LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

Office of Environmental Health Hazard Assessment (3980)

The Office of Environmental Health Hazard Assessment (OEHHA) identifies and quantifies the health risks of chemicals in the environment. It provides these assessments, along with its recommendations for pollutant standards and health and safety regulations, to the boards and departments in the California Environmental Protection Agency (Cal-EPA) and to other state and local agencies. The OEHHA also provides scientific support to environmental regulatory agencies.

The budget requests total funding of $12.5 million for support of OEHHA in 2004-05. This is a decrease of about $1.1 million, or 8 percent, below estimated current-year expenditures. Most of this decrease reflects the elimination of a one-time General Fund appropriation of $1 million in the current year used to backfill reductions initially proposed in the Governor's 2003-04 Budget. This funding is being used currently to fund a significant portion of OEHHA's children's health program.

More Stability Needed in OEHHA's Funding Base

The Office of Environmental Health Hazard Assessment (OEHHA) has largely relied on the General Fund to support its operations, and has therefore been subject to significant program reductions in recent years. We find that there are potential alternative funding sources for many of OEHHA's activities. While these create opportunities for additional General Fund savings in the budget year ($3.6 million), they also present an opportunity to provide more stability in OEHHA's funding base and address OEHHA's unmet funding requirements to meet its statutory mandates.

The General Fund Supports a Majority of OEHHA's Activities. Most of OEHHA's activities are required by statute and are supported largely by the General Fund. Using General Fund money, OEHHA identifies cancer-causing chemicals for annual updates of the state list of chemicals in drinking water, provides health risk assessments of "toxic air contaminants," reviews health risk assessments of pesticides, and jointly regulates pesticide worker health and safety with the Department of Pesticide Regulation (DPR).

Of the $12.5 million of expenditures proposed for OEHHA in 2004-05, about $8.1 million (65 percent) is from the General Fund. The balance of OEHHA's support is from various special funds and reimbursements. In past years, OEHHA's reliance on the General Fund was even greater. For example, in 2002-03, about 80 percent of OEHHA's funding came from the General Fund. In the current year, declining General Fund support has been mitigated by increased support from special funds.

Budget Reflects Significant Program Reductions Over Last Few Years. The OEHHA's proposed budget reflects cumulative reductions of close to $3 million in the current and budget years, a reduction of about 20 percent. Most of these reductions are for activities funded from the General Fund. These reductions are a clear reflection of OEHHA's reliance on the General Fund as its primary funding source and the consequences on OEHHA's budget when the General Fund condition is weakened. These reductions affect almost all of OEHHA's programs, including its children's health, pesticide use and safety, and air toxicology and epidemiology programs.

Legislative Direction Regarding OEHHA's Funding. At legislative hearings on the current-year budget, concerns were raised about the instability in OEHHA's funding base (reflecting declining General Fund support) and whether OEHHA's funding level was adequate to meet its statutory mandates. There was a recognition that during the time that OEHHA's total budget has been in a period of decline, a number of statutory mandates have been added to its responsibilities. These include mandates related to children's health and an assessment of fuel-related risks.

As a result, the Legislature, in the Supplemental Report of the 2003-04 Budget Act, directed OEHHA to report to the Legislature by January 10 of this year on various issues, including its long-term baseline funding requirements to meet its statutory mandates, recommendations regarding the appropriate mix of general and fee-based special funds, and potential efficiency improvements. The overall purpose of this report was to assist the Legislature in determining the appropriate level of funding and allocation of funding sources to support OEHHA and to provide greater stability in OEHHA's budget. At the time this analysis was prepared, the required report had not been submitted to the Legislature. Despite this lack of input, in the sections that follow, we (1) present our findings about alternatives to General Fund support of OEHHA's programs and (2) identify opportunities to provide OEHHA with more stability in its funding base.

OEHHA's Activities Often Directly Support Regulatory Programs. Our review finds that OEHHA provides support to various regulatory programs in its sister Cal-EPA departments, as well as to the safe drinking water program in the Department of Health Services (DHS). For example, OEHHA's statutory mandate to evaluate how well the state's air quality standards protect children and other populations particularly susceptible to air pollution serves to guide the Air Resources Board's regulatory activities.

In those cases where OEHHA's activities can be directly and reasonably connected with a regulatory program, the Legislature is presented with an opportunity to consider potential fund source alternatives to the General Fund—namely fee-based special funds—to support the activities. Using fee-based revenues instead of the General Fund is appropriate because many of OEHHA's activities provide a scientific basis for environmental permit requirements, thereby preventing the permit requirements from being arbitrary or unduly burdensome. As such, OEHHA's activities provide a benefit to the permit holder and therefore are appropriately funded through regulatory program fees.

On the other hand, some of OEHHA's activities—such as its Proposition 65 program—have more of a broad-based public health focus and cannot be reasonably connected with discrete regulatory programs. For activities such as these, we think that the General Fund continues to be the appropriate funding source.

Alternative Funding Sources for Legislative Consideration. The fee-based alternative funding sources referred to above could be used to support a portion of OEHHA's budget. The use of these alternative funding sources would provide greater funding stability in OEHHA's budget, consistent with recent legislative direction discussed above.

First, these alternative fund sources are potentially available to replace a portion of General Fund support proposed for OEHHA in 2004-05, thereby creating General Fund savings. Our review finds that of OEHHA's activities proposed to be funded from the General Fund, those with the most direct connection with regulatory programs are focused in three program areas. These are pesticide use and safety, drinking water, and air toxicology and epidemiology (including children's health). We think that about $3.6 million of costs in these program areas could be shifted from the General Fund to existing fee-based special funds. Specifically, we think that the Legislature should consider the following funding shifts from the General Fund:

Second, there are also alternative fund sources that could be used to partially backfill General Fund reductions made in recent years (mainly to create General Fund savings) or to address some of OEHHA's unmet funding requirements to meet its statutory mandates. For example:

We note that the projected fund balances in SDWA, APCF, and MVA would be able to support the level of appropriations suggested above to support OEHHA activities in 2004-05, without a need to increase fees. However, the DPR Fund is projected to end 2004-05 with a balance of just $818,000, thereby limiting the amount of additional appropriations to support OEHHA, unless pesticide fees were increased or monies in the DPR Fund were redirected from other activities for this purpose.

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