Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

Department of Pesticide Regulation (3930)

The Department of Pesticide Regulation (DPR) administers programs to protect the public health and the environment from unsafe exposures to pesticides. The department (1) evaluates the public health and environmental impact of pesticides use; (2) regulates, monitors, and controls the sale and use of pesticides in the state; and (3) develops and promotes the use of reduced-risk practices for pest management. The department is funded primarily by an assessment on the sale of pesticides in the state.

The budget proposes expenditures of about $53.3 million and 359 positions in 2003-04 for the department, including $50.2 million from the DPR fund (funded mainly by an assessment on pesticide sales). The proposed expenditures are $1.1 million, or 1 percent below estimated current-year expenditures. Major budget proposals include shifting nearly all General Fund support ($10.5 million) to fees, elimination of the Marketplace Surveillance Residue Program, and elimination of funding for pesticide source identification in water bodies.

Governor's Proposal to Increase Fee-Based Support

The budget proposes to create General Fund savings of $10.5 million by increasing the level of fee-based support for the department. At the time this analysis was prepared, the department was late in submitting a statutorily required report that is important for the Legislature's evaluation of the Governor's proposal.

Governor's Budget Proposal. For 2003-04, the budget proposes $50.2 million from the fee-supported DPR Fund for DPR's state operations and local assistance programs. The budget shifts $10.5 million of departmental costs from the General Fund to the DPR Fund, resulting in virtually no General Fund remaining in DPR's budget.

According to the Governor's budget documents, the basis for the proposed shift of funding from the General Fund to fees is the implementation of the polluter pays principle. This principle provides that private individuals or businesses that use or degrade a public resource (such as air, water, or wildlife) should pay all, or a portion of, the social cost imposed by their use of the resource.

To generate the additional fee revenues, the budget proposes two main changes. First, the budget proposes to raise the statutory cap on the mill fee from 17.5 mills to 27 mills ($0.0175 to $0.027), while allowing the department, through the regulatory process, to set the mill rate each year depending upon projected revenue. For 2003-04, a 25 mill assessment ($0.025) is estimated to cover state costs proposed in the budget.

Second, the budget proposes to increase fees on most licenses issued by the department (pest control business, maintenance gardener, qualified applicator, pest control advisor), as well as to increase exam and continuing education fees. The proposal calculates the new fee amounts by applying a cost-of-living adjustment from the time that the fees were last raised (mainly 1986 and 1987). The proposal also shifts the authority to change these fees from statute to regulation, thereby permitting the department to adjust the fees in future years. The one exception to the increases in fees is the registration program where no increase is proposed. We discuss this aspect of the fee proposal later in this analysis.

AB 780 Report Late. Chapter 523, Statutes of 2001 (AB 780, Thomson), required the department to report by January 1, 2003 both on the level of funding necessary to maintain statutorily mandated programs at the department as well as how the department proposes to provide this funding. At the time this analysis was prepared, the department had not submitted this report to the Legislature. While the budget proposal appears to address the issue of the need to establish a long-term funding mechanism for the department, it does not provide detailed information on how the department came to its determination on the level of program activity on which the fee proposal was based. We think it is necessary for the Legislature to have the AB 780 report so it can evaluate fully the Governor's fee proposal in context of total program funding requirements. We recommend that the department provide this report to the Legislature prior to budget hearings for its evaluation.

In the sections that follow, we raise two issues about the Governor's fee proposal for legislative consideration. 

Recommend Different Mixture of Fees to Generate Proposed Revenue Increase

We find the Governor's fee proposal does not increase registration fees to cover the cost of the pesticide registration program. Further, the fee structure does not differentiate between registration of restricted materials and all other pesticides. We therefore recommend an increase in registration fees to cover the cost of the program and a tiered fee structure to reflect the additional program costs associated with registering restricted materials.

Registration Fees Should Be Raised to Cover Program Costs. In order for a pesticide manufacturer to sell a pesticide product in California, it must register the product with the department. (The department provides scientific review to determine application procedures which are then included on the product label prior to sale.) The Governor's fee proposal exempts registration fees from being raised. Rather, the budget proposes to replace approximately $6.6 million in General Funded registration program costs with the mill fee. (The pesticide registration program's budget is about $9 million, of which $2.4 million comes from a $200 fee on registration applications.) We think there is a clear nexus between the fees paid by pesticide registrants and the work conducted by the department in the registration program. However, the current fees do not cover the state's costs in this program. We recommend that in enacting fee legislation, the Legislature increase registration fees to cover the cost of the registration program. By doing so, the level of the mill fee required to fund other program activities would be lowered accordingly. According to the department, each $100 increase in registration fees would raise approximately $1.2 million annually.

Registration Fees Should Reflect Higher Program Costs Associated With Restricted Materials. In addition to increasing registration fees to cover program costs, we think that the Legislature should consider refining the registration fee structure to reflect the higher program costs associated with the registration of restricted materials. Restricted materials are those pesticides deemed to present special hazards to health or the environment if misused. Before each use of a restricted material, a pesticide applicator must obtain a permit that requires an environmental review equivalent to a California Environmental Quality Act review. The basis of this environmental review is determined during the registration process when the department determines the appropriate application of the pesticide product to avoid environmental or human health impacts. Although current law does not provide a higher registration fee for restricted materials, we find that the process to register a restricted material requires significantly more staff time than other pesticides, both at the state and County Agriculture Commissioner (CAC) level. (The local CACs receive a portion of the mill revenues to fund their programs.)

We therefore recommend the enactment of legislation establishing a tiered fee structure for the registration fee so that a higher fee is imposed on registrations involving restricted materials. Such a higher fee would reflect the higher state costs of this type of registration. There is precedence in other areas of environmental regulation for such a tiered fee structure. For example, the waste discharge fees assessed by the State Water Resources Control Board (SWRCB) are based on the complexity of the permit and risk to human and environmental health. Permits involving greater complexity and higher risk to health are charged a higher fee while permits with less complexity and lower risk are charged a lower fee.

Governor's Fee Proposal Is Step in Right Direction, But Should Go Further

We find the Governor's proposal to shift nearly all General Fund support in the department to fees is a step in the right direction. However, we think the proposal should go further and therefore we recommend the enactment of legislation shifting the funding for pesticide-related programs in other agencies to pesticide fees. (Decrease Item 3600-001-0200 by $100,000, decrease Item 3600-001-0001 by $70,000 and create Item 3600-001-0106 for $170,000; decrease Item 3900-001-0044 by $300,000, decrease Item 3900-001-0001 by $200,000 and create Item 3900-001-0106 for $500,000; decrease Item 3940-001-0001 by $2 million and create Item 3940-001-0106 for a like amount; decrease Item 3980-001-0001 by $600,000 and create Item 3980-001-0106 for a like amount.)

Proposed Fund Shift Is Step in Right Direction, But Should Go Further. We think that the budget proposal to shift General Fund support of the department's programs to fees is a step in the right direction. We agree with having the polluter pays principle guide the funding of this program. In addition, we think that registrants of pesticides for sale in the state as well as pesticide users benefit directly from the department's permitting, enforcement, and related activities since these activities allow for pesticide sales and pesticide use in the state as part of business operations.

However, we think that the proposed fund shift does not go far enough. We think that the workload of other state agencies associated with regulating pesticides should also be fee based, including work conducted by the Air Resources Board (ARB), Department of Fish and Game, Office of Environmental Health Hazard Assessment, SWRCB, and Department of Health Services (DHS). The California Department of Food and Agriculture currently receives reimbursements from the DPR Fund for its work on pesticides. Figure 1 (see next page) describes the work conducted by these state agencies and the approximate level of funding proposed for this work in the budget year. 

Recommend Greater Funding Shift to Fees. In order to fully apply the polluter and beneficiary pays principles to funding the state pesticide-related workload, we recommend the enactment of legislation increasing pesticide fees, including the mill assessment, to fully cover the cost of pesticide-related programs in other agencies. This funding should be a direct appropriation from the DPR Fund to the agency conducting the work. We further recommend that DHS and SWRCB report prior to budget hearings on the level and source of funding for all pesticide-related programs at their agencies so that the Legislature can consider shifting funding in these agencies to pesticide fees.