than one calendar year. Suchguidance may provide that such average calculation for a specific source may be used if thatsource's emissions are irregular, cyclica l, or otherwise vary significan tly from year SO year.(3)'Amualadjustm ent.- The fee amount under paragraph (1) shall be adjusted annually,beginning in the year beginning after the year of enactment, in acco rdance with section502(b)(3)(B)(v) (relating to in flation adjustment).(c) Exception.- Notw ithstanding any provision of this section, no source shall be required to payany fee under subsection (a) w ith respect to emissions during any year tha t is treated as anExtension Year under section 18 l(a)(5).(d) Fee Collection by the Admjnistrator.- If the Administrator has found that the fee provisionsof the implementation plan do not meet the requirements of this section, or if the Administratormakes a finding that the State is not administering and enforcing the fee required under thissection, the A dministrator shall, in addition to any other action authorized under this title, collect,in accordance with procedures promulgated by the Administrator, the unpaid fees required under ,

subsection (a). If the Administrator makes such a finding under section 179(a)(4), theAdministrator may collect fees for periods before the determination, plus interest computed inaccordance with section 662l(a )(2) of the Internal Revenue Code of 1986 (relating tocomputation of interest on underpayment of Federal taxes), to the ex tent the Adm inistrator findssuch fees have not been paid to the State. The provisions of clauses (ii) through (iii) of section502(b)(3)(C) (relating to penalties and use of the funds, respectively) shall apply with respect tofees collected under this subsection.

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(e) Exemptions for Certaih Small Areas.- For areas with a total population under 200,000 whichfail to attain the standard by the applicable attainment date, no sanction under this section orunder any other provision of this Act shall apply if the area can dem onstrate, consistent withguidance issued by the A dministrator, that attainment in the area is prevented because of ozoneor ozone precursors transported from other areas. The prohibition applies only in cases in whichthe area has met a11 requirements and implemented all measures applicable to the area under thisAct. \[42U.S.C. 751 d]

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ATTACHMENT B~n fla tio n diustment for Section 185FeesSection 185 cross-references the methodology in section 502(b)(3)(B)(v) of the CAA.This method has been interpre ted for use in determining permit fees in a 1992 EPA

memorandum. (See, Mem orandum o f October 15, 1992, from Frank Bunyard, "Calculating Feesfor Operating Permits.") EPA has used this method to calculate the Part 70 permit fee rate since1990, and will continue to update the rate every year in September, when the August values areavailable. The adju sted section 185 fee, then, would be prorated to that adjusted permit fee, asshown in Table 1 below, by m ultiplying the Part 70 permit fee rate by 200 ($5000/$25). Sincesection 185 fees are assessed on a calendar year basis, and the infla tion factor is applied in~eptember;he ca lendar year fee is determined as a weighted average (8112 of the fee associatedwith January to A ugust, and 4/12 of the fee associated with September to Decem ber). T heweighted fees appear in Table 2 below. These will be updated each year in the fall.TABLE 1: SECTION 185FEE RATE BASED ON PART 70 PERMIT FEE RATE

* From www.e~a.aov/oar/o~aa~d~emits/histona~rates~html.

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TABLE.9: ANNUALIZED SECTION 185,FEERATE

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ATTACHMENT C . .Response to CAAAC Task Force Options. EPA's C lean Air A ct.Advisory Comm ittee (CAAAC) submitted a letter toE PA datedMay -15,2009, asking w hether "it is legally permissible under either sec tion 185 or 172(e) for a

state to exercise the discretion identified " in 10 bullet points listed in an attachment to the letter(see Attachment D). In general, we believe the language in section 185 is relatively clearregqrding the provisions that must comprise an approvable program and, a s indicated in thediscussion below, we do not believe that many of the flexibilities raise dby the CAAAC would,be approvable provisions of a state-adopted section 185 fee program . However, EPA believesthat an.alternative p ro g rm th a t contains some of these flexibilities may be acceptable if it isconsistent-with he principle s'of section 172(e) of the CAA, which allows EPA through . .rulemaking to accep t alternative program s that are "not less stringent" w here EPA has revisedthe NAAQS. Although the anti-backsliding provisions of section 172(e) facially apply only.' ' where EPA has revised th e NAA QS to make it less stringent, in its implem entation rulegoverning the transition fiom the 1-hour ozone standard to the m ore stringent 1997 8-hourstandard, EPA conclu ded that it made sense to rely ,on he govern ing principles in section 172(e).Applying this pIinciple for the transition from the I&ur standa rd to the 1997 8-hour ozonestandard, EPA can either require states to retain a specific program that applied for purposes of . .the 1-hour standa rd, or alternatively can allow states, lexibility to adopt alternative programs, butonly if such alternatives are "not less stringent" than the mandated prog ram. EPA has not yetconcluded whether to a pply the principles of section 172(e) to any future transitions from the1997 ozone NAAQS to any new or revised ozone NAAQS.

Consistent with the preceding distinction between a sec tion I 85 fee program and analternative program th at is "not less stringent," we address each of the 10 points separatelybelow.Point A asks whether a state may "authorize m ulti-facility operators to aggrega tcemissions from comm only-ow ned and -operated facilities within a sing le nonattainment area forthe purpose of calcu lating the fee." We have defined "major sta tionary sources" in many ,contexts and have inte rpreted tha t definition in certain circumstances to allow for aggregation ofsources. We anticipate that w e would be able to approve a section 185 fee program SIP thatrelies on a definition of "major stationary source" that is consistent with the CAA as interpretedin our exjsting regulations and policies.Point B asks whether a state "may permit major sources to'aggregate their VOC and NOxemissions on a site-wide basis in calcula ting the fee" and includes a description of certainlimitations that would be assumed for such aggregation. Provided that agg regation is not used toavoid a "major source" applicability finding, and aggregation is consis tent with the attainmentdemonstration (e.g., if the area has received a NOx waiver under sec tion 182(f), then NOxreductions cannot be substituted for VOC reductions), we believe states have discretion to allowa major source to aggregate VOC and NOx emissions.Points C and D conce rn whether sta tes may allow a discount for certain "pre-attainmentyear or attainment year" controls. We do not believe that section 185 allows for any suc h. . .

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consideration. The statutory language is clear that the baseline emissions are the lower of theactual emissions or em issions allowed under the applicable permit during the attainment year orallowed under the S IP during the attainment year where there is no such permit. The onlyexception to this calcu lation for baseIine em issions is where a so urce's emiss ion are "irregular,cyclical or otherw ise vary sign ificantly from year to year." EPA has previously issued guidanceaddressing this ex ception . Altho ugh consideration of these controls is not consistent with theexpress terms of section 185, states may be able to develop a "no less stringent" progr'vnconsistent with the principles in section 172(e), taking into consideration such pre-attainmentcontrols. See discussion of point I below.

Point E asks whether the purchase of emissionneduction credits, or allowances, that arepart of an area's attainment control measures "may reduce the amount of emissions upon whichthe fee is based o r constitute an nvestment that should be credited against the fee." In thecontext of calculating both the attainment-year baseline emissions and the post-attainment yearemissions, section 185 requires such emissions be the lower of actual or allowable emissions.We believe aIlowable emissions can include em ission reduction credits or emissions allowancesheld by a source subject to fees. Whether holding the emissions allowances will affect a source'sfee obligation depends on the amount that is determined to be the low er of actuaI or allowableemissions for that source . If states wish to provide some other form of credit for sources thatpurchase market-based control m easures, they may be able to do so in the context of a programthat is no less stringent than a sec tion 185 program consistent with the p rinciple in section172(e). See discussion of point I below.

Point F asks w hether sources may receive credit for post-attainment year emissionsreductions or air qu dity investm ents. The Act is clear that post-attainment year emissionreductions will be credited to the extent that they reduce emission levels from the baseline year.For example, if a sou rce has 1000 tons of emissions in the attainment "baseline" year, the CAArequires that source to pay fees on any em issions in excess of 800 tons (80 percent of baseline) ineach post-attainment year. If the source is able to reduce post-attainment year emissions from1000 tons to 900 tons, then the source will pay fees on only 100 tons of em issions . With regardto crediting emission-reducing or air-quality investments, we note that section 185 does notspecify how co llected fees must be spent. In general, we believe that a state may choose to usecollected fees to support air quality improvem ent projects at sources. How ever, we caution thatany such provisions sho uld not b e developed in a way such that the p rovision s would appear todefeat the purpose of section 185, which is to encourage emission reductions that will bring thearea into attainment with the ozone NAAQS in the near-term.

Point G asks wh ether post-attainment year new sources must be su bject to the fees. Webelieve it is clear that the fee imposed is on major sources. Thus, to the ex tent a "new source" isconsidered a part of a m ajor source that existed in the attainment year, the emiss ions from thenew source must be considered as emissions from that major source. For new m ajor sources thatare not part of existing major sources, we believe section 185 does not provide a clearinterpretation of the source's fee obligation. Therefore, we believe states have discretion in .determining how fees apply to these sources. States should consider that section 185 requires"each major stationary source" to pay a fee; however, the baseline amount fo r sources that didnot have a permit in the attainm ent year is calculated according to what the SIP "allowed" during

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the attainment yeat. Therefore, states should examine how the applicable SIP addressedemissions fiom potential ne w m ajor sources in the attainment year. For exam ple, a state coulddetermine that the SIP's new source review (NSR) requirements would provide that a new sourceemploy emissions control that meets the requirements of "lowest achievable em issions rate"(LAER). Therefore, the attainment-year baseline for a new source is the leve l allowable afterapplication of LAER. Alternatively , a state could determine the SIP 's NSR requirements wouldprovide that a new source 's net emiss ions impact be no greater than zero (i.e.;emissions levelsafter application of LAER must be offse t at a ratio of at least 1 to 1). Therefore the attainment-year baseline for a new source is zero, subjecting the entire,amount of a source's post-attainmentyear emissions to the per-ton em issions fee. Also, states may be able to develop "not lessstringent" programs consistent w ith the principles in section 172(e), that exem pt new majorsources from fees, provided the alte rnative programs meet the 172(e) standa rd of equivalence.See discussion of point I below.

With regard to Point H, which references state discretion rqgarding the.us e of collected' - fees, we p oint to our.response a bove for Point F.

Point I a sks w hether section 172(e) authorizes a state to de velop an alterna tive program to .that mandated under section 185. As an initial matter, we note that sec tion 172(e) does notdirectly apply here, wh ere w e are transitioning from the 1-hour ozone standard to the morestringent 1997 8-hour standard. However, in developing our anti-backsIiding rules i n he Phase 1Rule f