Analysis of the 2007-08 Budget Bill: Resources

Overview

Resources

The budget proposes slightly lower state expenditures (from all funds) for resources and environmental protection programs in 2007-08 compared to the estimated current-year level. Most of this reduction reflects the elimination of a number of one-time General Fund expenditures that occurred in the current year. The budget also proposes significantly higher bond expenditures for the budget year, reflecting the infusion of available bond funds from two resources-related measures approved by the voters at the November 2006 election. The Governor has also proposed a $4 billion water management bond measure to be submitted for voter approval in 2008.

Expenditure Proposals and Trends

Expenditures for resources and environmental protection programs from the General Fund, various special funds, and bond funds are proposed to total $7 billion in 2007-08, which is 4.9 percent of all state-funded expenditures proposed for the budget year. This level is a decrease of $253 million, or 3.5 percent, below estimated expenditures for the current year.

Decrease Largely Reflects Reduction in General Fund Expenditures. The proposed reduction in state-funded expenditures for resources and environmental protection programs mostly reflects a $695 million (31 percent) decrease in General Fund expenditures in a number of program areas. This General Fund reduction is largely due to two sets of factors. First, is the elimination of a number of one-time General Fund expenditures that occurred in the current year, including for state parks deferred maintenance, repairs of critical levee erosion sites, local flood control subventions, and fish and wildlife programs. Second, the Governor proposes to use bond funds to reimburse the General Fund, in the budget year, for $200 million of flood control expenditures made in the current and previous years. (As discussed next, this decrease in General Fund expenditures is partially offset by an increase in expenditures from bonds.)

Spending From Bond Funds Up Significantly. On the other hand, the budget reflects an increase in bond expenditures for various purposes. Between 1996 and 2006, the state’s voters have approved about $20.6 billion of resources bonds. Of this total, $11.1 billion comes from five measures approved between 1996 and 2002, of which about $1.3 billion remains available for appropriation for new projects in the budget year. The balance of approved bonds—$9.5 billion—comes from two measures approved by voters this past November: Proposition 1E ($4.1 billion for flood control) and Proposition 84 ($5.4 billion for various resources purposes).

The budget proposes bond expenditures totaling $2.4 billion in 2007-08—an increase of $341 million, or 17 percent, over estimated bond expenditures in the current year. A majority of the proposed bond expenditures are from the two recent measures—$1.1 billion is proposed from Proposition 84 and $624 million from Proposition 1E. Accounting for the proposed budget-year expenditures, the 1996 through 2002 bond funds will be substantially depleted at the end of the budget year, with about $700 million available for appropriation for new projects in future years.

The Governor has also proposed a $4 billion water management bond to be submitted for voter approval in 2008. (This bond proposal has been introduced this session as SB 59 [Cogdill].) We discuss the status of current bond funds, issues concerning the November bonds, as well as the Governor’s proposed bond measure in greater detail in the “Resources Bonds” write-up in the Crosscutting Issues section of this chapter.

Spending From Special Funds Up Slightly. The budget proposes special fund expenditures that are $101 million, or 3.4 percent, above the current-year level. Most of this increase reflects an increase in incentive payments to recycling industries under the Department of Conservation’s (DOC’s) beverage container recycling program, pursuant to various statutes enacted over the last few years.

Funding Sources. The largest proportion of state funding for resources and environmental protection programs—about $3.1 billion (or 44 percent)—will come from various special funds. These special funds include the Environmental License Plate Fund, Fish and Game Preservation Fund, funds generated by beverage container recycling deposits and fees, an “insurance fund” for the cleanup of leaking underground storage tanks, and a relatively new electronic waste recycling fee. Of the remaining expenditures, $2.4 billion will come from bond funds (34 percent of total expenditures) and $1.5 billion will come from the General Fund (22 percent of total expenditures).

Expenditure Trends. Figure 1 shows that state expenditures for resources and environmental protection programs increased by about $1.9 billion since 2000-01, representing an average annual increase of about 5 percent. The increase between 2000-01 and 2007-08 reflects an increase in special fund and bond expenditures. On the other hand, the budget proposes General Fund expenditures for 2007-08 that are substantially below 2000-01 spending—a decrease of $1.3 billion.

When adjusted for inflation, total state expenditures for resources and environmental protection programs have been relatively stable—an average annual increase of about 1 percent. When adjusted for inflation, the decline in General Fund expenditures is even more pronounced—an average annual decrease of about 14 percent. General Fund expenditures for resources and environmental protection programs peaked in 2000-01, declined from 2001-02 through 2004-05 due to the state’s weakened fiscal condition, but ticked up in 2005-06 and subsequent years.

Spending by Major Program

Cost Drivers for Resources Programs. For a number of resources departments, the expenditure levels are driven mainly by the availability of bond funds for purposes of fulfilling their statutory missions. This would include departments whose main activity is the acquisition of land for restoration and conservation purposes as well as departments who administer grant and loan programs for various resources activities.

For other departments that rely heavily on fees, their expenditure levels are affected by the amount of fees collected.

Some resources departments own and operate public facilities, such as state parks and boating facilities. The number and nature of such facilities drive operations and maintenance expenditures for these departments.

In addition, the state’s resources programs include a number of regulatory programs. The cost drivers for these programs include the number and complexity of regulatory standards that are required to be enforced and the related composition of the entities which are regulated.

Finally, some resources activities have a public safety purpose, and the cost drivers include emergency response costs that can vary substantially from year to year. These activities include the California Department of Forestry and Fire Protection’s (CDFFP’s) emergency fire suppression activities and the emergency flood response actions of the Department of Water Resources (DWR).

Cost Drivers for Environmental Protection Programs. A core activity of departments and boards under the California Environmental Protection Agency (Cal-EPA) is the administration of regulatory programs that implement federal and state environmental quality standards. These regulatory programs generally involve permitting, inspection, and enforcement activities. The main cost drivers for environmental protection programs are the number and complexity of environmental standards that are required to be enforced, which dictate the extent of the parties regulated by the departments and therefore the regulatory workload.

In addition, a number of Cal-EPA departments administer grant and loan programs. The expenditure level for grant and loan programs, and the staffing requirements to implement them, are driven largely by the availability of bond funds or fee-based special funds to support them.

Budget’s Spending Proposals. Figure 2 shows spending for major resources programs—that is, those programs within the jurisdiction of the Secretary for Resources and the Resources Agency.

Figure 3 shows similar information for major environmental protection programs—those programs within the jurisdiction of the Secretary for Environmental Protection and Cal-EPA.

Spending for Resources Programs. Figure 2 shows the General Fund will provide just over 50 percent ($655 million) of CDFFP’s total expenditures for 2007-08. The General Fund will account for much less in the support of other resources departments. For instance, for DOC, the General Fund will constitute less than 1 percent ($4.7 million) of its budget-year expenditures. In the case of the Department of Fish and Game (DFG) and the Department of Parks and Recreation (DPR), the General Fund will pay about 18 percent ($79 million) and 30 percent ($150 million) of the respective departments’ expenditures. The DWR’s expenditure total is skewed by the almost $5.6 billion budgeted under DWR for energy contracts entered into on behalf of investor-owned utilities. If these energy-related expenditures are excluded from DWR’s total, the General Fund still pays for only about 8 percent ($205 million) of DWR’s expenditures. (Figure 2 reflects DWR’s General Fund expenditures at $5 million, as the Governor’s budget display shows the department’s General Fund expenditure total as being reduced by the proposed $200 million bond-funded reimbursement to the General Fund for flood control expenditures incurred before bond passage.)

Figure 2 also shows that compared to current-year expenditures, the budget proposes an overall spending reduction in some resources departments, while proposing an overall spending increase in others. Specifically, for the Secretary, DFG, and DPR, the reduction reflects a decrease in spending from the 1996 through 2002 resources bond funds, partially offset by spending from Proposition 84 bond funds. Also, in the case of DFG and DPR, the reduction reflects the elimination of one-time General Fund expenditures that occurred in the current year.

The budget’s proposed increase in total spending in CDFFP (34.5 percent) largely reflects an increase of $317 million in capital outlay expenditures (funded mainly from lease-revenue bonds). For DOC, the proposed increase in spending (20.6 percent) mostly reflects an increase in incentive payments to recycling industries.

Finally, while the figure shows relatively stable spending overall in DWR (a modest 1.3 percent spending increase), the proposed mix of funding sources and program activities for DWR in the budget year differ substantially from the current year. Specifically, the budget proposes a major reduction of General Fund spending (as noted previously, mainly reflecting the elimination of one-time flood control expenditures that occurred in the current year), and a substantial increase in expenditures overall for flood control, largely due to the major infusion of Propositions 1E and 84 bond funds for this purpose.

Spending for Environmental Protection Programs. As Figure 3 shows, the budget proposes relatively stable spending for a majority of environmental protection departments. The one area with significant proposed overall increase (21.8 percent) is the Air Resources Board (ARB). This reflects (1) $96.5 million in spending from Proposition 1B (the transportation bond) funds for grants to replace and retrofit high-polluting school buses and (2) an increase of $24.4 million from special funds for climate change-related program implementation. On the other hand, the one area with a significant proposed reduction (11.4 percent) is the State Water Resources Control Board, mostly reflecting a decrease in spending from Propositions 40 and 50 bond funds, partially offset by new spending from Proposition 84 bond funds.

Major Budget Changes

Figure 4 presents the major budget changes in resources and environmental protection programs.

As shown in Figure 4, the budget proposes a number of bond fund and special fund increases throughout resources and environmental protection departments.

Bond-funded proposals of particular note include (1) $97.5 million for an ARB grant program for the replacement and retrofit of high-polluting school buses; (2) $13.9 million for the Secretary for Resources (to disburse to DFG and DWR) to support the implementation of a settlement agreement among the federal government, water users, and environmental interests related to the restoration of the San Joaquin River; and (3) $598 million from recently passed bonds for flood control programs and projects carried out in the budget year. (As mentioned earlier, the budget also proposes to use $200 million in Proposition 1E bond funds to reimburse the General Fund for flood control expenditures incurred before bond passage.)

As regards special fund proposals, the budget also proposes $24.4 million in ARB to implement Chapter 488, Statutes of 2006 (AB 32, Núñez)—the Global Warming Solutions Act of 2006. The Governor’s budget proposes this funding—which is in addition to $11.4 million proposed in several other state departments for AB 32 implementation—to be used to develop a mandatory emissions reporting system, a market-based emissions trading system, and a plan on how to achieve statutory emission reduction targets. The budget also proposes: (1) $6 million (Motor Vehicle Account) as matching funds for hydrogen fueling stations under the Governor’s Hydrogen Highway Initiative and (2) $24.8 million in funds received by the state from an energy crisis-related settlement entered into with the Williams Energy Company to provide financial assistance to schools for energy conservation projects.

Finally, as shown in the figure, the budget proposes to create General Fund savings in the state parks deferred maintenance program. The budget proposes to do this by transferring back (“reverting”) to the General Fund $160 million—of the $250 million General Fund appropriation in the 2006 Budget Act for deferred maintenance—the amount projected to remain unspent at the end of the current year. (The current-year budget assumes that the $250 million would be spent as follows: $90 million in 2006-07, and $80 million in each of 2007-08 and 2008-09.) Although the Governor notes in his Budget Summary document that bond funds are available as a replacement funding source, the budget does not propose bond funding for state parks deferred maintenance in the budget year.

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