Division of Air Quality Water and Air Quality Account Continuation Review

Transcription

1 MEMORANDUM TO: FROM: SUBJECT: FISCAL RESEARCH DIVISION Mollie Young, Director of Legislative Affairs Division of Air Quality Water and Air Quality Account Continuation Review DATE: April 1, 2016 Pursuant to Session Law , section 6.20.(d) State departments and agencies identified in subsection (b) of this section shall submit a report of the preliminary findings of the continuation review to the Fiscal Research Division no later than December 1, 2015, and shall submit a final report to the Fiscal Research Division no later than April 1, The attached document satisfies this reporting requirement. If you have any questions or need additional information, please contact me by phone at or via at Mollie.Young@ncdenr.gov. cc: John Evans, Chief Deputy Secretary, DEQ Tom Reeder, Assistant Secretary for Environment, DEQ Sheila Holman, Director of Water Resources, DEQ

2 NC DEPARTMENT OF ENVIRONMENTAL QUALITY - DIVISION OF AIR QUALITY CONTINUATION REVIEW FOR THE WATER AND AIR QUALITY ACCOUNT ABSTRACT The North Carolina Division of Air Quality works with the state's citizens to protect and improve outdoor, or ambient, air quality in North Carolina for the health, benefit and economic well-being of all. To carry out this mission, the DAQ operates a statewide air quality monitoring network to measure the level of pollutants in the outdoor air, develops and implements plans to meet air quality standards, assures compliance with air quality rules, and educates, informs and assists the public with regard to air quality issues. Final Report - April 1, 2016

3 Pursuant to Session Law , Section 6.20, the North Carolina Department of Environmental Quality respectfully submits its continuation review of the Division of Air Quality Water and Air Quality Account to the Fiscal Research Division, Senate Appropriations/Base Budget Committee and the House of Representatives Appropriations Committee. p. 1

4 Contents Executive Summary 3 1. A description of the fund, agency, division, or program mission, goals, and objectives, including statutorily required functions and functions performed without specific statutory authority The performance measures for the fund, agency, division, or program and the problem or need addressed The extent to which the fund, agency, division, or program objectives and performance measures have been achieved A detailed accounting of all sources of funds for the fund, agency, division, or program Recommendations for statutory, budgetary, or administrative changes needed to improve efficiency and effectiveness of services delivered to the public, including recommendations regarding whether to transfer the program to the Division of Motor Vehicles or to elsewhere in the Department of Transportation The consequences of discontinuing funding or of continuing funding with a source other than a transfer from the Highway Fund Recommendations for improving services or reducing costs or duplication The identification of policy issues that should be brought to the attention of the General Assembly Other information necessary to fully support the General Assembly's Continuation Review Program along with any information included in instructions from the Fiscal Research Division p. 2

5 Executive Summary The Division of Air Quality Water and Air Quality Account established in G.S A(a) is credited a portion of the state motor fuel tax revenue as G.S , G.S , and G.S Allocating a portion of this revenue stream to administer the air quality program was originally established in S.L in G.S , and then moved in S.L to G.S It established that the account shall receive 5/16 of the ½ cent per gallon motor fuel excise tax. This motor fuel tax allocation was established based on the 1992 recommendations of the N.C. Clean Air Act Advisory Council (established by Section 12 of S.L ) to implement the State s air quality programs as required by the 1990 Federal Clean Air Act amendments. The action was based on the desire to establish an equitable cost distribution to the sources of air pollution (both stationary and mobile sources) based on their relative contribution to total emission levels. Since the mobile sources represent a significant portion of NC s air pollution, businesses and industries required to obtain stationary source air permits supported the allocation of a portion of the fuel tax to the DAQ. Many things have changed since the evaluation of the Clean Air Act Advisory Council in the early 1990 s. The federal regulatory framework for protecting air quality has expanded significantly since the 1990 Federal Clean Air Act amendments. Also, several state initiatives (Clean Smokestacks Act, S.L ; and Clean Air Bill, S.L ) have been very successful in reducing emissions to bring North Carolina into compliance with all federal health based standards as of September Additionally, North Carolina s population has increased significantly over this time period. Despite all of the changes, the logic and desire to establish an equitable cost distribution to the sources of air pollution remain today. To illustrate the relative contribution of different emission source sectors to NC s air quality issues, you need to look no further than what has historically been North Carolina s most widespread air quality problem - ozone. Ozone is a highly reactive form of oxygen that is unhealthy to breathe and damages trees and crops. It forms when other air pollutants, primarily nitrogen oxides or NOx, react in the air during hot, sunny weather. Currently, the largest contributor to NOx emissions in NC is the mobile source sector. The combination of on-road, 55% (e.g. cars, trucks, buses, etc.), and non-road, 17% (e.g. construction equipment, lawn mowers, tractors) mobile sources contribute approximately 72 percent of the state s NOx emissions. The current contributions of the mobile sector to NOx emissions are greater now than they were during the time (1993) when the motor fuel tax allocation was established to administer the air quality program. At that time, the combination of on-road and non-road p. 3

6 mobile sources contributed approximately 54 percent of the state s NOx emissions, versus the 72 percent contribution currently. In State Fiscal Year (SFY) , the motor fuel tax revenues represented 33 percent of DAQ s revenues. Since the statute allows the funds to be used to administer the air quality program, it is DAQ s most flexible revenue source. These revenues support FTEs (or 37 percent of all DAQ FTEs) as of 10/1/15, including administrative FTEs across the Division and 64.9 program level FTEs. For SFY , almost 95 percent of the fuel tax revenues is budgeted for salary and fringe benefits for the staff supported by these revenues. Importantly, the motor fuel tax revenues provide DAQ with the ability to meet its 40% match and Maintenance of Effort (MOE) requirements of the federal Clean Air Act Section 105 grant. The amount of the Section 105 grant in SFY is approximately $1,800,000. If the revenue is eliminated and not replaced with similar funding, the Division will need to reduce the staffing by the FTE. This would have significant impacts on DAQ s ability to carry out the air quality program and continue to achieve the statutory program requirements. The impacts would span much of the air quality program from monitoring, planning, permitting/compliance to administration. Since a significant portion of minor (non-title V) facility compliance assurance activities are covered by the fuel tax revenues, compliance issues could result from a lack of resources to inspect and assist regulated facilities with understanding complex air quality regulations. It is unclear how EPA would responds to such a reduction. Section 110(a)(2)(E) of the CAA says state s plans shall provide necessary assurances [for] adequate personnel, funding, and authority under State law to carry out such implementation plan. If EPA determines that DAQ does not have such adequate resources, then EPA could partially or completely disapprove state air quality plans. That could lead to Federal Implementation Plans (FIPs) and/or discretionary sanctions or mandatory sanctions. EPA can temporarily freeze or withhold highway money in either type of sanction. Additionally, a finding of inadequate resources could jeopardize DAQ s approved permitting program status with EPA. Alternatively, the DAQ would need to increase permit fees from the non-title V facilities to replace the fuel tax revenue. The non-title V fees represent about 5% of the DAQ revenues in SFY Finally, it should be noted that the 2015 Appropriations Act (S.L ) capped the fuel tax funding to the Division in SFY at $7,299,805. That amount is approximately $1,000,000 (12 percent) lower than the expected revenue that would have been provided by applying the statutory formula (5/16 of the ½ cent per gallon motor fuel excise tax). The DAQ recommends continuing the fuel tax funding to the Division at the SFY fixed level of $7,299,805, or defining an alternative equivalent funding source in order to have an adequate air quality program in North Carolina. The current SFY funding level represents a value 12 percent below the expected revenue that would be provided by the statutory formula. p. 4

7 Overview 1. A description of the fund, agency, division, or program mission, goals, and objectives, including statutorily required functions and functions performed without specific statutory authority. Mission The Division of Air Quality (DAQ) works with the state's citizens to protect and improve outdoor, or ambient, air quality in North Carolina for the health, benefit and economic well-being of all. To carry out this mission, the DAQ operates a statewide air quality monitoring network to measure the level of pollutants in the outdoor air, develops and implements plans to meet future air quality initiatives, assures compliance with air quality rules, and educates, informs and assists the public with regard to air quality issues. The DAQ, which is part of the N.C. Department of Environmental Quality (DEQ), also enforces state and federal air pollution regulations. In North Carolina, the General Assembly enacts state air pollution laws, and the Environmental Management Commission adopts most rules dealing with air quality. In addition, the U.S. Environmental Protection Agency (EPA) has designated the DAQ as the lead agency for enforcing federal laws and regulations dealing with air pollution in North Carolina. DAQ s Priorities Operate an air quality monitoring network to measure the level of pollutants in the outdoor air. Develop and implement plans to meet current and future air quality standards. Assure compliance with air quality rules through inspections, assistance, education, outreach, and by consistently developing clear and enforceable permits. Strive for organizational effectiveness. Our vision is to have a program that: Has a motivated staff that shares a common vision of providing clean air for all of the citizens of North Carolina Is highly effective; achieves its goals expeditiously Is highly efficient; provides maximum product for minimum cost Creates a place where staff wants to make a career-long commitment by rewarding high achievers and offers cross-training or rotational experiences that support employee education and career growth opportunities p. 5

8 Fosters the development of strong managers who have the respect and support of staff Statutory authority: Clean Air Act; G.S. Chapter 143, Articles 21 and 21B. Background on Fuel Tax The Division of Air Quality Water and Air Quality Account established in G.S A(a) is credited a portion of the state motor fuel tax revenue as G.S , G.S , and G.S Allocating a portion of this revenue stream to administer the air quality program was originally established in S.L in G.S , and then moved in S.L to G.S It established that the account shall receive 5/16 of the ½ cent per gallon motor fuel excise tax. This motor fuel tax allocation was established based on the 1992 recommendations of the N.C. Clean Air Act Advisory Council (established by Section 12 of S.L ) to implement the State s air quality programs as required by the 1990 Federal Clean Air Act amendments. The action was based on the desire to establish an equitable cost distribution to the sources of air pollution (both stationary and mobile sources) based on their relative contribution to total emission levels. Since the mobile sources represent a significant portion of NC s air pollution, businesses and industries required to obtain stationary source air permits supported the allocation of a portion of the fuel tax to the DAQ. The recommendations from the N.C. Clean Air Act Advisory Council and the department resulted in a distribution of 10 percent of the state motor fuel tax revenue to the three local air pollution control agencies. That distribution continues today for the administration of the local air quality programs in Buncombe, Forsyth and Mecklenburg counties. Many things have changed since the evaluation of the Clean Air Act Advisory Council in the early 1990 s. The federal regulatory framework for protecting air quality has expanded significantly since the 1990 Federal Clean Air Act amendments. Also, several state initiatives (Clean Smokestacks Act, S.L ; and Clean Air Bill, S.L ) have been very successful in reducing emissions to bring North Carolina into compliance with all federal health based standards as of September Additionally, North Carolina s population has increased significantly over this time period. Despite all of the changes, the logic and desire to establish an equitable cost distribution to the sources of air pollution remain today. To illustrate the relative contribution of different emission source sectors to NC s air quality issues, you need to look no further than what has historically been North Carolina s most widespread air quality problem - ozone. Ozone is a highly reactive form of oxygen that is unhealthy to breathe and damages trees and crops. It forms when other air pollutants, primarily p. 6

9 nitrogen oxides or NOx, react in the air during hot, sunny weather. Currently, the largest contributor to NOx emissions in NC is the mobile source sector (Figure 1). The combination of on-road, 55% (e.g. cars, trucks, buses, etc.), and non-road, 17% (e.g. construction equipment, lawn mowers, tractors) mobile sources contribute approximately 72 percent of the state s NOx emissions. The current contributions of the mobile sector to NOx emissions are greater now than they were during the time (1993) when the motor fuel tax allocation was established to administer the air quality program. At that time, the combination of on-road and non-road mobile sources contributed approximately 54 percent of the state s NOx emissions, versus the 72 percent contribution currently. Figure 1. North Carolina NOx Emissions by Source Sector Power Generation 12% NOx Emissions by Source Category Other Point 11% Area 4% Fires 1% Nonroad Vehicles 17% Onroad Vehicles 55% The fuel tax revenues received by DAQ increased for several years in the 1990 s as NC s population grew at a rate greater than the penetration of more fuel efficient vehicles into the fleet. In recent years, as the population growth has continued, revenues have leveled off because of lower consumption due to a slower economy, greater number of fuel efficient vehicles and higher fuel prices. In State Fiscal Year , the motor fuel tax revenues represented 33 percent of DAQ s revenues. Since the statute allows the funds to be used to administer the air quality program, it is DAQ s most flexible revenue source. These revenues support FTEs (or 37 p. 7

10 percent of all DAQ FTEs) as of 10/1/15, including administrative FTEs across the Division and 64.9 program level FTEs. Importantly, the motor fuel tax revenues provide DAQ with the ability to meet its 40% match and Maintenance of Effort (MOE) requirements of the federal Clean Air Act Section 105 grant. The MOE requirements indicate that in order to receive funds under Section 105 of the Clean Air Act, the DAQ must expend annually, an amount of nonfederal funds at least equal to the preceding year. While the DAQ is working to reset the MOE amount in SFY , the motor fuel tax revenues will remain a critical part of meeting the match and MOE requirements of the federal Clean Air Act Section 105 grant. Finally, it should be noted that the 2015 Appropriations Act (S.L ) capped the fuel tax funding to the Division in SFY at $7,299,805. That amount is approximately $1,000,000 (12 percent) lower than the expected revenue that would have been provided by applying the statutory formula (5/16 of the ½ cent per gallon motor fuel excise tax). Performance Measures 2. The performance measures for the fund, agency, division, or program and the problem or need addressed. Since the statute allows the motor fuel tax revenues to be used to administer the air quality program, it is DAQ s most flexible revenue source. Therefore, the services covered by the funding include portions of all DAQ program areas noted in Table 1 below. Table 1. Services covered by motor fuel tax revenues Services for the fund Administration - Provide leadership to plan, manage, and perform administrative functions for division. Ambient Monitoring - Monitor the air quality of the state by maintaining a network of sampling devices and preparing the collected air quality data so it is accessible to users. Planning - Perform planning and modeling to meet Clean Air Act standards. FTEs p. 8

11 Permitting and Compliance - Assure compliance (including permitting) with air quality rules for non-title V stationary air emissions sources Totals Administration Management, Supervision and Leadership A significant portion of DAQ s leadership and management team is partially funded with the motor fuel tax revenues. The leadership team is focused on carrying out DAQ s mission, including Clean Air Act and statutory requirements, in the most efficient and effective way. In doing so, a strong performance management program is key. DAQ has that in the new Value in Performance (VIP) system. In fact, the DEQ was the first Department in state government to pilot test and implement the new VIP system. The team also works to create a workplace where staff wants to make a career-long commitment by recognizing and rewarding high achievers and offering cross-training or career development rotational experiences. Annual training priorities are identified and scheduled for staff. Career development rotational opportunities are offered where participants gain more diversified experience, develop and practice new skills, while gaining a better appreciation for the challenges of other parts of the organization. The rotation in this context means that one will essentially perform someone else s job. The rotations can be full immersion type arrangements for six months. Other opportunities are offered that are shorter in length, such as multi-week job shadowing or crosstraining. There are many logistical considerations when making these rotations a reality, such as back-filling positions, existing staffing levels, existing projects, and not compromising our ability to meet quality and timeliness objectives. Thus, the DAQ leadership team must use excellent judgement when determining whether to accommodate rotational requests. Administration Recent Reorganization and Consolidation of Programs The DAQ reorganization implemented in 2014 was designed to meet current/future organizational needs while improving efficiencies and reducing costs. At the heart of this evaluation is the need to carefully balance the ever-changing business needs with expected revenues. An analysis of the entire division was performed to optimize efficiency, match the right skills with program implementation, pool resources, and determine which positions could be eliminated such that the mission of the division can continue to be accomplished. Some positions were consolidated and reconfigured to reflect the current era of environmental protection that increasingly relies on advanced monitoring tools and information technology for data-driven analyses. A few positions became shared dotted line matrix management p. 9

12 positions to better utilize the skill sets of these employees. The biggest change was a consolidation of all DAQ monitoring staff and resources into the Ambient Monitoring Section. Additionally, two organizational units were eliminated the Toxics Protection Branch and the Data Management and Statistical Services Branch. In total, the DAQ reorganization impacted 29 total positions, with the elimination of 12 positions (six filled), and 17 positions being reassigned or reconfigured as part of the reorganization. Air Quality Ambient Monitoring The backbone of the air quality program is the ambient air quality monitoring network. The DAQ operates a statewide network of scientific instruments to monitor an array of outdoor air pollutants. The network, consisting of over 90 monitors at more than 40 sites, measures the concentration of regulated pollutants in the ambient (outdoor) air. These pollutants include ozone, lead, fine particles, nitrogen oxides, sulfur dioxide and carbon monoxide. The measured concentrations of these pollutants are compared to the National Ambient Air Quality Standards (NAAQS) as set by the EPA. Every year the monitoring network is re-evaluated and adjusted to ensure it is providing adequate coverage. In most years these adjustments include starting new monitors, shutting down others, or simply relocating established monitors. The proposed annual network plan is subject to a 30-day public review period prior to being submitted to EPA for approval. Key performance metrics outlined in the next section include meeting all state and federal data quality objectives, data completeness and being in good standing with EPA s Technical Systems Audits. Beyond the plans, protocols and quality assurance of the data, is the actual monitoring hardware that is out in the field. To ensure all of the data objectives are met, the DAQ must be well positioned to respond to equipment malfunctions or failures in a way that minimizes the amount of time the monitor is not collecting data. This is accomplished with skilled staff, proper tools and equipment, and training. As with most technology, this scientific equipment is becoming increasingly more complicated to use and maintain, and DAQ is continuously training staff to ensure we are at the forefront of technological advances. Air Quality Planning The Clean Air Act (CAA) defines a state air planning process that is triggered each time the EPA establishes or revises one of the National Ambient Air Quality Standards (NAAQS). EPA sets the NAAQS to be protective of public health and welfare. These state planning obligations are spread over several years after EPA sets the NAAQS. If there are areas of the state where those standards are not being met, the planning process is more lengthy and complex. Regardless of whether those standards are being met, the CAA requires states to demonstrate core capabilities and ensure that resources are available to implement the standard. That plan p. 10

13 (called the State Implementation Plan or SIP) must be developed and adopted through a process incorporating public input. Once adopted by the state, each required plan is submitted to EPA for review and approval. SIPs are designed to prevent air quality deterioration for areas in attainment with the NAAQS and to reduce criteria pollutants in nonattainment areas to levels that will achieve compliance with the NAAQS. As the NAAQS change, states must submit revisions to the SIP to demonstrate attainment and maintenance of those new or revised NAAQS and to meet other statutory requirements. This state planning process has been a very successful program. For the first time since 1997, North Carolina meets all air quality standards. The performance measures shown in the next section include various emissions and air quality metrics indicating significant improvements in North Carolina. Air Quality Permitting and Compliance The DAQ is responsible for issuing air quality permits and assuring compliance at major and minor facilities based on emissions levels. While major source activities are not covered by the fuel tax revenues - as that is funded (per Title V of the Clean Air Act) through the Title V permit fees - a portion of the minor permitting and compliance is covered by fuel tax revenues. This results in minimizing permitting fees for minor sources. Permitting: DAQ permits facilities that must follow State or federal regulations in order to operate air emissions sources. Permit conditions also specify any emission testing and monitoring requirements applicable to each source. Air quality rules specify that DAQ shall issue or deny minor source permits within 90 days of receipt of a complete permit application. As shown in the next section, DAQ s average number of days processing such permit applications is much lower than the required 90 day requirement. Compliance: The DAQ s primary regulatory objective is compliance with State and federal air quality rules and regulations. North Carolina compliance assurance activities for minor sources include facility inspections and providing technical assistance. Internally, DAQ regularly holds permitting and compliance workgroup meetings to ensure consistency in the delivery of these services. One of the current challenges is the complicated and voluminous set of federal air quality regulations that apply to these type of air emission sources. The DAQ spends a great amount of time helping minor sources understand these complicated regulations and how they apply to their particular facility. So while the number of facilities holding air quality permits has decreased, the number and complexity of the federal regulations has increased. Achievement of Objectives p. 11

14 3. The extent to which the fund, agency, division, or program objectives and performance measures have been achieved. Administration The DEQ was the first Department in state government to pilot test and implement the new VIP system. All DAQ performance management plans were completed on time. Additionally, DAQ s management team performed calibration sessions to ensure that different managers apply similar standards in measuring and evaluating the performance of staff. In 2015, ten employees participated in career development rotations and numerous training opportunities were provided to staff across the Division. Ambient Monitoring Complete and Quality Data The DAQ s air quality monitoring program is designed to ensure that data is of the type and quality needed to support critical decision making related to the protection of the public and the environment. Significant to the success of the monitoring is a quality system that includes the protocols, standard operating procedures, technical documentation, and communication strategies that are all essential to efficiently collecting quality data. Most of the DAQ s monitoring requirements are set by EPA, and undergo an annual review and approval by EPA. Beyond the annual EPA approval of monitoring plans, EPA performs Technical System Audits (TSAs) of the DAQ monitoring program to assess compliance with established regulations governing the collection, analysis, validation, and reporting of ambient air quality data. The most recent TSA was conducted in May Those TSAs have concluded that DAQ s monitoring program is producing quality data suitable for regulatory decision making purposes. Table 2 below provides an indicator of data completeness consistent with EPA s benchmarks. It should also be noted that 100% of DAQ s monitors have met EPA s minimum data completeness standards. p. 12

15 Table 2. Data completeness per pollutant. Data Completeness 1 (%) (2014) Criteria pollutant Highest % Lowest % Average % CO NO ozone SO PM PM Data completeness describes the amount of valid samples obtained compared to the amount that was expected. Completeness is impacted by power interruptions, adverse weather, instrument failure, shelter temperature being out of range, operator error, and other factors. 2 Generally, EPA requires 75% data completeness. Nitrogen Dioxide Nitrogen dioxide (NO2) is one of the six criteria pollutants that EPA sets and reviews ambient standards for under the Clean Air Act. Air quality monitors in North Carolina measure concentrations of NO2 and those are compared to the level of the standard set by EPA. Significant improvements have been observed in the NO2 data in North Carolina and nationally as improved vehicle standards, fuel efficiencies, ultra-low NOx burners and selective catalytic reduction emissions controls have been installed on large stationary sources of NO2. Figure 2 below illustrates the improvements in ambient concentrations of NO2. Figure 2. Statewide NO 2 concentration trends p. 13

16 Sulfur Dioxide Sulfur dioxide (SO2) is also one of the six criteria pollutants for which there are ambient standards and air quality monitors measure concentrations. EPA significantly strengthened this standard in 2010 to 75 parts per billion averaged over 1-hour. However, like with NO2, significant improvements have been observed in the SO2 data in North Carolina and nationally as state-of-the-art scrubbers have been installed on large stationary sources of SO2. Additionally, lower sulfur content in fuel and the increasing use of natural gas-fired combined cycle combustion turbine plants for electricity generation have led to substantial drops in SO2 emissions. Figure 3 below illustrates the improvements in ambient concentrations of SO2. Figure 3. Statewide SO 2 concentration trends Ozone p. 14

17 Ozone (O3) has been the North Carolina s most widespread air quality issue in the last two decades. As figures 4 and 5 show below, tremendous improvements in air quality have been realized thanks to many of the measures noted above that have reduced nitrogen oxides. Despite having a few exceedances of the standard in the last three years, all areas of North Carolina are attaining the ozone standard. Figure 4. Statewide ozone exceedance trends Figure 5. Statewide ozone concentration trends p. 15

18 In 2015, EPA strengthened the ozone standard from 75 parts per billion to 70 parts per billion. As of 2015, no areas of North Carolina are exceeding this new standard. However, as noted above, each time EPA revises the NAAQS, state planning obligations are triggered and are spread over several years after EPA sets the NAAQS. The DAQ will be starting the process of providing designation recommendations in Afterwards, the CAA requires states to demonstrate core capabilities and ensure that resources are available to fully implement the standard. Permitting and Compliance A significant amount of DAQ s compliance assurance activities for minor (non-title V) facilities are covered by the motor fuel tax revenues. These activities, including not only inspections but the development of compliance tools that are meant to assist with understanding complex air quality regulations, are essential toward the goal of achieving high compliance rates. Compliance assurance inspections conducted at minor (non-title V) facilities for each state fiscal year (July 1 June 30): Complaints investigated for each state fiscal year: Number of permitting actions at non-title V (non-major) facilities for each state fiscal year: Average number of processing days for non-title V (non-major) permitting actions for each state fiscal year: p. 16

19 Division of Air Quality Revenues 4. A detailed accounting of all sources of funds for the fund, agency, division, or program The Division of Air Quality is a receipts and grants supported division within the Department of Environmental Quality. Projected annual revenues for FY 15/16 are $20,583,494. A breakout by revenue source is shown in Figure 6 below. Figure 6. DAQ projected annual revenues for FY 15/16 DAQ Revenue Sources $2,480, Title V $7,299, $6,737, $3,000, $1,065, Non Title V DAQ Inspection and Maintenance Fees DAQ Fuel Tax (Air Quality Account) EPA Air Quality Control Grants note: Fuel tax revenues include the 10% distributed to the three local air quality programs Air Quality Fuel Tax Expected revenue, $7,299,805 The DAQ receives 5/32 of a cent per gallon of the fuel tax that the state collects. G.S A indicates that these funds shall be used to administer the air quality program. Mobile sources account for more than half of the state s air quality emissions. Thus, the enabling statute for this revenue stream was developed recognizing that there was a need to establish an equitable cost distribution to the sources of air pollution (stationary and mobile sources) based on their relative contribution to the total emission levels. Unlike other revenues such as the p. 17

20 vehicle emissions I&M revenues or the Title V permit fees noted below, the fuel tax is DAQ s most flexible fund in that it helps support all aspects of the air quality program. It is especially important in providing both match funding and maintenance of effort requirements for federal grants and other required expenses that other funds cannot cover due to their funding source restrictions. The funds help keep DAQ s non-title V permitting fees low and allow DAQ to provide occasional grant assistance on mobile sources emission reduction projects. Also, a portion of the funding helps support the three local air quality programs in Buncombe, Forsyth and Mecklenburg counties. Clean Air Act - Title V Permit Fees Expected revenue, $6,737,942 The Federal Clean Air Act Amendments of 1990 established the Title V operating permit program (referring to Title V of the Act). The Title V operating permit program consolidates all requirements from federal and state air quality regulations for a particular facility into a single air permit. North Carolina s largest facilities emitting air pollution are subject to the Title V permits program. The DAQ received approval from the EPA to implement the Title V program in North Carolina. The federal Clean Air Act requires the Title V program to be funded entirely by fees collected from permitted facilities. Therefore, these funds cannot be used toward meeting the federal grant match or maintenance of effort requirement. Minor (Non- Title V) Air Permit Fees Expected revenue, $1,065,747 This is the fund used for the collection of fees from the Division of Air Quality s permitting program that applies to minor (non-title V) facilities. DAQ s minor source (non-title V) permitting program is approved into North Carolina s State implementation Plan by the Environmental Protection Agency. Fees collected in this fund go toward the issuance of permits to subject facilities and compliance assistance/inspections of those facilities. All of the work products are geared toward ensuring these facilities comply with federal and state air quality regulations. These revenues are expected to decline by approximately $280,000 in SFY when changes to the permit exemption rules take effect. The rule changes will result in several hundred small facilities being exempted from permitting requirements as well as permit application and annual fees. Inspection and Maintenance Fee Account, Expected revenue, $3,000,000 The DAQ Inspection and Maintenance Air Pollution Control Account is funded by the $0.65 per vehicle emissions inspection it receives under the State s Vehicle Emissions Inspection and Maintenance (I&M) Program. GS A (b1) established the Inspection and Maintenance Air Pollution Control Account and states, The I&M Air Pollution Control Account is established as a non-reverting Account within the Department. Fees transferred to the Division of Air Quality p. 18

21 of the Department pursuant to GS (c) shall be credited to the I&M Air Pollution Control Account and shall be applied to the costs of developing and implementing an air control program for mobile sources. The DAQ s mobile sources program includes the development and implementation of measures to reduce emissions from motor vehicles. The most visible program is the vehicle emissions (I&M) program. The I&M program performs a check of motor vehicles emissions with the annual safety inspection. Other significant mobile source efforts include transportation emissions modeling, gasoline vapor recovery, alternative fuels, and a grants program. It should be noted that the I&M fee account is also under a continuation review. The DAQ is recommending that future year I&M revenues be capped at $2,000,000 and that the funding be allowed to be used to administer the air quality program. Air Quality Control Federal Grants, Expected revenue, $2,480,000 These funds are comprised of two federal EPA grants. The first under Clean Air Act Section 103 is focused on the ongoing collection of ambient air concentrations of fine particulate matter. The amount of the Section 103 grant is approximately $680,000. There are no match or maintenance of effort requirements associated with this grant. Programmatic conditions include: Collection of quality assured ambient air data, primarily fine particulate matter and it precursors, such that the data can be used for comparison to the national health based standards; development and tracking of air plans; and assessments of regional haze. The second under Clean Air Act Section 105 provides support toward administering the air quality program, including making improvements to air quality so that it achieves established ambient air quality standards and protects human health. The amount of the Section 105 grant in SFY is approximately $1,800,000. The EPA sets forth expectations in an annual agreement and evaluates performance against those agreements. The state minimum matching share requirements is 40 percent and maintenance of effort requirements stipulate that the state must spend at least the same amount of non-federal funds as they did the previous year. Recommendations p. 19

22 5. Recommendations for statutory, budgetary, or administrative changes needed to improve efficiency and effectiveness of services delivered to the public, including recommendations regarding whether to transfer the program to the Division of Motor Vehicles or to elsewhere in the Department of Transportation Currently, the statutory authority to implement the air quality program lies with the Environmental Management Commission and the Department of Environmental Quality. As such, DAQ does not recommend transferring the program to the Department of Transportation. Regarding recommendations on improving efficiency and effectiveness of services delivered to the public, DAQ management is committed to organizational changes that respond to the changing business need. Please see Section 7 below for more details. Outcomes 6. The consequences of discontinuing funding or of continuing funding with a source other than a transfer from the Highway Fund Any significant reduction or loss of the fuel tax receipts, without replacement, would result in the loss of up to FTEs, currently 37 percent of all DAQ FTEs. This would have significant impacts on DAQ s ability to carry out the air quality program and continue to achieve the statutory program requirements. The impacts would span much of the air quality program from monitoring, planning, permitting/compliance to administration. Since a significant portion of minor (non-title V) facility compliance assurance activities are covered by the fuel tax revenues, compliance issues could result from a lack of resources to inspect and assist regulated facilities with understanding complex air quality regulations. It is unclear how EPA would respond to such a reduction. Section 110(a)(2)(E) of the CAA says state s plans shall provide necessary assurances [for] adequate personnel, funding, and authority under State law to carry out such implementation plan. If EPA determines that DAQ does not have such adequate resources, then EPA could partially or completely disapprove state air quality plans. That could lead to Federal Implementation Plans (FIPs) and/or discretionary sanctions or mandatory sanctions. EPA can temporarily freeze or withhold highway money in either type of sanction. Additionally, a finding of inadequate resources could jeopardize DAQ s approved permitting program status with EPA. Additionally, DAQ s Clean Air Act Section 105 federal grant requires a 40 percent match and Maintenance of Effort (MOE) requirements. The fuel tax receipts make up a significant portion of that match and MOE. p. 20

23 If funding is continued with a source other than a transfer from the Highway Fund, DAQ does not anticipate significant implications provided that the funding has a similar purpose (i.e. to administer the air quality program). Opportunities 7. Recommendations for improving services or reducing costs or duplication The DAQ continuously analyzes evolving business needs and adjusts operating plans and staffing accordingly. The DAQ views every vacancy as an opportunity to reassess business needs for that organizational unit. The majority of the 81 position reductions (27% reduction in staffing) in DAQ over the last 5 years have been a result of performing careful position reviews as positions become vacant. While those vacancy actions are involving only a single position or organizational unit, larger scale assessments are also conducted. As noted earlier, the DAQ s recent reorganization was designed to meet current/future organizational needs while improving efficiencies and reducing costs. At the heart of this evaluation was the need to carefully balance the ever-changing business needs with expected revenues. An analysis of the entire division was performed to optimize efficiency, match the right skills with program implementation, pool resources, and determine which positions could be eliminated such that the mission of the division can continue to be accomplished. Some positions were consolidated and reconfigured to reflect the current era of environmental protection that increasingly relies on advanced monitoring tools and information technology for data-driven analyses. A few positions became shared dotted line matrix management positions to better utilize the skill sets of these employees. The biggest change was a consolidation of all DAQ monitoring staff and resources into the Ambient Monitoring Section. Additionally, 2 organizational units were eliminated the Toxics Protection Branch and the Data Management and Statistical Services Branch. In total, the DAQ reorganization impacted 29 total positions, with the elimination of 12 positions (six filled), and 17 positions being reassigned or reconfigured as part of the reorganization. The DAQ is currently working on a reorganization of its administrative (office assistants) staff that will result in a reduction of three positions and pool resources for optimal organizational efficiency during SFY Policy Issues 8. The identification of policy issues that should be brought to the attention of the General Assembly No policy issues are identified at this time. p. 21

24 Other Information 9. Other information necessary to fully support the General Assembly's Continuation Review Program along with any information included in instructions from the Fiscal Research Division. Relevant information is provided in the body of the report. If additional information is requested beyond that provided in this final report, DAQ will be happy to include the requested information. p. 22