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?"