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Legislative Analyst's OfficeAnalysis of the 2003-04 Budget Bill |
The California Department of Food and Agriculture (CDFA) provides services to both producers and consumers of California's agricultural products in the areas of agricultural protection, agricultural marketing, and support to local fairs. The purpose of the agricultural protection program is to prevent the introduction and establishment of serious plant and animal pests and diseases. The agricultural marketing program markets California's agricultural products and protects consumers and producers through the enforcement of measurements, standards, and fair pricing practices. Finally, the department provides financial and administrative assistance to county and district fairs.
The budget proposes expenditures of $269 million and 1,811 positions in 2003-04 for the department, including $93 million from the Agriculture Fund and $87 million from the General Fund. The proposed expenditures are $32 million, or 11 percent, below estimated current-year expenditures due to a variety of proposed program reductions.
In 1998, the Legislature enacted legislation to prevent the euthanization of adoptable stray animals. In 2001, this legislation was determined to be a state-reimbursable mandate. We recommend the Legislature suspend the mandate to reimburse local governments for the increased costs resulting from animal control. Furthermore, we recommend the Legislature refer the matter to the Joint Legislative Audit Committee for review of (1) the existing claims (about $79 million) to ensure that they are appropriate and (2) the parameters and guidelines to ensure that they specify the offsetting savings and revenues to be deducted from claimed costs.
Local Governments Responsible for Animal Control. Local government animal control agencies care for stray and surrendered animals in California communities. Such care includes housing, medical care, and vaccinations. These agencies also pursue the successful adoptions of the animals in their care and euthanize those animals that are not placed.
Legislation Enacted to Prevent the Euthanization of Adoptable Stray Animals. Seeking to prevent the euthanization of adoptable stray animals, the Legislature enacted Chapter 752, Statutes of 1998 (SB 1785, Hayden). Prior law provided that no dog or cat impounded by a public pound or specified shelter could be euthanized before three days after the time of impounding. Chapter 752 requires the following:
Legislation Found to Be a Reimbursable Mandate. In 2001, responding to a claim by local governments, the Commission on State Mandates found Chapter 752 to impose a reimbursable mandate. The commission found, in part, that Chapter 752 increased costs by requiring the housing and caring for these animals longer than the three days previously required by law and other specified activities. To guide local agencies in their preparation of mandate claims, the commission adopted a reimbursement methodology referred to as the mandate's parameters and guidelines, or "Ps&Gs." Local agencies, in turn, submit claims to the State Controller's Office (SCO).
Usually for a new mandate, the administration proposes funds in the May Revision to reimburse local governments, and the Legislature appropriates the funds in the annual claims bill. After the mandate is funded in the claims bill, the mandate is included in the budget bill for future funding. The costs of this mandate have not yet been included in a claims bill and, therefore, also do not appear in the 2003-04 Budget Bill.
To date, local entities have submitted a total of $52 million in claims for the past four fiscal years. Based on the claims submitted thus far, the commission projects that the mandate will cost $79 million through 2003-04 with an ongoing annual cost of roughly $14 million. Since the local entities are still authorized to submit claims for the past two fiscal years, the cost of these claims is likely to increase.
Offsetting Revenue and Savings Expected. The mandate's cost is noteworthy given that, at the time the Legislature enacted the animal control mandate, there was some question as to whether the legislation would even qualify as a state-reimbursable mandate. This is because it was expected that much of the increased costs would be offset by revenues and savings from animals kept longer than three days and subsequently adopted. Under prior law, these animals would have been euthanized after three days. By holding them longer than three days, local governments experience increased costs from the additional holding time. At the same time, local governments experience reduced costs due to fewer animals euthanized and receive increased revenues from adoption and redemption fees.
Claimed Costs Likely Overstated. These reduced costs and increased revenues would, at least partially, offset the increased holding time costs. While the Ps&Gs generally require the local governments to claim any offsetting savings or reimbursements resulting from this mandate, the direction is not sufficiently explicit. In our view under Chapter 752, every local government should experience an increase in revenues because of the increase in fees collected for animal placement and increased savings because of the decrease of animals euthanized. We would expect every claim, therefore, to include a deduction of some level of savings and reimbursements to offset claimed costs. In the course of our analysis, however, we reviewed a sample of animal control claims submitted to the SCO and found that most local entities claimed costs without deducting any offsetting revenues or savings. We believe, therefore, the claimed costs are likely overstated. While the net fiscal effect of the mandate may result in some cost to the local governments, the associated savings currently not accounted for is likely significant.
Wide Variation in Local Government Claims. Furthermore, there is great variation in the types of costs claimed by local governments. Salinas, for example, claimed over $1 million to acquire additional space in 1999-00, and the City of Los Angeles claimed over $400,000 over a three-year period for computer software. Some other entities have claimed no costs for either of these items since the date the mandate became effective.
What Explains the Higher-Than-Anticipated Costs and Variation? We suspect that the higher-than-anticipated costs are a result of local governments not appropriately deducting offsetting savings or revenues from claimed costs. More explicit Ps&Gs that define the offsetting savings and revenues to be deducted from the claims would likely minimize this situation. We also suspect that some of the variation is likely attributable to the significant difficulty state and local agencies face in defining and estimating state-reimbursable costs when only part of a program is state-reimbursable. Specifically, since only incremental shelter costs are eligible for reimbursement, drafting Ps&Gs and filing claims that accurately differentiate "base" program expenditures from "mandated" program expenditures is difficult.
Given the costs of the claims and the significant variation in amounts, it is possible that some local governments are claiming costs not permissible under the Ps&Gs. To the extent that the local governments are claiming inappropriate costs, SCO's audits should remedy this problem. If much of the problem, however, pertains to ambiguities in the Ps&Gs related to offsetting savings and revenues, as we suspect, no existing state administrative process will automatically remedy this problem. Instead, state costs associated with ambiguities in Ps&Gs tend to escalate as local governments learn how to maximize state reimbursements.
In 2000, the Legislature faced an analogous problem when considering the "School Bus Safety II" mandate. Specifically, some school districts submitted claims for as much as $10,000 per school bus to implement relatively modest procedural safety safeguards. To examine this matter more fully, the Legislature requested the Joint Legislative Audit Committee (JLAC) to review the mandate's Statement of Decision, Ps&Gs, and district claims. Given the cost of the claims involved in the animal control mandate, we recommend the Legislature again ask JLAC to conduct an audit to:
Pending receipt of this audit, we recommend the Legislature not fund this claim in the claims bill anticipated in May of this year. While the state would incur an interest penalty at the Pooled Money Investment Account rate (currently less than 3 percent) on unpaid meritorious claims, the interest cost is modest compared to the dollars at stake.
Given the concerns outlined above, we believe it would be imprudent to incur additional mandate liabilities until the results of the JLAC audit are known. Consequently, we recommend suspending the mandate in the budget year. To achieve this, the Legislature would need to show a $0 appropriation for this mandate in the budget bill (Item 8570-295-0001) with the following language:
Pursuant to Section 17851 of the Government Code, mandates identified in the appropriation schedule of this item with an appropriation of $0 and included in the language of this provision are specifically identified by the Legislature for suspension during the 2003-04 fiscal year:
(1) Animal Control (Ch 752, Stats of 1998)
We recommend the enactment of legislation authorizing the department to assess fees for the nonfederal cost of the Medfly Preventative Release Program. (Reduce Item 8570-001-0001 by $8.9 million.)
Proposal to Make Medfly Control Program Permanent.The Governor's budget proposes to fund Mediterranean Fruit Fly (medfly) control on an ongoing basis and provides $8.9 million for this purpose. The department began efforts to control the impact of the medfly on California's agricultural industry in 1975. Since 1980, the state has spent around $150 million from the General Fund to support this effort, with a similar amount provided by the federal government. The department has used aerial and ground spraying, and sterile medfly releases to fight the pest.
The current Preventative Release Program (PRP) began in 1996 and involves raising sterile medflies and releasing them throughout a 2,100 square mile area of the Los Angeles Basin. Total program costs are $18 million annually, shared equally between the state and the federal government. The Legislature approved the program for five years with a June 30, 2001 sunset date. The 2001-02 and 2002-03 Budget Acts each extended the program for one additional year.
Department Continues to Ignore Legislative Direction to Examine Different Funding Mechanisms. During the 2002-03 budget hearings, the Legislature expressed concern over the General Fund obligation for this program. The Legislature approved General Fund spending for one additional year. The Legislature also directed the department, through budget bill language, to provide information by January 10, 2003 detailing how funding for the PRP could be shifted in whole, or in part, to the Agriculture Fund. At the time this analysis was prepared, the department had not submitted the report to the Legislature. We note that during the 2001-02 budget hearings the Legislature had directed the department to provide the same information by January 10, 2002, and it was never submitted to the Legislature.
Industries That Benefit Should Share in the Cost. Field data indicate that the PRP is successfully controlling the medfly population in Southern California. By preventing the establishment of medfly populations, the PRP protects a variety of fruit growing industries including peaches, pears, lemons, limes, and oranges. The CDFA estimates that in the absence of such a program, the direct crop losses as a result of medfly dam age could range between approximately $150 million to $300 million annually. Clearly, the control of medfly populations generates benefits to specific agricultural industries. It is reasonable, therefore, that the agricultural industries that most benefit from the program contribute to its support.
Recommend Industry Funding for Program Costs. Accordingly, we recommend enactment of legislation to direct CDFA to develop an assessment program that would equitably distribute the nonfederal cost of the PRP across those industries that most benefit from the absence of the medfly. This assessment should be distributed in such a manner as to maximize participation—thereby minimizing the economic impact on any individual industry.