State Money Helped Dairies Dirty the Air

Over the last four years, nearly $70 million in state bond money designated for pollution control has financed a score of giant dairies that have helped turn the San Joaquin Valley into the nation’s most polluted air basin.

In several cases, the tax-exempt, low-interest loans to fight pollution have been used by dairymen to close smaller operations in Chino and open dairies with as many as 14,000 cows each in the valley, which produces more milk than any other region in the country but has more violations of the eight-hour ozone standard than even Los Angeles.

“It’s hard to believe that low-interest loans set aside by California to fight pollution are instead being used to expand some of the biggest polluters in agriculture,” said Brent Newell, an attorney for the Center on Race, Poverty & the Environment, a San Francisco-based law firm that has joined the Sierra Club to fight the expansion of industrial dairies.

State Treasurer Phil Angelides, who heads the Pollution Control Financing Authority and approved the loans, now says the $70 million in bond money for dairies was misspent. He said the blame lies not with the dairy farmers but with the pollution control authority, which failed to scrutinize the environmental impacts of the big dairies.

In their loan applications, the farmers stated that their bigger dairies would provide an “environmentally sound method of disposing of animal waste.” By expanding their acreage, they would have more land to spread manure, and thus lessen its effects on groundwater.

But Angelides now says that this reasoning was faulty and that the dairies never should have received the bond money. The larger dairies might have made some progress in protecting groundwater, but they continue to rank among the major air polluters in the San Joaquin Valley, according to local regulators. Simply put, more cows mean more gases are released into the air to form smog and particulate pollution.

Angelides said only businesses that take important steps to curtail their pollution should qualify for the financing. The 18 dairies awarded state bond money since 2001, by contrast, never offered any plans to use new air pollution control technology, he said.

Citing the concerns of the Sierra Club and others, Angelides has decided to freeze an additional $24 million in loans approved this year for a new set of dairies.

“We’re going to stop financing dairies until we can do a comprehensive review,” Angelides said. “In the future, I’m going to press hard to make sure that any dairy we finance will be taking steps to resolve environmental problems, not contribute to them.”

The decision to finance dairies -- and now declare a moratorium on that funding -- is a setback to a program that the state treasurer has worked to reform since taking office in 1999, making the bond money available to a broader range of industries.

David Albers, whose 4,000-cow dairy in Fresno County got a $5.8-million loan at 1% interest in 2003, said he thinks his new dairy deserved the financing.

“It’s remarkable that Phil Angelides is now saying that his own agency has fallen short, but we didn’t do anything wrong,” he said. “We went through the process and got the money fair and square.”

Albers emphasized that his new dairy warranted funding because it posed fewer risks to groundwater than his old dairy had. “We have about twice as many acres as we need to handle the manure that we produce,” he said. “The chances of our new dairy polluting the groundwater are slim and none.”

But Albers and other dairy farmers acknowledge that they continue to use an old recycling system that adds considerable pollutants to the air. Dairy waste is shunted into large, open-air lagoons that cook in the sun. Those lagoons emit millions of pounds of smog-forming gases each year, according to regulators at the San Joaquin Valley Air Pollution Control District.

In addition, they say, dairies here account for more than 100 million pounds of ammonia per year -- a major source of particulate matter that can lodge deep in the lungs and cause disease.

Over the last six years, the San Joaquin Valley has violated the national eight-hour ozone standard 689 times, as opposed to 569 violations for the South Coast Air Quality Management District. The eight-hour measure is now regarded by federal regulators as the best standard for gauging the effects of smog. Los Angeles and Houston still lead the nation in one-hour peak violations.

The recycling process used by dairies also carries risks to the water supply, say state water regulators. As dairies spread their liquid and dry fertilizer on adjacent cropland, it can leach into the aquifer or run off into rivers. One Solano County dairy receiving the bond financing was fined recently by the state for spilling 1.3 million gallons of liquefied manure into local irrigation canals.

State records show that the pollution control authority under Angelides never required the dairies to employ methane digesters or other new technologies that enclose lagoons and reduce the amount of harmful gases. Neither did the agency encourage stricter standards on lining the lagoons with clay and other material to protect groundwater.

“The state has missed a major opportunity to push these big dairies in the direction of new pollution control methods,” said Vicki Lee, a Sierra Club member in Sacramento who first questioned the dairy loans in an Aug. 30 letter to Angelides. “The dairies haven’t taken a single step to justify this financing.”

The pollution control board’s rationale in awarding the loans was clearly wrong, Angelides now says. In every instance, the three-member board -- which includes state Controller Steve Westly and the governor’s finance director, Donna Arduin -- cited the same reason: Each new or expanded dairy would benefit the environment by diverting waste from a state landfill.

But dairies, by long-standing practice, do not send their waste to landfills. The dumping fees alone would be prohibitive. “Diversion from landfills is not accurate,” Angelides said. “That’s a staff error.”

The controversy over the dairy loans has shined a light on a rather obscure state program that delivers hundreds of millions in tax-exempt revenue bond money to fight pollution.

The pollution control financing board was established by the Legislature in 1972 “to provide industry within the state, irrespective of company size, with an alternative method of financing” to build or expand pollution control facilities. After the authority approves a project for financing, the tax-exempt, variable-rate bonds are sold to money market funds, insurance companies and other investors.

In the early years, much of the financing went to Mobil and Arco, Southern California Edison and Pacific Gas & Electric to fund programs that cut back on their pollutants.

Under Angelides, the board has moved away from financing oil companies and utilities and began awarding loans as large as $91 million to solid-waste firms now required under law to recycle and reduce garbage at landfills. Angelides said he has tried to direct more of the agency’s $200 million to $300 million in annual pollution control bond funds to projects that carry a real potential for environmental cleanup.

“When I came here, we wanted to turn it into a much more aggressive, cutting-edge, environmentally friendly authority,” he said. “And I think we’ve done that.”

Three years ago, for instance, the board gave a $15.4-million loan to a cheese manufacturer in Tulare County to install a state-of-the-art waste recovery system. This year, the board has given initial approval for $89 million in financing to a Glenn County company that will produce fiberboard by recycling 200,000 tons of rice straw each year.

In the case of the dairies, most recipients have been financed under the agency’s so-called Small Business Assistance Fund. The fund has allowed each dairy to also receive grants of up to $250,000 to cover the loan’s administrative costs.

At least six of the dairy farmers who got financing have consolidated or closed operations in Chino and other Southland cities where suburbia continues to swallow up farmland. By selling their land to developers, many third-generation Dutch and Portuguese dairy farmers have become wealthy. But it also has sent them over the mountain to the San Joaquin Valley in search of dairy land for their children and grandchildren.

The dairies now rising in Kern, Tulare, Kings and Fresno counties are among the nation’s largest, transforming the middle of California into a milk-producing marvel even as they pollute the air and threaten to degrade the groundwater. Nearly 2 million cows are spread out over 625 dairies across the San Joaquin Valley, industry figures show.

Outside Bakersfield, the B&B;, a dairy owned by James Borba, who received $8 million in state bond money at 1.1% interest last year, milks 14,400 cows. His cousin, George Borba, has built his own 14,400-cow dairy next door with $3.8 million in state bond financing.

Like the Borba dairies, Albers’ Vintage Dairy on the far west side of Fresno County is built on an industrial scale. More than 4,000 Holsteins feed in tight stalls in open-air metal barns bigger than football fields. Twice a day, like clockwork, comes the call of the milking line.

Albers’ dairy produces not only a river of milk, but also 9,000 tons of wet sewage a year, according to state bond documents. Dairy experts say that is the equivalent waste of a city of 80,000 people.

“Yes, big dairies do emit certain pollutants,” Albers said. “So doesn’t it make sense for society to allocate resources to control that pollution?”

As a condition of the $5.8-million loan, the pollution control board never required Albers to install technology to reduce pollutants from the lagoons. Instead, Albers bought enough adjacent land to plant 2,500 acres of corn, alfalfa and wheat. That way, the manure from his cows can be completely utilized as fertilizer.

“No, we don’t have any of the new technology, but we’re using manure to grow crops and enrich the soil,” said Albers, a third-generation dairyman who practices law in Bakersfield. “This new dairy is much more environmentally efficient than our older one.”

But regional air district regulators point out that before cow waste is spread as fertilizer, it releases much of its reactive and other gases into the air. Whatever efficiency Albers has gained by building a new dairy, they say, he will more than offset by eventually doubling the size of his herd to 8,000 cattle.

Part of the problem, Angelides said, is that local and state regulators have been toothless in holding dairies to more rigorous standards.

Last month, for instance, the San Joaquin Valley Air Pollution Control District delayed requiring dairies to install new technologies to reduce air pollutants. Likewise, the Central Valley Regional Water Quality Control Board is monitoring fewer than 15% of the dairies for groundwater impacts.

Angelides said the pollution control financing board under his leadership shared the blame.

“In absence of those tougher standards from regulators and the Legislature, I’m going to now urge the board to set our own tough standards,” he said. “If we decide to finance dairies in the future, the pollution controls will be real.”