Toss Fraud-Ridden State Program and Recycle E-waste a Better Way

Vol. 16 No. 30, August 18, 2010

Toss Fraud-Ridden State Program and Recycle E-waste a Better Way

By K. Lloyd Billingsley, editorial director

SACRAMENTO—California’s Electronic Waste Recycling Act (EWRA) is a magnet for fraud on a massive scale, totaling tens of millions of dollars, as Tom Knudson revealed in a recent Sacramento Bee investigation. The report provides solid evidence why California should toss this government program and follow the lead of other states with more creative solutions.

According to Mr. Knudson, state officials have been aware of the problems. Ineligible claims totaling as much as $30 million may have inadvertently been paid. The state Department of Toxic Substances Control has investigated more than two dozen companies for fraud but “none has been fined or prosecuted.” California officials fail to investigate illegal e-waste they know is flowing in and drawing public funds for recycling.

Some observers blame “greed” for poisoning the program, but the problem lies elsewhere. Faced with various choices on recycling, California opted to tax consumers to create a government-run e-waste bureaucracy. The Bee investigation notes that “other states have shunned that model.” They have good reason to do so.

Under EWRA, recycling a single electronic item requires 12 distinct transactions across three separate agencies, according to California’s E-Waste Wa$te, a 2009 PRI study. From 2004 to 2008, expenses in the program grew nearly three times faster than revenue. Yearly payments exceeded $150 million, according to the E-Waste study, and the California Department of Finance identified the program as a “high risk for fraudulent activities.”

As Mr. Knudson outlined, those activities have continued unabated but the Bee investigation provides little evidence that EWRA can be fixed. It does, however, point in the right direction. Two years ago state officials met with recyclers and discussed solutions, “including whether the state should be in the e-waste business at all.”

California’s E-Waste Wa$te recommends that the legislature repeal EWRA “and adopt an alternative, flexible framework that abandons the current government-run system in favor of innovative, manufacturer-led recycling solutions. Other states are rapidly adopting this model as market forces prove effective at driving the development of creative e-waste strategies.”

Texas, Virginia, Missouri and Oklahoma require only that manufacturers have a recycling strategy and “this framework affords maximum flexibility to develop creative new programs of forge partnerships with other manufacturers, retailers, and entrepreneurs.”

The E-Waste study further urges California to collaborate with other states to streamline e-waste laws and make them consistent. Instead of punishing consumers with e-waste fees imposing mandates on manufacturers, the government should develop education campaigns to increase awareness of industry-led recycling initiatives. And California can also set a better example.

In fiscal year 2009, the E-waste study also notes, state agencies spent $6 billion on technology, yet government officials fail properly to recycle most obsolete electronics. According to an analysis by the California Bureau of State Audits, more than 92 percent of e-waste at three agencies may have simply been discarded in the trash. California should now discard EWRA, and take an opportunity to learn some lessons.

Recycling e-waste is a worthy cause, but good intentions do not guarantee favorable results, environmentally or financially. Neither can government management ensure success. And as in Field of Dreams, if a state builds a program that is an open invitation to fraud, be sure fraudulent operators will come. The EWRA also shows the danger of governments taking on new tasks when they are failing to perform well at their regular duties.

With high unemployment, massive debt, and a budget deficit in the neighborhood of $20 billion, the Golden State can ill afford a costly and inefficient recycling program riddled with fraud. California should follow the lead of other states with a market-based program.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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