Analysis of the 2004-05 Budget Bill Legislative Analyst's Office February 2004

Timber Harvest Fee Proposal Should Go Further

The budget proposes to impose a new fee on timber owners to partially cover the costs incurred by the California Department of Forestry and Fire Protection (CDFFP) in its review and enforcement of timber harvest plans (THPs) beginning in the current year. While this is a step in the right direction, we recommend the enactment of fee legislation that would go further by fully funding the costs of CDFFP and all other state agencies with THP review responsibilities. This would result in budget-year savings of $9 million to the General Fund and $808,000 to special funds. (Reduce various General Fund items by a total of $9 million and various special fund items by a total of $808,000, and increase various Forest Practice Regulatory Fund items by a total of like amounts. We further recommend a reduction of $5 million from the General Fund in CDFFP's current-year budget due to double budgeting.)

Timber Harvest Review Program. The state regulates the harvesting of timber on nonfederal lands in California under the Forest Practice Act. Specifically, timber harvest plans are prepared by a registered professional forester and cover such matters as harvest volume, cutting method, erosion control, and wildlife habitat protection.

The California Department of Forestry and Fire Protection (CDFFP) is the lead agency responsible for reviewing THPs. However, THPs are also reviewed by other agencies, including the Departments of Conservation and Fish and Game, and the nine regional boards of the State Water Resources Control Board (SWRCB). Historically, CDFFP was the only agency with the authority to approve THPs, while the other departments would review and comment on the THPs as they affected their program areas. These comments were advisory only to CDFFP. However, the recently enacted Chapter 900, Statutes of 2003 (SB 810, Burton), prohibits the approval of a THP if the SWRCB finds that the proposed timber operations will result in water pollution exceeding specified minimum allowable levels. The CDFFP and the SWRCB report they are in the planning stages of implementing this law.

Budget Proposal Includes Timber Yield Fee. As shown in Figure 1, the budget proposes expenditures totaling $20.3 million for various state agencies to review and enforce THPs. The proposal includes a plan to impose fees on timber owners (beginning in the current year) in order to partially offset CDFFP's costs for the review and enforcement of THPs. The fees are projected to generate $5 million in the current year and $10 million in the budget year. The budget-year revenue projections are higher as they reflect a full year of revenues.

As part of this proposal, the administration has submitted draft legislation to implement the new fee. Under this draft legislation, timber owners would pay a fee based on the value of timber that is harvested. Such a fee would be assessed on an individual timber owner based on the value of harvested timber, at a level to partially cover CDFFP's costs to review and enforce THPs. The fees would be deposited in the new Forest Practice Regulatory Fund that the legislation would create. At the time this analysis was prepared, the specific fee level needed to generate the fee revenues projected in the budget had not been finalized by the administration.

Proposal Addresses Current-Year Funding Shortfall. The 2003-04 Budget Act assumed the enactment of legislation that would have generated $10 million in fee revenues for CDFFP from the review of THPs. The fee revenues would backfill a General Fund reduction of a like amount. However, the legislation raising the timber harvest fees was not enacted. As a consequence, CDFFP's timber harvest review program faces a $10 million shortfall in the current year from the level authorized in the 2003-04 Budget Act.

The administration proposes to address this current-year shortfall by augmenting the current-year budget by $10 million ($5 million from the Forest Practice Regulatory Fund and $5 million from the General Fund). In order to realize the revenue augmentations to the Forest Practice Regulatory Fund in the current year, the administration indicates it will seek the timely enactment of the proposed legislation. However, the budget's display of current-year expenditures also includes an additional $5 million from the General Fund as "contingency" funding in the event that the proposed fee legislation is not enacted in time to partially address the current-year shortfall. All of the proposed additional expenditures to fill the current-year funding shortfall (the $5 million in fee revenues, the $5 million from the General Fund, and the additional $5 mil lion from the General Fund as a contingency measure) would require a legislative appropriation.

Recommend Eliminating Contingency Funding in Current-Year Proposal. We think the Governor's proposal to provide a "back-up" of $5 million from the General Fund in the current year to address the uncertainty of the enactment of timber harvest fee legislation results in "double budgeting." We therefore recommend that the Legislature, in reviewing the Governor's proposed amendments to the current-year budget, not approve the request for $5 million of contingency funding from the General Fund in CDFFP's THP review program.

Fee Proposal a Good Start, But Can Go Further in Budget Year. We think the budget's proposed shift of funding from the General Fund to fees to fund CDFFP's timber harvest regulatory activities is a step in the right direction. However, we think that the proposed fund shift does not go far enough. As we discussed in our Analysis of the 2003-04 Budget Bill (page B-60), we think that timber owners should cover the total state agency costs to review and enforce THPs, including the costs incurred by state agencies in addition to CDFFP in their review of THPs. This is because there is a direct link between THP review and enforcement and the timber owners who directly benefit from the state regulatory activities. In other words, without the state review and approval of the THP, businesses would not be able to harvest timber. Establishing such a fee would be consistent with the Legislature's actions in requiring the costs of most other environmental regulatory programs, such as those protecting air and water quality, to be fully reimbursed through industry fees and assessments.

General Fund and Special Fund Savings. Implementing our recommendation to fully shift funding for the timber harvest regulatory program to fees levied on timber owners would result in additional budget-year savings of $9 million to the General Fund, $386,000 to the Public Resources Account (PRA), and $422,000 to the Environmental License Plate Fund (ELPF).

We therefore recommend that the Legislature make the corresponding reductions in General Fund, PRA, and ELPF and the increases of a like amount from the new Forest Practice Regulatory Fund.