Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

Overview

The budget proposes significantly lower state expenditures for resources and environmental protection programs in 2002-03 compared to the estimated current-year level. This is mainly due to (1) a substantial decrease in bond-funded expenditures for parks and water projects; (2) the elimination of one-time General Fund expenditures that occur in the current year, including costs to settle hazardous waste-related litigation against the state; and (3) a decrease in General Fund expenditures for emergency fire suppression, flood control, park projects, and habitat acquisition and development.

Expenditure Proposals and Trends

Expenditures for resources and environmental protection programs from the General Fund, various special funds, and bond funds are proposed to total $3.7 billion in 2002-03, which is 3.7 percent of all state-funded expenditures proposed for 2002-03. This level is a decrease of about $2.7 billion, or 43 percent, below estimated expenditures for the current year.

Decrease Largely Reflects Reduction in Bond Expenditures. The proposed reduction in state-funded expenditures of about $2.7 billion for resources and environmental protection programs largely reflects a $1.8 billion decrease in bond fund expenditures for park and water projects. While there have been a number of bond measures in prior years that provide funds for resources-related purposes, these funds have been substantially drawn down. Specifically, of the $7.6 billion of resources-related general obligation bonds approved by the voters since 1980, about $6.4 billion will have been spent or committed to specific projects as of the end of 2001-02.

The reduction in state expenditures also reflects the elimination of one-time General Fund expenditures that occur in the current year, including a $115 million payment to settle hazardous waste-related litigation against the state. In addition, the reduction is due to a decrease in General Fund expenditures for various other purposes, including emergency fire suppression, flood control, state and local park acquisition and improvements, and habitat acquisition. In total, the budget proposes General Fund expenditures for resources and environmental protection programs in 2002-03 that are $785 million lower than the current-year level.

Funding Sources. The largest proportion of state funding for resources and environmental protection programs--about $1.7 billion (or 47 percent)--will come from various special funds. These funds include the Environmental License Plate Fund, Fish and Game Preservation Fund, funds generated by beverage container recycling deposits and fees, and an "insurance fund" for the cleanup of leaking underground storage tanks. Of the remaining expenditures, $1.2 billion will come from the General Fund (32 percent of total expenditures) and about $769 million from various bond funds (21 percent of total expenditures).

Expenditure Trends. Figure 1 shows that state expenditures for resources and environmental protection programs increased by about $1.5 billion since 1995-96, representing an average annual increase of about 8 percent. The increase includes about $300 million in General Fund expenditures and the remainder in special fund and bond expenditures. When adjusted for inflation, total state expenditures for resources and environmental protection programs increased at an average annual rate of about 5 percent. General Fund expenditures increased at an average annual rate of about 4 percent over this period. When adjusted for inflation, General Fund expenditures increased at an average annual rate of about 2 percent. This increase in General Fund support largely reflects the improved state fiscal condition beginning in 1998-99. General Fund expenditures for resources and environmental protection programs peaked in 2000-01 and have since declined due to the state's weakened fiscal condition. The budget proposes General Fund expenditures at a level about the same as in 1998-99.

Spending by Major Program

Figure 2 shows spending for major resources programs--that is, those programs within the jurisdiction of the Secretary for Resources and the Resources Agency.

Figure 3 shows similar information for major environmental protection programs--those programs within the jurisdiction of the Secretary for Environmental Protection and the California Environmental Protection Agency.

Spending for Resources Programs. Figure 2 shows the General Fund will provide a majority of the California Department of Forestry and Fire Protection's (CDFFP) total expenditures, accounting for 57 percent ($312.3 million) of the department's 2002-03 expenditures. The General Fund will account for less in the support of other resources departments. For instance, for the Secretary for Resources and the Department of Conservation (DOC), the General Fund will constitute only about 2 percent ($3.6 million) and 4 percent ($21.8 million) of their budget-year expenditures, respectively. In the case of the Departments of Fish and Game (DFG) and Parks and Recreation (DPR), the General Fund will pay for about 22 percent ($56.8 million) and 30 percent ($112.4 million) of the respective departments' total expenditures. The Department of Water Resources (DWR's) expenditure total is skewed by the $5.2 billion budgeted under DWR for energy purchases on behalf of investor-owned utilities (IOUs). If these energy-related expenditures are excluded from DWR's total, the General Fund pays for 9 percent ($114.7 million) of DWR's expenditures.

Figure 2 also shows that compared to current-year expenditures, the budget proposes a reduction throughout the resources departments. Specifically, the budget proposes a substantial reduction in DPR expenditures of about $1.1 billion, or 74 percent less than the current-year estimated expenditure level. The reduction includes (1) about $79 million less in department support and operations, largely due to the elimination of one-time General Fund expenditures that occur in the current year for state parks deferred maintenance, and (2) a drop of $907 million in expenditures for state and local park acquisition and improvements funded by Proposition 12 bond money. The budget also does not propose any General Fund expenditures for local parks or for state park acquisition and improvements. The estimated current-year expenditures from the General Fund for these purposes are $32.6 million and $20.1 million, respectively.

For DWR, the budget proposes 29 percent less in expenditures for 2002-03, compared to the estimated current-year level. The reduction includes a decrease of about (1) $2.5 billion for energy purchases on behalf of IOUs and (2) $62 million for various projects and programs funded with Proposition 13 bond funds. The reduction in DWR's General Fund expenditures largely reflects decreased expenditures for flood control. Specifically, the budget eliminates the one-time expenditure of $44 million that occurs in the current year to pay the state share of costs of local flood projects. The budget also requests $41 million less from the General Fund for state flood control projects.

For the Secretary for Resources, the budget proposes total expenditures of $168.6 million--about 26 percent less than current-year expenditures. This reduction largely reflects a decrease in expenditures from Proposition 12 bond money for river parkway and other park projects.

For CDFFP, the budget proposes 22 percent less in expenditures for 2002-03, compared to the estimated current-year level. Most of the reduction is proposed to come from the General Fund. Specifically, the budget eliminates funding from the General Fund for emergency fire suppression, although estimated 2001-02 expenditures from the General Fund for this purpose are $100 million.

Although not shown in the figure, the budget proposes a significant reduction in expenditures ($314.9 million, or about 85 percent) for the Wildlife Conservation Board. While much of this reduction reflects the elimination of $225.6 million of Proposition 12 funding for habitat acquisition and development, the budget also proposes a significant reduction from the General Fund. Specifically, the budget proposes $21.3 million from the General Fund for habitat acquisition and development--a reduction of $56 million from estimated expenditures in the current year.

In contrast, the budget proposes relatively minor reductions in departmental expenditures for both DFG and DOC in 2002-03.

Spending for Environmental Protection Programs. As Figure 3 shows, the budget proposes decreases throughout environmental protection programs. In particular, expenditures of the Department of Toxic Substances Control (DTSC) are proposed to decrease by

$152.3 million, or 49 percent, from the current-year level. This decrease, however, largely reflects the elimination of two major one-time expenditures from the General Fund that occur in the current year, namely (1) $115 million to settle hazardous waste-related litigation against the state and (2) $21 million to repay a loan made from the Superfund Bond Trust Fund.

The budget also proposes to decrease expenditures for the Air Resources Board (ARB) significantly by $86 million, or about 39 percent, compared to the current-year expenditure level. The decrease is largely due to the elimination of one-time expenditures that occur in the current year totaling $67.6 million--including (1) $33.6 million (mainly General Fund) for the Energy Crisis/Environmental Justice Air Emissions Program and (2) $20 million (Motor Vehicle Account) for zero-emission vehicle incentives. (Since the budget was introduced in January, the Legislature approved an increase of $14.1 million for the Energy Crisis/Environmental Justice program in the current year.)

For the State Water Resources Control Board (SWRCB), the budget proposes a decrease of $394.6 million, or 37 percent, from estimated current-year expenditures. Most of this reduction reflects a decrease of $403.2 million of bond-funded expenditures, mainly for local water quality and water recycling projects. On the other hand, the board's expenditures from the fee-based Waste Discharge Permit Fund are proposed to increase by 84 percent ($14.7 million) over the current-year level. This reflects the budget's proposal to shift funding for a significant portion of the board's permitting, inspection, and enforcement activities from the General Fund to fees.

Finally, the budget proposes relatively minor expenditure reductions for the California Integrated Waste Management Board, the Department of Pesticide Regulation, and the Office of Environmental Health Hazard Assessment.

Major Budget Changes

Figures 4 and 5 present the major budget changes in resources and environmental protection programs, respectively.

As Figure 4 shows, the budget proposes a number of changes in funding for activities in various resources departments related to the CALFED Bay-Delta program. Specifically, of the total $519 million of state funds proposed for CALFED, $101.5 million is to come from Proposition 40--the resources bond on the March 2002 ballot. Proposition 40 bond funds are proposed for a number of CALFED programs, including

(1) $10 million for the Secretary for Resources for river parkway projects and (2) $51.5 million for DWR for the CALFED watershed, water quality, and ecosystem restoration programs. The budget also proposes (1) a de crease of $15.2 million in Proposition 204 bond funds for the Secretary for Resources for CALFED ecosystem restoration, (2) an increase of $14.2 million (Proposition 13 bond funds) for DWR for CALFED conveyance, and (3) a decrease of $19.7 million from the General Fund for DWR for various CALFED programs and projects.

For CDFFP, the budget proposes to eliminate the $55 million of baseline funding from the General Fund for emergency fire suppression.

For DPR, the budget proposes significantly less expenditures in 2002-03 for state and local park acquisition and development. This reduction largely reflects the near depletion of Proposition 12 bond funds for this purpose.

For DWR, the budget proposes significantly reduced expenditures from the Electric Power Fund (funded by ratepayers) for energy purchases made by DWR on behalf of IOUs. This reduction assumes that the department will cease to purchase power on the spot market at the end of 2002. The budget also proposes no funding from the General Fund for the state share of costs of local flood control projects. This is a substantial change from the one-time expenditures of $44 million for this purpose that occurred in the current year.

Regarding environmental protection programs, Figure 5 shows that the budget proposes both augmentations and reductions, although total spending will decrease in all departments. Specifically, the budget proposes reductions totaling about $15 million for various ARB programs, including a $5 million reduction in assistance to local air districts.

For SWRCB, the budget proposes a one-time increase of $22.4 million in payments to underground storage tank owners and operators for the cleanup of leaking tanks. The budget also proposes an increase of $4.3 million to improve information management, including the tracking of water quality violations and enforcement actions. The budget also reflects a reduction of $403.2 million in bond funds for local water quality and water recycling projects.

In addition, the budget proposes a number of increases for DTSC funded by special funds, including $2.2 million for various hazardous waste management programs and $9.3 million (mainly one-time) for facility operations, equipment, and vehicles.