Analysis of the 2005-06 Budget Bill
Legislative Analyst's Office
The California Department of Food and Agriculture (CDFA) provides services to both producers and consumers of California's agricultural products in the areas of agricultural protection, agricultural marketing, and support to local fairs. The purpose of the agricultural protection program is to prevent the introduction and establishment of serious plant and animal pests and diseases. The agricultural marketing program markets California's agricultural products and protects consumers and producers through the enforcement of measurements, standards, and fair pricing practices. Finally, the department provides financial and administrative assistance to county and district fairs.
The budget proposes expenditures of $303 million and 1,823 positions in 2005-06 for the department, including $116 million from the Agriculture Fund and $100 million from the General Fund. The proposed General Fund expenditures are $4 million, or 2 percent, over estimated current-year expenditures, due to augmentations of $2.7 million for threats to food production (discussed below) and $1.3 million to purchase new equipment for a veterinary lab. The General Fund budget also includes $8.1 million to provide ongoing funding for the Mediterranean Fruit Fly (Medfly) Preventative Release Program (PRP).
To the extent that the Legislature chooses to assess a fee to cover the state's share of costs of the Medfly Preventative Release Program, we offer a number of considerations concerning a fee structure.
The Supplemental Report of the 2004-05 Budget Act requires the Legislative Analyst's Office to review the department's 2003 report, Preventing Biological Pollution: The Mediterranean Fruit Fly Exclusion Program. Below, we provide comments on the report and assess options for funding of the program.
State Fighting Flies for 30 Years. The Medfly has the ability to infest over 200 different kinds of fruits and vegetables. The larvae feed inside the produce, making it unfit for human consumption. The department began efforts to control the impact of the Medfly on California's agricultural industry in 1975. Since 1980, the state has spent over $150 million from the General Fund to support this effort, with a similar amount provided by the federal government. To fight the pest, the department originally used aerial and ground spraying of pesticides but now relies on sterile Medfly releases.
Current Program. The current PRP began in 1996 and involves raising sterile Medflies and releasing them regularly within high-risk areas. Most of the program's releases have been in the Los Angeles Basin. These sterile flies mate with any wild fertile female flies that have been introduced into the area. Reproduction is curbed because the eggs resulting from this pairing with a sterile male will not hatch. Over the past several years, new infestations of wild fertile flies in the release zone have dropped from an average of seven to just three per year. The program is based on the assumption that the state is continuously at risk of infestation from the Medfly.
Proposal to Make Program Permanent. The current Medfly program was originally due to sunset at the end of 2000-01. Each subsequent budget has extended the program for one additional year. The Governor's budget proposes to fund Medfly control on an ongoing basis and provides $8.1 million in General Fund support for this purpose. Total program costs are about $16 million annually, shared equally between the state and the federal government.
Report Describes Funding Options. In 2003, the department released a report titled, Preventing Biological Pollution: The Mediterranean Fruit Fly Exclusion Program. The report lays out seven options for funding the Medfly Exclusion Program:
The 2004-05 supplemental report requests that our office further explore the option of assessing international travelers and commerce, as well as identify and evaluate additional options if available.
According to the report, international travel and imported products account for all of the pathways by which Medfly and other food-borne pests and diseases can enter the United States. Under this option, a fee would be assessed upon international travelers and commerce. At the time the report was released, the department suggested this option was the most favorable.
Based on provisions of the U.S. Constitution, Congress is granted the sole power to regulate commerce with foreign nations. This option, therefore, is not feasible through state legislation. It would require congressional action and possible revisions to existing international agreements governing trade and travel. The department now concurs that the option would be impossible to implement unilaterally at the state level.
We reviewed other options put forward by the department. While receiving additional federal dollars for the program would be the most desirable alternative, the federal government has yet to show any willingness to eliminate the matching funds requirement of the program. The department's second option—General Fund share of costs—has been used in the past to fund the program. The Legislature, however, has consistently raised con cerns regarding making the General Fund a permanent source of funding. The various fee options—other than the one on international commerce—are potential funding sources. We discuss the option of a fee in more detail below.
Field data indicate that the PRP is successfully controlling the Medfly population in Southern California. By preventing the establishment of Medfly populations, the PRP protects a variety of food industries. The CDFA estimates that in the absence of such a program, the direct crop losses as a result of Medfly damage could range between approximately $150 million to $300 million annually. Clearly, the control of Medfly populations generates benefits to specific agricultural industries. It is reasonable, therefore, that the agricultural industries that most benefit from the program contribute to its support. It is for this reason that we have recommended in recent years the enactment of an assessment program to distribute the nonfederal costs of the PRP to those industries (see for instance the Analysis of the 2003-04 Budget Bill, pages F-137 to F-138). If the Legislature chooses to pursue this approach, we offer a number of key considerations below.
Should Fee Be Statewide? The department questions whether it is equitable to assess a fee on commodities statewide given that the current control effort focuses on the Southern California region. An infestation in any part of California, however, could result in other states or countries refusing to purchase California agricultural commodities. The agriculture industry throughout California, therefore, benefits from the continuation of the program.
Which Commodities Should Be Subject to a Fee? The department reports that over 200 commodities are subject to Medfly infestations. Assessing each of these commodities could create excessive administrative costs. The fee structure instead could focus on a limited number of key products with the greatest economic interest in the prevention of a Medfly infestation.
Point of Assessment? As noted in the department's report, fees could be assessed at a variety of points along the food supply—at the grower, retailer, or consumer levels. Assessing a fee at the grower level might make the most sense—reflecting that the control of the Medfly is a cost of doing business like other pest control activities.
Should Assessments Vary by Commodity? In developing a fee structure, the department would need to consider the most equitable and efficient way to assess the fees given the differences among the commodities. For example, the department would need to consider whether a fee should be based on weight, value, or some other method of measurement. Many of the commodities already pay into the Agriculture Fund for other purposes. The department, therefore, could build upon these existing fee structures to recover the costs of the PRP.
Beyond the Medfly? Over time, the state has been involved in the eradication and control of a number of agricultural pests, such as the Mexican fruit fly and the glassy-winged sharpshooter. The Legislature may wish to consider moving beyond a pest-specific fee. Instead, the state could develop an agricultural fee structure that would make funding available each year for the most urgent pest efforts.
Department Could Handle Details. The department, as the expert in this area, would be the most appropriate entity to develop a specific fee structure. To the extent that the Legislature chooses to assess a fee to cover the state's costs of the PRP, the Legislature should (1) not approve the General Fund request for this program and (2) instead enact legislation directing CDFA to develop a reasonable fee structure to generate sufficient funds to match federal support for this program.
We withhold recommendation on the department's proposed Agriculture Fund budget of $116 million and 484 positions pending receipt of a complete report regarding the positions supported by the fund. The report submitted by the department did not include most of the required information.
Background. In the Analysis of the 2004-05 Budget Bill (please see pages F-103 to F-110), we noted that the department's management of its budgeted positions significantly deviated from standard state procedures. About half of CDFA's positions, those funded by the Agriculture Fund, had been created at the discretion of the department—without approval of either the Legislature or the Department of Finance.
Legislature Requires Department to Conform to Standard State Practices. The 2004-05 budget package requires that the department conform with standard state practices regarding the creation and management of its positions. In addition, the department was required to report to the Legislature by January 10, 2005 on these positions. Specifically, the department was required to provide a description of the positions—by program, classification, and source of funding—as well as a complete description of the workload for the positions.
Department's Report Incomplete. The department, as required, appropriately established all permanent positions with the State Controller's Office. In addition, the department provided the Legislature with a report. The report, however, does not provide any information on the workload for the positions. The department instead provided general job descriptions adopted by the State Personnel Board for all relevant classifications. There is no information available on the work performed by the positions at CDFA. For example, the report provides a general description of the scope of work that may be performed by the Government Program Analyst series of positions. According to the report, these positions are used to perform a wide variety of consulting and analytical assignments. The report does not, however, provide any information on how the positions are achieving specific agricultural objectives of the department. Given that the department had created these positions outside of the authority of the Legislature, it is critical that the Legislature be provided the opportunity to review the justification for these positions. The department's current-year budget was approved with the understanding that this information would be forthcoming. We therefore withhold recommendation on the department's Agriculture Fund budget of $116 million and 484 positions pending the receipt and review of a complete report of these positions, as required by current law.
In 1998, the Legislature enacted legislation to prevent the euthanization of adoptable stray animals. In 2001, this legislation was determined to be a state-reimbursable mandate. The Governor's budget proposes $13.9 million in General Fund spending to cover the costs of the mandate. Our estimate, however, shows that an additional $6.2 million is needed to fully cover the costs of this mandate in 2005-06. We recommend that the Legislature direct the Commission on State Mandates to revise the parameters and guidelines of the mandate to lower its costs.
Local Agencies Responsible for Animal Control. Local government animal control agencies care for stray and surrendered animals in California communities. Such care includes housing, medical care, and vaccinations. These agencies also pursue the successful adoptions of the animals in their care and euthanize those animals that are not placed.
Legislation Aims to Reduce Euthanizations of Stray Animals. Seeking to reduce the euthanization of adoptable stray animals, the Legislature enacted Chapter 752, Statutes of 1998 (SB 1785, Hayden). Prior law provided that no dog or cat impounded by a public pound or specified shelter could be euthanized before three days after the time of impounding. Chapter 752 requires the following:
Legislation Found to Be Reimbursable Mandate. In 2001, the Commission on State Mandates (CSM) determined that Chapter 752 imposed a reimbursable state mandate by requiring, among other activities, that cats and dogs be cared for longer than the three days previously required by law.
Proposed Spending Does Not Fully Fund Mandate Costs. The Governor's budget proposes $13.9 million in General Fund spending to cover the costs of the mandate. The estimate of $13.9 million was based on a point in time, and local governments were still able to submit claims after the estimate was developed. Under the provisions of Proposition 1A passed by the voters in November 2004, a mandate must be fully funded or suspended. We have reviewed the most recent claims and estimate that—in order to fully fund this mandate in 2005-06—the Legislature would need to appropriate a total of $20.1 million, an increase of $6.2 million from the Governor's budget.
Costs Exceed Legislative Expectations. The Legislature did not anticipate incurring significant, if any, state-reimbursable mandate costs when it enacted Chapter 752. Instead, the Legislature expected that most, if not all, local agency increased costs to care for animals held longer than three days would be offset by (1) increased adoption and pet recovery fees and (2) savings from avoided euthanizations. Given its high costs, both our office (please see the 2003-04 Analysis pages F-133 to F-137) and the Bureau of State Audits (BSA) have reviewed the mandate's claims.
Both reviews found areas of ambiguity within the mandate's parameters and guidelines (Ps&Gs) that allow local agencies to claim some costs that appear to exceed the range of activities mandated by Chapter 752. For example, the BSA notes that the Ps&Gs allow local agencies to receive reimbursement for capital costs not associated with Chapter 752. In addition, our review found that the Ps&Gs are not sufficiently explicit regarding the requirement that offsetting savings and revenues be deducted from reimbursement claims.
Recommend Revising Ps&Gs. If the Legislature wishes to maintain all the requirements of Chapter 752, we recommend the Legislature direct the CSM to revise the Ps&Gs to make changes addressing the issues identified in the BSA's report and the 2003-04 Analysis. If the Legislature instead chooses to leave the mandate unchanged, an increase of $6.2 million General Fund is needed to fully fund the mandate in 2005-06.
We recommend the deletion of a $2.7 million General Fund request for reducing threats to the food supply. Instead, we recommend the administration resubmit a request that reflects a coordinated effort with the state's two primary homeland security departments. (Reduce Item 8570-001-0001 by $2.7 million.)
Proposal. The department provides the state's first response to introductions of livestock diseases and contamination of the food supply at the production level in the state. The Governor's budget proposes a $2.7 million increase to the department's General Fund budget and 17 positions for start-up costs to address threats to food production in California. These threats include diseases that effect both animals and humans and acts of terrorism. The request assumes the approval of an additional $15.9 million in General Fund support in 2006-07 for full implementation of the program. The proposal includes start-up funding for seven new programs in 2005-06, with four additional programs to be launched in 2006-07.
Administration Fails to Justify Request. Such a substantial policy proposal should be accompanied by a significant level of supporting detail, particularly as to how these efforts fit with the state's current strategy regarding the threat of terrorism. The administration, however, provides little justification with regard to this request. Generally, the request is a description of various needs, but lacks adequate details regarding how the department proposes to address those needs. For example, the department is proposing to start a "rural-urban education and surveillance" program at a cost of more than $3 million over the next two years. The department reports that urban areas are rapidly encroaching on commercial agriculture. According to the department, the encroachment of urban areas upon commercial agricultural areas puts the state's poultry, livestock, and food supply at increased risk of disease. The request for this program includes a list of positions with brief descriptions of tasks to be performed. The request, however, does not show how these positions would reduce the identified problem.
In other cases, it is not clear whether the department is proposing new activities or simply supplementing existing resources. For example, the department is proposing to upgrade its current field communications system and data management program at a cost of more than $1 million over the next two years. The department identifies some existing information technology problems common to many state departments. The request, however, fails to describe how the additional resources pertain to limiting the threats to the food supply.
Request Does Not Reflect Statewide Strategy. Based on our review of the proposal and information provided by the department, the request fails to reflect coordination with the two agencies administering the state's current efforts related to terrorism—the Office of Homeland Security (OHS) and the Department of Health Services (DHS). (Please see the "Crosscutting Issues" section of this chapter for a more detailed discussion of homeland security funding.) These two agencies provide annual federal homeland security grants to state departments for security priorities.
Other Fund Sources Available. Homeland security grants would be an appropriate funding source for efforts in the department related to bio-terrorism.In fact, the OHS reports that agricultural terrorism will be one of the funding priorities in the coming year. In addition, OHS administers the state's Antiterrorism Fund, which is funded from proceeds from the sale of California memorial license plates. Half of the amount in the fund may be used by agencies other than OHS for antiterrorism activities. For any expenses not eligible for federal funding, the Antiterrorism Fund would be an appropriate source of funds. We note that the Antiterrorism Fund has $1.8 million available in 2005-06 for non-OHS expenditures.
Recommend Resubmittal of Proposal. We recommend the Legislature reject the administration's current request. Instead, the administration should resubmit a request that reflects a coordinated effort with DHS and OHS. The proposal should fully utilize available funds outside of the General Fund. Moreover, the proposal should provide sufficient justification to demonstrate how the funds will be used effectively.