By Dustin Gardener, SAN FRANCISCO CHRONICLE
January 30, 2022
SACRAMENTO -- California's bottle recycling program has a surplus that's at least $100 million larger than the department previously reported to state legislators and the public -- adding to an unprecedented windfall that has ballooned as recycling centers across the state close in droves.
The program is now sitting on a surplus of more than $529 million, money that comes from the nickel and dime deposits consumers pay every time they buy a can of soda or bottle of beer in the state.
CalRecycle, the state department that runs the deposit program, said the amount of the surplus jumped because of an accounting backlog that delayed actual totals during the pandemic. But some recycling advocates say the department has in the past downplayed the scope of its flush coffers to distract from its plummeting bottle recycling rate.
State Sen. Bob Wieckowski, who chairs the budget subcommittee on environmental protection, told The Chronicle he plans to call an oversight hearing this spring to delve into CalRecycle's accounting issues. He said it's "outrageous" that the department understated the amount of unclaimed deposits by $100 million.
"People should be red hot mad about this," said Wieckowski, D-Fremont. "All I can do is pull my hair out and say, 'Holy Toledo.' It just underscores how broken the system is."
The bottle deposit program has been in a downward spiral for about five years as recycling centers closed en masse because of factors such as global tumult in the recycling market and soaring real estate prices. Only about 68% of bottles and cans bought in California are recycled today, down from about 85% at the program's peak in 2013.
Californians who don't want to take their containers to redemption centers can toss them in blue curbside recycling bins. But many of those bottles and cans are contaminated by other waste and not recycled. Plus, consumers can't get their deposits back.
Meanwhile, CalRecycle has seen its surplus for the program steadily grow because many Californians now live in "recycling deserts" without convenient access to redemption centers to return their empties.
But the size of its reported account balance has fluctuated widely: About a year ago, the department projected it would begin the current fiscal year, which started July 1, with a $369 million surplus. Then, CalRecycle estimated the surplus was about $428 million in a report to the Legislature last fall. CalRecycle later filed a memo with the state Department of Finance stating the surplus was actually over $529 million.
CalRecycle Director Rachel Machi Wagoner, who took the department's helm in December 2020, said the sudden jump was in part the result of a "massive hiccup" that occurred when its accounting staff was suddenly forced to work remotely during the pandemic. Several employees quit around the same time, she said, and the department got far behind in tracking the money coming into its account.
"It was just a confluence of things during the pandemic," Machi Wagoner said. "We got months and months behind, and that should never happen. But it did. We've since remedied it."
She said the department is transparent about both its surplus and the recycling rate. "This administration is committed to working with the Legislature to restore faith in this program for consumers," she said.
Two other factors also caused the surplus to grow faster during the pandemic: Beverage sales skyrocketed as people spent more time at home. Meanwhile, more recycling centers continued to close.
California consumers who buy beverages must pay a five-cent deposit for containers less than 24 ounces and 10 cents for containers 24 ounces or larger. Theoretically, the money is a deposit if they return the containers to a recycling center or a grocery store. The program includes soda, beer, juice and water sold in aluminum, glass and plastic containers.
Machi Wagoner said it's also not unusual for the program's surplus to fluctuate by large amounts because the department can't predict exactly how many containers will be returned. She said, however, that the department doesn't plan to go back and revise any of the prior estimates because the fund balance it reported in the governor's proposed budget released this month is correct.
But some recycling advocates say they are troubled by the situation. They contend CalReycle has a long history of providing low estimates about its surplus to legislators. Susan Collins, president of the Container Recycling Institute advocacy group, said she's baffled that CalRecycle won't go back and fix its flawed projections.
"It's ridiculous that people in government can't just manage this the way that it's supposed to be managed and produce an accurate and timely report," she said. "We can't improve the recycling program when there's misinformation."
Jamie Court, president of Consumer Watchdog, an advocacy group pushing to overhaul the bottle program, said consumers should be outraged because the surplus represents billions of bottles and cans that nobody was able to redeem for a deposit.
For many years, Court said CalRecycle has led legislators to think it faces the threat of structural deficits when its surplus actually continues to grow. For example, the proposed budget Gov. Gavin Newsom released this month suggests the surplus in the bottle program will shrink by $141 million this fiscal year.
"Hundreds of millions of dollars is not a rounding error," Court said. "That's an intentional strategy by this agency, over the course of time, to make it look like this program is working."
Machi Wagoner said CalRecycle has traditionally been conservative with its estimates because if it runs out of money in the fund, it would be forced to cut the subsidies it pays to help recycling centers cover their costs.
But she acknowledged that the program has more money than it needs to cover its operations -- cash that could be used to try to improve recycling rates.
"I'm not going to deny that there is a huge surplus in this fund right now," Machi Wagoner said.
The scope of the surplus adds fuel to a fiery debate already under way in the Legislature about how to fix the bottle program.
Wieckowski, the senator planning to hold an oversight hearing, has proposed SB38, a measure that would dramatically overhaul the system by requiring beverage distributors to form a stewardship organization and create a system of easily accessible redemption centers.
"The status quo is broken, it has been broken," he said.
Wieckowski said a chunk of the surplus should be used to help rebuild the recycling infrastructure until beverage companies can start a new system. He wants the state to use the money to buy reverse vending machines that redeem bottles and provide assistance to open community recycling centers.
His bill must compete with AB1454 by Assembly Member Richard Bloom, D-Santa Monica, which would make it easier to keep recycling centers open by increasing the payments CalRecycle makes to help subsidize the cost of processing some materials. It would also provide grants to help open new centers in underserved areas.
Mark Murray, director of Californians Against Waste, a recycling advocacy group, said CalRecycle's budget forecasts have always lagged actual trends because of state budgeting rules. He said he sees little "conspiracy" there, though he said the reporting of outdated figures hamstrings legislators.
"They eventually get it right," he said. "The problem is they don't get it right in a time that policymakers can actually make use of it."
Murray said he backs Bloom's bill because it would use the money to fix the existing program without revamping the entire system.
Lawmakers have passed a series of bills in recent years to try to save the bottle deposit system and explore new ways to recycle. San Francisco began its own mobile bottle redemption program called BottleBank this month.
But so far, the state has set aside a small slice of the bottle program's surplus, $10 million in this year's budget, for such programs. Murray said the department clearly has the money to do more.
"We invest in the recycling infrastructure to fix the problem," Murray said. "It's not that complicated."
Dustin Gardiner is a San Francisco Chronicle staff writer. Email: [email protected] Twitter: @dustingardiner