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

Fund Conditions for Resources Programs

The state uses a variety of special and bond funds to support the departments, conservancies, boards, and programs that regulate and manage the state's natural resources. Of the $4.3 billion in state-funded expenditures for resources programs proposed for 2001-02, about $1 billion (24 percent) would be from special funds, and $740 million (17 percent) from bond funds. The remainder—$2.6 billion—would be from the General Fund.

In this section, we provide a status report on selected special funds and bond funds supporting these programs. In general, the use of these special and bond funds is specified in statute. Some funds can be used for a wide variety of programs and activities, while the use of other funds is more limited. For purposes of this review, we divided the funds into three categories: (1) resources special funds, (2) park-related bond funds, and (3) bond funds for water programs.

Resources Special Funds

The budget proposes to spend most of the special funds projected to be available in 2001-02 for resources protection. If the Governor's spending proposals are approved, it will leave about $27 million for legislative priorities. However, the use of most of these remaining funds is e statutorily restricted to specific purposes.

Figure 1 summarizes the total resources available in 2001-02 for selected special funds, the Governor's proposed expenditures from these funds, and the balances available after the Governor's proposed expenditures. Approval of the Governor's spending proposals would leave $27 million available for legislative priorities. This amount would be even less if the Legislature wishes to maintain some level of reserves in the accounts to meet contingencies such as revenue shortfalls or unanticipated expenditures. Furthermore, most of the remaining funds can only be used for specific purposes, as required by statute. For instance, about $8.7 million of the projected balance in the Fish and Game Preservation Fund (FGPF) is dedicated statutorily and can only be used for activities related to certain species. As a result, the Legislature's flexibility in expending these funds for resources projects is limited.

Below we discuss in greater detail the funds shown in Figure 1.

Resources Trust Fund. The Resources Trust Fund (RTF) was created by Chapter 293, Statutes of 1997 (SB 271, Thompson). Funds in RTF are to be allocated to preserve and protect the natural and recreational resources of the state. The RTF is funded from the tidelands revenues remaining after specified amounts are deposited into the General Fund and the California Housing Trust Fund. (Please see the Analysis of the 1998-99 Budget Bill, page B-17 for a graphic representation of the distribution of tidelands revenues.)

Chapter 293 split the trust fund into two separate accounts: the Salmon and Steelhead Trout Restoration Account (SSTRA) and the Natural Resources Infrastructure Fund (NRIF). Chapter 293 also required that the first $8 million from RTF be deposited into SSTRA to be appropriated to the Department of Fish and Game (DFG) for the recovery of salmon and steelhead trout. Of the $8 million, at least 87.5 percent ($7 million) must be allocated as project grants through DFG's fisheries management grant program. The grants are to be awarded for activities that improve fish habitat in coastal water utilized by salmon and anadromous trout, and are to emphasize the development of coordinated watershed improvement activities. The remaining 12.5 percent may be used for project administration costs incurred by DFG.

Chapter 326, Statutes of 1998 (AB 2784, Strom-Martin) created two additional accounts within RTF. These two accounts have higher funding priority than NRIF. First, Chapter 326 created the Marine Life and Marine Reserve Management Account (MLMRMA) and allocated $2.2 million annually through 2005-06, from RTF to the account for expenditure, upon appropriation, by DFG for marine life management. Second, Chapter 326 created the State Parks System Deferred Maintenance Account (SPSDMA) within RTF and allocated $10 million annually through 2005-06, from RTF to the account for expenditure, upon appropriation, by the Department of Parks and Recreation for deferred maintenance expenses.

The remaining RTF money will be deposited in NRIF for preserving and protecting natural and recreational resources. Chapter 293 identified four priorities for the use of NRIF. These priorities are: environmental review and monitoring by DFG, Natural Community Conservation Plan (NCCP) acquisitions, Habitat Conservation Fund (HCF) funding requirements, and expenditure for nonpoint source pollution control programs. Funds not appropriated to these priorities will be spent on natural and recreational resources.

With the recent increase in oil prices, tidelands oil revenues to the state are projected to total about $68 million in 2001-02. As a result, the budget projects that SSTRA, MLMRMA, and SPSDMA would receive their respective statutory allocations in 2001-02, and NRIF would receive about $25.6 million. After transferring $4.5 million to the General Fund to meet specified statutory requirements, the budget proposes to transfer the remaining $21.1 million of NRIF money to HCF in order to meet the funding requirement of Proposition 117. As a result, the budget projects no remaining funds in NRIF, as shown in Figure 1.

Environmental License Plate Fund (ELPF). The ELPF derives its funding from the sale of personalized motor vehicle license plates by the Department of Motor Vehicles. Funds from ELPF can be used for the following purposes:

• Control and abatement of air pollution.
• Acquisition, preservation, and restoration of natural areas and ecological reserves.
• Environmental education.
• Protection of nongame species and threatened and endangered plants and animals.
• Protection, enhancement, and restoration of fish and wildlife habitat, and related water quality.
• Purchase of real property, consisting of sensitive natural areas, for the state, local, or regional park systems.
• Reduction of the effect of soil erosion and discharge of sediments into the water of the Lake Tahoe region.

The budget proposes expenditures totaling $22.7 million from ELPF, a decrease of about $13.3 million (37 percent) below estimated current-year spending. The decrease is the result of lower local assistance and capital outlay expenditures by the California Tahoe Conservancy and lower ELPF support for the DFG. Almost all of the proposed ELPF expenditures in 2001-02 would be for departmental support purposes, including $15.9 million for support of DFG. Only $967,000 would be for local assistance.

The proposed ELPF expenditures will leave a balance of $6.9 million at the end of 2001-02.

Public Resources Account, Cigarette and Tobacco Products Surtax Fund (PRA). The PRA receives 5 percent of the Cigarette and Tobacco Products Surtax Fund (C&T Fund) revenues. Generally, PRA funds must be used in equal amounts for (1) park and recreation programs at the state or local level and (2) habitat programs and projects.

Due to the decline in cigarette and tobacco sales, revenues into the C&T Fund have been declining annually. The budget projects $18.2 million in PRA resources in 2001-02 and proposes total expenditures from PRA of $17.2 million—$1.2 million lower than the estimated current-year expenditure level. All proposed expenditures would be for departmental support purposes. About 76 percent ($13 million) of the proposed expenditures would be used to support the Department of Parks and Recreation (DPR), and 12 percent ($2 million) would support the operations of the State Water Resources Control Board.

The budget proposes a reserve of $1 million in PRA at the end of 2001-02.

Habitat Conservation Fund (HCF). The HCF was created by Proposition 117, the California Wildlife Protection Act of 1990. The proposition requires that the fund receive annual revenues of $30 million primarily for wildlife habitat acquisitions and improvements. To provide this funding level, Proposition 117 requires transfers of (1) 10 percent of funds from the Unallocated Account, C&T Fund, and (2) additional funds from the General Fund in order to provide a total of $30 million. Proposition 117 allows the Legislature to substitute other appropriate funds for the General Fund.

For 2001-02, the budget proposes to transfer $8.9 million from the Unallocated Account, C&T Fund, and $21.1 million in NRIF money to HCF. These transfers, together with carryover balances, would fund proposed expenditures of $30 million, leaving a balance of $0.3 million at the end of the budget year.

Fish and Game Preservation Fund. The FGPF derives most of its revenues from fishing and hunting licenses, tags, and permits. Money in FGPF is used to support DFG activities to protect and preserve fish and wildlife, including the acquisition and construction of projects for these purposes. Certain revenues in the fund are restricted (or dedicated) to be used for specific purposes or species. For instance, revenues from hunting or fishing stamps for particular species can be used only for activities related to the protection of those species. The costs of commercial fishing programs are to be paid solely out of revenues from commercial fishing taxes and license fees.

For 2001-02, the budget proposes total FGPF expenditures of $88.6 million, almost entirely for the support of DFG. This amount is $12 million (16 percent) more than estimated current-year expenditures. Of the budget-year amount, $73.5 million is proposed to be spent from nondedicated funds and the remaining $15.1 million from dedicated revenues.

With the proposed expenditures, the budget projects a reserve of $16.1 million in FGPF for 2001-02, of which $7.4 million is expected to be in nondedicated funds.

State Parks and Recreation Fund (SPRF). The SPRF is the main special fund source that supports DPR. The fund generates most of its revenues from state beach and park service fees. For 2001-02, the budget projects SPRF resources of $59.9 million. This amount is significantly lower than previous years mainly as a result of the lowering of park fees statewide beginning in the current year. About 48 percent of these resources ($29 million) would be from beach and park fees. The budget proposes to use $57 million for DPR support, leaving a balance of about $2.9 million by year end.

Parks Bond

The budget proposes expenditures in 2001-02 of about $419 million from the 2000 Parks Bond for park acquisitions, development, improvement, and restoration. The proposed expenditures would leave a balance of about $418 million which after netting out administrative costs ($144 million) leaves $274 million for new projects beyond the budget year.

In March 2000, the voters approved Proposition 12 (the Safe Neighborhood Parks, Clean Water, Clean Air, and Coastal Protection Bond Act), which authorized $2.1 billion in bond funds for specified and unspecified parks projects and habitat acquisition. As shown in Figure 2 DPR is to receive about $545 million for various state park development and improvement projects, plus another $820 million to provide grants to local and nonprofit agencies. The remaining $736 million is to be allocated to a dozen other state departments for land acquisition and parks-related projects.

The current-year budget appropriates a total of $1.3 billion of the bond funds across all the recipient departments. For 2001-02, the budget proposes a total of $419 million to be expended by these departments. This would leave a balance of about $418 million.

The actual balance available for park projects, however, will be less. This is because Proposition 12 provides for the use of bond funds for certain administrative costs. The administration estimates these costs to total $144 million over the entire bond period. Netting out these administrative and support costs, the bond funds remaining for new projects beyond 2001-02 would be about $274 million. Most of this amount ($171 million) would be for projects carried out by DPR.

Water Bonds

The budget proposes expenditures of about $622 million from a number of water bonds for various water quality, water supply, flood control, and ecosystem restoration projects. Bond funds are no longer available in the budget year for the state's unmet share of costs for federally authorized, local flood control projects. To fund the state's share of these costs, the budget proposes $117.6 million from the General Fund.

As Figure 3 shows, the budget proposes expenditures totaling $621.7 million in 2001-02 from various water bonds for (1) safe drinking water; (2) water supply, including water conservation, water recycling, and groundwater recharge; (3) wastewater treatment and other water quality projects; (4) Bay-Delta improvements, including fish and wildlife restoration; and (5) flood control and prevention. Of the proposed expenditures, about 42 percent are from Proposition 204 bond funds and 51 percent from Proposition 13 bond funds. Proposition 204—the Safe, Clean, Reliable Water Supply Act of 1996—provided $995 million for various water-related purposes, including habitat restoration in the Bay-Delta, wastewater treatment, water recycling and conservation, and local flood control and prevention. Proposition 13—the Safe Drinking Water, Clean Water, Watershed Protection, and Flood Protection Act (2000)—provided $1.97 billion for safe drinking water, flood control, Bay-Delta restoration, watershed protection, and various water quality and supply projects.

Safe Drinking Water. The budget projects total expenditures of $29 million in 2001-02, leaving a balance of $62.2 million at the end of 2001-02. There are pending grant applications that would spend much of this balance in future years. Proposition 13 provided $70 million of bond funds for safe drinking water. These monies are used to provide a 20 percent state match for federal loans and grants that are available to public water systems in the state for upgrades to meet safe drinking water standards.

Water Supply and Water Recycling. The budget projects total expenditures of $149.1 million for water supply and recycling projects. This leaves a balance of $284.3 million, mainly for new projects.

Wastewater Treatment, Watershed Protection, and Other Water Quality Projects. The budget proposes $232.3 million in expenditures to fund wastewater treatment, agricultural drainage treatment, seawater intrusion control, watershed protection, and other water quality projects in 2001-02. This leaves a balance of $314.8 million.

Bay-Delta Improvements. Propositions 13 and 204 bond funds provide a total of about $1 billion for projects specifically related to the Bay-Delta. These funds are mainly for ecosystem restoration, fish screens to reduce fish losses from water diversions, delta levee rehabilitation, and water supply/quality projects in areas receiving water deliveries diverted from the Bay-Delta. The budget proposes expenditures of $197.3 million in 2001-02, leaving a balance of $444.4 million.

Flood Control and Prevention. The costs of federally authorized, locally sponsored flood control projects are currently shared by the federal government (50 to 75 percent), state government (17.5 to 35 percent), and local government (7.5 to 15 percent). Due to the state's budget condition during the 1990s, however, the state has been unable to pay its full share of costs for these flood control projects. Propositions 204 and 13 together provide $105 million in bond funds to pay some of the arrearages owed to local agencies; however, these funds will be depleted by the end of 2000-01.

According to the Department of Water Resources (DWR), the unpaid amount of the state's share of costs will be about $17.4 million at the end of 2000-01. The budget proposes $117.6 million from the General Fund to pay these arrears as well as the estimated $100.2 million owed to local agencies from new claims submitted in 2001-02. This is the first time in many years that the budget proposes to end the budget year with no arrearages owed to local agencies for flood control projects.

In addition to providing funds to pay the state share of costs for federally authorized flood control projects, Proposition 13 bond funds provide a total of $217 million for other flood control projects. The budget proposes expenditures of $14 million for these projects in 2001-02, leaving a balance of $129.8 million for future years.