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Analysis of the 2006-07 Budget BillLegislative Analyst's Office
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The Department of Fish and Game (DFG) is responsible for promoting and regulating hunting and fishing for game species and for promoting resource protection for all California native plants, fish, and wildlife. The Fish and Game Commission sets policies to guide the department in its activities. The DFG currently manages about one million acres including ecological reserves, wildlife management areas, hatcheries, and public access areas throughout the state.
The budget proposes total expenditures of $311.4 million from various sources, a decrease of about $64.2 million below estimated current-year expenditures. Most of this decrease reflects a reduction in available bond funds for the CALFED ecosystem restoration program. Of the total proposed expenditures, $93.7 million (30 percent) will come from the Fish and Game Preservation Fund (FGPF), $68.2 million (22 percent) will come from federal funds, $53.6 million (17 percent) from General Fund, and the remaining $95.9 million (31 percent) from reimbursements and various other state funds.
The budget includes some significant increases from the General Fund, including (1) $10 million as a funding shift to bring the FGPF into balance due to revenue shortfalls and to implement recent legislation (Chapter 689, Statutes of 2005 [AB 7, Cogdill]) dedicating a specified portion of FGPF monies for hatcheries and native trout and (2) $4 million for grants for salmon and steelhead trout restoration activities that were previously funded using bonds and tideland oil revenues.
In the sections that follow, we discuss a number of issues related to the department’s budget proposal. We review the department’s proposal to balance the Fish and Game Preservation Fund and its funding plan to implement recent legislation (Chapter 689, Statutes of 2005 [AB 7, Cogdill]). We also identify technical errors in the display of the budget bill and recommend the department’s federal fund expenditure authority be reduced due to overbudgeting.
Our review of the department’s proposal to balance the Fish and Game Preservation Fund (FGPF) finds that it does not address a structural deficit within the fund that has built up over many years. We provide options on how to address this problem and recommend the department submit its plan to do so at budget hearings.
We also find that the proposed level of the fund reserve is not prudent given the uncertainty of the revenue projections, and therefore we recommend that the department submit a proposal for a reserve of five percent of expenditures for each FGPF account.
Lastly, we find the fund condition statement as displayed in the Governor’s budget document impedes legislative oversight, and we recommend changes to future-year budget displays.
FGPF Includes Many Revenue Sources. The FGPF receives revenues from hunting and fishing licenses and taxes, commercial fishing permits and fees, and environmental review fees paid by project proponents. Each of these revenues can be used for a broad range of purposes related to the activities for which they were collected and are therefore referred to as “nondedicated” accounts by the department.
The FGPF is also supported by revenue sources that are dedicated by statute for specific activities relating to the sources from which they were collected. For example, revenues from a steelhead trout fishing fee are required to be spent on steelhead management and enhancement. These types of revenues are referred to as “dedicated” revenues. There are 27 dedicated accounts within FGPF to track the receipt of funds for each of these dedicated revenues sources.
Legislature Directed DFG to Address Structural Deficit Problem. In our Analysis of the 2005-06 Budget Bill (page B-59), we found DFG had been addressing shortfalls in certain accounts within FGPF by shifting funds from the reserves of other accounts to cover those shortfalls. As a result, revenues dedicated by statute for specific uses were instead being used for purposes not authorized in statute. The Legislature directed the department in the Supplemental Report of the 2005 Budget Act to address FGPF’s structural problem in the 2006-07 Governor’s Budget.
DFG’s Budget “Solution”. The budget proposes to bring FGPF as a whole into balance by reducing FGPF expenditures by $7.2 million. To partially offset the impact of these reductions, the budget proposes to shift expenditures of $4 million from the nondedicated FGPF to the General Fund. In addition, the budget proposes fund shifts among the fund’s accounts of $2.4 million. The budget also assumes FGPF revenues will increase by $4 million in the budget year.
Proposal Does Not Address Structural Deficit Problem. While the budget proposes adjustments to bring the FGPF as a whole into balance, it does not address a structural deficit problem in the fund. In fact, some accounts within the fund are shown in the budget with negative balances. (Negative balances result when prior-year spending exceeded available resources.) Specifically, the department has provided information showing that two accounts-the streambed alteration account and the nondedicated account-will start the budget year with a negative beginning balance of $8.2 million and $15.8 million, respectively. These accounts are projected to end the budget year with negative balances of $12 million and $ 7.7 million, respectively. Until these account deficits are eliminated-which could take many years absent corrective action-the department would presumably continue to “borrow” funds from other dedicated accounts as it has done in the past (contrary to statute) or seek a “bailout” from the General Fund.
Addressing FGPF’s Fiscal Problems. Clearly, the existence of negative fund balances reflects inappropriate budgeting practices. This was explicitly recognized by the Legislature when it adopted supplemental language directing DFG to correct the problem. Regrettably, the administration has failed to do so. Therefore, we provide a solution to the Legislature to address it.
In the sections below, we recommend the Legislature address the FGPF’s fiscal problems in two steps. First, we recommend the Legislature address the immediate problem of the negative account balances in the budget year. Second, we recommend that the Legislature take action to correct the FGPF’s structural deficit problem going forward over the long term.
Step One: Addressing the Existing Negative Account Balances Within FGPF. There are a number of one-time, temporary, actions that the Legislature could take to address the immediate problem of the negative balances, including:
Providing General Fund or special fund loans to the accounts with the negative balances. Such loans could be paid back over a specified repayment term, either by reducing expenditures and/or increasing revenues from fees.
Providing loans from FGPF accounts with available fund balances to the accounts with the negative balances, with specified repayment terms. The loans could be paid back either by reducing expenditures and/or increasing revenues from fees.
Providing a General Fund transfer to the accounts with the negative balances.
We recommend that the department report at budget hearings on the feasibility of the above options and other options that the Legislature might consider to address the negative balances, and submit its plan to address this issue.
Step Two: Addressing Structural Deficit Problem Over Long Term. In order to ensure that the practice of deficit spending in FGPF accounts does not persist in future years, we recommend that the Legislature take action requiring each FGPF account to have a prudent reserve. This ongoing reserve requirement will require the department to take corrective action (reduce expenditures and/or increase fees) if needed to align the revenues and expenditures in each account.
Our analysis finds that adequate account reserves are particularly important in the case of FGPF because FGPF revenue projections are uncertain and subject to change. This is largely due to variability in the sale of sport-fishing licenses-which can vary by more than 5 percent annually. For example, in the current year the department has revised its estimates for current-year FGPF revenues downward by $4 million from what was appropriated in the 2005-06 Budget Act due to lower than projected license sales. Assuming adoption of the department’s proposed expenditure plan, this would leave the FGPF with budgeted reserves of only $1.6 million, or about 1.7 percent of proposed FGPF expenditures by the end of 2006-07. Given the level of risk inherent in the department’s revenue projections, this level of reserves does not appear prudent.
Therefore, we recommend that the department submit a proposal prior to budget hearings that would provide for a prudent reserve, for each account within FGPF, of 5 percent of expenditures. As discussed, this may require the department to take corrective actions to establish such a reserve. Such a proposal would allow the Legislature to oversee the corrective action necessary to bring FGPF into balance and provide a prudent reserve, rather than have the department take mid-year corrective action with little legislative oversight.
Budget Display Impedes Legislative Oversight. In the FGPF fund display in the 2006-07 Governor’s Budget document, revenues and expenditures are not broken down by nondedicated and dedicated revenue sources, as was the practice in previous years. This lack of detail complicates legislative oversight, as the fund condition statement does not allow for a determination, for example, of whether dedicated revenue sources are being used to offset expenditures in other accounts of FGPF.
In order for the Legislature to exercise improved oversight of FGPF, it is necessary for the administration to provide to the Legislature a fund condition statement that displays information on the condition of revenues and expenditures both for dedicated and nondedicated revenue sources. In order that future displays in the Governor’s budget document include such information, we recommend the enactment of legislation requiring that the annual fund condition statement displayed in the Governor’s budget document for this fund include both the dedicated and nondedicated revenue sources. We think this recommended change can be accomplished without additional resources since the department already maintains such information.
While the budget proposes an increase in funding to implement Chapter 689, Statutes of 2005 (AB 7, Cogdill), it does not include an implementation plan or a request for positions which corresponds to the requested funding increase. Accordingly, we recommend the department submit an implementation plan and a request for positions prior to budget hearings.
Requirements of AB 7. Assembly Bill 7 provides that effective July 1, 2006, one-third of the fees derived from sport fishing licenses be deposited into the newly created Hatchery and Inland Fisheries Fund. Previously, all fees derived from sport fishing licenses were deposited in the nondedicated account of the FGPF and used to support all game programs including hatchery activities. (The effect of this change is to dedicate $16.8 million for this specific purpose.) Assembly Bill 7 specifies that funds in the Hatchery and Inland Fisheries Fund may be used to support the management, maintenance and capital improvement of California’s fish hatcheries, the Heritage and Wild Trout Program, and related enforcement activities. The statute also sets forth a schedule for achieving specific trout production goals.
Budget Proposal Does Not Include Implementation Plan. In the current year, about $6 million is being spent from FGPF for hatcheries and the other purposes specified in AB 7. Effective July 1, 2006, AB 7 requires that one-third of sport fishing license fee revenues ($16.8 million) be spent on these purposes. However, the budget assumes the enactment of a budget trailer bill that would revise AB 7’s requirements in three main ways. First, it would extend the schedule for achieving the trout production goals set forth in AB 7. Second, it would reduce from one-third to 27 percent the amount of sport fishing fees that would be used for the purposes of AB 7, thus requiring total funding of $13.7 million. Third, it allows for federal funds and reimbursements to be used to meet the requirements of AB 7. If the Governor’s latter two proposed changes are adopted, the combined effect would be to provide a total of $13.7 million ($12 million [FGPF], $1.7 [federal funds and reimbursements]) for purposes of AB 7, instead of $16.8 million (FGPF) as required by AB 7. Accordingly, under the Governor’s proposal, an additional $6 million FGPF above current expenditure levels is redirected from other FGPF-funded programs for purposes of AB 7. The budget proposes to “hold harmless” the programs affected by this redirection by backfilling the $6 million redirected within the FGPF with a like amount from the General Fund.
The budget proposal does not include a request for positions associated with the increase in funding for purposes of AB 7 or a plan addressing how hatchery production will be increased. At the time this analysis was prepared, the department indicates it is developing a plan for the implementation of AB 7 and is also developing a request for position authority. We recommend the department submit the implementation plan and request for positions prior to budget hearings in order to allow ample time for legislative review.
We recommend the Legislature amend the budget bill to correct a technical error in the scheduling of appropriations among programs. We further recommend a reduction of $10.5 million in federal funds due to overbudgeting. (Reduce Item 3600-001-0890 by $10.5 million.)
Correction Required for Budget Bill Schedule. In our review of the budget, we identified a technical error in the scheduling of appropriations for certain programs in the budget bill. The scheduling is inconsistent with a proposed budget change related to the implementation of AB 7. The department concurs with our findings. We therefore recommend the Legislature amend the scheduling of the budget bill as follows:
Item 3600-001-0001 For support of the Department of Fish and Game
Schedule:
(3) 30-Management of Department Lands and Facilities $44,876,000 $50,876,000
(4) Conservation Education and Enforcement 58,515,0000 $52,515,000
Federal Funds Overbudgeted. The budget requests federal expenditure authority of $68.2 million. At the time the budget was prepared, the department anticipated it would receive a federal grant of at least $17 million in 2006-07 for salmon and steelhead recovery efforts. The department now anticipates it will only receive $6.5 million. We therefore recommend the Legislature reduce the department’s federal expenditure authority by $10.5 million to more accurately reflect anticipated federal funds.
In response to the lack of information on the department’s activities, funding levels, and outcomes, as well as concern about the fiscal sustainability of Fish and Game Preservation Fund, the Legislature directed the department to provide specific reports by January 10, 2006. These reports have not been submitted. Because these reports are critical to the Legislature in its evaluation of the budget proposal, we recommend that the Legislature withhold appropriating funding to the department until the reports are submitted. We further recommend the Legislature convene oversight hearings in order to address legislative concerns about the department’s fiscal problems and performance in carrying out its multiple program responsibilities.
Multitude of Mandates and Responsibilities, With No Clear Priorities. Over the years, the department’s statutory responsibilities have increased significantly related to both promoting and regulating hunting and fishing for game species and conservation for all California native plants, fish and wildlife. Our prior-year analyses of the department’s budget and operations, as well as a recent report by the Bureau of State Audits, have raised concerns that the department does not have a clear set of priorities to guide its allocation of fiscal resources among its multiple objectives.
Difficult to Identify DFG’s Level of Activity. The Legislature has repeatedly asked the department for information on the level of activity in its various program areas, and the department has been unable to provide an adequate response. As a result, it is difficult to determine the extent to which the department’s many statutory responsibilities are being fulfilled. For example, it is not clear to what extent at-risk species are being inventoried and monitored.
DFG Directed to Provide Information Critical to Legislative Oversight. In the Supplemental Report of the 2005 Budget, the Legislature directed DFG to submit by January 10, 2006, three reports that the Legislature considered critical to its evaluation of the 2006-07 budget proposal. Also, this information was requested so the Legislature could take action necessary to address its concerns about FGPF fiscal problems and departmental performance in carrying out its multiple competing program responsibilities. These reports are:
Report on Activities, Statutory Mandates, Funding Sources, and Outcomes. This report will provide information on what activities are being carried out by the department and at what level, how these activities are funded, and the funding necessary to meet the statutory or programmatic objectives of the activity if different from the current funding level. This report is critical in evaluating to what extent the department’s activities are being funded at a level consistent with legislative priorities.
FGPF Report. This report required the department to submit a proposal to address the negative balances in the accounts within the FGPF. This is critical for providing the Legislature information that will assist it in addressing the structural deficit of this fund.
Section 1600 Report (Streambed Alteration Agreement Program). This report requires the department to report on the funding level necessary to meet the statutory requirements of the streambed alteration agreement program, and the funding required to review all streambed alteration agreements. This information is critical for the Legislature in evaluating the streambed alteration program.
Recommend Withhold Appropriating Funds Until Reports Submitted. At the time this analysis was prepared, the required reports had not been submitted. Because the lack of this information significantly hinders the Legislature’s ability to conduct oversight of the fiscal problems of the department and its performance, we recommend the Legislature withhold appropriating funding to the department until the reports are submitted.
Recommend Oversight Hearings. Our analysis finds that key fiscal and programmatic concerns of the Legislature regarding DFG have not been addressed in the Governor’s proposal and information from the administration to assist the Legislature in addressing these issues has not been forthcoming. We therefore recommend the Legislature convene oversight hearings, of the budget and appropriate policy committees of each house, on the department’s budgeting problems and performance in carrying out its multiple program responsibilities.
We recommend the department report at budget hearings on proposed changes to its organizational structure, details of which are unknown at this time.
Restructuring Underway; Recommend DFG Report on Proposed Changes. The department indicates it is currently considering shifting certain programs to other divisions and consolidating other programs in order to achieve efficiencies. At the time this analysis was prepared, the department had not provided the Legislature with information on the details of the proposed changes. Consequently, it is not clear to what extent such restructuring will result in any changes to the existing level of resources dedicated to particular activities. We therefore recommend the department report at budget hearings regarding the proposed organizational changes and how they would affect the level of program activities of the department.