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

Overview

The budget proposes significantly lower state expenditures for resources and environmental protection programs in 2003-04 compared to the estimated current-year level. This is mainly due to a substantial decrease in bond-funded expenditures for parks and water projects, even though the budget reflects a large infusion of funds from resources bond measures approved by the voters in 2002. The budget also proposes a lower level of General Fund expenditures for the budget year, reflecting the combination of generally small program reductions and the shifting of program funding to fees and bond funds.

Expenditure Proposals and Trends

Expenditures for resources and environmental protection programs from the General Fund, various special funds, and bond funds are proposed to total $5.1 billion in 2003-04, which is 5.3 percent of all state-funded expenditures proposed for 2003-04. This level is a decrease of about $1.4 billion, or 21 percent, below estimated expenditures for the current year.

Decrease Largely Reflects Reduction in Bond Expenditures. The proposed reduction in state-funded expenditures of $1.4 billion for resources and environmental protection programs largely reflects a $1.2 billion decrease in bond fund expenditures for park and water projects. Between 1996 and 2000, $5.1 billion of resources-related bonds were approved by the voters, and these funds have largely been drawn down. Although two resources bonds totaling about $6 billion were approved by the voters in 2002, the budget reflects the Governor's plan to spread expenditures from these funds over a period of several years.

The reduction in state expenditures also reflects a decrease in General Fund expenditures for various purposes, including emergency fire suppression and state flood control projects. Some of the proposed General Fund reductions do not result in overall decreased funding levels, as the budget proposes to shift funding in some program areas from the General Fund to fees or bond funds. In total, the budget proposes General Fund expenditures for resources and environmental protection programs in 2003-04 that are $232 million lower than the current-year level.

Funding Sources. The largest proportion of state funding for resources and environmental protection programs—about $2.1 billion (or 42 percent)—will come from various bond funds. The budget proposes a slightly less amount—$1.9 billion (38 percent)—to come from various special funds. These special funds include the Environmental License Plate Fund, Fish and Game Preservation Fund, funds generated by beverage container recycling deposits and fees, and an "insurance fund" for the cleanup of leaking underground storage tanks. Of the remaining expenditures, $1.1 billion will come from the General Fund (20 percent of total expenditures).

Expenditure Trends. Figure 1 shows that state expenditures for resources and environmental protection programs increased by about $2.9 billion since 1996-97, representing an average annual increase of about 13 percent. The increase includes about $200 million in General Fund expenditures and the remainder in special fund and bond expenditures. When adjusted for inflation, total state expenditures for resources and environmental protection programs increased at an average annual rate of about 10 percent. General Fund expenditures increased at an average annual rate of about 4 percent over this period. When adjusted for inflation, General Fund expenditures increased at an average annual rate of less than 1 percent. This increase in General Fund largely reflects the improved state fiscal condition beginning in 1998-99. General Fund expenditures for resources and environmental protection programs peaked in 2000-01 and have since declined due to the state's weakened fiscal condition. The budget proposes General Fund expenditures at a level that is above that found in 1997-98 and prior years, but is significantly below the General Fund expenditures in 1998-99 through 2002-03.

Spending by Major Program

Figure 2 shows spending for major resources programs—that is, those programs within the jurisdiction of the Secretary for Resources and the Resources Agency.

Figure 3 shows similar information for major environmental protection programs—those programs within the jurisdiction of the Secretary for Environmental Protection and the California Environmental Protection Agency (Cal-EPA).

Spending for Resources Programs. Figure 2 shows the General Fund will provide the bulk of the California Department of Forestry and Fire Protection's (CDFFP) total expenditures, accounting for 62 percent ($413.8 million) of the department's 2003-04 expenditures. The General Fund will account for less in the support of other resources departments. For instance, for the Secretary for Resources and the Department of Conservation (DOC), the General Fund will constitute only about 3 percent ($1.4 million) and 1 percent ($5.4 million) of their budget-year expenditures, respectively. In the case of the Departments of Fish and Game (DFG) and Parks and Recreation (DPR), the General Fund will pay for about 15 percent ($41.2 million) and 10 percent ($97.9 million) of the respective departments' total expenditures. The Department of Water Resources' (DWR's) expenditure total is skewed by the $5.3 billion budgeted under DWR for energy contracts entered into on behalf of investor-owned utilities. If these energy-related expenditures are excluded from DWR's total, the General Fund pays for 3 percent ($42.6 million) of DWR's expenditures.

Figure 2 also shows that compared to current-year expenditures, the budget proposes a reduction in some resources departments. Specifically, the budget proposes a substantial expenditure reduction in the Secretary for Resources of about $386 million, or 88 percent less than the current year estimated expenditure level. This reduction largely reflects a decrease totaling about $370 million in bond-funded expenditures for ecosystem restoration and river parkway projects, given the substantial depletion of funds available from most of the available bonds for these purposes. Additionally, bond-funded ecosystem restoration expenditures related to the CALFED Bay-Delta Program, that would otherwise be under the Secretary for Resources, have been transferred to the California Bay-Delta Authority—a new state agency created by Chapter 812, Statutes of 2002 (SB 1653, Costa).

For DPR, the budget proposes an 18 percent reduction in spending, largely reflecting a drop in expenditures for state and local park acquisition and improvements from Proposition 12 bond money.

For CDFFP, the proposed reduction in spending—$46 million or 6.4 percent of total spending—largely reflects a decrease of $65 million from the General Fund for emergency fire suppression.

For DWR, the budget proposes an increase of about $261 million (4.1 percent) in expenditures for 2003-04, compared to the estimated current-year level. Most of the increase reflects higher debt servicing costs for the revenue bonds that are financing DWR's energy purchase contracts. The budget, however, proposes to significantly reduce DWR's General Fund expenditures—by about $63 million, about half of which is a reduction in General Fund support for state flood control projects. The balance of the reduction is due mainly to the shifting of funding for various activities from the General Fund to Proposition 50 bond funds.

In contrast, the budget proposes relatively minor changes in departmental expenditures for both DFG and DOC in 2003-04.

Spending for Environmental Protection Programs. As Figure 3 shows, the budget proposes decreases in a number of environmental protection programs. In particular, expenditures of the State Water Resources Control Board (SWRCB) are proposed to decrease by $332 million, or 31 percent, from the current-year level. This decrease largely reflects the reduction in bond-funded expenditures for local water quality and water recycling projects. The budget also proposes a 39 percent reduction ($29 million) in SWRCB's General Fund expenditures. The components of this reduction are about equally divided between program reductions and funding shifts.

Although not large in absolute dollars, the budget proposes a substantial reduction percentage-wise in the expenditures of the Office of Environmental Health Hazard Assessment (OEHHA). Specifically, the budget proposes a reduction of about 29 percent, mainly reflecting a decrease in expenditures for scientific studies, literature research, and administration. 

Although the budget does not propose major changes to the level of total expenditures of the Air Resources Board (ARB), the Department of Pesticide Regulation, and the Department of Toxic Substances Control (DTSC), it proposes significant General Fund expenditure reductions in each of the three departments totaling about $40 million. In the case of ARB and the Department of Pesticide Regulation, most of the reduction reflects a shifting of program funding from the General Fund to fee-based special funds. In the case of DTSC, the reduction reflects both a shift of funding from the General Fund to special funds, as well as a number of program reductions, including for administrative support, site cleanup oversight, and the clandestine drug lab program.

Major Budget Changes

Figures 4 and 5 present the major budget changes in resources and environmental protection programs, respectively.

As Figure 4 shows, the budget proposes a number of changes in funding for activities related to the CALFED Bay-Delta program. In particular, the budget reflects the statutory creation of the California Bay-Delta Authority in 2002, and the resulting transfer of expenditure authority from other CALFED implementing agencies (mainly DWR) to the new authority in the budget year. The budget also proposes $329.4 million of Proposition 50 bond funds for the CALFED Bay-Delta program (by far the program's largest funding source). These funds will be spent largely by DWR and the California Bay-Delta Authority, as well as SWRCB under Cal-EPA.

The budget also proposes a number of General Fund reductions throughout resources departments. These reductions reflect both program reductions/savings as well as funding shifts. The one major funding shift involving a fee increase is the proposed $20 million increase in state park fees in DPR. In addition, the budget proposes to shift about $33 million from the General Fund to Proposition 50 bond funds in DWR for CALFED-related and for drought planning activities. The budget proposal for the California Bay-Delta Authority also reflects a shift of $8.2 million from the General Fund to Proposition 50 bond funds.

The budget proposes General Fund reductions in DFG totaling $15.6 million, a majority of which reflects reduced program levels. For DPR, the budget proposes to create $9 million of General Fund savings by reorganizing the department's administrative functions. These savings in DPR are in addition to a $6 million General Fund reduction from shifting funding for park planning and other activities at DPR to bond funds and the Off-Highway Vehicle Trust Fund. 

In addition to the bond-funded increases, the budget proposes a number of increases in federal funds or special funds. Specifically, the budget proposes an increase in federal funds of $13.8 million in CDFFP and $12 million in DFG. The increase in CDFFP is for fire prevention, cooperative forest assistance, and climate change strategy activities. The increase in DFG is for wildlife conservation and education grant programs. Although not shown in the figure, the budget also proposes $30 million (special funds) in the California Energy Resources Conservation and Development Commission for loans to public entities for energy efficiency projects.

Finally, the budget reflects both increases and decreases in proposed expenditures from various bond funds in DPR, as some bond funds available to it are nearing depletion (such as Proposition 12) while others have recently come on line for expenditure (such as Proposition 40). The net effect is a reduction of $171.4 million in bond funds for DPR.

Regarding environmental protection programs, Figure 5 shows that the budget proposes both augmentations and reductions, although total spending will decrease in most departments. (The budget proposes a slight increase in total spending at ARB.) The budget also proposes a number of funding shifts from the General Fund to fees. The most significant of these are a $13.6 million funding shift in SWRCB's core regulatory program, a $10.5 million funding shift in the Department of Pesticide Regulation, and a $10 million funding shift in ARB's stationary source program. In the case of the Department of Pesticide Regulation, the budget proposes to essentially eliminate all General Fund support for the department.

Of the proposed reductions to program funding levels, most are from the General Fund. The largest of the proposed General Fund reductions are found in SWRCB, where the budget proposes reductions totaling $14.6 million from the General Fund for various water quality ($11.3 million) and water rights ($3.3 million) activities. In addition, the budget proposes significant General Fund reductions in ARB, OEHHA, DTSC, and the Department of Pesticide Regulation. Since OEHHA, unlike other environmental protection departments, receives most of its funding from the General Fund, the General Fund reduction has a disproportionate impact on OEHHA's total program level.

Of the proposed augmentations, most are one-time in nature and involve special funds. These include $6 million for fine particulate matter monitoring equipment at ARB and most of a $5.8 million increase in DTSC for its Hazardous Material Laboratory.

Finally, the budget reflects both increases and decreases in proposed SWRCB expenditures from various bond funds, as some bond funds available for SWRCB programs are nearing depletion while others are just coming on line for expenditure (such as Proposition 50). The budget reflects a net reduction of $304.8 million in bond-funded local water projects in SWRCB.