Legislative Analyst's Office Analysis of the 2001-02 Budget Bill

Department of Pesticide Regulation (3930)

The Department of Pesticide Regulation (DPR) administers programs to protect the public health and the environment from unsafe exposures to pesticides. The department (1) evaluates the public health and environmental impact of pesticide use; (2) regulates, monitors, and controls the sale and use of pesticides in the state; and (3) develops and promotes the use of reduced-risk practices for pest management. The department is funded primarily by an assessment on the sale of pesticides in the state and by the General Fund.

The budget proposes expenditures of about $63.4 million in 2001-02 for the department, including $40.9 million from the DPR Fund (funded mainly by an assessment on pesticide sales) and $17.1 million from the General Fund. The proposed expenditures are $1.4 million , or 2 percent, above estimated current-year expenditures.

Major Funding Shortfall Will Occur Beginning in 2002-03

The department will face substantial funding shortfalls beginning in 2002-03 due to the scheduled reduction of the mill assessment rate in January 2003. The Legislature will likely be called upon this session to determine a new assessment rate for future years.

Mill Assessment Is Primary Source of Funding for Department. The primary source of funding for DPR is an assessment levied on the sale of registered pesticides for use in the state (the mill assessment). The mill assessment is currently levied at a rate of 18.25 mills (1.825 cents) per dollar of sales. Of this amount, current law requires that 6 mills be distributed to the counties for enforcement activities and 0.75 mill be distributed to the Department of Food and Agriculture. The remaining 11.5 mills are available for support of DPR.

For 2001-02, revenues from the mill assessment are estimated to be about $34 million, with about $22 million available for the department's operations.

Current Mill Rate Will Revert to Lower Level in 2003. Up until the early 1990s, the regulation of pesticides in the state was funded primarily from the General Fund. In light of the General Fund condition in the early 1990s, funding for pesticide regulation was shifted largely to the mill assessment, which was increased temporarily from 9 mills to 22 mills for 1992 through 1997. During this time, the DPR Fund built up a substantial reserve. In view of the large reserve, Chapter 695, Statutes of 1997 (SB 1161, Costa) was enacted to lower the mill rate for five years from 1998 through 2002. The lower rate allowed the department to maintain its program level by drawing down the accumulated fund reserve.

Pursuant to Chapter 695, the mill rate will revert on January 1, 2003 to 9 mills—the rate that existed prior to 1991. Of the 9 mills, 6 mills will continue to be distributed to the counties for enforcement, with the remaining 3 mills available for DPR's operations.

Major Shortfall in DPR Fund Beginning in 2002-03. Figure 1 shows projected revenues and expenditures in the DPR Fund for 2002-03 and 2003-04, assuming that the mill assessment reverts to the 9 mill rate on January 1, 2003. The figure also assumes that state operations expenditures, and revenues from sources other than the mill assessment (mainly registration renewal and license fees), will remain the same as proposed for 2001-02. (Allocations of revenues to the counties will increase slightly given the formula that applies under current law.)

As shown in the figure, expenditures are projected to exceed revenues by $7.4 million in 2002-03 and by $20.6 million in 2003-04, resulting in substantial funding shortfalls.

The shortfalls will be borne by DPR. This is because at the lower mill rate, counties will continue to receive revenues from 6 mills of the mill assessment, with revenues from the remaining 3 mills available for DPR. Assuming some increase in pesticide sales in future years, the department projects that annual mill assessment revenues available for its support will decline from $22 million in 2001-02 to about $6 million in 2003-04 (the first full fiscal year at the 9 mill rate). At current expenditure levels, this decrease would represent over 30 percent of the department's budget. The impact of a decrease of this magnitude would cut across most of the department's programs.

In order to address the impending funding shortfall in the DPR Fund, the Legislature will likely be called upon this session to determine the appropriate level of mill assessment rate for providing ongoing support of the state's pesticide regulation activities. As part of its evaluation, the Legislature should consider (1) the department's total funding requirements to support its currently mandated programs and (2) whether the range of current programs is the appropriate one for the future. The Legislature should also determine the appropriate mix of funding sources (General Fund versus fees) to support departmental activities.