LAO 2005-06 Budget Analysis: General Government

Analysis of the 2005-06 Budget Bill

Legislative Analyst's Office
February 2005

Office of Environmental Health Hazard Assessment (3980)

The Office of Environmental Health Hazard Assessment (OEHHA) identifies and quantifies the health risks of chemicals in the environment. It provides these assessments, along with its recommendations for pollutant standards and health and safety regulations, to the boards and departments in the California Environmental Protection Agency (Cal-EPA) and to other state and local agencies.

The budget requests total funding of $14.8 million for support of OEHHA in 2005-06. This is about the same as current-year expenditures.

Regulatory Programs Should Fund More of OEHHA

The Office of Environmental Health Hazard Assessment (OEHHA) has largely relied on the General Fund to support its operations. We find that there are potential alternative funding sources for many of OEHHA's activities, namely regulatory programs benefiting directly from OEHHA's technical expertise. While these create opportunities for additional General Fund savings in the budget year ($2.8 million), they also present an opportunity to provide more stable funding for OEHHA. We recommend that the administration report at budget hearings on the status of an overdue report to the Legislature and on the information requested in the report requirement.

General Fund Supports a Majority of OEHHA's Activities. Most of OEHHA's activities are required by statute and are supported largely by the General Fund. Using General Fund money, OEHHA identifies cancer-causing chemicals for annual updates of the state list of chemicals in drinking water, provides health risk assessments of "toxic air contaminants," reviews health risk assessments of pesticides, and jointly regulates pesticide worker health and safety with the Department of Pesticide Regulation.

Of the $14.8 million of expenditures proposed for OEHHA in 2005-06, about $7.8 million (53 percent) is from the General Fund. (The balance of OEHHA's support is from various special funds and reimbursements.)

Legislative Direction Regarding OEHHA's Funding. At legislative hearings on the 2003-04 budget, concerns were raised about the instability in OEHHA's funding base, due to declining General Fund support, and whether OEHHA's funding level was adequate to meet its statutory mandates. (Over the last two years, OEHHA's budget was reduced by about $1.5 million [10 percent].) Additionally, there was a recognition that while OEHHA's total budget had been declining, a number of statutory mandates have been added to its responsibilities. These include mandates related to children's health and an assessment of fuel-related risks.

As a result, the Legislature, in the Supplemental Report of the 2003 Budget Act, directed OEHHA to report to the Legislature by January 10, 2004 on various issues, including its long-term baseline funding requirements to meet its statutory mandates, recommendations regarding the appropriate mix of General Fund and fee-based special funds, and potential efficiency improvements. The overall purpose of this report was to assist the Legislature in determining the appropriate level of funding and allocation of funding sources to support OEHHA and to provide greater stability in OEHHA's budget. At the time this analysis was prepared, the required report had not been submitted to the Legislature and was a year overdue.

Administration Should Report at Budget Hearings on Status of Report and Funding Requirements. We recommend that OEHHA and the Department of Finance report at budget hearings on the status of the report mentioned above and also provide the information required in the report, including OEHHA's long-term baseline funding requirements to meet its statutory mandates and recommendations regarding the appropriate mix of General Fund and fee-based special funds.

OEHHA's Activities Often Directly Support Regulatory Programs. Despite this lack of input, in the section that follows, we present our findings about alternatives to General Fund support of OEHHA's programs. The analysis which follows updates the alternative funding sources we offered for legislative consideration when we evaluated OEHHA's budget last year in the Analysis of the 2004-05 Budget Bill.

Our review finds that OEHHA provides support to various regulatory programs in its sister Cal-EPA departments, as well as to the safe drinking water program in the Department of Health Services (DHS). For example, OEHHA's statutory mandate to evaluate how well the state's air quality standards protect children and other populations particularly susceptible to air pollution serves to guide the Air Resources Board's regulatory activities.

In those cases where OEHHA's activities can be directly and reasonably connected with a regulatory program, the Legislature is presented with an opportunity to consider potential fund source alternatives to the General Fund—namely fee-based special funds—to support the activities. Using fee-based revenues instead of the General Fund is appropriate because many of OEHHA's activities provide a scientific basis for environmental permit requirements, thereby preventing the requirements placed on permittees from being arbitrary or unduly burdensome. As such, OEHHA's activities provide a benefit to the permit holder and therefore are appropriately funded through regulatory program fees.

On the other hand, some of OEHHA's activities—such as its Proposition 65 program—have more of a broad-based public health focus and cannot be reasonably connected with discrete regulatory programs. For activities such as these, we think that the General Fund continues to be the appropriate funding source.

Alternative Funding Sources for Legislative Consideration. The fee-based alternative funding sources referred to above could be used to support a portion of OEHHA's budget. The use of these alternative funding sources would provide greater funding stability in OEHHA's budget, consistent with recent legislative direction discussed above.

These alternative fund sources are potentially available to replace a portion of General Fund support proposed for OEHHA in 2005-06, thereby creating General Fund savings. Our review finds that of OEHHA's activities proposed to be funded from the General Fund, those with the most direct connection with regulatory programs for which those programs are not currently providing any funding to OEHHA are focused in three program areas. These are drinking water, air toxicology and epidemiology (including children's health), and fish programs. We think that about $2.8 million of costs in these program areas could be shifted from the General Fund to existing fee-based special funds. Specifically, we think that the Legislature should consider the following funding shifts from the General Fund:

We note that for the budget year, the APCF's reserves can support this shift in funding. However, the projected fund balances (and available cash) in SDWA and FGPF would not be able to support the level of appropriations suggested above to support OEHHA activities in 2005-06, without an increase in fees or redirection of monies from other activities.

Increase Expenditure Authority for Federal Trust Fund

The budget does not account for a federal grant the Office of Environmental Health Hazard Assessment received for a pesticide illness reporting improvement project. We recommend an increase of $500,000 from federal funds to provide necessary expenditure authority. (Increase Item 3980-001-0890 by $500,000.)

Budget Does Not Reflect Federal Grant. In December 2004, OEHHA received a federal grant for $750,000 ($250,000 for fiscal year 2004-05 and $500,000 for budget year) for a two-year pesticide illness reporting improvement project. According to OEHHA, this grant was not received in time for inclusion in the 2005-06 budget. The OEHHA indicates that it plans to submit notification of a midyear budget adjustment to spend these funds after the 2005-06 Budget Bill is enacted. However, we think that it is more appropriate to incorporate this anticipated adjustment in the budget bill currently being evaluated by the Legislature.

Recommend Increase in Federal Fund Expenditure Authority to Reflect Grant. Accordingly, we recommend an increase of $500,000 in federal fund expenditure authority in order to account for this grant in the budget year.

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