Legislative Committee Rejects Latest Effort to Seek Documentation

(August 31, 2009) A legislative committee last week rejected a California Chamber of Commerce-supported request to audit the California Air Resources Board (ARB) and the cost to implement AB 32, the climate change emissions reduction law enacted in 2006.

The cost is of interest to businesses because AB 32 permits the ARB to charge the regulated community administrative fees based on what it spends to implement the bill.

Senator Bob Dutton (R-Rancho Cucamonga) took to the Joint Legislative Audit Committee, of which he is a member, the request to have the Bureau of State Audits examine the methods the ARB is using to identify and allocate AB 32 implementation costs. The committee rejected the request, however.

How Was the Money Spent?

The California Legislature appropriated approximately $57 million to the ARB in the 2007–08 and 2008–09 fiscal years to implement AB 32.

Since January 2009, in connection with developing the AB 32 administrative fee, ARB has reported that it has spent the entire allocation.

ARB staff members expressed surprise when several potential fee payers requested informally that ARB publicly explain how the funding had been spent.

Subsequently, the ARB refused to comply with a CalChamber-initiated request under the California Public Records Act to release records explaining how the $57 million in special funds to implement AB 32 was spent.

After being sued under the Public Records Act, the ARB finally released some documents, but has continued to withhold nearly 50,000 pages of records.

Support Lacking

The records ARB has released to date fail to provide any substantiation for more than $24.5 million (43 percent) of the $57 million in claimed expenditures to implement AB 32 for the two years in question. Some examples outlined in a letter to the Joint Legislative Audit Committee from the CalChamber and other business groups in support of the AB 32 audit include:

• ARB claims a cumulative 306.67 person years (PYs) for work on AB 32 programs for the 2007–08 and 2008–09 fiscal years. But the records released by ARB account for only 122.76 PYs (40 percent) for the two years. Supporting data on 60 percent of the claimed PYs is missing.
• More than $11.6 million of operating costs claimed by ARB over the 2007–08 and 2008–09 fiscal years are not substantiated by records released thus far.
• ARB reports equipment expenses of more than $1.8 million for the 2008–09 fiscal year. Accounting records, however, substantiate only $63,955 in expenses that are attributed to equipment. Although ARB e-mails assert that staff has “back-up” for the $1.8 million, the ARB has not released any such records.
• ARB reports that its contract expenses for the 2008–09 fiscal year were $5.9 million, but released accounting records indicating a little more than $1.8 million was spent on contracts in the first seven months of that fiscal year, leaving $4.1 million unaccounted for in just the last year.

Deficient Accounting

The letter also points out that although the ARB has claimed since January that it has spent the entire $57 million of special funds on AB 32 implementation, the ARB staff apparently did not begin to collect information to support that claim until April.

Moreover, the ARB appears to have employed informal or even haphazard methods to account for ongoing AB 32 implementation costs.

For example, an April 30 internal e-mail to ARB division chiefs shows that of $700,000 budgeted for AB 32 equipment purchases for the 2007–08 fiscal year, ARB had accounted for only $43,415. This is less than 10 percent of the budgeted amount, 10 months after the end of the fiscal year in which it was spent.

Need for Audit

The CalChamber will continue to seek a public accounting of how the ARB has spent the AB 32 implementation funds.

The facts outlined in the letter demonstrate that an audit is necessary if the Legislature and the public are to have a reasonable accounting of how the ARB has spent the $57 million in special funds the Legislature appropriated to it. An audit is necessary to identify the actual use of the funds in question, and provide credibility for any fee intended to repay those funds.

Most important, an audit is critical to establishing accountability, transparency and credibility as ARB continues its effort to design and implement a complex, multibillion-dollar, greenhouse gas derivatives trading market that will involve credit exchanges for offsets and emissions allowances issued by other states, the federal government and foreign governments.

An audit of the administrative fee will help the ARB develop sound practices to justify and manage the much larger revenues and costs that will be covered by such a cap-and-trade program.

Key Vote

The ARB audit request failed on a 6-6 vote August 19 of the Joint Legislative Audit Committee:

Ayes: Assemblymembers DeVore (R-Irvine), Garrick (R-Carlsbad), Hagman (R-Chino Hills); Senators Ashburn (R-Bakersfield), Dutton (R-Rancho Cucamonga), Padilla (D-Pacoima).

Noes: Assemblymembers Huber (D-El Dorado Hills), Chesbro (D-Arcata), Coto (D-San Jose), Monning (D-Monterey); Senators Wiggins (D-Santa Rosa), Wolk (D-Davis).

Not voting: Senators Cogdill (R-Modesto) and Ducheny (D-San Diego).

Staff Contact: Robert Callahan