Analysis of the 2005-06 Budget Bill Legislative Analyst's Office February 2005

Department of Fish and Game (3600)

The Department of Fish and Game (DFG) administers programs and enforces laws pertaining to the fish, wildlife, and natural resources of the state. The Fish and Game Commission sets policies to guide the department in its activities and regulates fishing and hunting. The DFG currently manages about one million acres including ecological reserves, wildlife management areas, hatcheries, and public access areas throughout the state.

The budget proposes total expenditures of $297.5 million from various sources, mainly for support expenditures ($296 million). The total proposed budget is a decrease of about $65.7 million below estimated current-year expenditures. Most of this reflects a decrease in available bond funds for the CALFED Ecosystem Restoration Program.

The budget includes several proposals using bonds and special funds, including $2.2 million for restoration and development of lands managed by DFG, $1.1 million to monitor resource restoration projects in the upper Sacramento River, and $500,000 to continue the implementation of the Marine Life Protection Act of 1999.

Special Fund Spending Proposal Inconsistent With Statute

Our review of the department's expenditure proposal for the Fish and Game Preservation Fund finds that it is inconsistent with legislative direction because it proposes to use revenues dedicated by statute for specific programmatic purposes for other purposes in order to address revenue shortfalls within the fund. We recommend the department resubmit its budget proposal so that it is consistent with statutory direction.

Fish and Game Preservation Fund (FGPF) Includes Many Revenue Sources. About 33 percent of DFG's budget is supported by FGPF. This fund receives revenues from hunting and fishing licenses and taxes, commercial fishing permits and fees, and environmental review fees paid by project proponents. Statute provides that many of these revenues can be used to support a broad range of programs related to hunting and fishing, as well as fish and wildlife protection and management activities. These revenue sources are referred to as "nondedicated" revenues.

The FGPF is also supported by revenue sources that are dedicated by statute for specific activities relating to the sources from which they were collected. For example, revenues from a steelhead trout fishing fee are required to be spent on steelhead management and enhancement. These types of revenues are referred to as "dedicated" revenues. There are 26 dedicated accounts within FGPF to track the receipt of funds for each of these dedicated revenue sources.

Recent Budgeting Practices Are Inconsistent With Legislative Direction. Our review finds that in recent years, the DFG has been overspending certain accounts within FGPF. It has then used reserves available in other FGPF dedicated accounts in order to make up the shortfalls. As a result, revenues dedicated by statute for specific uses are instead being used for purposes other than those that are authorized in statute.

Budget Proposal Contrary to Legislative Direction. Based on our review of DFG's expenditure proposal for FGPF, we find DFG is proposing to continue the practice of relying on the use of revenues dedicated by statute for specific programmatic purposes to make up shortfalls in funding in other programs. Specifically, our review finds that by continuing this practice in the budget year, DFG will have spent more than $11 million from dedicated funds for purposes other than specified in statute.

FGPF Proposal Is Not Sustainable. Our review of the budget proposal also finds that assuming the budgeted level of revenues and expenditures for FGPF, the proposed revenue and expenditure plan for FGPF is not fiscally sustainable. This is because, absent corrective action, we project that the FGPF will be out-of-balance beginning in 2006-07 as expenditures in the fund as a whole would exceed available resources.

Condensed Fund Condition Display Impedes Legislative Oversight. The 2005-06 Governor's Budget condenses the information provided on the FGPF by eliminating the display that allocated revenues and expenditures between nondedicated and dedicated sources. This has complicated legislative oversight, as the fund condition display does not allow for an assessment of the condition of the individual accounts within the fund or a determination of whether the various individual revenue sources are being used for purposes consistent with statutory direction.

Recommend Department Submit a Revised Proposal for FGPF. As discussed, we find the FGPF revenue and expenditure proposal is inconsistent with statutory direction and is not fiscally sustainable. We therefore recommend DFG resubmit its budget proposal for FGPF prior to budget hearings. The revised proposal should be consistent with existing statutory direction with regards to the use of dedicated revenues. Such a proposal will require corrective actions (revenue increases and/or expenditure reductions) to address the funding shortfalls in individual program areas currently being addressed by the use of funds statutorily dedicated for other purposes. In addition, the proposal should also include a plan to repay the dedicated accounts from which $11 million had been redirected to other purposes. In the next section of this write-up, we discuss such an opportunity for corrective action within DFG's lake and streambed alteration agreement program.

Recommend Improved FGPF Budget Display. In order for the Legislature to exercise improved oversight of FGPF, it is necessary for the administration to provide to the Legislature a fund condition which displays the information on the condition of revenues and expenditures both for dedicated and nondedicated revenue sources. In order that future displays of the Governor's budget include such information, we recommend the enactment of legislation requiring that the annual fund condition displayed in the Governor's budget for this fund include both the dedicated and non-dedicated revenue sources.

We think this recommended change in the budget display can be accomplished without additional resources since the department already maintains such information. Furthermore, prior-year budget displays have included such information.

Full Cost Recovery for the Streambed Alteration Program Not Yet Achieved

We recommend that the Department of Fish and Game (DFG) report at budget hearings on its efforts to meet the statutory requirement that the costs of the lake and streambed alteration agreement program be fully covered by fees. If at the time of budget hearings DFG has not adopted a revised fee schedule to fully recover program costs, the Legislature should consider establishing a revised fee schedule in legislation. We further recommend increasing DFG's expenditure authority by $1.7 million and the adoption of budget bill language to reflect increased fee revenues. (Increase Item 3600-001-0200 by $1.7 million.)

The Lake and Streambed Alteration Agreement Program. The department's lake and streambed alteration program is responsible for is suing permits for any project which could impact a river, stream, or lake. Projects requiring permits include activities such as bridge construction projects, levee repair, and water diversions. The permits issued by DFG are referred to as lake and streambed alteration agreements.

The Governor's budget proposes $3.4 million for this program in 2005-06 from FGPF.

Legislative Direction for Full Cost Recovery Has Not Been Achieved. Current law requires that when DFG establishes a fee schedule for lake and streambed alteration agreements, the fees must be in an amount sufficient to pay the total costs of administering the program. The fee revenues are deposited in a separate account within FGPF dedicated to the lake and streambed alteration agreement program.

While DFG currently charges fees for lake and streambed alteration agreements, the fee level is not sufficient to cover the program costs. During the last three years, program expenditures have exceeded streambed alteration fee revenues by about $1.7 million annually. In order to make up for the revenue shortfall, the department has relied on the resources available in other dedicated FGPF accounts.

Our review finds that while DFG has made efforts since 2001-02 to move towards full fee-based cost recovery in this program, these efforts have been slow and have not yet resulted in the implementation of a revised fee schedule. The department reports that a revised fee schedule was submitted for public review and comment in April 2004. If the department does not proceed with the proposed fee package by April 2005, current law requires DFG to resubmit the fee package for a new public comment period, thereby delaying the implementation of the revised fee schedule. However, if the department stays on track, a revised fee schedule could be in place at the beginning of the budget year.

Budget Does Not Reflect Statutory Direction for Full Cost Recovery. Although DFG indicates it is pursuing full fee-based cost recovery for the lake and streambed alteration agreement program, the budgetdoes not reflect any anticipated increase in fee revenues for this program. Without an increase in these fee revenues, DFG will continue to rely on the resources available in other accounts in FGPF to address the program's funding requirements.

Recommend Department Report on Status of Revised Fee Schedule. We recommend that DFG report at budget hearings on (1) the actions it has taken to implement a revised fee schedule which would fully recover the costs of the program and (2) when it anticipates the revised schedule will become effective.

Legislature Should Consider Enacting Revised Fee Schedule. If at budget hearings it appears that the department's efforts to implement a revised fee schedule have not shown significant progress, we recommend the Legislature consider enacting legislation which would implement a specific fee schedule to achieve full fee-based cost recovery for the program.

Recommend Budget Adjustment to Reflect Increased Fee Revenues. In order that fees fully cover the program's costs as specified in statute, we recommend the Legislature increase the FGPF expenditure authority by $1.7 million—the amount of program costs not currently budgeted to be funded by the program's fees. Because FGPF receives revenues from many sources, we further recommend the adoption of the following budget bill language to specify the revenue source for the increased expenditure authority:

Item 3600-001-0200. Of the amount appropriated in this item, $1,700,000 is available for expenditure in the lake and streambed alteration agreement program, contingent on an increase in revenues of a like amount from fees in this program such that the costs of this program are fully recovered by fees as required by Section 1609 of the Fish and Game Code.

Marine Life Protection Act Implementation

The administration has renewed its efforts to implement the Marine Life Protection Act (MLPA). The budget proposes $500,000 from the Environmental License Plate Fund to continue these efforts. We recommend the Legislature withhold action on this proposal until a key report necessary for MLPA implementation is submitted for legislative review. We further recommend that the Legislature direct the Department of Fish and Game to submit the report in April.

Prior MLPA Implementation Unsuccessful. The MLPA of 1999 requires DFG to review and improve the existing network of marine protected areas (MPAs) which are designated by law or administrative action in order to protect marine life and habitat. The MLPA requires DFG to submit a final plan ("Master Plan") which recommends a preferred network of MPAs and addresses how MPAs will be managed, monitored, and enforced. The Master Plan is to be submitted to the Fish and Game Commission for approval by December 1, 2005.

The department began implementing the MLPA in 2000 using funds redirected from other activities. The 2003-04 Budget Act provided $800,000 from the Environmental License Plate Fund (ELPF) to match private funds for support of MLPA activities. However, the department was not able to secure private matching support and thus eliminated this funding as part of the overall program reductions required in the 2003-04 Budget Act. Consequently, in early 2004, DFG halted its MLPA implementation efforts.

The department's initial efforts at implementing the MLPA received considerable criticism. Concerns were raised that the process adopted by DFG of establishing MPAs did not provide for sufficient public participation, lacked a strong foundation in science, and was not sufficiently funded.

Administration's Plans to Implement MLPA. The 2004-05 Budget Act provided $500,000 (Marine Life and Marine Reserve Management Account) for MLPA implementation and specified that the funds were to be used to leverage private resources. The department and the Resources Agency subsequently entered into a partnership with a private foundation to assist in the implementation of MLPA. The department indicates a private foundation will provide about $2 million for the initial implementation of MLPA.

The administration is now implementing the MLPA through several steps. First, it has established a taskforce, the California MLPA Blue Ribbon Task Force, to work with the Resources Agency and DFG to restart the implementation of MLPA. It is proposing to develop the Master Plan (including recommendations for specific MPAs) in stages through 2011, rather than submitting the Master Plan as one document to the commission. In addition, the administration proposes to implement MLPA according to a "Draft Framework" that will be completed by May 2005 and will serve as a document to guide the development of MPAs.

As shown in Figure 1, issuance of the Draft Framework is the first of several milestones toward MLPA implementation. The administration also proposes to complete a funding plan in December of this year that includes recommendations to fund the continued development of the Master Plan and the implementation costs.

MLPA Budget Proposal. The Governor's budget proposes $500,000 (ELPF) to support MLPA implementation. Although the proposed ELPF funding levels will not cover the entire costs, DFG reports the private funding it has secured will be used to continue the development of the Draft Framework and the sequential development of MPAs through 2006. Since the administration's specific strategy (Draft Framework) for implementing MLPA over the long term is not scheduled to be completed until May, future-year funding requirements have yet to be determined.

Recommend Department Report on Its Approach to MLPA Implementation. We think the completion of the Draft Framework offers the administration a good opportunity to present its MLPA implementation strategy to the Legislature. However, we think the projected completion date of May 2005 is too late for the budget subcommittees to have sufficient time to evaluate the report which serves as the basis for the activities in the budget proposal. We therefore recommend the Legislature direct the DFG to complete the Draft Framework earlier so as to be in a position to present the major recommendations from the report by April 15. We also recommend that the resources budget subcommittees and the Joint Committee on Fisheries and Aquaculture hold joint hearings on the report. At the hearings, the department should report on the Draft Framework's recommendations on how MPAs will be developed and on the process for completing the Master Plan. In addition, the department should report on how the new strategy addresses previously aired concerns over public participation, the inclusion of the best available science, and financial feasibility.

Recommend Legislature Withhold Taking Action Until Draft Framework Is Completed. We further recommend that the Legislature withhold taking action on the budget proposal for MLPA implementation until DFG reports to the Legislature with its Draft Framework for MPAs. We think such a recommendation is appropriate because the budget proposal would fund implementation of the Draft Framework.