Legislative Analyst's Office

Analysis of the 2001-02 Budget Bill

Secretary for Environmental Protection (0555)

The Secretary for Environmental Protection heads the California Environmental Protection Agency (Cal-EPA). The secretary is responsible for overseeing and coordinating the activities of the following departments that make up Cal-EPA:

The budget combines the secretary's budget with that for "Special Environmental Programs," which was previously budgeted separately. For the budget year, Special Environmental Programs include five agency-wide activities: permit assistance centers, scientific peer review, enforcement, the design and testing of environmental management systems for businesses, and the Circuit Prosecutor Project. The Circuit Prosecutor Project provides training and funds for local enforcement of environmental laws in rural areas.

The budget proposes expenditures of about $11.3 million for the secretary (including Special Environmental Programs) in 2001-02. Of the proposed expenditures, about $5.4 million is for the Office of the Secretary ($2.5 million, or 86 percent, above estimated current-year expenditures) and $5.9 million is for Special Environmental Programs ($1.2 million, or 26 percent, higher-than-estimated current-year expenditures).

The total increase of $3.7 million reflects (1) $1.3 million to design and test environmental management systems, (2) $900,000 to assist rural agencies implement the Certified Unified Program Agency (CUPA) program, and (3) $799,000 for positions (transferred from DTSC) to oversee the CUPA program. The budget also proposes $1.9 million to continue 24 limited-term positions within the agency (the secretary's core staff) set to expire on June 30, 2001.

Environmental Management Systems Proposal Premature And May Be Outside Secretary's Authority

The budget's proposal for a substantially expanded program to design and test environmental management systems (EMS) is premature, pending the evaluation of a pilot program recently initiated. Additionally, elements of the proposal may fall outside the secretary's statutory authority. We therefore recommend the deletion of $1,272,000 from the General Fund and 8.5 positions for EMS. (Reduce Item 0555-001-0001 by $1,272,000.)

Legislature Establishes EMS Pilot Program. As part of the 1999-00 Governor's Budget, the Governor proposed $499,000 and 4.5 positions for a pilot program to test the use of EMS in a number of individual businesses. Basically, an EMS is a process by which a business manages its operations in such a way as to meet specified environmental targets. This is done by evaluating the business' impacts on the environment as a whole and seeking ways to reduce those impacts.

These management systems are "performance-based" in that businesses are given the latitude to find the most cost-effective ways to meet the environmental targets. As such, EMS are a departure from existing environmental regulation which in general is of a "command-and-control" nature. Command-and-control environmental regulation typically requires businesses to meet minimum standards based on pollution type (air, water, et cetera), by prescribing the technology necessary to meet these standards. The 1999-00 proposal provided that certain voluntary international standards—the ISO 14000 standards—be the basis for the environmental targets in the pilot program. The proposal also stated that the EMS initiative would allow Cal-EPA "to achieve regulatory efficiencies in the areas of permitting, monitoring and reporting, and audits and inspections."

The Legislature raised a number of concerns about the EMS proposal at hearings on the 1999-00 Governor's Budget. In particular, the Legislature raised concerns about whether a business under EMS would be subject to different (and potentially lower) environmental standards than required under current law. The Legislature also raised concerns that the secretary lacked the statutory authority for the pilot program. As a consequence, the Legislature enacted Chapter 65, Statutes of 1999 (AB 1102, Jackson) to provide parameters for the pilot program. In addition, Chapter 65 limits the program to test up to eight businesses and sets January 1, 2002 as the program's expiration date.

The purpose of the pilot program is to enable the secretary to evaluate whether and how the use of an EMS by a regulated business (1) increases public health and environmental protection and (2) provides the public with better information on the public health and environmental impacts of that entity's activities. The secretary is also required to report quarterly to the Legislature on the program's implementation.

In July 2000, the secretary selected seven businesses to pilot test EMS.

Budget Proposal Greatly Expands Funding. The budget proposes $1,272,000 from the General Fund and 8.5 positions in 2001-02, on a permanent basis, for an EMS initiative. This would substantially expand, and make permanent, the current pilot program.

As with the 1999-00 budget proposal for EMS, the stated goal of the initiative is to design and test a process by which businesses would be encouraged to manage their operations so as to meet "environmental targets." Unlike the 1999-00 proposal, however, there is no reference to "ISO 14000" standards. Rather, the initiative provides that the secretary would develop environmental improvement targets on a statewide and regional basis, as well as for a number of individual businesses that would be chosen to test EMS.

The proposal would allow the secretary to enter into negotiated agreements with businesses to set the targets that would apply to the business. Targets would be set at a level higher than current regulatory requirements. In exchange, the secretary would "commit to seek the necessary changes in practice, policy, regulation or law to achieve a more rational regulatory regime." Our understanding is that the "relief" afforded the pilot businesses in exchange for meeting higher standards may take a number of forms. For example, the businesses could be granted flexibility in how the standards can be met. In addition, problems with overlapping or duplicative regulations could be addressed.

Budget Proposal Is Premature. The secretary has not had an opportunity to evaluate the existing EMS pilot test cases as these were chosen only a few months ago. As a consequence, the secretary is not yet able to answer the questions posed by the Legislature in Chapter 65 about the impacts of EMS. Until there has been a full evaluation of the existing pilot cases, we think that the budget proposal to make the program permanent is premature.

Budget Proposal May Fall Outside Secretary's Statutory Authority. In addition to being premature, we are concerned that elements of the proposal may be outside the secretary's authority under current law. Given that the secretary is not a regulatory agency, but rather oversees boards and departments that have regulatory authority, the secretary may not have the statutory authority to grant regulatory relief to the pilot businesses. If the secretary is to have this authority, we think that it should be clearly authorized in statute. For the reasons stated above, we recommend the deletion of $1,272,000 from the General Fund, and 8.5 positions, for the EMS initiative.

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