State Loans to Dairies to Be Halted

Citing harmful effects on air and water, a state agency voted Tuesday to impose a 90-day moratorium on awarding low-interest loans to California dairies.

State Treasurer Phil Angelides, who heads the Pollution Control Financing Authority, said his agency erred in loaning nearly $66 million in anti-pollution bond money to a score of giant dairies that have helped turn the San Joaquin Valley into the nation’s most polluted air basin.

He emphasized that future dairies seeking the tax-exempt financing would be turned down unless they came up with “innovative and advanced” technology to reduce pollutants from cows.

“I recognize the importance of the dairy and agriculture industry to California, but at the end of the day, we must do our utmost to protect our environment,” he said. “The Pollution Control Financing Authority needs to be financing projects that clean up our air and clean up our water.”

The three-member pollution control board -- which includes state Controller Steve Westly and the governor’s finance director -- decided to adopt new rules after a recent Times article revealed that the board had used false information to justify loans to 18 giant dairies at interest rates as low as 1%.

In every instance, state records showed, the board decided that the new dairies deserved the pollution-control loans because they were diverting thousands of tons of cow waste from landfills.

But dairies, by long-standing practice, do not send their waste to landfills. Instead, cow waste is shunted into large, open-air lagoons that endanger the groundwater and emit millions of pounds of smog-forming gases each year, according to regional air and water quality regulators.

“The information to justify the loans was wrong,” Angelides said at a news conference following the moratorium vote. “These were not the right facilities to finance.”

Environmentalists who first complained about the funding applauded the moratorium while dairy farmers said they still deserved the loans.

“We support the Pollution Control Financing Authority in its efforts to make the program as effective as it can be,” said Michael Marsh of the Western United Dairymen, which represents 1,100 dairy farmers statewide. “At the same time, we know that dairies were already undertaking serious pollution-control measures.”

Farmers who received the loans said their new dairies posed fewer risks to the environment. By expanding their acreage and growing crops, they had more land to spread manure, thus lessening the chances of contaminating the groundwater. But the bigger properties also allowed them to double and triple their herds, adding even more ammonia and reactive gases to the air, the farmers acknowledged.

The loan controversy has shined a light on a rather obscure state program that delivers hundreds of millions in loans to waste-disposal firms, oil companies, public utilities and other businesses that find innovative ways to curtail their pollutants.

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

“This moratorium closes a mega-loophole for mega-dairies,” said state Sen. Dean Florez (D-Shafter), who will hold a legislative hearing in December to examine the loan program. “Don’t come to the authority unless you have a proven technology to clean the air.”

Some leaders in the dairy industry have been pushing the technology of methane digesters, which enclose the lagoons and recycle methane gas as an energy source.

But because the digesters fail to remove ammonia and other gases that degrade air quality in the San Joaquin Valley, Angelides doubted they would qualify for a new round of anti-pollution funding.