2009-10 Budget Analysis Series: Resources

Executive Summary

The Governor’s budget proposes $7.1 billion from the General Fund, various special funds, and bond funds for resources and environmental protection programs in the budget year. Apart from a proposal to phase out the California Conservation Corps (CCC), the budget proposes few program reductions. New spending proposals include the Governor’s Emergency Response Initiative (ERI) and a proposal to modify the funding of recreational uses of the State Water Project (SWP).

Balancing the 2009–10 Budget

Governor’s Proposals—Mainly More Borrowing

The Governor’s budget proposes only one significant budget–balancing solution in the resources and environmental protection areas—$350 million of loans over the current and budget years from various special funds to the General Fund. The budget also proposes to phase out CCC and realign some of its functions to the local level, for a General Fund savings of $24 million once the Corps is completely eliminated, and shift $11 million of funding for the Department of Parks and Recreation (DPR) from the General Fund to bond funds. We generally recommend approval of these proposals, although we propose modifications to the budget proposal to eliminate CCC in a way that creates additional budgetary savings.

LAO Recommendations for Fee–Related Budget Solutions

We offer a number of recommendations for achieving General Fund savings by shifting funding for the support of certain resources and environmental protection programs from the General Fund to new or increased fees. Fees are an appropriate funding source in these cases, in our view, because the state is either providing a service directly to beneficiaries (such as wildland fire protection) or administering a pollution control program that should be funded on a “polluter pays” basis (such as a water quality regulatory program).

Our fee proposals include: (1) enacting a new fee on property owners with structures in areas of the state benefiting directly from the state’s wildland fire protection services; (2) increasing Department Fish and Game (DFG) regulatory fees to fully pay for two regulatory programs; (3) expanding the fee base of State Water Resources Control Board (SWRCB) so that a larger group of water polluters pay regulatory fees; and (4) shifting the cost of the scientific support activities of the Office of Environmental Health Hazard Assessment (OEHHA) that support regulatory programs in other state agencies to regulatory fees.

LAO Recommendations for CalFire General Fund Reductions

We recommend a package of program reductions and expenditure deferrals in the California Department of Forestry and Fire Protection’s (CalFire) fire protection budget to create General Fund savings of $55 million in 2009–10, with $28 million of ongoing savings. These include eliminating funding for a DC–10 aircraft contract, closing lower–priority fire stations, and deferring vehicle replacements and a capital outlay project to a later year.

Other Issues

Recommend Rejection of Governor’s ERI. We recommend rejection of the Governor’s proposal to levy a new surcharge on property insurance policy premiums statewide. The resulting revenues are proposed to expand emergency response activities, mainly within CalFire, including for information technology (IT) upgrades and a permanent expansion of staffing on fire engines statewide. We find that the proposed surcharge (which would be a tax) is not an appropriate funding source for the activities in question, and we separately reject most of the proposed program augmentations on the basis that they do not address a critical and immediate fire protection need.

Davis–Dolwig Act Requires Major Reform. The Governor’s budget proposes $39 million ostensibly for recreation and fish and wildlife enhancements in SWP under the terms of the statute, known as the Davis–Dolwig Act, that governs the development and funding of this aspect of SWP. The administration also proposes statutory changes to the law. We recommend that the budget request be denied on the basis that the proposed expenditures would result in few recreation or fish and wildlife benefits. We recommend an alternative to the Governor’s proposed statutory changes because the Governor’s proposal fails to address fundamental problems that we have identified with the way the act is being implemented by the state Department of Water Resources (DWR).

State Water Project Staffing Not Justified. We recommend the rejection of most of the 111 requested new positions (that would be added to 1,509 existing positions) for SWP, as the request lacks sufficient justification. We again recommend bringing the SWP “on budget” to improve legislative oversight of this sizable program.

Major Delta Policy Issues Facing State. Several recent reports all concur that the Delta is “broken,” but offer differing fixes to the problems. There is common agreement that an alternative to the current approach of conveying water solely through the Delta is needed if the state is going to meet its environmental and economic goals for the Delta. We evaluate the administration’s approach on the conveyance issue, finding that the analysis being conducted by the administration is too narrow to fully inform the Legislature of the costs, benefits, risks, and trade–offs of the various conveyance alternatives. We also discuss the information that the Legislature should obtain to establish a sound and sustainable policy for the Delta.

New Funding Framework Needed for Resources and Environmental Protection Programs. We find that there has been an increasing reliance on a plethora of narrowly prescribed special and bond funds to support resources and environmental protection programs. The structure of these funding sources has constrained the Legislature’s ability to respond to new funding needs and legislative priorities as they arise. In other words, spending is often driven by available resources, as opposed to programmatic needs. We make a number of recommendations to move the state towards a simpler, more flexible funding structure in these program areas.

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