Report 2006-115 Summary - June 2007

The Carl Moyer Memorial Air Quality Standards Attainment Program:

Improved Practices in Applicant Selection, Contracting, and Marketing Could Lead to More Cost-Effective Emission Reductions and Enhanced Operations

HIGHLIGHTS

Our review of the Carl Moyer Memorial Air Quality Standards Attainment Program (Moyer Program) revealed the following:

  • California law impedes emission reductions by allowing the State Air Resources Board (state board) to set aside only 10 percent of Moyer Program funds for projects that operate in more than one local air district.
  • The methodology the state board used to select projects for the multidistrict component undervalues the cost per ton of intended emission reductions.
  • For fiscal year 2003-04, 14 of the 16 projects the Bay Area Air Quality Management District designated as matching projects exceeded the Moyer Program's ceiling for cost per ton of intended emission reductions.
  • The South Coast Air Quality Management District did not spend $24.1 million in Moyer Program funds within the required two years and the state board is monitoring the district to ensure these funds are spent by July 1, 2007.
  • We identified several best practices that, among other things, can help local air districts select projects with lower costs per ton of intended emission reductions.

RESULTS IN BRIEF

The Carl Moyer Memorial Air Quality Standards Attainment Program (Moyer Program) is an incentive program offered by the State Air Resources Board (state board) in conjunction with participating air pollution control districts and air quality management districts (collectively, local air districts). The Moyer Program provides funds to help private companies, public agencies, and individuals undertake projects to retrofit, repower, or replace existing engines to reduce pollution emissions beyond what is required by law or regulations. A local air district can fund a project that provides cost-effective emission reductions. Emission reductions are considered cost-effective when the cost to reduce 1 ton of emissions is at or below the cost ceiling imposed by the state board.

Some policies and practices of the state board and the four local air districts we visited resulted in projects funded by the Moyer Program not maximizing emission reductions; that is, the projects did not achieve the same emission reductions for a lower cost or more emission reductions for the same cost. California law impedes emission reductions by allowing the state board to set aside only 10 percent of Moyer Program funds for projects that operate in more than one district. A higher cap could lead to emission reductions with lower costs per ton. For example, if the cap for multidistrict projects were increased to 15 percent for funds appropriated in fiscal year 2004-05, the state board could have selected three additional projects with intended emission reductions costing an average of $2,600 per ton. Shifting this funding would have reduced the money available to local air districts, thus preventing the four districts we visited from selecting 13 projects. However, the average cost of the intended emission reductions from those projects was nearly $11,000 per ton, clearly not as good a value as the multidistrict projects.

Further, three of the six categories the state board uses to assign points when scoring applications for multidistrict projects are neither required nor encouraged by state law. Of the 100 possible points, these three categories accounted for 35 and 55 points, respectively, in the two fiscal years we reviewed. An applicant who received no points for any one of the three categories likely had limited ability to compete with other applicants under consideration. As a result, the state board selected some projects with higher costs per ton of intended emission reductions than it would have if the point values for the three optional categories were lower.

Also, we believe the changes the state board made to its method of selecting multidistrict projects for Moyer Program funds for fiscal year 2006-07 still place too much weight on factors not required or encouraged by law. Our modeling shows that had the state board placed less weight on these optional factors, it could have achieved 298 more tons of emission reductions and reduced the average cost per ton for those emission reductions by more than half, from $3,247 to $1,555, based on fiscal year 2005-06 project data.

State law requires local air districts to provide their own funds to match Moyer Program funds provided by the state board. Further, projects funded with these matching funds must meet all Moyer Program criteria. Our review revealed that projects funded by one local air district did not meet the Moyer Program requirements for cost per ton of intended emission reductions. As allowed by state law, the Bay Area Air Quality Management District (Bay Area air district) designated 16 projects funded by other programs it administered as matching projects for the Moyer Program for fiscal year 2003-04. However, 14 of the 16 projects it identified exceeded the state board's cost ceiling of $13,600 per ton, and therefore did not meet the fund-matching requirement of the Moyer Program. The Bay Area air district knew the costs per ton for the projects it selected for matching exceeded the cost ceiling. Instead of selecting other eligible projects, the district attempted to make the 14 projects qualify as match under the Moyer Program by counting only a portion of the projects' total costs when it calculated the projects' costs per ton. Specifically, the district counted as the matching fund portion for the Moyer Program only $740,000 of the $2.5 million it awarded to these 14 projects. This approach is contrary to state law and Moyer Program guidelines because the district did not include all funds under its budgetary control when it calculated the costs per ton of intended emission reductions.

Local air districts use various methods to market the Moyer Program, such as brochures, mailing lists, Web pages, and workshops, but they do not adequately evaluate their efforts to determine whether they are reaching the business sectors that might be able to provide more cost-effective emission reductions. The districts rely primarily on one measure—whether they receive enough applications to distribute all Moyer Program funds—to evaluate their marketing efforts. Thus, they cannot ensure that their marketing efforts are resulting in applications that help maximize cost-effective emission reductions.

Our review revealed several best practices that can help local air districts select projects with lower costs per ton of intended emission reductions, reduce workload, or allow more time for projects to reach completion. For example, two districts used measures of pollution or the effects of pollution in their methods for identifying communities that were disproportionately impacted by pollution. Other best practices relate to selecting and contracting for projects.

We also identified three concerns with the administration of the Moyer Program at the state board and the local air districts. First, as of December 2006 the South Coast Air Quality Management District (South Coast air district) had $24.1 million in Moyer Program funds it had not spent within the two-year time frame established by law. Unspent Moyer Program allocations are a strong indicator that intended emission reductions likely are not occurring. When allocating its fiscal year 2004-05 Moyer Program funds, the South Coast air district selected projects intended to reduce 1 ton of emissions for every $4,256 it spent, on average. Had the South Coast air district spent the $24.1 million on similarly cost-effective projects by the statutory deadline of June 30, 2006, 5,600 tons of pollutants would have been removed.

The South Coast air district cited differences in definition as its reason for not spending all the funds. State law requires that Moyer Program funds be "expended" within two years of allocation to the local air districts; funds not expended are to revert to the state board. The state board and the Department of Finance (Finance) define expended to mean "spent." The South Coast air district, however, interpreted expended to mean "obligated"; under its interpretation the $24.1 million was expended. We agree with the state board and Finance that the appropriate definition of expended is "spent." The state board noted that it has the district's assurance that it will fully expend all applicable Moyer Program funds by July 1, 2007. The state board is monitoring the district to ensure that this happens.

Our second concern with administration of the Moyer Program is that the timing requirements for conducting preinspections—inspecting the engine to be retrofit, repowered, or replaced to ensure that it is still operational—are overly restrictive. The Moyer Program guidelines generally require local air districts to perform preinspections after the districts have awarded funds but before they execute the related contracts. One district chose not to follow this requirement because delaying the execution of the contract would have delayed project implementation. The state board stated that it is considering whether to change this requirement for the next version of the Moyer Program guidelines.

Finally, the state board may not be performing on-site audits of local air districts with sufficient frequency. It conducted four on-site audits in 2006 and plans to complete four more in 2007. If it maintains the rate of four audits per year, the state board will audit districts participating in the Moyer Program, on average, once every seven years. Audits released in 2006 demonstrate that some local air districts improperly administer the Moyer Program. More frequent audits would address identified problems earlier.

RECOMMENDATIONS

To maximize the use of Moyer Program funds, the state board should do the following:

  • Seek legislation to revise state law to increase the 10 percent maximum proportion it can allocate for multidistrict projects. If the state board opts not to seek this revision, the Legislature may wish to consider it.
  • When evaluating applications for multidistrict projects, assign more points to categories that help the state board achieve the lowest cost per ton of emission reductions.

To maximize the use of Moyer Program funds, local air districts should do the following:

  • Include all funds under their budgetary control as part of the calculations when determining the cost per ton of a project's intended emission reductions. Further, districts should develop and implement policies and procedures that enable them to meet the requirements in the Moyer Program guidelines regarding matching funds.
  • Develop and implement techniques to measure the effectiveness of their marketing methods, including targeting business sectors that could generate projects with the lowest cost per ton of emission reductions and assessing the results.

To improve their administration of the Moyer Program, local air districts should consider implementing the best practices we identify in this report.

The South Coast air district should ensure that by July 1, 2007, it spends Moyer Program funds that are beyond the two-year availability period as required by law and as interpreted by the state board and Finance.

To help ensure that the South Coast air district spends Moyer Program allocations that are beyond the two-year limit, the state board should continue monitoring the district's efforts and take appropriate action should its efforts falter. If the South Coast air district does not spend the funds by July 1, 2007, the state board should initiate appropriate administrative action, up to or including recovering all remaining unspent funds.

To help streamline the process for performing preinspections, the state board should revise its requirement that local air districts must perform preinspections before executing contracts.

To ensure that local air districts administer the Moyer Program according to state law and Moyer Program guidelines, the state board should ensure that it audits a sufficient number of districts each year.

AGENCY COMMENTS

The state board generally agreed with our recommendations and indicated it is taking steps to implement them. Although they generally agreed with our recommendations, the Bay Area air district provided more recent information on its program staffing, and the San Joaquin Valley air district raised a concern about a best practice we identified. The Sacramento Metropolitan and the South Coast air districts expressed concerns with our conclusions regarding increasing the cap for the multidistrict component and marketing. Also, the South Coast air district objected to our conclusions regarding its unexpended Moyer Program funds.


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