State environmental fund needs shoring up, DiNapoli says

Brian Nearing

Times Union

Mar 5, 2018

A key state fund for promoting environmental projects, hit by funding raids and sometimes plugged with one-shot revenues and borrowed money, will need shoring up financially in coming years, state Comptroller Tom DiNapoli said Monday.

In his review of the 25-year-old Environmental Protection Fund (EPF), DiNapoli also said the state has been lax in getting its due from millions of dollars of unclaimed bottle deposits, likely depriving the environmental fund of a reliable source of cash that it should be getting.

"We must ensure its sustainability as a dedicated funding stream to continue investment in these precious resources for future generations," said DiNapoli.

The report said "shortcomings" by the state Department of Taxation and Finance on unclaimed returnable bottle deposits also could be shortchanging the EPF, which since 2013 has been getting part of what can be $100 million annually in unclaimed deposits received by the state each year.

Since 2009, the stated has received more than $807 million in unclaimed deposits, with about $88 million of that being passed to the EPF.

Last December, a DiNapoli audit found tax officials were failing to follow up on "red flags" that indicated some redemption companies responsible for reporting unclaimed deposits could be making "material errors or ... fraudulent reporting."

That audit found that more than 10 percent of the 356 firms actively collecting bottle deposits from April 2014 to February 2017 were failing to submit quarterly reports that showed how much they were collecting, how much was going out and what was being kept from unclaimed deposits. Under law, the state gets 80 percent of unclaimed deposits, and redemption get the remaining 20 percent.

In other cases, some firms repeated identical figures across multiple quarterly reports, which "could indicate that (the company) is not reporting the actual amount of deposits collected and redeemed," according to the audit.

Firms that were allegedly due refunds from the state, because the program cost more to run than came in, failed to file for refunds, likely because to do so would require the filing of detailed records to justify the claim.

Tax officials responsible for the program "do not have procedures in place to verify the amounts reported or flag questionable reports for further investigation" and instead "accept the numbers reported ... at face value and (process) them," according to the audit

When the audit came out, tax officials said they were working on developing a system to require firms to provide information that supports their quarterly reports, penalize firms that do not report, and to automate the penalty system from the current manual process.

Tax spokesman James Gazzale could not update that progress on Monday.

Peter Iwanowicz, executive director of Environmental Advocates of New York, an Albany-based lobbying group, said the comptroller's report highlighted a "wobbly" financial structure that supports the EPF.

He said a reliable revenue stream for the fund could be created by applying a state fee on single-use plastic bags. Currently, there are proposals in the Legislature that call for fees of up to 5 cents per bag.

Since its creation in 1993, the EPF has spent about $2.6 billion on projects including municipal solid waste upgrades, local park improvements; open space and farmland preservation; and climate change mitigation and adaptation.

Most of the cash for the program comes from the state's Real Estate Transfer Tax, which applies on all property sold in the state. But the state has earmarked more for the EPF — some $3.4 billion— than it has spent, creating a pile of surplus cash that has proved irresistible to politicians seeking to balance annual budgets.

Since 2002, the state removed about $953 million from the program to spend elsewhere in government, and has replenished less than half of that with borrowed money raised by state bonds — which now leaves the EPF with a $507 million IOU, according to DiNapoli's audit.

Gov. Andrew Cuomo has made a point of increasing the EPF budget to $300 million in his last two budgets, reversing a trend where the budget was about $150 million annually in the wake of the economic recession that started in 2008.

In 2017, the EPF was supported by $120 million from a one-time settlement between New York state and banks over improper banking practices.