Objectives

To determine whether the Department of Environmental Conservation (Department) has adequate procedures in place to accurately capture the Title V Operating Permit Program’s (Program) revenues, expenditures, and changes in fund balance. We also sought to determine whether Department officials have made reasonable estimates of anticipated Program expenses for the current year and the immediately upcoming year and whether Program fee revenues collected pursuant to administration of Article 72, Title 3 of the Environmental Conservation Law (Law) were adequate to cover Program expenses. We performed our audit pursuant to the legislative mandate included in Section 72-0303(6) of this Law. Our audit covered the period April 1, 2009 through March 31, 2017.

About the Program

The U.S. Environmental Protection Agency established the Program under Title V of the federal Clean Air Act Amendments of 1990 (Act). The purpose of the Program is to help control excessive industrial pollution by requiring states to monitor pollutant output and to take action to remedy violators that produce pollutant quantities in excess of established limits. Pursuant to New York’s Clean Air Compliance Act of 1993 (CACA), the Department is responsible for developing and administering this Program.

Air pollution sources subject to the Program must obtain an operating permit and pay annual fees established by the Act. The Department assesses the fees on Title V facilities based on their self-reported emissions from the previous calendar year and bills them annually. The Act mandates that the Program’s permit fee revenues be sufficient to cover all reasonable direct and indirect costs necessary for the Department to develop, administer, and enforce the Program.

The Department is required to report annually to the Governor, the Legislature, and the State Comptroller’s Office on Program progress, costs, and revenues. The Department’s reports of the Program Fund revenues, expenditures, and balances are shown in Exhibits A through H. The State Comptroller’s Office is required to perform a biennial audit of the Program.

Key Findings

• The Department generally has adequate procedures in place to capture the Program’s revenues, expenditures, and changes in fund balance transaction data. However, we identified errors in the permit fee billing process and in the allocation of expenses to the Program. Our review of 32 invoices totaling $8,328,281 billed to Title V facilities found 7 (22 percent) totaling $3,214,420 were billed incorrectly by $352,418 (11 percent). We also found that $142,932 in direct non-personal service expenses for the Department was overcharged to the Program Fund.
• During our audit period, Program revenues were insufficient to cover Program expenses, as required by the Act and CACA. Program revenues decreased 38.8 percent during the period, while Program expenses decreased 10.8 percent, resulting in a trend of increasing annual deficits. The revenue decline is due largely to a 54.4 percent decrease in facility-reported and/or Department-estimated billable emissions during the period. As of March 31, 2017, the Department reported a Program Fund deficit of more than $20.3 million. The Department funds the deficit by borrowing from the State’s short-term investment pool, which contains cash balances in the State Treasury not required for immediate use. However, the reported deficit did not include almost $50.4 million in Program expenses that the Department paid primarily from its General Fund appropriations. Considering the expenses paid with non-Program funds, the Program’s effective operating deficit would be $70.7 million as of March 31, 2017.

Key Recommendations

• Take steps to improve monitoring systems to ensure expenses are appropriately charged to the Program.
• Work with relevant stakeholders to develop a strategy to bring the Program into self-sufficiency, in compliance with the federal Clean Air Act.