Analysis of the 2008-09 Budget Bill: Resources

Overview

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 $7.3 billion in 2008–09, which is about 5 percent of all state–funded expenditures proposed for the budget year. This level is a decrease of $2.1 billion, or 22 percent, below estimated expenditures for the current year.

Spending From Bond Funds Down Significantly, but Still Substantial. While the proposed reduction in state–funded expenditures for resources and environmental protection programs occurs across all funding sources, it largely comes from bond funds. Specifically, the budget proposes bond expenditures totaling about $2.1 billion in 2008–09—a decrease of $1.7 billion, or 45 percent, below estimated bond expenditures in the current year. A majority of the bond expenditures are from the two resources measures approved by the voters in November 2006—about $1.2 billion from Proposition 84 (for various resources purposes) and $461 million from Proposition 1E (for flood control). The budget also proposes $250 million from the Proposition 1B transportation bond (also approved in November 2006) for air quality improvements in the state’s major trade corridors.

The Governor has also proposed an $11.9 billion water bond to be submitted to the voters in 2008. We discuss this proposal in greater detail in the “Department of Water Resources” write–up in this chapter.

General Fund Spending Decrease Reflects Both Program Reductions and a Funding Shift. The proposed reduction in state–funded expenditures for resources and environmental protection programs also reflects a $154 million (8 percent) decrease in General Fund spending. This includes both proposed budget–balancing program reductions in numerous program areas (totaling about $54 million) and a proposal to shift the funding source for $45 million of wildland firefighting activities from the General Fund to a new surcharge on fire insurance policies statewide. The spending reduction also reflects the elimination of a number of one–time expenditures for water and flood–related capital projects that occurred in the current year. Finally, these spending reductions are partially offset by a significant increase in general obligation bond debt–service costs—projected to increase by 30 percent, from $474 million in the current year to $619 million in 2008–09.

Spending From Special Funds Down, Largely Due to Statutory Change. The budget proposes special fund expenditures of about $3.4 billion—about $230 million, or 6 percent, below the current–year level. This decrease largely reflects a reduction in renewable energy incentive payments administered by the Energy Resources Conservation and Development Commission, due to a recent statutory change that shifts the funding of these incentives “off budget” to the electricity rate–making process.

Funding Sources. The largest proportion of state funding for resources and environmental protection programs—about $3.4 billion (or 47 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, $2.1 billion will come from bond funds (29 percent of total expenditures) and $1.7 billion will come from the General Fund (24 percent of total expenditures).

Expenditure Trends. Figure 1 shows that state expenditures for resources and environmental protection programs increased by about $2.1 billion since 2001–02, representing an average annual increase of about 6 percent. The increase between 2001–02 and 2008–09 reflects an increase in special fund and bond expenditures. On the other hand, the budget proposes General Fund expenditures for 2008–09 that are significantly below 2001–02 spending—a decrease of about $500 million.

When adjusted for inflation, total state expenditures for resources and environmental protection programs have grown at an average annual increase of about 1 percent. In contrast, when adjusted for inflation, General Fund expenditures have declined—an average annual decrease of about 9 percent. General Fund expenditures for resources and environmental protection programs over this time frame have been very unstable—they declined significantly from 2002–03 through 2004–05 due to the state’s weakened fiscal condition, ticked up in 2005–06, reached a peak in 2006–07, and have declined in 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 (CalFire’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 about 44 percent ($601 million) of CalFire’s total expenditures for 2008–09. The General Fund will account for much less in the support of other resources departments. For instance, for the Department of Conservation (DOC), the General Fund will constitute less than 1 percent ($4.6 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 19 percent ($75 million) and 25 percent ($137 million) of the respective department’s expenditures. The DWR’s expenditure total is skewed by the $5.3 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 6 percent ($141 million) of DWR’s expenditures.

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 and DFG, the reduction largely reflects a decrease in bond expenditures. For DPR, the reduction largely reflects decreased expenditures for local assistance and capital outlay, funded from special funds, bond funds, and federal funds. While the budget proposes lower spending overall for DWR, its budget reflects a large number of individual program spending increases and decreases, including a substantial increase in bond–funded local assistance for integrated regional water management and a decrease in bond–funded flood capital outlay.

The budget’s proposed increase in total spending in CalFire (13 percent) largely reflects an increase of $276 million in capital outlay expenditures (funded mainly from lease–revenue bonds). For DOC, the proposed increase in spending (6 percent) mostly reflects an increase in incentive payments to recycling industries.

Spending for Environmental Protection Programs. As Figure 3 shows, the budget proposes decreased expenditures for a majority of environmental protection departments, with relatively stable spending for the Department of Toxic Substances Control and a modest increase for the Department of Pesticide Regulation. For the Air Resources Board (ARB), the 24 percent spending reduction mostly reflects the elimination of $192 million of one–time funding from the Proposition 1B transportation bond that occurred in the current year for the retrofit and replacement of older, high–polluting school buses. For the California Integrated Waste Management Board, the 14 percent spending reduction is mostly due to a decrease in projected incentive payments to authorized collectors and recyclers of electronic waste. Finally, for the State Water Resources Control Board, most of the 27 percent spending reduction reflects a decrease in bond–funded local assistance.

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, as well as a significant program reduction (General Fund) under DPR.

Bond Proposals. Bond–funded proposals of particular note include (1) $597 million (Propositions 1E and 84 bond funds) in DWR for various flood control investments, including systemwide levee evaluations and repairs and capital outlay; (2) $452 million (Propositions 1E and 84 bond funds) in DWR for integrated regional water management, mostly for competitive grants to local agencies; and (3) $49 million (Proposition 84 bond funds) in DFG for restoration activities in the Bay–Delta ($21 million), the Salton Sea ($10.8 million), coastal fisheries ($10.9 million), and the San Joaquin River ($6.3 million). As regards San Joaquin River restoration, the budget also proposes $9.6 million under DWR—for a total budget proposal of $15.9 million to continue implementing a settlement agreement between the federal government, water users, and environmental users.

Special Fund Proposals. As regards special fund proposals, the budget proposes an increase of $5.6 million (Air Pollution Control Fund) for ARB to expand its activities implementing Chapter 488, Statutes of 2006 (AB 32, Núñez)—the Global Warming Solutions Act of 2006. This funding will be used to accelerate the board’s development of “early action” measures to reduce greenhouse gas emissions from targeted industries, including trucking and ports, and the cement, semiconductor, and consumer product industries. In order to provide the necessary resources in the Air Pollution Control Fund to support the level of ARB’s total expenditures for AB 32 implementation, the budget proposes a $32 million loan to the fund from the Beverage Container Recycling Fund in each of 2008–09 and 2009–10. The ARB’s budget also proposes $6 million (Motor Vehicle Account) for zero–emission vehicle incentives, including matching funds for hydrogen fueling stations under the Governor’s Hydrogen Highway Initiative.

The budget also proposes $101 million in the Energy Resources Conservation and Development Commission (Energy Commission) for the commission to provide incentives (including grants and loans) for the development of alternative and renewable fuels and related technologies, pursuant to a fee–funded program recently established by Chapter 750, Statutes of 2007 (AB 118, Núñez). The Governor has proposed budget bill language that would give the commission the authority to spend the $101 million over a two–year period, reflecting a significant program ramp–up period in the budget year before the commission can begin awarding incentives. Although not shown in the figure, the budget also proposes $1.7 million for ARB to develop program guidelines for its air quality improvement/fleet modernization incentives program under AB 118. Unlike the proposal for the Energy Commission, the budget does not propose expenditures for ARB to begin awarding the incentives in the budget year.

For CalFire, the budget includes $33 million for the Governor’s Wildland Firefighting Initiative—$28.9 million to provide four–member crews on fire engines during peak and transition fire periods and $4.2 million to install Global Positioning System (GPS) tracking units on aircraft and engines. (The budget also proposes increases for wildland firefighting activity under the Military Department and the Office of Emergency Services.) The budget proposes to fund these increases by imposing a new 1.25 percent surcharge on commercial and residential fire insurance policies statewide.

Finally, the budget also proposes $46 million in DPR for recreational grants to local and other public agencies and to nonprofit organizations, funded mostly from special funds, including the Off–Highway Vehicle Trust Fund.

General Fund Budget–Balancing Reductions. As shown in Figure 4, the budget proposes to create General Fund savings in state parks. Specifically, the budget proposes to reduce General Fund expenditures for state park field operations by $8.9 million and for departmental administration by $4.4 million. According to the department, these reductions will close 48 of 278 existing state parks and significantly reduce seasonal lifeguards at state beaches.

Finally, although not shown in the figure, the budget also proposes to create General Fund savings under CalFire by shifting funding for $44.7 million of wildland firefighting expenditures from the General Fund to the proposed surcharge on fire insurance policies, discussed earlier.