WASHINGTON - On Dec. 14, the National Paint & Coatings Association (NPCA) filed a lawsuit in the Superior Court of California challenging California's fee program for volatile organic compound (VOC) emissions authorized by legislative initiative AB 10X and enacted by California Gov. Gray Davis in March 2003. The program directs the state's Air Resources Board (ARB) to impose a "fee" for emissions from consumer products and architectural coatings sold in the state if a manufacturer's total statewide sales will result in the emissions of 250 tons or more per year of VOCs and increases fees for stationary sources (facilities).

"NPCA members operating in California are already burdened with significant emission restrictions and compliance costs," said NPCA Lead Counsel Heidi McAuliffe. "Now, AB 10X has imposed on them arbitrary and unjustified annual fees ranging from $14,000 to $725,000. Such fees amount to an unfair and illegal backdoor tax designed to solve the state's continuing budget deficit."

NPCA's complaint challenges the constitutionality of the statute and the regulation. NPCA argues that this "fee" is really a masked tax. Certain criteria must be met in order for the state to levy regulatory fees, and these "fees" eschew these criteria by a wide margin. NPCA is also arguing that even if the VOC Emissions Fee program is considered to be a "regulatory fee," it fails to meet the requirement that there be a close relationship between the fees imposed on the regulatory community and the agency programs that mitigate or reduce air pollution in the state created by these products, or nexus.

Ample evidence of an inadequate nexus lies in the fatally flawed theory of funding used to determine the fees. The regulations base the "fee" on a dollar amount per ton of VOC emissions. The equation to calculate the fee per ton relies on an inflated amount for ARB programs; it is not tailored to ARB programs that specifically address architectural coatings and consumer products. In just two years, the tax on emissions has increased from an estimated $57 per ton to $94.03. What's more, the pool of companies paying into the program has decreased as their total VOC emissions dip below the threshold of 250 tons of VOC. Each time the pool of paying companies is reduced, the remaining companies in the pool must pick up the difference to ensure the total budget hole is covered. NPCA believes that this glaring flaw is only exacerbated by the fact that as individual California air district rules require lower VOCs in industry products and technology develops to accommodate low-solvent products, the pool of paying companies will continue to shrink and the fee per ton will continue to increase exponentially because of fewer payers and lower VOCs. Consequently, this fee structure actually penalizes companies even as their total VOCs are being reduced.

NPCA President J. Andrew Doyle indicated that litigation was the "last thing that we wanted to get involved in. But the decision is easy when ‘regulatory fees' threaten to put our members out of business."