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Last Updated: 3/3/2015
Budget Issue: Mercury Cleaners Site Remediation
Program: Department of General Services
Finding or Recommendation: Approve budget bill language specifying that $7.6 million in funding for certain activities--the purchase and demolition of structures, relocation of tenants, and associated administrative costs--reverts to the General Fund if not needed in 2015-16. It is unclear at this time what level of funding will be needed in the budget year.
Further Detail

      Background. The Mercury Cleaners site is located  in downtown Sacramento. The site has been used by dry cleaning businesses since the 1940s and has been owned by the state since 1967. Preliminary evaluations of the Mercury Cleaners site found various contaminants, including dry cleaning solvents in the soil and groundwater. As part of the 2014-15 Budget Act, the Department of General Services (DGS) received $3.7 million from the General Fund to further evaluate the contamination at the site. The department conducted various site investigation activities that confirmed significant levels of contaminants resulting from past dry cleaning activities.

      Governor’s Proposal. The Governor’s budget proposes $9.3 million from the General Fund for the Mercury Cleaners site in 2015-16. This includes (1) $7.3 million for the purchase and demolition of neighboring structures and the relocation of tenants due to the potential spread of contaminants to adjacent properties; (2) $1 million for groundwater treatment; (3) $603,000 for DGS and oversight agency administrative fees; and (4) $415,000 for additional evaluation and monitoring work. The DGS indicates that the total amount of funding that will be required to fully address the contamination is unknown, but additional funding could be required for up to 20 years.

      LAO Comments—Funding Required Highly Uncertain. Based on our conversations with DGS, there is substantial uncertainty regarding the extent to which contamination has spread from the Mercury Cleaners site to adjacent properties. The department reports that it will take between one and two years before it will have completed sufficient investigation work to know the extent to which it will need to proceed with the purchase and demolition of other structures and relocation of tenants. Therefore, the DGS is unsure whether all of the resources requested for this purpose will be needed in the budget year. However, DGS indicates that it is requesting this funding in 2015-16 because it would want to be able to begin these activities in 2015-16 if the investigations are completed in that timeframe and the investigations find that contamination has spread. The department indicates that it does not want to wait to complete these activities should health and human safety risks be identified that require immediate attention. These funds would be deposited into the Architectural Revolving Fund (ARF). Once placed in the ARF, the funding would be available to DGS for expenditure for up to three years.

      LAO Recommendation—Budget Bill Language. We find that the proposed remediation activities are reasonable. However, it is unclear at this time how much of the proposed funding for the purchase of other structures, relocation of tenants, and demolition and abatement will be needed in 2015-16. Therefore, we recommend budget bill language that specifies that $7.6 million—$7.3 million for purchase and demolition of structures and relocation of tenants, as well as $327,000 for the share of administrative fees associated with these activities—only be used for these purposes, and any of this amount unspent in 2015-16 be reverted to the General Fund. This language would allow DGS to complete work in the budget year but require it to return with a revised budget request for any additional work as part of next year’s budget process. At that time, DGS should be able to provide the Legislature with additional information regarding the scope and costs of additional remediation work necessary at these sites.

Specifically, we recommend the following budget bill language:

7760-001-0001. Provision X. Of the amount appropriated in this item, $7.6 million shall only be available for (1) the purchase of other structures near the Mercury Cleaners site, (2) demolition and abatement of these structures, (3) relocation of tenants, and (4) administrative costs associated with these activities. Any unspent funds at the end of the 2015-16 fiscal year shall revert to the General Fund.