Analysis of the 2008-09 Budget Bill: Resources

California Coastal Commission (3720)

The California Coastal Commission, following its initial creation in 1972 by a voter initiative, was permanently established by the State Coastal Act of 1976. In general, the act seeks to protect the state’s natural and scenic resources along California’s coast. It also delineates a “coastal zone” running the length of California’s coast, extending seaward to the state’s territorial limit of three miles, and extending inland a varying width from 1,000 yards to several miles. The commission’s primary responsibility is to implement the act’s provisions including regulation of development in the coastal zone. It is also the state’s planning and management agency for the coastal zone. The commission’s jurisdiction does not include the San Francisco Bay Area, where development is regulated by the San Francisco Bay Conservation and Development Commission.

The Coastal Commission has its headquarters in San Francisco and operates six regional offices throughout the coastal zone. The commission proposes expenditures totaling $16.6 million in 2008–09. This is a decrease of $483,000 or 3 percent below estimated expenditures in the current year. This reflects a proposed budget–balancing General Fund reduction in the budget year of about $1.2 million, of which $1 million is for permitting, enforcement, and local coastal plan reviews in the coastal management program. This reduction is partially offset by a proposed increase of $524,000 for information technology and other operating expenditures to be funded with special funds.

Stable Funding Source Available for Commission’s Permitting Functions

We recommend a number of actions to stabilize funding for the California Coastal Commission by giving the commission the authority to retain its fee and penalty revenues and directing that permitting and enforcement costs be recovered to the extent practical from fees and other non–General Fund sources. This would allow the Governor’s proposed

budget balancing reduction of $1 million to be offset by fees and result in additional General Fund savings of $1 million in the budget year. (Reduce Item 3720–001–0001 by $1 million and Item 3720–001–0593 by $524,000; and increase new special fund item by $2.5 million.)

Commission’s Permitting Authority Over Coastal Development. The commission’s core program activities include issuing and enforcing permits for coastal development. The commission carries out permitting activities in those areas where a local government within the state’s coastal zone does not have a local coastal plan (LCP) certified by the commission. Under current law, the commission has the authority to charge fees for these activities. In jurisdictions with a certified LCP, coastal development permits are processed and issued by the local government, and are only seen by the commission if an appeal is filed on the basis that the permitted development conflicts with the Coastal Act. Currently, 36 local areas with LCPs remain to have permit authority transferred from the commission to the locals.

General Fund Supports Most of Commission’s Permitting and Enforcement Activities. The budget proposes about $10.3 million for the commission’s permitting and enforcement activities in 2008–09. Of this amount, about $6.6 million is from the General Fund with the balance from federal funds and reimbursements. This amount reflects the result of proposed budget–balancing reductions of $956,000 for permitting, enforcement, and local coastal plan reviews in the coastal management program, and $52,000 for energy infrastructure project review. The budget also projects that the commission will have permit fee revenues of $2.3 million and penalty revenues of $150,000 in the budget year.

The reliance on the General Fund to pay for most of its core program needs has lead to increasing instability in the funding of the commission. As the state has faced budget shortfalls, General Fund support for core permitting and enforcement activities at the commission has been reduced. Specifically, General Fund support for permitting and enforcement activities decreased during the early part of this decade and increased modestly after 2004–05. The recent increase in funding, however, has been more than offset by increasing workload, particularly in the review of complex development proposals, such as desalination and natural gas facilities. Accordingly, backlogs in the commission’s permitting and enforcement activities have developed.

Current Law Requires Transfer of Commission’s Permit Fees and Penalty Revenues. Under current law, permit fee revenues collected by the commission are not retained by the commission. Rather, all of the commission’s permit fee revenues are transferred to the Coastal Access Account in the State Coastal Conservancy (SCC), to be used to fund activities related to the development and operation of coastal public access permits. Similarly, the commission’s enforcement fine and penalty revenues are required to be transferred to the Violation Remediation Account in SCC, to be used to carry out the general purposes of the Coastal Act. The budget proposes to amend the statutorily eligible uses of the Coastal Access Account. However, at the time this analysis was prepared, the trailer bill language was not available.

Previous LAO Recommendation to Increase Permit Fees, Stabilize Budget. We have previously recommended that the commission’s permitting fees be increased so that its permitting and enforcement costs are fully covered from fees and other non–General Fund sources (see the Analysis of the 2004–05 Budget Bill, page B–57). We argued that this would provide a more stable funding source for the commission. At the time, we noted that the commission’s permit fees were relatively low in comparison to fees charged by local governments for comparable development projects. We also recommended the enactment of legislation to (1) delete a current–law requirement that the commission’s permit fee and penalty revenues be transferred to accounts administered by the SCC and (2) establish a special fund at the commission for the deposit of the commission’s fee and penalty revenues.

Progress Made on Stabilizing Funding. While legislation has not been enacted to allow the commission to retain the permit fee and penalty revenues, progress has been made on stabilizing funding. Specifically, the commission, under its broad fee authority, recently increased permit fees. As a result, the commission projects that permit and fee revenues will increase to $2.3 million in the budget year, an increase of about 53 percent from the current year. The regulations to implement these increases are currently under Office of Administrative Law review, and revenues from the increases are assumed both in the current– and budget–year projections. However, the revised fees do not fully cover the costs of the commission’s permitting, enforcement, and related activities, nor did the commission intend to do so. According to the commission, the proposed fee structure would (1) establish fees that are based on the average costs the commission incurs in processing permit applications and filings, and (2) increase fee revenue to constitute about 50 percent of a specified subset of the commission’s overall regulatory costs and budget.

Commission Unable to Process Permits in Timely Manner. As a justification for increasing permit fees, the commission has proposed to shorten the time it takes to process permits internally. There are several statutory time requirements governing this process. For example, the commission has six months to review some applications for development. The commission has reported that it is unable to meet some of these time limitations on processing permits, and in effect has rejected permits that might otherwise have moved forward due to lack of funding and staff capacity. With these increased revenues, the commission believes that it will be able to shorten these delays.

Assessment of Fines and Penalties Is a Costly Process. Currently, in order for the commission to issue a fine or penalty, the commission must file a case in the superior court. This process is cumbersome and results in few fines and penalties issued by the commission due to the high cost of pursuing enforcement through the courts. This, in turn, is reflected in the commission’s budget where enforcement fines and penalty revenues remain stable at $150,000, with no change from the current year. By contrast, based on our review of other state and local regulatory agencies in the resources area, those which administratively assess fines/penalties tend to have this as a growing source of support for their enforcement activities.

Fees Should Cover Most Permitting and Enforcement Costs. We continue to believe that fees levied on permittees/developers should, along with other non–General Fund funding sources, cover the commission’s costs to issue and enforce permits to the extent practical. (Based on discussions with the commission, there are some limited instances in which it is not practical to charge fees for certain permitting and enforcement activities.) This is because there is a direct link between the activities carried out by the commission and those who directly benefit from them through their development actions. Funding such activities would be consistent with the Legislature’s actions in requiring that the costs of most other environmental regulatory programs, such as those protecting air and water quality, be largely if not totally reimbursed through industry fees and assessments.

Recommend Legislation to Direct Revision of Fee Schedule and to Amend Commission’s Enforcement Authority. In view of the above, we recommend the enactment of legislation to direct the commission to increase its fees so that permit fees, combined with other non–General Fund sources including reimbursements and penalties, cover the commission’s permitting and related enforcement costs to the extent practical. We further recommend the enactment of legislation enabling the commission to issue fines and penalties directly for enforcement actions, rather than through the court process, as an additional means to stabilize funds available to the commission.

Recommend Legislation to Eliminate Revenue Transfer to Coastal Conservancy. As we previously recommended, in order that permit fee and penalty revenues collected by the commission can be used to support the commission’s permitting and enforcement activities, we also recommend the enactment of legislation to delete the current–law requirement that these revenues be transferred to SCC for purposes of developing and maintaining coastal public access. As discussed above, we think that the commission’s permitting and enforcement functions are appropriately supported by these particular funding sources. In addition, we find that substantial funding (well over $100 million) remains available from recent bond measures (Propositions 40, 50 and 84) for SCC to improve coastal public access.

Recommend Special Fund Be Created. We also recommend the enactment of legislation to create a special fund in the commission’s budget into which fee and penalty revenues would be deposited, with expenditures from the fund subject to appropriation by the Legislature. We think that the Legislature’s oversight of, and accountability for, the uses of the funds are facilitated by depositing the fees into a special fund.

Adopting LAO Recommendations Creates General Fund Savings and Allows for Program Restoration. By transferring the commission’s fee/penalty revenues to a new special fund to be administered by the commission, there will be about $2 million in additional resources available to the commission in the budget year. We have two recommendations on how to use these new resources available to the commission. First, we recommend that these special fund revenues be used to offset the Governor’s proposed General Fund budget–balancing reduction of about $1 million (mostly for permitting, enforcement, and LCP review). Second, we recommend that an additional $1 million General Fund reduction be taken in the commission’s budget. Accordingly, even without a fee increase, the commission’s programs proposed for reduction by the Governor can be restored and additional General Fund savings created.

Also, adopting our recommendation that the commission increase its permit fees to the extent practical to cover its permitting and enforcement costs will provide the commission with additional resources to address program funding requirements in future years.

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