Department of Toxic Substances Control Department of Toxic Substances Control
 

Cost Recovery Questions and Answers

 

How much money has DTSC spent on cleanups?

Since its inception in 1987, the department has spent more than $1.8 billion overseeing the cleanup of contaminated properties by other parties or cleaning up contaminated properties itself.  

What is the cost recovery problem?

On May 31, 2013, DTSC publicly disclosed that we had not recovered $184.5 million at 2,576 cleanup sites. Of that amount, $140 million of the costs were unbilled and $45 million were billed but uncollected. We refer to this as our "backlog." It was for the period between July 1987 and December 2012.

What progress has DTSC made recovering that money?

As of May 12, 2014, DTSC had reduced the number of sites with unbilled or uncollected balances by 902 – nearly a third of the cost recovery backlog. We also reduced the unrecovered balance by more than $34 million. It is difficult to determine how much of that money has been collected. Our financial system is so archaic that the information we can collect and the new reports we can create is limited. We are working on how to get better details. In addition to the $34 million reduction, DTSC is pursuing legal action on several sites with unresolved balances of nearly $73 million. That includes referrals to the Attorney General's Office for litigation and bankruptcy action.

What about the rest?

DTSC has mapped out a plan to address the remaining backlog. A copy of the workplan – a blueprint for addressing our cost recovery backlog –can be found here.

What has been done to fix the problem?

A Cost Recovery Team created to address the issue has implemented a number of measures:

·A new billing procedure that requires a responsible party to pay for costs leading up to an agreement, not after the agreement is executed, as was previously the case.

·A centralized process for issuing collection letters that increased the consistency and frequency of when letters are sent. The department has issued more than 2,400 collection letters since November 2012 using this new process.

·The team developed a comprehensive draft set of cost recovery policies and procedures to ensure DTSC recovers its costs in the future. More than 400 employees with cost recovery responsibilities have been trained on the 27 new procedures.

·In recognition of DTSC's dedication to resolving its cost recovery issues, the Governor's Office and the Legislature showed their support for the Department by approving our request for 14 two-year positions to assist with efforts. Those positions became effective July 2014.

What steps will DTSC take in the future to help recover costs?

·By fall 2014, the cost recovery policies and procedures will be fine-tuned to reflect feedback from staff who received training on the initial rollout. In 2015, a comprehensive cost recovery policy will be issued.

·By the end of 2015, DTSC will provide additional, intensive training to employees with significant cost recovery responsibilities.

·DTSC will adopt cost recovery performance metrics. We will issue quarterly updates on our resolution of the backlog and produce an annual report on our performance.

Will all of the money be recovered?

The cost recovery backlog includes thousands of sites, many of which appear to have no responsible party or a responsible party that has gone bankrupt or lacks the resources to pay for DTSC's response costs. In addition, many of the claims are old, and are not recoverable. So DTSC likely will not get back the full $184.5 million. The department will recoup as much of the costs as possible.

Have other state departments or agencies looked into the cost recovery backlog?

Yes, the Joint Legislative Audit Committee directed the California State Auditor to perform an audit of DTSC, and in January 2014, the California State Auditor's Office began their review. Their findings and recommendations are included in a report released on Aug. 7, 2014. The report both guides and validates DTSC's approach to addressing the backlog of costs.

What did the audit find?

DTSC has implemented standardized policies and procedures and trained more than 400 staff to ensure we do not face the cost recovery issue again. The audit did find that some of our procedures were lacking or were not followed. DTSC agrees that additional improvements should be made and concurs with the audit's recommendations. Some of the key issues were:

·To ensure DTSC maximizes opportunities to recover its costs, by January 2015, the department should develop a reporting function in its project management database to track and monitor the statute of limitations for its projects.

·By October 2014, the department should establish processes to monitor and verify that responsible party searches are properly reviewed and approved according to procedures.

·By October 2014, the department should develop written procedures for updating and monitoring its collection letter log.

What is DTSC's response to the audit?

DTSC concurs with the recommendations outlined in the audit findings, and in a letter to the California State Auditor's Office, said the Department "will assess its reform efforts to ensure that your recommendations are fully implemented." DTSC will provide the Auditor with progress reports on Oct. 7, 2014; Feb. 7, 2015 and Aug. 7, 2015. Those reports will be made public on DTSC's website.

The audit says the cost recovery backlog is $194 million, but DTSC has said it's $184.5 million. Why?

In May 2013, the Department publicly disclosed that we had not collected $184.5 million in cleanup costs between July 1987 and December 2012. The California State Auditor included 2013 data in its review, reflecting a new total of $194 million.

When will we know that DTSC is back on track in its recovery of cleanup costs?

When the department is back on track, cost recovery will be part of our day-to-day work, and all employees in the department will recognize that timely cost recovery is a central part of DTSC's mission to protect human health and the environment. We will post regular progress reports on our website.

Who is financially responsible for the cleanups?

State and federal law gives DTSC the authority to recover its "response costs" from "responsible parties" – those parties responsible for the contamination. Sometimes these responsible parties do not have the money to pay, refuse to pay or simply cannot be found.

What if there is no viable responsible party?

Despite the absence of a responsible party, DTSC has an obligation to clean up contaminated properties that pose an imminent and substantial endangerment to human health or the environment.

Why does DTSC spend money on cleanups when there is a possibility the money will not be recovered?

Not only do DTSC's cleanup efforts protect the health and safety of Californians, but DTSC's efforts facilitate the reuse and redevelopment of previously contaminated properties and avoid more costly cleanups "downstream," which would result, for example, if contamination has spread from soil to groundwater over time.

Why didn't DTSC's billing keep up with its cleanup efforts?

For years, DTSC prioritized the cleanup of contaminated properties over the process of pursuing responsible parties for reimbursement of DTSC's response costs. It lacked an effective system for evaluating whether costs are recoverable from responsible parties.