LAO 2006-07 Budget Analysis: Resources

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

Air Resources Board (3900)

The Air Resources Board (ARB), along with 35 local air pollution control and air quality management districts, is charged with protecting the state’s air quality. The local air districts regulate stationary sources of pollution and prepare local implementation plans to achieve compliance with federal and state standards. The ARB is responsible primarily for the regulation of mobile sources of pollution and for the review of local district programs and plans. The ARB also establishes air quality standards for certain pollutants, administers air pollution research studies, and identifies and controls toxic air pollutants.

The budget proposes $265.3 million from various funds, primarily special funds, for support of ARB in 2006-07. This is a decrease of $5.3 million, or 2 percent, from estimated 2005-06 expenditures. This decrease reflects the elimination of a number of one-time expenditures that occurred in the current year, including $8.6 million for various air pollution control and monitoring equipment and contracts, $12.5 million for the Carl Moyer Program (diesel emission reduction incentives), and $15 million for school bus retrofitting. The budget also reflects a number of increases, including $6.5 million to continue the Governor’s Hydrogen Highway initiative, $5.2 million for the Governor’s Climate Change Initiative, and $4 million for enforcement.

Additional Funding for Hydrogen Highway Premature

The budget proposes $6.5 million from the Motor Vehicle Account (MVA) to continue efforts initiated in the current year that encourage the development of hydrogen-powered vehicle technologies and infrastructure. We believe this funding request is premature until the board submits a statutorily required report to the Legislature that will enable legislative evaluation of whether continued funding for this purpose is warranted. We therefore recommend the deletion of the $6.5 million from the MVA. (Reduce Item 3900-001-0044 by $6.5 million.)

Governor’s Executive Order. In April 2004, the Governor issued an executive order designating California’s 21 interstate freeways as the California Hydrogen Highway Network (the Hydrogen Highway). The order further declared the administration’s intention to plan and build a network of fueling stations along the Hydrogen Highway so that, by 2010, every Californian would have access to hydrogen fuel. The order asserted numerous benefits of a hydrogen-based fuel economy as justification for development of the Hydrogen Highway, including the administration’s claims that:

2005-06 Budget and Related Legislation. To implement his Hydrogen Highway initiative, the Governor submitted as part of his 2005-06 May Revision budget proposal a request for $12.3 million (various special funds). This request included $5.5 million for development of 11 hydrogen-refueling stations, $4 million for hydrogen vehicle purchase incentives, and $2.8 million for research contracts and other staffing and operating expenses.

Recognizing that the Governor’s initiative involved major policy choices that should be evaluated by the policy committees, the Legislature rejected the Governor’s budget proposal during hearings on the budget. Instead, the Legislature enacted policy legislation (Chapter 91, Statutes of 2005 [SB 76, Committee on Budget and Fiscal Review]) that provided funding parameters for the Hydrogen Highway initiative and included an appropriation of $6.5 million from the MVA for the initiative. These funds are available for expenditure through January 1, 2007. Specifically, the funding is for the following purposes:

Additionally, Chapter 91 requires the California Department of Food and Agriculture (CDFA), in conjunction with the board, to establish and adopt specifications for hydrogen fuels by January 1, 2008. (See our related discussion of the Hydrogen Highway initiative in our write up for CDFA in the “General Government” chapter.)

In approving these funds, the Legislature expressed its intent that the funded activities should contribute to specific energy and environmental goals-namely, a 30 percent reduction in greenhouse gas emissions; the use of at least 33 percent new renewable resources in the production of hydrogen for vehicles; and no increase in toxic or smog-forming emissions. In addition, the Legislature clearly indicated its desire to periodically review implementation of Chapter 91, which requires the California Environmental Protection Agency to report to the Legislature every six months, and requires ARB to report to the Legislature by December 31, 2006, on the development of hydrogen-related business activity in California and the appropriateness of continued deployment of hydrogen fueling stations within the state.

Budget Proposes Augmentation. The budget requests an increase of $6.5 million from the MVA for the Hydrogen Highway initiative in 2006-07-funding that is in addition to that which was provided in Chapter 91. These funds are proposed to provide matching funds for three publicly accessible hydrogen fueling stations and to leverage federal matching funds for five fuel cell busses to be used in public transit fleets.

Budget Request for Augmentation Is Premature. We think the budget’s request to augment funding for the Hydrogen Highway is premature, and therefore recommend that it be denied. We make this recommendation for two reasons. First, the current-year appropriation (in Chapter 91) was intended to fully fund activities through January 1, 2007. At the time this analysis was prepared (February 2006), only about $550,000 of the appropriation had been spent (for contracts and to develop fuel specifications and public outreach). Based on information provided by the administration, we expect ARB to spend a total of approximately $3 million in the current year, leaving $3.5 million of the original $6.5 million appropriation available for expenditure in the budget year. Therefore, the need for additional funding in the budget year has not been justified. Second, in order to evaluate the merits of continued funding for the Hydrogen Highway initiative, the Legislature directed ARB to submit a report by the end of this year on various matters related to the initiative’s implementation, including recommendations on continued expansion of hydrogen fueling stations in the state. Without this report, it is premature to provide the additional funding requested.

Goods Movement Proposal Needs Refinement to Prevent Misuse of Motor Vehicle Funds

The budget proposes $1.5 million from the Motor Vehicle Account (MVA) for contracts and eight new positions to mitigate air pollution associated with the ships, locomotives, diesel trucks, and cargo handling equipment used in goods movement. We recommend that the board resubmit its funding proposal so that it limits MVA funding, consistent with state law, to those mitigation activities directly related to motor vehicles used on public roadways. We further recommend that ARB identify alternative funding sources for mitigation of environmental effects ineligible for MVA funding.

Goods Movement Related Pollution of Increasing Concern. With an extensive coastline and ties to the global economy, California has substantial “goods movement” activity at its ports, rail yards, and other transportation facilities. For example, California’s ports handle nearly 28 percent of the international trade goods entering and leaving the U.S. Based on projections of economic activity in the country and in the state, California’s goods movement activity is expected to increase considerably in coming years. While there are economic benefits to goods movement, there are also environmental costs. For example, the ports of Los Angeles and Long Beach together contribute 10 percent of the region’s nitrous oxides emissions and 25 percent of its diesel particulate matter, and residents living near the busy ports disproportionately experience the negative effects of these pollutants.

The U.S. Environmental Protection Agency and the board have adopted several regulations to reduce emissions from goods movement. However, the state has limited regulatory authority over certain aspects of goods movement, such as rail transport, that are mainly under federal jurisdiction. For this reason, the board has also taken nonregulatory actions, such as entering into voluntary memoranda of understanding with certain rail lines for the implementation of emission reduction strategies.

Budget Proposes Increase to Address Pollution From Goods Movement. The budget proposes $1.7 million from the MVA for contracts and eight positions to perform a variety of environmental mitigation activities related to goods movement. Specifically, the funds are to develop a goods movement emissions inventory; model air quality; develop regulatory and nonregulatory controls; provide outreach to industry and affected entities; and increase enforcement.

Budget Proposal Needs Refinement; Would Misuse MVA Funds. The State Constitution limits the uses of MVA monies. Specifically, MVA monies can be used to fund the mitigation of environmental effects resulting from operation of “motor vehicles used upon the State’s public streets and highways.” Such motor vehicles include diesel trucks, but not ships, locomotives, or most cargo moving equipment. The budget request proposes funding to address goods movement-related air pollution from various pollution sources, including ships and locomotives, using the MVA as the sole funding source. However, mitigation of air pollution produced by vehicles not used on the state’s public roadways is not an eligible use of MVA funds given the constitutional limits on the use of MVA for environmental purposes.

Recommend Submission of a Revised Proposal Justifying Use of MVA Funds. Because the budget request does not allocate funding based on pollution source, it is unclear what portion of the requested funds would be legitimately funded from the MVA. Therefore, we recommend that the Legislature not approve the request as submitted, and that the board submit a revised funding proposal at budget hearings that specifies activities that directly involve the mitigation of environmental effects of motor vehicle operation on the state’s public roadways, and are therefore eligible for funding from the MVA. We further recommend that, for those mitigation activities not eligible for MVA funding, the board identify an alternative source of funds, as we recommend the deletion of MVA funding requested for that portion of the proposal.

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