Background

Governor’s Spending Proposal

Total Spending Down by 27 Percent. Expenditures for resources and environmental protection programs from the General Fund, various special funds, and bond funds are proposed to total $7.1 billion in 2009–10, which is about 5 percent of all state–funded expenditures proposed for the budget year. This level is a decrease of $2.6 billion, or 27 percent, below estimated expenditures for the current year. The proposed reduction is almost entirely from bond funds. Specifically, the budget proposes bond expenditures totaling about $1.8 billion in 2009–10—a decrease of $2.4 billion, or 58 percent, below estimated bond expenditures in the current year.

The budget also includes a net reduction of $113 million (5 percent) in General Fund spending, reflecting both proposed spending decreases and increases. On the decrease side, the budget includes a reduction of $248 million for emergency fire suppression, reflecting an estimated lower level of resources in the budget year after the current year’s particularly severe fire season drove up spending on firefighting activities far beyond the amounts initially budgeted. Still, even with this decrease, the $189 million from the General Fund proposed for emergency fire suppression in 2009–10 is by far the largest amount ever initially proposed in the Governor’s budget plan. This amount is based on the most recent five–year average of these costs. On the increase side, the budget proposes to add $181 million to pay for resources–related bond debt service costs, an increase of 33 percent above estimated current–year expenditures for this purpose.

Multiple Funding Sources; Special Funds Still Predominate. As in the current–year budget, the largest proportion of state funding for resources and environmental protection programs—about $3.3 billion (or 47 percent)—would come from various special funds. These special funds include the Environmental License Plate Fund, the 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 billion would come from the General Fund (28 percent of total expenditures) and $1.8 billion from bond funds (25 percent of total expenditures).

Summary of Resource Spending Proposals. Figure 1 shows spending for major resources programs—that is, those programs within the jurisdiction of the Secretary for Natural Resources and the Natural Resources Agency. As the figure shows, the General Fund provides a significant amount of the funding for a number of resources departments, with minor increases in some departments, and more significant decreases in others. We discuss the extent to which the General Fund is used to support particular resources (as well as environmental protection) programs in greater depth later in this analysis.

While the figure shows decreased bond expenditures in most resources departments, there is a significant increase proposed in DPR, due to a major proposed infusion of bond funds for local parks. In addition, while the budget proposes a net reduction in DWR bond spending of almost $1.3 billion, that number reflects a major new proposal to spend $685 million in bond funds (from Propositions 84 and 1E) for flood control projects and levee improvements in the state’s Delta and Central Valley regions. The budget also proposes $38 million (mainly bond funds, but also including special funds) for recreation and fish and wildlife enhancements at SWP facilities, and proposes reform of related statutes, including the Davis–Dolwig Act enacted in 1961. (We provide an update on the bond resources available for resources and environmental protection programs later in this section.)

Finally, the budget proposes the ERI, to be implemented together by CalFire, the California Emergency Management Agency (CalEMA), and the Military Department. The ERI is intended to enhance the state’s emergency response capabilities, and would be funded by a 2.8 percent surcharge on all residential and commercial property insurance premiums statewide. As far as CalFire is concerned, the budget proposes that ERI special fund revenues in 2009–10 be used to augment CalFire’s budget by about $42 million. These revenues would mostly fund four–person staffing on fire engines during peak and transition fire seasons statewide and support an emergency response–related IT upgrade. Unlike a similar ERI proposal proposed by the administration last January, this new proposal does not create budget–year General Fund savings.

Summary of Environmental Protection Spending Proposals. Similar to Figure 1, Figure 2 shows spending and fund source information for major environmental protection programs—those programs within the jurisdiction of the Secretary for Environmental Protection and the California Environmental Protection Agency (Cal–EPA). As the figure shows, the budget proposes relatively stable spending for Cal–EPA departments, with the exception of the SWRCB, which would receive a significant budget reduction. Most of the 25 percent reduction for SWRCB reflects an anticipated decrease in bond–funded local assistance.

Governor’s Proposed Budget–Balancing Solutions

Largest Budget Solution Involves More Borrowing. The budget proposes only one significant General Fund budget–balancing solution in the resources and environmental protection area—special fund loans. The budget proposes about $350 million in loans from various resources special funds, to be made in either the current or budget years. The repayment dates range from as early as 2009–10 to as late as 2012–13. Most of these reflect new loans, although about $30 million reflects proposals to delay repayment of existing loans. Two other proposed budget solutions are:

• Elimination of CCC. The budget proposes to phase out CCC (with complete elimination by 2010–11) and “realign” some of its current functions to the local level. In future years, grant funding to the existing 12 certified non–profit local conservation corps would be increased. The budget assumes General Fund savings of $17 million in 2009–10 and $24 million annually beginning in 2010–11 from this proposal.
• Fund Shift to Bonds. The budget proposes to shift funding for Americans with Disabilities Act compliance in DPR from the General Fund to Proposition 84 bond funds, for a savings of $11 million in the current year and $8 million in the budget year. This proposal creates ongoing General Fund savings of varying amounts through 2015–16.

Governor’s Intent to Pursue Effectiveness/Efficiency Measures

In addition to the proposal to eliminate and realign CCC (which is reflected in the budget), the Governor has stated his intent to submit a number of other legislative proposals to further improve governmental efficiency. These proposals are largely based on recommendations of the administration’s California Performance Review conducted in 2004. Implementation of these proposals is not reflected in the 2009–10 Governor’s Budget, meaning that the budget reflects “business as usual.” Few details on these proposals have been made available for our review.

Of these proposals, a number relate specifically to the resources area:

• Strengthening and streamlining energy functions now performed by nine entities;
• Consolidation of waste and recycling functions, including elimination of the California Integrated Waste Management Board (CIWMB);
• Elimination of the Department of Boating and Waterways (DBW), with its functions transferred to DPR;
• Consolidation of the Board of Geologists and Geophysicists into the State Mining and Geology Board (in the Department of Conservation [DOC]); and
• Moving the California Accidental Release Prevention Program from the Office of Emergency Services (now CalEMA) to the Department of Toxic Substances Control (DTSC).

Later in this report under “Other Issues,” we provide more details of these proposals and reference our previous analyses that generally affect the same programs and agencies as the administration’s proposals.

Cost Drivers for Resources and Environmental Protection Programs

Cost Drivers for Resources Programs. The costs of resources departments are driven by a diverse set of factors:

• 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. These include departments in which the main activity is the acquisition of land for restoration and conservation purposes as well as departments that 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 that have a public safety purpose are driven by emergency response costs that can vary substantially from year to year depending upon events. These include CalFire’s emergency fire suppression activities and the emergency flood response actions of DWR.

Cost Drivers for Environmental Protection Programs. A core activity of departments and boards under 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.

Resources Bond Fund Status Report

$22 Billion in Resources–Related Bonds Approved Since 1996. Between 1996 and 2006, voters have approved seven resources bonds totaling $20.6 billion (Propositions 204, 12, 13, 40, 50, 84, and 1E), as well as $1.2 billion for air quality purposes in the Proposition 1B transportation bond and $200 million for local parks in the Proposition 1C housing bond.

$4.3 Billion Remains Available for Future Appropriations. As shown in Figures 3 and 4, about $4.3 billion is projected to remain available under the Governor’s budget plan from these various bond measures at the end of 2009–10 for appropriation in future years. Figure 3 shows the status of available funds by bond measure, while Figure 4 shows similar information by program area.

The Role of General Fund in Resources And Environmental Protection Programs

Where Does the $2 Billion Go? As mentioned above, the budget proposes about $2 billion from the General Fund for resources and environmental protection purposes, including for general obligation bond debt service. Over the last ten years, the level of General Fund support for these purposes has been highly variable—reaching a peak of about $2.6 billion in 2000–01 (when the state’s General Fund condition was particularly healthy), and a trough of about $1 billion in 2003–04. Figure 5 shows the departments that are the major recipients of General Fund monies in the resources and environmental protection area, and the corresponding percentage of their budgets that are funded from the General Fund. Shown separately in the figure is the General Fund expenditure for resources–related general obligation debt service—accounting for $722 million (36 percent) of the $2 billion. Accordingly, roughly $1.3 billion of the $2 billion from the General Fund directly supports program budgets.

$1.3 Billion General Fund Proposed for Programs Largely Reflects Fire Protection Costs. As shown in Figure 5, the largest General Fund programmatic expenditure by far in the resources area is for CalFire. The General Fund supports CalFire’s (1) core fire protection program ($754 million), (2) the forest resource management program ($33 million, of which about $12 million is for timber harvest plan [THP] review), and (3) the Office of the State Fire Marshal ($3 million). The General Fund supports 44 percent of the department’s total budget, and almost 70 percent of its state operations (that is, excluding capital outlay). The $790 million General Fund budget proposed for CalFire for 2009–10 is 83 percent ($359 million) higher than 2000–01 expenditures. There are a number of factors that have driven the department’s fire protection costs upwards so significantly, including increasing labor costs, the growing population in and around wildland areas, and unhealthy forest conditions (particularly in Southern California).

Apart from its support for fire protection, the General Fund generally supports resources and environmental protection programs at levels that are lower than in 2000–01. For example, from a 2000–01 peak, General Fund support for DPR, DWR, and SWRCB has declined by 38 percent, 69 percent, and 60 percent, respectively. For the most part, these declines in General Fund support are not reflected in reduced program levels. Rather, for resources departments, these declines have been largely offset by newly available bond funds and in some cases by increased fees (such as state park fees). For Cal–EPA regulatory departments, the decline in General Fund support mostly reflects the shifting of funding from the General Fund to regulatory fees.

In spite of the declines in the level of General Fund support for these programs, the General Fund still provides significant support in a number of resources and environmental protection departments outside of CalFire. The $145 million proposed for DPR is all for state park operations. The $130 million proposed for DWR largely goes for flood management purposes, of which about $60 million is for financing of a flood–related lawsuit settlement. For DFG, the $76 million proposed from the General Fund is for a wide variety of activities, including enforcement ($27 million), habitat conservation planning ($25 million), and sport fishing and hunting programs ($13 million). For SWRCB, the $40 million proposed from the General Fund (1) supplements fee–based funding in the board’s core water quality and water rights regulatory programs ($12 million), (2) supports a number of water quality management activities, including basin planning ($21 million), and (3) supports general cleanup programs ($7 million).

While relatively small in absolute dollar terms, the General Fund continues to be the primary means of support for a number of resources and environmental protection departments outside of CalFire, including the Coastal Commission, OEHHA, and CCC (proposed for elimination by the Governor).

General Fund Bond Debt Service Has Increased Substantially Over Time. General Fund expenditures for resources–related general obligation debt service have increased exponentially over the last ten years, reflecting voter approval of several, increasingly larger bond measures. (We discuss the status of funds remaining available for future appropriation from these bond measures in the section that follows.) Figure 6 shows the General Fund expenditures for debt service over the last ten years, in the context of total resources and environmental expenditures from the General Fund.

Summary. While General Fund support for resources and environmental protection programs are declining overall under the Governor’s proposed spending plan, our analysis indicates that there are nonetheless additional opportunities to help the state address its significant General Fund problems. In the “Balancing the 2009–10 Budget” section of this report that follows, we offer a number of specific recommendations for achieving General Fund savings. These reflect both program reductions and opportunities to shift funding from the General Fund to new or increased fees.