DEPARTMENT OF PUBLIC HEALTH AND ENVIRONMENT

Solid and Hazardous Waste Commission
Division of Environmental Health and Sustainability
6 CCR 1007-2

Statement of Basis and Purpose
 and Specific Statutory Authority for

Creation of 6 CCR 1007-2, Part 4 (Regulations Pertaining to the Waste Tire Processor and End User Reimbursement Program), and the addition of Section 1 (Rules for Reimbursements from the Processors and End Users Fund) to the newly created 6 CCR 1007-2, Part 4.
(Adopted by the Solid and Hazardous Waste Commission on May 17, 2011)

Basis and Purpose
	
I.	Statutory Authority

These amendments to 6 CCR 1007-2, Part 4, Section 1 (Rules for Reimbursements from the Processors and End Users Fund) are made pursuant to the authority granted to the Solid and Hazardous Waste Commission in Section 25-17-207(1)(a), C.R.S.
		
II.	House Bill 10-1018

House Bill 10-1018 amended section 25-17-202, C.R.S. and transferred responsibility for administering the Processors and End Users Fund (“Fund”) from the Department of Local Affairs (“DOLA”) to the Colorado Department of Public Health and Environment (“Department”).   The Division of Environmental Health and Sustainability (“Division”) within the Department now administers this waste tire reimbursement fund.  HB 10-1018 also amended section 25-17-202.5, C.R.S. to specify how money from that Fund shall be allocated. 

III.	Purpose of new regulations:

The purpose of these new regulations is to update, modify and codify the guidelines DOLA followed when administering the Fund.  Because the Fund potentially contains large sums of money and because the applicable statutes do not provide clear guidance, the Commission believes it necessary to adopt regulations concerning administration of the Fund.   

IV.	Discussion of Regulatory Proposal

This Section 1 is the result of a stakeholder process involving Division staff, Hazardous Materials and Waste Management Division staff, waste tire processors, tire monofills and waste tire end users. Important issues identified by stakeholders are presented later in this Statement of Basis and Purpose.

This Section 1:

A.	Defines who is eligible for reimbursements from the Fund;

B.	Establishes application procedures for parties seeking reimbursements from the Fund;

C.	Establishes the formula for calculating reimbursements from the Fund;

D.	Establishes a process for review of applications for Fund reimbursements; and

E.	Creates an inspection process for Division oversight of parties who apply for reimbursements from the Fund.

V.	Issues Identified During the Stakeholder Process

	A. What money is available for payout from the Fund?

One issue faced during the stakeholder process concerns what money is available for payouts from the Fund.  Section 25-17-202.5, C.R.S. establishes the Fund and states what moneys must be transferred to the Fund (fees collected pursuant to section 25-17-202, C.R.S., surpluses and balances from other funds, and interest from the Fund).  This section then appears to establish how money must be expended from the fund:

Any moneys in the fund not expended or encumbered from any appropriation at the end of any fiscal year shall remain available, without further appropriation, for expenditure in the next fiscal year by the department to be used for monthly partial reimbursements to processors and end users . . .

Section 25-17-202.5, C.R.S. This statement appears to require that at the end of a fiscal year, the money existing in the Fund must be used in the next fiscal year for monthly payouts to processors and end users.  For example, if on June 30, 2011, one million dollars exists in the fund, then the Department must divide that money into monthly payouts to be made in the next fiscal year, starting July 1, 2011.  Money accrued between July 1, 2011 and June 30, 2012 would be held and used for monthly payouts in the fiscal year beginning July 1, 2012, and so on.

Although this may be the clearest reading of the statute, the statute does not preclude the procedure employed by DOLA for the last 13 years wherein money accrued monthly is used fully for reimbursements in the following month. (In reality, DOLA operated under a statutory quarterly payout requirement.  However, because the statute now requires monthly payouts, this example reflects that change.).  For example, if the fund accrues $100,000 in January 2011 then the Department must payout $100,000 to processors and end users in February 2011.  Under this interpretation, the statute remains silent on what money must be used for monthly payouts and the above cited language simply establishes that money remaining in the fund at the end of any given fiscal year must be rolled over to the following fiscal year.  Because DOLA has administered the fund on a quarterly-in quarterly-out basis for 13 years, the Commission adopts that approach in the present regulations with the payout changed to monthly as per the new statute.
	
	B. The use of the term "Raw Colorado Waste Tires" in the statute

Another issue faced during the stakeholder process was the use of the term “Raw Colorado Waste Tires” in statute:

[Moneys in the fund] shall remain available . . . for expenditure in the next fiscal year by the department to be used for monthly partial reimbursement to processors and end users, up to a maximum of sixty-five dollars for each ton of raw Colorado waste tires that are processed or used.

Section 25-17-202.5, C.R.S. (emphasis added).  The statute does not define the term "Raw Colorado Waste Tires" or explain how the word "raw" relates to the term "Waste Tire," which is defined in section 25-17-202.  Based on the intent of the statute, which is to "assist new and existing waste tire recycling technologies" and to thereby "encourage the use of waste tires and reduce the storage of waste tires in Colorado," the Division interprets this term in two ways.  First, concerning waste tires that are processed, the Division interprets the phrase "monthly partial reimbursement to processors . . . for each ton of raw Colorado waste tires that are processed" to mean the only waste tire processing eligible for partial reimbursement is the processing of a waste tire that has not previously received a processing reimbursement.  Concerning waste tires that are end used, the Division interprets the phrase "monthly partial reimbursement to . . . end users . . . for each ton of raw Colorado waste tires that are used" to mean once a tire is processed, only the weight of the processed tire is used to calculate the amount of the end use reimbursement. 

C. Waste tires must be Colorado-generated to receive reimbursement

Related to Issue B, these rules only allow for payouts for processing and end use of tires that were generated in Colorado.  This comports with the statute which allows reimbursement for each ton “of raw Colorado waste tires.”  Section 25-17-202.5, C.R.S.  The Department and the stakeholder agreed the term “Colorado waste tires” should be interpreted to mean “waste tires generated in Colorado.”  This approach is logical because only sales of tires in Colorado provide money into the Fund.

D.  Out of state eligibility for end used waste tires 

Another issue discussed was whether a business that processes in Colorado and sells to an end-user out of state is eligible for the end-user reimbursement.  The stakeholders determined the Fund should not make such reimbursements and the regulations adopt the stakeholders preference.  Although the statute does not address directly this issue, it does require disbursements from the Fund to go only to entities with operations in state: 

	Notwithstanding any other law to the contrary, the Department shall distribute, whether by grant, reimbursement, or otherwise, fees collected pursuant to this section only to a person or entity that is located in and has operations in Colorado, and shall not distribute any such fees to a person or entity located outside of Colorado

Section 25-17-202(4), C.R.S.  Further, the legislature intended the statute to “encourage the use of waste tires and reduce the storage of waste tires in Colorado.”  Section 25-17-202.5, C.R.S.  The stakeholders interpreted this language to mean the legislature intended the statute to, in part, support Colorado business.  Another reason to not allow end-use reimbursements to in-state processors who sell tires to out-of-state end users is the Department does not believe it can adequately verify out-of-state end uses of waste tires. 

Although some stakeholders argued this approach disincentives out of state end uses, the Department and the stakeholders generally agree this approach both best achieves the purposes of the statute and gives the Department the ability to monitor what end uses are receiving the reimbursement.

	E. Monthly payouts versus quarterly funding from Department of Revenue 

Another issue faced during the stakeholder process involves the apparent discrepancy in the statute which requires the Department of Revenue to pay into the Fund quarterly but the Department to make monthly payments from the Fund.  (Under the previous version of the Statute, DOLA was required to make quarterly payments from the Fund.)

Although the statute only requires revenue deposits quarterly [Section 25-17-202(3) (a)], the Department has received deposits on a monthly basis since July, 2010. The Department discussed this potential issue at length with stakeholders in case the Department of Revenue adjusts their revenue transmittal schedule to meet the current statute and funding becomes unavailable or delayed. The Department will continue to make monthly payments from the Fund (Section 25-17-202.5) as long as the Department of Revenue continues to make deposits on a monthly basis. 

	F. Weighting of payouts to encourage end use over processing

Another issue discussed during the stakeholder process was determining whether a priority should be given to the end use of waste tires versus the processing of waste tires.  

The statute neither requires nor prohibits a priority for processing or end use:

[The Department shall pay out] monthly partial reimbursements for processors and end users, up to a maximum of sixty-five dollars for each ton of raw Colorado waste tires that are processed or used.

Section 25-17-202.5, C.R.S. The concern of the Department, the Waste Tire Advisory Committee (“Committee’) and a strong majority of stakeholders is that allowing processors to receive reimbursement without an incentive to move inventory to the end-use market could create large stockpiles of processed tires in the state, resulting in possible environmental and/or public safety issues. Although the Department’s solid waste regulations address the issue of stockpiling of waste that would help prevent large piles of processed tires from being stored, it does not make sense to incentivize such stockpiling. Additionally, giving equal weight to both processed and end use tons would not support the purpose of the statute which is to “assist new and existing waste tire recycling technologies to become economically feasible and to thereby encourage the use of waste tires.”  Section 25-17-202.5, C.R.S. (emphasis added).  Further, the stakeholders felt strongly the purpose of the reimbursement program should be to incentivize the creation of end-use markets for waste tires. 

Originally, the Department could not reach consensus on a method for prioritizing end use of waste tires. Formulas for calculating disbursements were unworkably complex and the stakeholders did not agree on any one formula.  However, when the Department presented the Committee with a draft rule that did not prioritize end use, the Committee stated it would not support that rule.  Rather, the Committee unanimously asked the Department to draft a rule that:
	(1) Every month pays end users twice as much per ton for each ton of waste tires used as it pays processors for each ton of waste tire processed;
	(2) Whenever this formula pays end users over $65 per ton, the overage will be dispersed to the processors;
	(3) Whenever this formula pays processors over $65 per ton, the overage will be rolled forward into the following month; and
	(4) Allows any one tire to be eligible for reimbursement one time for the processing of that tire and one time for the end use of that tire.

The Department adopted the Committee’s request.  Payouts from the fund will now occur pursuant to the Committee’s suggestion and will be calculated according to the following formula:

Ex + Py = A
x = 2y

Where	A = the amount of money in the fund in the given month
	E = the amount of waste tires end used in tons that month
	P = the amount of waste tires processed in tons that month
	x = the dollar per ton to be paid to end users
	y = the dollar per ton to be paid to processors

When, pursuant to this formula, (x) is greater than $65, the amount of overage per ton (x-65) is multiplied by the tons of end used waste tires (E).  This number is divided by the number of processed waste tires (P) and the result is added to (y).  This “y prime” (or y’) represents the adjusted dollar per ton to be paid to processors.

When (y’) is greater than $65, the amount of the overage per ton (y’ – 65) is multiplied by the tons of processed waste tires (P).  This dollar amount remains in the Fund and is rolled over for disbursement in the following month.  

This formula allows for the maximum possible disbursement from the Fund in any given month keeping in mind the $65 per ton limit and according to the amount of money available, while encouraging end use and reducing to the extent possible the amount of money that is rolled over any month.  
 
G. The 50 ton minimum

In order to avoid processing applications for reimbursement from small volume processors and end users, the Department established a 50 ton minimum for any applicant’s first application.  After submitting an application for reimbursement for a minimum of 50 tons, the applicant can submit an application for any amount in that fiscal year.

H. Processing part of a tire

Another issue encountered during the stakeholder process involved how the Fund should reimburse processors who only process part of a tire.  The stakeholders and the Department agreed that a processor who processes part of a waste tire and landfills the remainder is only eligible for reimbursement for the tons of tire actually processed, not for the tons of tire landfilled. 

	I. Location of These Regulations

Another issue encountered during the stakeholder process involved where these new regulations should be housed.  Typically, regulations for programs administered by the Division of Environmental Health and Sustainability are promulgated by the Board of Health and housed in 6 CCR 1010.  However, the Division of Environmental Health and Sustainability believes these regulations belong instead in 6 CCR 1007-2.  First, these regulations concern waste tires which are in all other respects managed by the Hazardous Materials and Waste Management Division pursuant to 6 CCR 1007-2.  Second, the legislature specifically required the Solid and Hazardous Waste Commission to adopt rules necessary to administer the Fund.  See § 25-17-207(1)(a), C.R.S.  Hence, the apparent incongruity caused by the Division of Environmental Health and Sustainability proposing and administering regulations promulgated by the Solid and Hazardous Waste Commission is necessitated by the internal organization of the Health Department, which has determined the Sustainability Division is best equipped to administer the Fund, and the statute, which requires the Solid and Hazardous Waste Commission to adopt administering regulations.  To avoid confusion with the regulations administered by the Hazardous Materials and Waste Management Division, the Sustainability Division has proposed these regulations exist in a newly created 6 CCR 1007-2, Part 4.  The Hazardous Materials and Waste Management Division and the stakeholders support this recommendation.

VI.	Alternative Calculations Considered and Why Rejected

Several calculation methods that would both favor the end use of tires and comply with the language of the statute were considered:

Flat rate for processing - One suggestion from the stakeholders was to set a flat rate for the processing of tires (e.g. $15 per ton) and allocate all remaining funding to end use. This would create a steady funding for processors, while allowing a larger per ton rate for end users since the average rate is currently around $38 per ton. This calculation was rejected due to the potential that moneys could be left in the fund if end use was low enough in a given month that not all the moneys could be awarded without exceeding the $65 statutory maximum. There was also difficulty determining an appropriate flat rate for the processing of waste tires. 

Tiered system - This calculation would provide a higher weighted average percentage to end users by creating a higher value for their approved tons. The reason this calculation was rejected was that the approved tons would have to be artificially inflated in order to calculate a rate that would utilize all funds in the account each month, which is not allowed per statue. When doing the weighted average percentage on the calculated rate (Funds/approved tons), the result was funds left in the account due to rounding issues. 

Fixed percentage breakdown - This calculation would establish a percentage of the overall funds to be split between processors and end users, with the higher percentage going towards end use. This calculation was rejected since there are currently only a small number of end users in the state who could potentially exceed the $65 per ton limit, requiring funds to be moved back to the processor side, causing them to exceed the set percentage available per rule.  Also, this approach would incentivize processors and end users to attempt to “game the system” by applying for a processing reimbursement in months where there appeared to be less processing occurring and to apply for the end use reimbursement in a month where there appeared to be less end use occurring.

Verified end use vs. non-verified end use - This calculation would provide a higher calculated value to processed waste tires that would be able to provide proof of an end use versus processed tires that are to be stored for future end use. This calculation was rejected due to the possibility that a tire processor may require several months to process tires for a onetime end use. Since the processor could not provide proof of end use until the processed tires were shipped, all tires processed prior to shipping would be considered for the rebate as a non-verified end use. A suggestion was made to allow for a contract to be provided as proof of future end use so the applicant could apply at the higher rate. The suggestion was rejected because the contract could be voided between the time the tires were processed and shipped for end use. In such a case, the applicant would be receiving the higher calculated rate when technically they should have been reimbursed at the lower rate. 

Equal weighting for both processing and end use – This calculation would be the same as what the Department currently uses as a formula for reimbursement. As discussed, the Committee and a strong majority of the stakeholders indicated they would not support this approach because they felt the Fund should incentivize end use markets.  

VIII.	Cost/Benefit Analysis 

As these rules are being promulgated to implement requirements of HB10-1018, no cost-benefit analysis has been performed.  The Colorado Department of Regulatory Agencies did not require a cost-benefit analysis for this rulemaking.