North Carolina Division of Air Quality Proposes Changes to Title V Program Fee Structure

On July 8, 2020, in a presentation to the North Carolina Air Quality Committee, the North Carolina Division of Air Quality (NCDAQ) presented proposed revisions to its existing Title V program fee structure.  The concept presentation provided the motivation for creating a Stakeholder Workgroup, comprised of representatives of North Carolina Title V facilities, lawyers, conservationists, and consultants, to explore projected Title V program funding gaps, beginning in fiscal year 2020-2021, and provide recommendations to remedy the deficit.

Clean Air Act (CAA) Section 502(b)(3) requires each state air agency to collect fees from Title V facilities that are “sufficient to cover all reasonable (direct and indirect) costs required to develop and administer the permit program”, with failure to comply potentially resulting in the EPA partially, or fully, withdrawing approval of the state Title V permit program.  Administration of the permit program includes implementation and enforcement of regulations, permit review, emissions and ambient monitoring, and modeling analyses.  The current North Carolina fee structure in 15A NCAC 02Q .0203 that went into effect on March 1, 2008, applies fees based on annual tonnage of regulated CAA pollutants, for issued permits, permit modifications, and for nonattainment area fees (if applicable).   Since 2011, tonnage fee rates and permit application fees have been allowed to adjust annually, based on the Consumer Price Index.

An internal review of the Title V program revealed that expenditures have exceeded income over the past 5 years, despite a reduction in costs primarily achieved through a reduction in NCDAQ staff (from 303 in 2006 to 209 in 2020).   The recent revenue reduction (27% decrease in annual funding over the past 10 years) can be attributed to a 13% decrease in North Carolina Title V facilities, combined with a 17% increase in inflation.   Although tonnage fees account for a slightly lower percentage of revenue (64% of total funding in 2020 compared to 75% in 2009) than in previous years, a 57% decrease in tons billed has been realized since 2008, primarily as a result of better air quality.

NCDAQ currently projects a $1.6 million funding gap in FY 2020-2021.  In addition to a reduction in fee receipts, part of the basis of the projection is an internal determination that NCDAQ staff under-charged time to the Title V program.  NCDAQ is cognizant of the importance of retaining talent and recruiting new employees to fulfill its mission to the public in protecting ambient air quality and to maintain the level of service currently provided to regulated facilities.   As the majority of the current staff have salaries below the Market Salary Index (MSI), NCDAQ proposes establishing a, “single, objective, and transparent salary structure” to move salaries closer to the MSI, and has included this initiative in funding projections.

The Stakeholder Workgroup reviewed the fee structures enacted in other Southeastern states and found that each state uses a different combination of tonnage fees, base annual fees, application fees, hourly review fees, and various “a la carte” fees.  NCDAQ tonnage fees and minor modification application fees are lower that the majority of other Southeastern states, and it was noted that several neighboring states (South Carolina, Tennessee) are also pursuing increases in facility fees of various forms.  Although increasing tonnage fees to better align with neighboring states is an option, the reliance on emissions, a source with declining trends, was acknowledged as a risky and insufficient long-term funding solution on its own.   As such, other options were reviewed, including:

• Per-ton fees for Hazardous Air Pollutants (HAP)
• Introduction of a “Complexity Fee”
• Introduction of “A la Carte” compliance fees
• Hourly review fees

The “Complexity Fee,” currently utilized in Virginia, assigns fees based on the complexity of the facility and partially addresses the increased workload facing NCDAQ staff, despite emissions reductions, due to federal regulations implemented since the last fee change.   Although complexity of individual rules varies, quantifying the number of federal programs applicable to a facility (NSPS, MACT, PSD, NESHAP, etc.) provides an objective evaluation metric used to establish complexity tiers for a fee structure.   “A la Carte” fees would establish a relationship between the level of effort required to conduct the service, such as ambient monitor maintenance and observations of stack tests.   Hourly review fees, not currently common in Southeastern states, would provide a revenue stream similar to consulting firms.

NCDAQ tasked the Stakeholder Workgroup to provide recommendations for a revised fee structure that is simple, has long-term viability, and could initiate the rule-making process.  The recommendations included an increase in (but reduced reliance on) tonnage fees, introduction of a “Complexity Fee,” and phasing in NCDAQ salary initiatives over a 3-year period.   Based on the recommendations, NCDAQ is proposing the following revisions to its Title V fee structure, which, if enacted, are projected to result in an increase of approximately $2.0 million per year over the current 2020 budget, eliminate the projected funding gap, and meet CAA requirements:

• Annual fee increases from $7,423 to $10,000 per facility
• Tonnage fee increases from $34.25/ton to $40.00/ton
• Minor modification fee increases from $988 to $3,000
• Significant modification fee increases from $988 to $7,000
• A three-tiered Complexity Fee ($0 for facilities with less than 2 federally applicable programs; $2,500 for facilities with 3-6 federally applicable programs; and $7,500 for facilities with 7 or more federally-applicable programs)

NCDAQ is currently engaging the regulated community regarding its comprehensive rule concept with the intent to request to proceed to public hearing in late 2020 and for the rule to become effective in Spring 2021.  Although the final fee changes could be different than those presented here, facilities in North Carolina should plan for additional fees related to air emissions and air permitting starting in 2021.

Contact Ryan Cleary at rcleary@all4inc.com for more information.