CARB audit request killed by Democrats

Aug. 10, 2012

By Katy Grimes

The California Air Resources Board seems to be on everyone’s list of what not to do in state government. Charged with implementing AB 32, the California’s Global Warming Solutions Act of 2006, CARB is under increasing scrutiny for operating as a rogue agency, appearing to be accountable to no one.

All attempts to reel in the agency have failed, including another attempt to audit its operations and finances–thanks to Democratic legislators who clearly are getting marching orders from Assembly and Senate leaders.

A Joint Legislative Audit Committee hearing on Wednesday brought CARB close to accountability with the threat of the six-month state audit. But the committee chairman, Assemblyman Ricardo Lara, D-Bell Gardens, surprised everyone when he nixed the plan after having made the pretense that he was on board.

CARB and AB 32

In 2006, the Legislature promised that AB 32 would help clean the environment while still protecting the economy. Supportive legislators promised that utility and gasoline costs would not increase with the implementation of the climate change law.

The opposite has happened, and businesses are now being severely taxed by CARB just for doing business in California. And most business owners are up in arms over CARB’s inability to justify its fees, or even explain where the money is going.

Don’t you trust us?

Sen. Bob Dutton, R-Rancho Cucamonga, brought the latest request to the Joint Legislative Audit Committee, asking for a top down audit of the Air Resources Board, as well as an audit of Western Climate Initiative, Inc., the corporation formed by CARB in Delaware to conduct and manage the state’s cap and trade program.

All previous requests from legislators and business representatives for financial and operational information from CARB have been met with a wall of silence, or garbage document dumps. CARB’s public hearings have largely been a charade of the open meeting laws, particularly after CARB Chairwoman Mary Nichols abruptly ended the public comments at the July board meeting, shortly after they began.

Frustration with CARB

Out of frustration, and after numerous requests for information from CARB fell on deaf ears, “13 associations representing the regulated parties, small businesses, and taxpayers, filed a Public Records Act request to obtain substantiation for how the initial $57 million, for the program’s first two fiscal years, was spent,” Dutton reported in a March op ed.

“CARB grudgingly released some records at intermittent intervals, but withheld nearly 50,000 pages of documents.  The records released fell far short of providing a clear picture of where those millions went.”

An independent economist was finally brought in to examine CARB’s financial records and reported, “Only 46 percent of 2008-2009 expenditures and only 36 percent of 2009-2010 expenditures, claimed by CARB were documented,” according to Dutton. “And only 40 percent of CARB’s claimed AB 32-related costs were documented — with 60 percent remaining unsubstantiated, including expenditures of more than $26 million for salaries and almost $4 million for administrative overhead over a two-year period.”

As a result of the economist’s report, Dutton filed a request with the audit committee hoping to discover:

* If CARB’s cost allocation methods comply with applicable laws;

* Were CARB’s methods for allocating salaries, benefits and operating expenses reasonable, and did they comply with applicable state laws and Department of Finance regulations for accounting for agency expenditures?

*What method did CARB use to determine the $62 million in total required revenue for 2011-2012?

CARB’s corporate tax haven

Operations at WCI Inc., the corporation created by CARB to manage the upcoming cap and trade auctions, have been a mystery. The problem is that Western Climate Initiative Inc. was formed in Delaware.  Delaware is not subject to California state open meeting or sunshine laws, leaving many questioning why CARB opted for such secrecy in a well-known tax haven state. The only reason to register the corporation in Delaware is the lack of public or legislative scrutiny on any of the meetings they may have, or actions they may take—despite that they are operating solely on behalf of a state agency.

When it became apparent that CARB’s shell game was nearly up, Democrats pulled a shiny new shell out of their bag of tricks.

Despite legislative and public outrage over the shroud of secrecy at CARB, Assembly Speaker John Perez is said to have crafted the language for the June budget trailer bill, which exempted WCI Inc. from California’s open meeting laws.

The word in the halls of the Capitol is that Perez also convinced Lara to kill Dutton’s audit request on Wednesday.

Government Code 11120, the Bagley-Keene Open Meeting Act, was explicitly exempted in the language of June budget trailer bill, SB 1018, a last minute gut-and-amend bill.

Buried in SB 1018 was only one line which very specifically exempted CARB from open meeting rules in upcoming cap-and-trade auctions, allowing CARB’s WCI Inc. to manage carbon trading auctions without any public scrutiny.

But at Wednesday’s hearing, Nichols cavalierly assured committee members that there would be access to WCI Inc. records. Nichols was short tempered at the hearing, and prickly with legislators’ questions about the operations and finances of her agency. “Because the project is controversial, people want to see more,” Nichols said about the latest attempt to acquire information about CARB and WCI Inc.

Dutton said that he had been on the Budget Committee for six years, and only found out about the existence of WCI Inc. by chance from another colleague in passing. “Transparency and credibility is not there,” Dutton said about the agency.


The outrage comes from the sole purpose of WCI Inc. — to impose hidden taxes on energy customers, as well as large and small businesses, without accountability or public knowledge.

Once California legislators, businesses and the AB 32 Implementation Group started publicly grilling the California Air Resources Board about how and why WCI Inc. was formed and registered in Delaware, employees at CARB really clammed up.

CARB claims that it created the WCI Inc. “to perform administrative and technical services to support the carbon trading market, including market monitoring of allowance auctions, and market trading of compliance instruments.” But they’ve never explained why it was registered as a Delaware corporation, and not registered instead in California, just as the businesses CARB regulates are.

On the WCI Board of Directors are Matt Rodriquez, the newly appointed secretary for the California Environmental Protection Agency; James Goldstene, CARB Chairman and CEO; and the equivalent officials for the Canadian provinces of British Columbia and Quebec. No other American states are involved.

How dare you ask me that

When asked at a recent legislative hearing why WCI was registered in Delaware and not in California, CARB Deputy Director Richard Corey didn’t have a valid answer and stammered, “WCI is an established … it’s a program to link with others.” After hemming and hawing, Corey then offered, “Many California companies are incorporated in Delaware, like Chevron and Disney. And the Delaware incorporation law is taught in law schools around the country. It was on the advice of counsel.”

California has open meeting laws and open hearing regulations. The money passing through WCI Inc. is public funds — unlike Chevron and Disney’s funds, which are private.

But the committee chairman, a Democrat, would not push Corey to provide a satisfactory answer.

The damning proof that there is something unsavory with registering WCI Inc. in Delaware is the sneaky, last-minute budget bill, SB 1018, which claimed to establish transparency in establishment of non-governmental agencies, but then exempted WCI Inc.

CARB officials finally realized that they had a big problem, and must have commissioned help from Democrats. Because if any members of the California Air Resources Board sits on the WCI Inc. Board of Directors, they must comply with California’s open meeting laws.

Behavior unbecoming public officials

With all of these shenanigans coming from a public agency, many legislators have had enough of the rogue agency. The audit request comes after many lawmakers have made requests to CARB for information about the Cap and Trade program, as well as how CARB has calculated what fees to charge companies they deem polluters.

According to legislators and many trade and business associations representing the regulated industries, CARB has steadfastly and stubbornly refused to release sufficient documentation to justify the fee based program, despite a 2009 request under the California Public Records Act to release records that would substantiate how $57 million in special funds during the first two fiscal years was spent.

After being sued under the Public Records Act, CARB finally released some records, but continued to withhold nearly 50,000 pages of documents.

The audit committee killed the request to audit CARB, surprising many, and killing yet another chance to shine some light onto the dark, unaccountable state agency. “I am content with the transparency,” Lara said at the end of the hearing, “particularly since SB 1018 was passed,” he added.

Legislators, businesses, industry associations and voters still have so many questions about the Cap and Trade program, its implementation and the fees charged. These people want to know where the money is going. And they still are seeking information about the Delaware corporation, WCI Inc.. Given that AB 32 was passed and signed into law in 2006, it is apparent that CARB has not adequately ever answered lawmakers or the public.

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