LAO

The 2016-17 Budget: Resources and Environmental Protection

Legislative Analyst's Office · lao-3354 · Report · 2016-02-16

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The 2016-17 Budget: Resources and Environmental Protection MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 2016 2016-17 BUDGET www.lao.ca.gov Legislative Analyst’s Office i 2016-17 BUDGET TABLE OF CONTENTS Executive Summary ��1 Overview of Governor’s Budget ��3 Cross-Cutting Issues ��6 Cap-and-Trade Expenditures ��6 State’s Drought Response ��19 Proposition 1—2014 Water Bond ��20 Environmental License Plate Fund ��31 Summary of New Natural Resources Capital Outlay Projects ��34 Deferred Maintenance ��35 Department of Forestry and Fire Protection ��41 Professional Standards Program ��41 Department of Parks and Recreation ��42 Motor Vehicle Fuel Account Transfer ��43 Community Liaison Pilot Project ��46 Department of Conservation ��48 Oil and Gas Training Program ��48 California Conservation Corps ��51 Expansion of Residential Facilities ��51 Department of Resources Recycling and Recovery ��55 Beverage Container City/County Payment Program ��55 Air Resources Board ��57 Various Proposals to Achieve Governor’s Post-2020 GHG Goals ��58 Low Carbon Transportation Fuels (AB 692) ��60 SB 350 Implementation ��61 Department of Toxic Substances Control ��62 Summary of Recommendations ��63 ii Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET www.lao.ca.gov Legislative Analyst’s Office iii 2016-17 BUDGET EXECUTIVE SUMMARY In this report, we assess many of the Governor’s budget proposals in the resources and environmental protection areas and recommend various changes. We provide a complete listing of our recommendations at the end of this report. Budget Provides $9 Billion for Programs The Governor’s budget for 2016-17 proposes a total of $9 billion in expenditures from various sources—the General Fund, various special funds, bond funds, and federal funds—for programs administered by the Natural Resources ($5.3 billion) and Environmental Protection ($3.7 billion) Agencies. This total funding level in 2016-17 reflects numerous changes compared to 2015-16, the most significant of which include (1) decreased bond spending, largely attributable to major one-time appropriations for water- and flood-related activities in the current year; (2) increased special fund spending, particularly for programs designed to reduce greenhouse gas (GHG) emissions; and (3) increased General Fund support for resources departments for debt-service costs and drought-related activities. Governor Proposes Large Increase in Cap-and-Trade Expenditures The Governor’s budget includes a $3.1 billion cap-and-trade expenditure plan. An estimated $1.2 billion would be continuously appropriated for specified programs consistent with current law, and $1.9 billion would be allocated among numerous agencies for programs designed to reduce GHG emissions. We find that in many cases the administration’s proposals provide limited information that the Legislature can use to prioritize among the various options for spending the auction revenues. We recommend that the administration provide additional information that can be considered in this year’s budget deliberations. We also recommend establishing an expert committee to provide guidance that would help ensure the Legislature has better information in future years. Water Policy Continues to Be Important Focus of Budget The budget includes several notable proposals intended to continue and extend recent efforts related to the ongoing drought and implementation of Proposition 1 (2014). Drought-Related Funding. As described in greater detail in our recent publication, The 2016-17 Budget: The State’s Drought Response, the budget includes $323 million for drought-response efforts in 2016-17. We recommend approving most of this funding, specifically the components focused on the most urgent human and environmental drought-related needs. We further recommend requiring the administration to submit two formal reports in coming years that would provide (1) data measuring the degree to which drought response objectives were met and (2) a comprehensive summary of lessons learned from the state’s response to this drought. Proposition 1—2014 Water Bond. The Governor’s budget includes two major new Proposition 1 spending proposals—implementing statewide water-related commitments and restoring the Los Angeles River. In our view, the proposals represent a reasonable starting place, but the www.lao.ca.gov Legislative Analyst’s Office 1 2016-17 BUDGET specific spending levels requested for each activity are not without trade-offs. We recommend the Legislature adopt a Proposition 1 spending package that reflects its priorities. Budget Emphasizes Infrastructure The budget—and the California Five-Year Infrastructure Plan—includes multiple significant new infrastructure proposals for resources departments. California Conservation Corps (CCC) Residential Center Expansion. The Governor’s budget for 2016-17 proposes $400,000 from the General Fund to fund the acquisition phase for three residential centers. This represents the first stage of a major facility expansion with eight new centers identified in coming years. The administration estimates that construction of the first six centers would cost roughly $170 million (General Fund and lease revenue bonds) over the next five years, yet would result in only a modest increase of 220 total corpsmembers. We recommend approval of acquisition phase funding for the Ukiah center which would replace an existing center, but recommend that the Legislature defer approval of any other centers until CCC provides more information about expansion-related benefits. Deferred Maintenance. The budget includes $187 million from the General Fund for deferred maintenance of state facilities managed by resources departments. While the proposal addresses an important state need for these departments, the proposal lacks important details necessary for legislative oversight. We recommend the Legislature require the administration to submit specific lists of projects that would be undertaken before approving the requested funding, as well as require departments to report on the causes of and planned strategies for addressing their deferred maintenance backlogs. Opportunities for Legislative Oversight In addition to the issues above, the Governor’s budget raises several issues that we believe merit greater legislative oversight. We recommend the Legislature take steps to ensure that the proposals are likely to be consistent with its priorities. Motor Vehicle Fuel Account Transfer to State Parks. We find that the budget proposal to provide another one-time augmentation to maintain the Department of Parks and Recreation’s current operations level makes sense, but the Legislature will want to make a policy decision regarding whether to fund such an augmentation from a special fund benefiting off-highway vehicle recreational users or the General Fund. We also recommend the Legislature require the department to report on the status of various budgetary and programmatic reforms at budget hearings this spring. Environmental License Plate Fund (ELPF). The Governor’s budget provides a package of options for addressing the ELPF structural deficit, including shifting some programs to General Fund support, raising the personalized license plate fee, and creating a new fee for those seeking certain environmental permits. We find that the administration’s approach is reasonable, but the Legislature also should consider other available options and approve a funding package based on its priorities for where spending reductions or fee increases should be borne. 2 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET OVERVIEW OF GOVERNOR’S BUDGET Governor’s Budget Proposal budget proposes bond expenditures of $538 million in 2016-17 for resources and environmental Total Proposed Spending of $9 Billion in protection departments, a decrease of $5.4 billion, 2016-17. The Governor’s budget for 2016-17 or 91 percent, from estimated bond expenditures proposes a total of $9 billion in expenditures in 2015-16. Much of this decrease reflects two from various sources—the General Fund, various factors. First, in 2015 (as part of the 2015-16 special funds, bond funds, and federal funds—for budget and separate legislation), the Legislature programs administered by the Natural Resources made significant new bond appropriations, and Environmental Protection Agencies. including $2.1 billion from Proposition 1 (2014) Specifically, the budget includes $5.3 billion for water-related projects and $1.1 billion from for resources departments and $3.7 billion for Proposition 1E (2006) for flood control projects. environmental protection departments. Second, some of the apparent budget-year decrease Budget Reflects Growth Since Recession. As is related to how bonds are accounted for in the shown in Figure 1, total spending for resources budget, making year-over-year comparisons and environmental protection programs had difficult. Specifically, bond funds that were stayed between about $6 billion and $7 billion appropriated but not spent in prior years are from 2008-09 through 2013-14. Since then, these assumed to be spent in the current year. The programs have experienced significant increases 2015-16 bond amounts will be adjusted in the with actual expenditures of about $8 billion in future based on actual expenditures. 2014-15, estimated expenditures of over $14 billion in 2015-16, and $9 billion proposed for 2016-17. Resources Programs This growth has been driven by several factors, Budget Continues Modest General Fund including General Fund spending on costs for Increases for Resources Departments. Figure 2 fighting wildfires and debt service for general (see next page) shows spending by fund source obligation bonds, as well as spending of special fund Figure 1 revenues to reduce greenhouse Resources and Environmental Protection Expenditures gas (GHG) emissions. (In Billions) Reduction in Budget $16 Year Largely Reflects Lower Bond Expenditures. The 14 Environmental Protection proposed budget reflects a 12 Natural Resources decrease of $5.2 billion, or 10 37 percent, below estimated 8 expenditures for the current 6 year. This reduction in 4 proposed spending is mostly 2 related to spending from bond funds. Specifically, the 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 www.lao.ca.gov Legislative Analyst’s Office 3 2016-17 BUDGET Spending on Largest Figure 2 Resources Departments. Resources Spending by Fund Source Over Past Decade Figure 3 shows spending (In Billions) from selected fund sources $10 for the state’s five largest 9 Total Funds resources departments. As 8 General Fund the figure shows, the most Special Funds 7 Bond Funds significant change is a large Federal Funds 6 decrease—$3.2 billion—in 5 bond funds for DWR. In 4 addition, the proposed budget 3 includes funding increases 2 from the Greenhouse Gas 1 Reduction Fund (GGRF)— 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 totaling $322 million—for the California Department of Forestry and Fire Protection for all resources departments since 2006-07. (CalFire), DFW, and CEC to implement and expand Aside from the current year, which included programs designed to reduce GHG emissions in the significant increases in bond funds (discussed state. above), about half of resources spending has come from the General Fund in recent years. The Environmental Protection Programs Governor’s budget for 2016-17 continues a recent Budget Continues Recent Spending Increases trend of increasing General Fund expenditures, From Special Funds. Figure 4 (see page 6) shows providing an additional $179 million from the spending on environmental protection departments General Fund for these departments compared since 2006-07. Historically, most environmental to 2015-16. This General Fund increase largely protection funding has come from special funds, reflects (1) increased general obligation bond costs usually derived from fees. The Governor’s budget ($75 million), (2) an increase in drought-related provides 90 percent of environmental protection funding for the Department of Water Resources funding from special funds and reflects a net (DWR) and the Department of Fish and Wildlife increase of $342 million from various special (DFW) ($65 million), and (3) a new proposal to funds, particularly the GGRF. provide California Energy Commission (CEC) with Spending on Largest Environmental funding to conduct climate change research in the Protection Departments. Figure 5 (see page 7) transportation sector ($15 million). (The budget shows spending and fund source information also includes a separate one-time appropriation of for the largest departments under the California $187 million from the General Fund for deferred Environmental Protection Agency. Notable changes maintenance at resources facilities.) The Governor’s include a total increase of $484 million from budget proposes no net increase in special and the GGRF for the Air Resources Board (ARB) federal fund expenditures in the budget year. and the Department of Resources Recycling and 4 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Recovery (CalRecycle) to implement and expand in General Fund spending for CalRecycle. This programs to reduce GHG emissions. In addition, decrease reflects one-time expenditures in the the budget includes a reduction of $360 million current year for debris removal following wildfires Figure 3 Budget Summary for Largest Resources Departments— Selected Funding Sources (Dollars in Millions) Change From 2015-16 2014-15 2015-16 2016-17 Department Actual Estimated Proposed Amount Percent Water Resources General Fund $123 $106 $153 $47 45% State Water Project funds 605 2,026 2,036 11 1 Electric Power Fund 972 962 928 -33 -3 Bond funds 532 3,420 252 -3,168 -93 Other funds 33 25 84 59 237 Totals $2,265 $6,538 $3,454 -$3,084 -47% Forestry and Fire Protection General Fund $945 $1,291 $1,297 $6 0.5% Reimbursements 427 453 477 25 5 Greenhouse Gas Reduction Fund 39 3 182 180 6,524 Public Buildings Construction Fund 20 68 95 27 40 SRA Fire Prevention Fund 74 80 76 -4 -5 Other funds 38 74 69 -5 -7 Totals $1,544 $1,969 $2,197 $229 12% Parks and Recreation General Fund $118 $117 $118 $0.2 0.2% Parks and Recreation Fund 162 188 180 -9 -5 Off-Highway Vehicle Trust Fund 123 115 92 -24 -21 Harbors and Watercraft Fund 38 63 61 -1 -2 Bond funds 58 70 32 -38 -55 Other funds 53 166 126 -40 -24 Totals $552 $720 $608 -$112 -16% Fish and Wildlife General Fund $96 $86 $97 $11 13% Fish and Game Fund 121 132 122 -11 -8 Bond funds 24 107 73 -34 -32 Greenhouse Gas Reduction Fund 22 3 60 57 2,161 Oil Spill Prevention Fund 31 37 35 -2 -5 Other funds 147 201 199 -1 -1 Totals $440 $567 $586 $20 3% Energy Commission Electric Program Investment Charge $183 $290 $145 -$146 -50% ARFVTF 149 153 110 -43 -28 Energy Resources Program Account 68 86 89 2 2 Greenhouse Gas Reduction Fund — — 85 85 — Other funds 120 105 112 7 6 Totals $521 $635 $540 -$95 -15% SRA = State Responsibility Area and ARFVTF = Alternative and Renewable Fuel and Vehicle Technology Fund. www.lao.ca.gov Legislative Analyst’s Office 5 2016-17 BUDGET that occurred in 2015. Figure 4 These costs are then Environmental Protection partially offset by federal Spending by Fund Source Over Past Decade reimbursements in the (In Billions) budget year. The budget $6 also reflects a reduction Total Funds 5 General Fund of $1.8 billion in bond Special Funds funds for the State Water 4 Bond Funds Federal Funds Resources Control 3 Board. This largely reflects the current-year 2 appropriation of 1 Proposition 1 funding. -1 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 15-16 16-17 CROSS-CUTTING ISSUES Cap-and-Trade Expenditures achieve the maximum technologically feasible and cost-effective GHG emission reductions LAO Bottom Line. In many cases, the by 2020. As shown in Figure 6, (see page 8) the administration’s budget proposals provide limited plan adopted by ARB includes a wide variety of information that can be used to prioritize among regulations intended to help the state meet its GHG the various options for spending billions of dollars goal, including cap-and-trade, the low carbon fuel of cap-and-trade auction revenues. We recommend standard (LCFS), energy efficiency programs, and the Legislature direct the administration to provide the renewable portfolio standard. additional information that can be considered One of the primary regulations adopted by in this year’s budget deliberations. We also the ARB intended to ensure the state meets these recommend establishing an expert committee goals is the cap-and-trade regulation. The cap-and- to provide guidance that would help ensure the trade regulation places a “cap” on aggregate Legislature has better information in future years GHG emissions from large GHG emitters, such about how to target funds most efficiently. as large industrial facilities, electricity generators Background and importers, and transportation fuel suppliers. Capped sources of emissions are responsible for AB 32 and Cap-and-Trade. The Global roughly 85 percent of the state’s GHG emissions. Warming Solutions Act of 2006 (Chapter 488 The cap declines over time, ultimately arriving at [AB 32, Núñez/Pavley]), commonly referred to the target emission level in 2020. To implement as AB 32, established the goal of reducing GHG the cap-and-trade program, ARB issues carbon emissions statewide to 1990 levels by 2020. The allowances equal to the cap, and each allowance legislation directed ARB to adopt regulations to 6 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Figure 5 Budget Summary for Largest Environmental Protection Departments— Selected Funding Sources (Dollars in Millions) Change From 2015-16 2014-15 2015-16 2016-17 Department Actual Estimated Proposed Amount Percent Resources Recycling and Recovery General Fund — $243 -$117 -$360 -148% Beverage container recycling funds $1,325 1,313 1,308 -5 -0.3 Electronic Waste Recovery 93 102 102 0.2 0.2 Greenhouse Gas Reduction Fund 19 2 100 98 6,004 Other funds 112 141 134 -6 -5 Totals $1,549 $1,800 $1,528 -$272 -15% State Water Resources Control Board General Fund $36 $47 $48 $1 2% Underground Tank Cleanup 196 300 294 -7 -2 Waste Discharge Fund 117 125 127 2 2 Bond funds 348 1,822 34 -1,788 -98 Other funds 415 620 504 -116 -19 Totals $1,112 $2,914 $1,006 -$1,908 -65% Air Resources Board Greenhouse Gas Reduction Fund $130 $187 $573 $386 206% Motor Vehicle Account 131 137 134 -3 -2 Air Pollution Control Fund 112 118 116 -3 -2 Other funds 132 122 133 11 9 Totals $506 $565 $956 $391 69% Toxic Substances Control General Fund $27 $27 $29 $2 7% Hazardous Waste Control 58 64 61 -2 -4 Toxic Substances Control 46 66 57 -9 -13 Other funds 80 74 70 -4 -5 Totals $210 $230 $218 -$13 -5% Pesticide Regulation Pesticide Regulation Fund $85 $88 $94 $6 7% Other funds 3 3 3 -0.01 -0.3 Totals $88 $91 $97 $6 7% is essentially a permit to emit one ton of carbon given away for free, (2) they can be auctioned by dioxide equivalent. Entities can also “trade” (buy the state, or (3) some portion can be freely allocated and sell on the open market) the allowances in order while the other portion is auctioned. In 2015, ARB to obtain enough to cover their total emissions. auctioned about half of 2015 allowances and gave Auctions Generate Billions of Dollars in State about half away for free. The ARB has conducted Revenue. One important aspect of implementing 13 quarterly cap-and-trade auctions since a cap-and-trade program is determining how to November 2012—generating roughly $3.5 billion in distribute allowances. In theory, allowances can be state revenue. These revenues are deposited in the issued in one of three general ways: (1) they can be GGRF, which ARB is responsible for administering. www.lao.ca.gov Legislative Analyst’s Office 7 2016-17 BUDGET There is currently a Figure 6 court case challenging Regulations Expected to Help State Meet whether the state can 2020 Greenhouse Gas Emissions Goal continue collecting MMTCO2E Regulations Reduction revenue from auctions. In a lawsuit against ARB, Cap-and-trade 23 Low carbon fuel standard 15 plaintiffs argue that Energy efficiency and conservation 12 the Legislature did not 33 percent renewable portfolio standard 12 provide ARB the authority Refrigerant tracking, reporting, and repair deposit program 5 Advanced clean cars 3 to auction allowances Reductions in vehicle miles traveled (SB 375) 3 and collect state revenue. Landfill methane control 2 They further argue that Other regulations 5 Total 78 even if the Legislature MMTCO2E = million metric tons of carbon dioxide equivalent. gave ARB the authority to collect auction revenue, State Law Requires Auction Revenue Be such revenue constitutes Used to Reduce GHGs. Statutes enacted in 2012 an illegal tax. In November 2013, the superior direct the use of auction revenue. For example, court ruled that the charges from the auction Chapter 807 of 2012 (AB 1532, Perez) requires have characteristics of a tax as well as a fee, but auction revenues be used to further the purposes that, on balance, the charges constitute legal of AB 32. Revenues must be used to facilitate GHG regulatory fees. This ruling has been appealed, and emission reductions in California. In addition to final decisions from the appellate courts on these reducing GHGs, to the extent feasible, funds must issues may take years. If the courts’ final decision be used to achieve other goals, such as: on these questions is to determine that ARB • Maximize overall economic, has the authority to collect auction revenue, it is environmental, and public health benefits likely that the courts would establish some limits to the state. on how revenues can be used. The courts would likely require the state to target spending to GHG • Complement efforts to improve air quality. reduction activities since that is the primary goal of • Lessen the effects of climate change on the AB 32. The extent to which the courts would allow state (also known as climate adaptation). the state to use the funds in a way that is intended • Direct investment toward the most to achieve other AB 32 goals (such as improving disadvantaged communities and air quality and minimizing costs for households) households in the state. or for activities with less certain effects on GHGs is unclear. In addition, Chapter 830 of 2012 (SB 535, How Has Auction Revenue Been Spent So Far? de León) requires that at least 25 percent of auction As illustrated in Figure 7, auction revenue has been revenue go to projects that benefit disadvantaged used to fund various programs and projects. For communities (as determined by the Office of revenue collected in 2015-16 and beyond, statute Environmental Health Hazard Assessment) and continuously appropriates (1) 25 percent for the at least 10 percent go to projects located within state’s high-speed rail project, (2) 20 percent for disadvantaged communities. 8 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET affordable housing and sustainable communities • Identify priority investments that will grants (with at least half of this amount for facilitate the achievement of feasible and affordable housing), (3) 10 percent for intercity cost-effective GHG reductions. rail capital projects, and (4) 5 percent for low The annual March report must include carbon transit operations. The remaining information about the status of projects funded 40 percent is available for annual appropriation and their outcomes, including a description of how by the Legislature. Statute also requires that an agencies have met the requirements to provide outstanding loan of $400 million in auction benefits to disadvantaged communities. revenues to the General Fund be repaid to the Administration Recently Released an high-speed rail project when needed by the project. Updated Investment Plan. On January 25, Administration Required to Provide Two 2016, the administration released an updated Major Reports to Inform Spending Decisions. investment plan. The plan identifies three major State law directs the administration to submit two priority areas of spending: (1) transportation and major reports to the Legislature intended to guide sustainable communities, (2) clean energy and cap-and-trade spending decisions: (1) a three-year energy efficiency, and (3) natural resources and investment plan intended to provide general waste diversion. Within each category, the plan guidance for how to target funding and (2) an identifies many different programs that could annual March report on project outcomes. As part potentially help reduce GHG emissions and achieve of the investment plan, the administration must: other goals. It also identifies two potential cross- • Identify the state’s near-term and long-term cutting approaches—local “integrated projects” GHG reduction goals and targets by sector. in disadvantaged communities and “efficient financing mechanisms” for GHG reduction • Analyze gaps in current state strategies projects. Integrated projects could include several to meeting the state’s GHG emission different components that potentially reduce reduction goals. Figure 7 Cap-and-Trade Revenue Expenditures (In Millions) Program 2013-14 2014-15 2015-16a High-speed rail — $250 $600 Affordable housing and sustainable communities — 130 480 Transit and intercity rail capital — 25 240 Transit operations — 25 120 Low carbon transportation $30 200 90 Low-income weatherization and solar — 75 70 Agricultural energy and operational efficiency 10 25 40 Urban water efficiency 30 20 20 Sustainable forests and urban forestry — 42 — Waste diversion — 25 — Wetlands and watershed restoration — 25 — Other administration 2 10 31 Totals $72 $852 $1,691 a Based on LAO projection of $2.4 billion in revenue in 2015-16. The fund balance is projected to be $1.6 billion by the end of 2015-16. www.lao.ca.gov Legislative Analyst’s Office 9 2016-17 BUDGET GHGs. For example, an integrated project might law.) This proposal is part of the Governor’s include a combination of affordable housing near transportation funding package. transit, a new transit line, zero emission busses, • Low Carbon Road Program. The bicycle and walking paths, and tree planting. California Department of Transportation Efficient financing mechanisms for GHG emission would be allocated $100 million to provide reduction projects could include such things as funding for a new program to support city revolving loan funds and loan guarantee programs. and county transportation projects that reduce vehicle emissions. Eligible projects Governor’s Proposal could include installing roundabouts, The Governor’s 2016-17 budget includes a optimizing traffic signals, and projects that $3.1 billion cap-and-trade expenditure plan, as promote pedestrian and bicycle safety. shown in Figure 8. The expenditure plan generally • Biofuel Production Subsidies. The ARB provides funding for programs that are identified as would receive $40 million for a new priority areas in the Investment Plan. An estimated program that would provide a subsidy to $1.2 billion would be continuously appropriated in-state biofuel facilities for each gallon of consistent with current law. The remaining low-carbon fuels they produce. Biofuels are $1.9 billion in expenditures included in the budget fuels produced from living matter, such as are described below. plants or animal waste. Transportation ($1 Billion). The Governor’s • Biofuel Facilities Capital Support. The plan includes over $1 billion for programs intended CEC would receive $25 million to expand to reduce transportation-related GHG emissions. a program that supports construction or These programs are: expansion of in-state biofuel facilities. • Low Carbon Vehicles. The ARB would The funds would be added to the roughly receive $460 million largely to continue $20 million from the CEC’s existing existing programs that provide incentives Alternative and Renewable Fuel and for zero-emission vehicles (such as electric Vehicle Technology Program that supports cars) and clean trucks and buses. The ARB similar activities. estimates that up to $90 million would Carbon Sequestration ($280 Million). The be used to provide rebates to households, Governor’s plan includes $280 million for projects businesses, and governments that will intended to reduce GHGs in the atmosphere largely be put on a waiting list in 2015-16 due by sequestering carbon dioxide. to insufficient funds in the current year. • Healthy Forests. CalFire would be The remaining amount would be used to allocated $150 million for a variety of provide rebates and grants through 2016-17. activities intended to improve forest • Transit and Intercity Rail Capital. The health in order to improve forest carbon California Transportation Agency would sequestration and reduce wildland forest be provided with $400 million in funding fire fuels to avoid emissions associated to expand the transit and intercity rail with wildfires. This program expands and capital program. (This amount is in combines existing programs that focus addition to the amount that would be on certain types of forest health activities, continuously appropriated under current such as reforestation and forest pest 10 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET control activities. Figure 8 Under the new Governor’s 2016-17 Cap-and-Trade Expenditure Plan program, CalFire (In Millions) would fund large landscape-level Continuous Appropriationsa $1,200 High-speed rail 500 forest health Affordable housing and sustainable communities 400 projects that State transit assistance 200 might include Transit and intercity rail capital 100 several different Transportation 1,025 types of projects. Low carbon vehicles 460 Transit and intercity rail capital 400 • Wetland and Low carbon road program 100 Watershed Biofuel production subsidies 40 Restoration. Biofuel facilities capital support 25 The DFW Carbon Sequestration 280 would receive Healthy forests 150 Wetland and watershed restoration 60 $60 million Urban forestry 30 to continue to Green infrastructure 20 restore Delta and Carbon sequestration in soils 20 coastal wetlands Energy Efficiency and Renewable Energy 200 and mountain Low-income energy efficiency and solar 75 meadows, as UC and CSU energy efficiency 60 well as expand Energy efficiency for state buildings 30 I-Bank energy financing program 20 the program to Conservation Corps energy efficiency 15 include desert Short-Lived Climate Pollutants 195 ecosystems. Waste diversion 100 • Urban Forestry. Wood stove replacement 40 Dairy digesters 35 CalFire would Refrigeration unit replacements 20 be allocated Local Climate Program 100 $30 million to Water Efficiency 90 continue to assist Water efficiency technology 30 local governments, Agricultural water efficiency 20 special districts, Rebates for efficient clothes washers 15 and nonprofits Low-income household water efficiency upgrades 15 Commercial and institutional water efficiency 10 with urban forestry by Total $3,090 a providing grants Continuous appropriations based on Governor’s $2 billion revenue estimate. GHG = greenhouse gas; CSU = California State University; and UC = University of California. for and technical assistance with • Green Infrastructure. The California tree planting, biomass diversion projects, Natural Resources Agency (CNRA) would and reclamation of blighted urban land for be provided with $20 million to reduce urban forestry purposes. GHGs through investments in green infrastructure, such as green roof projects www.lao.ca.gov Legislative Analyst’s Office 11 2016-17 BUDGET to reduce energy usage and projects that program for energy efficiency retrofits in mitigate storm water runoff to reduce water state buildings, such as replacing heating needs. This program is modeled after a and cooling systems and lighting. These program that funded similar activities with loans are repaid using the energy savings bond funds. achieved by the projects. • Carbon Sequestration in Soils. The • I-Bank Energy Financing Program. California Department of Food and The Governor’s Office of Business and Agriculture (CDFA) would be allocated Economic Development would receive $20 million to implement a new Healthy $20 million to expand the I-Bank’s Soils Program designed to reduce California Lending for Energy and GHG emissions and increase carbon Environmental Needs loan financing sequestration through alternative soil program for public energy efficiency and management practices, such as mulching infrastructure improvement projects that and adding organic matter to the soil. reduce GHGs and conserve energy. Energy Efficiency and Renewable Energy • Conservation Corps Energy Efficiency. ($200 Million). The Governor’s plan includes The proposal provides the California $200 million for programs that promote energy Conservation Corps (CCC) with $15 million efficiency in buildings and renewable energy. These to expand the Energy Corps Program. This programs are: program focuses on performing energy efficiency and water conservation surveys • Low-Income Energy Efficiency and Solar. in public buildings and performing retrofit The Department of Community Services projects that save energy. and Development (CSD) would be allocated $75 million to continue a program that Short-Lived Climate Pollutants ($195 Million). supports weatherization, solar installation, The Governor’s budget proposes $195 million for and other energy efficiency projects for programs intended to reduce short-lived climate low-income households. Project examples pollutants (SLCPs). These pollutants are a type of include insulating homes, repairing and GHG that have a relatively short lifetime in the replacing windows, and upgrading heating atmosphere compared to carbon dioxide (the most and cooling systems. common GHG). The Governor’s proposals are: • UC and CSU Energy Efficiency. The budget • Waste Diversion. CalRecycle would includes a total of $60 million for the state’s receive $100 million to continue grants, university systems—including $35 million demonstration projects, and loans to divert for California State University (CSU) and waste from landfills to recycling facilities, $25 million for the University of California anaerobic digesters, or composting facilities (UC)—to perform energy efficiency with the goal of reducing methane emissions upgrades in existing buildings. Projects from landfills (methane is an SLCP). could include such things as installing new • Wood Stove Replacement. The plan insulation and lighting. provides $40 million to ARB for a • Energy Efficiency for State Buildings. The new residential wood burning device Department of General Services would replacement incentive program to reduce be provided $30 million to expand a loan GHG emissions from wood smoke. Wood 12 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET smoke is source of black carbon, which is water efficiency; and (3) energy efficiency in an SLCP. The incentive program would be desalination facilities. based on past programs implemented at the • Agricultural Water Efficiency. The CDFA local level. would be allocated $20 million to continue • Dairy Digesters. The CDFA would receive funding for the Statewide Water and $35 million to continue the Dairy Digester Efficiency Enhancement Program. This Research and Development Program. Dairy program was developed to reduce GHGs digesters are designed to reduce GHGs by and save water by providing incentives for capturing methane emitted from dairy (1) efficient irrigation methods that reduce operations and converting it into energy in the need to pump water, (2) energy efficient the form of electricity and renewable fuel. water pumps, and (3) other measures. • Refrigeration Unit Replacements. The • Rebates for Efficient Clothes Washers. The ARB would be allocated $20 million to CEC would receive $15 million for a new provide incentives for commercial grocery program that would provide $100 rebates to stores and markets in disadvantaged households that purchase water and energy communities to replace their refrigeration efficient clothes washers. This program systems with units that leak fewer GHGs. would be similar to an appliance rebate program that operated several years ago as Local Climate Program ($100 Million). The part of the federal stimulus package. Governor’s plan includes $100 million to fund integrated local projects intended to reduce GHG • Low-Income Household Water Efficiency emissions in disadvantaged communities. Upgrades. The CEC, in partnership with Water Efficiency ($90 Million). The Governor’s CSD, would be provided with $15 million to plan includes $90 million for programs intended install water and energy efficient appliances, to improve water efficiency and save energy. A shower heads, and faucets in low-income households. The CEC would design the significant amount of energy is used to pump, new program and provide funding to CSD, transport, heat, and treat water. Therefore, reducing which would perform the installations at the water consumption or improving the energy same time as its other low-income energy efficiency of existing water-related activities can efficiency upgrades described above. reduce energy consumption and GHGs. The water efficiency programs included in the cap-and-trade • Commercial and Institutional Water expenditure plan are: Efficiency. The DWR would receive $10 million to provide grants for water • Water Efficiency Technology. The CEC management projects and programs. would receive $30 million to fund a new According to DWR, the program would program for innovative water efficiency focus on projects within the commercial or technologies. The program would provide institutional buildings—such as schools, incentives for three different areas of hospitals, or government buildings—that emerging technologies that, according result in more efficient water and energy to the administration, are not yet widely use. This would be a modified version of deployed: (1) agricultural water efficiency; an existing program that largely funds (2) industrial, commercial, and residential residential water efficiency projects. www.lao.ca.gov Legislative Analyst’s Office 13 2016-17 BUDGET Governor’s Revenue Estimates the cap-and-trade regulation and the auction Slightly Lower, but Reasonable revenue that is generated as a result of the program. (For more details, see our report Cap-and-Trade As shown in Figure 9, our office’s estimates Revenues: Strategies for Promoting Legislative of cap-and-trade revenues are similar to those Priorities.) In this report, we describe how, from a of the administration. The primary difference is policy standpoint, the cap-and-trade regulation is that our 2016-17 estimate ($2.3 billion) is a few key to ensuring that the state meets its GHG goals hundred million dollars higher than the Governor’s cost-effectively. In contrast, the revenues generated ($2 billion). Our estimates assume that all of the from the cap-and-trade auctions can be considered allowances offered for sale at auctions will sell for more of a byproduct of the program rather than as the minimum price established by the ARB. Under a primary goal of the program. the Governor’s estimated revenues and proposed At first glance, spending on activities that expenditures, there would be a $500 million fund reduce GHGs would appear to encourage balance remaining at the end of 2016-17. Under additional emission reductions. However, spending our revenue estimate, the fund balance would be auction revenue on GHG emission reductions in $120 million higher and 60 percent of the higher the capped sector can interact with the cap-and- revenues would be dedicated to the continuously trade regulation in somewhat complicated and appropriated programs ($180 million). perhaps unexpected ways. As a result, the current Interactions With Regulations Has legal requirement creates several policy challenges. Implications for Evaluating Spending Options • Spending Likely Not Needed to Meet Understanding and estimating the net benefits GHG Goals. As long as the cap is limiting emissions, subsidizing an emission of different GHG reduction programs is difficult reduction from one capped source— for many reasons. One factor contributing to the including transportation fuels and difficulty is that, in certain cases, spending funds electricity generation—will simply free-up on GHG reduction activities interacts with other allowances for other emitters to use. The climate regulations. Such interactions can be end result is a change in the sources of complex, but they have important implications for emissions, but no change in the overall how the Legislature might want to target spending level of emissions. and how it evaluates the net benefits of different projects. Below, we describe the interaction • Spending Likely Increases Overall Costs of Emission Reductions. The cap-and-trade that spending has with one key regulation—the regulation generally creates a financial cap-and-trade regulation—and the implications it has for evaluating different spending options. Figure 9 Current Requirement Comparison of Administration and to Spend on GHGs LAO Cap-and-Trade Revenue Estimates Creates Policy Challenges. (In Millions) In a report issued LAO Administration Difference in January 2016, we 2015-16 $2,400 $2,400 — described and assessed 2016-17 2,300 2,000 $300 the relationship between 14 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET incentive for households and businesses funds can still be used to provide significant to find the least costly mix of emission benefits. However, allocating the funds in a way reductions. Therefore, using state funds to that achieves the greatest level of benefits should encourage a different mix of GHG emission be informed by reliable information about the reductions would likely be more costly. degree to which different projects help achieve • Limits Flexibility to Achieve Other desired benefits, as well as how those benefits are Goals. The requirement to spend on distributed to different households and businesses. GHG reductions limits the Legislature’s Below, we outline two general types of analyses flexibility to use the revenue in a way that, in our view, could help the Legislature that could achieve its non-GHG goals, evaluate various cap-and-trade spending proposals. such as (1) reducing costs for energy • General Framework for Spending. It users; (2) promoting other climate-related is important to first establish a general goals, such as climate adaptation; and framework for evaluating spending (3) promoting other legislative priorities options. In our view, such a framework unrelated to climate change, such as should be based on an analysis of how improving the state’s transportation the spending interacts with the cap-and- infrastructure. trade regulation, as we described above, To address these challenges, one option for and other regulations. This analysis the Legislature would be to remove the legal could then inform the development of requirement to spend on GHG reductions by strategies for targeting spending in ways reauthorizing cap-and-trade with a two-thirds vote. that achieve different priorities. For example, if the priority is to encourage This would give the Legislature greater flexibility net GHG reductions, a framework might to return the revenue directly to households and identify the types of programs that most businesses and/or use the funds to address its likely help achieve this goal, such as highest priorities. Moreover, as long as the cap is targeting uncapped sources of emissions. in place, the state will likely achieve its GHG goals The analysis could also identify efforts from major sources of emissions. Alternatively, that would target emissions from capped if the requirement to spend on GHG reductions sources in ways that minimize the overall remains in place, the Legislature might want to costs of reductions. To the extent that a consider a mix of the following strategies as a priority is to address other goals—such as way to maximize different legislative priorities: reducing costs for businesses or households (1) spend on emission reductions from uncapped in disadvantaged communities or sources to achieve net GHG reductions, (2) target improving co-benefits like air quality—the spending to reduce overall costs of emission framework could identify ways for funds reductions, (3) prioritize projects that also achieve to be targeted that help achieve these goals non-GHG goals, and (4) offset other types of state most effectively. Currently, the three-year investment plan is intended to be the spending to enable greater budget flexibility. document that provides such a framework. Analyses That Can Help Legislature Target However, as we discuss below, we find that Spending Under Requirement to Reduce GHGs. the investment plan currently does not Although the requirement to spend on activities provide a robust analytical framework. that reduce GHGs creates some challenges, the www.lao.ca.gov Legislative Analyst’s Office 15 2016-17 BUDGET • Reliable Estimation of Net Benefits of a robust analytical framework for evaluating Specific Programs or Projects. A general spending options. This is evident in the “gaps and framework for spending can provide needs assessment” included for each category of guidance for evaluating different spending spending. The gap assessment describes different options and identifying categories of types of programs that could reduce GHGs within spending that achieve different state the priority areas of spending identified by the priorities most effectively. However, in the administration. However, the administration does end, the Legislature will have to allocate not provide a clear analytical justification for why funds to specific programs based on its spending of auction revenues on each of these assessment of which programs provide programs is likely to achieve state priorities most the greatest overall benefits. In our view, effectively compared to alternative options. In accurate and reliable estimates of the particular, the investment plan does not include the net benefits—including of both GHG following analyses: and non-GHG benefits—associated with different programs could inform such • Assessment of How Spending Options decisions. Interact With Cap-and-Trade Regulation. The plan does not discuss the interactions Proposal Lacks Key Information to with the cap-and-trade program and Help Legislature Prioritize Spending its implications for assessing different spending options. As a result, it fails to Many of the proposals offered by the identify strategies for targeting spending administration might have significant merit. in ways that achieve additional net GHG However, in our view, the Governor’s plan lacks a emission reductions or promote the most robust analytical framework and reliable estimates cost-effective mix of emission reductions of benefits. This missing information makes it from capped sources. difficult to evaluate which programs provide the • Assessment of How Spending Options greatest overall benefits. The analysis that would be Interact With Other Regulations. The needed to provide reliable information is difficult investment plan does not explicitly and likely requires expert knowledge of different address how new programs might interact regulatory and market conditions, as well as a with existing regulations or programs. general understanding of the programs being For example, biofuel production is considered. Furthermore, there is an inherent identified as one potential priority area level of uncertainty around the benefits of new for investment. Financial support for programs and new types of technologies. Despite biofuel production likely interacts with these challenges, given the significant amount of the LCFS regulation. The LCFS is another funding that would be allocated under this year’s market-based mechanism administered expenditure plan—as well as the billions of dollars by ARB that requires a 10 percent that will be available in future years—we think reduction in the carbon intensity of fuels the Legislature would benefit from more reliable by 2020. Increased biofuel production is expected to be one of the primary ways the information in these areas. regulated communities will comply with Investment Plan Lacks Robust Analysis the regulation. Providing additional state Needed to Develop Framework for Spending. In subsidies for biofuel production might not our view, the investment plan does not provide 16 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET change the overall carbon intensity of the the wetland restoration or urban forestry proposals. fuel. Instead, it might simply reduce the Other proposals include GHG estimates, but costs for businesses that would produce do not provide information about the expected biofuels under the regulation. While there co-benefits. For example, the CCC Energy Corps may be a strong rationale for supporting proposal includes estimates of GHG reductions, biofuel production, the investment plan but not financial savings from improved energy does not discuss this type of interaction efficiency that would accrue to building owners or when evaluating the role of spending in the occupants. context of other regulations. Second, even in instances when the Certain Budget Proposals Lack Details About administration provides estimates of benefits, we Projects. Some of the new or significantly modified frequently identified limitations associated with proposals lack details about what types of projects the methods used to produce such estimates. For will be funded and which types of projects will be example, a couple of the methodological concerns selected. For example, the overall mix of forestry that we identified are: projects that will be selected as part of CalFire’s • No Accounting for Interactions With new landscape-scale forest health proposal is Existing Regulations or Programs. As unclear. In addition, the Strategic Growth Council described above, some of these programs program for local climate projects in disadvantaged likely interact with other regulations, communities provides very little detail about what such as the cap-and-trade program and types of projects are funded. In this case, the lack of the LCFS. For example, ARB’s biofuel detail is largely due to the design of the program— production subsidies and CEC’s funding which is to rely on local communities to make for capital investments for biofuel facilities proposals that identify the types of projects that might not change the overall amount of are likely to provide the greatest overall benefits biofuel consumed in California. Rather, to that specific community. Other programs these programs might simply reduce the costs of biofuel production that would have for which the types of projects will be funded is occurred under the incentives provided somewhat unclear include DWR’s commercial and by the LCFS. While the Legislature institutional water efficiency program and the Low might consider reducing companies’ Carbon Road Program. These programs could have compliance costs a valuable use of cap-and- significant merit, but the lack of information about trade revenue, the administration fails what types of projects will be implemented makes it to mention or account for this likely particularly difficult to assess the potential benefits interaction when estimating and describing and outcomes. GHG reductions and net benefits. Thus, Expected Benefits of Proposals Are the GHG reductions associated with these Often Unclear or Uncertain. Even when the proposals are likely overstated. characteristics of the projects are relatively • No Accounting for “Free-Riders.” It is clear, the expected outcomes often are either likely that some portion of the grants or unclear or subject to considerable uncertainty. rebates funded under the Governor’s plan First, the administration has not provided would go toward activities that would estimated benefits—including GHG reductions or have occurred anyway. In economic co-benefits—for several of the programs, including terms, households or businesses that www.lao.ca.gov Legislative Analyst’s Office 17 2016-17 BUDGET access government rebates or subsidies administration has not provided a comprehensive for activities they would have undertaken plan for how it will achieve the overall anyways are sometimes referred to as disadvantaged communities goal. Furthermore, free-riders. The administration’s estimates the administration has not provided an estimate of benefits do not account for free-riders of the disadvantaged community benefits for each and, consequently, likely overestimate proposal, the total amount of funding that will GHG reductions and co-benefits. For be used for projects that benefit disadvantaged example, the CEC estimates of water communities, the types of benefits that will be savings and GHG reductions from the provided, and how those benefits will be distributed clothes washer rebate program assume across different households and regions. Without that every household that receives a rebate this information, it is difficult to evaluate the would have purchased a less efficient degree to which the Governor’s plan is consistent model without the rebate. However, a recent study evaluating a similar appliance with legislative direction. rebate program several years ago found LAO Recommendations that over 90 percent of the rebates went to households that would have purchased the Based on our assessment, we recommend the more efficient clothes washer anyway. By Legislature (1) direct the administration to provide ignoring free-riders, the administration more robust estimates of benefits, (2) allocate funds likely overstates GHG reductions and water based on policy priorities and level of confidence saving benefits. Furthermore, ignoring in outcomes, and (3) establish an expert advisory potential free-riders could lead to missed committee to help target future spending. opportunities to target the funds in a way Direct Administration to Provide More that are more likely to encourage changes Robust Estimates of Benefits. In the short in behavior. run, we recommend the Legislature direct the Accounting for interactions with other administration to report the following information regulations and free-ridership can be difficult. for consideration in budget hearings: (1) detailed However, these factors can have significant estimates of GHG and co-benefits associated with implications for the overall type, level, and each proposal, including the methodologies used distribution of benefits of a particular program. to produce such estimates, and (2) what portion No Comprehensive Approach to Maximizing of these benefits will accrue to households located Benefits for Disadvantaged Communities. State in disadvantaged communities. This information law requires a minimum of 25 percent of funds go could help the Legislature evaluate the degree to to projects that benefit disadvantaged communities which each program promotes legislative priorities. and a minimum of 10 percent go to projects located As always, our office would be available to assist in disadvantaged communities. Some proposals in evaluating the information provided by the indicate the portion of program funds that will administration. be targeted to disadvantaged communities. For Allocate Funds Based on Policy Priorities example, the CCC indicates that it plans to use and Level of Confidence in Outcomes. Ultimately, at least 60 percent of the funding to improve the Legislature’s allocation of funds in the energy efficiency in public buildings located 2016-17 budget will depend on its assessment of in disadvantaged communities. However, the the expected benefits associated with different 18 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET programs, as well as the relative weight it gives to for 2016-17, and (4) recommends steps the GHG emission reductions versus other co-benefits. Legislature can take to address drought both in the There is some inherent level of uncertainty about coming year and the future. Below, we summarize the outcomes that will be achieved by each of these our major findings. programs. Therefore, for programs where the types Background of projects would be funded are unclear—such as for new programs—and for programs where State Experiencing Exceptionally Dry Period. expected outcomes are most uncertain, the California has been experiencing a serious drought Legislature might want to consider allocating a for the past four years. In fact, by some measures relatively small amount of funds in the first year the current drought actually began in 2007, with and waiting for program outcomes to be available one wet year—2011—in the middle. While there are prior to allocating additional funds in future years. optimistic signs that El Niño weather patterns will Establish a Committee to Develop a More bring California a wet winter in 2016, how much Robust Investment Plan. We recommend the precipitation will fall as snow in the state’s northern Legislature establish an independent advisory mountain ranges—a major source of the state’s committee consisting primarily of economic water throughout the year—remains uncertain. experts and scientists to assist the administration Moreover, the cumulative deficit of water reserves in developing a more robust strategy for targeting resulting from multiple years of drought is funds in future years in ways that encourage the sufficiently severe that some degree of drought most cost-effective GHG reductions and promote conditions likely will continue at least through other co-benefits. In particular, greater economic 2016. Scientific research also suggests that climate expertise could help provide guidance about how change will lead to more frequent and intense to target funds most cost-effectively under existing droughts in the future. market and regulatory conditions. The committee State Has Employed Multifaceted Response to could also provide recommendations regarding the Current Drought. The state has deployed numerous methods that could be used to estimate benefits resources—fiscal, logistical, and personnel—in prior to awarding funds and evaluate the outcomes responding to the impacts of the current drought. of different types of projects after they have been This includes appropriating $3 billion to 13 different implemented. state departments between 2013-14 and 2015-16. In addition to increased funding, the state’s drought State’s Drought Response response has included certain policy changes. Recent Report Summarized State’s Response, Because current drought conditions require Recommended Next Steps. Our recent publication, immediate response but are not expected to continue The 2016-17 Budget: The State’s Drought Response, forever, most changes have been authorized on contains a detailed assessment of the Governor’s a temporary basis, primarily by gubernatorial 2016-17 drought package. The report (1) describes executive orders or emergency departmental the current drought and its impacts across the regulations. For example, one of the most publicized state, (2) summarizes the state’s drought response temporary drought-related policies has been the appropriations and activities thus far, (3) assesses Governor’s order (enforced through regulations) to the Governor’s drought-related budget proposals reduce statewide urban water use by 25 percent. www.lao.ca.gov Legislative Analyst’s Office 19 2016-17 BUDGET Governor’s Proposal energy savings and reducing GHGs is unclear. We therefore recommend the Legislature delay Governor Proposes $323 Million for Drought deciding on whether to fund these programs Response Activities in 2016-17. The Governor’s until the administration has provided additional budget proposal provides $212 million from information to justify the request. the General Fund, $90 million from GGRF— Learn Lessons to Apply to Future Droughts. auction revenues from the state’s cap-and-trade Given the certainty that droughts will reoccur, program—and $21 million from other special and the possibility that subsequent droughts funds for drought response efforts in 2016-17. This might be similarly intense, we recommend the funding would primarily support the continuation Legislature continue to plan now for the future. of initiatives funded in recent years that address Such planning can be facilitated by (1) learning emergency drought response needs. For example, from the state’s response to the current drought, the proposal includes funding for increased (2) identifying and sustaining short-term drought- wildland firefighting, to provide various forms of response activities and policy changes that should human assistance in drought-affected communities be continued even after the current drought (such as drinking water, food, financial assistance, dissipates, and (3) identifying and enacting new and housing and employment services), and to policy changes that can help improve the state’s monitor and assist at-risk fish and wildlife. The response to droughts in the future. We recommend GGRF monies would fund four conservation the Legislature spend the coming months and programs intended to improve water and energy years vetting various drought-related budget and efficiency—two new, one existing, and one policy proposals for their potential benefits and modified. trade-offs, and enacting changes around which LAO Recommendations there is widespread and/or scientific consensus. This could include both changes that remove Adopt Most of Governor’s Drought-Related existing barriers to effective drought response, 2016-17 Budget Proposals. We believe the as well as proactive changes that improve water Governor’s approach to focus primarily on the management across the state. The Legislature can most urgent human and environmental drought- gather such information through a number of related needs makes sense. The severity of enduring methods, including oversight hearings and public drought conditions supports the continued need for forums, but we also recommend the administration these response activities. As such, we recommend submit two formal reports: one that provides data the Legislature adopt the components of the measuring the degree to which intended drought Governor’s drought package that meet essential response objectives were met, and one that provides human and environmental needs and that are a comprehensive summary of lessons learned from likely to result in immediate water conservation. the state’s response to this drought. This would include all of the proposals supported by General Fund ($212 million) and non-GGRF Proposition 1—2014 Water Bond special funds ($21 million). We believe additional LAO Bottom Line. The Governor’s two information is needed, however, before adopting major new 2016-17 Proposition 1 spending the Governor’s four GGRF-funded conservation proposals—implementing statewide water-related proposals. Whether these proposals represent commitments and restoring the Los Angeles the best approach to achieving water and 20 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET River—represent a reasonable starting place, but Act. The $2.7 billion for water storage projects is the specific spending levels he has selected for each not subject to legislative appropriation but rather activity are not without trade-offs. We recommend is continuously appropriated to the California the Legislature adopt a Proposition 1 spending Water Commission (CWC). As such, $2.8 billion in package that represents its priorities. authorized Proposition 1 funding remains for the Legislature to appropriate. Background Of the $2.8 billion from Proposition 1 Proposition 1 Provides $7.5 Billion in General remaining for the Legislature to appropriate, Obligation Bonds. In November 2014, voters $1.8 billion represents funding to continue approved Proposition 1, a $7.5 billion water bond activities initiated in 2015-16. (Departments do measure aimed primarily at restoring habitat and not plan to submit formal funding requests in increasing the supply of clean, safe, and reliable future budget change proposals for this $1.8 billion water. Most of the projects funded by Proposition 1 unless they wish to deviate from the multiyear will be selected on a competitive basis, based plan described below.) The remaining $1 billion on guidelines developed by state departments. represents funding for new activities that are While the measure prohibits the Legislature not yet underway and for which the Legislature from allocating funding to specific projects, a few has not yet approved any appropriations. These spending categories are subject to more legislative three activities are: (1) statewide obligations and discretion, as discussed below. agreements ($475 million), (2) Los Angeles River Bond Included Certain Accountability restoration ($100 million), and (3) flood protection Provisions. The bond measure also included some ($395 million). accountability provisions, including a requirement Administration Has Developed Multiyear that CNRA annually publish a list of all program Appropriation Schedule. Figure 11 (see page 23) and project expenditures on its website. This displays the administration’s multiyear funding website is also to include fields to display project plan for spending Proposition 1 bond funds. outcomes based on pre-determined performance As shown, funding for many categories was metrics, such as acreage of land restored or “front-loaded,” with large appropriations in the volume of water recycled. This is similar to how current year and smaller amounts expected to be the agency reported on a previous resources bond apportioned in subsequent years. Two primary (Proposition 84). exceptions are water storage and flood protection, State in Midst of Implementing Proposition 1. for which the administration expects most funding As shown in Figure 10 (see next page), the bond will be allocated after 2019-20. This lag is because provides funding for eight categories of activities. the CWC still is in the process of developing These funds will be distributed across 16 state specific eligibility criteria for potential storage departments (including ten state conservancies). projects and because the state still has significant As shown in the figure, the Legislature already has funding available for flood protection from prior appropriated a combined $2.1 billion of available bond measures. bond funding. Specifically, $270 million was Bond Sets Aside $475 Million for Certain appropriated via emergency drought legislation in Statewide Commitments. The largest portion March 2015 (Chapter 1 of 2015 [AB 91, Committee of Proposition 1 funding remaining for the on Budget]) and $1.8 billion via the 2015-16 Budget Legislature to appropriate consists of $475 million www.lao.ca.gov Legislative Analyst’s Office 21 2016-17 BUDGET for statewide obligations and agreements (from Valley Project Improvement Act (CVPIA), the the section of the bond that dedicates funds for Salton Sea Restoration Act, the San Joaquin River watershed protection and restoration). These Restoration Settlement Act, and the Tahoe Regional funds are intended to help meet water-related Planning Compact. In addition, Proposition 1 commitments into which the state has entered. states that funding for statewide commitments The bond explicitly identifies four such agreements can be used for a multiparty agreement that meets for which the funding can be used—the Central a number of specific characteristics, all of which Figure 10 Summary of Proposition 1 Bond Funds (In Millions) Implementing Bond Prior 2016-17 Purpose Departments Allocation Appropriationsa Proposed Water Storage $2,700 $5 $4 Water storage projects CWCb 2,700 5 4 Watershed Protection and Restoration $1,496 $173 $605 State obligations and agreements CNRA 475 — 465 Watershed restoration benefiting state and DFW 373 37 37 Delta Conservancy restoration projects Conservancies 328 98 44 Enhanced stream flows WCB 200 39 39 Los Angeles River restoration Conservancies 100 — 11 Urban watersheds CNRA 20 <1 9 Groundwater Sustainability $900 $844 $1 Groundwater cleanup projects SWRCB 800 784 — Groundwater sustainability plans and projects DWR 100 60 1 Regional Water Management $810 $232 $57 Integrated Regional Water Management DWR 510 33 55 Stormwater management SWRCB 200 102 2 Water use efficiency DWR 100 98 — Water Recycling and Desalination $725 $342 $1 Water recycling SWRCB 725 292 — Desalination DWR 50 1 Drinking Water Quality $520 $469 $5 Drinking water for disadvantaged communities SWRCB 260 244 2 Wastewater treatment in small communities SWRCB 260 225 2 Flood Protection $395 — — Delta flood protection DWR and CVFPB 295 — — Statewide flood protection DWR and CVFPB 100 — — Administration and Oversight — $1 $1 Administrationc DWR and CNRA — 1 1 Totals $7,546 $2,066 $673 a Includes $267 million from Chapter 1 of 2015 (AB 91, Committee on Budget) and $1.8 billion from the 2015-16 Budget Act. b With staff support from DWR. c Bond does not provide a specific allocation for bond administration and oversight, but allows a portion of other allocations to be used for this purpose. CWC = California Water Commission; CNRA = California Natural Resources Agency; DFW = Department of Fish and Wildlife; WCB = Wildlife Conservation Board; SWRCB = State Water Resources Control Board; DWR = Department of Water Resources; and CVFPB = Central Valley Flood Protection Board. 22 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET the Klamath Hydroelectric Settlement Agreement Level 4 water supplies (which can be met meets. (Drafters of the bond indicate that the through in-kind contributions such as Klamath agreement was considered as a prime staff support). Despite the more than two candidate for this funding. As such, we describe decades since enactment of the CVPIA, not all of the refuges have acquired permanent that agreement below.) The bond did not specify Level 4 water supplies. According to the how much—if any—of this funding should be U.S. Fish and Wildlife Service, government allocated to each commitment. Moreover, as noted agencies struggle to acquire the additional in the descriptions below, the total cost to fulfill all water because “usually there are too few of these commitments greatly exceeds $475 million. willing sellers, too little funding to buy Proposition 1 left it to the Legislature to determine their water, or both.” Additionally, some how best to allocate this funding amongst the five locations still lack the infrastructure potential commitments. needed to convey all the water mandated by • CVPIA. Enacted by Congress in 1992, CVPIA to the refuges. The administration the CVPIA included numerous changes states that because of accounting for federal water operations in California. difficulties with the federal agencies Among these was a commitment to provide involved, estimates are not available for a guaranteed annual water supply to 19 the total cost of ensuring Level 4 water state, federal, and privately owned wildlife supplies, the state’s share of that cost, or the refuges in the Central Valley that serve amount the state has contributed thus far. as critical wetland habitat to numerous • Salton Sea Restoration Act. In 2003, wildlife species. The federal government the Legislature ratified a collection committed to providing the baseline of agreements—referred to as the amount of water needed by the wildlife Quantification Settlement Agreement (“Level 2”), and to paying 75 percent (QSA)—that both reduced and reallocated of the costs of providing the optimal the state’s share of Colorado River amount of water needed (“Level 4”). The water. Because this agreement requires legislation included a commitment for the transfer of water from primarily California to contribute the remaining agricultural users in the Imperial Valley 25 percent towards the costs of providing to other areas of Southern California, one Figure 11 Administration’s Multiyear Proposition 1 Funding Plan Bond 2014-15 2019-20 Category Allocation and 2015-16 2016-17 2017-18 2018-19 and After Water storage $2,700 $5 $4 $418 $411 $1,808 Watershed protection and restoration 1,495 173 605 173 136 379 Groundwater sustainability 900 844 1 35 1 1 Regional water management 810 232 57 302 7 197 Water recycling and desalination 725 342 1 133 233 2 Drinking water quality 520 469 5 24 4 8 Flood protection 395 — — — — 387 Totalsa $7,545 $2,066 $671 $1,085 $791 $2,782 a Appropriation amounts exclude $151 million to pay for statewide bond costs, including $1.4 million in 2016-17. www.lao.ca.gov Legislative Analyst’s Office 23 2016-17 BUDGET result will be a reduction in the amount confluence of Merced River) and to restore of agricultural runoff that historically a self-sustaining Chinook salmon fishery has fed the Salton Sea—the state’s largest in the river. While not a party to the lake. Reducing this inflow is expected to lawsuit, the state formally committed to dramatically shrink the lake (exposing contribute at least $200 million to this toxic dry soils and damaging air quality) effort. (Under the settlement terms, the and increase its already high salinity levels federal government and the Friant Water (ruining the habitat for fish and migrating Users Authority will pay most of the birds). As such, the state required that project costs.) Project managers estimate water continue to flow into the lake for the remaining cost of completing the several years so that a mitigation plan long-term project to be between $1.2 billion could be developed. The full transfers (and and $1.7 billion. Thus far, the state has the corresponding decrease in runoff to allocated about $110 million from various the lake), however, are scheduled to begin bonds towards the river restoration. phasing-in in 2017. As a component of the • Tahoe Regional Planning Compact. In QSA, the state assumed responsibility for 1969, California and Nevada enacted paying most of the costs to mitigate the air a statutory agreement (later ratified by quality impacts resulting from the transfer. Congress) intended to improve the quality After many years of study and numerous both of human development and the proposals, in fall 2015 a task force environment at Lake Tahoe. The agreement convened by the Governor recommended also establishes the bi-state Tahoe Regional steps for addressing the Salton Sea. These Planning Agency to oversee development included an immediate short-term goal activities in the region. The agency has of undertaking 9,000 to 12,000 acres of the regulatory authority to set and enforce habitat creation and dust suppression environmental standards and land use projects at the lake. The CNRA still is policies for the Lake Tahoe Basin. In 1997, in the process of developing a long-term the two states, federal government, and plan for managing the lake, along with stakeholders developed an Environmental associated funding estimates and sources. Improvement Program to identify activities (Earlier proposals for restoring the lake that will advance the objectives of the had associated costs of several billions Compact. Reflecting the share of the lake of dollars.) An earlier bond measure, located in each state, California generally Proposition 84, provided $47 million for is expected to contribute two-thirds of the initial restoration efforts and planning at two states’ share of funding to implement the Salton Sea. the Compact and related activities, • San Joaquin River Restoration Settlement with Nevada contributing one-third. Act. In 2009, the federal government According to CNRA, over the last two enacted legislation to implement a legal decades California has contributed nearly settlement stemming from a lawsuit over $700 million to help fulfill the Compact the negative impacts of dam construction. and the associated environmental program. The legislation established a long-term A recent long-range plan developed by effort to restore flows within the San regional stakeholders set a funding target Joaquin River (from Friant Dam to the of $920 million to support Compact-related 24 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET projects over the next decade, and the agreements, however, expired in set California’s share of that target at January 2016 when they failed to receive $200 million. This target, however, does not Congressional ratification. As such, how represent a legally binding commitment. the overall approach to addressing issues in the Klamath River Basin will proceed • Klamath Hydroelectric Settlement and which components of the agreements Agreement. In 2010, numerous stakeholder ultimately will be implemented is now groups including federal agencies, state uncertain. agencies from California and Oregon, Indian tribes, counties, irrigators, and Bond Included $100 Million for Projects to conservation and fishing groups signed Protect and Enhance the Los Angeles River. The two agreements—the Klamath Basin Legislature also has yet to appropriate $100 million Restoration Agreement and Klamath dedicated by the bond for projects to improve the Hydroelectric Settlement Agreement—to Los Angeles River. Proposition 1 states that this address long-standing disputes over funding must be spent pursuant to plans adopted water management and environmental by the Santa Monica Mountains Conservancy and conditions in the Klamath River Basin. the San Gabriel and Lower Los Angeles Rivers and (A third compact, the Upper Klamath Mountains Conservancy. The bond, however, does Basin Comprehensive Agreement, was not specify how funds should be allocated between developed in 2014.) These agreements the two conservancies, leaving this decision to include provisions to restore habitat for the Legislature. (This funding is in addition to several species of threatened or endangered the $30 million each of the two conservancies fish, as well as assurances for future will receive from the section of Proposition 1 water allocations to irrigators, tribes, and that provides funding to all of the state’s ten wildlife refuges within the river basin. A key component of the agreements conservancies.) is removal of four privately owned Governor’s Proposal hydroelectric dams along the Klamath River (three in California and one in Appropriates $673 Million From Oregon) that have affected downstream Proposition 1. As shown in Figure 10, the Governor water quality and blocked the migratory proposes appropriating $673 million, or 9 percent path of salmon and other fish species. of total authorized Proposition 1 funding, in The state of California agreed to pay up 2016-17. This is roughly one-third of the amount to $250 million towards the estimated that has already been appropriated. Of this total, $450 million cost of removing the dams, however, only $476 million represents new funding with customers from the utility company proposals. These are detailed in Figure 12 (see that owns the dams contributing the other next page). The remaining $197 million represents $200 million. Over the past several years continuations of efforts initially funded in 2015-16, the company has collected nearly the full consistent with the administrations multiyear $200 million from its utility ratepayers— funding plan. about 90 percent of whom live in Oregon and 10 percent in California. The state Dedicates Funding for Four Statewide has not yet appropriated any funding Commitments. As shown in Figure 12, the for the project. Several components of Governor proposes appropriating the full portion www.lao.ca.gov Legislative Analyst’s Office 25 2016-17 BUDGET workshops, and hearings; Figure 12 and (3) $150,000 from Governor’s New Proposition 1 Proposals Proposition 1 and $50,000 2016-17 (In Millions) from the General Fund Activity Amount to fund the Assistant Statewide Obligations and Agreements $464.9 Secretary of Salton Sea Klamath Hydroelectric Settlement Agreement (CNRA) 250.0 Central Valley Project Improvement Act (CNRA) 89.9 Policy at CNRA, who is Salton Sea Restoration Act (DWR) 80.0 helping to coordinate the San Joaquin River Restoration Settlement Act (DWR, DFW) 45.0 state’s efforts in the region. Los Angeles River Restoration $11.1 The Governor’s Santa Monica Mountains Conservancy 11.1 proposal would not Total $476.0 CNRA = California Natural Resources Agency; DWR = Department of Water Resources; and allocate any funding DFW = Department of Fish and Wildlife. from the Proposition 1 set-aside for statewide of funding for statewide obligations towards four of commitments towards implementing the Tahoe the five commitments mentioned in Proposition 1. Regional Planning Compact—the only statewide This includes $464.9 million in 2016-17 as shown, commitment cited in the bond for which no plus an additional $150,000 each year for the funding is provided. The administration states this next four years for the CVPIA. The remaining is because other funding sources are available to $9.5 million—2 percent of the $475 million—is set implement associated activities, including from aside for bond administration costs. The proposal other portions of Proposition 1—specifically, would provide sufficient funding to fully meet the $15 million for the Tahoe Conservancy; state’s agreed-upon contribution for the Klamath $2 million to the region for integrated regional Hydroelectric Settlement Agreement, and likely water management planning; and eligibility for would be enough to complete the planned dam competitive watershed restoration grants overseen removals. In contrast, the proposed amounts for by DFW. Additionally, the administration notes the other three commitments are expected to fund that the state has invested nearly $700 million just a portion of the state’s remaining obligations. to implement restoration activities related to (As discussed below, the total amount of the state’s the Compact and associated Environmental obligation is not clearly defined for three of the five Improvement Program over the past two decades, potential commitments.) and that other interested parties (including the state In addition to this Proposition 1 funding, the of Nevada and the federal government) must play Governor’s proposal includes $638,000 for staff a significant role in funding continued activities as work on the Salton Sea restoration effort. This well. The Governor’s budget also includes a separate consists of: (1) $300,000 from the General Fund proposal to provide $550,000 from the Lake Tahoe for three existing staff from the DFW to conduct Science and Lake Improvement Account (plus an biological surveys and monitoring activities; additional $400,000 in reimbursement authority) to (2) $138,000 from the General Fund and one new implement activities related to the Compact. position at the State Water Resources Control The administration states that it developed its Board to support related workload, including overall plan for these funds based on an assessment convening and participating in meetings, of the amount needed to meet each obligation, past 26 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET investments made by the state, and the availability Legislature Faces Trade-Offs in Deciding How of other funds. Additionally, the administration to Fund Statewide Commitments. As discussed states that while it is requesting that the Legislature above, the administration has chosen to allocate appropriate the full amount of funding in 2016-17, funding for four of the five statewide obligations it may request to modify the proposed allocation cited in Proposition 1. We find the rationale plan over time based on updates to the status of behind the Governor’s choices to be sound. The the agreements, progress on the projects, or the proposed approach would address some urgent availability of other funding. needs, advance projects the state has identified Provides Funding for Los Angeles River as priorities, and take other funding sources into Restoration. The Governor also proposes making account. We believe, however, that distributing an initial allocation from the $100 million set the funds somewhat differently also would be aside for Los Angeles River restoration projects. reasonable. Additionally, significant uncertainties Specifically, the budget includes $11 million for surrounding some of the commitments raise the Santa Monica Mountains Conservancy for questions as to the specific level of obligations the this purpose. The proposal does not include any state faces. The Legislature could modify (1) which funding for the other conservancy involved in commitments to fund and (2) how much funding this effort, the San Gabriel and Lower Los Angeles to provide for each. Figure 13 (see next page) Rivers and Mountains Conservancy. summarizes important factors to consider for each potential commitment. As indicated in the LAO Assessment figure, we have identified three key considerations Governor’s Proposals Generally Reasonable, for evaluating the trade-offs associated with each but Alternative Approach Could Be as Well. commitment: While the Governor’s new Proposition 1 proposals • Urgency. Some of the commitments generally are reasonable and consistent with carry more pressing implementation bond language, they do not represent the only considerations than others. For example, approach to allocating funding set aside for absent remediation efforts, health statewide commitments and the Los Angeles River. conditions at the Salton Sea will rapidly While our review did not identify any significant deteriorate for both humans and wildlife concerns with the Governor’s approach, there are beginning in 2017 when water transfers increase and runoff into the lake decreases. trade-offs associated with his specific choices. With regard to the Klamath River, parties This is particularly true with regard to allocating have spent many years developing an funding amongst the statewide commitments, for agreement and laying the groundwork for which total needs exceed available funds. Below, dam removal. The administration believes we identify issues for the Legislature to consider as a timely show of the state’s continued it determines how best to apportion funds across commitment to the agreement is a vital the potential commitments. We also highlight step in sustaining this effort, and that considerations for the Los Angeles River restoration delays might further derail the entire plan funding. Finally, we highlight a shortcoming for the Klamath Basin (particularly after with the administration’s plans for reporting on the broader package of agreements failed Proposition 1 outcomes. to receive Congressional ratification). In contrast, the other three commitments www.lao.ca.gov Legislative Analyst’s Office 27 2016-17 BUDGET Figure 13 Factors to Consider in Determining How to Fund Statewide Commitments Klamath Hydroelectric Settlement Agreement (Governor’s Proposal: $250 Million) Estimated State Obligation: $250 million. Urgency: Removing dams is key step in river restoration effort. Proceeding with removal could sustain momentum for implementing broader solutions in Klamath Basin. Responsibility and Funding: State shares responsibility with energy company, which already has secured its share of funding for the project. Governor’s proposed amount would fulfill state’s commitment and likely could fully complete dam removal. Major Uncertainties: Status of overall Klamath Basin approach and commitment of other parties uncertain after Congress opted not to ratify package of Klamath agreements. Central Valley Project Improvement Act (Governor’s Proposal: $89.9 Million) Estimated State Obligation: Unknown. Urgency: Birds and wildlife have had to manage with less than optimal water levels for many years, with situation exacerbated during drought years. Making infrastructure improvements now could help in future droughts. Pace of project implementation depends on amount of available resources. Responsibility and Funding: Federal government has primary responsibility. State can also meet its obligation through in-kind contributions. Level of state contributions could influence level of federal contributions. Major Uncertainties: Amount required to meet state’s current commitment has not been quantified. Salton Sea Restoration Act (Governor’s Proposal: $80 Million) Estimated State Obligation: Unknown, likely in the billions of dollars. Urgency: Lack of action ultimately could have serious consequences for health of nearby residents (air quality) and wildlife (salinity). Conditions likely will begin to deteriorate further beginning in 2017. Responsibility and Funding: State is principal responsible party for addressing restoration needs. Unclear what other funding sources might be available. Total costs likely well in excess of funding currently available. Major Uncertainties: Long-term plan and associated costs for addressing issues has not yet been developed. San Joaquin River Restoration Settlement Act (Governor’s Proposal: $45 Million) Estimated State Obligation: $90 million (remaining from original $200 million commitment). Urgency: Pace of project implementation depends on amount of available resources. Responsibility and Funding: Federal government and local water agency have primary responsibility. State can also make contributions through San Joaquin River Conservancy depending on projects. Level of state contributions could influence level of federal contributions. Tahoe Regional Planning Compact (No Governor’s Proposal) Estimated State Obligation: Unspecified. Urgency: Pace of project implementation depends on amount of available resources. Responsibility and Funding: State shares responsibility with Nevada and other partners. No fixed amount of obligated funding. State can also make contributions through Tahoe Conservancy and regional water planning funds. Additional $550,000 proposed in Governor’s budget from Lake Tahoe Science and Lake Improvement Account. represent multiyear efforts that are each commitment varies. The state holds already underway. Providing additional primary responsibility for implementing funding would help sustain or accelerate the activities associated with just one implementation of these projects—which of the five commitments—Salton Sea do have statewide importance—but does restoration. In this case, state funding is not seem to be an essential component of essential for project implementation. For averting an impending crisis. the other commitments, the state shares responsibility with other parties, and • Responsibility and Funding. The role— in two cases (CVPIA and San Joaquin and potential impact—of state funding in River), the state has a relatively small role implementing the activities associated with 28 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET compared to federal agencies. As such, the clarification of future water allocations). potential impacts of state contributions Additionally, as noted above, the state’s are somewhat dependent upon the level of specific fiscal obligations for the Salton effort put forth by other parties. Moreover, Sea, CVPIA, and Tahoe Compact are the state should not bear more than its unspecified or unknown. As such, how far share of implementing agreed-upon the Governor’s proposal would go towards activities. The relative benefits of funding satisfying the state’s obligations or fulfilling a particular commitment should be overall project objectives also is unclear. weighed against both contributions made Governor’s Overall Funding Plan for Los by other partners and potential alternative Angeles River Lacks Some Detail. The Legislature funding sources. For example, with regard faces both budget-year and out-year decisions to the Klamath agreement, the additional regarding how to approach another section of funding necessary to remove the dams remaining Proposition 1 funding—$100 million has already been collected, meaning the for Los Angeles River restoration projects. While state contribution could result in project the Governor’s budget includes a proposal for completion. In contrast, the effects of state funding in implementing the CVPIA and 2016-17, key details regarding how he proposes the Tahoe Compact are less clear, given to allocate funds in future years remain unclear. that total project scope and costs remain The Governor’s multiyear “rollout plan” would unclear or undefined. The administration provide roughly $19 million for Los Angeles River believes providing state funding will projects in each of the next four years (beginning in help spur additional federal spending for 2017-18). However, it does not specify how it would CVPIA and the San Joaquin River. As apportion funds between the two conservancies. noted in Figure 13, additional state funding This lack of clarity over intended funding amounts is available from other sources for the and timing prohibits the conservancies from Tahoe Compact and potentially for the developing longer-term approaches for their San Joaquin River (through the related restoration efforts. conservancy). Administration’s Reporting Approach • Major Uncertainties. Key information Provides Considerable Information, but Can Be regarding three of the commitments Difficult to Digest. We are concerned that a lack of included in the Governor’s proposal consolidated information on bond-funded projects still is unknown, making evaluating will make it somewhat difficult for the Legislature and quantifying the potential impacts to oversee Proposition 1 implementation. As noted of providing the funding somewhat earlier, Proposition 1 requires the administration difficult. Specifically, the overall status to report on program and project expenditures of the Klamath River Basin agreements on its website, and the website also includes is extremely uncertain after Congress fields for reporting on specific project outcomes. opted against ratifying them. Many The website is relatively easy to navigate, and questions remain about the efficacy the administration should be commended for and implications of implementing one portion of the agreements (dam removal) the amount of information it plans to make without commitments to fulfill the available. Such information is vital in enabling others (including restoration work and the Legislature and public to track distribution www.lao.ca.gov Legislative Analyst’s Office 29 2016-17 BUDGET of bond funds and understand what benefits Priorities. We recommend the Legislature develop expenditures achieve. The large volume of available a multiyear plan for allocating funding for Los information, however, can make it difficult to Angeles River restoration efforts that specifies how obtain a comprehensive picture of implementation, much it plans to appropriate each year to each of particularly with regard to project outcomes. While the two conservancies involved. This would enable Proposition 1 projects are still being selected and the conservancies to develop longer-term strategies as such have not yet been posted to the website, the for implementing their restoration activities. As Proposition 84 website provides an example of how a component of its plan, the Legislature could information will ultimately be portrayed. Some consider providing more—or less—total funding performance metrics can be viewed by accessing for restoration projects in 2016-17, and/or also links for individual projects, but no compilation providing some funding in the budget year for the of measurable outcomes or achievements is San Gabriel and Lower Los Angeles Rivers and provided. The administration will provide biannual Mountains Conservancy for projects on the lower reports tracking bond allocations, but does not portion of the river. currently plan to provide summary updates or Require Administration to Submit comprehensive status reports on Proposition 1 Annual Summary Report on Proposition 1 project outcomes. Implementation. We also recommend that the Legislature require the administration to LAO Recommendations submit an annual status update on Proposition 1 Allocate Funding Across Statewide summarizing funded activities and outcomes. Commitments Consistent With Legislative Specifically, we recommend this report include a Priorities. We recommend the Legislature allocate summary of major activities, accomplishments, funding across the potential statewide obligations challenges, and outcomes, as well as appropriations in a way it believes best meets statewide needs. and encumbrances. Outcome reporting should Based on careful consideration of the trade-offs include a compilation of measurable performance discussed above, this might involve modifying the data (such as the volume of water desalinated Governor’s proposed approach. For example, if or acres of wetland preserved), and how actual the Legislature is especially concerned about the outcomes compared with the intended outcomes urgency of addressing the rapidly deteriorating that were identified in projects’ grant applications. environmental conditions at the Salton Sea, it Adopting this recommendation likely would not may opt to provide additional funding for those require departments to collect any additional data; restoration efforts beyond what the Governor has however, the administration would have to compile proposed. As another example, if the Legislature and summarize the available information. has reservations about appropriating funding for Such a report would provide a consolidated, removing dams on the Klamath River in light single source of information on the implementation of the uncertainty surrounding other basinwide of Proposition 1, and the discussion of agreements, it could set aside the $250 million to accomplishments and challenges would exceed potentially appropriate in the future when related what currently is included on the administration’s commitments have been more clearly defined. website. We believe this type of report would both Develop Multiyear Plan for Funding Los facilitate legislative oversight and help inform Angeles River Restoration That Reflects Legislative subsequent decisions for how best to implement 30 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET future allocations of Proposition 1 funding. • Control and abatement of air pollution. Moreover, such information could help shape • Acquisition, preservation, and restoration potential future bonds or state programs by of natural areas or ecological reserves. identifying lessons learned, as well as the programs and practices that were (and were not) successful at • Purchase of real property for park purposes. achieving desired outcomes. Continue Ongoing Oversight, Modify Course • Environmental education. if Needed. We recommend the Legislature • Protection of nongame species and continue to monitor Proposition 1 through threatened and endangered plants and oversight hearings and information provided by animals. stakeholders and the administration (for example, through the report we recommend above). • Protection, enhancement, and restoration While the Legislature has approved most of the of fish and wildlife habitat, and related administration’s multiyear funding plan, it has the water quality. authority to revisit this approach each year via the • Reduction of the effects of soil erosion and annual budget act if it has concerns about bond the discharge of sediment into the waters of implementation. the Lake Tahoe region. Environmental • Scientific research on the impacts of License Plate Fund climate change on California’s natural resources and communities. LAO Bottom Line. The Governor’s budget As shown in Figure 14 (see next page), the state provides one reasonable package of options to spent $41.5 million from the ELPF in 2014-15. The address the Environmental License Plate Fund fund currently supports activities in more than (ELPF) structural deficit, but the Legislature has 20 state departments, boards, conservancies, and other available options. We recommend that it commissions. approve a funding package based on its priorities Higher Ongoing Spending and Slow Growth for how spending reductions and/or fee increases in Revenues Resulted in a Structural Deficit. In should be borne. each of the past couple years, the administration Background has identified a structural deficit in the ELPF. Based on our review of recent ELPF expenditures The ELPF was established in 1979 to fund and revenues, we estimate that the fund has an various resources and environmental protection underlying structural deficit of about $9 million programs. The fund is primarily supported from annually. This deficit is primarily caused by the sale and renewal of personalized motor vehicle (1) slower-than-expected growth in revenues license plates, as well as a portion of fees on the from the sales of personalized license plates since sale and renewal of certain specialty plates (such as the early 2000s (and even some declines in more “Whale Tail” plates). Roughly 800,000 personalized recent years) and (2) increases in expenditures license plates are issued or renewed annually. over the past couple years due to rising employee Existing state law restricts the use of ELPF monies to compensation and administrative costs. program administration and the following purposes: www.lao.ca.gov Legislative Analyst’s Office 31 2016-17 BUDGET Tahoe Regional Planning Figure 14 Agency from ELPF to the ELPF Is Used to Support Many Departments General Fund, (2) shifting (In Thousands) $3 million in funding for Department 2014-15 the Department of Parks Fish and Wildlife $15,511 and Recreation (DPR) Conservancies (ten) 9,556 to the State Parks and Secretary of the Natural Resources Agency 3,419 Tahoe Regional Planning Agency 3,998 Recreation Fund (SPRF), Parks and Recreation 2,713 (3) funding the second Delta Protection Commission 866 year of the 4th Climate Office of Environmental Health Hazard Assessment 781 Delta Stewardship Council 604 Assessment with General Water Resources 773 Fund instead of ELPF, and Pesticide Regulation 461 (4) shifting funding for Forestry and Fire Protection 432 Education 403 some DFW permitting California Conservation Corps 320 activities to the Fish and Wildlife Conservation Board 281 Game Preservation Fund Other 1,375 Total $41,493 (FGPF). ELPF = Environmental License Plate Fund. New Fee Proposed to Offset Increased Governor’s Proposal Costs to the FGPF. The The Governor’s budget proposes several administration proposes implementing a new fee to changes to address the above shortfalls in the cover some of the costs associated with processing ELPF, as summarized in Figure 15. These include California Endangered Species Act (CESA) both shifting certain costs to other state funds, incidental take permits. These permits are required as well as increasing the personalized plate fee by for projects that might result in the “take”— about 5 percent. The administration projects these generally, the killing or harm—of an endangered or changes will result in $12.5 million in savings in threatened species, and are processed by DFW. The 2016-17 and $12 million in ongoing savings after fee would offset some of the costs associated with 2016-17. Figure 15 Most Savings Achieved Governor’s Proposal to Address the ELPF Shortfall Through Fund Shifts. The budget proposes to (In Thousands) reduce expenditures from Esitmated Savings the fund by $11 million in Action 2016-17 Ongoing 2016-17 and $9.5 million Shift funding for TRPA to GF $3,998 $3,998 ongoing by shifting support Shift DPR expenditures to SPRF 3,000 3,000 Shift second year funding for Climate Assessment to GF 2,500 — for several programs to Implement CESA permit fee and shift DFW costs to FGPF 1,500 2,500 other funding sources. Increase plate fee by 5 percent 1,500 2,500 The proposal includes Total Savings $12,498 $11,998 the following fund shifts: ELPF = Environmental License Plate Fund; TRPA = Tahoe Regional Planning Agency; GF = General Fund; DPR = Department of Parks and Recreation; SPRF = State Parks and Recreation Fund; CESA = California Endangered Species Act; (1) shifting funding for the DFW = Department of Fish and Wildlife; and FGPF = Fish and Game Preservation Fund. 32 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET processing these permits. Fee revenue would be Legislature could increase the plate fee beyond the deposited in the FGPF, and ELPF support for DFW level proposed by the Governor, or could index the would be reduced by a commensurate amount. fee for inflation in order to better ensure that revenue keeps pace with growth in employee compensation LAO Assessment and administrative costs. However, this option Governor’s Proposal Offers One Reasonable increases costs for the buyers of personalized plates Option to Address Shortfall . . . The proposal even more than the administration’s proposal does, provides a reasonable approach to addressing the and, if the fee is increased significantly, could result deficit without reducing funding for supported in fewer plate sales. programs. Yet, the specific package of changes Third, the Legislature could shift programs proposed has trade-offs. For example, while shifting other than those proposed by the Governor to other DPR support from ELPF to SPRF creates savings in funds. As shown in Figure 16, several programs the ELPF, it worsens the existing structural deficit funded by ELPF were once supported by another in SPRF. (The budget also includes a one-time shift funding source—usually the General Fund. Other of $31 million in motor vehicle fuel tax revenue that new programs were also added since 2002. The would otherwise go to the Off-Highway Vehicle Legislature could shift some of these programs to Trust Fund to SPRF to address that fund’s deficit in the General Fund depending on its other budgetary 2016-17.) The proposal also results in higher costs priorities and if it has higher priorities for the ELPF. to the General Fund, buyers of personalized license There also could be alternative special funds plates, and entities doing projects that require a available for a couple activities. For example, it CESA incidental take permit. might be possible to fund some activities within . . . But There Are Other Alternatives Available. the California Environmental Protection Agency or The Legislature has several choices regarding CalFire with special funds. However, other special how to address the ELPF shortfall. First, the funds have competing demands, and shifting Legislature could reduce funding for any of the program support to these funds could impact their programs currently supported by ELPF. Second, the ability to support other activities. Additionally, the Figure 16 Departments With Programs Recently Added to the Environmental License Plate Fund (In Thousands) At Time Previous Department Year Transferred Current Funding Source Secretary for Resources 2002 $2,300 $4,203 General Fund California Tahoe Conservancy 2002 2,800 3,582 General Fund Fish and Wildlife 2002 —a —a Public Resources Account/General Fund Tahoe Regional Planning Agency 2002 3,000 3,998 General Fund Sierra Nevada Conservancy 2005 4,406 4,406 New program Fish and Wildlife 2005 500 500 Marine Life and Marine Reserve Account Ocean Protection Council 2005 1,200 1,300 New program Delta Stewardship Council 2009 792 792 New program Sacramento-San Joaquin Delta Conservancy 2009 77 77 New program Totals $15,075 $18,858 a The administration was unable to identify a specific dollar amount due to other fluctuations in the Department of Fish and Wildlife’s budget that occurred simultaneously. www.lao.ca.gov Legislative Analyst’s Office 33 2016-17 BUDGET Legislature will want to ensure that any activities to address the deficit. There are others—as we shifted are appropriate for the alternative funding discussed above—that could be considered. Each source. option, however, has trade-offs. We recommend Understanding Trade-Offs Key to Choosing that the Legislature choose a package of savings an ELPF Funding Package. As it considers an that is most consistent with its priorities, which ELPF funding package, the Legislature could requires policy decisions about where the substitute any of the alternative options we Legislature wants certain costs to be borne and the identify in place of ones in the administration’s support levels for various programs. To the extent proposal. As described above, each of the options that the Legislature is interested in shifting some available to the Legislature comes with trade-offs, activities to other special funds to achieve savings, in many cases regarding who—personalized plate we recommend requiring the administration purchasers, general taxpayers, or fee payers into to provide more specific information at budget other funds, for example—will bear the associated hearings on ELPF-supported environmental costs. Implicitly, in choosing a funding package, the protection and forestry activities in order to Legislature will be making choices about who will determine if other fund sources are appropriate. bear those costs. Prioritize Expenditures for Potential We also note that the additional options we Shortfalls in Future. We also recommend that identify could be utilized to generate additional the Legislature reevaluate ongoing spending savings above those identified by the Governor. priorities for the ELPF in statute to ensure the best These additional savings could then be directed use of this limited fund. There are several options to new activities or programs of high priority. available. For example, uses of the fund could be Alternatively, the Legislature could choose to placed in preference-based order in statute so that enact a package that results in lower savings than the Legislature’s highest priorities are clear. This proposed by the Governor. We note, for example, could involve creating “funding buckets” that that the Governor’s proposal is projected to result receive revenue in a specified order as money is in $12 million in ongoing savings—$3 million more available, so that the highest priorities are protected than the current structural deficit. Savings of this from shortfalls and lower priorities are funded amount could result in an increasing fund balance only when additional revenues are available. The in the longer term. However, the Legislature could Legislature could also narrow the statutory uses of also choose a somewhat higher level of spending the ELPF to more specific goals or programs and compared to the Governor, rather than continue to eliminate from statute those uses deemed no longer build the fund balance. While this option increases of high priority. funding available for environmental activities, Summary of reducing the out-year savings level could contribute New Natural Resources to shortfalls in the future to the extent that revenues Capital Outlay Projects declined or expenditures increased significantly. The Governor’s budget proposes $4.1 million LAO Recommendations in funding for the acquisition and planning phases Adopt Funding Package Based on Legislative for nine new capital outlay projects for three Priorities. We find that the Governor provides departments within CNRA, as shown in Figure 17. a reasonable approach, but it is just one option Projects include construction of three residential 34 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET centers for CCC, the replacement and installation an important state need for several CNRA of CalFire telecommunications infrastructure at departments, the proposal lacks important seven sites, and a campground replacement and details. We recommend the Legislature require wetland restoration project at McGrath State Beach. the administration to submit specific lists of Total costs for completion of all proposed projects projects that would be undertaken with the is expected to be $147 million. proposed funding, then adopt a funding package The Governor proposes funding the projects that reflects its priorities. We also recommend the from various sources, including a total of administration report on the causes of and planned $55.6 million from the General Fund ($2.1 million strategy for addressing the deferred maintenance in 2016-17). In addition, a total of $84.8 million backlog at CNRA departments. would be funded from bond funds—lease revenue Background bonds, Proposition 84 (2006), or Proposition 40 (2002)—which will be paid back with interest Natural Resources Departments Responsible from the General Fund over a few decades. For for Maintenance of Many Physical Assets. Many most of the projects proposed, we do not have state departments own and operate facilities any specific concerns. However, for additional and other types of infrastructure. Figure 18 (see comments about the CCC projects, please see our next page) illustrates the considerable amounts analysis of the department’s budget proposals later of property and physical assets held by several in this report. large departments within CNRA. As shown, this includes nearly 1,600 miles of Central Valley levees Deferred Maintenance managed by DWR; thousands of miles of trails and LAO Bottom Line. While the Governor’s tens of thousands of campsites and other facilities deferred maintenance proposal addresses spread over 1.6 million acres of park land managed Figure 17 New Resources Capital Outlay Projects Proposed (Dollars in Thousands) 2016-17 2016-17 Total Project Funding Phase Project Cost Fund Source California Conservation Corps Napa: new residential center $200 A $28,000 General Fund, PBCF Pomona: new residential center 100 A 28,020 General Fund, PBCF Ukiah: residential center replacement 100 A 28,020 General Fund Department of Forestry and Fire Protection Statewide: communications facilities 1,677 P 21,348 General Fund Department of Parks and Recreation El Capitan State Beach: entrance improvements 358 P 3,430 Proposition 84 bonds Topanga State Park: rebuild Trippet Ranch parking lot 316 P 3,798 Proposition 84 bonds McArthur-Burney Falls State Park: group camp development 62 P,W 928 Reimbursements McGrath State Beach: campground relocation and wetland 1,029 P 27,790 Proposition 40 bonds restoration Prairie City State Vehicular Recreation Area: initial erosion control 275 P 5,522 OHV Trust Fund Totals $4,117 $146,856 A = acquisition; P = preliminary plans; W = working drawings; PBCF = Public Buildings Construction Fund; and OHV = Off-Highway Vehicle. www.lao.ca.gov Legislative Analyst’s Office 35 2016-17 BUDGET by DPR; nearly 250 ecological reserves and wildlife up the Central Valley flood control system are over areas held by DFW; nearly 300 fire stations, camps, 100 years old; do not meet current engineering and bases used by CalFire to combat forest fires; design criteria; and have been structurally and seven CCC residential centers. compromised by erosion, rodents, vegetation, and Maintenance Needs Are Significant. pipe penetrations. Similarly, roughly three-fourths Maintaining this infrastructure is the responsibility of CalFire’s facilities were built prior to 1950 and of each department. Maintenance needs are most of them have exceeded the 50-year operational driven by the number, age, types, and uses of a period for which they were designed. This has department’s assets. As illustrated in Figure 18, resulted in a high rate of facility deterioration, many CNRA departments have a large quantity which drives increases in maintenance costs. In of diverse assets, contributing to significant addition, many facilities were not designed for the maintenance needs. Additionally, as is the case for amount and type of use required of them today. much of California’s public infrastructure, many For example, the older park units operated by DPR of these facilities were built a long time ago. For were designed for far fewer visitors when they were example, many of the levees and channels making constructed. This contributes to deterioration and damage of many park properties and facilities, Figure 18 Resources Departments: Key Assets Maintained thereby necessitating more frequent repairs and Holdings Quantity modifications. Department of Water Resources (Central Valley Flood Control System) Deferred Linear feet of bank protection More than 800,000 Acres of channels and floodways 348,000 Maintenance Is a Chronic Miles of levees 1,595 Issue. Facilities require Flood control structures 55 routine maintenance Department of Parks and Recreation Acres of land 1,613,413 and repair to keep them Campsites 14,421 in acceptable condition Archeological sites 10,271 and to preserve and Picnic sites 7,647 Miles of non-motorized trails 4,456 extend their useful lives. Historic buildings 3,375 When such maintenance Cabins and other overnight facilities 709 is delayed or does not Miles of motorized trails 579 Park units 280 occur, we refer to this as Department of Fish and Wildlife deferred maintenance. If Acres of land 1,146,073 maintenance is routinely Ecological reserves 136 Wildlife areas 111 delayed—due to a lack of Fish hatcheries 20 funding or resources, the Department of Forestry and Fire Protection diversion of maintenance Fire stations 228 Communications towers 112 funding to other priorities, Lookouts 66 poor maintenance Conservation camps 39 practices, or growth in Air and helitack bases 22 California Conservation Corps maintenance costs—a Residential centers 7 backlog of deferred 36 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET maintenance forms and grows. As discussed below, proposal would significantly increase the level CNRA departments have identified a large backlog of deferred maintenance funding for the two of deferred maintenance needs. Departments state CNRA departments that received such funds in that this backlog has developed from a combination the current year—from $22 million in 2015-16 to of increasing maintenance costs (due to aging $68 million in 2016-17. As we discuss below, most infrastructure) and insufficient resources (partially departments have submitted lists of all of their due to funding reductions during the recession). identified deferred maintenance needs, but which The 2015-16 budget provided $22 million on a of those projects would be prioritized has not yet one-time basis to address deferred maintenance been specified. needs at two resources departments, as discussed Largest Share of Funding Is for Flood below. Protection. While funding for most departments displayed in Figure 19 would be used for various Governor’s Proposal unspecified deferred maintenance needs, the $187 Million for Deferred Maintenance Governor proposes to target the largest proposed Within Resources Departments. Figure 19 allocation ($100 million to DWR) for a specific details the Governor’s 2016-17 proposal to type of project—levee maintenance and enhanced provide $187 million from the General Fund flood protection. This funding would be focused on a one-time basis for deferred maintenance primarily on components of the State Plan of across seven departments within CNRA. This is Flood Control (SPFC) system in the Central Valley, a subset of a larger proposal to provide a total of which includes levees, channels, and facilities along $500 million for deferred maintenance across 24 the Feather, Sacramento, and San Joaquin rivers. statewide departments. (We discuss the Governor’s Although the state holds ultimate responsibility overall deferred maintenance proposal—affecting and liability for the SPFC infrastructure, the state both CNRA and other state departments—in tasks local flood control agencies with maintaining greater detail in our report, The 2016-17 Budget: the majority of its levees. Governor’s General Fund Deferred Maintenance Also in contrast to the other departments that Proposal.) As shown in the figure, the Governor’s would receive deferred maintenance funding, DWR Figure 19 Deferred Maintenance Funding and Needs for Resources Departments General Fund (In Millions) State Entity 2015-16a 2016-17 Proposed Identified Needsb Water Resources (flood control) — $100.0 $13,100.0 Parks and Recreation $20.0 60.0 1,150.0 Fish and Wildlife — 15.0 21.0 Forestry and Fire Protection 2.0 8.0 18.2 Science Center — 3.0 9.5 Conservation Corps — 0.7 0.7 San Joaquin River Conservancy — 0.2 0.2 Totals $22.0 $187.0 $14,299.6 a Includes $2 million in one-time General Fund for Department of Forestry and Fire Protection deferred maintenance projects that was included in Chapter 1 of 2015 (AB 91, Committee on Budget). b As identified in the 2016 California Five-Year Infrastructure Plan. www.lao.ca.gov Legislative Analyst’s Office 37 2016-17 BUDGET has proposed a general approach for allocating the a list of projects to the Joint Legislative Budget funds, rather than providing a comprehensive list Committee (JLBC) 30 days prior to allocating of potential projects. Specifically, the department associated funds. The proposal further requires indicates it would allocate the proposed funding as DOF to notify the JLBC quarterly regarding any follows: changes to the approved list of projects. • $50 million to local agencies that maintain LAO Assessment SPFC levees, allocated proportionally based on the number of levee miles for which While the Governor’s deferred maintenance each agency is responsible. Projects would proposal addresses an important state need, be identified by the agencies and approved the proposal lacks important details that would by DWR. allow the Legislature to evaluate the specific funding allocations and understand how deferred • $40 million on a competitive grant basis to maintenance funding is affecting the accumulated local flood control agencies from around the state (not just the Central Valley) to address backlog. Below, we discuss our specific concerns. levee erosion, maintain channels, and Proposal Addresses Clear Problem. We believe repair facilities, with a focus on maximizing the Governor’s focus on addressing deferred protection of nearby public assets. maintenance is positive. The state has invested many billions of dollars in its infrastructure • $10 million for DWR to repair SPFC assets—which play critical roles in the state’s facilities, purchase equipment, and conduct economy and overall well-being—and has a strong property rights surveys to define which interest in ensuring they are maintained in safe areas are the state’s responsibility. working order. Continuing to neglect maintenance In addition to this one-time funding for flood- needs eventually can result in more expensive related deferred maintenance, the Governor’s obligations, such as emergency repairs (when budget also proposes $11.5 million in ongoing systems break down), capital improvements (such General Fund support for DWR to conduct levee as major rehabilitation), or replacement. Moreover, maintenance and flood response activities. This in some instances the state could be liable for funding would reinstate the full amount of General potentially catastrophic consequences resulting Fund support that during the recession was from neglected maintenance, such as if SPFC levees partially eliminated and partially shifted to bond located near highly populated areas were to breach funds. during a flood event. Reporting of Projects Required Prior to As shown in Figure 19, CNRA departments Expenditures. Rather than appropriating the have identified a deferred maintenance backlog deferred maintenance funding within individual of over $14 billion. While the Governor’s departments’ budgets, the Governor proposes to proposal would fund just a small portion of allocate the funds through a budget control section. identified maintenance needs for DWR flood (This approach is also being used in 2015-16.) control infrastructure (less than 1 percent) and Control Section 6.10 does not identify the specific DPR (5 percent), it would address a large share projects that departments would undertake with (71 percent) of identified deferred maintenance the proposed funding. Instead, the budget requires needs for DFW, and all identified needs for the Department of Finance (DOF) to provide CCC and the San Joaquin River Conservancy. 38 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET The proposal would also make some progress including fire, life, safety; water and wastewater; on addressing the identified backlog for CalFire drought (dead and dying trees); and coastal erosion (44 percent) and the Science Center (32 percent). and climate change mitigation. Based on our Limited Information on How Projects Would review of DPR’s deferred maintenance list, however, Be Prioritized. While the administration has there appear to be many more projects that fit these provided lists of deferred maintenance projects criteria than can be completed with the proposed making up the total funding need displayed in funding. How the department will select among its Figure 19, it has not provided a list of the specific higher priority projects is unclear. projects (by department) it would undertake Proposal Does Not Address Underlying with the proposed 2016-17 funding. This lack of Problems. Providing one-time funding, specificity makes it difficult for the Legislature while a positive step in addressing the state’s to evaluate whether these projects would address accumulated deferred maintenance backlog, the highest state priorities. For example, the is only a short-term solution if facilities are Legislature may wish to prioritize funding certain not maintained in subsequent years. For most types of projects (such as those that address departments, the administration has not identified fire, life, and safety issues) over other types of a long-term plan for working through the rest seemingly less urgent projects (such as such as new of the deferred maintenance backlog. Moreover, carpets and interior painting proposed by CCC). the administration generally does not include Similarly, a comprehensive prioritized list of levee an assessment of, or a plan to address, the maintenance needs might lead the Legislature to underlying causes of the accumulation of deferred prioritize funding for repairs on the most risky maintenance. Without such a strategy, departments or compromised stretches of SPFC levees, rather may not have the necessary tools or resources to than spreading funding proportionally across address the underlying causes of their deferred the entire system as proposed by DWR. (While maintenance backlogs, or to ensure that such DWR has provided more information than some problems do not get worse. The proposal to provide other departments about how it would allocate the $11.5 million in ongoing General Fund support for proposed funding, it has not yet provided a list of DWR’s flood-related operations and maintenance is the specific projects it would fund.) We also note one notable exception. that the Legislature might prefer to prioritize DPR Notification Process for Projects Is Inadequate. projects that could increase the amount of park As indicated above, the Governor’s proposal does fees collected, given that the Legislature has sought not require the identification of specific projects opportunities for revenue enhancement at state prior to passage of the budget or prior to changing parks in recent years. the approved projects list. Instead, Control Section At the time of this analysis, most departments 6.10 includes a JLBC notification process. This still were in the preliminary stages of determining approach raises a few concerns. First, the process how they might use the proposed deferred would identify projects proposed for funding after maintenance funding. Some departments have the Legislature has made its decisions on the budget. identified general criteria they would use to This would divorce decision making on the amount prioritize projects. For example, DPR indicates that of funding provided to each department from the it would focus on projects that could be completed set of projects to be funded. As a result, the funding within two years and that support core functions, amounts might not correspond with the projects www.lao.ca.gov Legislative Analyst’s Office 39 2016-17 BUDGET that would be prioritized by the Legislature. Second, Finally, if departments are unable to provide the proposed JLBC process provides the Legislature project lists by April 1, 2016 or are unable to with less time to review proposed projects than the justify their proposed projects to the Legislature’s traditional budget process and is less transparent satisfaction, we recommend that the Legislature to the public. For this reason, the JLBC process reject the administration’s proposed funding for typically is reserved for midyear changes to the those specific departments. budget rather than for the initial identification of Require Individual Departments to Report projects proposed for funding. Third, the proposed at Budget Hearings. We also recommend the process to allow the administration to move forward Legislature use its budget hearings to gather more with changes to funded projects without legislative information regarding what factors led to the approval would diminish the Legislature’s control accumulation of deferred maintenance for specific over how the funds are spent and could result in departments. This would enable the Legislature to the funding of projects that are not consistent with better assess the nature of the backlog and assist legislative priorities. it in crafting policies to ensure that departments effectively manage their maintenance programs on LAO Recommendations an ongoing basis. Furthermore, we recommend that While we believe addressing the state’s deferred the Legislature seek information on departments’ maintenance backlog has merit, we recommend longer-term plans for (1) addressing accumulated that the Legislature request additional information deferred maintenance backlogs and (2) ensuring before approving the Governor’s funding that appropriate ongoing maintenance is sustained proposals, and that it use a different approach for so that deferred maintenance does not continue to appropriating the funds. We discuss our specific accumulate. recommendations below. Require Projects Be Listed in Supplemental Require Lists of Proposed Projects, Adopt Report. Because we recommend that departments Package That Reflects Legislative Priorities. be required to provide lists of proposed projects by We recommend the Legislature require the April 1, 2016 and that the Legislature reject funding administration to provide lists of specific projects for departments that fail to provide these lists, we that would be funded by each department. These believe the proposed language requiring a report lists would enable the Legislature to assess whether to JLBC prior to allocating funds is unnecessary. the proposed projects align with its priorities. In Instead, we recommend that all projects approved order to enable the Legislature to consider the lists by the Legislature be included in the Supplemental during its budget deliberations, we recommend the Report of the 2016-17 Budget Package. We administration provide the required information recognize there will likely be some instances by April 1, 2016. when departments have reasonable rationales for If the Legislature is comfortable with these changing the projects on their proposed lists after lists, we recommend approving them as proposed. the budget is adopted. We therefore recommend If, however, the lists include projects that it deems including control section language that allows to be of lower priority—such as those that address departments to modify their proposed lists. aesthetic rather than health and safety issues—we However, we recommend that the language require recommend the Legislature adjust the funding that these changes occur no sooner than 30 days levels proposed for departments accordingly. after notifying the JLBC. 40 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET DEPARTMENT OF FORESTRY AND FIRE PROTECTION CalFire, under the policy direction of the employee behavior. The department also is Board of Forestry and Fire Protection, provides fire required to conduct internal administrative protection services directly or through contracts investigations under specific circumstances, such for timberlands, rangelands, and brushlands owned as whenever a formal complaint is filed against a privately or by state or local agencies. These areas peace officer or when a complaint or suspicion of of CalFire responsibility are referred to as “state employee misconduct is filed via the California responsibility areas” and represent approximately Whistleblower’s Protection Act. In addition, one-third of the acreage of the state. In addition, CalFire, in compliance with statute, requires CalFire regulates timber harvesting on forestland background investigations on all public safety owned privately or by the state and provides a dispatchers, peace officers, public officers, and variety of resource management services for owners Emergency Medical Technicians. of forestlands, rangelands, and brushlands. Currently, CalFire does not have a unit The Governor’s budget proposes $1.6 billion dedicated specifically to these responsibilities from various funds for support of CalFire in and reports that some of these functions are 2016-17. This is an increase of $177 million, performed in the field with minimal oversight and or 12 percent, from current-year estimated redirected staff. When investigations become too expenditures. This is primarily due to an increase complex to pursue with existing resources, CalFire of $180 million from the GGRF for forest health contracts with another department to perform the and urban forestry activities that reduce GHGs. investigation. In contrast, some other departments (This proposal is discussed in our analysis of the have designated units that perform these activities. Governor’s cap-and-trade expenditure plan earlier For example, within CNRA, DPR and DFW have in this report.) units that conduct internal investigations. Professional Standards Program Governor’s Proposal LAO Bottom Line. We recommend that The Governor’s budget proposes $4.4 million the Legislature approve the proposed funding ($3.7 million ongoing) primarily from the General for a new professional standards program on a Fund and 14 permanent positions to establish a three-year limited-term basis—rather than on an professional standards program in headquarters, ongoing basis as proposed—in order to allow the which would include a unit to provide additional department to evaluate the program’s ongoing oversight for internal investigations and adverse workload and effectiveness after it has been in place actions, as well as expand manager and supervisor for a period of time. training. The proposed positions would conduct administrative and background investigations, Background provide more training to managers and supervisors, State law has various mechanisms in place and develop guidelines to promote consistent intended to minimize employee misconduct application of penalties. Under the proposal, and to respond to such misconduct when it much of the proposed workload in 2016-17 would occurs. The department conducts administrative focus on developing new disciplinary policies investigations in response to concerns regarding and processes, as well as training all department www.lao.ca.gov Legislative Analyst’s Office 41 2016-17 BUDGET managers and supervisors on implementing how the creation of a new professional standards these procedures. After 2016-17, the nature of unit will affect the ongoing workload because the workload would shift to focusing on ongoing some of the unit’s activities could influence the training, document review, routine investigations, number of required investigations or adverse actions and oversight. The program is in part a response to undertaken. For example, if the improved education recent concerns regarding the department’s hiring and training successfully prevent misconduct in and promotion practices and other allegations of the future, the new unit might have fewer cases of employee misconduct. employee misconduct to process in the long run. Specific Staff Needed in Long Run Unclear. LAO Assessment Third, because the make-up of activities is We find that it is reasonable for the department proposed to shift, the number and classifications to standardize its policies and procedures, increase of staff might not be appropriate for the ongoing its oversight of activities in the field, and make its workload. For example, it is not clear that the training program more robust. However, we find same classifications needed to undertake policy that the ongoing workload for the new program is development and training are best suited for the unclear for several reasons. ongoing investigations workload. Estimate of Future Workload Uncertain. First, LAO Recommendation the proposed program is new, and its estimated ongoing workload is a projection based on recent Approve Request on Limited-Term Basis. workload. While this serves as a reasonable starting Given the uncertainty about the department’s point for estimating future workload, actual ongoing workload related to the new professional ongoing workload might change. For example, the standards program, we recommend that the number of investigations in recent years might Legislature approve the additional ongoing be above average due to increased concerns that resources proposed on a three-year limited-term arose from a high-profile case and related events basis. This timeframe would allow the department over the past couple of years. Basing the ongoing to fully implement the program over a period of workload on the number of investigations in recent time before evaluating the program’s ongoing years could overestimate the program’s needs. In workload needs. This would also provide an addition, the number of background investigations opportunity for the Legislature and administration could fluctuate based on future position authority to evaluate the effectiveness of the proposed and vacancy rates. program before committing ongoing resources. Impact of New Professional Standards Unit on Ongoing Workload Unclear. Second, it is unclear DEPARTMENT OF PARKS AND RECREATION The state park system, administered by DPR, historical sites, and rare ecological reserves. The contains 280 parks and serves over 75 million size of each park also varies, ranging from less visitors a year. State parks vary widely by type than one acre to 600,000 acres. In addition, many and features, including state beaches, museums, parks have their own campsites, water and waste 42 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET water systems, generators or power supply, visitor (such as the use of overnight campsites). information centers, and ranger stations. The SPRF also receives revenue from For 2016-17, the Governor’s budget proposes contracts with state park concessionaires $608 million in total expenditures for the that provide certain services, as well as some revenue from the Highway Users department. This includes $483 million for state Tax Account and the Motor Vehicle Fuel park operations and facilities, and $125 million Account for constructing and maintaining for local assistance grant programs. The proposed highways in state park units. budget total represents a decrease of $112 million, or 16 percent, below the estimated level of • General Fund. With a few exceptions, state current-year spending for state parks. This in large parks cost more to operate and maintain part reflects one-time capital outlay spending in than they currently generate in revenue. 2015-16. For this reason, the state park system is partly funded from the state General Fund. Motor Vehicle Fuel The annual state budget has provided Account Transfer about $117 million in General Fund for support of DPR in each of the past couple LAO Bottom Line. Another one-time budget years. However, as we discuss in more augmentation to maintain DPR’s current operations detail below, the amount of General Fund level as proposed by the Governor makes sense, but support for the parks has declined since the Legislature will need to make a policy decision 2006-07. regarding whether to fund such an augmentation • OHV Trust Fund. The department also from a special fund benefiting off-highway vehicle receives roughly $90 million annually (OHV) recreational users or the General Fund. from the OHV Trust Fund for the support We also recommend the Legislature require DPR of the Off-Highway Motor Vehicle to report on the status of various budgetary and Recreation Division of DPR. Revenue for programmatic reforms at budget hearings this the OHV Trust Fund primarily comes spring. from (1) fuel taxes that are attributable to the recreational use of vehicles off highway, Background (2) OHV registration fees, and (3) fees Major Funding Sources for State Parks. The collected at State Vehicular Recreation state park system receives funding from many Areas (SVRAs). This fund primarily is sources. The major sources for funding include: spent to operate and expand the state’s • SPRF. In recent years, the department’s eight SVRAs, to acquire land for new largest fund source has been SPRF, SVRAs, and make grants to agencies for which has provided roughly one-third OHV trails on other public lands. of the department’s funding. The fund • Other Funds. State parks also receive is supported primarily by revenues support from various special funds, collected from fees charged to park users including revenue from the state boating to help support various operation and gas tax, federal highway dollars for maintenance costs. Parks frequently charge trails, and various state revenue sources user fees, including for parking, park earmarked for natural resource habitat entrance, and specific recreational activities protection. The department also receives www.lao.ca.gov Legislative Analyst’s Office 43 2016-17 BUDGET state bond funds to support one-time as part of the 2012-13 budget package directed DPR infrastructure projects. to maximize revenue generation activities that Recent SPRF Shortfalls. Changes to DPR’s are consistent with the mission of the department budget since 2011-12 have resulted in a SPRF and each park district. It required the department operating deficit and depletion of the SPRF to establish revenue targets for each district and balance. During the recent recession, the 2011-12 provide revenue incentives for districts by allowing and 2012-13 budgets reduced baseline General them to retain half of any revenue earned above Fund support for the department by a total of those targets. In addition, Chapter 530 of 2012 $22 million to achieve General Fund savings. In (AB 1478, Blumenfield) created the State Parks response to the reduction, the Legislature provided Enterprise Fund and required the department to additional SPRF funding on a temporary basis establish a revolving loan program to improve rather than close state parks. The Legislature also infrastructure and provide services that generate took other actions to encourage parks to become revenue. more self-sufficient through increased revenue Parks Forward Commission and generation, which we discuss in more detail below. Transformation Team Created to Address Issues. This too increased SPRF expenditures by providing The California State Parks Stewardship Act of the initial funding for new projects and activities 2012 (Chapter 533 of 2012 [AB 1589, Huffman]) intended to generate revenue. and AB 1478 called for the formation of a These changes coupled with other one-time multidisciplinary advisory council to conduct an spending caused expenditures from SPRF and its independent assessment of the state parks system subaccounts to increase by more than $65 million and make recommendations for improvement of between 2011-12 and 2015-16. Revenues and the management, planning, and funding of state transfers to the fund did not increase at the same rate Figure 20 over that period. As shown SPRF Expenditures Exceed Revenues in Recent Years in Figure 20, these trends (In Millions) resulted in a structural deficit and the virtual depletion of $250 Year-End Fund Balance the SPRF fund balance by the end of 2015-16. 200 Revenues and Transfers Expenditures Revenue Generation 150 Program and Fund Established. In 2012, the 100 Legislature passed two bills requiring DPR to develop a 50 revenue generation program in order to improve its financial situation. Budget 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 trailer legislation (Chapter 39 Note: Includes the State Parks Revenue Incentive Subaccount. of 2012 [SB 1018, Committee SPRF = State Park and Recreation Fund. on Budget and Fiscal Review]) 44 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET parks. In response, the California Parks Forward General Fund of about $10 million per year in fuel Commission was formed, and it issued its final tax revenue that had previously been designated recommendations in February 2015. Among the for deposit in the OHV Trust Fund. At that time, recommendations was the creation of a dedicated the California Attorney General issued an opinion Transformation Team to implement and oversee that such a redirection was legal because (1) the changes—including developing a sustainable OHV Trust Fund was established by the Legislature, ongoing budget for DPR—within two years. and (2) the redirected revenue is not subject to constitutional restrictions on spending gas tax Governor’s Proposal revenues since it is from OHVs rather than from The Governor’s budget includes two related motor vehicles used on public streets and highways. proposals: (1) another one-time augmentation Thus, the Governor’s proposed redirection to SPRF in SPRF authority to maintain spending at would be legal for the same reasons. current-year levels and (2) a one-time transfer . . . But Raises Policy Questions. Current of fuel tax revenues to cover the costs of this statute requires that this fuel tax revenue go to augmentation, as well as to address the SPRF the OHV Division. Consequently, the proposed structural shortfall. redirection would not only reduce revenues to Continues One-Time SPRF Augmentation. support OHV activities, it would also represent a The Governor proposes a one-time $17 million policy shift in the use of the funds. The revenue increase in SPRF spending authority. This would deposited in the OHV Trust Fund is intended provide a similar funding level from SPRF as in the to reflect tax revenues from purchases made past two fiscal years. (Similar one-time increases by OHV users. Therefore, using the money for were included in the past two budgets as well.) SVRAs and other activities that support OHV The department anticipates providing an ongoing recreation provides a direct benefit to these tax budgetary solution as part of the 2017-18 budget. payers. However, if the Legislature does not wish Redirect Fuel Taxes From OHV Trust Fund to redirect this money to SPRF, it would need to to SPRF. Due to the structural shortfall in SPRF either (1) provide a one-time transfer from another and the depletion of the SPRF fund balance, the funding source—such as the General Fund—to administration requests a one-time redirection maintain parks funding at its current level or of $31 million in fuel tax revenues to SPRF. This (2) reduce the level of state funding for parks money would otherwise be deposited in the OHV operations and capital projects. Trust Fund to support the state’s eight SVRAs We note that in 2014-15, the Legislature and other programs for OHV users. The OHV adopted budget trailer legislation requiring the Trust Fund balance is significant. Even with the California Department of Transportation to proposed transfer, the Governor’s budget estimates reevaluate how the amount of fuel sales attributable a year-end fund balance of $149 million in 2016-17. to recreational use of OHVs is calculated. That report was due January 1, 2016 but has not yet LAO Assessment been provided to the Legislature. The report could OHV Revenue Transfer Is Legal . . . We note potentially impact the amount of revenue for the that fuel tax revenues have been redirected from OHV Trust Fund. the OHV Trust Fund in the past. Specifically, the Difficult to Determine Effect of Revenue 2010-11 Budget Act provided for a redirection to the Generation Programs. Since the implementation www.lao.ca.gov Legislative Analyst’s Office 45 2016-17 BUDGET of revenue generation programs, revenues have and the fund that the revenue would otherwise increased—estimated current-year park-generated go to—the OHV Trust Fund—can support it. revenues are about $10 million (11 percent) higher However, we do note that it reduces funding than they were in 2011-12. However, other factors available for OHV activities. The only alternative besides revenue generation activities might have that we have identified is a transfer from the contributed to this growth, such as an improving General Fund. We recommend the Legislature economy and dry conditions in recent years choose the funding source that aligns with its (parks generally have more visitors when it is priorities regarding OHV-related activities and not raining). Moreover, while there are examples other competing General Fund priorities. of particular projects that appear to have been Information on Progress-to-Date Should Be successful, the department has not evaluated how Provided. While we understand that DPR is still well the programs are working at a statewide level. in the process of developing and implementing Consequently, it is difficult to determine how much changes to address its budgetary and programmatic revenue is attributable to new park initiatives. challenges, it should be able to report on the status Determining statewide program effectiveness of of its current efforts and how successful its changes revenue generation programs could help inform have been thus far. Therefore, we recommend that the Legislature about whether to continue the the Legislature require the department to report current incentive program and what potential at legislative budget hearings this spring on the improvements could be made. following items: Long-Term Solution Needed to Address SPRF • The implementation of the Parks Forward Structural Shortfall. Without the proposed shift of Commission recommendations and fuel tax revenues, the SPRF would have a negative Transformation Team progress, including fund balance of $25 million in 2016-17, an amount expected completion dates. which will continue to grow in out-years without • The Revenue Generation program— action to address the structural deficit. Therefore, including a description of the revenue- an ongoing solution to bring the fund into generating projects that have been structural balance is needed. The department has completed or are currently underway, indicated that it anticipates proposing an ongoing the amount of additional revenue these solution for the 2017-18 budget year. projects have generated, and where and how this revenue has been spent. LAO Recommendations • The range of options the department is One-Time Augmentation Makes Sense but considering to achieve a long-term budget Requires Decision on Fund Source. We find that solution, including the role that the the one-time $17 million augmentation to SPRF department anticipates revenue generation makes sense, as the amount of the augmentation playing. is consistent with the past two years and will allow DPR to maintain current service levels. Community Liaison Pilot Project We have no specific recommendations with LAO Bottom Line. We withhold regard to the administration’s proposed redirection recommendation on the administration’s pilot of fuel tax revenue to SPRF to address the fund’s project proposal to establish state park community structural shortfall in 2016-17. The transfer is legal liaisons and recommend that the Legislature direct 46 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET the department to provide an evaluation plan for would be evaluated and what specific metrics the pilot for consideration at budget hearings. would be used to measure success at engaging the target communities before determining whether Background it should be scaled up to the entire statewide As discussed above, the California State system. Potential evaluation criteria could include Parks Stewardship Act and AB 1478 led to the (1) increased total visitorship, (2) increased formation of the Parks Forward Commission. visitorship among certain demographics, One of the Commission’s recommendations (3) increased participation in particular programs, was to expand park access for California’s (4) increased revenue from park users, and underserved communities and urban populations, (5) improved visitor or community satisfaction as well as better engage California’s younger (for example, as measured through surveys). generations. The Transformation Team—which Determining objective outcomes prior to funding is tasked with implementing the Commission’s a pilot project can help ensure that the funding is recommendations—formed a Relevancy spent on achieving a clear and defined goal. It also Committee that focuses on enhancing and helps ensure that a meaningful outcome evaluation developing outreach services to underserved can be completed before program expansion. communities. We note that the department indicates that it plans to consult with an academic institution Governor’s Proposal regarding the evaluation of the project. However, Initiate Community Liaison Pilot Project. The the Governor’s proposal does not include Governor’s budget proposes a total of $690,000 over funding for a consultant contract and, therefore, two years from the State Parks Protection Fund the department is likely to be the lead agency and three positions for a pilot project to engage on evaluating the project. Thus, we find that underserved and underrepresented communities. department should be able to more clearly define The pilot is a component of the Relevancy its research approach even if it might refine Committee’s initiative “Engaging Underserved this approach at a later date following informal Populations with State Parks.” Specifically, the consultation with an academic expert. project would establish state park community LAO Recommendation liaisons in the Bay Area and Angeles districts who will conduct outreach and engage local community Require Department to Develop Evaluation members to create exhibits, tours, demonstrations, Criteria Prior to Taking Action. We recommend and other programs. The department states that that the Legislature direct the department to the goal of the project is to identify best practices provide an evaluation plan for the pilot for in outreach, engagement, cultural relevancy, and consideration at budget hearings. The evaluation partnerships that can be scaled throughout the plan should include specific outcome metrics and state parks system. a proposed methodology for their measurement. The evaluation plan also should clearly reflect the LAO Assessment department’s goals for the pilot. Pending receipt Unclear How Project Will Be Evaluated. and review of this information, we withhold While the department indicated several general recommendation of the proposed funding for the goals for the pilot, it is unclear how the project pilot project. www.lao.ca.gov Legislative Analyst’s Office 47 2016-17 BUDGET DEPARTMENT OF CONSERVATION The Department of Conservation (DOC) is tanks, pipelines, and sumps; (5) oversight of well charged with the development and management stimulation such as hydraulic fracturing and of the state’s land, energy, and mineral resources. steam injection; and (6) oversight of plugging and The department manages programs in the abandonment of wells. The division has a total of areas of (1) geology, seismology, and mineral 205 positions in 2015-16. resources; (2) oil, gas, and geothermal resources; Regulatory Responsibilities Have Increased and (3) agricultural and open-space land. The in Response to Industry Innovations. During the Governor’s budget proposes $113 million for last 30 years, the oil and gas industry has developed the DOC in 2016-17, an increase of $1 million new well stimulation technologies that it uses (1 percent) above estimated expenditures in the to recover oil and gas resources from old fields. current year. These continuing developments in the oil and gas production area require regulators to stay abreast Oil and Gas Training Program of new technologies in order to effectively carry out LAO Bottom Line. We recommend approval their permitting and field monitoring work. of the administration’s proposal to provide Chapter 313 of 2013 (SB 4, Pavley) expanded $1.3 million for the implementation of a training DOGGR’s responsibilities by requiring the and certification program for Division of Oil, division to adopt rules and regulations specific Gas, and Geothermal Resources (DOGGR) to well stimulation and authorizes the division regulatory staff. However, we recommend making to allow well stimulation treatments if specific the proposed $1 million for purchasing training conditions are met. Among other requirements, curriculum available annually for three years the bill requires the division to (1) post a permit rather than on an ongoing basis as proposed by the to its website within five business days of issuing Governor. We further recommend the department it and (2) perform random periodic spot check report at budget hearings on the feasibility of inspections during well stimulation treatments implementing the training program more quickly. to confirm that the work was performed in conformance with the permit. The 2014-15 Budget Background Act included funding and authority for 65 positions DOGGR Regulates Oil Drilling. DOGGR (43 regulatory positions) to implement SB 4. regulates onshore and offshore oil, natural gas, DOGGR Does Not Have a Formal Training and geothermal wells. The division is charged with Program for Regulatory Staff. The division does ensuring the safe development of oil, natural gas, not have a formal training program to train and geothermal resources in the state through regulatory staff to carry out their responsibilities. sound engineering practices that protect the (The division does provide the Occupational Safety environment, prevent pollution, and ensure public and Health Administration’s hazardous waste safety. The division’s regulatory responsibilities and emergency response standard training to include: (1) well permitting and testing; (2) safety regulatory staff who work in the field.) Instead of inspections; (3) oversight of oil, natural gas, and formal training, regulatory staff are relied upon geothermal well drilling; (4) inspecting oilfield to bring oil and gas production knowledge gained 48 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET through education or work experience to the job— Training Program Would Consist of 10 to prior experience is heavily relied upon. The training 12 Modules Over a Three-Year Period. The division that is provided to regulatory staff is mostly envisions the training course will consist of 10 to informal, with supervisors and lead staff mentoring 12 training modules and that each module will less experienced staff. This method of training is take from several days to two weeks for staff to not standardized and therefore staff development complete. The contractor(s) will provide three to cannot be monitored based on a standard set of four of the training modules to DOGGR each year expectations. The department states that the lack of for the next three years. Staff will rotate through formal training makes it extremely challenging to all of the training modules on a three-year basis establish accountability for errors in the field. with new staff having priority. If there is an urgent need for out-of-cycle training due to changes in Governor’s Proposal technology or statutes, DOGGR’s training staff will Increase Staffing and Buy Curriculum provide this training. to Implement New Training Program. The The division has 182 staff that require training. administration requests $1.3 million in ongoing It plans to take 30 to 60 of these staff at a time funds from the Oil, Gas, and Geothermal out of the field to complete a training module. Administrative Fund to develop, implement, and The department states it is not feasible to bring in conduct a training program for DOGGR’s regulatory more than 30 to 60 of its staff at a time for training staff. The funding would support the following: because the division would not have sufficient • Two Permanent Positions ($331,000). personnel in the field to perform ongoing workload. The budget requests two permanent Upon completion of the training modules, positions (and one position that would regulatory staff will receive a certification and be redirected) with responsibilities to begin to utilize the training in the field. include (1) researching, writing, and LAO Assessment delivering training courses; (2) working with universities and industry trade groups Proposal Does Not Adjust Curriculum to to research, develop, and deliver various Account for Staff Experience Level. As currently training materials; and (3) tracking and envisioned, all 182 of the DOGGR regulatory staff adjusting training materials as regulations would complete the training modules—three to and industry practices change. four per year—over the next three years. This • Purchase Curriculum ($1 Million). The approach does not take into account the varying budget also includes $1 million to purchase levels of work experience and technical knowledge curriculum for the training program. The already possessed by some DOGGR staff. Newer division is seeking customized, California- hires, with little industry or regulatory experience, specific training materials developed to would likely benefit the most from attending all industry-wide standards. The division is in of the full training modules, since they are most the process of soliciting bids from private likely to have gaps in the knowledge they need industry sources and universities that have to effectively regulate the industry. However, experience developing training materials senior staff, who have several years or decades of and delivering training courses used by experience, may already know the information major petroleum industry producers and being taught in certain modules. For senior staff, regulators. www.lao.ca.gov Legislative Analyst’s Office 49 2016-17 BUDGET a brief review course of one or a few days, rather needed annually to update the curriculum as this than one or two weeks, may be sufficient to bring should entail less work than its initial development. them up to speed on the information being covered We recommend approval of the two permanent by certain modules. They could demonstrate their positions. mastery of a module’s curriculum by passing an Recommend Department Report on Feasibility exam. If they did not perform well on the exam, of Implementing Proposal More Quickly. In then they could be required to complete the whole addition, we recommend the Legislature require training module. This would have the benefit the department to report at budget hearings on the of reducing the time they spend out of the field feasibility of providing the training to all existing performing regulatory work. staff over a shorter time period than the three First Cohort of Staff Will Not Complete years envisioned in the proposal. Specifically, the Training for Two to Three Years. The first cohort department should address whether the curriculum of 182 DOGGR staff to begin the training will not could be developed in less than two years and complete it until two to three years from when whether training could be completed by all staff the training program is implemented. This is of in less than two years. We acknowledge that if the concern for two main reasons. First, the state will curriculum were developed over a shorter period of not begin to benefit from trained and certified time, then the department would likely need more DOGGR staff regulating oil, gas, and geothermal than the $1 million being requested for 2016-17 to drilling operations for at least the next two to pay for it, and funding would have to be adjusted three years. Certified staff are likely to be more accordingly. effective in enforcing state laws and regulations We also recommend the department report in the field, and thereby reduce the risk of errors, at budget hearings on the feasibility of providing injuries, and safety violations. Second, the state training that takes into account the level of will continue to have difficulty holding DOGGR experience of the staff receiving the training. staff accountable for errors in the field until it can Specifically, could the department provide short demonstrate that regulatory staff are certified and review courses for experienced staff instead of having have a comprehensive understanding of the laws them complete one- or two-week-long training and regulations they enforce. modules? This approach would facilitate the staff’s completion of the training in a shorter timeframe. LAO Recommendations As noted above, the initial cohort of Recommend Approval of Administration’s 182 regulatory staff would be certified over the Proposal, but Make Curriculum Funding Limited next three years in order to maintain sufficient Term. Overall, we find the Governor’s proposal staff in the field while others receive training. to implement a training program for DOGGR’s Once this initial cohort has completed its training, regulatory staff has merit. With regard to the then mainly new hires would be attending the proposed funds for purchasing curriculum we 10 to 12 training modules. We recommend the recommend approval of $1 million a year for three department report at budget hearings on the years, instead of as ongoing funding as proposed by feasibility of having new hires complete the training the administration. The training modules will be program and become certified in their first year developed over three years and updated as needed with the department in the years after the initial thereafter. It is unclear why $1 million would be 182 person cohort has completed the training. 50 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET CALIFORNIA CONSERVATION CORPS The CCC provides young adults between Expansion of the ages of 18 and 25 (and veterans to age 29) Residential Facilities work experience and educational opportunities. LAO Bottom Line. The decision about whether Program participants, referred to as corpsmembers, to take the initial steps towards a major expansion work on projects that conserve and improve the of CCC residential centers (as proposed by the environment. They also provide assistance during Governor) and move from a mainly satellite natural disasters. Work projects are sponsored facility-based program to a mainly residential by various governmental and nongovernmental facility-based program is ultimately a policy agencies that reimburse CCC for the work decision for the Legislature. We recommend the performed by corpsmembers. Corpsmembers often Legislature (1) wait for more information before live in residential facilities that serve as a hub of approving funding for the acquisition phase of new CCC service delivery. Typical activities include residential centers in Pomona and Napa, (2) require academic and technical training as corpsmembers CCC to report on its progress towards developing pursue educational and career development goals. a database to track corpsmember outcomes, After successfully completing a year, corpsmembers and (3) approve the request for funding for the are eligible to receive a scholarship toward acquisition phase of a new residential center in continuing education or training. Ukiah. The Governor’s 2016-17 budget proposes a total of $131 million for support of CCC. Almost half Background of these funds are from the General Fund with The CCC operates 25 facilities in urban and the remaining coming from a few special funds. rural areas statewide—7 residential centers and 18 The proposed amount reflects a net increase of nonresidential facilities known as satellite facilities. $34 million, or 35 percent, compared to projected The typical residential center includes a dormitory, current-year expenditures. This change primarily dining room and kitchen, administrative offices, reflects (1) a $20 million augmentation from the recreational facilities, classroom space, and General Fund to renovate the kitchen, dormitory, warehouse space. The residential centers normally and multipurpose room at the Auburn residential house between 80 to 100 corpsmembers. The center; and (2) an increase of $15 million from the typical satellite facility includes classroom space GGRF to operate a new Energy Corps Program and administrative offices. The satellite facilities that would focus on reducing GHG emissions normally serve between 30 to 60 corpsmembers. for public buildings. In addition, Control Section 6.10 includes $700,000 from the General Fund Governor’s Proposal for deferred maintenance at CCC facilities. (For Five-Year Plan for Major Expansion of more information on deferred maintenance, see Residential Centers. The administration’s recent our analysis earlier in this report.) As we discuss Five-Year Infrastructure Plan—which proposes below, the administration is also proposing a plan state spending on infrastructure projects in all to expand CCC residential centers over the next areas of state government through 2020-21— several years. includes a major expansion of the CCC residential www.lao.ca.gov Legislative Analyst’s Office 51 2016-17 BUDGET center program. Specifically, the plan proposes a Once a residential center is built, its annual combined total of $171 million over the next five average operating cost is $3.4 million. Roughly years from the General Fund and lease revenue 50 percent of operating costs are paid for with bond funds to design and construct new CCC General Fund, 45 percent are paid for with residential centers. There would be added costs reimbursements from work projects, and the to complete design and construction of two remaining 5 percent is from state special funds. new residential centers that would still be in the Expansion Designed to Achieve Multiple preliminary plan phase in 2020-21. Figure 21 Goals. The administration believes that the summarizes the five-year plan to (1) complete proposed expansion will achieve multiple goals. construction of six new residential centers by the First, residential centers allow access to the CCC end of 2020-21 and (2) begin the acquisition and program for young people from all parts of the preliminary planning phases for two additional state, not just those that live within commuting residential centers that would begin construction distance of a satellite facility. Corpsmembers must after 2020-21. Some of the proposed centers would find affordable housing within commuting distance replace current satellite facilities, while others of the satellite facility. This can present a barrier in would add capacity in new locations. regions where the cost of living is relatively high Under the Governor’s plan, the total number of (such as Napa). By removing the obstacle of finding corpsmembers would increase, and a greater share affordable housing within commuting distance of would reside in residential centers. By 2020-21, a satellite facility, CCC believes it will have more the number of residential corpsmembers would participation in certain regions. increase from 623 to 1,172 (88 percent), and the Second, the CCC states that residential centers total number of corpsmembers would increase offer a better option than some of its satellite from 1,537 to 1,757 (14 percent). This would result locations by (1) providing a structured environment in the share of corpsmembers in residential centers offering full immersion in work projects and increasing from 41 percent to 67 percent. educational programs, (2) offering stability and Figure 21 California Conservation Corps Five-Year Expansion Plan (In Thousands) Total 2016-17 2017-18 2018-19 2019-20 2020-21 Project Cost Napa—new residential center $200 A $1,000 P $2,000 W $24,800 C — $28,000 Pomona—new residential center 100 A 1,000 P 2,000 W 24,920 C — 28,020 Ukiah—replace existing residential center 100 A 200 A 1,000 P 2,000 W $24,720 C 28,020 San Diego—new residential center — 280 A 1,000 P 2,000 W 24,720 C 28,000 Santa Clara—new residential center — 280 A 1,000 P 2,000 W 24,720 C 28,000 Kern—new residential center — — — 3,200 A,P,W 24,720 C 27,920 Del Norte—new residential center — — — 280 A 1,000 P 1,280 Inyo/Mono—new residential center — — — 280 A 1,000 P 1,280 Totals $400 $2,760 $7,000 $59,480 $100,880 $170,520a a Does not include costs for working drawings and construction of new residential centers at Del Norte and Inyo/Mono that will be incurred after 2020-21. Phases: A = acquisition; P = preliminary plans; W = working drawings; and C = construction. 52 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET security, and (3) providing many opportunities for and Ukiah ($100,000). Acquisition phase costs community engagement and personal development. can include an investigation of the condition According to CCC, residential facilities promote of a property, surveys, title costs, appraisal academic success because the residential setting fees, and staff time. For Napa and Pomona the provides more time for corpsmembers to dedicate administration plans to use lease revenue bonds to academics. They can attend class, participate in (generally repaid from the General Fund) for study groups, and participate onsite in academic construction, which increases the total costs of the projects. Data shows CCC corpsmembers in school project due to the interest paid on the bonds. Ukiah at residential centers achieved greater gains in is proposed to be funded entirely from the General math and reading levels than their counterparts Fund. (The Governor’s budget also proposes in satellite facilities. Furthermore, a higher $2.7 million from the General Fund for one-time percentage of corpsmembers from residential and ongoing operational costs of a new residential centers (27 percent) go on to post-corps education center in Butte County [Magalia].) and training than satellite facilities (17 percent), as Expansion at Initial Three Sites Would evidenced by the greater number of CCC graduates Mostly Leverage Existing State Properties. The from residential centers who claim the scholarship administration plans to build new residential earned by successfully completing a year of service. centers on existing state property whenever Residential center corpsmembers are also more possible. According to the administration, likely to participate in community service projects utilizing existing state property is preferred and than satellite facility corpsmembers. expedites site selection and acquisition. For the Third, the CCC states that the proposed Pomona residential center, the former Lanterman expansion would allow it to better meet the needs Developmental Center (now Cal Poly Pomona) of the communities by having more corpsmembers is an option. For the Napa residential center, the there and offer a residential center program Napa State Hospital and the Yountville Veterans in additional areas of the state. The number of Home are both options. In Ukiah, continuing in corpsmembers at some of CCC’s satellite operations the current leased facility is no longer feasible. This match the needs of the communities they serve. is because the Department of General Services will In deciding which satellite facilities to convert not renew the lease as the buildings are in disrepair to residential centers, the CCC reviewed several and do not meet today’s building standards. factors such as recruitment trends, demand for LAO Assessment work, and existing field staffing. The CCC also considered its geographic reach and its ability to The decision about whether to take the initial offer residential center programs throughout the steps towards a major expansion of CCC residential state. For example, there is currently no residential centers is ultimately a policy decision for the center south of Camarillo. Legislature. In large part, this determination will be Governor’s Budget-Year Proposal. The based on how the Legislature weighs the potential Governor’s budget for 2016-17, proposes $400,000 benefits of expanding the CCC residential program from the General Fund to begin implementation against other General Fund priorities. In this of the above expansion plan. This amount consists section we assess (1) the costs and potential benefits of funding for the acquisition phase of residential of the Governor’s proposed expansion, and (2) the centers in Napa ($200,000), Pomona ($100,000), data available on corpsmember outcomes. www.lao.ca.gov Legislative Analyst’s Office 53 2016-17 BUDGET Major Cost to Shift Towards Residential Without robust data on outcomes after Center Model With Modest Increase in corpsmembers leave CCC, it is more difficult to Corpsmembers. The Governor’s 2016-17 budget assess whether a major expansion of residential proposes funding ($400,000 General Fund) for the centers is a wise investment. For example, data acquisition phase of three residential centers that suggests that residential centers contribute to will cost a total of $84 million to complete. The corpsmembers performing better than their Governor’s 2016-17 proposal is just the first step in satellite facility colleagues on some educational and a plan to spend a combined total of $171 million community service measures. However, we do not over the next five years (with additional know whether there are meaningful differences construction costs estimated at roughly $50 million between residential center corpsmembers and their in subsequent years) to design and construct new satellite facility colleagues after they leave CCC on CCC residential centers. Over the same time such measurements as educational outcomes or period, the total number of corpsmembers would employment status. increase only modestly—by 220 corpsmembers. Ukiah Project Appears Warranted. The new In our view, the Governor’s proposal presents the Ukiah residential center will replace an existing Legislature with a policy decision about whether to leased residential center. The Department of spend a significant amount of General Fund over General Services will not renew the lease on the the next several years to shift the CCC program existing facility due to the fire, life, safety, and from a primarily satellite facility-based program building code compliance issues. We view this as to a primarily residential center-based program— a reasonable request that will allow for continued with about two-thirds of corpsmembers living in CCC services in a region where a residential center residential centers in five years. By approving the is already established. Governor’s 2016-17 proposal, the Legislature would LAO Recommendation be signaling its agreement with the Governor’s long-term policy goal of shifting to greater use of Defer Decision on Napa and Pomona Projects. residential centers. We recommend the Legislature wait until there Measureable Outcomes for Corpsmembers is more information on corpsmember outcomes Currently Limited. The CCC states that it is before approving the acquisition phase for new beginning to implement a database to collect residential centers in Napa and Pomona. We information on where corpsmembers go after they believe the proposal to construct new residential leave CCC in order to identify trends that could centers in Napa and Pomona is worth exploring. help them to manage the program more effectively. There may be benefits, in addition to the ones For example, CCC would like to have more discussed earlier in this analysis, from shifting information about the number of corpsmembers from a primarily satellite facility to a primarily who leave CCC to begin jobs, attend college, or for residential-center model. However, we do not other reasons. This information would help CCC know for certain such a shift will better achieve administrators to more efficiently and effectively program goals because there is limited data on manage the program. However, CCC does not how residential center corpsmember post-service believe it will be able to identify meaningful trends outcomes compare to outcomes for their satellite in the data it is collecting for another two or three facility colleagues. Furthermore, any such benefits years. would have to be weighed against the significant 54 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET additional costs of providing corpsmember slots outcomes. This data should be complete enough to in a residential setting. Accordingly, we believe inform CCC management decisions about how to the Legislature should not signal its intent to go improve the efficiency and effectiveness of the CCC forward with new residential center construction program. It should also be broad enough to inform in Napa and Pomona—at an estimated total cost of legislative decisions about the benefits of expanding $28 million per new residential center—by funding CCC. According to CCC, it will not be able to the acquisition phase until more information is identify trends for another two or three years. We available regarding corpsmember outcomes. acknowledge that collecting this data may have a Require CCC to Report on Outcomes to cost. We further recommend CCC report at budget Inform Longer-Term Policy Choices. We believe hearings on whether it can develop a robust database the Legislature should take steps to ensure that within existing resources, or whether additional it will have sufficient information in the future resources are necessary to create this database. to make informed decisions about whether to go Approve Request for Ukiah Acquisition Phase. forward with the residential center expansion. We We recommend the Legislature approve the request recommend the Legislature require the CCC to for $100,000 General Fund to begin the acquisition report at budget hearings on its progress towards phase of a project to replace the current residential developing a database to track corpsmember center in Ukiah. DEPARTMENT OF RESOURCES RECYCLING AND RECOVERY CalRecycle regulates solid waste facilities waste diversion activities that reduce GHGs. (including landfills) and manages the recycling (This proposal is discussed in our analysis of the of various materials, such as beverage containers, Governor’s cap-and-trade expenditure plan earlier electronic waste, tires, and used oil. The in this report.) department also promotes waste diversion Beverage Container City/ practices, such as source reduction, composting, County Payment Program and reuse. The Governor’s budget proposes $1.5 billion LAO Bottom Line. We recommend that the from various funds for support of CalRecycle Legislature eliminate the Beverage Container City/ in 2016-17. This is a reduction of $272 million, County Payment Program (CCPP) due to concerns or 15 percent, from current-year estimated with its structure and the lack of information on its expenditures. This is primarily due to significant effectiveness. Eliminating the program would also one-time expenditures—$243 million—in the reduce the Beverage Container Recycling Program’s current year for fire debris removal and cleanup (BCRP’s) structural deficit by 14 percent. in areas affected by the Valley and Butte fires. Background The budget assumes that the department will receive federal reimbursement for most of these Overview of BCRP. The Division of Recycling costs in the budget year. The budget also proposes within CalRecycle administers the BCRP, which an increase of $100 million from the GGRF for is commonly referred to as the “bottle bill.” The www.lao.ca.gov Legislative Analyst’s Office 55 2016-17 BUDGET purpose of the BCRP is to be a self-funded program Beverage Container CCPP. One of the that encourages consumers to recycle beverage supplemental programs required in statute is the containers. The program accomplishes this goal CCPP, which provides $10.5 million annually to by first requiring consumers to pay a deposit for cities and counties. Allowable uses of these funds as each eligible container purchased. The department defined in statute are broad, and local governments estimates that about $1.3 billion in deposits will be can spend them on any activity or program that paid in 2015-16 and deposited into the Beverage is related to beverage container recycling or litter Container Recycling Fund (BCRF). Then the abatement. Payments are distributed to virtually program guarantees consumers repayment of all cities and counties proportionally based on each that deposit—the California Redemption Value, jurisdiction’s population, with payments averaging or “CRV”—for each eligible container returned $20,000 per jurisdiction in 2013-14. to a certified recycler. Currently, the redemption In 2010, the California State Auditor (CSA) rate is about 84 percent, resulting in $1.1 billion conducted an audit of the BCRP supplemental in estimated current-year expenditures for CRV programs, including the CCPP. The CSA found payments. When a container is not redeemed, the that the department did not require any supporting CRV deposit paid on it is retained by the state. The documentation from cities and counties and department estimates there will be $207 million concluded that there was minimal assurance that in unclaimed CRV in 2015-16. State law specifies the grant funds were spent only for recycling and how the unclaimed CRV money is spent, including litter cleanup activities as required by statute. specified allocations for several supplemental The auditor recommended that the department recycling-related programs (such as subsidizing implement policies to ensure that cities and glass and plastic recycling and encouraging counties spend grant funds for recycling purposes supermarket recycling collection sites). by requiring periodic reporting of expenses. BCRF Structural Deficit. Over time, beverage In response, CalRecycle conducted a random container recycling rates have increased, which sampling of 60 program participants and required in turn has increased the program’s expenditures them to submit an expenditure report for 2010-11 for redemption payments. This has left less money payments. The department’s review of the reports available for the supplemental programs. As a revealed several problems, including misreported result of the combination of a higher redemption expenditures, expenditures that did not match the rate and the continued cost of these supplemental original funding requests, ineligible expenditures, programs, the BCRF has been operating with an and incorrect reporting. annual structural deficit that has been covered Governor’s Proposal by a substantial fund balance. The department’s January 2016 quarterly report projects that annual The Governor’s budget proposes $110,000 structural deficits will average about $75 million from the BCRF and one position to provide from 2015-16 to 2017-18 and that the fund balance programmatic and fiduciary oversight of CCPP will be depleted sometime after 2017-18. (For more expenditures by recipient agencies. Proposed information on the BCRP, please see our April activities include conducting outreach, providing 2015 report An Analysis of the Beverage Container training and technical assistance to participants, Recycling Program.) and reviewing participant reports. 56 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET LAO Assessment provides competitive grants to local governments for recycling or litter abatement. While the administration’s proposal is Program Effectiveness Unclear. Despite a reasonable way to address the financial the problematic structure of the program, there oversight issues identified by CSA, we have more are no efforts currently in place to determine fundamental concerns regarding the effectiveness if the program is effective at meeting BCRP of the program that the proposal does not address. goals. The CCPP lacks any outcome metrics that We note that the administration raised similar could indicate the success of the program, which concerns when it proposed eliminating the compounds the program’s structural problems. program as part of the 2014-15 budget. While we acknowledge that the department is Program Structure Is Problematic. The seeking resources to improve program oversight structure of the CCPP is unlikely to result in the and accountability, the additional activities most cost-effective recycling or litter reduction proposed in the budget will not measure program activities. There is no relationship between the effectiveness. allocation of program funds and the expected outcomes of a recipient’s activities. This is because LAO Recommendation CCPP payments are calculated based on a Eliminate the CCPP. We recommend that the jurisdiction’s population rather than performance Legislature eliminate the CCPP given the concerns criteria that indicate its potential success at with the structure of its funding allocation and the implementing recycling programs. Unlike other lack of information on its effectiveness. Eliminating fund allocation methods, such as competitive the program would also provide $10.5 million grants, ineffective programs are just as likely in savings to the BCRF, which would reduce to be funded under the CCPP as effective ones. the structural deficit by 14 percent based on the Therefore, the mix of activities supported by CCPP department’s most recent quarterly report. payments is unlikely to be the most cost-effective one. We note that another supplemental program AIR RESOURCES BOARD In California, air quality regulation is matter and ozone-forming emissions. More divided between the ARB and 35 local air quality recently, the ARB also began overseeing the state’s management districts. The local air districts efforts to reduce GHG emissions. manage the regulation of stationary sources of The Governor’s budget proposes $945 million pollution (such as industrial facilities) and prepare for ARB in 2016-17, a net increase of $391 million local implementation plans to achieve compliance (71 percent) compared to estimated expenditures with the federal Clean Air Act. The ARB is in the current year. This year-over-year increase responsible primarily for the regulation of mobile is largely the result of additional cap-and-trade sources of pollution (such as automobiles) and for expenditures for low carbon transportation the review of local district programs and plans. programs to reduce GHGs. (We discuss our Historically, the ARB’s regulations focused on analysis of the Governor’s cap-and-trade emissions that affect air quality, such as particulate expenditure plan earlier in this report.) www.lao.ca.gov Legislative Analyst’s Office 57 2016-17 BUDGET Various Proposals to Achieve pollutants—such as ozone—pursuant to Governor’s Post-2020 GHG Goals the federal Clean Air Act. Certain areas of the state do not meet the current federal LAO Bottom Line. We recommend that the standards. In addition, federal standards Legislature reject ARB’s requests for resources become increasingly stringent in 2023 and to develop and implement regulations to achieve 2031. the Governor’s 2030 and 2050 GHG goals and • Governor’s 2030 and 2050 GHG Goals. short-lived climate pollutant (SLCP) strategy. Two different executive orders establish These activities do not appear to be consistent with the goals of reducing statewide emissions current statutory direction to ARB regarding state to 40 percent below 1990 levels by 2030 GHG emission targets. Furthermore, even if the and 80 percent below 1990 levels by 2050. Legislature provides additional statutory direction In addition, one of the executive orders regarding more stringent post-2020 GHG goals, the directs ARB to update its Scoping Plan and requests are premature because the administration implement measures, pursuant to statutory has not provided a comprehensive strategy for authority, to achieve the 2030 goal. A achieving such goals in a cost-effective manner. draft of ARB’s Scoping Plan is expected to be released this spring and the plan is Background expected to be finalized this fall. The ARB administers a wide variety of • SLCP Strategy. Chapter 523 of 2014 regulations intended to reduce GHG emissions and/ (SB 605, Lara) requires ARB to develop a or improve air quality. Some of these regulations strategy to reduce SLCPs—such as methane include the Advanced Clean Cars program, and fluorinated gases—by January 1, 2016. Clean Truck and Bus standards, the refrigerant The ARB is expected to finalize the SLCP management program, and the landfill methane strategy in the spring of 2016. capture regulation. The ARB’s regulatory activities A variety of fund sources are used for these are driven by federal law, state law, executive orders, regulatory activities and planning efforts, including and various agency planning efforts. Some of the the AB 32 Cost of Implementation Account key drivers are: (COIA), the Motor Vehicle Account, the Vehicle • AB 32 GHG Emissions Limit. As discussed Inspection and Repair Fund, and the Air Pollution earlier in this report, AB 32 established the Control Fund. goal of limiting GHG emissions to 1990 levels by 2020 and directed ARB to develop Governor’s Proposals regulations to achieve this goal. It directed The Governor’s budget includes a total of ARB to develop a Scoping Plan to identify $3.2 million and 13 permanent positions to the regulations and programs needed to implement three proposals related to the Clean achieve the emission targets cost-effectively Truck and Bus standards, the Advanced Clean Cars and update the plan periodically. program, and the SLCP strategy. Figure 22 provides • Federal Air Quality Standards. The federal a summary of the three requests, including the Environmental Protection Agency sets air funding and positions requested and ARB’s quality standards for specified “criteria” primary justification for the requests based on their 58 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET budget proposals and our conversations with board LAO Assessment staff. The additional resources would be used for Certain Activities Do Not Appear Consistent the following activities: With Current Statutory Direction. Assembly • Clean Truck and Bus Standards. Develop Bill 32 states that the 2020 GHG limit shall remain more stringent GHG and criteria pollutant in effect unless otherwise amended or repealed. standards for trucks and buses, as well However, as shown in Figure 22, the Governor’s as improve compliance monitoring for more stringent 2030 and 2050 GHG targets are existing standards. For example, of the identified as a justification for parts of each request. resources requested, two positions and Although the Legislature has adopted major $490,000 are requested to develop more policies intended to achieve substantial GHG stringent GHG standards to achieve the reductions beyond 2020—such as establishing Governor’s long-term GHG goals. a 50 percent renewable portfolio standard • Advanced Clean Cars Program. Develop and doubling energy efficiency savings in electricity regulations to increase the number of and natural gas by 2030—we are not aware of any zero-emission vehicles and reduce criteria statutory direction for ARB to develop regulations pollutants and GHGs from light duty to achieve more stringent post-2020 GHG targets. vehicles. Furthermore, the ARB indicates that resources • SLCP Strategy. Develop and implement are needed to develop new SLCP regulations policies to reduce methane and fluorinated identified in the SLCP strategy to achieve the gases, improve monitoring of fluorinated intent of the legislation. Although SB 605 directs gases, and improve enforcement of existing the administration to develop a strategy to reduce and near-term SLCP strategies. SLCPs, it does not direct the administration to All of these activities would be funded from the implement the measures contained in the strategy COIA, which is supported by a regulatory fee paid (such as by developing regulations). Therefore, it is by certain GHG emitters. The account generally unclear whether the proposed activities to develop supports administrative activities performed by new regulations are consistent with statutory state agencies related to GHG emission reductions. direction. The board might have to increase the fee to pay Resources to Develop Certain New for the additional costs associated with these Regulations Are Premature. Even if the proposals. (The fee is currently set at about 15 cents Legislature determines that it would like to adopt per metric ton of carbon dioxide equivalent.) the more stringent post-2020 GHG targets, the Figure 22 Summary of Governor’s Proposals to Develop Regulations for Post-2020 GHG Goals Proposal Funding and Positions Requested Primary Justification Clean Bus and Truck Standards $1.2 million and four positions Governor’s GHG goals, AB 32, and federal air standards Advanced Clean Cars Program $580,000 and four positions Governor’s GHG goals and federal air standards SLCP (SB 605) $1.4 million and five positions SLCP strategy, AB 32, and Governor’s GHG goals GHG = greenhouse gas and SLCP = short-lived climate pollutant. www.lao.ca.gov Legislative Analyst’s Office 59 2016-17 BUDGET budget requests to develop specific regulations targets and implementing the SLCP strategy. to achieve such targets are premature until more Therefore, we recommend the Legislature direct analysis has been done. As discussed above, the the administration to provide this information at administration is developing a Scoping Plan to budget hearings so that similar adjustments can be identify a cost-effective mix of policies that could made. be used to achieve the 2030 GHG target. However, Identify Alternative Funding Sources for Air a draft Scoping Plan has not been released. It is Quality Activities. We further recommend that the unclear whether the specific regulations identified Legislature direct the administration to identify in these proposals will be part of the final Scoping an alternate fund source for activities specifically Plan. Thus, we find that it is premature to provide related to achieving federal air quality standards. resources to develop these specific regulations. Low Carbon Transportation Unclear Whether COIA Is an Appropriate Fuels (AB 692) Fund Source for Non-GHG Activities. All activities in these requests are funded from the COIA. LAO Bottom Line. We recommend that the However, it is unclear whether using the funds to Legislature reject ARB’s request for one position support regulatory activities specifically intended and funding to assist state agencies implement to achieve federal air quality standards, but not a legislative requirement to procure a specified GHG reductions, is an appropriate use of the funds. amount of fuel from very low carbon sources. The additional workload for ARB does not justify an LAO Recommendations additional position. We recommend modifying the Governor’s Background. Chapter 588 of 2015 (AB 692, proposal in two ways: (1) rejecting requests related Quirk) requires, beginning January 1, 2017, that at to the administration’s long-term GHG goals and least 3 percent of the transportation fuel purchased implementing the SLCP strategy and (2) identifying by the state be procured from very low carbon alternative funding sources for air quality activities. transportation fuel sources. This percentage Reject Requests Related to Long-Term GHG increases by 1 percentage point each year thereafter Goals and Implementing SLPC Strategy. We until 2024. Very low carbon transportation fuel has recommend rejecting the proposed positions no more than 40 percent of the carbon intensity of and funding intended to develop regulations to the closest comparable petroleum fuel for that year, achieve the Governor’s long-term GHG goals and as measured by the methodology for the low carbon implement the SLCP strategy. These activities fuel standard (LCFS). (The LCFS is a regulatory appear to be inconsistent with current statutory program administered by ARB.) The legislation direction and are premature. Specifically, we requires the Department of General Services (DGS) recommend reducing the Clean Bus and Truck to coordinate with state agencies that are buyers of proposal by the two positions and $490,000 transportation fuel and submit an annual progress identified by the administration as being related report to the Legislature. to long-term GHG goals. With respect to the Governor’s Proposal. The ARB requests one Advanced Clean Cars request and the SB 605 permanent position and $145,000 annually to request, the administration did not provide a support additional workload related to AB 692. The breakdown of the positions and funding related ARB indicates that the additional position would primarily to the Governor’s post-2020 GHG assist with the following tasks: 60 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET • Develop and maintain knowledge on $162,000 of the request on a one-year, limited-term market dynamics affecting the availability basis rather than ongoing. This portion of the and price of very low carbon fuels and request is for a position to complete a study of provide consultation to DGS. barriers for low-income customers to access zero-emission transportation options by January 1, • Support DGS and other state agencies in 2017. We have no concerns with the remainder of identifying sources of very low carbon transportation fuels. the administration’s proposal. Background. Chapter 547 of 2015 (SB 350, • Provide analytical support to evaluate the de León) expands the existing renewable portfolio carbon intensity of new very low carbon standard (RPS) to 50 percent by 2030 and fuels expected to enter the market as a establishes a state goal of doubling the amount of result of AB 692. energy efficiency savings by 2030. In addition, the The Governor’s budget does not propose any bill directs the California Energy Commission resources for DGS to implement AB 692. (CEC), the California Public Utilities Commission Insufficient Workload Justification at This (CPUC), and ARB to undertake various activities Time. In the short run, the additional workload related to resource planning and transportation for ARB to implement AB 692 appears minor and electrification. Specifically, the legislation requires: absorbable. The board has been implementing • CPUC and CEC to adopt processes for the LCFS for several years and approves dozens investor-owned utilities (IOUs) and of carbon intensity pathways for low carbon fuels publicly owned utilities to file integrated in the state each year. Based on our conversations resource plans to ensure utilities are with DGS, it has already identified a likely supplier meeting RPS requirements, helping the for the fuel needed to meet the 2017 purchasing state meet its GHG targets, minimizing requirement. Therefore, it is unclear why there costs for ratepayers, and ensuring system would be significant additional workload for ARB. reliability. In the long run, there could be additional workload • CPUC, in consultation with ARB and associated with identifying additional fuel sources CEC, to direct IOUs to propose multiyear or approving additional fuel pathways. However, programs and investments to accelerate the additional workload is uncertain at this time widespread transportation electrification, and, therefore, the request for additional resources such as funding electric vehicle charging is premature. infrastructure. Recommend Rejecting Proposal. We • ARB and CPUC to identify strategies to recommend that the Legislature reject the proposed promote transportation electrification. position and $145,000 to implement AB 692 because there is insufficient workload justification • ARB to develop and publish a study on at this time. barriers for low-income customers to zero-emission and near-zero-emission SB 350 Implementation transportation options. LAO Bottom Line. We recommend modifying Governor’s Proposal. The Governor’s budget the administration’s request for funding related for 2016-17 includes three permanent positions to the implementation of SB 350 by approving and $485,000 (divided equally between the three www.lao.ca.gov Legislative Analyst’s Office 61 2016-17 BUDGET positions) from the COIA for ARB to implement Ongoing Resources Not Justified. The workload SB 350. These positions are: associated with conducting a study on barriers • One position to develop and conduct a for low-income customers to zero-emission study on barriers for low-income customers transportation options is one time and does not to access zero-emission and near-zero- justify ongoing resources. State law requires ARB emission transportation options by to complete this study by January 1, 2017. The ARB January 1, 2017. indicates that there is ongoing workload because this study will be the first step in developing a • One position to help analyze electric guidance document and lead to future research in vehicle charging infrastructure needs this area. However, SB 350 does not direct the ARB to support the CPUC approval of IOU to conduct these ongoing activities. programs and investments. Recommendation. We recommend the • One position to consult with CPUC and Legislature convert $162,000 in funding related CEC on setting GHG targets for utilities to studying barriers for low-income customers to as part of the integrated resource planning access zero-emission transportation options from process and monitor potential effects on ongoing to one year. We have no concerns with the the cap-and-trade market. other requests for positions and funding that are The Governor’s budget also includes resources part of this proposal. for CEC and CPUC to implement various provisions of SB 350. DEPARTMENT OF TOXIC SUBSTANCES CONTROL The Department of Toxic Substances Control Account to make permanent eight limited-term (DTSC) regulates hazardous waste management, positions that are set to expire at the end of the cleans up or oversees the cleanup of contaminated current year. These positions were previously hazardous waste sites, and promotes the reduction provided to address a hazardous waste permit of hazardous waste generation. The department is renewal backlog, as well as to update cost funded from (1) fees paid by persons who generate, estimates associated with closing hazardous transport, store, treat, or dispose of hazardous waste facilities. At the time this analysis was wastes; (2) environmental fees levied on most prepared, the administration had not provided corporations; (3) the General Fund; and (4) federal any information to support this proposal—such funds. The Governor’s budget requests $204 million as, a workload analysis justifying the continued from various funds for support of DTSC in 2016-17. need for the positions or information on the This is a decrease of $12.5 million or 5.7 percent outcomes associated with the Legislature having from the current-year level. provided these resources since 2014-15. According to the administration, it intends to provide this Proposal to Enhance and information soon. We withhold recommendation Streamline Permitting until such information is provided by the The Governor proposes an increase of administration. $1.2 million from the Hazardous Waste Control 62 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET SUMMARY OF RECOMMENDATIONS Issue Governor’s Proposal LAO Recommendation Crosscutting Issues Cap-and-trade $3.1 billion for greenhouse gas (GHG) emission Direct the administration to provide more robust expenditures reduction programs related to transportation, estimates of benefits, allocate funds based on policy carbon sequestration, energy efficiency and priorities and level of confidence in outcomes, and renewable energy, short-lived climate pollutants, establish an expert advisory committee to help local climate projects, and water efficiency. target future spending. State’s drought $233 million from General Fund and special funds Approve $233 million for continued drought response response for emergency drought response, environmental and request additional information in order to better protection, and conservation activities, and assess merits of cap-and-trade funded programs. $90 million from cap-and-trade funds for four water Identify and implement activities and policy changes and energy efficiency programs. that will prepare the state for future droughts. Require administration to report on outcomes and lessons learned from response to current drought. Proposition 1— $465 million to partially fund four statewide Develop approach for funding statewide commitments 2014 water bond commitments and $11 million to Santa Monica and multiyear funding plan for Los Angeles Mountains Conservancy for Los Angeles River River based on legislative priorities. Require restoration. administration to submit annual summary report on Proposition 1 implementation. Environmental Several changes to address the ELPF structural The Governor’s budget provides one reasonable License Plate Fund deficit, including shifting certain costs to other package of options to address the structural deficit, (ELPF) state funds, increasing the personalized plate fee but the Legislature also should consider other by about 5 percent, and introducing a new fee available options and approve a funding package for environmental permits. Projected to provide based on its priorities for where spending reductions benefits to the fund of $12 million ongoing. or fee increases should be borne. Deferred maintenance $187 million one time from General Fund to address Request additional information before approving deferred maintenance within seven resources Governor’s funding proposals and require that specific departments. projects be listed in supplemental budget report. Department of Forestry and Fire Protection (CalFire) Professional $4.4 million ($3.7 million ongoing) primarily from Approve the proposed funding for a new professional standards program the General Fund and 14 permanent positions standards program on a three-year limited-term to establish a professional standards program, basis—rather than on an ongoing basis as proposed— which would include a unit to oversee internal in order to allow the department to evaluate the investigations and adverse actions. program’s ongoing workload and effectiveness after it has been in place for a period of time. Department of Parks and Recreation Motor Vehicle Fuel $17 million one-time augmentation to the State Another one-time budget augmentation to maintain Account transfer Parks and Recreation Fund (SPRF) to maintain current operations level makes sense, but the operations at current-year levels, and a one-time Legislature will need to make a policy decision $31 million transfer of fuel tax revenues to cover regarding whether to fund such an augmentation the costs of this augmentation, as well as to from a special fund benefiting off-highway vehicle address the SPRF structural shortfall. recreational users or the General Fund. Require department to report on the status of various budgetary and programmatic reforms at budget hearings this spring. Community liaison $690,000 over two years from SPRF and three Withhold recommendation and recommend that the pilot project positions for a pilot project to engage underserved Legislature direct the department to provide an and underrepresented communities. evaluation plan for the pilot for consideration at budget hearings. (Continued) www.lao.ca.gov Legislative Analyst’s Office 63 2016-17 BUDGET Issue Governor’s Proposal LAO Recommendation Department of Conservation Oil and gas training $1.3 million in ongoing funds from the Oil, Gas, and Approve $1 million of the administration’s proposal to program Geothermal Administrative Fund to purchase purchase curriculum for three years rather than on training curriculum and fund training-related an ongoing basis. Require the department to report positions. at budget hearings on the feasibility of implementing the training program more quickly. California Conservation Corps Expansion of $400,000 General Fund for the acquisition phase Weigh major expansion proposed against other residential facilities for three new residential centers. (Infrastructure General Fund priorities. Defer approval of funding Plan identifies total of $171 million from General for the acquisition phase of two residential centers Fund and lease revenue bonds over five years to in Pomona and Napa. Approve funding for the fund the planning and construction of several new acquisition phase of residential center in Ukiah. residential centers.) Require report on progress towards developing a database to track corpsmember outcomes. Department of Resources Recycling and Recovery (CalRecycle) Beverage Container $110,000 from the Beverage Container Recycling Eliminate the CCPP due to concerns with its structure City/County Fund (BCRF) and one position to provide and the lack of information on its effectiveness. Payment Program programmatic and fiduciary oversight of CCPP Eliminating the program will also reduce the BCRF’s (CCPP) expenditures by recipient agencies. structural deficit. Air Resources Board Various proposals to $3.2 million from the AB 32 Cost of Implementation Modify the Governor’s proposal in two ways: (1) reject achieve Governor’s Account and 13 positions to implement three requests related to administration’s post-2020 post-2020 GHG proposals related to the Clean Truck and Bus GHG goals and implementing the SLCP strategy goals standards, the Advanced Clean Cars program, and and (2) direct administration to identify alternative the Short-Lived Climate Pollutants (SLCP) strategy. funding sources for activities related to achieving The funding would be used for activities related federal air quality standards. to achieving AB 32 GHG goals, federal air quality standards, and the Governor’s post-2020 GHG goals. Low carbon $145,000 and one permanent position to support Reject proposal because there is insufficient workload transportation fuels additional workload related to a statutory justification. (AB 692) requirement that a minimum percentage of transportation fuel purchased by the state be from very low carbon sources. SB 350 $485,000 and three permanent positions for various Convert $162,000 in funding related to studying implementation activities related to implementing SB 350, including barriers for low-income customers to access zero one permanent position to develop and conduct emissions transportation options from ongoing to a study on barriers for low-income customers to one year. access zero-emission transportation options by January 1, 2017. Department of Toxic Substances Control Proposal to enhance $1.2 million from the Hazardous Waste Control Withhold recommendation until more information and streamline Account to convert eight limited-term positions to is provided by the administration. At the time this permitting permanent. analysis was prepared, the administration had not provided any information to support this proposal. 64 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET www.lao.ca.gov Legislative Analyst’s Office 65 2016-17 BUDGET 66 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET www.lao.ca.gov Legislative Analyst’s Office 67 2016-17 BUDGET Contact Information Brian Brown Managing Principal Analyst, 319-8325 Brian.Brown@lao.ca.gov Resources and Environment Ashley Ames Forestry and Fire, Parks, and Recycling 319-8352 Ashley.Ames@lao.ca.gov Ross Brown Cap-and-Trade, Climate Change 319-8345 Ross.Brown@lao.ca.gov Rachel Ehlers Water 319-8330 Rachel.Ehlers@lao.ca.gov Shawn Martin Conservation, Conservation Corps, and 319-8362 Shawn.Martin@lao.ca.gov Toxics LAO Publications The Legislative Analyst’s Office (LAO) is a nonpartisan office which provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 68 Legislative Analyst’s Office www.lao.ca.gov